I'm loving this new interview series that focuses on people who are doing extraordinary things with their lives. All of these stories have been incredibly motivating, and I can’t wait to share more! Past interviews include How This 28 Year Old Retired With $2.25 Million, How This Couple Paid off $204,971.31 in Debt, and How This Couple Bought an $11,500 RV, Traveled To All 50 States, and Built A Thriving Business.
For today’s post I interviewed 29 year old Elizabeth Colegrove, a successful real estate investor, property manager, and landlord.
She currently owns eight rental properties and doesn’t show any signs of slowing down.
I asked you, my readers, what questions I should ask Elizabeth Colegrove, so below are your questions (and some of mine) about owning rental real estate and being a long distance landlord. Make sure you're following me on Facebook so you have the opportunity to submit your own questions for the next interview.
In today's interview, Elizabeth shows us how exactly she built her real estate empire, the process to affording each, what she looks for in rentals, how she manages her real estate properties long distance, and more. You can follow her on her blog at Reluctant Landlord.
Tell me your story and all about you and your husband.
My husband and I met in high school when I was a freshman and he was a sophomore. We started dating at 16. We dated on and off till we got married when I graduated college at 22 and 23. My husband's dream was to be a Fighter Pilot in the US Navy which he has achieved. My dream was to work in corporate America.
Unfortunately one of the things I learned quickly was keeping a job as a navy wife, with a business degree, was hard at best. I had a terrible time getting hired out of school with bachelors in the small town my husband was stationed in even with tons of amazing job prospects elsewhere.
I got my masters degree at our first duty station in order to improve my opportunities and my future. When I graduated with my masters I got started in corporate real estate after realizing that continuing my manufacturing career wasn't possible.
At our first duty station in the middle of nowhere south Texas, I realized that I wanted to have financial independence when my husband left the military after 20 years of having someone else control where we lived for how long. I anticipate the desire to want to have choices, and didn’t want to be tied to a place because it was only the place that would financially work for us.
I knew we needed to create either a nest egg or cash flow (or BOTH haha) so I tried the stocks but it wasn’t really my thing. I had ALWAYS loved real estate and after buying our first house in October 2011 I figured out very quickly that this was my thing. At the same time I realized that having more than a job, would be difficult, so I strived to build up a portable career that I could take with me to each duty station. So the rest is history.
How did you manage to build up your real estate empire?
We built up our empire in two distinct ways. The first way was by living in the house. You can buy a house with little to no money down depending on your mortgage situation. The most prevalent types of loans people start with is USDA,/VA is 0%, FHA is 3.5% and Conventional is 5%.
Every place we lived we bought a house that made sense financial starting in Virginia Beach. At each new duty station we would buy a starter home. After we settled at the duty station and I found a job we would “upgrade” at the duty station.
The second way was to live on one income and take every career advancing pay increase and invest that income. We have bought 4 houses as pure rentals. These houses have cost us 15-25% down so that was all that was funded through frugal living and increasing our incoming income.
After awhile, no matter the way we decided to buy we still required money down. So the only way we could be successful was by living VERY frugally. By living frugally we were able to save the 140,000 that started our investments.
Can you tell us what your income and expenses are with your real estate empire?
In October, 2015, I published this income report with all my numbers. Keep in mind that every month is different. The months that I replaced the HVAC system or water heater was different from the months that had no costs.
Unfortunately I don’t have anything more current as we are currently going through a major overhaul of our portfolio, selling 3 houses and buying another 3 with a 1031. Once the portfolio revision is finished I will publish an updated idea.
How did you afford to purchase so many homes? If you have a loan for each home, can you tell us what the process is for obtaining so many loans?
We were able to afford to purchase so many houses by having a great understanding of mortgage AND saving money. It is important to understand mortgages and what works best for your personal situation.
I know many people put 20% down on the house they are going to live in. While that is great if you just want a low payment. If you are trying to build an empire this is not the right move. The reality is that 20% could buy you TWO houses if used correctly. You can put 5% for your personal property and than 15% on a rental property (as long as you have less than 4 properties.).
On the other hand if you just use all 20% on your first house, you stuck until you save another 15% for your rental. You cannot put less than 15% on a property, and you can’t cash out refinance for less than 22% down once you buy the house with such a downpayment. You cannot get the money out, unless you sell, or the house increases in price. This is the same to say about special programs such as USDA that is for first time homeowners in low cost areas. So, even if you have the money it might make sense to participate in these programs, to save for the future.
Even if you know the mortgage industry as I do back to front. The reality is to grow you will have to put money down on your houses. So, to afford the down payments, we have learn to live frugally and grow our income base.
In the beginning, that was by taking every promotion possible. Now, it is by dabbling in furnished and corporate rentals.
Do you have a specific area you invest in? How would you recommend finding good income producing rentals? What do you look for in a rental?
Since my husband is active duty navy I literally invest EVERYWHERE as there is no such thing as local.
Local is only as designated by the current set of orders.
For example, we bought 5 houses in California and we were local until we were transferred to Washington, 1500 miles away. So, I will look anywhere that makes sense, as numbers are the key. For example, just this past week I flew to Kansas to look at an area as my friend sent me some property, and the numbers were AMAZING so I flew out the next day. We have lived in Anacortes, Washington for the past 15 months and still haven’t bought anything because the prices are too high for rent.
The reality is because we move so much there is no such thing about being local. It is all about if the numbers work for both our personal properties and our rentals. We have bought for a 15 month tour and then lived on a boat for a 3 year tour because the numbers did not make sense.
I have mentioned a few times, that it is all about the numbers. The reality is every investor will have different “numbers”. We look at cash on cash returns, and that the demographic fits our goal of self management. This usually comes down to the specific things that we look for in a new neighborhood.
How do you manage rentals from all over the country? What happens if there's a repair needed or if a tenant moves out?
Technology is truly amazing and it has been the reason I have been able to grow so quickly while still self-managing. Honestly other than the actual walk through to access damage you do not have to be on site.
I have exchanged keys through a lock box or even hidden on the property. I list my house online, collect the rent, and even set up all repairs remotely. While managing tenants is an entire article to itself, the reality is with great systems almost everything can be done.
The one thing that is hard to do remotely is the actual walk through of the property to access damage.
Therefore, I either fly out to the property or impose on a friend to help. Personally I believe that you should put eyes on your property once a year or so. It helps prevent you from replacing thing that did not need to be replaced. For example, I almost replaced carpet at $4,000 because someone said it needed to be replaced. The reality was there was ONE black line, and it was older. So, while it will need to be replaced eventually it has lasted 4 more years! So flying out to see your properties is money well spent whether you have a property manager or self manage.
Who is your target audience when you consider purchasing each rental?
Since we buy at every duty station that makes sense (and other areas) for us it is all about having a clientele that is able to be managed long distance. Therefore we aim at young professionals to professionals that want to live in the same type of house that they would buy but for some reason can’t. Whether they are too transient for their comfort, or their credit is not perfect due to a short sale or foreclosure.
As a generalization, our homes are generally on the higher end of the areas.
They tend to be newer, and are bought with the idea that they have small margins but expenses can be kept to a minimum. We also do not include anything that would not add value to the price. For example, while people will pay more for an additional bedroom or square footage, they will not pay for landscaping, pest control, or washer and dryers. So, we do not offer these items.
The other thing we do is make sure that we do not have any unnecessary expenses that are not our responsibility as a landlord. The lesson we have learned the hard way is if it is not in the lease, or in the state law, it is allowed. Therefore over the years we have built a 20 page lease that is SUPER detailed.
While many people worry that this would make it hard to find a tenant, in all our years we have only not had ONE tenant sign and that was a couple of months ago. Once talking to them, I realized that they wanted a rental that would go month to month, and we do not do that as our market is VERY seasonal. So it was a good thing as it can prevent issues down the road. While occasionally we have to alter things in our lease, at the end of the day. I am VERY thankful as it gives both parties the opportunity to walk away before it becomes an issue during tenancy.
Honestly the couple of times that we had someone baulk and we held our ground, they were the tenant that we were the MOST thankful we had these provisions in our lease. Therefore, if we cannot come to a compromise we are happy to have them pass on our house.
Have you ever had a bad renter? How do you deal with them?
The painful lesson that we have had to learn is there is no such thing as a perfect tenant until they have leave.
Some of our best tenants during their tenancy have been the WORST when they left. Those who were absolutely awful during the tenancy have been the best upon move out because we consistently held our boundaries and would say no.
The reality is the belief of “it doesn’t hurt to ask” is prevalent. The lesson I have learned the hard way over the years is once you give an inch suddenly a mile is taken.
For example, I had a long term military tenant during her tenancy was mostly amazing. She mentored me, and I really respected her. So, I gave her allowances like not showing the house as soon as I wanted because she was pregnant. Than I paid for a cleaning lady to come and clean the home, since we were inconveniencing her. Of my 30 tenants I have managed, she was the WORST and the only one that had made allowances (because she was a perfect tenant).
What I quickly learned was everyone could be a great renter or an awful renter. It was all how YOU landlord. Once I put together my 20 page lease, and learned to say NO if it was not my expense as a landlord. Things actually became much easier not harder to landlord. It was like people respected me MUCH more when I had boundaries and rules, than when I would bend over backwards to help them!
What sacrifices did you have to make in order to reach this milestone?
Honestly, the key to our success has been sacrifice and willingness to live WAY below our means. When all of our friends were parting in flight school, we were spending our first year of marriage sharing a house with a buddy. When I wanted to get my MBA, instead of getting student loans I graduated debt free by working my TUSH OFF to pay cash by working full time and STILL finishing in 13 months.
Lots of sleep, and family time was sacrificed.
Once we had the careers and income we continued to sacrifice. Instead of buying a huge house when we first move to Hanford, we bought a small starter home and moved later once I had the job. By buying instead of renting we were able to save a lot of money, yet we couldn’t afford to buy a larger home. We have split meals on date night and used points to buy the needed professional clothes. I self manage our rentals saving us over $25,000 a year.
At the end of the day the only way we have been able to get here is by making ton of financial sacrifices to have the funds required.
What kind of work is required from you in order to manage your real estate empire?
Picking up the phone when it RINGS.
Owning rental properties is the most flexible rewarding job I have ever had. It has allowed me to have a flexible schedule that has allowed me to have the same days off as my husband. I have been able to take a 3 week vacation to Europe to hang out with friends and then attend one of my best friends wedding. I am always able to meet friends for lunch, and be able to truly be able to be “johnny on the spot” when someone needs a babysitter or ride to the airport no matter the day.
On the other hand I am NEVER off duty. I must always pick up the phone, whether it is a maintenance call or an interested tenant in a home. Muphy law has always had that issues only come up when I am busy. I have worked in Fiji right before my husband's 30 year birthday party and when I leave cell service I have to plan for it.
At the end of the day, I wouldn’t change a minute of it. Not one of my friends has been bothered that while I can always make it I might have to check my phone or answer it. Instead of worrying about how much vacation time I am taking, I just take it. My lack of control over WHEN I work is nothing considering all of the amazing opportunities that have been open up. I truly love what I do and would not change it for anything!
What's the best way for a person to get started?
The easiest way to buy a property is to buy one to live in it. The reality is the US tax and mortgage laws are in place to let everyone be able to afford the American dream, aka own a house.
For some people you can truly save a lot of money by buying instead of renting. There are also numerous loans, VA, FHA, USDA, and Conventional 5%, that are all about providing affordable methods to buy a home.
If you were starting back at ground zero, what would you do differently from the beginning?
If an idea keeps tickling you, make sure you FULLY investigate it at every angle. One of the things that I had always wanted to do was buy cheap houses in our town and do vacation rentals. The few times I looked into it, it just didn’t make sense. Last year we had an aha moment and I figured it out, with my larger homes. This year I had the aha moment on where to find the cheap houses. Unfortunately, the cheap houses are now priced out.
So, I do kick myself that we didn’t go into vacation rentals quicker.
Still, remember in ANY business you will always have AHA moment. I have had so many learning moments that is why I started Reluctantlandlord to help everyone else learn from my mistake. The biggest thing I have had to teach myself is to not let my AHA moments side track or keep me from moving forward. The reality is you just can’t hit everything.
You will not be able to pursue EVERY avenue 100%.
My goal is 80%.
While we missed the vacation phase in the early years, we did hit it hard this past year and it helped us make a lot of money (and time!!) when I had just left my job.
Lastly, what is your very best tipthat you have for someone who wants to reach the same success as you?
Real estate is a VERY personal business. The people that are SUPER successful turned their LIMITATIONS into key points into what makes them who they are as investors.
For example, for us moving all around was a negative and now it is a pillar to my investment plan. It is what make me an amazing long distance investor. My MBA made me awesome in understanding all the inner points of mortgages and distressed property, foreclosures, and finally self managing.
If you copied me you probably would fall on your faces because you don’t have the same stresors and therefore strengths. Just like I cannot duplicate other strategies. For example, my friend, has done AMAZING in the Bay Area investing in multiplexes.
So, read all the amazing books out there, learn but then adapt it to what fits YOU!
Remember, it is all about creating a strategy that works to YOUR strengths and weakness.
What questions do you have for Elizabeth? Are you interested in owning rental property?
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