7 Simple Ways to Improve Your Personal Finances

I love personal finance! Check out these tips and send me a message on Instagram @honorandequity and let me know what you think! 

Disclaimer: This article does not constitute legal or financial advice, so you should consult professionals before making any important decisions. 

Don’t Keep Lots of Cash on Hand

Maybe you’re already a great saver! You track your expenses, you have a budget, and you live below your means. However, if you’re keeping all of your money in a checking or savings account, you are losing money! This is because of inflation: the gradual increase in price of good and services and corresponding decrease in the value of money. $1 today is worth more than that same dollar 5 years from now! So don’t keep your money in your checking account – put it somewhere that money will compound for you like a retirement account, money market account, or lend it to real estate investors. 

Use Personal Capital for Budgeting, Tracking Net Worth, Tracking Expenses

You’re probably on your phone too much already, so you might as well use your phone to increase your awareness of what your money is doing. I prefer the app Personal Capital, but there are many other options like Mint and YNAB (You Need A Budget). If you are going to be in control of your personal finances, you need to know where your money is going and how much you have! It might take an hour or so to connect all your accounts to Personal Capital, but I promise it will be worth it. Sync all your accounts and view your financial world in one app. Set short-term goals for your monthly expenses, long-term goals for your net worth and use Personal Capital to track it all. 

Review your TSP – Don’t Use the G Fund!

If you make automatic contributions to your TSP (Thrift Savings Plan – the low cost retirement account plan for federal employees) then I think you’re awesome and you’re way ahead of most Americans. However, up until a few years ago, when you started a TSP account the default fund was the G fund. This is a very low risk, low reward fund made up of non-marketable U.S. Treasury securities guaranteed by the government. This is a great fund for people in retirement age who just want to preserve the money they have, but unless that describes you, you should put the money into a different fund! Which fund to use is a whole other discussion, but you can’t go wrong with the Lifecycle funds which target a future retirement year based on your age and automatically adjust the allocation as the years go by. Bottom line: if you’re under the age of 60, your money shouldn’t be in the G fund. 

Refinance Loans while Rates are Low

As I’m writing this in October of 2020, interest rates are the lowest they have ever been. Lots of people are refinancing their home mortgages to lock in the lower rates, and if you haven’t done so you should look into it immediately! Personally, I think rates will stay low for at least the next year or so while the Federal Reserve tries to keep the economy propped up, but you never know what the future holds. 

You should also look into refinancing any other substantial loans like auto loans or student loans. It may not be a good idea to refinance those depending on your specific situation, but its worth looking in to. For example, if you are doing the the Federal Student Loan Forgiveness Program (working in the Federal government for 10 years so the government pays off your loan) you likely don’t want to refinance out of that federal loan. Consult with a professional before doing any refinancing! 

Don’t Play the Stock Market!

I am not a big fan of purchasing individual stock, because there are just so many variables and and if you are not a student of that company and how it operates, you probably don’t know enough to throw money at it. Professionals like Warren Buffett invest hundreds of millions into individual companies, but they also have teams of people poring over data such that they know everything there is to know about the company. Many people purchase stock in companies based on emotions or 1-2 nuggets of information the read about the company in a Forbes article – that is not enough information to make a truly informed investment decision! 

In my opinion, it’s a much smarter long-term play to invest in an index fund that owns shares of many different companies. It’s not sexy investing, but you’re statistically more likely to make money in the long-term as opposed to investing in single companies. 

Make Sure Your Daily Purchases Align With Your Long-Term Goals

This one is huge! So many people make impulsive decisions with their daily purchases. These purchases can add up and over time prevent you from accumulating wealth. Sit down (with your spouse if married) and think about your long-term goals, then decide on a budget that fits those goals. Stick to it! You should absolutely allocate some fun or discretionary money into the budget, but your spending should be intentional. No more impulsive Amazon or Target shopping! You know who you are! 

Get a Will!

If you don’t have a will, talk to an estate planning attorney ASAP! Even people that are good with money frequently fall short with their estate planning. People don’t like talking or thinking about death, so they just ignore it for years until it becomes a huge pain for their surviving family members. If you’re in the military, you can go to your base legal assistance office and get a will for free! You need to designate who will get your X-Box and rights to your TikTok account, otherwise who knows what will happen to it! Seriously though, even if you’re in your 20s, you should get a will to save your family the time it will take them to sort through all your property and financial accounts. 

Check out @honorandequity on Instagram and Facebook! I love connecting with people and chatting about personal finance and real estate so please reach out!

What’s Holding You Back From Investing in Real Estate?

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Before I bought my first investment property in 2018, I thought real estate investing was only for the extremely wealthy. I envisioned a real estate investor as someone like Donald Trump buying massive apartments and office buildings next to skyscrapers in New York City and other large metropolitan areas.

It wasn’t until I started listening to the Bigger Pockets podcast that I realized normal people like myself were not only real estate investors, they were crushing it! I learned you didn’t have to be wealthy, you didn’t have to come from a real estate family, and you didn’t even have to live where you invest!

Millions of people have preconceived notions about what it takes to invest in real estate, just like I did. Combine those notions with a scarcity mindset, a desire to stay within your comfort zone, and the lack of a defined ‘why’, and it’s no wonder why more people aren’t real estate investors. 

But this doesn’t have to be you. You can invest in real estate. 

A limiting belief is a conviction or state of mind that keeps us from achieving something. What are some limiting beliefs that keep people from investing in real estate?

Limiting Belief #1: I Don’t Have A Lot of Money, So I Can’t Invest in Real Estate

If you talk to enough real estate investors or listen to real estate podcasts, you’ll hear stories of people that have created large portfolios and have become millionaires after starting their journey with almost nothing. They didn’t make excuses – they decided on a goal and took action to achieve it. 

Brandon Turner, an experienced investor and host of the Bigger Pockets real estate podcast, talks about three things that have to exist for a deal to work: 

  1. Capital (money)
  2. Knowledge
  3. Hustle

You don’t personally need to have all three – or even two – to get going on your first deal. You only need one. Maybe you don’t have the money or the knowledge, but you have the hustle and time to get out into neighborhoods and find deals. There are always real estate investors looking for great deals (myself included). If you can drive around a neighborhood and look for vacant properties with overgrown lawns, then you can get started in real estate investing. 

If you have some knowledge and some hustle but you just need some capital to get going, there are lots of people out there that want to invest in real estate but don’t have the time or desire to get started in real estate. If you present them a great deal and show them you can successfully turn the deal into a successful BRRRR/Flip, they will likely lend you the money you need to get the deal off the ground.

Photo by Oliver on Pexels.com

Limiting Belief #2: My Market is Too Expensive, So I Can’t Invest in Real Estate

For those of you that have this mindset, open a new tab on your browser right now, go to amazon, and purchase “Long-Distance Real Estate Investing” by David Greene. This book opened my eyes to the concept of living where you want to live (or where the military tells you to live!) and investing where the numbers make sense. 

I live in San Diego and home prices here are ridiculous, so I invest in the Midwest and the South/Southeast where the home prices are a fraction of what they cost in Southern California. You can also get a much better return on your money because the homes cash flow so well! For example, one of my Milwaukee properties rents for $1250/month and my mortgage payment is $544! Its very difficult to find that much difference between rent and your mortgage payment in Southern California and other expensive markets. 

Limiting Belief #3: I Don’t Know How to Invest in Real Estate!

This is the worst excuse of them all because there is so much free information available to anyone with an internet connection. We all consume information differently, and thankfully there is a wealth of information across all formats. 

-Books! This is my favorite way to consume information. I wrote an article highlighting my favorite real estate books, which you can read here. I recently finished David Greene’s BRRRR book (Buy Rehab Rent Refinance Repeat) so it is not in that article, but it’s probably my favorite real estate book!

-Podcasts! This is my second favorite way to consume information. Bigger Pockets has a few fantastic podcasts all about real estate and personal finance. The original BP podcast is real estate focused as you would imagine, the new BP Rookie podcast is designed for beginners, and the BP Money podcast is more personal finance oriented. Check out the article I wrote about my favorite podcasts here

-YouTube! Historically, I’m not a big consumer of real estate/personal finance info via YouTube, but I have been watching a lot more videos recently. YouTube has fantastic content with experts who will walk you step by step through the ins and outs of all things real estate. Want to see how to analyze a deal? There are a thousand videos showing you how to do it. How does real estate financing work? There are experienced lenders with videos walking you through the whole process. 

In addition to books, podcasts, and YouTube, there are countless blog articles and forums not only with the information you’re seeking, but with people who are eager to help others get started in real estate (like myself). 

Photo by fauxels on Pexels.com

So what’s keeping you from taking that first step and investing in real estate? Is it fear? Is it lack of knowledge? If you know you want to do it, but you just need someone to kick you in the ass and get you motivated, I highly recommend joining a mastermind group. If you are active duty, a reservist, or a veteran, check out the War Room real estate mastermind here. It’s a fantastic group of people all involved in real estate in some capacity. We hold each other accountable for our goals, bounce ideas off of each other, and do 2-3 webinars per month with speakers, Q&A sessions, and more. Reach out to me at doug@honorandequity to learn more!

If you enjoyed this article, please share with a friend! Make sure you follow @honorandequity on Instagram to see personal finance and real estate investing content designed for military and veterans. 

Why I Decided to Invest in Oklahoma City

Downtown Oklahoma City
(photo credit Gerson Repreza via unsplash.com)

About a month ago, I was having a conversation with a guy in my mastermind group. He lives in England and was in the process of doing his first BRRRR (Buy, Rehab, Rent, Refinance, Repeat) in Iowa. Up until this point, my real estate goal had been to purchase 1-2 single family homes per year via turnkey properties. When I learned this guy was living in England and had put together a team to invest in Iowa, I thought: why am I not doing this? The lightbulb moment. This is the beauty of a mastermind group – you are inspired to do more than you thought you could because others around you are crushing it. You don’t want to be left behind! 

After the conversation, my mind was whirring with the thought of

putting together my own team and buying distressed properties, rehabbing them, renting them out, and refinancing to get my capital back. Why was I not doing this already? Am I an idiot for not doing this already? No, but needless to say I was motivated. 

Where would I invest? I own properties in Milwaukee, WI and Pensacola, FL and I like those markets, but I also like the concept of geographic diversification. I would need to find a market with solid cash flow, room for appreciation, while also landlord-friendly. What other factors would I consider? I bought my first in Pensacola because I was stationed there, and I lucked out because it ended up being a great market. I bought in Milwaukee (and will buy a third property there this year) because thats where Storehouse 3:10 Ventures operates their fantastic turnkey model. But where to invest next? I turned to the most reliable source for real estate information: BiggerPockets.com

Learning About Real Estate Markets

I started reading member blogs and forum posts about choosing a market, and I went back and listened to older podcast episodes that discussed markets. The best source for this info ended up being the articles within BP Insights: the area of BiggerPockets reserved for Pro and Plus members. (Oh yeah, I also purchased a Pro membership because I wanted access to as much top level real estate info I could get my hands on!)

These articles discussed things I had not yet considered such as population growth, rent to income ratios, and rental growth. I knew I wanted to avoid the coasts, as price points tend to be higher there. I wanted a large, diverse city not reliant on any single industry. After significant research into markets all over the country and conversations with more experienced investors in my mastermind, I decided on the market: Oklahoma City, Oklahoma

Why Oklahoma City?

Growth and Progress in Oklahoma City
(photo courtesy Gerson Repreza via unsplash.com)

OKC has been aggressively investing in itself since the early 1990s. Before then, the city was struggling because it was so reliant on the oil and gas industry. In 1993, the city approved what would be the first iteration of the MAPS (Metropolitan Area Projects), a visionary new capital improvement initiative designed to create and improve sports and recreation facilities, schools, cultural centers, and much more.1 The initiative was so successful, more MAPS were proposed and approved over the last three decades, resulting in the fourth iteration of MAPS which was approved last year. 

These programs have brought businesses, people, and JOBS to the area. If you’re looking for a healthy real estate market to invest in, these are the metrics you want to see. OKC has created an increasingly desirable city for businesses and people to migrate to. 

Oklahoma City Is Not Reliant on a Single Industry

Everyone knows the Detroit story: it was completely dependent on the automobile industry, and when those companies struggled, Detroit struggled too. The oil and gas industry has always had a big presence in Oklahoma City, but it is no longer the only show in town. Thanks to a friendly business environment, OKC continues to attract businesses from various industries. The Aviation and Aerospace industry makes up the largest sector in both employment and economic impact.2 The other major private sector economic contributors include Bioscience, Energy, Healthcare, and Manufacturing. 

The local economy is further buoyed by federal employers including the Federal Avation Administration, and two local Military bases. These make up roughly 20% of the local jobs.3 

Without businesses and jobs, you can’t have tenants. OKC has a diversified economy supported by a welcoming and friendly business environment, which has directly contributed to an influx of jobs and people seeking an affordable place to call home.

Homes are Affordable in Oklahoma City

The state of Oklahoma has the nation’s 4th lowest median home value. Oklahoma City’s median home value is $158,3374 which is significantly lower than the national average of $295,300. This means you can purchase investment properties for much cheaper than other markets around the country. Also, many properties in B and C class neighborhoods in Oklahoma City meet the 1% rule, which means the property’s monthly rent is 1% or more of the purchase price (for example, a home that sells for $100,000 and rents for $1000 per month meets the 1% rule). 

Oklahoma City National Memorial (credit Jack Finnegan via unsplash.com)

OKC has a Healthy Rent-to-Income (RTI) Ratio

RTI is a lesser known but useful metric for a market’s overall health.5 To determine a market’s RTI, you simply divide the city’s median rent by the median income. Housing experts recommend individuals spend no more than 30% of their income on rent, and you’ll see many property managers using a number around 30% when evaluating if a prospective tenant can afford to rent a particular property. 

For example, New York City has an extremely high cost of living, and boasts a 68% RTI. That means many people are spending around 68% of their income on rent! Oklahoma City, on the other hand, has a much healthier RTI of 21%. It’s an extremely affordable place to live which is a big reason why so many people are migrating there from higher cost of living parts of the country. 

Oklahoma City is Landlord-Friendly

Landlord-Tenant law in Oklahoma CIty favors landlords. If a tenant fails to pay rent, or is involved in illegal activity on the property, the landlord must provide a 5-day notice to pay or vacate. Once that period is over, the landlord can file an eviction which is usually a 7-day process (under normal, non-COVID circumstances). 

This is a factor many investors don’t consider before buying property in states like California. You are much more likely to have “professional” tenants in tenant-friendly states who know they can live for free in a property for 6 months or more before the courts catch up to them.

Many people turn their noses up when places like Oklahoma and other “flyover states” are mentioned, but states in the South and Midwest can be fantastic locations to invest your money!

Do you think Oklahoma City is a good place to invest? Send me a message at doug@honorandequity.com to discuss more, and make sure you follow @honorandequity on Instagram!

Why Military Members and Veterans Make Great Entrepreneurs and Business Leaders

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Service members and veterans have a unique skill set and background that makes them fantastic entrepreneurs. Many are eager to start their own business after years of rigid structure and receiving orders from higher-ups. It can be satisfying to break free of the military chain of command and venture out on your own into the wild of capitalistic pursuits. In addition, there are many programs out there designed to help veteran entrepreneurs succeed on their own.

Here’s why military members have an advantage in the business world.

A Higher Capacity for Stressful Situations

Military members are comfortable being uncomfortable, which makes us well-suited for the stress and uncertainty of entrepreneurship. From day one of boot camp, you are frequently put in hectic, challenging situations designed to acclimate you to the pressure of military life. You get used to just rolling with the punches and accepting that the stressors imposed upon you are out of your control. However, you ARE in control of how you react to those stressors. You can break down mentally and emotionally and be defeated, or you can just accept the challenges, put your head down, and make it through to the next evolution.

Sometimes the stress is more real and life-threatening. Sometimes you’re getting shot at, or another aircraft comes within feet of hitting you, or you come close to having to eject while trying to land on an aircraft carrier. Once you have survived moments like these, it makes the stressors of the entrepreneurial life seem much less significant.

Our Brains Are Wired for Planning and Contingencies

No military mission – whether in the air, on the ground, or on/under the ocean – reaches the execution phase without first going through the planning phase. Details are meticulously calculated. You must know who is doing what at every step. Contingencies are essential to plan for because when something happens differently from what was expected to happen, you must be able to adapt and adjust.

This is the same mindset an entrepreneur must have when starting and running a business. There are always unexpected struggles that arise, but if you have a solid plan and have thought through what could go wrong, you are much more likely to adjust and still achieve your goal. If you fail, you do not dwell on it and let the failure break you down: you learn and move on. It’s the only way.

Photo by CoWomen via unsplash.com

We Are Comfortable Delegating Tasks

From the beginning, military members are conditioned to operate within a clearly defined chain of command. Gradually, we are put into leadership roles whether we are ready for them or not. We learn how to receive tasking from up the chain, and give tasking down the chain to work toward a common objective. Many civilians think that it’s all about barking orders and saluting your superiors when they give orders like in the movies, but this is not the reality. Military leaders – like business leaders – must work hard to convince everyone the overall mission is worth working hard for.  

If you don’t have this buy-in from your team as a leader, you won’t get the results you want. It doesn’t matter if you’re leading in combat or leading a marketing team.

What Resources Are Available for Veteran Entrepreneurs?

The federal government has free programs designed to help veterans succeed in business including education and lending programs.

Small Business Administration (www.sba.gov)

Within the SBA is the Office of Veterans Business Development (OVBD) which is “devoted exclusively to promoting veteran entrepreneurship – specifically veterans, service-disabled veterans, reservists, active-duty service members, transitioning service members, and their dependents or survivors”.

The OVBD gives vets access to customized curriculums, in-person classes, and online courses designed to provide the necessary knowledge to succeed in business. Also, lending resources are available through tools like LenderMatch which connect vets with lenders. Low and no-fee SBA loans help reduce barriers for veteran-owned small businesses so they can access capital and create jobs.

There are many non-profits out there as well whose sole purpose is to help vets achieve more through business. Similar to the SBA’s programs, the focus is on education, lending, and networking.

VETRN (vetrn.org)

VETRN is a free executive MBA program designed to help already established veteran-owned businesses grow even more. You get a mentor from day one and you get access to VETRN’s substantial resource network. To qualify for this program, you must have been in business for at least one year, have at least one employee, and have annual revenue of $75,000 or more.

VetFran (vetfran.org)

VetFran believes veterans make excellent franchise owners, and they provide education and resources to both vets and franchisors about these opportunities. According to VetFran, “Although veterans make up only about 7% of the population, they account for a whopping 14% of all franchisees in America”. Their website is great, so check it out of you’ve ever considered opening your own franchise!

There are many more programs available to veteran entrepreneurs and many people out there eager to help us succeed in business. Don’t think of this as a charity – you have developed many skills that will make you a prosperous businessman or businesswoman, and people want to see this happen. In doing so, you will improve your community by providing jobs to others, tax revenue for local government, and a world-class service or product that people need. Get out there and take action today to build or grow your business!

Thanks for reading! Please share with a friend if you enjoyed the article, and make sure to follow @honorandequity on Instagram!

My First Out of State Investment Property

Wisconsin Cash Flow!

My First Out of State Investment Property

I purchased my first property in Pensacola, Florida in October of 2016, and soon after buying it I became interested in learning more about real estate. I was consuming all of the BiggerPockets podcasts and purchased David Greene’s first book “Long-Distance Real Estate Investing”. This opened my eyes to the concept: live where you want to live – invest where the numbers make sense.

I listened to an episode of the BiggerPockets Money podcast with Stu Grazier, a fellow Navy officer and real estate enthusiast. He had just started a turnkey real estate company in Milwaukee, Wisconsin. Stu and his partner David Gutierrez (they were roommates at the Naval Academy) had a bad experience with a turnkey provider and were inspired to create their own company to help military members and veterans acquire cash-flowing properties. Storehouse 3:10 Ventures was born. I was immediately intrigued after hearing the story and contacted Stu via the BiggerPockets forums to learn more.

The Deal

Fast forward a few months, and I closed on my first out of state investment property in Milwaukee without setting foot in the state of Wisconsin. Here are the numbers:

  • Purchase price: $89,000
  • Financing: Conventional loan at 5.25%
  • Capital invested: $33,422

Pro Forma (Projected Numbers by Storehouse):

  • Monthly Cash Flow: $201.86
  • Cash on Cash ROI: 10.09%
  • Repairs and Maintenance: 5%
  • Vacancy: 7%

Savvy investors will wonder why I put so much capital in. When Stu and David purchased the home, it was a 2 bedroom / 1 bath, and they planned to convert the basement to a third bedroom – which they did. However, the appraiser would not recognize that third bedroom, so he classified it as a 2/1 instead of a 3/1 and the appraisal came in at $78,000: $26,000 lower than the expected After Repair Value (ARV). This is the worst news a home flipper can hear! Stu proposed we split the difference and draw up a new purchase agreement for $89,000. This was all very new to me, but I trusted Stu and David and I liked how the home would still rent as a 3/1 (I cared more about the cash flow) so I agreed to the lower purchase price. The lender would only finance 80% of the appraised value (78k) so I had to come up with the difference between what they would cover and the updated purchase price (89k).

The Storehouse team was fantastic about helping me along through the process. They always answered my questions quickly and honestly (and still do!) – which I appreciate immensely and speaks to their integrity as business owners.

The First Year (2019)

First Year Performance Numbers (Pro Forma Estimates in Parentheses):

Monthly Cash Flow: $406.43 ($201.86)

Cash on Cash ROI: 14.59% (10.09%)

Repairs and Maintenance: 12.3% (5%)

Vacancy: 12% (7%)

I learned a lot in the first year! I especially learned how important the property management is once you close. I have since switched to a different property management company due to issues with communication and their accounting practices. I also think they could have done a much better job screening my first tenant. She ended up not paying the rent 4 months into the lease, but thankfully left the property and turned the keys in. I used her security deposit to cover that month’s rent, but then I was left with a vacant property for 6 weeks until the PM was able to find a new tenant, which was very frustrating.

You’ll notice the repairs and maintenance expense was much higher than expected. I don’t know the exact reason for this, but I suspect the previous property management company was not finding the best deals for work performed on the house. For example, there was a possum trapped in a window well, so the PM contacted an exterminator company who charged over $200 to remove a single possum. Time will tell if my R&M expense decreases for the 2020 tax year thanks to the new PM. More to follow on that.

I’ve been with the new property management company (Smart Asset Realty LLC) for a few months now, and it’s been fantastic so far. I set expectations from the beginning and made sure they knew how important communication is to me. I was also able to visit their office in Waukesha, Wisconsin, in person, only a few weeks ago. I was very impressed with their spaces, the team, and the excellent company culture they have.

Would I Do This Deal Again?

Absolutely I would. It cash flows more than Storehouse projected it would and the property has appreciated to about $100,000. I plan on holding this home for a long time, and I recommend the Milwaukee market for anyone looking for strong cash flow. I was so happy with the turnkey experience provided by Stu and David that I purchased another home from them only a few months later.

Turnkey is a great way to get into real estate investing, especially for military members. I actually wrote an article about this already so check it out!

I hope you enjoyed this article. Please share with a friend and follow me on Instagram! @honorandequity

Photo courtesy http://www.storehouse310turnkey.com

I Just Purchased Umbrella Insurance – Should You?

Disclaimer: I am neither an insurance professional nor an insurance expert. Please seek one out before you pay for a policy. I do not get paid to mention any companies listed in this article.

Photo courtesy of Tingey Injury Law Firm via unsplash.com

Experienced real estate investors always say it’s not a matter of if you get sued, but when. Whenever I hear this on a podcast I get slightly terrified for a few minutes. I’ve always had the mindset: “I’m just a small-time landlord with only a few properties – why would someone sue me? Plus, I’m military! Who would sue a military landlord?” I’ve always had liability insurance on my rentals that would cover anywhere from $300,000-$500,000 depending on the policy. That should be enough right? Nope. The unfortunate reality is that some people make a living suing property owners and people with money. These folks will go after your insurance company, and once they have collected all the money covered by your policy, they will come after your personal assets. Scary, right?

However, there is a great way to add a layer of protection to your personal portfolio: umbrella insurance! I’m getting an umbrella policy through USAA right now, and here’s what I’ve learned so far.

What Is Umbrella Insurance?

From USAA.com: “An umbrella insurance policy gives extra protection if you’re sued for the things you own, as well as your savings, investments, and in some states, your future wages. It can also help pay for legal defense costs.”

It’s important to understand that before you get an umbrella policy, you need to have a landlord home insurance policy on each of your properties. You can’t just have an umbrella policy to cover everything and be good to go. USAA requires me to have liability coverage of at least $300,000 for each property before they would let me purchase the policy. This means that if I get sued, the individual home policy will cover up to $300,000 to whoever sues me, and if the amount goes above that amount that’s when the umbrella policy will kick in and cover up to $2 million.

The policy covers more than just tenants suing my wife and I though. If I rear-end a 2001 Lamborghini Diablo and get sued for the value of the car (call it $250,000) and the owner’s medical bills (call it $500,000) the liability portion of my auto insurance will pay out first, and the umbrella insurance will pay the remainder up to the total amount of the policy. Thanks to the umbrella policy, the owner will get paid from my insurance, and won’t go after my TSP, Roth IRA, or my investment properties. Pretty awesome, huh?

Photo by cottonbro on Pexels.com

How Much Does It Cost?

Not as much as you would think. For $2 million dollars of coverage, USAA quoted me $381.16 for the year. That’s less than $32 per month! I don’t have any of the properties in an LLC (Limited Liability Company) so in my opinion, having this umbrella policy is a must to protect our assets. I will probably move our assets into an LLC eventually to add another layer of protection, but I don’t think we’re there just yet.

I did have to raise the liability coverage for my car insurance but that amounted to only a few extra dollars per month. Also, my Pensacola house didn’t have liability coverage for $300,000 so I’m in the process of raising that with my Pensacola insurance broker. She assured me it would only increase my premium by $20 per year to hit the $300,000 minimum required by USAA for the umbrella policy. Money well spent in my opinion.

For a relatively low monthly payment, we were able to significantly reduce our exposure to litigation, protecting the following assets:

  • Three single family rental properties (Pensacola, and two in Milwaukee)
  • Personal checking and savings accounts
  • Retirement accounts (Roth IRA’s, TSP’s)

I’ve always thought the “peace of mind” argument in the context of insurance is just a fear-based sales tactic designed to make people buy more insurance. However, I think umbrella insurance is a good value, and I truly will sleep better at night knowing I have this extra layer of protection over our personal assets.

Send me an email to chat more about umbrella insurance or any personal finance/real estate topics that interest you. Make sure you tell a friend and follow me @honorandequity on Instagram!

My First Investment Property – Pensacola, Florida

My first home purchase – Pensacola, FL

Many people have horror stories about their first investment properties, but fortunately my first property has performed really well so far. I’ve made money from the home via Airbnb (short term rental) and renting to tenants via a 1-year lease (long term rental). I thought I would talk about how I acquired the property, how it has performed so far, and lessons I have learned.

Moving to Pensacola

I moved from Tokyo, Japan to Pensacola, Florida in September of 2015 on three-year orders to be a flight instructor. I didn’t know very much about real estate at the time, but I knew I wanted to live in a particular neighborhood called East Hill. It was (and still is) a great neighborhood, and I had a number of friends living there. There weren’t many homes for rent, so I started calling real estate agents that had homes for sale in the area asking if the owners would be willing to rent. This worked pretty well, and I found a place to rent for $1,500 per month. Over the next 8 months I listened to the Bigger Pockets podcast, learned more about real estate, and learned more about my neighborhood. I realized that I could purchase a comparable home to the home I was renting and pay much less per month!

I hired a real estate agent to help me find a home. My budget was right around $200,000 which would mean a mortgage payment of around $1100 per month – just under O-3 BAH (Base Allowance for Housing) for Pensacola. I did not use my VA home loan since the price of the home was relatively low and I had enough to put 20% down on a conventional home loan. I figured at the time that I would save my VA loan to purchase a home in the future in a more expensive area.

The Deal

We found a home that was newer, larger, and more updated than the home I was renting with a listing price of $208,000. The inspection revealed that the home would need a new roof within a few years so we got $10,000 knocked off the purchase price and closed at $198,000.

Purchase Price: $198,000

Bedrooms/Bathrooms: 3/2

Square Footage: 2,134

Interest rate: 3.625% (conventional)

Down Payment: $45,902

I put 20% down ($45,902 total with closing costs) and lived in the home for about a year and a half before I started doing Airbnb.

Short Term Rental – Airbnb

My girlfriend at the time (now wife), and I wanted to live together and we decided her condo in Pensacola was a better option than my house. The problem is, I would now have this large home going unused. Thanks to my budding real estate knowledge, I had the idea to offer up my home on Airbnb starting in the spring of 2018. This was very successful and I quickly became a “superhost”. I used a local house cleaning company to turn the home over between stays and profited roughly $1,500 per month over that summer, which more than paid for the mortgage and other expenses. I enjoyed managing the short-term stays via Airbnb, but summer was ending soon and I was moving to San Diego in the fall. I toyed with the idea of continuing to rent the home via Airbnb, but ultimately decided stop renting it on Airbnb. The summertime demand for Airbnb’s in Pensacola is strong, but I was concerned the demand would decrease at the end of summer. So I decided to find long-term tenants for the home.

Renting to Flight Students

Roughly 6-8 weeks prior to my move-out date of the house, I put up the Zillow ad to test the rental-price waters. I listed the home for rent for $1950, not thinking it would rent for that much, and I would have to drop the price until someone agreed on the price. To my surprise, I received a lot of interest in the property within a few days, and two flight students agreed to rent the property for $1950! I used Cozy.com to run a background and credit check on both tenants. Then I used a simple lease template that I got from a buddy of mine, and we signed the lease in person.

My mortgage at the time had decreased to about $1,050 due to lowered property taxes, so I would make roughly $900 a month before non-mortgage related expenses! I decided to self-manage the property so I saved a lot of money there. They ended up being great tenants and stayed for an entire year.

Those tenants had each of their girlfriends living with them, and both couples wanted their own place so they didn’t renew the lease. I reactivated the same Zillow ad with the home listed at $1950 again, but I didn’t get many responses for some reason. So I dropped the price to $1850 and got a response within 24 hours. Flight students again! They were about to head down to Pensacola to start flight school and wanted to live in East Hill. I went through the same process to ensure they had the necessary credit, and got them to digitally sign the lease since I was in San Diego at the time. These tenants should be staying through December of 2020.

For the 2019 tax year, my total profit on the Pensacola house was about $9,200 which makes for a 20% cash on cash return! Also, the value of the home (using the Zestimate on Zillow.com) has increased by 50% in 4 years to over $300,000! Needless to say, this home has been fantastic as a rental. The cash flow numbers are high, it attracts great tenants, and it has seen enormous appreciation well above the national average.

The maintenance and repair expenses have been minimal and my vacancy has been 0% since I started renting to long-term tenants.

Photo courtesy of Morning Brew via unsplash.com

What Have I Learned?

  1. I should have used my VA loan. This would have preserved more capital for future investments, and I would have gotten a lower interest rate. Hindsight is 20/20 though, and I don’t really regret using the conventional loan. I’m still hitting great metrics on this house even with the conventional.
  2. Home warranties are not worth the cost! I used a home warranty for the first couple of years, and it just wasn’t worth it. You have to pay a flat yearly rate (which was around $500 for this house) plus $75 every time someone comes out to repair something. This home is in great shape and I’ve saved money by cancelling the home warranty.
  3. Sometimes it’s better to be lucky than good! My real estate knowledge was limited when I purchased this home. However, I knew that I would be able to rent the home for at least $400 more than the mortgage, so I’m glad I pulled the trigger and bought the home. I could not have anticipated that it would rent for almost double my mortgage payment, nor could I have anticipated that the home would go up in value by 50% in only 4 years! Sometimes you just get lucky with the timing.

Hopefully this article inspires you to take action and buy your first rental property. There are so many ways to acquire your first property, and it can be done no matter your experience level, net worth, credit score, or personal background. You just need a positive attitude and a desire to get that first property no matter what! I’d love to chat more about your real estate journey. Send me an email at doug@honorandequity.com or send me a message on Instagram!

I hope you enjoyed this article about my real estate journey. Please share with a friend and follow @honorandequity on Instagram!

My Favorite Podcasts

Podcasts are my second favorite way to consume information (behind books, of course!). I absolutely love how there are so many available with hosts who just want to provide value to others. And they’re all free! I listen to A LOT of podcasts and have for years. I mostly listen to podcasts that focus on personal finance, personal development, and real estate, and these are my favorites.

Personal Development

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The Daily Stoic

Ryan Holiday is the host of The Daily Stoic, in which he talks about life in the context of Stoicism – an ancient philosophy that focuses on self-improvement in all areas of our lives. I like the format of this one: they do a few short, 2-5 minute podcasts during the week, and a longer 45-60-minute episode on the weekend. Ryan is highly intelligent and it’s immediately apparent. He discusses the various weaknesses inherent to humans and how we can strive to overcome and improve on a daily basis. He also ties in current events and problems and how the advice of the Stoic philosophers (Marcus Aurelius, Seneca, and others) are still relevant 2,000 years later.

Image courtesy of podcasts.apple.com

Filling the Storehouse

Stu Grazier and David Gutierrez are experienced real estate investors – but real estate isn’t the main focus of this show. Rather, they focus on “Faith, Family, and Financial Freedom”. Stu and David were roommates back at the United States Naval Academy and have been bro’s ever since. It really shows on the podcast, as they are always making jokes and laughing at each other. They bring on awesome guests to discuss topics such as leadership, giving, gratitude, finding your why, and having the right mindset. I always feel motivated after listening to this one!

Investing

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Investing for Freedom with Mike Ayala

This podcast is relatively new, but you won’t be able to tell by listening to it. Mike Ayala is a successful entrepreneur and business owner who genuinely wants to help others achieve their investing goals. He provides motivating advice and engaging interviews with other interesting, successful people. He’s a member of Gobundance (a mastermind for healthy, wealthy, well-rounded men) and anyone in Gobundance is worth following closely. Mike had his wife, Kara, as a guest a couple of times, and they offered up some great relationship advice as well. This is one of few podcasts that I listen to pretty much immediately after they are released on iTunes.

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Afford Anything with Paula Pant

Paula is an excellent host and interviewer with a wealth (pun intended) of knowledge about personal finance, investing, and real estate. She meticulously researches topics and guests and produces an extremely professional and informative podcast. She asks fantastic questions to her guests and provides a lot of value to the listener. I have learned so much about personal finance from her podcast. I wish she would talk more about real estate because she knows a lot about it (only about 30% of the show is RE focused), but I understand that she wants to keep the show more broadly focused on personal finance as a whole. She is a mainstay of the F.I.R.E. (financial independence, retire early) community, so when she interviewed Suze Orman – an outspoken F.I.R.E. hater – I knew it would be a great episode. Suze roasts the community, but Paula maintains her professionalism and waits until a follow up episode to “address” Suze’s scathing opinions on the concept of early retirement. It’s a must-listen!

Real Estate

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The Bigger Pockets Real Estate Podcast

This is the podcast that got me into real estate. A friend told me about it 5 years ago, and I’ve been a regular listener ever since. They cover a wide spectrum of real estate topics from beginners getting started to interviews with massively successful tycoons. When it began, it was hosted by Josh Dorkin and Brandon Turner, but Josh has since left the podcast and was replaced by David Greene. Brandon and David are extremely knowledgeable about real estate and have helped many people get started and succeed in real estate. Bigger Pockets has published many great books on the subject as well, and http://www.biggerpockets.com is another valuable resource for those interested in learning more.   

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The Real Estate Guys

This one is hosted by Robert Helms Jr and Russell Gray. They have been doing a real estate radio show since long before podcasts existed, and they are buddies with Robert Kiyosaki and many other hugely successful people. What I like about this show is that they frequently talk about real estate on a macro level and have topics you don’t hear about on other shows. For example, they just interviewed PhD economist Richard Duncan who works for the IMF (International Monetary Fund) who talked about the long term economic impacts of COVID-19. It’s episode #2,028 (yeah, they have a lot of episodes!).

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Real Estate and Financial Independence Podcast

Chad Carson is the man! He wrote my favorite book about getting started in real estate (Retire Early with Real Estate – a must read) and his podcast provides a lot of fantastic info as well. Chad is an excellent teacher. His simple but effective methods are ideal for the novice investor. He recently started interviewing real estate investors that only have a few deals under their belts, but are making money and learning a lot along the way. I like this because it shows the listener that anyone can be successful in real estate no matter your income level or background. A must-listen for beginners!

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The Real Estate Syndication Show with Whitney Sewell

Whitney is a fellow military bro who got into real estate syndication a few years ago. A syndication is when a group of investors pool their money to purchase assets they would not be able to purchase alone. Whitney is somehow able to produce a new show daily, and he has a different guest each episode who shares their journey in real estate. Even if you’re not interested in syndication right now, this show is definitely worth listening to. Whitney and his guests have insightful discussions about all aspects of real estate. He’s all about helping people as well, and will respond if you reach out to him!

I hope you liked this article. Please share with a friend and follow @honorandequity on Instagram. I love connecting with people and chatting about personal finance and real estate!

How to Earn More and Save More While Active Duty

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Military members have unique opportunities to both earn and save more money while still active duty or in the reserves. You might be familiar with some of these, but it’s easy to forget about them if it’s not built into your habit pattern. Let’s get after it!

Travel and Per Diem

I travel a lot for in my current billet (1-2 weeks per month) and I get per diem for every day I’m away from home. The amount varies depending on location and whether there is a base galley nearby or not, but you’re going to get some money no matter where you go. So travel on as many work trips as you can, be frugal while on those trips, and you’ll have extra cash hitting your bank account a week after you get back.

Shop at the Commissary

This is a no-brainer. Food is the third highest expense for most households (after housing and vehicles) so you can save a ton of money by shopping at the commissary. I do most of my shopping there and the prices simply can’t be beat by local grocery stores, especially here in San Diego. The U.S. government spends an enormous amount of money subsidizing commissaries for military members, so take advantage of this one. Also, make sure you make a list and don’t go hungry!

Bonus Tip: Always refuel your vehicles on base. It’s cheaper.

Ask for Military Discounts

You already know about this one, but how often do you take advantage of it? Most companies have military discounts, but they don’t advertise it, so make sure you ask whenever you’re shopping. Retailers with military discounts include Lululemon, Lowe’s, Patagonia, North Face, Mountain Hardwear, and many many more. Also, if your credit card has an annual fee, give them a call and they will likely remove it.

Don’t Buy that New Car

This isn’t unique to military but it’s so important and service members make this mistake all the time! Don’t buy new cars and don’t buy cars you can’t afford! Vehicles are depreciating asset, which means their value tends to decrease with time. So that sick $45,000 Mustang GT you bought two years ago with a 18% interest rate is probably worth $25,000 today. Wouldn’t you rather spend $45,000 on something that will increase in value – or even better – pay you every month! This is why you need to put money into passive income streams. (Check out my article about Turnkey Real Estate Properties to learn more)

Deployments

You can make a LOT of money while deployed. Obviously this one depends on your branch of service, your military occupation, and many other factors, but it’s worth thinking about. Extra pay while deployed can include: imminent danger pay, combat pay, hazardous duty pay, sea pay, and Family Separation Allowance. These, like your BAH and BAS, are not subject to federal or state taxes as well – that’s a big win! And if you deploy to a combat zone like Iraq or Afghanistan, your base pay will not be taxed either! This can be substantial depending on your pay grade and time in service. Also, if you’re in a combat zone you can participate in the Savings Deposit Program which enables you to earn 10% interest on up to $10,000.

Additionally, your expenses generally decrease significantly while deployed. You’re probably not going out to eat or traveling while deployed, so you can cut expenses while increasing your income.

Most civilians don’t think of military service as the type of occupation that leads to wealth building. This is an over-generalization. Remember, wealth is not determined by how much money you make, its determined by how much money you save and what you do with that excess. It’s very possible to build wealth while in the military, you just have to create the right habits and plan ahead for many years from now. If you only plan two weeks ahead to your next paycheck (like most Americans do), you will never become wealthy.

Thanks for reading! If you enjoyed this article, please share with a friend and follow Honor and Equity on Instagram @honorandequity.

My Favorite Real Estate Books

Reading is my favorite way to learn about anything, especially real estate. There are hundreds – if not thousands – of real estate books out there, so deciding on which books are worth your time can be difficult. All three of these books have made a significant impact in my real estate journey, and I hope they do the same for you.

Photo courtesy of coachcarson.com

“Retire Early with Real Estate” by Chad Carson

This is the first book I recommend to friends who want to learn more about real estate. Chad clearly put a lot of time and thought into this book and it shows – it’s fantastic for beginners! Like most real estate books, this one starts with a “Why Real Estate” chapter, then describes different strategies new investors can use to get started.

One unique aspect of this book I really enjoy are the “Profiles of a Real Estate Early Retiree” in which Chad provides examples of people that have retired early with real estate and how they did it. These are interspersed throughout the book and are relevant to the chapter in which they are included.

Since its designed for novices, this book doesn’t go super into depth on the “how” and it doesn’t get into the weeds with financial numbers, which I think is actually ideal for a beginner book. Chad Carson’s podcast is fantastic as well – definitely check it out.

Photo courtesy of biggerpockets.com

Long-Distance Real Estate Investing” by David Greene

David Greene was working as a police officer in San Francisco, and realized he couldn’t afford to invest in the bay area. So he figured out how to invest in more affordable markets with better cash flow, and in his book, he shares everything he learned from that process.

“Long-Distance Real Estate Investing” created an enormous “lightbulb” moment for me: you don’t have to live where you invest. It stressed the importance of having a great team, especially when you are investing long-distance. It was soon after reading this book that I heard about turnkey investing and within a year I had bought two single family rentals in Milwaukee, Wisconsin, without ever setting foot in the state. I still own those properties and they continue to perform well.

David co-hosts the Bigger Pockets podcast with Brandon Turner. He is extremely knowledgeable about real estate and I highly recommend listening to that podcast as well as reading his book.

The Book on Rental Property Investing” by Brandon Turner

This is a modern classic that is a must-read for anyone interested in real estate investing. I have referenced this book multiple times since reading it because it has so much fantastic information.

This is a dense book that covers a wide range of information, but it’s also highly readable and beginner-friendly. Brandon covers the “why” of rental property investing, as well as how to find a great team, different types of properties, what to think about when deciding on a location, how to make offers, how to close, how to manage tenants, and how to handle selling a rental property.

Thanks for reading! Please comment below with your favorite real estate books. Also, I encourage you to send me an email at doug@honorandequity.com if you want to discuss more books. Connect with me on Instagram @honorandequity as well!