Oklahoma City Duplex – Progress Update

After months of searching for homes that fit my criteria, I finally closed on my first property in Oklahoma City on December 10, 2020. I plan to BRRRR (Buy, Rehab, Rent, Refinance, Repeat) this property, which is currently in the rehab phase as of February 2021. Below, I’ve provided an update on the property itself, rehab progress (spoiler alert: this one is slow-going), and what I have learned so far.  

The Property and How I Found It

The property is a 1300 square foot, 2 bedroom 2 bathroom duplex located in the growing Northwest side of Oklahoma City. My agent, Abbie Davis, actually presented this property to me while it was off-market.  Abbie and her husband own a property management company called The Property Center in OKC, and one of their clients reached out to Abbie saying he wanted to sell this property for $100,000. His property was already rented for $695 per side per month with solid tenants. Thankfully, Abbie reached out to me after recognizing that this property would be a great fit for my OKC strategy. 

Here are the numbers as we estimated them before putting the property under contract:

Purchase Price: $100,000

After Repair Value (conservative estimate): $156,000

Repairs (mostly cosmetic): $20,000

Time required to make repairs: 3 months

Total Monthly Rent: $1450 total (both sides plus pet fees). Once repairs are complete, property would rent for $1650-1850 total

As mentioned, the property was already rented out and cash-flowing, and since the repairs were mostly cosmetic and on the exterior of the property, we felt confident that we could keep the tenants in place while making the repairs. 

After we put the property under contract at the seller’s asking price, we proceeded with a  thorough inspection. The inspector confirmed that the repair costs would be very close to our original estimate of $20,000. I’ve always heard that rehabs regularly go over budget and take longer to complete than you think, so I made a mental note estimating the rehab would be closer to $25,000 and would take 3 months. 

The Northwest side of OKC is very hot right now! The heart marks the duplex

How I Funded the Deal 

I had finally found the property – now, I needed to come up with $100,000 cash to buy it. Thankfully, I had already been telling friends and family about what I was doing in Oklahoma City and sharing my journey via Instagram (@honorandequity), so I had a few different people already expressing interest in lending money to the LLC. My sister-in-law reached out and said she would 100% be on board lending the money. I contacted a real estate attorney in Oklahoma City to help draw up the contract and promissory note to make it all legitimate. She wired the money directly to the title company in time for closing and that was it! Honor and Equity’s first OKC property was in the books. 

My sister-in-law also agreed to fund the rehab (which we estimated at $20,000-$25,000) and we worked that verbiage into the contract. I felt pretty confident the rehab would go over $20,000, and I decided I would just fund any additional repairs out of my own pocket. 

The Molasses Rehab

If you want to get started on a rehab immediately after closing on a property, don’t buy it right before the Christmas holidays in the middle of a worldwide pandemic! The rehab, already moving like molasses, was slowed down even more by the coldest weather Oklahoma City has seen in over 100 years!

Before I get into the rehab specifics, I want to say that I’ve been working with some fantastic people at The Property Center. This is the property management company I use, and they have been kind enough to let me work directly with their folks who handle the maintenance coordination for the properties they manage. Paul and Sally at TPC have been the project managers on this rehab, including scheduling estimates, coordinating dates and times of the estimates with the tenants, and providing me progress updates, pictures, and confirmation that the work has been completed. As an out-of-state investor, I would not be able to do this strategy without great people like this to help me out! 

In order to figure out the must-do items of the rehab, I reached out to my local insurance agent Shane Jones at State Farm in Oklahoma City. He looked over the inspection report and told me which items I would have to fix in order for State Farm to insure the property. I passed this info along to Paul and Sally at TPC. I then chatted with Paul, Abbie Davis, and Eli Davis to determine what cosmetic repairs to make. We sent that info out to a few different companies to provide estimates and decided on a handyman company they had worked with before.

Here’s a list of most of the repairs:

-New porch decking and handrails

-Exterior Fascia and Trim

-New Windows

-Paint exterior of home, including new fascia, window trim, and porch

-New kitchen tile

-Remove overgrown vegetation

-Install new front door on one unit

-Faucet repairs in bathroom

-New Gutter system

New Fascia and Trim were installed on the exterior of the property

A single company has done a majority of the work, whereas the windows will be completed by a window specialist, and the gutter system will be completed by a separate company as well. 

When we got the first estimate for the window repair, the company told us it would be a 6-week delay at a MINIMUM to get the windows delivered. This was due to the COVID pandemic affecting worldwide supply chains, especially for home improvement items. I’m guessing this is because lots of people have been improving their homes over the last year, and many of these supplies come from China. 

To make matters even worse, in February Oklahoma City saw some extremely cold weather. Because of this, they couldn’t work on the paint and they couldn’t install the gutters until the weather got back above freezing. The city saw below-freezing temps for about 2 total weeks! 

Now that temperatures are back to normal in OKC, we’re making more progress. The biggest delay now is the windows, which still haven’t arrived. Once the windows are installed, the handyman company will update the trim and paint around the windows and most of the work will be complete by that time. We will do a final walkthrough to address minor issues, and then we’ll be on to the appraisal and refinance portion of the BRRRR process.

The new porch being installed!

Lessons Learned So Far

  1. You must have fantastic people on your team! I already knew this one, but the process so far has just reinforced it. If I did not have Paul and Sally at TPC to help project manage this, I would be in a real bind. Also, Abbie and Eli have been extremely helpful with advice on what work to do and what not to do, based on the condition of the home and the neighborhood. 
  1. The rehab will take longer than you think! Thankfully, I had always heard this on BiggerPockets episodes so I knew to expect it – and it is definitely true. The holidays, combined with COVID, compounded by super cold weather have caused the project to take at least twice as long as it would have otherwise. Typically, these longer rehab times would really annoy an investor like myself since I’m paying high-interest rates, but the money is going to my sister-in-law! So the longer the rehab goes, the more money she makes and at least we’re keeping it in the family!
  1. Take Action! Investing from out of state can be stressful. I’m not able to personally see these properties before putting in offers. I’m not able to evaluate all of these contractors in person, and I’m not able to personally inspect the work. This would paralyze many people into inaction. You have to trust your team and accept that you will make mistakes along the way. It’s much better to take action, make a mistake, learn from it, and move on than to be completely paralyzed and do nothing. Successful people take massive action!

I hope you enjoyed this article. Please share your thoughts and questions in the comments below, and make sure you follow @honorandequity on Instagram! Feel free to email me directly at doug@honorandequity.com

Honor and Equity 2020 Year in Review

What a year! I started 2020 in Iraq – halfway through a 6-month deployment. Neighboring Iran attacked our base with ballistic missiles, which was a significant moment in U.S./Middle East relations. The COVID pandemic soon overshadowed the attack. Thankfully the pandemic didn’t delay our return from deployment in late March, but we came back to a very different America. 

I was excited about not having to go to work for the first month or so after returning. This freedom meant more time to read, relax, and spend time with my soon-to-be-wife, Caitlin. I enjoy reading, but I was voraciously consuming books, sometimes reading over 100 pages per day with all that downtime. We had planned to be married on May 9th in Miami (we live in San Diego), but like many people in 2020, we had to adjust our life plans. We were married here in San Diego, with only a few family members in attendance. It wasn’t the wedding we expected, but it was pretty fantastic, to be honest. Getting married to Caitlin was, without a doubt, the happiest and most significant moment of the year for me. 

Joining A Mastermind Group

The second most significant moment was when I decided to join a real estate mastermind group for military members and veterans. A friend and mentor named Stuart Grazier (of Storehouse 3:10 Ventures) co-founded the War Room mastermind with David Pere (From Military to Millionaire). I was inspired to join a mastermind group after reading “Tribe of Millionaires,” an allegorical book produced by the founders of Gobundance outlining the benefits of joining a mastermind. (Check out my article about mastermind groups here). Being surrounded by motivated individuals with goals that align with yours is critical for personal growth. I started virtually meeting active duty service members who own multiple properties – and not just single-family homes; I’m talking apartment complexes, RV parks, and mobile home parks. I thought, “Wow, I need to up my game!” So I did

I distinctly remember a post that Stuart Grazier made in our War Room Facebook group in which he challenged everyone to create a ‘thought leadership platform.’ This platform could be a blog, a YouTube channel, a Twitter account – basically any medium through which you can talk about your journey and experiences in real estate. I knew this was something I had to do, so I took action and created Honor and Equity, a personal finance and real estate blog for military members, veterans, and their families. I didn’t know how to design a logo, start a website, create content, or dance in TikTok videos, but I figured it out (minus the TikTok vids!) with the help of family, friends, and fellow War Room members. I’ve always enjoyed talking with anyone who will listen about personal finance, investing, and real estate. The platform would help me share what I have learned with others and document my journey. 

Investing in Oklahoma City

Photo credit Gerson Repreza via unsplash.com

I try to connect with a different War Room member every week because each person has a unique military and investing background. I enjoy hearing about what everyone is working on and what they have done in the past. One of these conversations inspired me in a significant way. Michael Barnhart is an active duty Navy officer like myself currently stationed in England. He told me about how he and his wife were aggressively pursuing real estate in the Midwest utilizing the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat – a must-read book by David Greene, by the way). This conversation was my lightbulb moment: if this guy is doing the BRRRR method from England, why am I not doing something similar from San Diego? Almost immediately, I started researching markets and eventually decided on Oklahoma City (check out my article about why I decided on OKC). I re-read Long-Distance Real Estate Investing by David Greene and read his BRRRR book while carefully putting together a team of real estate professionals in OKC to help me achieve my goals. 

Progress has been slow, but I write down my goals every day to stay focused and stay in the right mindset. We finally closed on the first property – a duplex – on December 11th, and everything is going smoothly so far. The home is already rented and needs mostly exterior cosmetic work. We are going to do all the rehab work with the tenants in place and the work should be complete in January/February after which we will do a cash-out refinance. My goal is to acquire two OKC properties per quarter, so if you know of anyone involved in real estate in Oklahoma City, send me a message! I post updates occasionally via the @honorandequity Instagram page, so make sure you’re following to get the most up to date information.

Beyond OKC, we also own a single-family home (SFH) in Pensacola, and we just closed on our third SFH in Milwaukee, Wisconsin. We closed on this home in Milwaukee and the duplex in OKC within about 4 days of each other, which doubled the total number of doors we own (3 doors to 6 doors)! Back in April of this year, we invested in a mobile home park (MHP) syndication in Cañon City, Colorado (check out the article here). My favorite part about that MHP investment is I know about half of the other investors (who are also on active duty). The team who put the deal together is led by a husband and wife team (both Army veterans). You may have noticed a theme with my network: I like to work with fellow military folks! I think that someone with 10+ years of service in the military tends also to be someone you can trust that communicates well and has grit and integrity – the same type of person with which you want to invest.

The Milwaukee turnkey properties we own are performing better than expected (thanks Storehouse 3:10 Ventures!), and I hired a new property management company back in May, which was a fantastic decision. The Pensacola property is the star-performer, though: of the properties we own, it has the highest cash-on-cash return and has appreciated the most since it was purchased in 2016. 

Honor and Equity in 2021

Photo credit Immo Wegmann via unsplash.com

H&E has grown a lot since its inception in the summer of 2020, and we will experience substantial growth in 2021. This growth is driven by a desire to help fellow military members and veterans in their personal finance and investing journey. One of my favorite parts about doing this is connecting with people, so if you want to connect or know someone who might want to, please reach out!

Priorities

  • Grow Honor and Equity via the creation of content designed to inspire and educate others within the scope of personal finance, real estate, and investing. 
  • Grow our portfolio in OKC via flips and BRRRR’s. Partner with others to scale and expand with the long-term goal of providing investment opportunities to other military members and veterans.

Thanks for reading this article! Please send me a message on Instagram @honorandequity or send me an email at doug@honorandequity.com!

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?

Photo by Pixabay on Pexels.com

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!

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

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

Image courtesy of dailystoic.com

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.

Image courtesy of affordanything.com

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.   

Image courtesy of realestateguysradio.com

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!).

Image courtesy of coachcarson.com

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!

Image courtesy of stitcher.com

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

Photo credit: Diego Gonzalez via Unsplash.com

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!