← Real Estate Rookie
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- [00:00]
Ashley Kerrick
Our guest today is charging 5,000 to 6,000 per a unit just from duplexes in one of the most expensive markets in the country.
- [00:08]
Tony G. Robinson
James Kitt used three low money down loans to build a $3 million plus luxury rental portfolio without ever needing a business partner. And in today's episode, we're going to break down how he did.
- [00:25]
Ashley Kerrick
This is the Real Estate Rookie Podcast. I'm Ashley Kerrick.
- [00:28]
Tony G. Robinson
And I'm Tony G. Robinson. And with that, let's give a big warm welcome to J. James. Thank you for joining us today, brother.
- [00:33]
James Kitt
Guys, thank you for having me. I've been watching the show for a little while now, so it's cool to kind of finally be a guest on it. So thanks.
- [00:40]
Ashley Kerrick
So, James, give us a quick overview of what your portfolio looks today. And after that intro, I need to know what market you are in, how many doors, and what does that cash flow actually add up to?
- [00:51]
James Kitt
Yeah, so I reside outside of New York City in southwestern Connecticut. So it's a very wealthy suburb area. It's about 45 minutes from New York City, so a lot of commuters in our area. I currently have six doors. I'm actually house hacking one of the properties now. And so from a cash flow perspective, if you were to take the market rent for my current property that I live in, you're looking at just about over $9,000 a month in cash flow.
- [01:18]
Ashley Kerrick
That's awesome. Congratulations. And what year did you start doing this?
- [01:22]
James Kitt
20. 2021.
- [01:24]
Ashley Kerrick
So that's not that long of a time frame to accumulate $9,000 in cash flow per.
- [01:31]
James Kitt
I like to think I was at the right place at the right time, and also a little bit of luck and a little hard work, hopefully. So a few things came together for me, I think.
- [01:40]
Tony G. Robinson
James, now you said you're in New York City, right? Or just outside of New York City? I'm in Los Angeles. Like, we're talking about two of the most expensive metros that exist on the planet. I have not purchased in my own area just because when I got started, I couldn't afford to do it there. And I think that's the mindset for a lot of people who live in high cost of living areas is that there's no way to make this work. And maybe I fell victim to that same belief. So what were you seeing in your area that made you believe that real estate investing could actually work despite it being such a high cost of living area?
- [02:11]
James Kitt
I think it's the squeeze to start. I was actually renting in 2020, and I was paying, you know, a one bedroom around $2,000. And that's in 2020, right before rents really started to go through the roof outside New York City in particular with COVID going on. And so Covid in particular really brought a lot of commuters to the suburbs where we are do the hybrid and the remote work from home policies that they came in to. And I just knew at the same time that working nine to five, living in a cubicle that just wasn't working. So I had to figure out a second angle. So that's kind of where, you know, I figured something wrong. House hacking could work despite these prices. And luckily I had a couple of people in my life who were in the real estate realm that helped kind of like tutor me a little bit and point me in the right direction, I guess you could say.
- [03:00]
Tony G. Robinson
So it sounds like, James, you decided on house hacking as the primary strategy. Why did you go with that approach specifically?
- [03:08]
James Kitt
I can't give you a great reason as to what other alternatives was other than the fact that paying $2,000 a month for rent didn't sound appealing versus if you look at the numbers between what the difference would be on a mortgage and house hacking, it's actually less and you save quite a little bit of money. So it just came down to simple finances. And the idea of taking leveraging a large debt wasn't as scary as the idea of throwing my money away in rent. And especially when rents were jumping up at that time. Like I said, $2,000 would be hard pressed to find a one bedroom now for that cost. I mean most of them are like $3,700 in my area for a one bedroom now it's crazy. So it's unjustifiable.
- [03:49]
Ashley Kerrick
I'm renting one bedrooms at like $800. So James, what is your actual buy box and the criteria you look for when you're purchasing a property?
- [03:59]
James Kitt
I would honestly say the side by side profile for duplexes is a big thing for me. The up and down duplex, I've never been a big fan of that. And that's mostly because I rented in a wood frame construction apartment building where you can smell the guys cooking above and below and you can hear their dogs walking around. And I, I've lived that life where you're trying to go to bed at 9pm and you hear somebody thumping around. It's not fun to live above below, especially when you're paying a lot of money to live there. So being side by side configurations have always been something I was more interested in. And then there's a few things that go into that that really make it more attractive to me.
- [04:38]
Ashley Kerrick
I've had that horror story before of like a tenant in the upstairs slamming her toilet seat too loud. And that was what was give her.
- [04:48]
James Kitt
Like one of the self closing ones, like, here's your Christmas gift.
- [04:51]
Ashley Kerrick
Yeah. Okay, so what were the actual numbers on the first deal that you did? How did you fund it? What did it cost? How did you find it? Everything like that?
- [05:00]
James Kitt
Yeah. So 2021, I came across a co worker of mine said his neighbor was trying to sell his house for like a million dollars. You know, I did not have a million dollars by any means. Anyway, connected me with him. I went over there, saw the guy, I ended up offering him 800,000. He actually gave it to me for 785 because he said the roof was old. So that worked out well. I luckily had the eligibility for the VA loan and just out of good faith I gave a thousand dollar deposit. So in reality I purchased the $785,000 side by side duplex for just about a thousand dollars. And that was luckily when rates were 2.7% interest, when on top of that there's no PMI. So my monthly PITI came out to like 4700amonth. And then from there the front unit was actually renovated, but not, not anything premium or luxury I would say, but it was good enough and it was vacant. So I rented that out for $3200 a month. So as you can imagine, there I have a $1500 deficit or delta between the two of them. And then I actually had two of my good friends move in and they each paid me $800 a month just to live in my house in the back unit. So with that I wiped all of my living expenses for that property and I got to enjoy a relatively nice large townhouse with a three car garage actually too.
- [06:25]
Tony G. Robinson
James, kudos to you for getting so creative with this deal because not only were you house hacking one side, but then you took it to the next level and house hacked the unit that you were also living in. And if I'm doing that math correctly, you were netting 100 bucks, give or take, living in property.
- [06:46]
James Kitt
Yeah, it worked out well.
- [06:47]
Tony G. Robinson
Just think about how insane that is. You, you were able to acquire a property, $785,000 property for a thousand bucks out of pocket, and then you got paid $100 per month to live there. Right? Now obviously the 2.7% interest rate helps a lot there. And with today's interest rates, that'll be different. But even if you were able to cut your living expense in half, that's still a major win in terms of why house hacking is attractive. So man, you crushed it with that first deal. So you find this killer first duplex. It works out incredibly well for you. What do you do from there to help you scale? Because you said you're at several properties now, 9,000 bucks a month in cash flow if you include your single family home. What happens after that first deal?
- [07:33]
James Kitt
Yeah, I doubled down to say the least. So about a year later I got the itch, I guess you could say making $100 a month off of something I bought. Hey, this could work out for me. And I was working my W2 job still. So I found a property that was overpriced on the market. I was on the mls. It was a side by side duplex. He had one photo which was, I think the photo was taken with the equivalent of a potato. I mean it was grainy and awful. So I went to the Google street view. I, you know, searched down, looking around the block. It wasn't very far away from the first property and I was like this place is huge. It's beautiful. There's just awful marketing involved and it was a way overpriced. They wanted 1.4 million in 2023 market. It wasn't realistic and it was awfully marketed. So it wasn't going to go anywhere anyway. So I went tour the property with the agent at the time. She just gave me the owner's email and phone number. I was like, you just deal with them directly.
- [08:33]
Sponsor/Ad Voice
Okay.
- [08:34]
Tony G. Robinson
That is one motivation.
- [08:35]
Ashley Kerrick
They knew they were selling it.
- [08:37]
James Kitt
Yeah, you know, it worked out for me. I wouldn't have hired her, but anyway, so I got there information directly. So I, I initially offered them like half of what they wanted for the place because I, I ran very, very conservative numbers. There's really no comps for a 3,000 square foot, four bedroom, four bath townhouse. And especially when there's two of them side by side, there's no comps for that in our market. So I had to use single families as comparables and then kind of draw where the rents might fall once I'm done with the renovations from there. So anyway, I offered them, I lowballed them. They pretty much said no, 900,000 is our number. And I was like, well everyone says that. Put another offer in later. They just stopped replying. Then the listing expired on the MLS and I luckily had their direct information. So I Sent them another offer, didn't hear back. And eventually I talked to somebody and I was like, I really want this place, man. Well, like what do I have to do? He's like, just put it, you know, put your pre approval together, put a real offer on standard form contract together and you know, do whatever the best you can to get to that 900 mark. I talked to my broker, we were able to just squeeze it and this is just when rates started to climb back up. So like every week it was ticking like my, my ability to afford this $900,000 loan was slowly diminishing. So I locked in. Luckily at a 4.3 rate, I was able to get them at 900,000. They responded an email saying our attorney, you know, reviewed it, it's legit, let's move forward. I was like, okay. And it turns out, you know, this was a 1995 build with a, with brand new, brand new nine foot ceilings. It just needed, I will call light rehab on the property. To me, light I should say, but relatively cheap in the grand scheme of things. So it was a steal really.
- [10:24]
Ashley Kerrick
I think that is such a great lesson right there. The motivation of an offer that's put together and presented that like the document is there, all you have to do is sign. Like I, I'm actually going to do that on a property. I've been trying to get it for two months now. I started at 275 and then I went to 300 and like it's just kind of been like, oh, I don't know. We're going to see if we get other offers. It's off market deal. And I am to the point where I'm getting my pre approval letter, I am getting the contract put together and I am going to send it to him. Be like, here is my official offer. And I think that's like just a, a great tactic that you can use is actually put everything together to, so they can read it, they go through it and it makes it way more appealing as like okay, well we have this all packaged together here for us. Maybe we should just do it.
- [11:16]
Tony G. Robinson
But let me ask how much back and like how much time did all that back and forth take? How long was it, you know, a weeks? Was it years?
- [11:24]
James Kitt
No, this is, this is four or five months. I mean honestly, none of these deals worked out immediately by any means. They all took a little bit of time to kind of come together and a little bit of, a little bit of pressure.
- [11:38]
Ashley Kerrick
So between these two properties that you have, how much debt did you accumulate at this time between those two taking on the 900,000 good debt.
- [11:47]
James Kitt
A lot to be honest. The second property was a 3 1/2% down FHA loan. The first property, like I said, was $1,000. So relatively zero. So you're talking 1.6 something in debt at the time.
- [12:03]
Ashley Kerrick
And how did you feel comfortable with that?
- [12:06]
James Kitt
Yeah, so I will say I was able to, I had a decent W2 job along with some military income because I was in the National Guard at the time. So I had some residual income from there. But mostly because the cash flows from the properties are the most important part. And what I would do is I would actually take, I would take a look at what the Section 8 was for the city and I would actually use that as a backbone of like, okay, if everything goes wrong with this rental and for some reason the local rental market crashes, there's a really strong section eight demand in this area and section eight in our area, you know, a three bedroom will get you $3,300 a month. So you know, if we talk about the first property, if I had a 4700amonth PITI, 3200, 3300 if it's covered by section 8, that's my, that's my bottom threshold. So that kind of helped just re reconfirm that taking on this debt wasn't as crazy as it sounded. And then also just looking into the local market. But you know, leveraging this debt is the only way you're going to compete in a high cost market. Because at the end of the day there are not $300,000, two families. You know, the median price on a two family around here is 700 and something thousand.
- [13:18]
Ashley Kerrick
So all said and done with that second property, what did the numbers like look like after you got it rented?
- [13:24]
James Kitt
Yeah, so the PITI on that came out to like 6,800. The cash on cash was 89%. The cap rate is at 11.7%. I think the when I finished the rehab on the first unit and then I lived in the other one. The first unit rented for 5,500amonth. So 68, 55. So do the math there. And then I eventually moved out of that unit and I just re rented that. The other unit I rehabbed there too for that one's at 6,000. So that one's making you know, 5,000 or so a month in cash flow. So yeah, it worked out really well. And you know, luckily like I said, it was a 1990 build. So buying newer homes, you know, after 1965, it really eases up the renovation process and rehab process and then you can kind of keep it mostly simple in the rehab scale.
- [14:26]
Ashley Kerrick
Well, James, you built this high end portfolio without doing complete Renault's or flips, but you did grow up with a contractor dad. So let's talk about how that shaped your investing edge. We'll be right back after a word from our sponsors.
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- [17:13]
Ashley Kerrick
Okay, we're back with James. Now, your dad was a contractor and you grew up swinging hammers before you could even drive. So let's dive into how that actually shaped your approach to real estate. Are there any DIY jobs that you took on yourself with your projects?
- [17:29]
James Kitt
Yeah, definitely. I built a deck before I could drive, that's for sure. So painting, flooring, tile work, I mean, honestly, you can name it. I actually ended up putting in a home theater in the first property because the basement was unfinished with 10 foot ceilings, so I didn't know what to do. And of course I was 23 at the time or something and I liked football, so I was like, oh, I could have everybody over the super bowl let me put a 140 inch theater system in my basement with surround sound speakers because that seemed like the appropriate thing to do. So luckily my father had taught me a little bit of something. And then honestly, with a combination of YouTube University and just reconfirming how to do some projects, I was able to definitely tackle a lot and it saved me thousands of dollars if I had to put a number on it. It's in the ballpark of $70,000 and work I didn't have to subcontract out because at the end of the day, you know, there's a lot of small things that can be done on your own that, you know, trades are expensive and rightfully so, but there are things you can do as you're doing your own, but you gotta learn the limits of what you can and can't do at the same time. And that's kind of comes into how you build the relationships with, with those aspects that you can't. So, you know, being close with an electrician and a plumber, like the two biggest things that have saved me a lot of money. And also finding a really quality kitchen supplier has been really great.
- [18:57]
Tony G. Robinson
So James, were There were there any jobs that you did where you were like halfway through and you were telling yourself, oh man, this was not one that I should have tackled myself. I think about our friend Rob Avasolo and he was on the podcast a while ago and he shared with us he was DIYing one of his first investment properties and it was like the tile in the bathroom floor. And he said it took him like three days to get like, you know, 20% of the tile done. And he's like, man, I can't do this anymore. He hired a guy who did the other 80% in like one day. So were there any jobs like that for you or you're in and you're like, oh my God, this is not what I was, I shouldn't be doing this myself.
- [19:30]
James Kitt
So there's two things. The first one I'll say is with the kitchen supplier. I did first attempt to put Home Depot cabinets in the first property and quickly realized these are not quality. It's not fun, it's a pain and it's just never going to look like the same quality as if you have a, a kitchen company coming into it. The second thing actually is painting. Now I don't paint. Once you watch a professional painter and drywall work, I look like an idiot out there with my blue painters tape marking off all the bolt, the trim work and stuff.
- [20:05]
Ashley Kerrick
Well, that's the worst part of it.
- [20:07]
James Kitt
Yeah, you watch, you watch a professional painter cut the line in three seconds and you just feel foolish for trying to. And it's there worth their weight in gold in comparison how quickly he can paint. And typically that's towards the end of the project when I'm trying to button everything up and get pictures done, get it rerented. So it's like I just justify the cost. So painting I used to do, I actually, I'm so bad at it in comparison. Especially like if you're doing patchwork, you can see everything. Especially if you have a really well lit property, you can see all the small mistakes you can do with compound work. So having a good painter makes a huge difference and that's something I kind of just strayed away from. Now.
- [20:47]
Ashley Kerrick
We had a guy for a while that would do it as like a side job. He was like in a painter's union or something and had like a full time job painting and then he would do the apartments on the side. So like on weekends or nights, but like he could just get them done so fast we would be like, okay, next week we're going to be ready for paint. And it'd be like, okay, I'll be done on this day. And just like, it was so efficient and so quick. And, you know, I used to have just like the maintenance guy at the apartments come in. Like, he would do it and it would just like take him forever because it wasn't what he was actually skilled at. He'd have to go and buy new brushes because we hadn't done a painting in a while, and he didn't save them and wash them or whatever. So it was so much more cost effective just in how quickly the painter could get it done and get in and out of there, too.
- [21:35]
Tony G. Robinson
Ash I just want to add on to that because I think that time is a cost that a lot of rookies overlook. Whether we're talking about turning a rental unit, flipping a home, doing a burr, all of those have costs associated with time. If you're flipping a house and say you've got hard money, private money, even your own capital is just sitting there. There's a cost to having that money in that deal. And if you, you know, you hire someone who's a little bit cheaper for the paint, you hire someone who's a little bit cheaper for the cabinet, someone who's a little bit cheaper for this, you think you're saving money, but then when you add up how much additional time it cost you, you could end up maybe breaking even or even losing money on some of those deals with maybe even work that's less superior.
- [22:13]
Ashley Kerrick
Right.
- [22:14]
Tony G. Robinson
Work that's not as good. So I know it's counterintuitive, especially for Ricky's, as you're starting to maybe go with someone who's a little bit more expensive. But you want to make sure that you're taking into account all of those different elements and not just, hey, who's got the lowest costs? James, I'm curious. Did you ever get, I don't know, maybe bit by a contractor? You've maybe got a better eye because you grew up in it. But we've all had, like, our fair share of contractor horror stories. I'm just curious if you've had any.
- [22:40]
James Kitt
You know, actually I did get bit recently, and I'm bummed out about it. I didn't actually, I didn't get to finish it out just yet. But, yeah, recently what happened was I had a contractor for a paving job out of New York, and I gave the initial deposit. Everything looked good. I had gotten actually a referral for them, and it was only like $1,500. And then they've Ghosted me since then. So now I'm going through the process, which is a huge pain for out of state small claims court against the business. And it's not, it's not a fun process. Luckily it was a relatively small amount of money because, you know, I've watched the BiggerPockets podcast before in the real estate rookie and how you many years ago talk about how you should divvy up the proportions of money that you give out to these guys. So I gave them a small piece of money in comparison to what the total job was just to start just for materials. So luckily I avoided that. But yeah, I've been bit and that was actually four months ago and I'm still going through the process of reclaiming the money but for the most part avoided it with a lot of the other subs I've worked with, who I have good relationships with. I didn't have a driveway guy. I got a referral. It didn't work out for me. So it definitely still happens.
- [23:59]
Ashley Kerrick
And where are you finding most of them? Their referrals from other investors or.
- [24:04]
James Kitt
You know, honestly I use a mix of referral from other real estate investors. I also go online. I've used Facebook Marketplace. Surprisingly a good amount of these guys actually use that. They're legitimate companies. I'll go and get quotes from them. And they're typically cheaper from over the border outside of my county. Like I said, I live in one of the most expensive counties in the country, so labor, materials, anything, they have a shop here, their overhead is immediately higher, their costs are immediately higher. So I tend to hire out people from over an hour away, minimum. A lot of that's over either in New York or up towards Hartford, Connecticut, outside of my area. Either way, using either referrals, thumbtack or honestly, I take a few quotes from Facebook Marketplace that have worked out great. My current electrician's from Facebook Marketplace and he's been stellar.
- [24:54]
Tony G. Robinson
We've had like mixed results with Facebook Marketplace and it kind of varies depending on the market. Like we found a great landscaper for our hotel in Utah off of Facebook Marketplace. We found some terrible contractors in California using Facebook Marketplace. So I think it really does vary on the market and kind of who's out there. But as we talk more about the renovation and the rehab, you said, James, that you like, quote unquote, designed for premium. What does that actually mean inside of your rentals?
- [25:23]
James Kitt
I like to provide a high class experience, I guess we'll call it. I definitely target the higher income earners in the area. And to be frank, a lot of the tenants in which I'm pursuing these are people, the households that are making a quarter to half a million dollars a year. They're typically in their family formation years, late 20s, early 30s, or they're possibly empty nesters who are downsizing from their $3 million house to a million and a half dollar house and they need somewhere to stay while their house is getting built for two years. These are the people that I'm really targeting. And surprisingly there's a decently strong market for. And a lot of these people don't want the high upkeep of a single family with a lawn. They want something that's spacious but at the same time easy to upkeep on their own if they need to. So that's where it comes into the side by side characteristics. Providing that single family feel that provides comfort at the end of the day and then working to add some of these modern finishes that really kind of stand out. You can't do like a landlord special. You paint everything white and you move on with your day. I mean, I try to provide higher class appliances and really just try to go after that highest tier rent. And one of the other big things that helps kind of design for a premium honestly is fencing in your yard and allowing pets. Because all these people are in their late 20s and 30s. They all have, you know, a golden retriever or they have cats and they have, you know, they might have young kids and it's, it, it really helps provide. I think every rental I have right now has some kind of pet in it. And it's because that's, that's the caliber of people and what you're looking for.
- [27:03]
Tony G. Robinson
James, I'm, I'm curious how, how quickly typically are you able to fill vacancies because you're, I'm just like since you're going after such a very niche renter, I'm curious if it's so niche and maybe it takes longer or is there such high demand for that type of product.
- [27:18]
James Kitt
It is surprising how quickly like instantly I, in my, per my leases, I have to get a 90 day head head start on notice if they're going to move out. I start showing 60 days out, I'm looking at a weak turnover. I haven't had anything longer than maybe two weeks. And that was just because it was like the end of the month versus middle of the month. Yeah, it's a week turnovers for me to patch holes. I like replaced a sliding glass door, something small like that. And Move on. It's crazy. And there's a. I'm looking at four to five offers for each property. It's lucrative, it works out well, and then I can kind of go through and pick the, the best of the batch.
- [28:02]
Tony G. Robinson
It's so interesting, right, because we're at this weird place in the economy where there's all this talk about the economy. Is it slowing down, is it heating up? Job numbers look weak one day and inflation looks good, then it looks bad. And there's all these different elements that are going on in the economy right now. But I think, at least from what I've read and what I've seen, that one part of the economy that's remained a little bit more resilient are the folks who are in that higher income bracket. Right. You said, you know, a quarter million to half million bucks a year is like your typical tenant. And those are the folks who are maybe less impacted by the fluctuations we've seen in the economy recently. It's the people who are maybe like in the middle of that bucket, right. That are maybe a little bit more impacted by what's going on right now. And I think the reason I bring that up is because for all of us who live in high cost of living areas where we might actually be sitting on the type of tenant or in the type of market that would be able to sustain some of these ups and downs, and maybe the folks who were in less expensive markets might, Might see more challenges. But to that point, Ash, I guess I'm curious. You mentioned earlier, you know, 800 bucks, and, you know, James is talking about 6,000. What. What are you seeing in your rentals right now?
- [29:16]
Ashley Kerrick
This conversation is so timely for me because my live and flip, I'm, you know, nine months into it, and I've actually started to consider moving out after a year and renting it. And when I bought this, I 100% thought there was no way to do that because it was too big. I would have had to charge too much. But right now I think there actually is a need for a single family house with a garage that has more than three bedrooms. And someone who can't afford to purchase a property or can't find a property would actually pay the premium that I would have to charge on the property. So, like, my mortgage payment is around $2,100. Okay. And they pay all their utilities, take care of everything. So that would pretty much be my cost. So I would want to rent it out for $3,000. I would want to have at least $900 in cash flow a month. And I just think like, that is so ridiculous. Why would somebody pay that much more when they could buy the house and just pay $1,000 less for the mortgage? But right now it's, it's not that easy for someone to go and purchase a property, to buy a house, or they just don't want to pay that interest rate and are still waiting for rates to come down. So I got to do a little more math on it and run the numbers, but I'm really like interested because there is nothing available that is not a two bedroom or if it's a three bedroom, it's in like an apartment complex. Like I don't know where families are living that have to rent. Yeah.
- [31:07]
Tony G. Robinson
So solving that, solving that I've met need. It's just an interesting take, James, you know, to say, like, hey, we're going after a very specific ab.
- [31:13]
James Kitt
I'm, I'm surprised every time, I'm, honestly, every time I get an application and I, you know, I, the background checks and I see the kind of money these people have, it's like, what, why are you renting from me?
- [31:26]
Ashley Kerrick
It makes me want to do like a listing. Like, okay, let's just put it up and see what happens.
- [31:33]
James Kitt
No, I, yeah, I, I, there's a bunch of guys been like that.
- [31:37]
Tony G. Robinson
Yeah, but, but James, you talk about background checks and it brings these, brings me to my next question on tenant screening, because I know one of your units got raided by the FBI and this is probably like, you know, one of the worst nightmares that a potential landlord can have. So talk to us about how you found yourself in that situation.
- [31:58]
James Kitt
Yeah, so when I first moved out of the first property and moved into the second property, I, I had to rent out the unit that I was house hacking in. And so I, I rented it out. I found a potential tenant who he was making a lot of money. We're talking three quarters of a million dollars a year, 800 credit score, squeaky clean background check, no problem. A guy from the town I actually grew up in and he had a younger son who was in his late teens who I, I didn't think anything of. Apparently he was going away to school or something. So I, I approved him because he, he was ready to go. Never missed a payment, no problems. And then like six months into it, I, into the release, I get a call from a bunch of my neighbors. The atf, the FBI, state police and the local police were all at my house. And funny enough, I was on my way there anyway. Because I was there to check on a hot water heater, I think, or hot water tank. And anyway, I show up and they're hauling everybody out of the house in handcuffs. I actually, like I had mentioned there's a three car garage there and I have a storage unit above it where I keep my stuff. So. And I, I have some, like, I have some equipment and stuff up there. And so like they're going through all my stuff, they're asking me a bunch of questions. Well, it turns out this guy had actually, his son had actually committed vehicular manslaughter as a kid and he had gotten out of jail, was on probation, but he had violated in some sense or another. And it turns out he was actually like cncing bomb parts suspiciously and some other stuff. So that's why the Alphabet agencies got involved. So ultimately it comes to the, the idea that you can't just screen the people who are the money makers. You have to screen everybody. If they're over 18, they have to get screened. It was, it was definitely an interesting scenario. Didn't miss a payment, luckily, but, but definitely something I didn't know how to deal with at the time. It was just kind of like, ah, okay, you guys, do you. I wasn't, they wouldn't let me in my own house. They're like, you can't go near them.
- [34:03]
Ashley Kerrick
So I guess in that circumstance, what does happen? So did the father stay living there? Was the father arrested and the house is vacant?
- [34:11]
James Kitt
No, the father was not involved in the crime. He just kind of got in the way when they were trying to take the son. So they just briefly put him in handcuffs to calm him down. They took the son away and then a week later I got my next month's check.
- [34:26]
Ashley Kerrick
Yes. And the father kept living there?
- [34:27]
James Kitt
Yeah, he just stayed there and then he moved out west, I believe. Actually nice enough, he actually gave me his security deposit as a gift for my wedding. I think it was like a. Sorry about my son. Sorry I didn't tell you about that, by the way. Like, so nice enough for him, I.
- [34:51]
Tony G. Robinson
Guess, but such a crazy story. And I think that's the part of landlording that we don't talk about enough, is that sometimes crazy things do happen. For those of you who have been around the podcast for a while, you may remember my story of Gina Katz, the drug using Airbnb guests I had who broke into not one, but two of my properties. But that's a story for a different day. James, you're killing it right now. The deals are cash flowing. But I know you're thinking creatively about how to grow your portfolio and I want to dig into that after a word from today's show sponsors.
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Ashley Kerrick
The best part?
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Tony G. Robinson
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- [40:30]
James Kitt
So I'm also doing a little, little research on this. I've gotten caught up in a few, few other things, so I haven't gotten to divvy into it. I've been talking to my, my real estate attorney and I need to dive in a little bit more. But zoning does allow it and essentially my second property is a prime example for this. Where I purchased property for $900,000. It's side by side townhouses that are huge, 3,000 square feet each, four bedrooms, four baths with two car garages below. They're perfect for this. And luckily enough, recently a townhouse, an actual subdivided townhouse just sold for 1.1 that's actually smaller and more outdated than mine in a similar area to mine. So the idea would be to legally go through the process to subdivide the units into two condos, to then sell one of the condos to wipe out the initial, the, the initial debt I have on the two family property, which would probably require some kind of bridge loan between the two of them. And then ultimately what that would allow me to do is I would pretty much keep the same cash flow that I have from that property while completely wiping out the debt. So in theory, my debt income comes shooting down, my cash flow stays the same, which gives me more flexibility to go out and find more deals and to invest further. So it's something that I'm toying with right now because as you can imagine, with the amount of, I would call good debt that I brought on, obviously your debt to income creeps up on you. So it's okay. What do we do here to, to.
- [41:59]
Ashley Kerrick
Get around this now you've only spent what, around 100k to actually acquire over $3 million in assets. What are your plans going forward as far as like tapping into the equity you have in the properties now?
- [42:12]
James Kitt
Yeah, so I'm currently going through the process of getting a HELOC application completed, cash out, refinance, as much as it sounds nice, I have that 2.7 and that 4.3% interest rate and it's really hard to let go of that. Those are hard to give up. So honestly I'm looking now at a HELOC options because at the end of the day I'm not sitting on a bunch of cash or, and it's not coming from, you know, daddy or somebody else, and that's not coming from anywhere. So how do I tap into whatever equity I have now, which is, you know, near $800,000 in equity between the three properties? So I trying to look at it, how to pay for a down payment and renovations, honestly, moving forward.
- [42:52]
Tony G. Robinson
And I think there's so many investors who are not trapped. Right. Yeah, maybe trapped is the right word. Who are trapped into these low interest rates and they, they don't want to touch it. And I, I couldn't imagine that anyone who, you know, sub 3% refinancing anytime soon. Yeah, because we've got, I think my lowest interest rate right now on one of our rentals is 2.65%. You know, it's like, man, I'll, I'll never get rid of the property. Yeah.
- [43:20]
Ashley Kerrick
You know, I actually saw someone post on Instagram this today and I didn't finish reading it, but they were writing about like how it's such a big dilemma for people as far as like, okay, you want to like sell your property or you want to move, but you have this really nice interest rate and you feel almost like stuck in that property. So I didn't read the whole thing, but like my solution is turn it into a rental and then you can still move.
- [43:47]
Tony G. Robinson
So you, as you think about scaling, we're talking about tapping into some of the equity that you have. But I also know, James, that you're maybe eyeing some different strategies. Right. A lot of what you've done so far has been house hacking, these different side by side duplexes, but you're eyeing some short term rentals in, you know, the Florida area. What's the vision there? What's the motivation behind that? Potential pivot.
- [44:07]
James Kitt
Yeah. So I know with a good team you can really do a short term rental anywhere in the country once you set up that good base of, you know, local contractors and stuff. Honestly, for somebody like me, my old man, I moved him and his wife down to Florida outside the Tampa area. So I'm very familiar with the market now, as you probably are Aware Florida's market is down, making it a decent time to buy. So I'm looking at some, some family oriented beach style areas outside of Tampa. But in particular, having my father, who's a contractor, be within 45 minutes of an Airbnb or something like that is huge in case of any service related maintenance issues that could pop up. And I really feel like that with the time that I have now, I can kind of provide a luxury rental experience in a short term format like I do now for the long term sense and I can provide a higher end customer service as a host moving forward. So I just want to diversify. I feel like once you kind of get three properties all around the same area right outside New York City, it's like, okay, what can I do to maybe get a nice small single family in Florida that will pay for itself in 25 years? And then I have a house in Florida that I could use. And you know, you can rinse and repeat. You know, a bunch of short term renters have done it before, so it's something I'm looking at.
- [45:29]
Ashley Kerrick
So James, I'm curious, what was this conversation with your dad? Like, I want to get you this house in Florida. You're gonna have a great time. It's gonna be amazing. Move down there and then you could be my maintenance guy.
- [45:41]
James Kitt
He is, he's bored. My. He's like your classic, your classic blue collar guy who gets like, he's probably excited to like for no reason.
- [45:49]
Ashley Kerrick
Yes. Yeah.
- [45:50]
James Kitt
Like he gets up and he just needs something to do. So like they bought a house that was a move in, new build and then you started remodeling it. Like, let me make this better. Like, he's that guy. He's just like started working on it. Well, you know, the fan could be over here. Let me just climb up in the attic and move it. Like he's that kind of guy. So he's all for. And I think doing something with his son would make him happy, but ultimately like he was on board, he's got a little time in the world, he'd love to have something now he doesn't want to retire. We'll call it, you know.
- [46:21]
Ashley Kerrick
Well, what advice would you have for rookie investors who maybe live in an expensive market and don't forget, feel like they could actually do house hacking, that it's not achievable for them, it's definitely doable.
- [46:34]
James Kitt
So I would definitely try to start with the two or three family model. Anything you can kind of get your hands into that makes sense. You can still use the creative loan programs that are low percent down, like the FHA or 5% down Fannie Mae. You can still make aggressive offers, maybe if you change up the terms in those offers itself. But the biggest thing is like they're still for sale by owners out there. They're still, you know, talk to your manager like I did, and his neighbor wants to sell his house for a silly price. Or if there's a house that's poorly marketed, like, the opportunities are still there. I just had one of my best friends, just got a triplex in our area for 900,000. So now he lives rent free, I should say mortgage free, between the other two properties paying out. So it's totally possible that initial. When you look at the numbers on paper, it's hard to swallow that, you know, okay, I have a $7,000 mortgage that's, that's tough to be comfortable with at first. But it all comes down to cash flow. If the numbers work and you can qualify for it, I think it's worth investigating deeper.
- [47:39]
Tony G. Robinson
And James, you have an incredible story and my hope is that many folks are motivated by what you've shared. The ability to get creative, the ability to be scrappy. And I love the, you said at the top of the show where it was a mix of luck, you know, there, there were some, some interest rates working in your favor, you know, but there's also some hard work, right, like following up with the same buyer for four months in a row, not being afraid to have those conversations. But I, I know that there are probably some people like myself, even Ashley, right, like who have young kids, young families, spouses who maybe don't want to live side by side. It doesn't mean that house hacking doesn't work. It just means you have to find the type of property that would still allow you to house hack in a way that supports your lifestyle. And we've, you know, like I go back to Laika, but she also talked about the detached adu. And maybe that's the play for you where you buy a home and there's either maybe an existing ADU in the back or you build an ADU in the back. And that's still house hacking. That's still a way to leverage your primary home and turn it into some sort of revenue generating activity for you.
- [48:41]
James Kitt
Yeah, I've been, my poor, my poor girlfriend now fiance has done all of these house hacks with me. And as soon as, as soon as I do the live in kind of renovations on these properties, as soon as it's nice, really nice to live in. It's on the next one. Like, I, I feel so bad. She has been such a trooper. Luckily she sees the light at the end of the tunnel, like, all right, everything we're doing here in the mid, late 20s is going to set it up so that we can get that or we can build that house that we want in our 30s. So luckily she gets the bigger picture. But yeah, it's tough. I couldn't imagine doing this with kids. We won't even get a dog. We have two cats. We'll get a dog. Because I know dogs will get into everything and next thing you know is eating my tools or something. So I, yeah, it's tough. It feels like a young man's game sometimes.
- [49:28]
Ashley Kerrick
We actually had a guest on that moved every year over 10 years with his family, so they didn't house hack, but they would move every single year with their kids. And I think they have four kids maybe. So accumulated kids over the years, but moved every single year as a family.
- [49:44]
Tony G. Robinson
Yeah, that's the hustle that a lot of people don't see. They, they see the Instagram post you're talking about, you know, the properties and the cash and whatever it may be, but they, they overlook the hustle and the sacrifice that goes into it. So I guess, last question, we can, we can in here. James, what, what was the moment that you realized that real estate had actually changed your life?
- [50:01]
James Kitt
So obviously, bar, you know, cash flowing $9,000 a month now or the $800,000 in equity that I might have, honestly, I went to school for supply chain. I, you know, I had a corporate 9 to 5 job and having the ability at 26 years old to get up and go, I think I'm done with this. You know, after five years of working corporate, which, you know, it's very different than a lot of people's lives. It's, it's crazy. And I have now the freedom to kind of work on the properties as I want, but ultimately I can pursue more time doing the things that I like to do that make me money. So I mean, like I, right now I work on the properties and then I do a high end handyman service on the side. So like, I wouldn't have had that opportunity if these properties didn't exist.
- [50:54]
Ashley Kerrick
Well, James, thank you so much for joining us today and telling everyone your journey and your lessons learned along the way. Can you let everyone know where they can reach out to you and find out more information?
- [51:04]
James Kitt
Sure. My Instagram is listitwithkit and also James Kitt. And then I believe, I think that's it. Yeah.
- [51:14]
Ashley Kerrick
Well, thank you so much for joining us and congratulations on your success with your real estate journey. And we can't wait to see how much further you take it. I'm Ashley, he's Tony, and we'll see you guys on the next episode of Real Estate.
- [51:26]
Sponsor/Ad Voice
Ricky My old security system was about as useful as a solar powered flashlight. It could only tell me someone broke in after they were, well, stealing my solar powered flashlight, which I guess isn't that bad. But here's the thing. What if your security system actually prevented crime instead of just documenting it for your insurance claim? Most systems only alert you after someone's already gotten inside your home. SimpliSafe's AI cameras don't just watch, they act. Which is why I personally trust them. The moment they detect a threat outside your home, real monitoring agents spring into action. They'll confront the intruder through the camera, announce police are on the way and blast them with sirens and lights to send them running. Now it's like I have a dedicated security team that's always on duty, always alert, always ready to respond instantly when you need them the most. Other systems make you deal with alerts in the middle of the night. But Simplisafe's professional agents have our back around the clock handling threats so we don't have to. There's no long term contracts, no hidden fees, 60 day money back guarantee, and US news top pick for five years running. This is real security that works when it matters. Get 50% off@simplisafe.com pockets that's simply safe.com.
- [52:37]
Tony G. Robinson
Pockets hey rookies, if you're watching this, we want you to apply to be a guest on the Real Estate Rookie podcast. That's right. Ashley and I are looking for amazing stories just like yours to be a part of our our Real Estate Rookie podcast. Now look, you don't need to be an expert. You don't need to have done thousands of deals. Even if you've done one deal, your story could help inspire the next listener.
- [52:56]
Ashley Kerrick
As a rookie investor. Especially if you just got your first deal. It is all fresh in your minds and you are the best person to tell your story. Give your experience on how you got it done to help someone else get their first deal.
- [53:09]
Tony G. Robinson
So head over to biggerpockets.com guest if you want to be a part of our show. Again. That's biggerpockets.com/guest and we'd love to have you on.