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[00:00:00] Sarah: Hello listeners, welcome back for another great week. My name is Sarah Karakaian.

[00:00:04] Annette: I’m Annette Grant. And together we are–

[00:00:05] Both Annette & Sarah: Thanks for Visiting. 

[00:00:07] Sarah: All right. Let’s kick off this episode like we do every week, and that’s sharing one of you, our loyal listeners who’s using our hashtag, #STRShareSunday. We’ll find you on Instagram, but then we’ll share you here on the podcast and to our entire email list and get you some love. Annette, who are we sharing this week?

[00:00:23] Annette: This week, we are sharing @archhouse_wa. Again that’s @archhouse_wa. And this is our first time. We’ve never had an arch house. You got to check it out. It’s hosted by Alex and Erica, and they are just too cute. They’re both in the graphic design world, and they purchased this 1970s arch house. 

[00:00:47] You have to go to their feed, like all the pictures, give them some love. It is unique, and special, and just adorable, quite frankly, but love that it– they’ve just crushed it with the uniqueness of it. And then they’ve done an amazing, amazing rehab on this property. I’m just going to say they’ve probably put blood, sweat, tears, and a lot of money into it, but well done.

[00:01:16] You have to look at this place for inspiration. I think they’ve done an interesting job. One thing I really want you to see is how they’ve put the beds in this cabin, how they’ve put a couple of different beds. It’s a nice way that they designed it. I love the before and after pictures, and the arch itself is just amazing. Sarah wants to talk about this spot.

[00:01:38] Sarah: I do. Alex and Erica, I see you and this mustard yellow exterior casing, and then your mustard yellow sofa, and the painted green beams. You can tell they’re artists because there is a subtle through line throughout the entire property, and I am here for it. It is so good. 

[00:01:59] Annette: And they have some availability this month. Check them out. Well done. I’m going to come and stay there. It’s so cute. But Sarah, I am– when we’re heading into this episode, this is funny. Our guest has an excellent, excellent quote, and she has an acronym for the word FAIL. It’s not her acronym, but first attempt in learning. 

[00:02:25] And I want to say, I don’t want to tell you guys how many times we failed to actually make this episode happen, but we persevered. Just to show you some of the behind the scenes on a podcast, I think we had this podcast scheduled a minimum of four times. On both parties, I think all of us had to cancel at one point in time, and then Wi-Fi didn’t work, so we had a lot of failed attempts, but Sarah, let’s talk about our guest today.

[00:02:50] Sarah: This was so worth it. At the age of 27, Rachel Richards quit her job and retired. She’s now living off of $20,000 a month in passive income, but it wasn’t all puppy dogs, and roses, and butterflies. Rachel is the bestselling author of Money Honey, and Passive Income, Aggressive Retirement. She built a real estate portfolio of 38 units by the age of 26.

[00:03:12] She’s a former financial advisor, has been featured in CNBC, Forbes, and Business Insider. She makes the topic of money management fun, entertaining, and simple for her 250,000 plus millennial followers. Rachel helps women feel excited, capable, and confident about their financial futures. And listeners, just wait because Rachel is vulnerable, honest, and is going to help you just keep going right now. Especially if you’re going through something tough, this is the episode for you. Rachel, we have so much to talk about. Welcome to the show.

[00:03:44] Rachel: Thank you so much, Sarah and Annette, for having me.

[00:03:47] Annette: And I just have to call you money honey because that’s how I know you as a money honey, Rachel. So let’s let our listeners, if they don’t know who you are from the social media world, let’s take it back to you being an author and before you became an author, and just let our listeners know why it’s important to listen to you today. Give us some of your history.

[00:04:06] Rachel: Aw, thank you. Yeah. I used to be a financial advisor, and I majored in financial economics, and then I didn’t want to do that anymore, but I still wanted to help people with money, but just in a less like salesy way. I’m also very introverted. So I decided I could write a book in the comfort of my house and put it out there. 

[00:04:26] And at the time, it was just a passion project for me, something I felt compelled to do. Thought I would lose every cent that I put into it, to be honest with you. And then I self-published it, and it took off, and I called it Money Honey, and the name has stuck ever since, which I love. But I’ve now written two books. I’ve put out a few courses, programs, have a bigger social media presence, and I’ve invested in a lot of real estate, so that’s a little bit about me.

[00:04:50] Annette: And let’s tell our listeners, Money Honey, the reason you called it that is the demographic of people that you were speaking to. So let’s talk about your age, if you don’t mind, when you wrote the book, and when you transitioned into real estate. I think that really helps paint the picture of your story.

[00:05:09] Rachel: Yes, absolutely. 2017 was the year for me. I started doing everything in 2017, and I was 24 at the time. I can’t even keep track now. Twenty four.

[00:05:20] Annette: Well, you’re so old your memory’s probably shot now.

[00:05:23] Rachel: I know, I know. Exactly. So I purchased my first duplex that year with my ex-husband, and then later that year, I self-published my first book, Money Honey. And I focused on growing those passive income streams as much as I possibly could because I had that royalty income and that rental income. And fast forward about three years, I was able to quit my job and become financially independent just two years later, in 2019. And I was 27 at the time that I did that. And now, I am 31, and I am just living my life.

[00:05:56] Annette: Let’s go back to that first duplex because the demographics of where you got started, I think, are important to share. So take us back to that first duplex and what the goal was with that.

[00:06:07] Rachel: My ex and I had this goal and vision to get to 10,000 a month in profits from our real estate. And we decided once we did that, we would quit our jobs. We would be financially independent because, at the time, our expenses were only five or six grand a month. So that gave us plenty of buffer to still save, still be very financially secure.

[00:06:25] So that was our goal and why we started doing it. We were both living in Louisville, Kentucky at the time, and that was a big advantage. I can definitely talk about the advantages I had starting out. Living in an affordable cash flowing city was a huge advantage. And of course, back in 2017, we were getting 3, 4% interest rates, so that made it a lot easier to find a cash flowing property as well.

[00:06:48] Our first duplex cost a 100 grand, and I know that the people from California listening are going to be like, I can’t even buy a parking spot for that amount of money. But I do know that there are still properties that are 100 grand to this day if you look in the right markets. And so quickly, just two pieces of advice on that.

[00:07:06] If you do live in an expensive city and you’re like, how are these people doing this, number one, be comfortable investing out of state. Be comfortable being a long-distance landlord. It’s something I used to be afraid of, but once I moved from Kentucky to Colorado, I realized it was way easier to manage my properties from afar than it was when I lived 30 minutes from them.

[00:07:26] So that’s my first piece of advice. And secondly, on that note, is to look for off market deals because the MLS, Zillow, they’re so saturated right now and so competitive. And if you want to find a great deal in this market, you really have to be willing to do what no one else is willing to do. And that means getting creative and looking off market. So that’s my little tangent if you live in–

[00:07:47] Annette: Those are good.

[00:07:48] Sarah: That’s real estate– 

[00:07:49] Rachel: Expensivecity.

[00:07:50] Sarah: Hot tips.

[00:07:50] Annette: Episode over.

[00:07:52] Sarah: Mic drop.

[00:07:53] Annette: You just said be comfortable out of state. What was the fear when you moved out of state with becoming that long distance landlord, and how did you tackle that? 

[00:08:02] Rachel: And I had done both self-managing and having a property manager, and my fear was that an emergency would happen and I wouldn’t be able to fix it or solve it because I wasn’t there. Like a fire, or a flood. Something really bad. And I also felt like I wouldn’t be able to run my properties as well because I wasn’t going to be there. And I realized that moving away, it forced me to have teams and systems in place. Even self-managing from afar became a lot easier for me because I had teams and systems in place. So I prefer now to not live in the same state that my properties are in.

[00:08:43] Annette: There we go.

[00:08:44] Sarah: Honestly, when your back’s against the wall and you have to make it work, in so many scenarios, you will be amazed at what you can accomplish for yourself. And coming from you and seeing you on the other side now with so much success, I think our listeners can be like, okay, I know that could be true for me too.

[00:09:01] Annette: And I think it’s important before we were– fast forward really quickly, to let our listeners know, you are getting ready to open your first short-term rental, but I still want to start back at that duplex. The duplex and the book, you’re starting to make some cashflow, but I know you got up to, I think, what, 30, 40 doors at one point in time?

[00:09:23] Rachel: Yeah. Thirty eight units.

[00:09:24] Annette: Ooh. So just fast track us. Take us through the money honey Rachel timeline on building your portfolio, if you don’t mind.

[00:09:31] Rachel: Absolutely. My whole tagline, what I’m known for is that I can scale quickly. Um, and anyone can buy a lot of properties quickly, but I bought quality properties and really created a very, very strong portfolio. So in under three years, I went from zero to 38 doors. My ex and I had two single family houses already that we had purchased with his VA loan, and that were intended to just be our primary residences. So I don’t really count those because we weren’t purchasing them intentionally, but they did later become two rental properties. 

[00:10:03] Then we have that duplex. And then the next three properties we bought were all boarding houses. So basically, I saw this property on the market in Louisville, Kentucky, and you are familiar with the 1% rule. I’ll restate it for anyone listening who’s new. The 1% rule states that a property should rent for 1% of the list price. So a 700,000 property ideally should bring in 7k a month in rent revenue. So I saw this property listed for 430 grand. It was a fourplex in Louisville, Kentucky. According to the 1% rule, it should have been bringing in 4,500 a month in rent.

[00:10:42] This property was bringing in 7,600 dollars a month, and it was not an Airbnb. And I was like, this must be a typo because how is this happening? So I called up the list agent and they were like, no, this is real. Come down, and we’ll show you how this works. And that’s when we were introduced to the boarding house model.

[00:11:01] So basically, instead of renting out each unit to a tenant, the sellers, the owners of this property were renting out each bedroom individually, and there were 12 bedrooms total in this house, this huge, huge fourplex. So they had 12 tenants, 12 separate leases. Every bedroom was furnished and independently leased, and tenants shared common areas like kitchens and bathrooms.

[00:11:24] And the best part of this is that it was a true win-win for both the tenants and us. The tenants are only paying 580, $600 a month to have a fully furnished bedroom. And that included utilities and Wi-Fi. So it was just a flat fee. It was the most affordable housing, and every city needs affordable housing. And then us on the other hand, this property has now become a cash cow because it’s independently leased and there’s so many tenants. So we were making a lot of money. We were providing affordable housing. It just made so much sense. So we bought that immediately. 

[00:12:00] Sarah: Where does one find a lead who wants that housing? Is it the typical places that you were finding people who’d wanted to live in that way, or how are you finding them?

[00:12:09] Rachel: These boarding houses were all near downtown Louisville, so they were all near public transportation. And most of our tenants were blue collar workers, and they worked manual jobs. Laborers, forklift drivers, stuff like that. We didn’t really have travel nurses or travel doctors. Maybe we had one in the three years that we did it.

[00:12:28] It was just guys that needed a clean, safe, easy, cheap place to live. And what was really cool is a lot of our tenants told us– there’s a lot of boarding houses in cities. Even if you don’t realize, it’s a thing it is. And they were like, most of these other boarding houses, they’re slumlords, and they’re gross, and they’re not in good condition. And they were like, you have the best, cleanest, and nicest boarding house we’ve ever seen. And we would have a waiting list of people for this place. I did not have enough time to return the calls that we were getting. So my vacancy between tenants, less than 24 hours.

[00:13:02] Annette: Let’s work out–

[00:13:02] Sarah: Right now, everyone is running to change all of their rentals into boarding houses.

[00:13:06] Annette: Let’s dig in a little bit here. For these boarding houses, are they long-term leases, or are they mid-term? How would you sign a lease for these tenants?

[00:13:17] Rachel: Great question. They were medium-term leases. And when we bought the property from the owner, we were like, this is clearly working really well, so we’re not going to change anything. We’re going to do exactly what you were doing. Clearly, you had this system down. So they would start off tenants on a 12-week lease, and then it would automatically roll into a week-to-week lease.

[00:13:36] Sarah: Week-to-week?

[00:13:37] Rachel: Yeah, week-to-week. So actually, tenants paid rent weekly, and it was 140 or $150 a week. 

[00:13:44] Sarah: Okay. 

[00:13:45] Annette: This property, were you self-managing it, or did you have a management team to help?

[00:13:49] Rachel: We self-managed until we got to about 26 units. So I think once we bought the second boarding house, that’s when we hired a property manager, which we made a big mistake doing that.

[00:14:01] Annette: The week-to-week seems like a lot to manage though. 

[00:14:04] Rachel: The whole boarding house is a lot to manage. It’s one of the least passive ways to invest in real estate. And I’m glad you said that because I want to be upfront about that. Typically, if you can make more money on a property, it’s because you’re doing more work. Short-term rentals, you’re making more money, and you’re doing more work than you would for a long-term rental. And with the boarding houses, it’s a lot more work because you have 12 tenants. It was like having 12 adult children who would fight over, I need to use the laundry, and this guy ate my food out of the fridge. And it was such a pain.

[00:14:36] Annette: I was wondering about those types of friction between the guests. 

[00:14:41] Rachel: Yeah, but at the time, this worked for us because we didn’t have a lot of money, but we did have time. Not a lot of time either, but we had time, and we were willing to hustle and work hard to make this enormous cash flow in the front, knowing that we would build our wealth faster. Now, at this point, because I do have a lot of money and I’m more protective of my time, I would not do a boarding house again.

[00:15:03] I don’t want to work. And actually, we sold our boarding houses a couple of years ago, which we can talk about, but that’s how I saw it, is that, yeah, it was a lot more work. We were making a lot more money, but that helped us hit our goals faster, and it worked for us at that time.

[00:15:17] Sarah: Yeah, what are you willing to sacrifice to hit where you want to go? And so many people, like you said, Rachel, aren’t willing to do what you need to do, what everyone else is not doing, to get to where you want to go. So thanks for being honest about it, but also I was going to say, our listeners, they’re short term-rental operators, so I think this would be an interesting model should they want to pivot or, like you said, really fast track to get to where they want to go from a wealth building standpoint.

[00:15:40] Annette: That’s my last question about it. You answered that, yes, there would be those fights about who ate my food. So two questions. Were they responsible for cleaning, or would you bring teams in to do that sporadically?

[00:15:54] Rachel: They were responsible for keeping their bedroom clean, and we hired cleaners to come in once a week or once every other week to clean the common areas like the kitchens, bathrooms, lobby, stuff like that, just because it would be hard to hold people responsible for that, and we wanted the property to stay clean.

[00:16:11] Another thing I want to mention too before we change topics is that not every property is legally permitted or zoned to be a boarding house. And that’s something we learned later on. It didn’t mess us up, but it was a big like, oh, my gosh. So when you’re thinking about operating a property as a boarding house, you need to look into how many unrelated people are allowed to live under one roof because there’s restrictions on that in every city.

[00:16:39] How many different tenants can you have? Do you have to have a certain permit or license to operate it as a boarding house? Sometimes that’s required. Do you have to have a certain zoning to operate it as a boarding house? So you definitely need to look into all that. Even once there’s a certain number of people living under one roof, you might have to have an automatic sprinkler system, which is a 20,000-dollar thing to get that installed. So before we say it’s the best thing ever, just be aware that not every property can do that, and it really depends on the laws in your city.

[00:17:09] Annette: Now that makes a lot of sense. And the last question I have about the boarding house, where would you advertise? You said you had a waiting list. So was that word of mouth? Are there boarding house-specific websites that I just don’t know about? Where would you, um, find your tenants?

[00:17:24] Rachel: We only did two things, and we didn’t need to do more than those two things because we got so many calls. So we had listings on Craigslist, and we had a for rent sign in the front yard. And that’s all we did.

[00:17:35] Annette: Boom. All right.

[00:17:37] Rachel: I mean, there’s such a need for affordable housing, so I really recommend looking into the strategy. If you’re living in an expensive city, you want to make a lot of cash flow, you’re willing to work harder, and as long as you’re allowed to run a house that way, I think it’s a really underutilized strategy.

[00:17:53] I’m going to say there’s also the whole marketplace of young professionals who don’t mind living this way. Um, and like you said, it’s expensive markets where they can all have their own room. They’re actually big, beautiful houses, and the other rooms are rented individually. Yeah, exactly. 

[00:18:09] Annette: All right. You have the duplex, you have the boarding house, and it sounds like you had a few more boarding houses. Is that correct? On this–

[00:18:18] Rachel: Yeah, we bought another one. We bought another boarding house from the same owners a few months later, and then I found a huge duplex that was right next to one of the boarding houses. It was 3,500 square feet or something. And once I saw this duplex, it was just the perfect layout where we could do a renovation and turn it into another boarding house.

[00:18:42] And the other thing was it came on the market for 125 grand. This was another thing that I was like, this has to be a joke. I do want to say here that I had my real estate license in Kentucky, and I still do, and it was only for the purposes of me as an investor. I didn’t have clients or anything, but because I had my real estate license, not only was I making commissions on my properties and that helped us scale more quickly because that was big chunks of money I was getting, but I did have a slight time advantage.

[00:19:11] And I remember this duplex in particular, I had set myself up on a search so that anything that met my criteria, once it was listed, I got an immediate notification in my email. I saw this duplex for 125 grand. I was sitting at work in my cubicle, and I was like, there’s no way. So I took my lunch break early, and I went down to the property, and I let myself in.

[00:19:29] I set up a showing for myself because I could because I was a realtor. I could have access. And I was on the phone verbally making an offer on that property 20 minutes after it was listed. So if I hadn’t had my real estate license, I would not have had that competitive edge, competitive advantage, and I wouldn’t have bought that property.

[00:19:46] Annette: Boom. I love it.

[00:19:47] Sarah: Mic drop.

[00:19:48] Annette: No, I’m loving your transparency here because I feel like a lot of people will go through their real estate portfolio and their trajectory and leave out these key elements of really freaking hard work and some of those advantages of like, hey, I was a realtor here. I wasn’t waiting for this to hit Zillow, where every real estate agent in the city or state had seen it, and then get the alert. So we just appreciate you giving that transparency. And the work that you had to do, you invested in your real estate license in order to get that competitive edge.

[00:20:20] Sarah: I have a question for you, Rachel. You just said you were at your job. So you wrote a book. At the same time, I’m assuming you’re also growing your social media presence, so you’re creating content. You’re leaving lunch to go run around and get– how did you do that? In the most real sense possible, did you just not sleep? Were you really tired? Obviously, it was worth it, but talk us through, because I know a lot of listeners, myself included, can just feel like, oh my gosh, I’m in the thick of it. You being on the other side, what would you say to us?

[00:20:50] Rachel: I’m glad you brought that up, Sarah, because that two, three-year period is the hardest I’ve ever worked in my life. And now when I look back, I’m like, I don’t know how I did that. Because both my ex and I were working full time jobs, 40 to 50 hours a week. We were acquiring and managing our units. At the time, we had 26 units when we were still self-managing, and I was writing my book in the evening. 

[00:21:13] I just think it was sheer will, and drive, and determination, and it’s because I had a really big why. I grew up in a household where my parents struggled with money. They lived paycheck-to-paycheck. We would stress about it as a family all the time. We have two cars for four or five drivers, and every night, we had to sit down and be like, who’s taking which car where, and how are we all getting to our after-school activities. Every single night.

[00:21:39] And it was really hard to see that. And I remember thinking, I don’t want to end up like everyone else, struggling with money. I don’t want to have to operate on a strict budget for the rest of my life. I don’t want to have to say no to a family member who needs my help and I can’t help them because I’m broke. 

[00:21:55] And so I just had that fire and almost this fear of not having enough money and being dependent on somebody. And fear can either motivate you or paralyze you. Luckily for me, it motivated me, and I worked my butt off to achieve that financial independence. And it didn’t come without pain.

[00:22:13] My mental health struggled during that two or three-year period, and I do want to caution people against that because that was one of the first times I struggled with mental health. And I didn’t really know what was happening. I just knew I didn’t feel like myself, but I definitely lost a sense of balance because I was hustling so hard.

[00:22:31] And now that I’m on the other end, I’m like, I wouldn’t do it any differently because I love my life now, but I certainly didn’t need to go so hard. I could have relaxed a little bit and achieved in five years what I achieved in three years and maybe had a little bit more satisfaction, and relaxation, and everything. So I paid the price, and that’s what I did to make it happen.

[00:22:51] Sarah: Thanks for being so honest about that.

[00:22:52] Annette: Yeah. That’s good. Again, something transparent that a lot of people don’t share. They share the highlight reel of everything, but not the behind, because I’m like– before you were talking about the mental health, I was going to say, how many breakdowns, how many tears were shed during this–

[00:23:08] Sarah: It’s not funny,

[00:23:08] Annette: No, it’snot, but it’s real. Life is just 50-50, and sometimes, when it sucks, it’s awful. And there’s nothing else to do but curl in a ball, and let it out, and then keep moving forward. But no, thank you for sharing that. I also appreciate the why. I do see that a lot on your social. You share where you grew up, the city that you grew up, and how you have leveraged that to be an advantage to you now, as it wasn’t when you were growing up. So love that. 

[00:23:37] Rachel: Thank you. I appreciate it.

[00:23:39] Sarah: Besides the time constraint, the unbalance, and those struggles, what other obstacles did you face along the way getting to your goal?

[00:23:49] Rachel: Oh, gosh. Where do I begin? It’s not even if there’s obstacles, but there’s also all the mistakes I made, which I couldn’t even count them up. There’s so many. I mean, I still make mistakes to this day. So one of the biggest obstacles or mistakes is when we hired our first property manager. And this was when we had 26 stores.

[00:24:08] Of course, we were like, we just literally cannot. We don’t have the time to keep managing as we’re building this portfolio. So there was this husband and wife couple who had been working for us and doing things like maintenance and yard work and sometimes helping our tenants with stuff. And they always showed up.

[00:24:24] They worked really hard. They were some of the hardest working people I’d ever met. So we thought about hiring a property management company, but then we were like, you know what, let’s hire them, make them employees of our company, and make them the property managers. We can save some money, and it’ll be a win-win. It was not a win-win. It’s a win–

[00:24:42] Sarah: That’s what I would have done. Okay, go ahead.

[00:24:44] Rachel: It was a win-lose. They won. We lost. So one weekend, when my ex went to collect the rent from the on-site lockboxes we had, he noticed there was a lot of rent missing, and it wasn’t just a tenant or two paying late. It was a significant amount. Come to find out this couple had stolen $6,000 in rental income from us that weekend. And we found out that they had been squatting in the vacant rooms and units on our properties for about a year.

[00:25:11] It was awful. It was such a violation of trust. These were people that we had had in our personal house that we met with every week. And to think that they just would sit there week-by-week and lie to our faces while stealing money from us, such a violation. And I remember thinking, this is it. I’m not going to do this anymore. I’m going to quit. I can’t believe this happened. And I had my pity party for a few days, and then I was like, I’m not going to quit. I’m going to keep going. But it was a big lesson learned, which is that the cheapest option is rarely the best option.

[00:25:44] If we had hired a reputable, licensed, insured property management company, and one of their employees did that to us, they would be liable for those damages, not us. And that lesson goes for all of the people you hire as you scale your portfolio. Your attorney, your CPA, your contractor. This is not the place you want to cut corners. I would rather pay more money for a quality person than try to save money because being cheap can cost you a lot more in the long run.

[00:26:12] Annette: I think that’s good for our listeners to hear as they’re scaling their short-term rental portfolio. They might be hiring co-hosts or people to help them manage their guests. And sometimes, it’s exciting to “promote someone” that’s doing some of the good work for you, but you also do want to look at the other companies, like you said, they’re out there licensed, insured. They’ve got the reps in. The price that they’re charging or the fees that they are collecting are for a reason, so that sucks. There’s no–

[00:26:41] Rachel: That’s okay. I remember feeling like such a failure at the time, and I was just being really hard on myself, and I felt really discouraged, but someone, right after that, told me– I don’t know where this came from. I won’t take credit. That FAIL stands for first attempt in learning. And then once I looked at it that way, I had such a mindset shift because I paid a 6,000-dollar price. And I looked at that as my tuition payment. I learned a lot from that. I’m not going to ever make the same mistake again. 

[00:27:14] And you can’t be successful at something without failing multiple times, and figuring things out, and messing up, and making mistakes. So that was really helpful to me. And now I can gain even more value knowing I’m preventing other people from making that mistake. So please take my 6,000-dollar spend and learn from it.

[00:27:33] Annette: Right. Plus, who knows? I mean, who knows what could have been going on that you still don’t know about? But we won’t talk about that. All right. At 28 doors, you said you hired a property manager.

[00:27:45] Rachel: It’s about 26. I think somewhere around there.

[00:27:47] Annette: Twenty six. Okay. So obviously, we let go of the thief. So that’s what we’ll call it. And then you probably hired a new property management company. After these boarding houses, where they duplexes, fourplexes? Are all of them multi-families?

[00:28:00] Sarah: Yeah. What was your buy box?

[00:28:01] Rachel: Yeah. I had a fourplex, triplex, and duplex. Those were the three boarding houses. Between those, we had 34 units, or something, between those three properties.

[00:28:12] Annette: Got you. All right. And they’re all in Kentucky, all within a couple of miles radius there.

[00:28:19] Rachel: Mm-hmm.

[00:28:19] Annette: Awesome. All right. And when did you and your ex decide– was it 10 grand? I mean, at 38 doors, I’m thinking you’re probably clearing more than 10 grand. Did you stick to your plan of once we hit 10 grand profit we’re done? What was the deciding factor of quitting jobs and actually reaching that financial freedom? Did it come exactly at the time that you had planned with that dollar amount, or did you have to exceed it?

[00:28:44] Rachel: I think we hit it at the end of 2018, the 10 grand a month in profit, and that works out to $260 per door per month in profit, which was really strong for a long-term rental. So I was really happy with that number. And then it took me a whole year to work up the courage to actually quit my job.

[00:29:03] Because, as we all know, that’s a scary thing when you get to that point. And it’s like, oh, I can do it now, but wait a second. Should I do it now? So that took me a year to process. And then I finally quit my job in 2019 and just started really focusing on my business because by then, I had two books, and I thought there was some potential there.

[00:29:20] But I am really proud of us for hitting 10k and stopping because it can be very easy to keep pushing the goalpost. And a lot of people were like, why are you not buying more properties? You could have 200 doors. You could have a 250-unit empire. And that’s not ever what we wanted. We weren’t passionate about being landlords.

[00:29:42] We were passionate about real estate investing as a means to an end. And once we hit five from it, we wanted to spend our time on the things that brought us joy, and hike, and travel, and spend time together, and see our family and friends. So I am proud of us for having that firm boundary.

[00:29:59] Annette: Love that. And now, not that we need to bring this up, but I think you’ve started your real estate, you’re referencing your ex, and so we’ll just be a little aware that things change with a real estate portfolio when there’s–

[00:30:13] Rachel: Yeah. And that’s okay. I’m an open book about it.

[00:30:16] Sarah: Annette’s tiptoeing.

[00:30:17] Annette: I’m like, oh, they–

[00:30:18] Rachel: No, I know. It’s totally fine. I’ve talked about it in other interviews.

[00:30:21] Annette: We appreciate. You reach your financial independence. You are at the 10k, and life pivots for you. Can you walk us through how you dismantled the portfolio? Because I know you’re coming back even stronger. So I’d love to just touch on that really quickly and then how we moved on from it.

[00:30:38] Rachel: My ex and I made a decision in 2021 to sell our three boarding houses, which was not related to our divorce because we got divorced later. And we wanted to sell them because at that point, owning those was not in alignment with our goals. We wanted to have income streams that were as passive as possible.

[00:30:56] And like I said, starting out, those really helped us build a lot of wealth. But then we hit a point where we were like, this isn’t worth it to us anymore. We don’t want to have to keep working and worrying about these. And we started selling those with the intent to reinvest that money into syndications, which are a lot more passive.

[00:31:12] And that’s been my big focus for the last couple of years. So we sold them all in 2021. Also, it was a great time to sell. We profited a lot. In Kentucky, we had a lot of appreciation, which is not a market you would expect. So there was just a lot of things lining up at that time where it made sense for us to sell.

[00:31:30] And after that, we had four or five units left. In 2022, we got divorced, so we did sell a couple of the properties, and then he walked away with one, and I walked away with that first duplex we bought in Kentucky. And I remember feeling so self-conscious about it at the time. I felt like an imposter because I was supposed to be the young person who had this huge portfolio of 38 doors, and now I had two.

[00:31:59] And I was like, who’s going to listen to me anymore? And then I realized that’s a silly thing to think because it doesn’t take away from what I have done and achieved and the knowledge and experience that I have. So I’m definitely at peace with that now, but I did make a joke for a while where I was like, scaling from 38 doors to two doors in one year. How did I do it? Got a divorce. Follow me for more real estate investing advice.

[00:32:23] Annette: Sorry.

[00:32:24] Sarah: Rachel, I would have loved you even more. I’m like, this girl needs to be my bestie.

[00:32:29] Rachel: Oh, we good.

[00:32:29] Annette: Sorry. Sarah and I are both really– that was good. Those are facts. I can let the listeners know where I am at in life. I have a lot of friends that let’s say their lives have taken some turns. Their portfolios, whether it be investing portfolios or real estate portfolios, the thought of unwinding it stops them from making some big decisions where there is a lot of money involved and they can’t fathom splitting, and just what that work would be, and where that would– because they don’t want to go from 38 to two or millions to a few– so I think it’s important to share because it’s a message that people need to hear because they get paralyzed by something not being what it was before, so we love that. So you’re down to your duplex.

[00:33:20] Rachel: Yeah, my duplex in Kentucky, and then just a few months ago, I bought myself a duplex house hack in Denver where I spend most of my time and where I’m based now, so I’m really excited. I’m sitting in it now.

[00:33:31] Annette: Yeah. You’re doing some cool stuff with this. I love that you’re giving our listeners so many ideas. So take us through this duplex that’s going to be a fourplex. It’s going to be your home and a short-term rental. Tell us how you found this one. You’re not a realtor in Colorado, and that market is not cheap, so how did money honey Rachel attack that new market, this new strategy?

[00:33:52] Rachel: Yeah, this is such a fascinating deal. And now that I’m far enough along into it and I can see how much of a great investment it is, it’s just so fun to look back and think about the fears I had and all the mistakes I made. But I found this property. I was casually looking at the end of the year, and I used my close friend here who’s a realtor.

[00:34:12] And because I’m a realtor in Kentucky, I got a 25% referral fee, so I still made a little bit of money from the deal as a realtor, which was nice. So he set me up on a search. I was casually looking. I wasn’t really ready to buy. There was this property in the area that I wanted to live that came up, but it was more than I wanted to pay, and so I forgot about it. 

[00:34:34] Then I realized I couldn’t see it anymore. It was not an active listing anymore. And I realized it had gone off market. It was an expired, or a canceled, or withdrawn MLS listing. So I was like, what happened? So we realized that the sellers weren’t getting the offers that they wanted. It was the end of the year. They were like, let’s just take it off the market, and we’ll relist it in the new year, some time. 

[00:34:54] So I was like, it is my time to pounce. Now, the thing is when I first looked at this property, the numbers were horrendous. You wouldn’t have thought this would have turned out the way it did. So this property, they initially listed it for 865 and, at the time, I think it was bringing in 3,000 a month in rents, 1,500 per side. It was old. It was outdated. It was long-term tenants. So obviously, that is so far off from meeting the 1% rule. But I always tell people, just because it doesn’t meet the 1% rule when you look at it doesn’t mean it’s a deal breaker.

[00:35:28] You have to ask yourself, does it have the potential to meet the 1% rule? And that either means you have to lower the purchase price enough or increase the rents enough. So I was like, okay, maybe I can do a little bit of both. And this duplex was perfect. It was a side-by-side duplex with a full unfinished basement. Both of the sides of the basements had entrances leading directly outside.

[00:35:47] Sarah: Oh, heck yeah.

[00:35:48] Rachel: So I was like, done. This could be a fourplex. And I started looking at the numbers. I was like, could I rent it by the room? Could it be a boarding house? Could I do long-term tenants? Could I do medium-term? Could I do short-term? And I finally figured out a way where I could bring in, I projected, 8,000 a month in rent by a combination of long-term and short-term rents.

[00:36:10] So I bought the property, ended up getting it for 750. So I got it way under what they were asking because they were motivated by that point, and I approached them when it was off market, so I got a great deal. I got to talk about a mistake I made, but I now have one long-term tenant, one medium-term, and the short-term one, I’m about to launch. But even with those two units, the long-term and medium-term rented right now, I’m living for free. I’ve broken even on my costs.

[00:36:40] The Airbnb will be extra profit. And then when I leave and I travel, because I’m living in the fourth unit, I will be able to rent out mine as well, and it’ll bring in a lot more cashflow. So I’m so excited. I think at the end of the day, I’ll bring in between eight and 10 grand a month in total rents, so I’m very happy with how it’s turned out.

[00:36:57] Sarah: That’s amazing.

[00:36:58] Annette: We got to ask. What’s the mistake? You brought it up. 

[00:37:01] Rachel: There’s so many. Yeah. Okay, There’s really two. One’s not so much a mistake, but I think it’s helpful to share. So one is this renovation cost, I signed off on an estimate with my contractor for $180,000. It was not cheap. I refinished the kitchens and bathrooms in the units that existed, and then we made two whole units. So very expensive. I was very, very afraid. 

[00:37:25] I remember so many times I would call my realtor friend and be like, are we sure? What am I doing? This seems insane. I’ve never spent this amount of money before. And he would be like, you’re fine, and you know that you know you’re fine. That’s just an emotional thing.

[00:37:39] And I remember thinking, I’ve bought so many properties now. I have confidence in what I’m doing, but going to this price point and spending this much money did give me pause. It did create some fear. And in that moment, I realized that the difference between successful investors and not successful investors is not that we don’t have fear. It’s that we push through and take action despite the fear that we have. 

[00:38:06] And that’s what I had to realize, is that I logically knew these numbers worked. I knew I was conservative. I knew it was going to be fine, and it was just this emotion thing that was making me clench up and hold back. So I was able to push through. And that’s not the mistake. I’m just digressing at this point.

[00:38:22] The mistake is that the renovation budget was 180k, and I did build in buffer into my numbers because I always add in an extra 20 to 25% just in case, because renovations never stay on budget, and they always go over the timeframe. Now, luckily, my contractors were absolutely amazing, so they did stay on budget, but there were things that I couldn’t possibly have foreseen or accounted for up front, like the fact that I really needed to get a privacy fence installed. That was another 10k.

[00:38:49] Also, I did not realize until months after I closed on this property that it didn’t have AC. Somehow, it didn’t get brought up to me. I get hot. I need AC. I need the luxury of cool air on my body. I don’t know if the inspector just didn’t bring it up because it’s not like it’s something that didn’t work. It just didn’t exist.

[00:39:11] Sarah: Right. Didn’t exist.

[00:39:13] Rachel: And maybe my contractors, by that point, just assumed I knew that it didn’t have AC. So once I realized it’s getting really warm in here, and I don’t feel like the AC is working. Then they go look, and they’re like, you don’t have AC. And I was like, oh my God. So that was a 22,000-dollar fix.

[00:39:34] Sarah: Were the walls already up? Where were you at in the project? 

[00:39:37] Rachel: Yes, but luckily, because it had heat, there was already the vents. So they just had to install the condenser. I don’t know all the words. The coil, I don’t know. The AC unit. So they didn’t have to tear any walls, thankfully. That was 22 grand. Then I installed an egress window that I’m glad I installed. So there were just things like that that ended up adding up. So I did end up spending 220k, which is what I projected, thankfully. But it was 40k over what I had signed off on with my contractor. Lesson to be learned is make sure you do build in that buffer because you’re always going to use it up.

[00:40:14] Annette: Right. But now you have four doors that are all air conditioned.

[00:40:19] Rachel: Thank God. It was 96 degrees here two days ago. 

[00:40:23] Sarah: I have more questions for you that I think our listeners are going to want to know too. Your mid-term rental, did you furnish it?

[00:40:29] Rachel: Yes.

[00:40:29] Sarah: Okay. And your short-term rental– maybe we can turn the table a little bit. What are you nervous about, excited about, and are you going to manage it yourself?

[00:40:40] Rachel: I am excited. It’s my first Airbnb. It’s also this funny feeling of, I feel like a really experienced real estate investor, but this is my first Airbnb, and I don’t know what I’m doing. I have no idea. I’m just making it up and figuring it out as I go. But it’s funny to feel like a beginner in this space, and that’s pretty exciting. I was supposed to launch it a month ago, and then there was a sewage backup, and it flooded with poopy water. Yeah. Really fun. I stepped in it. 

[00:41:14] Sarah: Oh, real estate. Okay.

[00:41:16] Rachel: So then for a week, I’m ripping out carpet. It was ready to launch. So I had to have my TaskRabbit guy come back over and disassemble the furniture and move it out of the two bedrooms. Luckily, not all the carpet was ruined, but the two bedrooms were. Brand new carpet that I had just paid for that had never even been stepped on. So that, and then I’m ripping out the carpet, and rolling it up, and throwing it out.

[00:41:39] And finally, tomorrow I’m getting it reinstalled. And I think the learning lesson for me on this one is I dragged my feet on getting this fixed because I was so upset about the money. And I was like, well, what if it floods again? Should I laminate down? Should I just paint? For a while, I was like, I’ll just paint the cement floors and make the cement floors look nice and put down big rugs.

[00:42:04] And then I looked into doing that. That’s a whole process, painting a cement floor. It’s a whole thing. So I think for so long, I was just so hung up on like, how can I fix this as cheaply as possible? But you know what? I’ve missed out on a month of summer revenue because I failed to take action and hire somebody to get it fixed.

[00:42:24] And the amount of money I’ve lost from revenue is way more expensive than the amount of money I would have spent to just put more carpet in and pay somebody. And I could kick myself now. I just got into that frugal thing, that being cheap thing, which I keep messing up and making that same mistake. But now I know. And so I hired somebody, and it’s going to be launched next week, but super frustrating.

[00:42:44] Sarah: I just had this conversation with Annette about other things in business of this whole trying to piece together all the things to save a buck. And when you look back at it, you’re like, oh my gosh, I missed out on, whether it’s rent, or an opportunity. The mental mortgage that I paid to figure out how to save a buck, it’s just– that has to be like my biggest Achilles heel, is that exact thing.

[00:43:06] Rachel: Me too. And time is worth something. My time is worth something. And if I had spent hours and hours and hours painting concrete floor, I could be doing something much better with my time. I can be generating other revenue or just relaxing and not doing anything.

[00:43:20] Sarah: Right. 

[00:43:21] Rachel: And the lost opportunity cost. 

[00:43:22] Sarah: There’s a time to paint the floors in your beginning, when you’ve got the time and you’re listening to podcasts and reading books. But then there’s a time for action, and there’s a time for where you’re at right now. And you’ve got the knowledge where you can make a ton of money an hour, and that’s what you should be doing. And I know you know this, but I’m telling myself this. Just thinking about that, listeners, of really where you’re at and what you should be spending, whether it’s your time or the dollar, to just get the thing done and move on.

[00:43:49] Annette: So talking about–

[00:43:50] Rachel: That’s a great point. Yeah. 

[00:43:51] Annette: Talking about time, Rachel, why the short-term rental? Why the Airbnb? Is it to hit those numbers? Is it to hit the 1%? Is it because you want to get some reps in as a short-term rental host? Because we’re talking about time, we’re talking about energy. It’s going to be a lot of work. So why did you decide that one unit in this place would be available for short-term rental?

[00:44:16] Rachel: I initially thought that the short-term units would bring in more than the long-term unit because that’s typically what happens. And here’s another mistake I made. I like to share mistakes because it just shows people that no one’s perfect at this, and even when you’ve been doing this for years, you make mistakes. And I think people can learn more from the mistakes than all the perfect things that went right. 

[00:44:38] So I did my research on the permits and what I needed short-term rental-wise in the city that I’m in. I was confident I could have two short-term units. And then I realized I was wrong. And I’m a smart person, so I don’t know how I messed this up. So I ended up having to pivot and just have one short-term unit, and then a medium-term unit now, which is fine because it ended up working out. I was going to have to furnish both anyways. It wasn’t that much of a pivot. But what I find interesting is that I rented out my long-term unit for $300 more per month than my medium-term unit.

[00:45:16] I basically projected that each unit would bring in 2k a month in rent. My long-term unit is rented for 24, 25. 2,400 a month. My medium-term is now rented for 2,150, and maybe I could increase the price on that. And then I’m projecting that my short-term will bring in around 2,500 to maybe 3,000 per month. But it’s fine because it ended up working out. All my rents are better than what I projected, and having to change one short-term unit to a medium-term unit was no problem at all.

[00:45:47] Sarah: Why is that? Why is your medium-term making less than your long-term vacant leases?

[00:45:53] Rachel: I don’t know. I think maybe I underpriced my medium term/got lucky on my long-term. Because I rented it out at the beginning of the summer when everyone’s looking for a place to live in Denver, and it was listed for rent for 2,250, but they also pay a $100 flat fee for utilities, and then a pet fee, and then a small fee to use the one car garage. So it all adds up to that 2,400-dollar amount.

[00:46:19] Sarah: Yeah. 

[00:46:19] Annette: Got you. I love it though. You’ve got your house hacking, your short-term rental, mid-term rental, and long-term rental. Is that a Grand Slam? You’re hitting all the– it’sa home run. 

[00:46:31] Sarah: What is it when you win a Tony? Is it an EGOT? A Tony?

[00:46:36] Annette: You’re hitting– yeah, it’s a– 

[00:46:37] Rachel: A Triple Crown.

[00:46:38] Annette: You’re covering all the bases here at this one property in Denver.

[00:46:42] Sarah: Here’s the cool thing, Rachel. We’re now best friends, so you need short-term rental help, you let us know. What’s next for you? What are you hoping for in the next year or two?

[00:46:50] Rachel: I am hoping to continue my post-divorce healing journey. I’m in a happier, healthier place than I’ve been in years, and I just want to focus on myself and figure out what makes me happy, and grow, and learn, and I just want to be the best version of myself that I know is possible, and I haven’t reached my potential yet.

[00:47:09] So it’s really a lot about personal stuff, hobbies. I want to play the piano, and learn languages, and dance salsa, and hike, and travel, and lift weights. I want to spend time doing things that I love. I worked hard for a really long time, and I’ve never taken advantage of my financial independence, so I think I’m going to enter this new era of my life.

[00:47:29] Annette: Love it. And where can our listeners follow along on this weightlifting, salsa-dancing real estate investor?

[00:47:38] Rachel: Oh, yes. Thank you. My Instagram is @moneyhoneyrachel, and both of my books are available on Amazon, and ebook, paperback, and audio. And also what I would love to do for your listeners is if anyone wants to download my passive income starter kit, I will give that for free. So you can go to moneyhoneyrachel.com/passiveincome to download that.

[00:48:02] Annette: Love that. 

[00:48:03] Sarah: That’s amazing. 

[00:48:03] Annette: Thank you. And we’ll make sure to link to Rachel’s Instagram and her books in our show notes. And we just cannot thank you enough for sharing all the wins and losses. We appreciate that. We know people have learned a lot, so send Rachel a DM if you learned a thing or three on today’s show. 

[00:48:23] Sarah: This was a really good episode, Rachel. Thank you so much for your vulnerability and expertise. I can’t wait to see what’s next for you. With that, I’m Sarah Karakaian.

[00:48:32] Annette: I’m Annette Grant. And together we are–

[00:48:33] Both Annette & Sarah: Thanks for Visiting.

[00:48:34] Sarah: Talk to you next time.