From Starting Over at 30 to 17 Rentals (and Financial Freedom) 5 Years Later

At 30,Today we’ll hear how one investor finds single family homes and duplexes for $200,000 or less that can gross more than $30,000 per year in a small Midwest market. She now has 17 properties and is right on pace to retire from a demanding W2 job of full decade before traditional retirement age. And that’s even after an extremely challenging divorce, forced her to liquidate almost all of her assets and restart her investing from scratch. Hey everyone, I’m Dave Meyer, a real estate analyst and also a rental property investor myself for the last 15 years. Today on the show we have Sarah King, who’s an investor from Fort Wayne, Indiana, who has grown from house hacking a single property as a single mom in 2020 to an impressive portfolio of 17 deals just five years later. You may have heard Sarah on episode 6 98 of the show. That was about three years ago, but so much has changed since then that we wanted to bring her back on to provide an update. So today Sarah will tell us how she had originally set an early retirement goal at the beginning of her investing career, but has already exceeded that decades before. She’ll turn 65. We’ll hear how she pivoted part of her portfolio in recent years as prices and interest rates rose. And we’ll also hear how she balances self-managing her properties, even with a family and a demanding W2 job. Let’s welcome Sarah back to the show. Sarah, welcome back to the BiggerPockets podcast. It’s great to have you.Thank you so much for having me. It’s exciting to be here.Yeah, it’s a great opportunity to catch up what you’ve been up to. And I’d love to start our conversation today around 2020 because for those of our audience who didn’t listen to your previous appearance here on the BiggerPockets podcast, you did some early investing, then went through a divorce and it sounds like you sort of had to start overMaybeWas it from scratch? Basically?It was completely from scratch. So for those of you who haven’t tuned into that crazy story, so essentially my husband ended up addicted to drugs, and so when you’re working through the divorce process, it’s never fun. And then on top of that, you have someone that just isn’t in the right state of mind to really negotiate division of assets and all of that stuff, and you just don’t expect to be here and you’re so emotionally charged at the time. And so finally we just said, let’s liquidate everything and both start over. So we’re not stuck in mediation trying to decide what to do. And so I’m like, this seems like the easiest option to just move on and find some peace. And so we sold five properties that we owned together and completely liquidated everything. And then each of us got a payout from the five properties we had acquired. And then I started completely over at zero houses, not even a primary residence, andWasLiving with my parents for about three months until I decided I am a 30-year-old adult. I needed to buy my own place. And so I started over.Well, I’m sorry you went through that. It sounds like an incredibly challenging situation.It was incredibly hard, but nothing in real estate scares you when you’ve already been through the craziness. That is that because I’m like a foundation can be fixed, we can work through that. So you also get this delusional sense of nothing’s ever going to be that bad.Well, I appreciate that positive attitude you have. I mean, yeah, that is true. But I can imagine that it takes a little while to gain that level of wisdom and perspective after going through something so difficult. Was there ever a point when you were going through this when you just thought real estate was my old life, I’m going to move on and do something else, or did you know that you wanted to reinvest back into realEstate? So I was very big into Scott Trench, Mindy Jensen, love all of their stuff. And so I knew I wanted a house hack because I’m like, I’m paying for this expensive divorce. You have all these bills. I’m a single mom. My daughter was one and it was during COVID. I’m like, I need to make sure I still have a job. My job is travel. No one’s traveling right now. What is that going to look like? And so I’m like, I’m going to house hack so I can at least live for free. And through that house hack, I did a remodel of a rent style home on a walkout basement and I learned that I liked the real estate, I liked remodeling, and I got kind of addicted to doing it on my own even though I spent way more money than I should have spent. And I kind of went all out from there and I’ve become pretty addicted and now I have to step back and try to do less.It is so easy to get addicted to it.Yeah.I want to circle back to something you said about house hacking because I’m a big proponent of house hacking. It’s how I got started. I think a lot of people get started this way, but there’s this common opposition to it where it’s like, oh, I don’t want to live next to my neighbors. And frankly, I did it when I was like 26. I was dating my wife at the time, but didn’t have a very complicated life. It was pretty easy for me to do that. Meanwhile, you did it following a divorce with a one-year-old daughter.Yes.Did you ever have concerns about raising your daughter next to your tenants? Like that lifestyle element of it?I mean, people live in apartments all the time and it’s fine.Thank you. I totally agree.And I’m like, what’s the difference? I get to choose who’s living next to me versus a landlord choosing who’s on your floor. You actually get a choice and a say in the matter. And I’m like, if I am not tenant screening people and allowing a serial killer in my basement without running a credit check or a background check, then I’m an idiot.That’d be scary.So let’s not do that. Let’s check it out. And I’m like, I had two school teachers. My first tenants are tenants that rented from one of my former homes that I had to sell, and they moved with me and in my side-by-side duplex like, we have to sell the house you’re living in. This sucks. And they were my first tenants in the basement of my house. And soThat’s awesome.They knew what they were signing up for. I’m like, full disclosure, I live upstairs just letting you know I have a one-year-old and a puppy because I’m an insane person. They’re probably going to be running back and forth. And so they could tell at a certain time of night the puppy would get zoomies and run. No matter how much soundproofing you do, it’s never perfect,Man. You are ambitious taking on all of this at one point I am very impressed, but I am biased. But I think this opposition to house hacking because you’re living next to your tenant is so overblown, at least in my personal experience, living next to tenants. And I had a multiunit, it wasn’t just one. I have multiple and it’s fine.In some subdivisions, I had more steps to see my tenants than people do in housing additions that are really high density. We had different patios, different sides of the houses. They went out the backside. I went out the front and we had our own yards parking spaces.That’s a really good point too. If you have an opposition to this, you can also just target a property that has a layout that is suitable for you. You see these side-by-side duplexes with a fence that splits the yard where they have separate driveways or different parking areas. I started in these cut up old Victorians where there’s a shared entrance and then they split off. If you don’t want to do that, fine, go find a purpose-built duplex and go invest in something like that. So what was the plan? So you bought it, you renovated it yourself. Did you already have an idea of you had five deals? So were you already thinking about scaling while you were doing that first one?Definitely. I mostly needed a proof of concept because that house was the first one that I raised private money because all of my money was going towards divorce and home renovation.And so I just ran out of reserves really fast and I had a good job at the time. I’m like, thank goodness I have that. And so I was thinking to the future, but I’m like, I really just need to prove that I can do a refinance and give people their money back so I can go on and do more. And I of course hired plumbers and electrician. I ended up getting a real drywall guy because turns out I’m not that good at it and it looked really bad. So I ended up having to hire out and do a lot of it and went through a few guys.So you basically were like, I’m going to buy a house hack. I’m going to renovate it and refinance it. And that way when I refi it, I can pay back my private money lender.Exactly.And you would still own the asset, right? So it’s kind of like combining a burr and a house hack at the same time.Exactly. It’s funny because back when Burr was this big phase, people would all hold the check online when they refi out a house and be like, this is how much money I got in addition to it. And I got a check for $500 I want to say, or $800. I’m like, it really happened. I left closing with a check and it’s the littlest check ever, but I’m like, it really works. And it was just that clicked and kind of the rest is history where I’m like, I want to do this again. I was hooked.I want to hear about how you scaled after buying this house hack, but we do need to take a quick break. We’ll be right back. Welcome back to the BiggerPockets podcast. I’m here with investor Sarah King who told us how she started over after divorce by getting into a house hack where she did a lot of her own work. Sounds like it was a big success. So what was the plan for you, Sarah, after that first house hack?So ironically, I got this private money loan. Originally I was about to sign with this stranger from the internet and my parents freaked out and they’re like, you’re borrowing money at 12% from a strange man on the internet that you’ve never met before. Now I do this all the time, but at the moment they were very concerned. And so it actually pivoted where they’re like, this man is trying to take advantage of you. We’re going to give you a loan at 7%.And so I ended up with a really sweet deal and I feel like I essentially outbid the OG investor. So I had two people believing that I could figure this out and we were going to succeed in this plan. And so my first loan was actually at 7% full disclosure, friends and family discount. And so once I realized that they would lend me, I think it was $186,000, as soon as I paid them back, I’m like, Hey, I found a side-by-side duplex. Do you want to do it again and can I reinvest this money into the next one? And so I paid all cash for that one. I refied out with a conventional loan again, paid them back. And then after that they’re like, whoa, whoa, you’re moving really fast. You’ve bought two houses in two years. We’re out. We’re not lending you anymore.Really?And they were very nervous. They’re like, you’re biting off more than you could chew. You have this day job. What are you doing?I’m curious if you have any advice for people who are trying to work with either friends or family and get them interested in participating in these types of loans? Because I think these types of partnerships, people don’t talk about a lot, but are extremely common in real estate.I think the biggest thing honestly is social media. And that sounds really cheesy because everyone online will say this, but truly it just built out where people could follow your journey. And it’s a lot of the private money lending when it’s a relationship. They just want to know you. You develop the trust on social media. And so if you’re oversharing your journey, they can buy into, they want to be a part of that. And so from a friends and family standpoint, I feel like it tends to be a little more emotional versus a decision not always. My mom eventually reinvested because she’s like, I want the business benefits of this. This is pretty cool. I watched the machine working, but other people wanted to buy into it because they like the story. And so you just have to know your audience.Yeah, that’s good to know. I guess my friends and family are just business oriented people, but it’s great to have both.Yeah,That’s cool. So when your parents pulled out after the second deal, what did you do after that?Probably the best thing that’s ever happened to me because then I had to go out and actually learn how to raise money. And so the next time around I actually was about to get the money for my divorce. So at this point we actually had all of the money from our divorce sitting in an escrow account. And for about a year there was a lot of discussion back and forth on how to disperse this money. And so for over a year we couldn’t access a single dollar and it’s just sitting in an escrow account, which is really depressing when you’re an investor. It’s worst, ridiculous. And so I finally, I’m going to get this payout and it’s the end of the year and I find this side-by-side duplex again, and I’m working it up with a conventional lender to get pre-approval. And this is what I learned.This is probably the single tip if you were a W2 person that helped me grow my unit count like crazy, was you could get pre-approved and completely clear to close off of proof of funds from your IRA. You can google it, it’s not a sham. So you can use IRAs or investment accounts. It can’t be like a current company 401k, but you can use these traditional retirement accounts or a brokerage account to get proof of funds and you can get completely to clear to close on this conventional loan. And then I’m still waiting for the money and going through the whole court process and I know it’s coming, but I was able to use that to really get through all the due diligence on the loan.Oh, interesting. I had never heard of doing that,And so it ended up being really easy to do that. And then I was about a week out from closing on this house and our court process got delayed by six months and I found out I wasn’t actually going to get any of the money.But were you able to close on the house though?Yes. So then I ended up being like, I have no money. I’m clear to close. And then I went out and found a private money lender and wired that money in because at that point with all the court process, I couldn’t actually pull out of my IRA and I also really didn’t want to. It made my investing heart really sad. And so I ended up using private capital instead of my IRA account to close it.Wait, sorry. It made you sad to pull out of your IRA because that was just a different investing category that you wanted to maintain.Yeah, I have a whole nerdy world of index fund investing and I wanted to keep my real estate world and my index fund world separate.Honestly. I mean you must listen to Mindy and Scott then if you, they’reThe best if you do that.I mean I do the same. I am a hundred percent the same. I know there are a lot of people, real estate influencers who are like go all in on real estate. I’m much more of a divers, most of my money’s in real estate, but I do have other investments.So I kind of think about it as three phases. So phase one was always like, I need to make sure I can retire comfortably at retirement age. So 67, 65, that is what I do with my IRAs, index funds, HSAs, like all of the Mindy and Scott World of Money, all the traditional investing that I do really heavily from the day job is phase one. I’m not going to eat cat food in retirement. Yay.Yeah, I think everyone shares that goal.And so the second goal was how do you retire faster at 55? And there’s a rule of 55 for the super nerds out there. And so how do I get there and how do you bridge the years between retirement, traditional retirement age and when you retire early at 55? And so real estate is myBridge. Cool. Do you have a goal? I mean now we’re getting into the nerdyStuff. This I know we’ll probably go there. It’s inevitable.Yeah. Have you backed into some cashflow number or equity value number of your portfolio that you’re aiming for?So this, you keep moving the carrot farther down the road problem. So my original fire number was $3 million. I think if I reworked it today because I’m a high maintenance, it would be 4 million. So essentially I’m on track right now from just the stocks 401k portfolio to retirement age, so 65 with $3 million, and actually I got there where I could retire at 55 and withdraw. So I’m on track of $3 million by 55 and just retirement, not counting real estate right now. And then I decided to double that number and now I’m like, let’s aim for 6 million. I kind of already got there, but I didn’t want to stop investing in real estate. And so I decided you don’t know which market is going to have a fallout or what’s going to happen. So I’m like, let’s do 3 million in both buckets, which sounds excessive, but I’m like, I want to be good on the stock side and the real estate side. I want to get both at the age of 55 to be at 6000002nd retire, and I know I’ll be okay.I like that you’re a big hedger like me. I love the hedge approach.So that’s my really overly zealous hedge plan.Well, I mean this is not where I thought the conversation was going, but now I want to goOn thisConversation. This is fun. And I think it’s super valuable to people because so many people get into real estate and I just acquire units and pursue different strategies but don’t have a goal, which is crazy to say, but of course people have a goal like, oh, I want to retire or I want to retire early. But it lacks specificity. And if you don’t have that level of detail, it’s really hard to reverse engineer a portfolio if you don’t know what you’re trying to get to at the end. So can you tell me, where’d you come up with those numbers and then maybe tell us how you use that information, knowing this goal to sort of steer some of your real estate investing decisions?First, I did it the traditional way with the fire calculators. So Mr. Money mustache and all the fire gurus, and they all have these fire calculators, and so I worked backwards from I would like $120,000 a year. You work that forwards. That’s about the 3 million number.So once you have that goal, does that inform your buy box, like what you’re buying today because there’s so many different options in real estate and it can be overwhelming, has creating this goal and having what seems like a pretty clear vision of what you’re trying to accomplish helped you narrow down your buy box, your strategies and all that?Probably the big thing I figured out was you have to have active income and something that builds wealth. And for a while I thought real estate would be my active income. I’m going to retire off my rental properties because I love cashflow. And then I quickly realized it’s really, really hard to make enough cashflow on real estate because furnaces break houses need roof. I don’t want to slump, Lord, I want my house to be maintained. Maintaining houses is really expensive and interest rates went up. And so there was a lot of pivots that had to happen to build things out. And I learned cashflow is you need to have it, but it’s not going to build your wealth. The wealth isYou’veEssentially built a miniature business that you can sell off and have money at the end and tenants will pay down your mortgages. So you end up with equity that you didn’t have to create and then you sell it or do whatever. At that point you can kind of decide, but in theory it is sellable at that point potentially as a portfolio.Well, I want to hear about your buy box and what deals you’ve been up to since this house hack, but we got to take one more quick break. We’ll be right back. Welcome back to the BiggerPockets podcast. I’m here with Sarah King. We’ve been talking a lot about restarting philosophy, nerding out about hedging on different types of investing, but let’s get down to what you’re actually doing in the real estate world today. So what are the kinds of deals you’re looking for in this new higher interest rate environment?So about three years ago, I pivoted from long-term rentals. So I still have my long-term rental housing portfolio. I love long-term rentals. I love side-by-side duplexes. They make me very happy, but it’s really, really hard to make any amount of cash flow at a 7% or above interest rate.And so I pivoted into the world of Airbnb, which is fantastic. I also learned there’s a lot of tax strategy around that. So I still have a full-time day job and W2, and so I figured out we can get super nerdy and go into short-term rental loophole and all of that stuff. But I learned Airbnb is a way I could save myself money on taxes because I don’t think anyone loves sending thousands of dollars to the federal government every year. And so it got really depressing to see a 30,000, $40,000 tax bill and how much money you put towards thatBecause you’re not a real estate professional, you don’t have rep status.Yeah, my degree is in genetics. I’m a super nerd by day.What do you do? I shouldn’t ask you this.So I’m a medical science liaison, which is a really fancy word for, I work in corporate America and I’m like a fancy educator.It sounds cool. ItDoes sound cool.Good title. And you’re still doing that?Yeah, I still do that today.Okay, so, so everyone knows real estate always has some tax benefits, but if you are a real estate professional, which has its own definitions, you can look it up, but it’s basically got to be your full-time job is an easy way to understand it, and you have to participate in every deal. You get a whole slew of even better tax benefits that are amazing. So the reason I was asking Sarah is because she works full-time, she doesn’t get the supercharged tax benefits. There are still many tax benefits, which I get to sense you’re about to tell us about, but it’s super easy to get maximize tax strategy if you’re a real estate professional. So what were the tax benefits you were attracted to as a short-term rental operator?So I think the transition to short-term rental came from I need more cashflow and also I can save money on taxes. This is a win-win. And so really went after it for the interest rates and then also started learning about the short-term rental loophole. So as a W2 worker with a full-time job that I work well over 50% of the time in, I found out that you can do short-term rentals. So you have to manage, so there’s two qualifications. So you have to manage them, they have to be rented seven days or less. And then you also have to have material participation in that property to count it as active income. So I couldn’t buy a short-term rental and just have it managed. I actually had to work on the rentals. So I went back to painting stuff and doing all sorts of fun things. And it’s all within the calendar year. So what I started doing was picking up a house in late Q3, sometime in Q4, and it was self-managed until the end of the year to qualify and then switch it over to a property manager at the end of in the next calendar year and do the same thing again. And so this will be my third year of buying a house and self-managing one specific house in order to use that for tax advantages.I love that approach. So you live in Indiana, but do you live in a market that has strong demand for short-term rentals?Surprisingly, yes. Which everyone’s shocked by because I don’t live in Indianapolis that actually has pretty good demand and is pretty competitive for short-term rentals. I live in Fort Wayne, Indiana, which is north of that. It’s the second largest street.Great market though.Amazing market. Now we’re on the list of markets to invest in, so we’ll see.Yeah, I made that list.You’re the reason people are coming to Fort Wayne.No, sorry. Or you’re welcome. I don’t know which way you looking atIt. Yeah, I’m fine. So now I do property management, so send them all my way.And you’re still able to do that working full time. You’re still able to manage these short-term rentals. Is that just systems person, that kind of thing?So I pretty much have a team for all the parts of an Airbnb business, and I keep adding additional team members because I can’t manage it myself, but I can develop a team to do it. And I had property managers for probably about three years where I would manage my one tax house a year, but I would throw everything else that someone else that I didn’t want to do, but my reviews were slipping. My house has had some deferred maintenance going on, and finally I was like, uncle, I guess I’m going to build out my own company because I don’t like where this is headed.Nice. Good for you. So how many do you have at this point?So I have 10 long-term rentals and eight short-term rentals. No, I have seven. I just sold one and then I managed three for other people.And is that the plan to just keep doing sort of staying on this trajectory indefinitely?So actually last year I was able to pick up a long-term rental side-by-side duplex that was brought to me off market. But those deals just don’t come up every year. And so the fact that you could make that, so that one got my parents, my mom off the bench.Okay. ToPurchase a house with me again. So just last year we bought a house together.Can I just ask what about that deal stood out? I invested in small multifamily. It’s my favorite personal asset class as well. They’ve been harder to find over the last few years, but I personally think in the last couple months they’re starting to get a little bit more frequent. But what about that? Was it just cash on cash return numbers or was there some criteria that it hit that hadn’t been hitting for a while before that?Yeah, so a realtor reached out and was like, Hey, me and my business partner breaking up. I’m like, I’ve been through business partnership breakup before I feel you. And he’s like, I don’t want to list it and have everything blasted on the internet because realtors reputation matters in a small town. And so he is like, could you close this fast? And I’m like, I will try my best, my friend. And it was just a really good offer that I was in the right place at the right time and was able to close it quickly. And so it was 160,000. It needed a new roof, which I put on the next day after buying it. And I knew both sides would rent for about a thousand dollars. And so it was just a home run deal. Wow.Yeah. So 1% kind of rule even after you put in theRoof above a 1% rule, I rented each side for 1100.Oh, amazing. That’s awesome.And it was very cosmetic in terms of updates.So you were saying sort of be opportunistic about long-term rentals?Yeah, if I can find them. But otherwise I’m really bad at deal finding, so I rely on friends bringing me stuff or just finding some houses that I know can make at least 30 KA year gross, which I know doesn’t sound very exciting to other people, but it’s in my backyard so it can gross 30 KA year based on the zip code they’re in. We’re buying houses under 200,000 maybe. I think my most expensive house was two 20.And so it sounds like you’re on track. So 55 you’re going to have everything done.That’s what the calculators say, but I’m pessimistic.Why? It sounds like you’re doing great.Yeah. I just have a person hard time with stopping because in theory I don’t need to buy any more properties. I did talk a long time with Mindy Jensen and she’s fantastic. And she said, have you gone through your portfolio and look to see do you like all the properties you own? And so I actually ended up selling off a couple that had some big CapEx items coming. And I’ve bought better assets now because I’m like, if would go back in time, would I buy my first house in Fort Wayne ever? Would I buy that deal again? And the answer would’ve been no. And so I’m selling one in two weeks. Hopefully we close and knock on wood, we make it through closingNiceAnd some other brand new investors building their portfolio. What’s a really good house? But I really like the single family houses for the Airbnb potential. And I’m a weird person that’s like, I don’t really do multifamily. I like the hospitality piece that it’s easier to do.To your point, getting started and scaling, you need to focus on building equity and trying to hustle your way into these things. And you get to a point in your career where you are more about finding the things that you feel are sustainable for you. At a certain point you need to hustle and that’s fine. But now I do this too. I sell property like, yeah, maybe it gets 12% instead of a 10% cash on cash return, but I’ll take the 10% because it’s less work. And that’s okay because I’ve done the growth hustle part of my career. I’m not saying everyone should do this, but that sometimes people even start this way. I think it’s a totally reasonable thing about real estate is just finding the properties that are going to allow you to stay in the game because that’s really the key is just staying in the game a long time. And if these places are earning a great return, but they’re going to burn you out, it’s just not worth it.And you’re talking about buy box and I’m like, my buy box now is so different than it once was. I’m trying to get rid of everything that isn’t that and buy assets that I really, that fit our model. And I know we can do a really good job with location really matters for the short term rentals to get your reviews up. It’s hard enough to make people happy, let alone have a bad neighborhood or a bad neighbor. Neighbors will make or break your Airbnb life. And so pruning a few has really helped too.All right. Well, thank you so much for joining us, Sarah. This is a really fun conversation. Appreciate you sharing your story and your philosophy about investing with us here today.Yeah, thanks so much for having me. This is super fun. Sorry we went down a nerdy T track, but it’s always fun.No, that is the whole point. I think our audience not just wants to hear about deals, but I think the philosophy and approach to real estate investing really does matter. And your perspective about working backwards and starting with a retirement goal in mind I think is a really important lesson that a lot of people listening to this podcast should heed because I’m a big on that too. I think figuring out where you want to go and working backwards is going to make every decision that you make in your investing career a little bit easier.Yeah.All right. That’s it for our show today. Thank you all so much for listening to this episode of the BiggerPockets Podcast. I’ll see you next time.