VA Home Loans with Rich Carey from “Rich on Money” – Using the VA Loan to Buy Rental Properties, How to Buy 30 Doors Before You Leave Active Duty, and Why Real Estate Is the Last Investment You Should Consider | Military Money Manual Podcast Episode 30

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  • VA home loans for primary residences that you can turn into rental properties when you PCS
  • The 1% rule for buying rental properties and then 50% rule. Your profit is not mortgage minus rent! You must include expenses as well.
  • How to set yourself up financially to be in a position to get into real estate
  • How Rich purchased dozens of homes remotely and 30 doors by the time he retired from the military
  • The systems Rich built to automate his property management
  • What Dave Ramsey and Rich Carey disagree on
  • The downfalls of the VA loan in a seller's market (like February 2022)
  • Why short term rentals like Airbnb aren't Rich's cup of tea
  • If you can use a VA construction loan for a new home build
  • Why Rich doesn't recommend LLC structures for most military landlords
  • Why Rich doesn't recommend any books on real estate investment

This was a great episode! Jamie and I (Spencer) both learned a lot and we hope you will too.

Military Money Manual Podcast Episode 30 Links

Outline of Episode:

  • How Rich accumulated 20 rental properties while on active duty (and now has 30!)
  • Financial systems to have in place before real estate investing
  • 1% rule
  • 50% rule
  • 20% down or not?
  • Property manager or not?
  • Expenses and cash-flowing properties
  • Rich’s investment allocation thoughts
  • VA loans- amount, certificate of eligibility, downsides
  • VA loans for investment properties
  • Buy vs rent
  • LLC or not for my rental property?

Military Money Manual Podcast Episode 30 Transcript

[00:00:00] Rich: No matter what the market does, no matter if it skyrockets or drops, you're just going to stick to that plan. You're not going to put it in the G fund and wait for things to get better because that always ends. I shouldn't say always, but more often than not, you're going to screw that up. If you keep playing that game you're going to end up in trouble.

[00:00:21] Spencer: Hello and welcome to another episode of the Military Money Manual podcast. We're excited today to have a very special guest with us, not just my co-host, Jamie, although he is special too. Today we have Rich from RichOnMoney.com. Rich is going to help us learn all about the VA loan, managing rental properties well on active duty, and who real estate investing might be a good option for.

Rich is a retired Air Force OSI agent. That's the Office of Special Investigations, kind of like NCIS, and I'm sure it's just as exciting as the TV show. He is a growing YouTube channel on TSP investing, VA loans, and other money topics. Rich, welcome to the podcast,

[00:01:07] Rich: Spencer and Jamie, thanks for having me on today. I am excited. I love talking to military.

[00:01:13] Spencer: Well, Rich, we're very excited to have you in the podcast because if there's one weak area for us on the podcast, it's real estate investing and specifically investing while you're moving. Often in the military, the VA loan, you know those very niche military aspects of real estate investing. So we wanna get into that and, but before we do, what do you tell people you do now? I know that you recently retired and I know you as a real estate investor and educator on YouTube, but how do you describe yourself? What's your military background in your real estate experience?

[00:01:46] Rich: Okay, so those are big questions. I retired in August of 2020 after 20 years of active duty as an OSI agent. I spent most of my career overseas, Japan, Germany, Korea, and Guam. I'm also a Chinese and Japanese linguist, so I was able to use those languages while I was at work.

I got into real estate investing in 2003, bought my first townhouse, and always was in love with real estate since I was a child. That turned into me, you know, I looked like I was going to make a lot of money on that first property, so I tried to keep buying, but it didn't work out because it was when the market was crashing in like 2006/2007.

I flipped houses for a while overseas. I got to Montgomery, Alabama, in 2013, and I figured out that real estate's going to be a good deal here. I got about six houses while I was stationed here for 10 months. Moved away to Germany and bought 14 more from overseas. I had a property manager for those. When I retired, I came back to Montgomery, Alabama, and now I self-manage my properties.

I currently don't really have a job. I'm going to continue investing in real estate. I'm going to play around with my YouTube channel, which I enjoy a lot, and figure out what's next. 

[00:03:26] Jamie: That's awesome. Well, like Spencer said, Rich, thanks again for joining us today, and for our listeners, we're glad that you're here with us as well.

As always, if you're enjoying our podcast, just a quick reminder to leave us a five-star review on either Apple Podcast or Spotify. We greatly appreciate any reviews or any feedback you may have, and don’t forget to subscribe to the podcast. If you do have any questions or feedback, you can message us on Instagram @militarymoneymanual, or you can email info@militarymoneymanual.com

So Rich, you kind of gave us an overview there. You have 30 properties while on active duty. How on earth did you do that? 

[00:04:00] Rich: Again, that's another big question, but I guess to be clear, while I was on active duty, I had 20 single-family homes. That's what I got up to.

But what's interesting about them is they were all paid off. So that's kind of the unusual part. You don't make enough money in the military to buy 20 single-family homes for cash. Probably to summarize, I saved and invested well, and I was frugal.

My wife and I did a good job with money. Come to the 13-year point of my career, we had a paid-off townhouse. It was also a rental, and we had a good amount of money in investments, and we'd flipped some houses. We had the cash to start buying properties. And not just to finance it, but to just pay cash for them because they were so cheap here in Montgomery, Alabama.

And the cash flowed really well and it kind of led to a cash flow snowball where six cashing properties can buy the seventh, and certainly, 19 cash-flowing properties buy the 20th pretty quickly. So that's kinda what happened. The extra 10 properties are actually 10 doors, a covid purchase, a sixplex, and a fourplex. Both are financed, which for me was actually my first time using financing. But both of those are financed. So one is a commercial loan.

[00:05:30] Spencer: Rich, is this a wealth-building strategy that you would recommend for all military members? I mean, it sounds like you kind of had a financial system in place, and it was when you had large cash savings. I mean, can we talk about actual dollar amounts? Were you buying these properties for like $100,000 in cash? Or less?

[00:05:53] Rich: So the first property was $30,000 and the second property was $45,000.

And then they kind of just kept creeping up in price as people figured out that, prices were too low here. The most I ever paid for a property here was $65,000. So those are the numbers that we're at now. They're probably worth between $80,000 and $120,000 now, so there's a good amount of appreciation there.

I would say that it doesn't really compare to appreciation in like really hot markets, but there's been some, so that's kind of how that went.

[00:06:32] Spencer: I know you talk on your YouTube channel about the 1% rule and the 50% rule. Can you kind of break those down, and is that how you were initially approaching searching for the properties?

[00:06:47] Rich: Yeah, well I guess I want to back up because I remember you asked a question, but I didn't answer it yet. Would you recommend this strategy to everybody? And I think what I'd say to that is the strategy that put me in a position where I could buy those properties.

That was kind of typical stuff like maxing TSP, maxing IRA, living frugally, and investing in index funds; don't get pulled into the hype, right? Like, don't do crypto. I mean, you can dabble in crypto, but don't make crypto a big deal for you. Don't get into these hot stocks that are skyrocketing and get excited when Game Stop quadruples in a day.

That's kind of the basic stuff that I think everybody should do. And then, I don't have bad debt. You know, good debt is with real estate. 

If on top of all of that you have this interest and desire to also add real estate to that, then I would say do it. The other thing that I'd say is I did them in cash and there's like varying reasons for that. I used to think that was a superior strategy, but looking back having just lived through it, I don't think that was necessarily superior. 

If you have 20% down on rental properties and make sure that rental property is cash-flowing and make sure that you have enough reserves to handle yourself, then I would recommend buying a second property with 20% or 25% down.

There's not a massive advantage to buying in cash. And in fact, it's kind of a proven fact that over the long term you'd be better off buying with the debt. If you have 30 properties that are leveraged to the hilt and then you hit a downturn in the market and something weird happens, like 2008, that's kind of scary. So that's my really long answer to your question. 

[00:08:49] Jamie: That actually leads perfectly to my next question. I was going to ask about the stress aspect of it because military life is stressful, unknown deployments, TDYs, having long distance landlording for a lot of it. You talk on your YouTube channel about finding the right property manager and stuff like that, but what's the stress like when you've paid cash for these versus if you have a mortgage? And was 2008 less stressful for you since you had cash properties versus having to worry about the mortgage?

[00:09:15] Rich: So in 2008, I hadn't bought any of the properties here in Montgomery, Alabama, yet. I had been flipping properties kind of through the time that things were crashing. I had that one rental in DC. 2008 didn't affect that rental in DC very much. It was a townhouse. 

The government just keeps plugging on and the market there didn't freak out or crash or anything. Certainly, the rental market didn't. It's possible that the prices of houses did. They did dip a lot, but rentals didn't dip at all, so I didn't really feel that to any degree.

Of course, we could jump forward to covid. How did things go for me during Covid, having paid off properties versus leveraged ones? Covid was super scary when it first happened, but all my properties were paid off. So I had like zero stress. I was annoyed that tenants might stop paying. I actually felt comfortable enough to buy, to buy properties at the beginning of Covid when people were freaking out.

But to answer that question, it doesn't necessarily make financial sense to pay cash for properties. You're probably better off leveraging them. But if you have them paid off, and certainly as you near retirement or as you want to stop working a normal job, having them paid off is amazing piece of mind.

And it's just way less stressful. And the cash flow looks a lot better. I mean, instead of cash-flowing $150 or $200 a month on each property, you might be cash-flowing $600 or $700 a month on each property. And that's on something that runs for $800 or $900. 

Yeah, the peace of mind is pretty amazing. It's sometimes it's more important than what makes sense financially. It's a personal decision. 

[00:11:20] Spencer: Yeah, absolutely. I mean, we talk about that a lot in the show. So much of finances is a mental game, and if what you're doing doesn't let you sleep well at night, then it's probably not worth doing it, even if you are going to get a better return on your investment.

Rich, you mentioned buying properties during Covid. It reminded me of the Warren Buffet quote about being greedy when others are fearful and fearful when others are greedy. Did you notice that man, these properties that were selling for $100,000 a couple months ago are now selling for $80,000, and think this is a good opportunity here because I know I can rent these out. Did you have a pulse on the market to kind of understand that there was an opportunity here?

[00:12:08] Rich: I think that that's what my strategy was. My strategy was, man, I'm going to be buying during this entire crash. I'd like to like grab a bunch of stuff for great prices.

The two properties that I bought, they weren't like home runs. Well, one of them I think was kind of a home run. The six-plex that I bought wasn't necessarily a home run. It went under contract before we knew we were going to lock down, but by the time it closed, we were in masks. 

I was sitting there in the room signing the documents, and I was the only person in the room. And everybody was standing on the edges. And that probably seems normal now, but that was like really bizarre. I remember the sellers thinking, like I could just tell, they're just like, “Oh my god, I hope this guy like doesn't back out. I hope he buys it because the market's going to crash. We're going to get stuck with this place.” 

That was my strategy, but I would argue that it just didn't happen. There's a lot of people that sold their TSP right into the G fund when Covid started, and they got totally screwed because the market ended up taking off after that.

The real estate never really had a blip. It didn't really ever have a blip. And so I was going to take advantage of that, but it never happened. But at the same time, I also didn't overpay. I got the properties for a good price.

[00:13:45] Spencer: So Rich, you mentioned not changing your asset allocation during covid. I know a lot of people you know who tried to take advantage of the market dip. 

You only get two inter-fund transfers every month in the TSP. So if you went to the G fund, it was only a 30-day crash basically from the end of February to I think March 20th. So there really wasn't an opportunity there to make any moves. So did you change anything about your asset allocation or did you move more money into the market?

Did you have any cash on the sidelines that you deployed or did you just kind of sit it out and, and benefited from the 20% and 30% rallies that we had for the next two years?

[00:14:23] Rich: Yeah. Let's see, I was still active duty at the time and so it was August of 2020 was right when I retired. I did something kind of unique because I wanted to make sure that I contributed the max to my TSP for my last year in the military, but my last month was going to be July. So I actually contributed like 60% each month starting in January just to make sure I hit that.

I can't remember when I hit it, but I probably ended up buying quite a bit more than usual during the dip. So that helped, but that wasn't a strategy. I think, if anything, the lesson for anyone out there, the easy lesson on this is that it's easy to say and it's hard to have a pretty simple plan for your tsp.

You're going to max it out every year. You're going to buy a certain amount every month. And no matter what the market does, no matter if it skyrockets or drops, you're just going to stick to that plan. You're not going to put it in the G fund and wait for things to get better because that ends. That always ends.

I shouldn't say always, but more often than not, you're going to screw that up if you try. You're going to end up in trouble. I get emails from people all the time, and I got one yesterday from somebody in their sixties who's investing in the TSP. They said that they had followed some guru that told them to put it all in the G fund around the time that Trump was elected.

And then the same guru told them the same thing during the crash. And they lost out on, I don't know, 50%, 60%, maybe 70% of growth. Because they were on the wrong side of these rallies. You just don't wanna play that game. So that’d be my advice. Stay the course.

[00:16:14] Spencer: So let's pivot now a little bit.

We've talked about real estate investing and your strategy there. Let’s talk specifically about the VA loan. Maybe you can just talk about in general, what is the VA loan and what's the maximum you can borrow with it, and if there are any special considerations you should have before you start using it.

[00:16:39] Rich: Well, I think there are two parts to that, right? There's using a VA loan just to buy a primary residence, and then there's this idea that you could also use it to invest, which is something that obviously I talk about as a real estate investor. 

The VA loan is a program where people that served in the military for enough time, they have access to it. It's basically a program where the VA guarantees 25% of the loan so that we don't have to make down payments. So that's a really cool benefit. But what you have to understand is that doesn't mean that if you have crappy credit, and you've done horrible things with money in the past that you're going to get that loan. You still have to qualify for a loan. Although I think you can have maybe a worse credit. But it can't be like bad, bad. 

But if you qualify for a loan, there's actually no limit to how much you can VA borrow with a VA loan. As long as your income qualifies for that amount, the VA's going to guarantee 25% of it, which allows lenders to give those loans without you needing a down payment. 

Now, what a lot of people don't understand is that does not mean that you don't pay any money when you close. If you buy a house with a VA loan these days, you're probably not able to negotiate where the seller's going to pay a large amount of your closing costs. So you're going to have to come up with the closing costs, several thousand dollars. 

You probably could budget for 2% or 3% of the purchase price for that. So a lot of people end up really upset. There's a lot of VA forums, and people end up really upset. Like, “I thought this was no money out of my pocket.”

Well, it's possible that if a seller contributes to closing, you could have no money out of pocket. I actually have come home with money in my pocket after buying with a VA loan before, but these days that's hard. You still gotta pay closing. But that's kind of what the VA loan is. It's a way for military members to buy a house, no money down. But that can be a double-edged sword.

[00:18:56] Spencer: So I guess one of the confusions that a lot of people have is you can't specifically or initially invest with the VA loan, is that correct? You have to use the VA loan for your primary residence initially?

[00:19:11] Rich: That's true, but I think that doesn't really stop you from investing with VA loans in the military because we move so often.

If you buy a house and you're like, “I'm going to live in this house while I'm here, and then when I move away, it's going to be a rental property,” that is totally allowed. 

I was here in Montgomery, Alabama, for 10 months and then I moved away. Nothing would've stopped me from buying with a VA loan during that time and changing that to a rental property when I move away.

So it's totally allowed, but you have to live in it initially, but there isn't really a set amount of time for that living it initially. And whenever the military moves you away, it is totally fine to move to your new location. Buy another house with a VA loan if you still have enough entitlement and make the house at your last location a full rental.

And then the other thing that I'll say, about “Can you buy investment property with a VA loan?” You can buy a two, three, or four-plex with a VA loan. Then you just have to live in one unit so you could invest with it right away because you would have three other people living in the three other. Right away while you're actually serving there.

So that is another way to invest with VA loans. Now, the caveat that I put on top of all of this, of course, you can do this no money down. But should you? That’s a different question. 

I've always liked having 20% or 25% equity in a property when I buy it because if there was a large dip in the market, or if something weird happened and rent’s went way down, you couldn't rent it out for a long time, or you had an accident and you couldn't work anymore…lots of things can happen in life. 

Having equity in the property means that there's a better chance you won't get foreclosed on. But if you have it a hundred percent financed, payments are a little bit higher. And when you go to sell, you might realize that you can't sell without having to provide money at closing.

So I'm always of the mindset that you can borrow money, but should you is kind of a personal decision. So that's just the caveat I would put. 

[00:21:29] Jamie: Yeah, that's a really good point. Now, are there any other downsides of the VA loan? I've heard Dave Ramsey say their fees are higher and you shouldn't use it and you should put 20% down every time.

Is it true the fees are higher? Are there any gotchas with the loan? 

[00:21:43] Rich: Yeah, I mean, if you are a Dave Ramsey fan, then I would say he's right because Dave Ramsey's really careful about doing things on credit. 

There is kind of a high fee. I think it's 2 point-something-percent, and the funding fee gets added to the loan.

And that's supposedly to pay for the program or pay for the ability to do it with no money down. But that can get rolled into the loan. And if you roll that into the loan, and my loans at 2.75%, if you roll that into the loan, it just ain't a big deal like that. That's a couple bucks a month, right?

So I don't think it's too big of a deal. I think as long as you're responsible with money, I think it's smart to use the VA loan when you can. It's just that if you’re in a financial mess and not even sure you’re going to be in the military that long. Then if you buy a really, really expensive property, no money down, and roll the funding fee into your loan, you might be in a world of hurt.

So it depends.

[00:22:53] Spencer: Yep, it often does. So right now we're in a bit of a hot, seller's market, if you will. We're recording this in February 2022. So who knows what the future holds, but right now it's tough out there if you're trying to buy a property.

And one thing I've seen online on some of the forums is people just can't buy a property using a VA loan because of the inspection process. So any comments on that? Is it true that no one wants to wait for it? What would you say about that?

[00:23:32] Rich: So I by no means endorse this, but I know there's something called vetted VA.

It seems like it's a pretty big online forum, but it's a place where you can ask questions about VA loans and stuff, but at the same time, they're trying to like funnel you to their lenders and stuff. But vetted VA, I see it all the time just watching their Facebook forums.

People are going insane. And this has been going on for like a year, maybe a year and a half. People can't get their offers accepted, and it's kinda like, I'm tiring and I wanna buy my dream home. I lost out on the last 10 deals, and people are freaking out. And they're all offering $20,000, $30,000, or $40,000 over.

And they're saying that they'll waive the right to be able to inspect the property, and I have advice for that, but nobody wants to hear my advice. You do, right? 

Don't overpay for your forever home. Don't overpay for these homes in this panic that you just have to buy something. This is a great time to just rent instead of buy and wait this storm out. 

There are people, they've been planning this their whole life. You're going to do your 20 years, you're going to buy a forever home. You deserve it. You earned it. And now it's like, crap, this is really hard, but I'm going to do it no matter what.

And I think a lot of them are making very big financial mistakes now. A good friend of all of ours, Doug Nordman, has some articles on his blog that I'd recommend everybody read. I think essentially type in something like, “Should I buy a house on active duty?” And his blog will show up. Also, should I buy one at retirement?

And he pretty much says you shouldn't. You shouldn't buy a house while you're on active duty. And you shouldn't buy one right when you retire because most people end up changing their minds about their forever homes. Most people do that. You buy a forever home, you spend a fortune, you get it built, and a number of things can happen.

One of them is you can get a divorce, and I know nobody wants to admit that might happen. You end up getting a divorce, right? You end up getting offered a job across the country that makes double, You end up just not liking that city and wanting to move closer to your kids. Maybe you want to move away from your kids. I don't know. 

But a number of things happen where people regret their decision to spend a fortune on a forever home. So anyway, that's something to consider. 

The inspection process. It's true. So people in the VA loan forums are complaining because they feel that their offers are considered on a lower scale than people who are going to pay cash and people who are putting 20% down and have conventional loans that aren't VA. 

They are absolutely right. People that sell VA loans will try to argue this point, but people that are paying cash are going to win. People that are putting 20% down and using a normal bank and normal financing are going to win out because the VA loan process can be cumbersome. 

There is a VA inspection that is done for safety reasons that can sometimes be problematic.

That doesn't happen when you buy in cash or when you buy through a conventional loan. So, it's just something to consider. You're lower on the scale of people they want to accept. So you've gotta bring something else to the table, like overpaying, which I don't recommend.

[00:27:08] Jamie: Now a lot of people when they talk about real estate investing go more short-term, vacation rentals like Airbnb and options like that. Did you ever consider that? Or if not, why did you steer away from that kind of model of real estate?

[00:27:22] Rich: So I think if you've been to my YouTube channel, you'll know that I talk about doing self-management, and I talk about automating a lot of stuff and doing it remotely and doing it all online and making it simple.

So I manage 30 properties, but I just don't think it's that much work. It just isn't that hard. Lots of stuff's automated. You can't do that with Airbnb. 

Airbnb is a different beast altogether. It's not traditional real estate investing. Airbnb is hospitality, so hospitality's a completely different animal.

You're talking about interfacing with people every day and like, how come my wifi doesn't work? How come it's too hot? It's too hot in here, it's too cold in here. Where's the wine opener? There's no wine opener. I'm going to give you zero stars. So that kind of thing can be hard.

And while you could make more returns, I mean, you will make more returns doing Airbnb. You will earn them. If you're going to self-manage, and if you're going to pay someone to manage for you, you're going to pay at least 25% of the rent for that management. So I haven't messed with it. It's not something for me; I like the traditional long rentals. And I've stayed away from Airbnb. I'm tempted to try, but I know that it's going to be a lot of work. 

[00:28:52] Spencer:  Rich, circling back to the VA loan…you'll hear things online about certificate of eligibility. Where do you get one of those and how do you get one?

[00:29:02] Rich: I've looked at mine recently. If you go on va.gov and log in, there's a way to get to a place where you request your certificate of eligibility. The certificate of eligibility is a form that tells you, and more importantly, tells the lenders that you can borrow money. You can use the VA loan. And it lets you know how much money you can borrow no money down. 

If your certificate of eligibility states that you have a full entitlement, which I think, it'll say you have 36,000. I think is that is the magic number. But whatever's a full entitlement where you've never used it before or it's been restored, then you don't have a limit on how much you can borrow. And your certificate of eligibility proves that. 

Now if you've used a certain amount of money, then you can get the help of a lender or get help from like a YouTube video or a website, do some creative math and figure out how much money you can still borrow.

It's quite possible because the limits went way up last year, that if you thought you didn't have any more borrowing power, you may have borrowing power now even though you've already used your VA loan. And there's like some tricky ways to figure that out. You might be able to borrow more money without putting a down payment, or you might be able to borrow more money and have a certain amount of it be covered by the VA, and you have to come up with another amount. So those are kind of the options.

[00:30:37] Jamie: Okay. Rich, what about the VA loan as far as new construction? Are there any caveats or limitations for a new-build house?

[00:30:44] Rich: I think that the caveat and the limitation is that it has to include the land. I believe that's the rule. I believe the rule is it has to be new construction and the land.

So you can't have your own piece of land and then say I'm going to use a VA loan just to finance the construction. For some reason that's not allowed.

[00:31:09] Spencer: Gotcha. Rich, what about purchasing a property with a conventional loan or a cash offer and then refinancing it into the VA loan? Is that possible?

[00:31:20] Rich: I believe that that is possible. Yeah. There are two different kinds of finance refinances that you can do. And one of the refinances is specifically what the VA does is specifically to get you out of your conventional loan and turn it into a VA loan. I don't think you do that.

I don't think there's a good reason to do that right off the bat, but if you realize, oh, I have this VA loan entitlement. You could refinance and get your down payment back. And then now you have a property that's using your VA loan. 

[00:31:58] Jamie: And when you're looking at investments to buy or properties to buy, can you give us a little bit of an overview of how you determine if something is going to be a good investment cash flow?

Is it as simple as, here's what I think I can get for rent minus my mortgage payment and insurance each month? What other factors are you looking at?

[00:32:18] Rich: Well, that's where I want to talk about like the 1% rule and 50% rule. It helps people that haven't heard of those rules before visualize what getting a rental property might look like. 

The 1% rule means if you're going to buy a rental property, let’s say buy it and get it rent-ready for $100,000, it needs to rent for at least 1% of that per month to make sense as a rental property, to have the possibility of being a decent rental property.

So $100,000 needs to rent for $1,000 a month to have a chance at being a good rental property.

Then there's something called the 50% rule. And the 50% rule is a way to help you estimate the expenses that you might incur while having a rental property. And most people drastically underestimate what their expenses are going to be. 

People often drastically misunderstand, especially people in the military because they often buy expensive homes and then move away and then rent them out. 

The 50% rule is if you're getting $1,000 a month, which is in our example of a $100,000 home, you're getting $1,000 a month, you can expect that you may spend about 50% of that $1,000 on expenses.

And that probably surprises people because that does not include the mortgage. You've gotta still subtract the mortgage after your expenses. Now that 50% estimate does include 10% of it being for a property manager. So you could decide to manage it yourself and maybe your expenses would be 40%, and it is somewhat on the high side.

You might be able to do less than that, but not a lot less. These people that assume 10% or 20% expenses or just not even talking about expenses when they calculate what they’re cash flowing are lying to themselves. And I'll give you an example that happens a lot in the military.

This happens a lot. I'll meet somebody that said that they bought a house while they were in San Diego, and they moved to their next duty station and made their San Diego house a rental. They’re cash flowing $200 a month. I'll ask them, “What do you mean by that?” And they'll say, “Oh, well, the mortgage is only $2,000 a month, but I'm getting $2,200 in rent. So I'm cash flowing $200 a month.”

Well, that isn't true at all because you haven't applied the 50% rule to that formula yet, right? And if you do you’re negative cash flowing, I don't know, $800-$1,000 a month. The military people tend to not think about “will this house make a good rental when I move away?” when they buy, and that's just something that you probably need to do.

[00:35:01] Jamie: When you're looking at those properties for potential investments, are you concerned more over how much it might appreciate in value in the market of that city? Or are you looking for cash flow each?

[00:35:15] Rich: Well, Spencer, did you mention something about making a lot of money with one of your properties just because of timing, right? I think that that's a healthy attitude to say that you got lucky. Some people do is once they make that much money, they realize that they’re genius at picking the right locations to buy houses.

And then they start buying everywhere else they go thinking that they're going to get the same appreciation every time they move. And that does not happen. So I never bank on appreciation in any way. I only worry about how much is this house going to cash flow when I move away. And if you know what you're doing, that's money that you're probably going to be right about, I know before I buy a property. 

I already know how much money I'm going to make in cash flow for the next couple years. I don't know how much it's going to appreciate, and I don't try to guess either. I think sometimes I'll model that. It's going to appreciate 3% a year, but that's only going to keep up with inflation.

So I wouldn't worry about it. I don't worry about cash flow, and I certainly don't chase cash flow. And also, to bring up another point, if you're in the military, if you want Rich Carey's advice on real estate investing, don't buy a house in a high-cost-of-living area. Don't buy a house in California, Hawaii, or DC because when you move away and you gotta turn into a rental, it's not going to cash flow very well. 

Now everybody's going to have examples because of this awesome market we've had since like 2013. But I bought in this place, and I made a fortune. But that story's going to change soon and that story doesn't mean that the next three years look like the last six years. So that would be my advice to everyone. 

[00:37:11] Jamie: And as you start to compile multiple properties, you said 30 total doors now, 20 while you're on active duty, what kind of protections do you have multiple LLCs or how did you manage that side of the business? 

[00:37:21] Rich: Man, I love that question. Thank you because it's the LLC dilemma.

If you go on YouTube, or you Google, “Should I get an LLC? Should I get an LLC for my rental?” First of all, if you ask a lawyer if you need an LLC, it's kind of like asking a barber if you need a haircut. Or like a divorce attorney if you should get divorced.

But I have two LLCs, and I have my property split up between two different LLCs. I did it because everybody else was doing it, and it kind of made me feel cool to have an LLC. I kind of felt like I'm somewhat anonymous, people can't look me up as easily. 

None of those things are true. I'm not cool, I'm not anonymous, and it actually hasn't been that helpful. It’s more difficult to do certain things like refinance or get loans. It might be more expensive to get insurance. 

There's like all these downsides and this idea that it protects you. If you get an LLC for every property, then that means that you protect yourself. If somebody sues you, then all the rest of your property is protected. 

I think that's sort of a fallacy. Certainly, if you were negligent in some way, a judge is just going to be like, “Okay, well if you're negligent, then forget the LLC. You're liable for this. We're going to get this money from you one way or another.”

I think that the benefits of an LLC are overstated. You can get one if you want to do it right and not like have it protect you. In a case of a frivolous lawsuit, you have to do a lot of things  correct. Like you have to have meeting minutes for LLC like once a year. You have to make sure that the accounting is all done correctly and that funds aren't commingled, and that you don't like accidentally pay for your vacation with your business credit card.

There are lots of different things that you could screw up where somebody could argue that this is a bs LLC and this person's actually just running it as a personal business. So that's the really long answer. That's me giving my long answer. 

My short answer– if you're a fairly wealthy guy (and my opinion of fairly wealthy is going to be starting at maybe a $3 million net worth). If you're worth about $3 million, then worry about not buying houses in your name anymore and doing something interesting with like LLCs and having a tax attorney figure out cool stuff for you.

I think that the average military member that's going to own one or two or three rental properties just doesn't need to mess around with it. They can buy it in their name, and they can get an umbrella policy for extra liability that would be above and beyond the liability that a standard fire policy or landlord policy has. That's my answer to the LLC question.

[00:40:38] Spencer: So Rich, it sounds like, with the LLC just adding cost and complexity for not much gain if you're just a two, a two-door kind of property manager.

[00:40:46] Rich: I get a bunch of weird tax things each year. Even though it's a single-member LLC. Both of mine are. I'm the only person on it, which allows me to file it on our tax return without filing a separate tax return. I still got a bunch of extra fees and paperwork for each LLC. And there are still requirements for each state, and I think maybe in California or certain other states, those can be like really expensive.

The fees you pay for LLCs, you're going to pay those fees for sure. Whether or not it's going to protect you from a frivolous lawsuit, that's probably a very, very small chance that it would happen. I mean, it could happen, but is just a very small chance that your life's going to be saved because you had 20 of your properties and 20 separate LLCs. This would mean you'd have to have 20 different checking accounts, 20 different business credit cards, and have 20 sets of QuickBooks that would all have a separate fee.

[00:41:51] Spencer: Sounds brutal. So Rich, when you were managing or when you own the rental properties and you were overseeing, 

[00:41:59] Rich: I'm not a lawyer. Nor do I play one on tv…for entertainment purposes only. Sorry, my lawyer just said I had to say that.

[00:42:08] Spencer: That's a good lawyer. But when you were managing these properties or owning these properties from overseas and you had a property manager looking after them for you, how did you go about finding that property manager?

Did you get lucky on the first one? Did you reach out for referrals? And do you have any advice or process that, you know, if someone's going to buy a property in let's say Altus, Oklahoma, and then move to Hawaii, how can they go about finding a property manager?

[00:42:33] Rich: Yeah, well, I recommend investing in Altus and then moving to Hawaii.

I don't recommend investing in Hawaii and then moving to Altus, that's just my 2 cents. So finding a property manager. In my case, I had some experience with property managers by the time I got to Montgomery, Alabama, because I'd used property managers on other properties in the past, and I'd fired property managers in the past.

So I had learned lessons about property managers by 2013 once I was in Montgomery, Alabama. But in that particular case, I ended up being referred to a property manager. So I was here going to our command and staff college, like, war college, for whatever service you're in.

But I was here in Montgomery, Alabama, for 10 months. Somebody turned me onto this idea of investing in real estate here. Another military member who already had I think four properties. He also turned me onto his property manager and some of his contractors and his real estate agent.

And I ran with all that. I ran with that ready-made model and that was the property manager that I ended up using for four or five years. But that doesn't mean that they were awesome from, from the get-go. We had a lot of back and forth all the time about like, Hey, wait, no, I don't like it when you guys do this. I'd like you to do, do it this way. 

We had communication problems. I didn't like the way that their the reports weren't detailed enough. They were calling me too much. They weren't calling me enough. Lots of things happen that you have to fine-tune over time, but as long as they're able to take your feedback and make adjustments, and the most important thing, as long as they're trustworthy and responsive, then that can all work out.

Another thing I'll offer though is how to find a good property manager. And this can be whether you're looking in a location that isn't even where you live now or maybe it is where you live now, but you know you're going to move soon. The big trick to picking a good property manager, I think, is asking them for referrals.

And what I mean by referrals is asking to speak to other investors that are using them. Will you let us speak to other people who are investing with you? You know, people that have, 5 homes, 10 homes, 20, 30 homes with them. Talk to those investors, and then once you're talking to those investors, take it further.

Does that investor know anybody else who's using that property manager? So then you've even talked to another person. I also like to ask them if I can talk to some of their tenants. Or maybe I'll just like try to find some way to call those tenants myself. Another thing that I'll do is I like to see how easy they are to get ahold of.

So I'll sort of pose as a renter and I'll call the number. Does somebody answer the phone? Do I have to leave a message? If I leave a message, does anyone ever call me back? Do they call me back right away? 

So these are just some of the ideas. I have something on my YouTube channel. I know I've written a blog post about this and lots of other people have too. But those are some of the top tips, I think, to pick a good property management company.

[00:45:56] Spencer: Yeah, those are great. Just real good and tactical. Do a little bit of legwork and save yourself a lot of hassle further down the line.

So, Rich, do you have any suggested reading or books for those who want to get into real estate investing? I know on your website you've said you've read quite a few. What are your top couple books that you recommend to that military officer or that NCO who's ready to start real estate?

[00:46:24] Rich: I don't have any to recommend because I still haven't written my book yet. So, I've never fell in love with one and I've never had a good recommendation for anybody. I think that Brandon Turner's books on bigger pockets, right? He has like a bunch, and I think that his first couple of books, you know, like, I don't know. Real estate and investing for beginners. 

He just got the first couple of books that he wrote, they're really good books. Even more so than that, I like his book on property management. I believe he wrote it with his wife, and it's a really, really good book about property management.

I don't say like Rich Dad, Poor Dad, like everybody else does. I don't think there's necessarily a book out there that just nails it. I know a lot of people will read a lot of books and go on YouTube and get on blogs and start going to like real estate investing groups.

Those are all things you should do. But what you have to do is, you kind of have to jump in and actually do it. So when I started investing, when I started buying properties, I hadn't read these books yet, or these blogs, and I learned fast. 

You learn fast, you make mistakes. I think the important thing about getting started, I don't think it's about reading the right book or having the right recommendation.

The important thing about getting started is having a mentor that is two or three years ahead of you in your journey. You do not need me to be your mentor. You don't need to pay a guru to be your mentor. Don’t pay a guru like $20,000 to be your mentor. These are bad ideas. 

You need somebody that is two or three years ahead of you in your journey. If you have zero houses, you want somebody that's got three or four houses under their belt to walk you through things. And that doesn't mind looking at your offer or doesn't mind looking at your numbers when you're estimating how much you're going to make in a property.

I think that's important, and a tricky thing– You don't walk up to people and say, “Will you be my mentor?” That's a really weird thing to do, especially if you first met them. It's kind of like saying you go on a date and you're like, “Will you marry me?” You're on the first date. It's just kind of weird. 

So a mentor relationship with somebody happens naturally. You just kind of ask them for their opinion, ask them for help, and then hopefully you find some way to add value to their lives. Do you need someone to go like, I don't know, make some phone calls for you?

Or do you need someone to, find some way to help that person. Certainly offering to buy that person coffee and pick their brain. Buy them lunch and pick their brain is a good way to start. But find a mentor, and do it in a natural way. I think it's my advice more so than having the right book to read.

[00:49:25] Spencer: Excellent advice. I think I agree with all. So Rich, where can people learn more about what you're up to right now? If you wanna mention website, Instagram, and YouTube. What are you doing? And where can people find you?

[00:49:38] Rich: I've got a website, RichOnMoney.com. It's not kind of the main thing I'm working on, but everybody has to have a website, right? And then my YouTube. You can just do like youtube.com/richonmoney. You'll pull up my channel, and I talk about TSP, real estate, and property management. Those are pretty much the things I talk about…investing in general, and I’m passionate about it. I'm making videos and people can ask questions, and I enjoy it.

So that's the best place to find me.

[00:50:15] Spencer: Awesome. Well, Rich, thanks so much for coming on the podcast. We really appreciated you sharing all of your learned advice on real estate investing using the VA loan and building a little mini real estate, I guess it's not even mini, it's just a straight real estate empire, while you're on active duty.

So thanks so much for coming on the podcast.

[00:50:37] Rich: Hey, thanks so much. I had a blast. Looking forward to being back on someday. 

[00:50:47] Jamie: Thanks, Rich. It's been a really great episode with you. Thanks again for coming on. 

We got into VA loans and real estate investment, and I have three main discussions that I wanna make sure the listeners remember as we wrap up today's episode.

So to recap, VA loan may be a good option for your primary home that you can then turn into a rental property when you PCS. Number two, don't forget the 1% and the 50% rules that Rich talks about on his YouTube channel. You have to account for expenses because having rental properties is more than just mortgage minus rent equals cash flow. There are a lot of other considerations to watch out for. 

And then the third main thing to recap is how you can set yourself up to be financially ready and to put yourself in a position where you can get into real estate.

[00:51:33] Spencer: Thanks again listeners for joining us today. We appreciate your continued support and for giving us those delicious five-star reviews on Spotify and Apple Podcasts.

Big thanks to Rich Carey from Richonmoney.com and youtube.com/richonmoney for coming on today, sharing his expertise with the VA loan process and real estate investing while you're on active duty military. Amazing story there, accumulating 30 rental properties by the time he retired.So go follow Rich on YouTube or Richonmoney.com and he is also on TikTok, so check him out there as well.

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