In this article I bring you the interview with Rich Carey. Towards the end of October I attended FinCon in Dallas, TX, which is an annual conference for people & media in the financial services industry.

I usually attend 2-5 conferences each year, and most all (except Tony Robbins) are about real estate investing. FinCon is all about personal finance and financial services so I decided to attend in hopes of learning different ways to become better at personal finance, after all my focus has been on achieving financial freedom through real estate investing but there is so much more to learn.

The first night in Dallas FinCon had arranged niche meet up’s and I was excited to chat with other real estate investors.

That’s where I met Rich Carey.

Rich is one of those super humble, yet super successful and intelligent people who are more interested in learning about you than they are in sharing their success.

After Rich made a point of learning about everyone else, I was finally able to get him to spill the beans on his investing experience, and was completely blown away by his story.

Rich and his family currently live in Seoul, South Korea while he serves in the US Air Force. He and his wife own 20 single family rental properties in Montgomery, Alabama which are completely paid off. They have no debt, and are a single income (aside from their rental portfolio) household.

Rich has never before been this open about what he’s achieved, but has agreed to share in this interview. I can certainly understand where Rich was coming from, it is a bit awkward sharing your net worth and how much you earn with complete strangers, yet the goal is doing so is to inspire others and make it known that there is no “one size fits all” approach to investing and that if you can dream it you can achieve it!

So read below the full interview to learn more about how Rich achieved financial freedom:

When did you first decide that you wanted to invest in real estate, and what made you decide to invest in real estate?

Since I was 8, as funny as that sounds.

My Grandfather was a superintendent, in charge of building large tracts of homes in Anaheim, CA.  I remember walking jobs with him when I was about 5 years old.  I was totally fascinated with real estate at that time.

When I was 8, my Grandma explained to me how she managed to buy a four-plex as a single mom when we she raising 4 kids in L.A.  Her father and friends told her she had no business buying property as a woman.  She essentially house-hacked.  Those properties have been paid off for many decades and have been a huge financial help to her and her extended family.

I remember thinking at that age that I wished I could buy real estate and how much it would be worth by the time I was an adult.

What made you choose Montgomery, Alabama as the place to invest in?

I kept trying to make real estate work wherever I was in the world.

I’m in the military.  My first assignment in the military was Guam.  It’s an island with too many typhoons and earthquakes, and as much as I wanted to invest in real estate, it wasn’t going to work.  In fact, my apartment was wiped out by a typhoon while I was there.

My second location was D.C.  I bought a townhouse in Alexandria, VA for $280k and when I left two years later, rented it out over the next eleven years between $2000 -$2400 month.  Not great rental yields, but at least I was investing in real estate.

Next assignment was Monterey, CA.  Almost bought a 2bdrm/1bath home there for $900k in 2005.   Glad I dodged that bullet!  Next lived in Japan for 5 years.  Then onto Montgomery, Alabama in 2012.

I met a fellow military member who already owned four single family homes there, and he told me he was making 20% ROI.  He might have been exaggerating a bit, but I realized quickly this was a much better location for ROI than D.C.

How did you go about building your investment team? Have you ever had to fire a one of these team members?

I lived in Montgomery, Alabama for 10 months.  While I was there, I purchased six single family homes.  While doing this, I was well aware I would be moving away in a few months, and was focused on setting up systems where I could continue to buy properties, have contractors to make them move-in ready, and have a management company to take care of them once I was gone.

Through trial and error, I built up a list of contractors I trusted.  I had the benefit of using them on the first few properties I purchased, so I was able to weed out the losers.

I ended up using the same real estate agent and management company as the military member I met who was investing locally.  While working with them over the next several months, there were lots of growing pains as I was trying to communicate to them what I needed from them as an investor who would soon be working with them from out of state, or even overseas.

As an example, the real estate agent was uncomfortable making multiple low-bid offers.  She was embarrassed to make low offers and told me sellers would never agree to sell so cheap or that they would be offended at the offers.  I told her as an investor this was the way I did business, and that sometimes those low-bids worked out.

She ended up realizing I was right.

She also didn’t like pursuing more difficult, time consuming purchases, like HUD homes, Fannie Mae, or short sales.  Again, I told her this is where the great deals are made, and she eventually came around.  Had I been unable to get what I needed from her, I would have found someone else.  This is essential.  If you don’t get what you need from your agent after communicating clearly what your expectations are, move on.

With my management company, I realized I could save time and money by having them make my newly acquired properties move-in ready with their staff of contractors working at an hourly wage.  This was not a service they provided. They were reluctant to do this at first, but as they saw the volume of properties I was buying, they eventually came around.

I also have a few home inspectors that I trust and use before I purchase a property.  My state farm guy inspects each house before he insures it.

I haven’t fired anyone in Montgomery yet, but I fired some real estate agents and some management companies in Alexandria, VA.  Through a little detective work (I’m actually a Federal Agent in my day job), I realized a management company was over-charging me on repairs, so I fired them.  Another management company was doing a poor job of finding tenants and was difficult to get a hold of.

The real estate agent I fired had too many clients and wouldn’t spend enough time with me.  He kept sending new agents with no experience to show me these neighborhoods, he could have made an easy commission, I ended up buying new construction (to flip) and instead of listing his name on the purchase paperwork, I didn’t list anyone.   He was pissed!  These guys will make good money on a commission.  Make sure they earn it!

Are most of the properties you buy on the market, off the market, through wholesalers or with turnkey companies?

 
I’ve never considered buying through wholesalers or with turnkey companies.  In both of these cases, the companies you buy from take a big portion of the profit the property can make, and you get a small leftover portion.  Not gonna work for me.

Many of the properties I purchase are straight MLS on the market, but I’m still aggressive in how I go after these properties.  I make lots of low offers on properties that have been sitting on the market for a long time.  They’ve fallen out of favor for a myriad of reasons.  They usually need work.  I often have to convince my management company to do that work.  Obviously, they prefer something more move-in ready.  I often target properties where funding has fallen through the 2^nd or even 3^rd time and they are back on the market.  I’ve had luck buying properties with termite issues, which scare off normal buyers and novice investors.

I’ve had good luck buying through different programs that take longer to close such as short sales, Homepath-Fannie Mae, and HUD.  In Montgomery, these are still on the MLS.  They require using special websites, certain forms, extra inspections, and arbitrary deadlines.  Often they are closed to investors for the first 30 to 60 days, but I watch these closely and jump in at the appropriate time.  Many buyers and real estate agents get frustrated dealing with these entities, I share in their frustration, but good deals come out of them.

I’ve bought one property through sending direct mailers to the neighborhoods I like.  I’ve only done three mailings, so I plan on trying more of this.  The one house came from the first mailing, and it was a referral.  I’ve gotten lots of responses, just haven’t found another good deal yet.

What class of properties do you typically buy? Are they mostly A, B, C or D Class houses?

They are mostly C.  Some are borderline B.

You own 20 single family rentals free and clear (no loans), were these houses purchased with leverage (loans or lines of credit) and then paid off, or did you buy each one entirely in cash?

 
In 2012, I had a respectable amount of money saved between cash, equity in a home, and investments.  When I got to Montgomery, Alabama, I had a paid-off townhouse in Alexandria, VA (paid off since 2010) that was bringing in $2400 a month. I had a decent amount of money in my brokerage account that I started in 2000 invested in the S&P 500 index that I had never touched.  My wife and I have always been big savers and frugal with money.

The first house I bought was $30k, with $15k in improvements.  It rented out for $750.  The second house was $45k move in ready.  It rented for $800. The next four houses ranged from $35-55k.  Once I left Montgomery, house prices creeped up, but the most I ever paid was $65k.

We financed a house once just for the heck of it, but ended up paying it off quickly, and decided it wasn’t worth the extra cost or hassle.  Our S&P 500 is mostly cashed out and spent.  We also bought 2 houses each in both mine and my wife’s IRAs.

I also flipped a few houses with a partner while I was living overseas in Japan.  My partner was the project manager on the ground, and I was the financing.  I made about $50k doing this.

In 2016, I sold my townhouse in Alexandria for $400k.  I took a line of credit out a year beforehand for $200k which allowed me to spread that money out a little, buying 4 houses in 2015 and then 4 in 2016.  Paid that LOC back immediately upon selling the townhouse.

How do you manage the renovations on the houses you’re buying from out of the country? Who makes sure the work gets done?

When I was living in Montgomery, I was finding the contractors and managing the renovations myself.  I realized that even with the fees my management company was charging to manage renovations, it was cheaper and higher quality than what I was finding on my own.  They had the right contacts and more experience.

Eventually, with urging from me, they would manage the renovations of my newly acquired  properties to get them move-in ready.

What were some mistakes you’ve made while building your portfolio?

I think it was a mistake to have the rental property in Alexandria, VA for so long.  That money could have made me a lot more somewhere else.  It was probably only making 4% ROI.  At the time, I didn’t know any better.

I could’ve bought at least ten properties my first year in Montgomery instead of six, but I was so scared that things seemed too good to be true.  The yields were high, and I was convinced that eventually all my tenants would either trash my houses or need to be evicted.   I was ultra-cautious, and by the time I realized how good I had it, prices had gone up. If I had been willing to use leverage, I could’ve bought more than ten!

Walk us through your asset protection plan for your rental portfolio.

My properties are all in an LLC of which I am the owner.  I have a state farm guy who inspects my properties and then insures them as a fire policy under the LLC name.  The rates are almost the same as they would be under my personal name.  I have a $5k deductible on each property.

Are you willing to share the value of your portfolio, and the income that it generates for you?

I’ve never shared this before.  It’s $1.4M.  It generates about $10k a month after expenses.

What advice would you share with someone who is just getting started, and wants to use what you’ve created for yourself as a model to achieve financial independence?

First, I take a conservative approach to investing.  I make sure I’m out of debt and have a high savings rate and significant cash and then I start investing in real estate.  Not everyone wants to wait for this or feels it’s necessary.

Most of my houses have a high ROI.  The secret to doing this is not really a secret.  You look at lots of deals and make lots of offers.  You say no to lots of stuff.  If you look at 100 deals in 3 months, you’ll find one with a great ROI.  If you look at 10 deals, you probably won’t find anything good.

It’s sales 101.  It’s a sales funnel.  You have to do the work.  That’s what makes you successful.  In my case, I have to have a real estate agent that is willing to look at that many houses and make that many offers for me.

What is something that no one asks you about, but they should?

What’s better, cash flow or appreciation!?!?!

I’m not a big believer in chasing appreciation in real estate. There is no way of knowing when or where it’s going to happen. On average, real estate appreciates at about the rate of inflation, maybe 3% a year over the long term.

Purchasing real estate because you think something is going to appreciate it a losing play in my opinion. It’s similar to playing the stock market. It’s especially bad if you sacrifice cash flow because you are banking on appreciation.

Here’s my personal example. I bought my townhouse in 2003 in Alexandria, VA for $280k. By 2005, it was worth $450k.  Wow, I’m a financial genius, right? Appreciation is king.

Hold on.

I kept the house and sold it in 2016 for $400k. If you do the math, it really didn’t make that much money. It would have made more invested in the S&P 500 over that time period..  Don’t bank on appreciation.

I focus only on cash flow when I buy real estate. If I happen to get appreciation, that’s just a lucky bonus. I’m sure not going to count on it.

What’s next?

I’m still in the military, but on about August 1^st, 2020 (but who’s counting), I’ll have the option of retiring with a generous military pension. I may want to shift my focus to real estate. So far, this has all been in my spare time.

I’m ready to try something else in a new location. Multi-family sounds interesting to me. Jennifer seems pretty sharp.  Maybe I’ll see what she’s up to…

Wow! I learned so much from my in person conversations with Rich and even more in this interview! Rich has other great content that he shares on his blog so be sure to hop over to richonmoney.com!

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