Financial Freedom in 11 Years Thanks to This “Perfect” Rental Strategy

Summary

Podcast Summary: BiggerPockets Real Estate Podcast – Financial Freedom in 11 Years Thanks to This “Perfect” Rental Strategy

Episode Details:

• Title: Financial Freedom in 11 Years Thanks to This “Perfect” Rental Strategy
• Host/Author: BiggerPockets
• Release Date: March 10, 2025

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Introduction

In this compelling episode of the BiggerPockets Real Estate Podcast, hosts Dave Meyer and Brandon Turner engage in an insightful conversation with John Kessler, an accomplished real estate investor from Baltimore, Maryland. John shares his journey from an accidental landlord to achieving financial freedom in just over a decade using a refined rental strategy known as the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat). This episode delves deep into John's strategic decisions, challenges faced, and the lessons learned along the way.

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John Kessler's Early Real Estate Journey

John Kessler's foray into real estate investing was unplanned. His initial step into property investment was born out of necessity rather than ambition.

• Accidental Landlord Beginnings:
  • [00:26] John Kessler: “My first experience with an investment property was it was a primary residence that I turned into a rental out of necessity.”
  • In 2006, John purchased his first home for $150,000, financing 100% of it. However, the 2008 real estate correction left him underwater by nearly 50%, forcing him to become a landlord to avoid foreclosure.
  • [02:40] John recounts being a single father, outgrowing his two-bedroom home as his family expanded, leading to the transition into rental property ownership.

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Transition to Active Real Estate Investing

Despite the rocky start, John’s initial foray into renting laid the groundwork for his future in real estate.

• From Reluctant to Proactive Investing:
  • [05:10] John explains how, by 2014, he had saved enough to consider scaling his investments, motivated by both improved financial readiness and a desire to spend more time with his family.
  • The introduction to the BiggerPockets podcast was pivotal. Listening to episodes introduced John to the BRRRR method, igniting his passion for more structured and strategic investing.
  • [07:35] Brandon Turner: “It sounds like discovering the BRRR Method is sort of what put you in another gear in your investing, is that right?”
  • [07:35] John Kessler: “Yes, it was a combination of that and... exposure to the BRRR Method and that kind of just opened my eyes to what is actually possible.”

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Implementing the BRRRR Strategy

John's adoption of the BRRRR method marked a significant turning point in his investment strategy, allowing him to unlock equity and reinvest efficiently.

• First BRRRR Success:

  • [08:44] Around 2018, John embarked on his first BRRRR deal. He purchased a three-bedroom townhome for $92,000, invested approximately $7,000-$8,000 in renovations, and successfully refinanced the property at $125,000.
  • [09:24] John Kessler: “...ending up being able to pull out a little bit of my capital, not all of it.”
  • The success of this project validated the BRRRR method for John, allowing him to extract significant equity from his investments.

• Achieving a "Perfect" BRRR:

  • [14:03] John shares his pursuit of a “perfect” BRRR, aiming to refinance to withdraw 100% of his invested capital.
  • [15:33] John Kessler: “I wanted to do a perfect brrrr... I started passing on deals where I was going to be leaving capital in.”
  • Despite setbacks, including a moratorium on foreclosures due to COVID-19, John's patience paid off when the property’s value increased, and interest rates fell. This allowed him to refinance at $330,000, pulling out $50,000—exceeding his initial investment.
    • [17:46] John Kessler: “...I pulled about $50,000 out of it, More than what I put into it.”

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Challenges and Lessons Learned

John candidly discusses the hurdles he faced, offering valuable lessons for fellow investors.

• Setbacks During COVID-19:

  • The foreclosure moratorium delayed the closure of a promising deal, which paradoxically resulted in a highly profitable outcome once restrictions lifted.
  • [16:35] John Kessler: “That deal actually turned into one of the best deals I ever did because of the moratorium.”

• Balancing Active Management:

  • Initially managing properties himself while working a full-time job and raising three children led to burnout.
  • [31:28] John admits, “I was definitely burning myself out...”

• Overcoming Perfectionism:

  • John reflects on the folly of striving for perfection, which caused him to miss out on potentially lucrative deals.
  • [19:15] John Kessler: “I believe I would have been better just doing solid deals and holding out.”

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Scaling the Business

As John refined his approach, he scaled his operations, embracing wholesaling and streamlined systems.

• Entering the Wholesaling Market:

  • After incurring $80,000 in assignment fees over three wholesale deals, John recognized the value and potential of wholesaling, prompting him to establish his own operation.
  • [29:35] John Kessler: “I just started throwing gas on the fire, kind of going faster than...”

• Adoption of Direct Mail Marketing:

  • Partnering with a direct mail company, John began sending targeted mailings, quickly generating leads and securing his first wholesale deals within a month.
  • [30:22] John Kessler: “I started sending letters... and I got my first deal within a month from that first batch.”

• Operational Efficiency:

  • To manage the increased workload, John hired a property manager and construction manager, thereby freeing up his time while continuing to grow his portfolio.
  • [31:57] John Kessler: “...hired a property manager and he also helped me with construction management.”

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Achieving Financial Freedom

John's strategic scaling culminated in achieving financial freedom, allowing him to transition from active management to more passive investment strategies.

• Reaching the Milestone:

  • [33:36] John Kessler: “If we had to, we could live off of passive income.”
  • Over 11 years, John expanded his portfolio from 5 units to 19, alongside a successful wholesaling business, generating substantial cash flow that afforded him and his family greater freedom and security.

• Transition to Passive Investing:

  • Burnout and financial constraints in early 2023 prompted John to pivot towards passive investment avenues.
  • [33:23] John Kessler: “I started to focus on more passive avenues and partnerships where maybe I can lend my expertise and money, but not my time.”

• Current Investment Focus:

  • John now engages in syndicated multifamily investments through his self-directed 401(k), allowing him to enjoy passive income without the day-to-day hassles of property management.
  • [36:37] John Kessler: “I'm pivoting. Like I said, more passive direction. And the future is probably going to be a lot of syndications as a limited partner...”

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Future Plans and Reflections

Looking ahead, John envisions a portfolio that continues to grow passively, leveraging partnerships and syndications to build wealth without the associated time commitments.

• Continued Growth:

  • John plans to invest further in syndications, utilizing his experience and capital to back larger, professionally managed projects.
  • [37:15] John Kessler: “I did my first one probably about 5 months ago from a self directed 401k and so far it's working out.”

• Advice to Aspiring Investors:

  • John emphasizes the importance of adaptability, patience, and learning from setbacks. He encourages investors to balance active and passive strategies to optimize both growth and personal well-being.
  • [19:56] Dave Meyer: “...it's always going to be harder to be able to pull 100% of your equity out. But I've done a burr in the last year. Like, I still think they could work.”

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Conclusion

John Kessler's journey from a reluctant landlord to a financially free real estate investor underscores the transformative power of strategic planning, continuous learning, and adaptive investing. His experiences highlight the importance of leveraging the BRRRR method effectively, the benefits and challenges of wholesaling, and the eventual shift towards passive income streams to achieve lasting financial independence.

Key Takeaways:

• Start with Necessity: Even unplanned beginnings can lay a strong foundation for substantial investment growth.
• Embrace Learning: Platforms like BiggerPockets can provide invaluable insights and strategies for scaling real estate investments.
• Strategic Scaling: Balancing active management with efficient systems and delegation is crucial for sustainable growth.
• Flexibility is Crucial: Being open to pivoting strategies, such as moving from active to passive investing, can enhance both financial returns and personal well-being.
• Patience Over Perfection: Striving for perfection can hinder progress; executing solid deals consistently is more beneficial.

John's story is an inspiring testament to what dedication, resilience, and smart strategies can achieve in the realm of real estate investing.

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Notable Quotes:

• [07:35] John Kessler: “...exposed to the BRRR Method and that kind of just opened my eyes to what is actually possible.”
• [14:39] Brandon Turner: “...that's what I needed.”
• [17:46] John Kessler: “...I pulled about $50,000 out of it, More than what I put into it.”
• [19:15] John Kessler: “I believe I would have been better just doing solid deals and holding out.”
• [30:36] John Kessler: “I was getting away from the original intent of starting this business.”
• [33:36] John Kessler: “If we had to, we could live off of passive income.”
• [37:24] John Kessler: “I just put some money into one. It's my first one probably about 5 months ago from a self directed 401k and so far it's working out.”

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Final Thoughts:

John Kessler's real estate journey encapsulates the essence of persistent effort, strategic adaptation, and the pursuit of financial autonomy. His transition from managing properties himself to embracing passive investment strategies serves as a blueprint for investors aiming to balance growth with personal fulfillment.

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For more inspiring real estate stories and investment strategies, subscribe to the BiggerPockets Real Estate Podcast on your preferred podcast platform.

Transcript

[Dave Meyer]

The perfect Burr. You may have heard of it, but only a few investors have ever actually pulled it off. Today we're speaking with one of those.

[Brandon Turner]

Investors who not only executed a perfect brrrr deal, but pulled out an additional $50,000 more than what he originally invested.

[Dave Meyer]

Hey, everyone, it's Dave Meyer here. I'm the head of real estate investing.

[Brandon Turner]

At BiggerPockets and the host of the BiggerPockets real estate podcast where we teach.

[Dave Meyer]

You how to achieve financial freedom through real estate. And today's guest has done just that.

[Brandon Turner]

We've got an investor story with a guy named John Kessler from Baltimore, Maryland on deck for you. And one thing I really like about John's story is that his investing career has three distinct stages. If you've listened to any of the shows recently where we've had Chad Carson on as a guest, Most recently episode.

[Dave Meyer]

1072, you'll hear Chad's framework where he.

[Brandon Turner]

Talks about having a starter phase, a builder or growth phase, and then at the end, sort of a harvester phase.

[Dave Meyer]

And John's career follows this framework and path.

[Brandon Turner]

In his first six years, he acquired five properties. Then in the next five years in his builder phase, he scaled up to 19 units, including a wholesaling business. And that's when he did that Burr deal where he was able to pull out more than 100% of the capital he invested.

[Dave Meyer]

Now, 12 years later, John has achieved.

[Brandon Turner]

Financial freedom and is investing more passively so he has time to spend with his family. So as we hear John describe how he built his real estate business, I encourage each of you to listen and think about which stage of investing you're in right now and whether you're prioritizing.

[Dave Meyer]

Your time and your money accordingly or.

[Brandon Turner]

If maybe you need to readjust. All right, let's bring on Jon Kessler. John, welcome to the Bigger Pockets podcast. Thank you for joining us.

[John Kessler]

Absolutely. Excited to be here. Thanks for having me.

[Brandon Turner]

Yeah, absolutely. So give us a little bit of background. Tell us a little bit about yourself and why you first started looking into real estate in the first place. But I think it was like 10, 11 years ago now.

[John Kessler]

Yeah, it was a while. So my background is I'm in tech. I still have a full time W2 job, married father of three. So, you know, real estate's not my full time thing. It has always been a side hustle, but got my start a little bit by accident. You know, my first experience with an investment property was it was a primary residence that I turned into a rental out of necessity. So what happened was in 2006, I bought my first house for myself.

[Brandon Turner]

Okay.

[John Kessler]

And I was a single guy at the time, and it was this little two bed, one bath, 900 square foot house, and it was plenty of room when it was just me. But six years later, married, we have a one year old, we have another. Another one on the way, and we're just outgrowing it. So, yeah, the wife and I decided it was time to upgrade. And the problem is in 2008, there was a little bit of a real estate correction.

[Brandon Turner]

Heard about it.

[John Kessler]

Yeah. Yeah. I was so far underwater on that first property, it just would have completely wiped out my down payment. So the only option was to give being a landlord a try. And that's how I kind of got my start.

[Brandon Turner]

Wow. So you are the prototypical. We call them accidental or reluctant landlords. Like you never.

[John Kessler]

Oh, yeah.

[Brandon Turner]

Sought out, being a landlord. You didn't come to this by financial freedom. It just was necessity.

[John Kessler]

Yeah.

[Brandon Turner]

Do you mind telling us a little bit about that primary residence? What'd you buy the property for in 2006?

[John Kessler]

Yeah. So this should give you an idea of how inflated prices were. So I bought that house for $150,000 in 2006. I financed 100% of it, which is something you could actually do at the time. Yeah, it's not always cracked up to be. It actually wasn't that good of a thing. Two years later, after the crash, I think I would have been lucky to sell it for about 90,000. So I was underwater about 60 grand, which was almost 50%, like within two years.

[Brandon Turner]

Wow, I'm sorry to hear that. So fortunately, it sounds like, though, when you were looking to buy your second primary residence in 2012, you had saved up enough money that you could put your down payment on this new primary, but you had to hold on to the other one because you don't want to have to come out of pocket to pay the bank. Right, yeah, yeah.

[John Kessler]

That wasn't a choice. Like, I could have sold it and been homeless and. Or, you know, go back to renting, or I could have bought a house. There was no in between.

[Brandon Turner]

So what was that like, becoming a landlord with a young family and working full time?

[John Kessler]

I got really lucky. In hindsight, looking back, knowing what I know now, my original tenant was really easy. It was a friend of a friend. You know, she kept the place nice, she paid on time. She only called when there was, like a real issue. So she honestly really helped me forget that I had this. This rental property.

[Brandon Turner]

Oh, that's good.

[John Kessler]

Yeah. Cash flow. I was renting it out for pretty much what the mortgage was. I was fine with that. I wasn't trying to make money. I was just trying to kick the can down the road a few years and then, you know, figure it out.

[Brandon Turner]

Well, it sounds like that worked and you were at least able to kick the can down the road. How did you go from this sort of accidental landlord position to actively trying to grow business?

[John Kessler]

Yeah. So I still didn't really have any intention of being a real estate Investor. But about two years later, in 2014, I'd managed to save up some money again. And the, I don't know, kind of fear of being a landlord was gone. Even though I didn't have a ton of experience, it now seemed like an option. And I was already putting money in the stock market through a 401k through work, and I still didn't know what I was doing. But I knew enough to be able to look at 2014 prices and say if I just bought a similar house but rented it out for the same amount instead of breaking even, I'd be making, I don't know, maybe four or five hundred bucks a month. You know, there's something here.

[Brandon Turner]

Because prices were still below where they were in 2006.

[John Kessler]

Oh, yeah. Yeah. So. So I called the realtor who sold me my second house because I knew that he had been a landlord just from talking to him, from when I bought my second house. And I asked for his advice, what to buy, where to buy, and he helped me find something.

[Brandon Turner]

Yeah, it's great.

[John Kessler]

Yeah. It was even in the same neighborhood as the first one. Turns out I kind of got lucky with that location. Second one was a three bed, one bath townhome. Same neighborhood, and it was turnkey. It was fully renovated, nothing high end, but it was well maintained. It was fine. Move in ready. And I paid 108,000 for it was the purchase price.

[Brandon Turner]

And how did that landlord experience compare to your ideal tenant in the first one?

[John Kessler]

I got lucky again, but in a different way. Still didn't know what I was doing. Didn't have good tenant screening in place, and I moved somebody in who, on paper, I never should have placed. Luckily, they didn't really cause damage to the property. They didn't mess it up, but they did stop paying rent pretty early on. So I got to go through that experience, was lucky enough I didn't actually have to evict them. They moved out willingly, but got the other end of the spectrum with that second tenant.

[Brandon Turner]

Man. So why'd you keep going after this? I'm always curious to hear these things because everyone takes lumps early in their career. It just happens. I've always just want to understand sort of the mentality that you approach because you had a bunch of other stuff going on. You had a couple of challenging situations early on. What drove you to build and scale from here?

[John Kessler]

Well, I'm not just saying that because I'm here, but shortly after buying that second property, I stumbled on the the Bigger Pockets podcast and feel like I started to get a real education there, started learning a little bit more about how to all the stuff, you know, manage a property. I got exposed to the BRRR Method and that kind of just opened my eyes to what is actually possible.

[Brandon Turner]

So honestly, it's not that dissimilar a story that we hear a lot. I myself, I didn't know about Bigger Pockets. I did my first two deals and was managing seven units at that point before I really discovered the podcast are working at BiggerPockets and then was like, oh my God, I have been doing everything completely wrong. But luckily I was still, you know, turning a profit, doing okay, having done everything wrong. And that was pretty exciting to me. That like, man, oh yeah, I can get so much better at this. And thankfully I did. So it sounds like discovering the BRRR Method is sort of what put you in another gear in your investing, is that right?

[John Kessler]

Yeah, it was a combination of that and it was also the fact that I had this family now. We actually have three kids and we kind of had them to back to back. So there's maybe a four year gap between one and two. And I was working a much more demanding job than I am now and I spent a lot of time in the office away from the family and it really started to bother me that I didn't have more time with them. So between that and listening to Bigger Pockets, I started to plan an exit strategy, so to speak, which didn't quite work because I'm still, I still have a W2 job, but now, now it's kind of by choice, not because I have to.

[Brandon Turner]

When Was this?

[John Kessler]

Around 2018. I felt like I had enough capital built back up to try it again. And this was my first attempt at a brrrr. Same neighborhood, another three bed, one bath, townhome. This one really didn't need a ton of work, mostly cosmetic. I bought it for about $92,000 and at the time I was still doing a lot of the work myself, but I think I put maybe 7 or $8,000 worth of materials in it.

[Brandon Turner]

Oh, that's not bad. I mean, yeah, it's for a cheap house, you know, it's still a lot, but it's not bad.

[John Kessler]

Yeah, yeah, no, it wasn't bad at all. And it appraised for about 125 when I was done. So I ended up being able to pull out a little bit of my capital, not all of it.

[Brandon Turner]

And you got hooked?

[John Kessler]

Yeah, oh yeah. Oh yeah. That proved the concept to me. I was, I was ready. So, I mean, it was later on that year I did my second one. I got a little more aggressive. I also hired a general contractor because it was taking too much of my time away from the family to do the work myself. So I finally started hiring people.

[Brandon Turner]

But it's kind of beneficial, right, to do it yourself a little bit at first because then at least you know what you're looking for and what some of the pitfalls are going to be and where the challenges lie.

[John Kessler]

Yeah. And I also quickly realized that I really wasn't saving money doing it myself because how fast can a contractor remodel a bathroom versus me? It's going to take me three months, a weekends, 100%. And if I had just worked my regular job, I would have came out hugely ahead.

[Brandon Turner]

Yeah, you only save money doing things yourself if you're actually good at it. If you're not good at it, you're losing money and time and efficiency and you're not scaling. We've talked about it many times on the show, but it's worth repeating as many times as is necessary. Only do these things yourself if you are confident and able to do them.

[John Kessler]

Yeah, I agree. I mean, even now, like, you know, I'm in tech, I'm pretty good with, with a lot of different tech related things and I still outsource a lot of tech aspects of investing to other people.

[Dave Meyer]

All right, I want to hear how.

[Brandon Turner]

You scaled up to your next bur John. But first we need to take a quick break. We'll be right back.

[Dave Meyer]

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[Brandon Turner]

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[Brandon Turner]

About how he went from accidental landlord to doing his first brrrr. So back to your story, John. You did your first brrrr. You did it yourself. What did you do next? How did you sort of develop a more scalable business model for yourself?

[John Kessler]

So what happened? I did. I did two brrrrs. They were both off the MLS in 2018, I was able to get most of my capital, maybe half the most back out. And in 2019, I had this idea in my head that I had to do a perfect burr. So I started passing on deals where I was going to be leaving capital in. I just wanted to accelerate the velocity. Kind of had the opposite effect. I think I was being too picky.

[Brandon Turner]

I just want to explain to everyone, John, before you do what a perfect brrrr is. So brrrr stands for buy, rehab, rent, refinance, repeat. Basically you buy a property, you put additional capital into it to improve that, you rent it out and get a stable tenant in there. Then you refinance it. And why you refinance it is to pull some of your capital out. Ideally you're able to take out at least your renovation costs, maybe some of your initial down payment, as much as possible. And the term quote unquote perfect brrrr is when you're able to take out 100% of your equity. So if John on a deal was to invest 100 grand in both acquisition costs and ren costs, then when he did a cash out refi after doing the renovation, should he be able to take out that $100,000? That's a perfect brrrr. Sorry John, just want to explain that, but please go on.

[John Kessler]

That's what I thought I had to do because I didn't really have a clearly defined goal. And I just started to get obsessed with this concept of a perfect burr. So it took me a while. It took me about seven or eight months to find another deal that I thought worked. I actually took an assignment from a wholesaler. This was the first wholesale assignment that I ever took. This is a Wholesaler I met at a meetup. And this was kind of. Kind of a sign of the times. Shortly thereafter, I found out that I was not going to be able to close on that anytime soon because Covid happened. And this was a foreclosure auction deal and they put a moratorium on foreclosures. So I didn't know when I was going to be able to close on this deal. I had this contract and it was just kind of held in limbo indefinitely.

[Brandon Turner]

And did you have earnest money down?

[John Kessler]

Yeah, I put down. I put down a pretty sizable deposit. It was about $13,000 actually, with the title company.

[Brandon Turner]

Oh, wow. And so that was just sitting there.

[John Kessler]

That was just sitting there with the title company in escrow. And I was also responsible for the property taxes of the property until it closed, until it was ratified.

[Brandon Turner]

Oh, no. Okay.

[John Kessler]

Well, that deal actually turned into one of the best deals I ever did because of the moratorium.

[Brandon Turner]

Tell me about it. I want to hear that.

[John Kessler]

I was not able to close on that property for two years. So that's how long the moratorium lasted. And it was lifted in late 2021. And between 2019 and 2021, property values went up significantly and interest rates dropped. So I had that under contract for $120,000. This was a single family detached, and it was a four bedroom. And I knew that I could turn it into a five bedroom, which is really good for voucher programs, which I do a fair bit of. I closed on it, actually got a private loan from a co worker. He lent me around $190,000 for the purchase. So I was actually able to take about almost $50,000 cash home from the closing table, from the purchase. I did my remodel. The remodel was about $45,000. So I used pretty much roughly the cash I took home. And then when I placed a tenant and refinanced it, it appraised for $330,000. What? So, yeah, so I pulled about $50,000 out of it, More than I put into it.

[Brandon Turner]

Oh, my God.

[John Kessler]

Yeah, it was incredible. And that's a 30 year fixed. It's a four and a half percent loan. Monthly payment with taxes and insurance is 1600.

[Brandon Turner]

Wow.

[John Kessler]

And today it's rented out for about 2,750 right now.

[Brandon Turner]

Oh, my God. Wow. They need to come up with a word other than perfect birth, because that's better than perfect, right?

[John Kessler]

Yeah.

[Brandon Turner]

Just pulling 100% out is not perfect. If you can, there's a more perfect version that you have invented. John. By taking out 50 gr more than what you put into the deal. That's incredible.

[John Kessler]

Yeah. All you need is a pandemic and to delay closing by two years. And it's easy.

[Brandon Turner]

I mean, how worried were you during those two years, though? Or were you seeing the property value go up? Because Starting mid summer 2020, things were already starting to go a little bit crazy.

[John Kessler]

Originally, I was a little grouchy that my $13,000 earnest money deposit was tied up. And I was also frustrated because it had taken me so long to find a deal that I thought was good enough. But I moved on. I didn't wait for that to close. I moved on to other deals. But then as time went on, I just got more and more excited for this deal just because I saw these numbers.

[Brandon Turner]

Yeah.

[John Kessler]

I was like, just making money. I didn't even own the property. It was fantastic.

[Brandon Turner]

Yeah. That's unbelievable. Wow. That's pretty cool. I just want to take a, you know, detour here because I'm curious about the philosophy. Looking back on it, do you regret waiting to try and find a perfect burr, or would you have been better off, like, just doing some solid deals and not holding out?

[John Kessler]

I believe I would have been better just doing solid deals and holding out. And I had no real reason to wait for a perfect burr. I just got it in my head that that's what I needed.

[Brandon Turner]

Yeah. Yeah.

[John Kessler]

It was actually a episode of Biggerpockets that kind of got me unstuck. David Green was talking and they weren't. This wasn't even the subject of the episode. He just, you know, how was your weekend? He's like, oh, yeah, it's great. I just got an appraisal on one of my properties. I'm only going to leave $12,000 in it. And I thought to myself, wait, wait, you can do that? That's allowed?

[Brandon Turner]

Like that. It wasn't perfect. Any less money in the deal. Yeah.

[John Kessler]

I just needed to hear, like, an expert say it's okay.

[Brandon Turner]

Of course.

[John Kessler]

And then I sat down and put pen to paper and actually, what is my goal? And then I realized I could afford to leave a little bit more in some of these deals.

[Brandon Turner]

Absolutely.

[Dave Meyer]

And the reason I bring it up.

[Brandon Turner]

Is because I hear this mentality a lot these days because brrr is harder. It's always going to be harder when you're not in this just rapidly appreciating environment. And honestly, unusually rapidly appreciating environment that it's always going to be harder to be able to pull 100% of your equity out. But I've done a burr in the last year. Like, I still think they could work. Oh, yeah. I'm not a perfect one, but I guess I've never really seen that as my goal. And I witness a lot of investors sort of falling into a similar trap that you did, John, where it's kind of like you're expecting this perfect situation where in today's day and age, you might just need to be a little bit more patient for your second deal or your third deal and just like, do the deal that's in front of you.

[Dave Meyer]

It's not for everyone.

[Brandon Turner]

Some people might want to hold out, but I do witness a lot of people sort of wanting to hit that grand slam, but might be missing triples or home runs, you know, in the. In the meantime, holding out for those kind of deals.

[John Kessler]

Oh, yeah, absolutely. And, you know, I think it gets easier as you accumulate more rentals and get more cash flow. It gets a little easier to not pull all of your capital back out.

[Brandon Turner]

That's true. Like, once you have more irons in the fire, if you will, you know, it's not like you need to get 100% out so you can do that second deal to do that third deal. When it's your eighth deal, your 10th deal, you know, it's a little bit easier to just slow down. That's definitely true. So in the meantime, John, like when you were doing. You were waiting for the moratorium to come up, were you doing any other deals?

[John Kessler]

Yes, I did one more off the MLS later that year, and that was a perfect burr.

[Brandon Turner]

Nice. Two.

[John Kessler]

Yeah. I mean, there were some that went the other way too. So they're not all. They're not perfect.

[Brandon Turner]

Good to know.

[John Kessler]

Yeah, yeah, yeah. So that was my last deal that I ever did on the mls, even through today. That's when I realized I could start to leave a little bit more money and I wanted to try to accelerate. And even though I'm off the idea of doing a perfect brrrr, I still saw the MLS as being a little too competitive. So I started networking with wholesalers a bit more. And one day I put a post on Facebook and this investor group for locals, just kind of describing what I was looking for. And within, I would say, 10 minutes, a wholesaler replied with a contract he had signed less than a half hour before I made that post, and I ended up taking three assignments from him in less than a month.

[Brandon Turner]

Wow.

[John Kessler]

So as a very well timed, kind of fortuitous Facebook post.

[Brandon Turner]

So these were for brrrs.

[John Kessler]

Yes.

[Brandon Turner]

Okay. And how much better of a deal do you think you got because you went with a wholesaler than for buying an MLS deal?

[John Kessler]

So what happened was. Actually, let me ask you this. You probably know where I'm going with this. Across all three deals, how much do you think I paid in assignment fees? Totally.

[Brandon Turner]

I mean, just guessing based on what your deals were costing, I don't know, 20 grand?

[John Kessler]

Across the three, I paid $80,000 in assignment fees. Eight. Whoa, three deals. And I wasn't upset about it, but I was jealous because they worked like the numbers worked. I was able to pull out a lot of my money on all three of these deals. I was actually happy that this wholesaler made this much money off of me because I figured he was going to keep bringing me deals. Like, this is great.

[Brandon Turner]

To be candid, I've never bought a deal from a wholesaler. I've looked at a lot of deals from wholesalers, but I was figuring with the price point of the houses you were looking at, you know, you're paying five, ten grand maybe per assignment fee.

[John Kessler]

I don't know what his secret sauce was. He was getting incredible deals. Incredible deals like these were so far below what they could have sold for in the mls. It was incredible.

[Brandon Turner]

I mean, to be fair to the wholesaler, you were willing to pay up. Oh, yeah, average 25, $27,000 per per assignment because the deal was still so good that it was worth it even when you were paying that large assignment fee.

[Dave Meyer]

I mean, that is correct.

[Brandon Turner]

If that wholesaler is creating value and you're willing to pay for that value, I mean, why not?

[John Kessler]

Absolutely. And I really did get probably more than half my capital out on each one. Like this. This was working. I would have kept buying them from him, but we just never made another one work. So those were the only three I bought from him. But when I saw those assignment fees, I thought, I don't really know how to go get my own off market deals. But for $80,000, I bet I can figure it out. So that's what started doing. I hopped on Biggerpockets and I just found someone who kind of owned a direct mail company. And I reached out and got their advice and I just started sending letters like, oh, okay. A couple months later.

[Brandon Turner]

So you were basically like, yeah, this was great. I found these three great deals, but I'd rather do these deals and not pay $80,000 for it. Okay, well, good for you. I'm still waiting for the part of this story, John, where you work less.

[Dave Meyer]

Because it Seems like you just keep.

[Brandon Turner]

Taking on more and more stuff.

[John Kessler]

Yeah, the way I went about it was definitely not the ideal way. If you're trying to work did it the hardest way possible.

[Brandon Turner]

All right, well, I, I want to hear more about how you started a wholesaling business, but we do have to take another break. We'll be right back. Real estate.

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[Brandon Turner]

We're here With John Kessler. When we left off, John was telling us how he had just paid $80,000 in assignment fees for three wholesale deals that he purchased. But then he was motivated to. Sounds like you started your own wholesaling company, right, John? Tell us how you went about that.

[John Kessler]

Yeah, so again, I just didn't know what I was doing. I went on biggerpockets. I found someone running a direct mail company. I had no particular reason for choosing direct mail. I was just aware of it.

[Brandon Turner]

The popular strategy.

[John Kessler]

Yeah. We hopped on a call. He kind of gave me some advice, and I just started pulling data and sending mail. And at the time, I actually did not intend to be a wholesaler. But once you start marketing, you never know what you're going to get. And people started calling with properties that didn't fit my particular criteria. But you don't want to waste marketing dollars. So I ended up starting to do some assignments too.

[Brandon Turner]

Okay, so yeah, originally you were just looking for yourself. You just wanted deal flow for your own properties. What were you looking for? More brrrrs.

[John Kessler]

Yeah, more burrs. I was just sticking with what I knew. The neighborhoods I knew. These little three bedroom townhomes seemed to be working out really well for me. So that's all I was mailing. It was a pretty small amount of records at the time. Maybe 800 letters a month.

[Brandon Turner]

Okay.

[John Kessler]

And it was working. The phone was ringing.

[Brandon Turner]

How long did it take you for the phone to start ringing?

[John Kessler]

I mean, probably the day the mail hit. It started.

[Brandon Turner]

Okay. Wow.

[John Kessler]

I mean, there's a delay between when you send letters and when they land. But it was less than a week after I put my order and I just started getting calls. And I got my first deal within a month from that first batch.

[Brandon Turner]

That's fast because we talk to a lot of people who do this direct to seller, and usually it's, you know, three months, six months, nine months of grinding. So just for everyone listening, that is normal. It is normal for it to take a while. And that is something you need to know is that you might not hit it immediately. Are you still doing this? You still running the wholesaling operation?

[John Kessler]

Not the same way. And it was similar to when I first tried out Brrrr. And it worked. You know, I tried direct mail and it worked and I got hooked. And I just started throwing gas on the fire, kind of going faster than. Than the system. Well, I had no systems faster than I should have based on what I had in place. And I was in such a hurry, I. I started just jumping from marketing channel to marketing channel and just throwing more and more marketing dollars in it. And it was working. It just wasn't optimized. So it was very labor intense and I was doing all aspects of it. I didn't have any. Any real help with it.

[Brandon Turner]

And you're still working full time, right?

[John Kessler]

Correct. Working full time. Still have 3 school age kids at home. And I was. I wouldn't recommend anyone else do it the way I did because I was definitely burning myself out, you know.

[Brandon Turner]

Yeah. It sounds a little bit like you were sort of getting away from the original intent of starting this business.

[John Kessler]

Yeah, very, very much so. Very much so. I was working all day, family in the afternoon. And then and weekend I was on the phone looking at properties, managing contractors. I was still self managing my rentals. After a while I hired a property manager and he also helped me with construction management. So that did help me free me up quite a bit. But the amount of marketing I was doing at the time was. Was still a lot. So I did that for about two years and I scaled from five units to 19 units.

[Brandon Turner]

Amazing.

[John Kessler]

Over those two years. Yeah. And I also wholesaled a few dozen contracts and I tried to do a few flips along the way. Those didn't go great, but I tried it out. And early 2023, I finally realized I need to pump the brakes. I'm burned out. Also out of money, which is important too.

[Brandon Turner]

Yeah, it has a way of slowing you down when you run out of money. But it sounds like you were ready sort of mentally to slow down.

[John Kessler]

Yeah, I was ready to slow down. It was hard to go from being that active to nothing overnight. So it kind of took me a while to kind of figure out how to relax. And that was in 2023. And I still wanted to do something, but I wasn't sure what that next step was going to be. So what I ended up doing was I started to focus on more passive avenues and partnerships where maybe I can lend my expertise and money, but not my time. And that's what I'm doing now. So just to give you an example, I'm still wholesaling, but I'm doing it with partners now. I was just sending mail in their markets and the leads would go directly into their systems and they would take it from there. I was passive after I sent mail and we would just split it on the back end if it worked out.

[Brandon Turner]

So yeah, that's generating more active income for you on top of your W2. I mean 19 units. An amazing accomplishment. Congratulations. Are you Feeling good about that and sort of just sitting on those right now?

[John Kessler]

Yes, I am. I mean, if I come across another rental that works, I'll buy it. I'm just not out there aggressively looking. I still talk to wholesalers and evaluate deals. It's just rates are in the mid to high sevens right now. It's just hard to make things pencil out. And I've also learned that expenses on these rentals are a lot higher than I ever anticipated them to be. So I'm even more conservative in my cash flow estimates than I used to be.

[Brandon Turner]

Yeah, I think that that's very wise. Do you think that's just because of the. The nature of the homes that you're buying or just all rentals?

[John Kessler]

I think it's. It's probably both. I think people have a tendency to underestimate. But these houses are also 90 to 100 years old, so there is capex. It's also what I would consider maybe a B minus neighborhood. And I also deal with a lot of voucher and Section 8 tenants. And I'm not saying that all voucher tenants will beat up your property, but in my experience, the average voucher tenant is a little rougher on your property. You also have Those annual Section 8 inspections and you have to fix more things than you would with a market tenant. So that kind of thing all affects the bottom line.

[Brandon Turner]

So how are you feeling then about your portfolio right now? You set out to earn some passive income to spend more time with your family. Do you feel like you've achieved that?

[John Kessler]

I do. The original goal, even though I didn't go about it a very smart way, was to get to a level where, if we had to, we could live off of passive income. And we're there. I could today stop working and just live off the cash flow. It would not be a lifestyle that we wanted. We would have to budget, you know, all that stuff. But we could do it if we had to.

[Brandon Turner]

That's amazing. Congratulations. That's so cool.

[John Kessler]

Thank you. That is a very comforting feeling just to know. It's almost like I have a second adult in the house working full time. So that's how it feels.

[Brandon Turner]

So to help our audience level, set and set expectations. How long did it take you from starting as a somewhat accidental landlord to be in that place of comfort that you're in now?

[John Kessler]

I would turn the clock back to the second rental. That's when I found bigger pockets. And that's when I first had the idea that I was going to achieve financial freedom from this, from that second rental, it's been exactly 11 years from the first rental. It's been like 14.

[Brandon Turner]

Unbelievable. Good for you. Well, I did this math recently where I was talking about almost anyone. If you just are diligent about it, regardless of sort of your income level, if you really stick with it, like 10 to 15 years is a realistic timeframe for people. And it sounds like you've sort of fallen right into that timeframe as well. And I don't know about you, but for me that timeframe went very quickly. And I know for some people it seems like, oh, I can't wait that long. But it's fun, it's engaging, it's busy, but it's absolutely worth it, at least in my opinion.

[John Kessler]

Yeah, it was very stressful at times and it was a lot of fun most of the time. I had a really good time doing it.

[Brandon Turner]

That's great.

[John Kessler]

Yeah.

[Brandon Turner]

Well, thank you so much for joining us, John. Before we go, any last thoughts or ideas about what the future holds for you and your portfolio before we go?

[John Kessler]

Yeah, I'm pivoting. Like I said, more passive direction. And the future is probably going to be a lot of syndications as a limited partner doing that through a self directed 401k now. And I really like just receiving a check and not having to deal with tenant issues. That's a lot of fun.

[Brandon Turner]

It's pretty great. Yeah, yeah, yeah, it is. It's kind of the traditional sort of arc of a, of an investor. Right. Like you do all this active stuff, you try a lot of things and then 10, 15 years in, you're good enough, you know, enough to, to be able to do these LPs, passive investments. I started doing it, I guess exactly 10 years into it and it's pretty great. I really like having a balance.

[John Kessler]

Yep, likewise.

[Brandon Turner]

Have you done any yet?

[John Kessler]

I did, I just, I just put some money into one. It's my first 1 probably about 5 months ago from a self directed 401k and so far it's working out.

[Brandon Turner]

Multifamily.

[John Kessler]

Yep. Commercial multifamily. It's out in Indiana.

[Brandon Turner]

Oh, cool. Awesome. Well, good luck to you and yeah, if anyone wants to learn more about syndications. Passive investing. We don't have time to get into it now, but BiggerPockets has a whole podcast called Passive Pockets you can check out if you want to learn more about that type of real estate investing. Well, John, thank you so much for, for joining us, sharing your story with us and best of luck to you as you transition to a more package Passive Investor.

[John Kessler]

Absolutely. Thank you very much for having me. This was fun.

[Brandon Turner]

Absolutely. And thank you all so much for listening.

[Dave Meyer]

If you want to apply to be.

[Brandon Turner]

On the show just like John, go to biggerpockets.com guest. You can fill out a form there. Tell us a little bit about your story and you may just be selected to join me here on the podcast to talk about your real estate investing journey. Thanks again for listening.

[Dave Meyer]

For Biggerpockets, I'm Dave Meyer.

[Brandon Turner]

We'll see you next time.

[Dave Meyer]

Thank you all for listening to the Biggerpockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify.

[Brandon Turner]

Or any other podcast platform.

[Dave Meyer]

Our new episodes come out Monday, Wednesday and Friday. I'm the host and executive producer of.

[Brandon Turner]

The show, Dave Meyer.

[Dave Meyer]

The show is produced by Ian K. Copywriting is by Calico, Content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. the content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Biggerpockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.