How We House Hacked in San Diego Using the VA Loan

As some of you know, my wife and I are both active-duty military. A few months ago, my wife received orders for a command in Virginia Beach, VA so we started making plans to move to Virginia from San Diego. We told our landlord in San Diego that July would be our last month, and we found a real estate agent in Virginia and started submitting offers on homes. 

Then, the Navy threw us a curveball. 

We found out at the very end of June that we would be staying in San Diego instead of moving to Virginia. Our landlord had already found tenants to take over our condo in Little Italy, so we had to find a place to live in San Diego ASAP! We had also just arrived in Hawaii on vacation to visit family for two weeks, so that made matters even more complicated. Thankfully, I used my network of military real estate investors to find a fantastic mortgage lender, Jon Lallande of Cross Country mortgage and real estate agent Herbert Knox of Sentry Residential, and we aggressively started looking for homes in the San Diego area. Jon Lallande was able to provide a very competitive VA loan product which is usually unheard of: the 17 day close on a VA loan. Most lenders advertise 30-45 days to close a VA loan, and we knew that was too long and would not be competitive enough to get an offer accepted.

Finding a Home in a Competitive, Seller’s Market

We had to be especially aggressive not just because of our short timeline, but also because we had to lock down a house in the hottest seller’s market in U.S. history in one of the hotter markets in the country (Southern California). 

We submitted 5 offers on homes in San Diego from Hawaii, solely based on the video walk-throughs our agent sent us. We relied heavily on his feedback regarding the neighborhood, the layout of the homes, and the overall “feel” of the properties. 

When we were shopping for a new home, many of the homes we encountered were being sold by home flippers. These entrepreneurs had purchased a distressed 3 bed 2 bath single family home, fixed it up to look very nice, and put it on the market at full retail. We were not opposed to a regular single family home, however I knew finding a property with the added benefit of a separate unit to rent out would give us a huge advantage, both in the short-term and long-term. 

Finally, a seller accepted our offer. 

Of all the homes we looked at, this one was my personal favorite. It was far from a perfect home like those flips and it needed a fair amount of cosmetic work, but it had something most of the other homes we looked at didn’t have: a second unit to rent out. My real estate brain was magnetically drawn to this property because I know the best way to use the VA loan is to buy a 2-4 unit property, live in one unit, and rent out the others, also known as a “house hack”.

What is a house hack?

A house hack is when you purchase a 1-4 unit property usually conventional, VA or FHA loan as a primary residence, and rent out the other units, or rent out the extra bedrooms if its a regular single family home. Its considered a “hack” because you are using the extra income from the rent you collect to pay your mortgage. 

This strategy is especially effective using the VA or FHA loan because those lending products require little or no down payment, as opposed to a conventional loan which usually requires a 20% down payment. 

Exterior view of the home. Those stairs on the left go down to the downstairs unit.

Our New (Old) Home!

Let’s talk about the house itself. It’s a two-story, single-family home built in 1956 in La Mesa, CA – a suburb about 9 miles east of downtown San Diego. The larger, main floor of the house is the top floor which may seem odd, but the neighborhood is very hilly, and this home is built on the side of a hill. The driveway comes down steeply from the street, and when you walk in the front door, you’re actually on the second floor of the home. There’s a staircase going down to the bottom floor, which previous owners had drywalled off to create that separate living space on the bottom floor. So, all they needed to do was add a kitchen downstairs and they had their second unit to rent out. 

The home has lots of light and an open floor plan as you can see here. We have since sanded and refinished the hardwood floors.

The previous owners had been renting out the unit to a lady and her two sons who did not take care of the unit. There was no significant damage, it just wasn’t kept clean and there was a lot of minor damage from years of neglect. The owner was charging the tenant $1200 per month for the unit which is nearly half the market value for that unit. So we planned to clean it up a bit, get it painted, and find an excellent tenant to live below us. 

The home we ended up purchasing is definitely not one of those homes fixed up by flippers! It has “good bones” meaning there are no significant structural, foundation, or other major issues but it just needed some basic updates and minor repairs. For example, the seller didn’t know how old the roof was, so we had a roofing professional come out and make some repairs. Also, the home has original hardwood floors that looked weathered and discolored in many locations, so we had a professional flooring company sand and refinish the floors and they look fantastic now! We also had a painter come in and apply a fresh coat to the ceilings, walls, and kitchen cabinets. 

This is the downstairs unit we will rent out to a lucky tenant!

The “No Money Down” VA Loan Myth

Something that surprised me during the VA loan process, was the realization that the VA loan does not cover closing costs! You can include the VA funding fee (2.5% of total price) in your loan, but the closing costs must be paid out of pocket. Unless of course, you can negotiate for the seller to pay your closing costs, or have a large enough seller credit to offset these costs. Make sure you consult your lender on this so you don’t get yourself in trouble. The VA loan has strict rules on what you can and can’t do. 

Depending on the price of the home you purchase, your closing costs may only be a couple thousand dollars. Most of the homes I have purchased in the past have been investments and have been $100,000 or less, which means the closing costs have been $1000-2000. However, when you’re buying a primary residence in the San Diego area, you’re paying a lot more than $100,000! So the closing costs were significant to say the least. 

Don’t let this deter you from using your VA entitlement. In my opinion, the VA loan is the best way for military members and veterans to get into real estate. 

We should be getting a tenant in the downstairs unit within a week or so, and we’re continuing to make updates and improvements to the upstairs part of the home where my wife and I live. If you’re already a homeowner, you know that no matter how much work you do, there are always more projects popping up! Thankfully, we found a fantastic handyman that can do all kinds of work for us at a reasonable price. 

If you want to learn more about the house-hacking strategy, Craig Curelop and BiggerPockets published a book about it called The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom. I have not personally read it yet, but I’ve read many books published by BiggerPockets and they have all been fantastic.

I hope you found value in this article. Please send me a message on Instagram @honorandequity and let me know your thoughts!

Welcome to Honor and Equity, Tess Reitz!

Aloha! I am thrilled to officially come on board as a partner in Honor & Equity. How fortunate am I to have a brother-in-law like Doug that not only has been a great addition to the family but also has taught and inspired my journey into real estate investing and strategic personal spending/investing! I hope that in joining H&E, I can pay this forward and do the same for others.

A bit about me: I currently live in Honolulu, HI, with my husband, Trevor, and our French Bulldog, Murphy. I am originally from Miami, FL, and graduated from Florida State University in 2012 with a degree in Marketing (go ‘noles!). I nearly completed a minor in Real Estate Finance which, looking back on it, may have foreshadowed this journey into real estate. Since graduation, my career in the tech industry, specifically retail and operations, has been largely focused on fostering quarter-over-quarter growth through team engagement, client experience and process improvements. I particularly enjoy developing impactful leaders and implementing scalable solutions for the pain points that can arise in a rapidly growing business.

My foray into Real Estate really began just over a year ago when my husband and I purchased our first rental property in Milwaukee, WI via Storehouse Ventures 3:10 (Thank you, Stu and David). Since that eye-opening experience, I have grown to understand in practice rather than in theory how real estate can be leveraged as a powerful tool for wealth creation and passive income. In addition to countless hours as a podcast student and many books read (most of which have been recommended by Doug), I was also able to learn from my participation in the OKC Duplex BRRRR that many of you have read about by now. If not, take a look here.

When Doug approached me about formalizing our mutual interest in investing and real estate by making H&E a family business, we realized that while we have common interests, our backgrounds couldn’t be more different and our skillsets are equally diverse. Plus, we get along really well (even if he is sometimes a sore loser when I win at Dutch Blitz). In our minds, this had the potential to be a great opportunity for both of us to achieve our goals while helping others achieve theirs. To solidify our hypothesis, we did a four-month partnership trial and as you can probably guess by the fact that you’re reading this – it went well!

I love what Honor and Equity stands for, and I am proud to allocate some of my personal time to helping others, specifically military members and their families, reach financial independence in whatever capacity I can. My Grandfather served in the military. My Uncle graduated from the Naval Academy and also proudly served his country. I am surrounded by fine examples of intelligent, disciplined, and selfless people that choose to serve our country: my twin sister is in the Navy, my sister-in-law and her husband are both in the Army, my husband is in the Army as well, and of course Doug. Oftentimes, because of differences in background, schooling, profession etc., military members are so busy with life’s other demands that they may not have found the right time or resources to provide them with education and tools to secure long term financial stability for not only themselves but for generations to come. Enter: Honor and Equity.

I’m looking forward to this new partnership, and hope to meet more like-minded and inspiring people along the way.

The Importance of Having Great Tenants

This notice of a Milwaukee code violation (committed by my tenants) was sent to my old address in Pensacola.

A common mistake that new landlords and real estate investors make is not recognizing the importance of accepting the highest possible quality tenants for a given property. Rather, many will sign a lease with the first prospective tenant that comes along, or accept a tenant that says all the right things but does not complete a background and credit check, cannot provide proof of income, and can’t provide references for prior landlords. 

I recently experienced firsthand the value of having an exceptional tenant. I own and self-manage a single-family home in a great neighborhood in Pensacola, Florida. I also own a few single-family homes in Milwaukee, Wisconsin that are managed by a professional property management company. 

Since I used to live in the Pensacola property, I occasionally still get mail sent to me at that address. About a month ago, I received a text message from the tenant in Pensacola stating that I had two important-looking letters addressed to me from the City of Milwaukee. I immediately knew this was not your typical junk mail envelope, and my Pensacola tenant sensed that as well. A less considerate tenant may have just ignored the mail or thrown it away without alerting me. I asked her to open the envelopes and send me pictures of the contents. Thankfully she didn’t just throw them away, because the letters were notices from the City of Milwaukee that one of my Milwaukee properties was in violation of local ordinances. 

One of the Milwaukee tenants allowed the grass to become overgrown, and regularly left the garbage bins on the street. The notice from the city stated that if the issues were not corrected, I would be issued fines as the property owner.

One of my tenants in Milwaukee had not been keeping up with the lawn maintenance!

I immediately reached out to my Milwaukee property management company, Smart Asset Realty in Waukesha, Wisconsin, and told them about the situation. Thankfully, Smart Asset Realty is fantastic and told me they would contact the tenant immediately to remedy both issues and let the tenants know that if any fines were issued to me, the tenants would be reimbursing me for those fines. The property management company later sent me pictures of the recently mowed lawn and reminded the tenant that per the lease agreement, they are responsible for lawn care and correct use of the garbage bins. 

While the focus of this particular article is on tenants, this story also emphasizes the importance of having great property management and not just hiring the first company that shows up when you search for one. 

You may be thinking “if having great tenants is so important, why didn’t your Milwaukee tenants do the right thing and take care of the lawn better?”. This is a fair point, but I think the important thing to remember is that no tenant is perfect and you can’t expect every tenant to treat the property as well as you would. Also, I believe the Milwaukee tenants just needed a reminder that caring for the property is their responsibility. This is also the first issue we’ve had with those tenants. Thankfully the management company did their job well by handling this for me. This is why they make 8% of the total rent every month!

It’s also important to remember that folks who can afford higher rent in a nice area are not necessarily better people who will take better care of your property. You can have high-quality tenants even in a property with lower rent and you can have low-quality tenants in a property with higher rents! That’s why it’s so important to screen them well, regardless of their monthly income. 

Fantastic tenants will treat your property better, keep you advised of any repair or maintenance issues, pay on time (or early), and generally make your life as a landlord or property owner much easier. 

Thorough tenant screening will prevent a lot of problems!

Tenant screening tips to reduce landlord headaches:

  1. ALWAYS perform a background and credit check (or ensure your management company does this).
  2. Minimum 650 credit score.
  3. Get references from past landlords.
  4. Ensure the prospective tenants earn enough monthly income to afford the rent. My rule is they must earn four times the monthly rent each month, and I ask for a recent pay stub to verify this. 
  5. Have a conversation with them to determine why they are renting and how long they plan to stay in the home. You can learn a lot from a 10-minute conversation that you can’t learn from a rental application. 

Pro Tip: Be wary of any tenant who wants to pay 1 year in advance. This is a strategy sometimes used by individuals who plan to use the home for illegal activity like drug dealing. They pay upfront to reduce the chances anyone comes snooping around the property looking for rent!

I hope you enjoyed this article and found value in its content. Make sure you follow us on Instagram @honorandequity. We love hearing your feedback! Send us a direct message on Instagram, or email me directly at doug@honorandequity.com

How I Made $5,000 by Sending an Email

First revenue! (aside from rental income from the duplex)

Last summer, I decided I was going to start BRRRR’ing properties out of state. Once I put the team together to do this, I quickly realized that finding deals would be the toughest part. Due to the current market, I knew that I would have to create my own system to generate leads rather than rely on agents and wholesalers to provide them for me. Creating this organic deal funnel took months of trial and error, multiple software systems, and lots of time spent finding the right virtual assistants. I finally have developed a system that generates leads for property owners who are motivated to sell. 

You might be wondering why I don’t just buy properties through an agent or a wholesaler. For the most part, those individuals are asking for too high of a price for me to make the numbers work. A key component of the BRRRR strategy is finding a property well below market value. 

Here’s the basic formula I use to quickly assess if a property makes sense to buy:

Estimated After Repair Value (ARV) X .75 minus repair cost = Maximum Offer Price

By developing my own process to find motivated sellers who aren’t talking to anyone else yet about selling their home, I’m in a much better position to purchase the home at the discounted price I need. I’m also providing value to these homeowners who don’t want these homes anymore. Many are in poor condition and have been neglected, and the owners don’t have the money or desire to fix them up to sell on the retail housing market. Also, most homeowners are purchasing homes using bank financing, and these banks will not usually approve lending on homes in need of lots of work. 

Leads for properties with motivated sellers are always in demand. Real estate agents and wholesalers will have a list of buyers (real estate investors) that are ready to purchase a property at the right price. In this hot market, there aren’t many deals to be had on the MLS, so investors are increasingly having to look elsewhere to find deals. 

But why wouldn’t you just keep all the leads for yourself? The simple answer is that not every good lead fits my strategy, but that doesn’t mean that it isn’t a great lead for someone else. I have very specific criteria for the properties that I want to buy, so most of the properties that come through my deal funnel won’t work for my strategy. That doesn’t mean that I can’t still benefit from those leads or provide value to others in my network. For a given property that I don’t want to buy, there will probably be another investor that does. 

I’m very bullish on Oklahoma City real estate! (Photo by Raychel Sanner on Pexels.com)

Here’s how the process works:

  1. Receive motivated seller lead from virtual assistant team
  2. Send lead to a local agent
  3. Agent talks to the seller, walks the property, gets an idea of what the home is worth, and what offer number works for the seller.
  4. If it works as a BRRRR, I buy it. If it doesn’t work as a BRRRR for me, but the agent thinks another investor might be interested, he puts it under contract and presents the deal to the other investors. 
  5. If the agent thinks the property will sell on the MLS, he can list it and I will get a referral fee. 

I love this strategy because no leads are wasted. I’m spending a lot of money on marketing each month to generate these leads, so I want to make sure to extract any value from them that I can.


They paid me $5,000 just for bringing them the lead. All I did was send the contact info and property info to my agent and he did the rest. Could I have made more money by keeping it and flipping it myself? Probably, but flipping is not my business, so I was happy to pass this opportunity on to other investors and collect a fee for finding the lead. 

A few months ago, I sent a lead to my agent for a home in fair condition and in a nice neighborhood in Oklahoma City. The agent and his partners saw value in the home, so they decided to purchase the property themselves, rehab it, and list it on the retail market to hopefully make a profit. 

This is the property that made me $5,000! It just needs some love and it will make a great new home for someone!

For the record, this is the only time this has happened so far but as my lead generation team brings me more and more leads, I believe I will get more and more of these deals. 

I will keep the best ones to BRRRR myself and sell the rest of the leads to other investors. 

Is it easy? Of course not, because if it was easy everyone would be doing it. But it is simple, and it’s something that can be replicated in any market in the country. 

In real estate – as with any other business – if you can solve people’s problems, you can make money. Real estate is so amazing to me because you can create these scenarios that are win-win for everyone involved. The seller received cash for her home, the flippers make money on the sale of the improved home, the next buyer of the home gets an updated home to live in, and I get $5,000 to reinvest into the business. 

I hope you enjoyed this article. Please let me know your thoughts by commenting below, or sending me a direct message on Instagram @honorandequity. You can also email me at doug@honorandequity.com

My First BRRRR – Lessons Learned

A couple of weeks ago I posted “My First BRRRR: By The Numbers”, which focused on breaking down all the numbers associated with the purchase, rehab, financing, and more for my first BRRRR in Oklahoma City. Now I want to share with you the lessons I learned from the process. 

Photo by Pixabay on Pexels.com

Once you read the article send me a message on Instagram @honorandequity or email me at doug@honorandequity.com and share your thoughts!

Lesson #1: It will take longer than you think.

I estimated 6 weeks for the rehab, and it took nearly 7 months! We closed on the duplex on December 10th, 2020, only two weeks before Christmas. After closing, the focus was on the rehab. I knew from the thorough inspection we had done that the property needed mostly cosmetic updates, such as replacing the exterior fascia and trim, new kitchen tile, a new wood porch and railings, and new gutters. It also needed some minor foundation work. In my optimistic, BRRRR-beginner state, I thought it was possible to get everything done by the end of January. However, because of the holidays, we didn’t even get started on getting bids until the beginning of January. 

Lesson #2: Don’t expect much to get done during the holidays.

The winter holidays caused the rehab to get off to a slow start. In hindsight, I should have anticipated this, but at the time I didn’t think the impact would be so significant. Lesson learned: don’t expect much to get done for the last two weeks of the year! I should have added roughly 2 weeks to my rehab time estimate to account for this, and I will do so in the future. 

Photo by Blue Bird on Pexels.com

Lesson #3: Get bids for everything early.

One mistake I made was not getting a bid for windows earlier in the rehab process. Windows were one of the last things we got bids for and once we decided on a company, they told us it would be roughly 8 weeks until the windows would be delivered. 8 weeks. That’s more than I thought the entire rehab would take! This was partly due to COVID’s notorious impact on the worldwide logistics chain, which I did not even consider at the beginning of the rehab. If I had known this, I would have done the window bid first and gotten them ordered much earlier. 

Lesson #4: Your private lender is priority #1. 

I wasn’t overly confident that anyone would be willing to give me $120,000 to do my first BRRRR. Sure, I had done a copious amount of research on the subject, including reading books and consulting with experts in this area, but this was my first attempt at completing one myself. Someone did though (my sister-in-law), and I knew that whether the BRRRR was a success or not, I would get her that money back plus interest. That was more important to me than anything else. I didn’t want to be known as the person who doesn’t follow through. Leveraging other people’s money is an important part of real estate investing, and I knew I needed to establish a solid reputation from the very beginning. 

Photo by Karolina Grabowska on Pexels.com

Lesson #5: Don’t be too hard on yourself. 

I set pretty ambitious goals for myself on this first BRRRR: 20k rehab (it went 5k over), 3 month rehab time (it took more than twice that long), 156k appraisal (it appraised for 161k! Yay!). As the rehab went over budget and over time, I was pretty hard on myself. I had to remind myself that this is the first time I’m doing this, with a brand new team, in a new location, so it’s totally understandable that I didn’t flawlessly execute my goals. Ultimately, the deal was a success, provided a valuable learning experience, and it wasn’t as difficult as I thought it would be. 

One mistake I did make was not recognizing that the mortgage refinance was not a fixed rate for the duration of the mortgage. It was fixed for 3, then variable. My mortgage broker told me this early on, and for some reason, I thought it was fixed for 20 years. When I was reading the documents at closing, I was caught off guard by this but after searching my old emails and I found that I had just overlooked that fact. 

Whenever you’re trying something new, give yourself some grace. 

I firmly believe that if you aren’t making mistakes along the journey of life, you aren’t setting your goals high enough and you’re not taking enough risks. When you look back on your life, do you think you’ll regret NOT trying big things? We’re capable of so much more than we think, so set your goals big, give it your best effort, and keep learning and improving!

What lessons have you learned on your real estate journey? Comment below! If you’d like to connect with me, you can send me an email at doug@honorandequity.com or send me a message on Instagram @honorandequity 

RElationships: Q&A with Adventurous REI’s founders, Suzy Sevier and Michael Barnhart

Suzy Sevier and Michael Barnhart started Adventurous REI to help others achieve what they believe is the greatest ROI: Return on Impact. They want others to start enjoying life and leave an impact now, not later. I first connected with Michael Barnhart last August, and he inspired me to build a team and start utilizing the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) to purchase real estate in Oklahoma City from San Diego. 

Michael and Suzy are unique because not only are they business partners in real estate, but they also are married and invest in the United States while living in Europe! Michael and Suzy were kind enough to share their time with me and answer some questions about their business, their legacy, and their fantastic new podcast The Adventures of a Real Estate Investor

How did you get started in real estate?

Suzy – We got started in real estate because of COVID-19 and the lockdowns. We did not know how long the first lockdown was going to last but we knew we needed to find something to do during this time.  We decided to start a mini book club with one another. The first book we read was Slight Edge By Jeff Olsen.  We loved it so much that we bought some of the books that were on his recommended reading list. One of those books was,  Multiple Streams of Income by Robert Allen. A few chapters in, there is a chapter on real estate, and Michael asked me to skip straight to it. After I read it, he said let’s try this and I said okay!  From there we started listening to all the podcasts and reading all the books. We searched as many online forums as we could because we realized that so much of the space had gone virtual. We knew that it was a great opportunity for us to get into real estate because we had all the same opportunities at this point as everything else did from anywhere in the world. 

What software or tools do you use in your business that provide significant value to you?

Suzy –  The tool that we use in our business that brings significant value is a project management tool called Asana. Everyone in our team has access including the property management staff. This has eliminated the long strings of emails. We can all see the tasks that need to be completed, we can take notes on those tasks, we can add attachments to the tasks such as bids from vendors. It clears up so much miscommunication in regards to when tasks are to be completed because there is a function to add “due dates.” The software has streamlined a lot of our processes. 

What do you want your legacy to be?

To create a ripple effect where people have been inspired to positively impact someone in their life at least 1% every day.

How do you balance working together on real estate with being married? 

Suzy – Our why and our passions are so intertwined, but the balance is just there. We truly are best friends and so there was no way that it was out of the question that we are going to do this together. We actually think it’s easier to work together because we are married. We still need to communicate effectively as a business partnership would and we still have expectations for one another, as a business partnership should. We have the advantage though because we have created a safe space where being intimate and vulnerable is valued. 

How do you balance owning and operating a real estate company while active duty and living on a different continent?

Michael – I don’t sleep. Just kidding. But in addition to the real estate investment firm, we actually own an eCommerce business and a Land Rover Defender import business as well (got to have those additional income streams!). So, we spend the majority of our free time and weekends hustling. We chose not to have a TV because of the distraction it causes. We would rather spend that time working on our businesses or working on personal growth or just spending quality time with each other. We wake up early, at or before 5 am, and knock out our morning routine (read, journal, meditate, and exercise) and then get straight to work on the business. Suzy and I both work the traditional 9 am – 6 pm hours and then when I get home at 6 pm, I jump straight into working on the business again until 10 pm or sometimes even midnight. The great thing about being overseas is that we get to take advantage of the time difference. When I get home from work at 6 pm, it is only 12pm in my market. Therefore, I have 6 more hours to work during their “business day” so I can call brokers, lenders, and other vendors during their normal working hours. Also, the silver lining to COVID is that it has forced a lot of things to go virtual so, being overseas, we were able to take advantage of that. We were able to attend conferences and meetups that would have normally been in person, and we were able to network 1-on-1 with a lot of potential investors. But to wrap up this answer, to create a “balance” we are always working on systematizing our businesses so that we can hire out the $10/hour tasks, which frees up our time to focus on the $10,000/hour task. We currently have two assistants; one that helps us with everyday tasks and one that does all of our video editing. And of course, we are not editing our own podcasts. We are just recording, and our team does all the rest. 

Photo credit: Gregory Ballos

How did you put together a team for your Tulsa multifamily projects?

Michael – Networking and having intention going into meetups and conferences. We started posting about our real estate experience on social media and a connection of mine reached out and wanted to chat about my experience thus far. I had known him for 15 years as we went to prep school and the academy together so the know, like, and trust factor had already been established. He became our “boots on the ground,” and because of that, we then had a market to tell others we were in. Once we started going into meetups stating our market, organic introduction occurred and from those introductions, we met our mentor. The other partners on our team were also met through various meetups and mastermind groups.

Just get yourself out there, no one knows what you are doing until you tell your story. 

Why did you decide to start a podcast? 

The podcast had always been something we wanted to start but “didn’t have enough time for”. Our original goal was to have it started by the end of 2021. But as we started to become guests on others’ podcasts, that exposure from the podcast world was something we were missing. In order to truly have our message be heard, we needed to start our podcast sooner.  During our 1:1 calls, we have found that many people are motivated by creating an impact, whether they realized it or not. We wanted to create more exposure about the amazing good that people are doing for themselves and their family while leveraging real estate investing. It has really been a blessing to help others see that they were born to make a difference in this world. 

What advice do you have for military members and veterans out there who are interested in real estate investing?

Michael – Just do it! Learn about all the different types of real estate investing and decide which one best fits your personality. Then, learn everything about that niche of investing and start taking consistent action day after day. Even though it may not seem like you are making any headway each day, those actions are compounding on each other, and then one day – boom! – you’ll be exponentially growing! Pro tip: start documenting all the systems and processes from the start so that when you hit that exponential growth you can hire that out immediately so you can continue growing.

For me, I enjoy being a program manager and leading teams to accomplish large goals. Therefore, I really enjoy being the lead sponsor for multimillion-dollar acquisitions. Not to mention the impact that we get to have on a larger number of residents across the apartment communities that we acquire. Our whole focus is on a different ROI – Return On Impact. What impact do you want to make?

How to find them:

All of their info and social links to connect with them can be found here: https://adventurousrei.com/info

Check out their podcast which focuses on a different ROI – Return On Impact: https://adventurousrei.com/podcast

Check out their YouTube Channel that will focus on multifamily real estate education and mindset. It launches 1 July 2021 and will have 2 mini-series ready to view, one on acquiring a multifamily asset and the other on asset management. Check it out here: http://bit.ly/AREI_YouTube  

My First BRRRR – By the Numbers

Signing the closing documents for the cash-out refinance at First American Title in Edmond, OK.

On August 11th, 2020, I had a conversation with Michael Barnhart of Adventurous REI that inspired me to use the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) to purchase an investment property. I decided on a market, put together a team, and started looking for properties. Four months later, on December 10th, 2020, I closed on a duplex in Oklahoma City that already had tenants and needed mostly cosmetic renovations.

Nearly 7 months after that closing, on June 1st, 2021, I signed the closing documents for the cash-out refinance which was the final step in my first BRRRR. 

I learned a lot from this experience which I will discuss more in-depth in my next article, but first I want to share the numbers! Was it a home run, a base hit, or a strike-out? I’ll let you decide! Send me a message on Instagram @honorandequity or doug@honorandequity and let me know your thoughts!

The Purchase

Purchase Price………….$100,000

Closing Costs……………$2203.02

Agent Commission….$0

I used private money at a 10% interest rate to fund the purchase price. My agent brought me the deal, and she was paid her commission by the seller. The closing costs included title fees, title insurance, the home inspection, the notary’s fee, and other minor administrative costs. I had to pay a notary to bring me the closing documents because I was on a work trip in North Carolina at the time of closing. 

The Rehab

I estimated the rehab cost to be $20,000 and my private lender agreed to lend this amount in addition to the $100,000 purchase price. The rehab went over budget by $5,115.80, and I contributed the capital to cover the additional costs.

 

Foundation

5 Steel Piers Installed……………………………………….$2,875.00

Exterior

New Gutter System…………………………………………..$1,439.67

New Porch including railings…………………………..$3,500.00

New Fascia and Trim…………………………………………$4,000.00

Paint entire exterior incl

new fascia and trim………………………………..$2,000.00

Remove overgrown vegetation……………………….$125.00

Plumbing

Faucet repairs……………………………………………………..$75.00

Water line repairs……………………………………………….$75.00

Kitchen

New tile in both kitchens installed…………………..$2,500.00

Windows/Doors

New windows for both sides, installed……………$5,676.13

New trim, caulk, and paint around

new windows……………………………………………$2,250.00

New storm door…………………………………………………..$300.00

Replace back door threshold on both sides…..$300.00

Estimated Time to Rehab………………………………….3 months

Actual Time to Rehab………………………………………..6.75 months

Total Rehab Cost…………………………………………………$25,115.80

You can see the new fascia, trim, and paint on the exterior of the home. The overgrown vegetation you see here will be resolved this week as one of the final tasks needed to put the home on regular home insurance.

Renting the Property

Thankfully, the property was already rented to solid tenants at closing, so there was rental income from day 1. The current tenants have leases through November of 2021 and January of 2022. They wisely renewed their leases once they heard the property was selling so they could lock in their current rate for another year! My property manager says that because of the work that has been done on the property, we will be able to raise rents $100-200 per side once the current leases are up. 

Current Total Monthly Rental income……………………$1,465

Estimated rental income once current 

leases are up……………………………………………………..$1,765

Total Rental Income from the first close to refi

(December 2020 – June 2021)………………………..$8,266

The Refinance

I worked with a mortgage broker to help me find a bank that would do an 80% LTV (loan to value) cash-out refinance with no seasoning period. This is a key component of the BRRRR strategy, because I wanted to pull as much capital out as possible and not have to wait 6 months for the loan to ‘season’. 

Property Appraisal……………..$161,000

Closing Costs………………………$1,994.44

Loan Term…………………………….20 years

Loan Interest Rate……………….4.75% (Fixed for 3 years, then variable)

Loan Principal………………………$128,942.44

Origination Fees………………….$2,848.00

Appraisal Fee……………………….$600.00

Monthly P&I…………………………$838.15

Total Capital Invested…………$8,365.80

You may have noticed there are a lot of fees and costs associated with these transactions. Real estate has high transaction costs relative to other goods and services. I paid a total of $7,645.46 in closing costs and origination fees for the initial purchase in December and the refinance the following June. This is important to keep in mind when analyzing potential deals. 

Private Money Lending

I used private money (a loan from an individual to another individual or entity) to fund the purchase price and rehab. I like this funding strategy because I’m able to provide value to the lender via interest income, and the lender makes a solid return on a low-risk deal. The loan is collateralized by the property itself, meaning that if I did not pay her back she would be able to take ownership of the property. 

Lending Costs

Principal………………….$120,000.00

Interest rate……………10%

Lending Period……….6 months 23 days

Total Interest Paid….$6,750.00

So was this deal a home run, base hit, or strike out? Send me a message on Instagram @honorandequity or an email to doug@honorandequity.com and let me know!

Should You Hire a CPA?

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Many real estate investors and small business owners wait too long to hire a CPA (Certified Public Accountant). By the time they realize they need help, they have created so many problems with their bookkeeping and accounting, that it ends up costing them much more to correct their mistakes than it would have cost to have a professional do it from the beginning.

While many people begrudge having to do their taxes, I never thought it was that bad when I only had one source of income. I always did the least expensive version of Turbo Tax where you pull up your W-2, punch in the numbers, submit it, and you get your refund deposit a week later. Easy day! Even after I purchased a primary residence, it was still pretty straightforward.

However, once I started renting out my Pensacola house on Airbnb and transitioned later in the year to long-term tenants, I realized my tax situation had become more complicated. I had to do more extensive research to make sure I did my taxes correctly. I considered hiring a CPA that year, but I was interested in learning about the process myself to better understand it. After some time spent researching, I did the taxes correctly and learned a lot about the tax benefits of real estate. However, I decided whenever I had more than one property to do the taxes for, I would hire a professional accountant. 

Fast forward one year, and I owned a total of 3 properties by that time. I reached out to a mentor of mine – Stu Grazier of Storehouse 3:10 Ventures – and asked for his advice. He immediately recommended I hire a CPA. He referred me to his CPA – Linda Weygant of Clue Business Services. Thankfully, I kept solid bookkeeping records for all properties (in Google Sheets) which made it an easy transition. She charged me a very reasonable amount to do my personal taxes plus 3 rental properties. I was blown away at how professional she was and what a great value she provided. 

Everyone has different comfort and proficiency levels when it comes to taxes, accounting, and bookkeeping. Some people should hire one even if they just have a W-2 job, while others may enjoy the process and want to do their taxes personally. 

Photo by Nataliya Vaitkevich on Pexels.com

You Should Hire a Professional Accountant If…

  1. You feel overwhelmed with the idea of taxes. Whether you’re a business/real estate owner or not, if you don’t think you can accurately report your taxes you should hire a professional. Taxes are a big deal and incorrectly reporting your taxes can have expensive consequences!
  2. Your time is better spent doing other things. This is why I hired a CPA. I knew I could figure out how to do the taxes correctly, but I also knew that my time is better spent focusing on acquiring more real estate and growing the business than doing my own taxes and keeping up with the accounting throughout the year.
  3. You have a complicated tax situation. Many people have tax situations that are so complicated, they should just hire a professional. Owning property or businesses in multiple states, varied income streams, and being notified by the IRS that you’re being audited are all great reasons to hire a professional. 
  4. You already pay a lot in taxes. If you are a high-income earner or have a high net worth, then a CPA can probably help you legally lower your taxes through creative strategies. The amount of money you will save on taxes is typically way higher than what you pay for the services of a tax professional.

Hopefully, these points have helped you decide if and when a CPA is right for you. I have frequently heard successful entrepreneurs and real estate investors say they wish they had hired a CPA earlier than they did. If you’re on the fence, I recommend talking with friends and family members who already have CPAs and get their opinions. 

If you want to learn more about this topic, check out the article my buddy Dave Pere just wrote about CPA’s. He’s the founder of From Military to Millionaire, and he’s definitely worth following on YouTube and Instagram as well!

I hope you found value in this article! If you want to connect, please reach out to me on Instagram @honorandequity or send me an email at doug@honorandequity.com!

RElationships: Q&A with Proper Pivot’s Founder, Justin Melendez

Justin with his wife Pamela and daughter Audrey

Justin Melendez is an active duty Army warrant officer, real estate investor, and founder of Proper Pivot, LLC . He has experience with buy-and-hold investing, short-term rentals, and flips, with a focus on the Fayetteville, North Carolina market. He lives in Augusta, GA with his wife Pamela and daughter Audrey. 

What is your ‘why’?

The military has been a demanding job for me over the last 10 years with training, overseas deployments, and unpredictable schedules, and will continue to be demanding until I retire in roughly 10 years. So it’s important for me to earn passive income to give me more free time with my family. I have a wife and one daughter right now, and potentially more children in the future. I don’t want to have to do a W-2 job to support my family and trade time for money. I want to earn money on my own terms. 

How did you get started in real estate?

My wife and I bought our first property in North Carolina in 2013. We started out living on base like many others were doing, but we wanted the opportunity to put our money towards something that could grow, rather than just give our housing allowance to base housing. We lived in that first property for 3 years but realized we needed something bigger so we looked into selling it, but the home’s value did not increase enough for us to break even on the property. This encouraged us to look into renting the property. We realized we could rent out the home for a few hundred dollars more than our mortgage payment so we decided to rent it out instead of sell the home. 

Around this time I was introduced to Dave Ramsey, the personal finance radio personality. He stresses the importance of controlling your spending, having a budget, and limiting all debt except for your home mortgage. Soon after that, I was introduced to Bigger Pockets by a friend at a going-away party who owned several out-of-state properties, and it was that intro to the Bigger Pockets world that really set off a spark for me to learn about real estate. Chad Carson’s book “Retire Early with Real Estate” was inspiring for me as well. 

Why did you start your real estate company: Proper Pivot?

Starting a real estate/investing company was never something I dreamed about or wanted to do. I never even considered a career in real estate when I was younger. However, I realized after I did my first flip that I should form an entity to do business correctly. It was a profitable flip, but the finances were messy and I should have structured it in a way to protect myself better. Since it was successful, I wanted to do more flips, and I knew the right thing to do was to form an entity and go through the process of learning how to start and run a business successfully. Proper Pivot is a reflection of my family: me and my wife and my daughter investing in real estate through this company. 

How did you decide on the name Proper Pivot?

I’m an IT nerd by trade: computers and networks are my thing. In cyber-security, a pivot is when you move laterally within a network. The name is a reflection of this concept and how that applies to me and my family. There are so many ways to be successful in real estate, so I wanted to keep that concept in mind when we created Proper Pivot. We will continue to adjust and be flexible throughout this journey to be successful and achieve our long-term goals. Regarding the Proper Pivot logo, I knew I wanted a nerdy spin on that concept and apply it to real estate, hence the glasses and house in the logo. 

What software or tools do you use in your business that have provided significant value to you?

I have a list of tech that Proper Pivot uses in the business. If I had to narrow that list down to two that provide the most value, the first would be REIReply. It has provided the most monetary benefit for us since we started using it. We have acquired 3 properties with REIReply – one we kept as a rental, and two we have wholesaled to other investors. (REIReply is a marketing platform used by wholesalers and real estate investors to source leads with motivated sellers. Features include text messaging, cold calling, ringless voicemail, email, and it has a robust CRM (customer resource management). 

Also, Dealcheck.io is a great website and app we use to analyze properties. We can look at comparable properties, the report generation tool is more aesthetically pleasing than many other websites that do this, and it’s relatively inexpensive. The app is highly functional too, so we can drive around neighborhoods, plug in our numbers, and get a clear idea very quickly of whether a property will work for us or not. 

Dealcheck.io actually helped me lock up a deal in a matter of minutes. A wholesaler had just listed a property on Facebook, so I messaged him about it and he gave me the code for the lockbox. I went over to the property and looked it over, ran the numbers through the dealcheck.io app, and sent him an offer which he accepted. If it wasn’t for that app, I wouldn’t have been able to act so quickly on that property. 

What do you want your legacy to be?

The term ‘legacy’ seems profound, but put quite simply, as the son of an immigrant and a product of the lower middle class, I aspire to influence the culture within my family as it relates to wealth and money. Ultimately, I’d like to build off of the hard work that came before me and continue to put this family in a better position to succeed and be free. If it all goes right, and I have some cycles to spare, hopefully I leave valuable assets behind for my children to leverage. 

I hope you enjoyed this interview with Justin Melendez, founder of Proper Pivot LLC. Make sure you check out his website and follow him on Instagram and Facebook @properpivot!

Investing in Real Estate while Active Duty

When people find out that I do real estate investing in addition to my “9-5” as an active duty Naval officer, they tend to be surprised. It can definitely be challenging at times, and I’ve made a lot of mistakes along the way. However, in order to reach my long-term goals, I know that investing in real estate in my free time is an absolute MUST. 

I know there are a lot of fellow military members out there who have similar goals, but they just don’t know how to get started or what it will take to achieve those goals. 

If you want to be successful in real estate while serving your country, starting with the right mindset is absolutely critical. There are also some practical steps you can take every day to make your goals become a reality.

Focus On Why

Having a strong ‘why’ is critical to achieving any goal, and real estate is no exception. Any journey worth taking will have significant obstacles along the way. Are you mentally strong enough to push through these obstacles and stay on the path to success? Your ‘why’ does not have to be limited to your business or personal life. I have strong ‘whys’ for both my personal life and for Honor and Equity.

For example, one of Honor and Equity’s long-term goals is to be able to provide free housing to veterans. I have no idea how H&E will achieve this, and it may take years to accomplish, but the only way H&E will not hit this goal is if I quit. When I hit obstacles, I just take a step back, take a deep breath, and think about how awesome it would be to help out veterans in need of a good home. It helps me re-focus on the big picture and on why I’m doing this. 

If you are married, I highly recommend working on your personal ‘why’ together with your spouse. My wife and I have a long-term goal to completely replace our W-2 income with passive income from real estate and businesses by the time we’re both out of the Navy. This goal will give us the freedom to live where we want, spend more time with friends and family, and only do work that gives us a strong sense of purpose. 

If you want to learn more about the value of a strong ‘why’, I go more in-depth in this article.

Your Network Determines Your Net Worth

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Real estate is a team sport. There are simply too many elements in real estate investing to reasonably expect to do them all by yourself. Some of these elements include finding deals, closing deals, financing, project management, improving and repairing properties, finding tenants, managing tenants, and bookkeeping. If you try to do all of these yourself, you will likely fail. 

If you are just getting started in real estate investing, the first thing I would do is join a mastermind group with a focus on real estate. In doing so, you will surround yourself with people much more experienced than you and will benefit from their experiences and wisdom. Real estate investors are highly motivated to help others! Don’t be afraid to ask for some advice. 

You should also consider partnering with someone you trust when you’re getting started. Make sure your skill sets complement each other. If you are more of a numbers guy/gal and enjoy analyzing the deals and figuring out the financing, then you should partner with someone who excels at managing a project, communicating with vendors, and perhaps finding the deals.  

Regardless of who you work with and what task you’re doing, make sure you are providing value to others. No one likes the person who only takes from others – be it time, money, or advice. I recommend adopting a generous mindset and focus on helping others however you can. It will come back to you!

Make the Most of the Time You Have

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Juggling a full-time job such as a military career with real estate investing on the side is demanding, however, my Navy job always takes priority over anything real estate-related. Managing my time effectively is crucial, and it’s always something I’m trying to improve upon. 

Something I have learned the hard way is: don’t try to do too much in one day or one week. The intensity of my work schedule ebbs and flows, so some weeks I have more free time to work on the business/real estate than other weeks. I’ve learned to adjust my weekly business goals to make them attainable based on my work schedule. The weeks I didn’t do this, I found myself overwhelmed and frustrated at the total workload. This is a marathon, not a sprint, so I have to constantly remind myself to adjust my weekly and daily goals to make them attainable and not overwhelming. 

If you want to succeed at anything, you must take consistent, daily action. I started using a daily planner to help me be more consistent. Last summer, I used Brandon Turner’s Intention Journal, and while I enjoyed it, I have since transitioned to the Panda Planner Venture Edition. It is reasonably priced ($13 on Amazon), and has sections to write down business-focused elements such as your core purpose, core values, and long-term goals, in addition to quarterly, weekly, and daily to-do lists. 

I wake up early every day (usually by 0530) to work on the business. This gives me a couple of hours each day to reply to emails, analyze properties, create content, or whatever I have prioritized for that day. 

I use my daily planner to track not only business items, but also use it to make sure I exercise and read every day, and I use the notes section in the back to write down ideas, meeting notes, and more. 

Bonus Tip: You Don’t Have to Live Where you Invest

This concept was first introduced to me by David Greene’s first book Long-Distance Real Estate Investing – one of my favorites. Once I realized that you don’t have to live where you invest, it opened my eyes to the endless opportunities available to investors. Most people believe they have to live in the same location they buy property. This is simply not true. Why do we feel the need to walk through a home before we buy it? Unless you’re a professional inspector or appraiser, this doesn’t add much value for a home you will never live in. People are uncomfortable buying a property they haven’t seen before, but are perfectly comfortable buying shares in a publicly-traded company they know almost nothing about.

If you are facing this mental hurdle, I challenge you to look past the emotional components of this limiting belief and try to think more logically about it. Read the aforementioned David Greene book, and connect with other investors who have overcome this mental hurdle. You’ll be glad you did!

I hope you enjoyed this article. If you’re interested in more real estate, personal finance, and investing insight, follow @honorandequity on Instagram and Facebook. If you want to connect, send me an email at doug@honorandequity.com!