Justin Hannah started real estate investing in 2009. He joins us this week to discuss his approach to financial independence as well as his journey. We’ll learn how he got into real estate and what he’s getting out of it now.
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Alex Osenenko: Thank you very much for tuning in to the next episode of The Myndful Investor Podcast Show. I’m with my cohost, my brother Steve Rosenberg. Steve, how are you today?
Steve Rozenberg: I’m doing great, man. Thanks for having me, bud.
Alex Osenenko: Oh man, it’s a pleasure. Pleasure. Pleasure. Always a pleasure. Now, we have a really cool guest, and today we’re look through Justin Hannah’s approach to financial independence as well as his journey. And the one thing I think we’re going to try to unpack here is, he’s right at that point where the 9:00 to 5:00 job, the day-to-day stuff that he does may no longer be in his future and he has other plans.
Alex Osenenko: He’s also got a podcast show and a really cool YouTube channel, so check him out. Justin, welcome to the show.
Justin Hannah: Hey guys, thanks for having me. Appreciate it. I’m excited to dig in here and see what we can dig out of me.
Alex Osenenko: Yeah. It’s awesome. So we talked pre-show, and Justin’s in California right around the Yosemite area for those who are not around the state. And you are planning some interesting moves, my friend. Can you walk us through maybe your story, a little compressed, but tell us, how did you even get into this real estate and what are you getting out of it now? What’s the progression been for you?
Justin Hannah: Yeah. We can unpack as we go, but a brief overview is, like you said, right now I live in the Sierra Nevada in California, just by Yosemite, a little small area. But I originally got started in real estate investing back in 2009, unknowingly. I was 20 years old, 21 years old, my cousin bought a property, a house, just a house to live in, and we were competing, kind of. He’s like my brother, so I said, “Well, you bought one, so I got to buy one.” So I bought a house in the Bay Area in California, Livermore actually.
Alex Osenenko: Ooh, that’s a good spot.
Justin Hannah: It was good. It was beautiful. And it was a foreclosure, so all I could afford though was like a 900 square foot, half of a duplex, not even the whole thing, just half. So I bought that and it was better than paying 2,500 a month in rent for a one bedroom apartment in San Jose. So I bought that property, I fixed it up. After a couple of years, sold it, made like 100 grand, and then I wanted to move home, so my wife and I moved up to our small hometown. I had this extra money, so I bought two houses, then I bought a duplex, then I bought a couple more single families.
Alex Osenenko: In the town you’re in right now?
Justin Hannah: In the town we’re in right now. Yeah. Well, our town and surrounding little small towns. So I bought more properties and then did 1031 Exchange, and then bought 12 units out in Idaho and another single family. So I’ve just bought and sold some small residential rental properties over time. I’m a lineman by trade, I work on power lines for the utility company here in California, and if anybody knows about linemen, you know every time power goes out, when it sprinkles a little bit, your power goes out, well, we got to go out there and fix the power line. So I was getting tired of doing that for the last 13 years, so I got into the real estate business and built up my cashflow to a point where it can cover most of my expenses and that’s where we’re at now, to where I’m about to leave my job in the next couple of months and move up to Idaho and start my second career in full-time real estate because-
Alex Osenenko: That’s an interesting one. Justin, let’s start with this out-of-state, the move from out-of-state. So Murphys is where you’re at, it’s a small town where you said 2,000 people?
Justin Hannah: About 2,000 people. Yeah.
Alex Osenenko: It sounds like Livermore is also within like a stone’s throw from where you’re at. So it’s like, okay… Well, maybe not a stone’s, but maybe like an hour-drive hour, hour and a half. But the point is like, you are invested locally for a little while. And being a small town, you probably had like a good control of your properties. And then you just go out and do Idaho. What put you there and how did you get there, mentally and also financially?
Justin Hannah: Yeah. So my wife and I, more me because I’m just always looking for the next thing or what are we going to do next? Where are we go? So I’ve always wanted to move away from California, but I had this great job, that pays really well, especially with overtime, and when you can make a ton of money working on power lines, so I was always trying to figure out how we’re going to get away, me get away from this job and move away from California. So to break it down, we liked the snow, we liked the mountains, we liked outdoors. So we looked at where in the United States we want to go, and we’re not going to go anywhere East of Colorado and we’re not going to go south of Utah, and we’re not going to go to the coastal States. So it like narrowed it down to Montana, Wyoming, Idaho, Utah.
Justin Hannah: It was pretty much the only options that we had. We have family that lived in Idaho, so we were like, “Okay, let’s plan on doing that.” So we’ve been planning on going to Idaho for several years.
Alex Osenenko: So that’s what spurred your investment interest in that state, is because you were moving there?
Justin Hannah: Correct.
Alex Osenenko: It wasn’t the accidental you stumble on a deal?
Justin Hannah: Correct. That’s exactly it. So I was planning on moving there in the future and I’m like, “Well, let me try to like find some rental property that will give me income when we do move here because I don’t know what I’m going to be doing for work.” So I just looked at some different areas and started looking for properties and I think I bought my first 12 units there in Idaho in 2016, is what I did.
Steve Rozenberg: Hey Justin, just so give the listeners and understanding numbers wise, would you mind, and you don’t have to go in too much granular detail, but could you give a synopsis of the prices and returns you were getting in California versus Idaho and why that was more appealing to you as far as your strategy, just so people understand. They probably know Idaho is probably a little bit less than the Bay Area, but maybe they don’t realize how much less and what the differences are.
Justin Hannah: Yeah. So when I bought my first property in the Bay Area in California in 2009, I bought that half of a duplex, like I said, 900 square feet, I bought it for $300,000. And that’s all I could afford, because I literally didn’t have any money to put down on this property. The only way I ended up buying it was I got a FHA loan and I sold my truck and I sold my dirt bike and I bought a little Toyota Corolla for like $5,000.
Alex Osenenko: Wow. Let me just say like, that in itself is such a smart move. I haven’t met a lot of people who are willing to do something like that.
Justin Hannah: It was hard to… Go ahead.
Steve Rozenberg: I didn’t know that you could actually split up a duplex. Did they actually split it out with the surveys, like a town home almost? Because it sounds like that’s what it becomes, it’s like a town home scenario.
Justin Hannah: I guess that’s what it was. I’m not really even sure. All I know is that it came on the market and when I went to look at it, it was a duplex, it had two garages in the front and two residences on the sides. And I guess a long time ago, it was built in the ’80s so I guess they built it as a duplex and then subdivided it and split it up into two different residents. I don’t know, condos, I don’t know what you want to call it, but that’s what I ended up buying because that’s literally-
Steve Rozenberg: You own a half of it. All you know is you own half it, basically.
Justin Hannah: And all I could do is hear the neighbors arguing all the time. It was kind of funny. But yeah. That was like $300,000 that I bought that place for. And like I said, I didn’t have any money, so I sold my stuff and bought that property. And then the properties that I ended up buying up here, for example, the first rental property I bought in my hometown, I got it as a foreclosure. It was 145,000 for a single family home, three bedrooms, two bath. And the rent on that was $1,050 a month. So my mortgage was like $750 and then I paid a landscaper for like 150 bucks a month. And then I did my own management. So after expenses, setting aside for expenses and everything, I cashed or a cash flow maybe, 150 or 200 bucks a month on that property.
Steve Rozenberg: Right. And then any anyways. I’m guessing over time it probably was a cash neutral scenario if you had a maintenance or a vacancy. I’m guessing it was neutral or negative even, but I’m assuming appreciation is what the game was on this.
Justin Hannah: Yeah. Well, on that one property, I got really lucky because it was actually a really nice house. It was like relatively new. It was only six years old when I bought it, but it was still a foreclosure, so it didn’t have a lot of maintenance issues or anything. And the tenant, I was really specific about who I put in it. So I forgo like the first five or six applicants for that property, and I ended up settling on a guy that was like a Cal Fire. The California Fire Department, fire investigator, he was always out of town. He just needed a place to call his residence, a really clean cut guy. So I chose him as my tenant, and he was like the perfect tenant for my first tenant.
Justin Hannah: So it did make some money, but what ended up, the perfect deal was, is that I bought it as a foreclosure for 145 grand, six months later I cashed out, refinanced and it appraised for, I think like 190, six months later.
Alex Osenenko: That’s your first home in Murphys, right? That’s the first investment property in Murphys?
Justin Hannah: That was the first investment property in Murphys, yeah.
Alex Osenenko: All right. One more time. So, you bought it for how much and it appraise for how much?
Justin Hannah: I45 and it appraised for 190.
Alex Osenenko: Wow. In how long?
Justin Hannah: I mean, six months is when I did the refinance, but because I bought it as a foreclosure, I think it appraised for hire right away?
Alex Osenenko: I’m not aware of Murphys’ meteoric rise in equity.
Steve Rozenberg: California real estate.
Alex Osenenko: Yeah. Murphys isn’t this hotspot that everybody’s trying to buy investment property. This sounds like an amazing lift there for like 45K right there.
Justin Hannah: It was a good deal. And so what I was able to do is, because I only put 20% down on that property, which was like after everything it was like 30 grand down, I was able to pull out 40 grand of equity when I refinanced it and I used that money to buy a duplex over in Sonora, which is our partnering town. A duplex I bought for 213, and I ended up like fixing that up a little bit, doing a little rehab on it. The funny thing about that duplex is the upstairs tenant had been there for 11 years, the downstairs tenant had been there for eight years and literally the two days before I closed, the upstairs tenant said he was moving out the next week. And then a month after we closed, the downstairs tenant said they were moving out.
Justin Hannah: At first it was like a great deal, like, “Oh, they’d been there forever, they’re going to just continue to rent there.” And then they ended up moving out right away. So I took that opportunity to scrounge together some more money, fix up the units and then raise the rent from 800 up to I think 950 is what I ended up raising the rent on those two. So that was $213,000 is what I bought that property for. I ended up selling that property a year and a half later for 270 after I fixed it up. And so to compare that, I think your original question was to compare that to Idaho prices.
Steve Rozenberg: Well, yeah I’d do, but I think this is very important, if I can just put a pin in that because what I think our listeners, what a lot of people want to know is like, mentally the things that you are probably telling yourself, the fear and all the stuff that was going on deal one, it may be turned out not to be true, you made some money on it, or at least you got all your money back, so now you’re into this deal for zero, you’re actually plus 10,000. But did it get easier and the fear become less on deal two? And then when you had this challenge pop up of these tenants leaving, it sounds like you were like, “Okay, well, this is actually opportunity to turn this in.”
Steve Rozenberg: Now, a lot of people would have said, “You know what, I’m not doing this deal because the deal is not as good as I first saw it.” You saw something different. So can you, if you remember how you thought differently from deal one to deal two, I think it’s important that people understand the steps that you mentally walked down going through this.
Justin Hannah: Yeah. So on deal one, I was nervous about it, but I felt like I had free money, because my first property that I bought in the Bay Area, I bought it for 300 and then I sold it for 400, which after living there and you’re like paying the taxes and the insurance and all this stuff, it’s not really like a profit of 100 grand, you’re pretty much breaking even after two and a half years of paying all the other stuff and expenses.
Alex Osenenko: But then you didn’t have to pay rent, so that’s a wash in my opinion, somewhat.
Justin Hannah: Yeah. It’s pretty much like I was living for free, you know what I mean? For those two and a half years. But the thing was that my loan was only 290 grand at that time, so I sold it for 400. I got like $100,000 check after expenses. And so I feel it felt like, “Well, I got this first rental property for free.” So I wasn’t that nervous about it.
Steve Rozenberg: Did you feel lucky? Did you feel lucky when you got that or were you like, “Man, maybe this is how it works?”
Justin Hannah: I did feel lucky because even at that time in 2011, when we sold that property, California had already started to pick up. And so we listed it for 360 and then like within a week we had like five offers all over asking. And I remember telling my wife, we were on a trip in Florida when we accepted our final offer, and we were like, “Holy cow, we’re going to have like 100 grand in our bank account.” We’ve never had more than $10,000 at this point in our bank account. So it was exciting.
Alex Osenenko: Justin, can you just remember where you left off? I do want to make this interjection and show up Steve a little bit. His purpose in life is to tell Californians that we shouldn’t be here. And I’m that’s okay. I’m okay-
Steve Rozenberg: [crosstalk] California, man.
Alex Osenenko: I’m actually really considering doing something like Justin, but let me say, I have to be, because I got to be opposite of Steve, so I’m just going to argue the other side. Let’s do this, can we punch in that duplex address into Zillow and see what it costs, what it’s worth right now? Like if you did nothing else in your life, I bet you the cost of that duplex will be more than you made across all those rentals.
Steve Rozenberg: Justin, you probably don’t want to do that because you’re going to see the number and be like, “Wow, why did I sell that?”
Alex Osenenko: You didn’t have to do anything but just live there and you’d make more money. Do you agree or not, Justin?
Justin Hannah: Well, I agree and I have looked it up several times. You know what I mean? I think right now it’s probably worth around 500 for that half of that duplex.
Alex Osenenko: So it’s not that… Okay. I thought it would be-
Justin Hannah: Maybe a little bit more, but I know in 2006 when it sold before me, it sold for 545, and then when I bought it in 2009 as a foreclosure was for 300 so it’s definitely worth a lot more. And I do think about that. Maybe I could have kept it, but the problem is if I would’ve kept it, I would not have been able to buy my next rental, and then the duplex-
Steve Rozenberg: The opportunity cost.
Justin Hannah: … and continued on with everything else. So I might’ve made more, but I’ve probably made $800,000 off that first deal.
Steve Rozenberg: Because of it. And you’re using the leverage of that, you’re using that potential energy, that leverage of that money to go make more money, putting it into multiple deals. And that’s why I just think it’s important that people realize that number one, and I know we had a lot of pins for you to stop, but what I think is important to unwind here is that number one, you got a deal, you purchased it correctly, whatever the market was doing, the market was doing, but you purchase it correctly, you turned around and you sold it, you took that money, which wasn’t luck, that’s what happens with real estate. And then you went and rolled that into another deal, pulled the money out, used that money to go buy another property.
Steve Rozenberg: So now, yes, maybe your cashflow is thinner because I’m guessing when you refi that property, I’m guessing it probably affected your cashflow on the property in Murphys, but now you have a duplex. And to me, the most important thing that I think is important for people to understand is how you mentally started to think differently as these deals started going. And even though when we do these deals, we’re going to uncharted territory that we don’t really know what we’re doing. But we’re following the trusted method of, “You know what, if I just keep doing this and I make smart decisions, I don’t do something dumb, don’t overextend myself.”
Steve Rozenberg: And it sounds like that’s what you did from deal zero to deal one, deal two and then the duplex. It sounds like you’re progressing more and more. Now, Alex still hasn’t even bought his first rental property. So Alex, I think you need to step it up there buddy.
Alex Osenenko: Yeah. Let me say something. This is what I’ve been struggling with, maybe you guys, you can coach me through it. And I’m sure our listeners would appreciate a little bit all of it if not just it’s a funny little fun story. In the Bay Area where I’m at right now, right near Oakland, you do nothing and you make 50 to 60 grand a year in equity in appreciation. You do nothing, well, maintain your house, keep it up, the property taxes are high, blah, blah. But the rents are also so high that the mortgage and a rent is awash. So in other words you do nothing, it’s a 50, 60 grand appreciation a month on average.
Alex Osenenko: It may dip, but for the most, like that’s been the case for a long time. And that’s like having an employee, like a full time employee working for you or giving you all the money. And so it’s really hard to get out of that mindset and try to do something else when you do nothing and you have that output outcome.
Justin Hannah: This is what I think about that, is that I don’t really give a crap if my property that I bought today for 100 grand goes up to be worth $1 million tomorrow and then the next day it goes down to zero. It doesn’t really matter to me. Because what I really want is like the cashflow and all that it matters is when I sell that property, what’s the number that is on that final closing statement? You know what I mean? So like when my equity is going up, sure it might help me with getting a bank loan or whatever, but really nothing matters unless you’re making cashflow on the property, and then when the day you sell it, you make that big check.
Justin Hannah: Because like everybody knows, when they bought their properties in the Bay Area in 2005, 2006 and they’re seeing the same thing, that, “Oh, I’m gaining all this equity. I’m gaining all this equity,” and it’s just going up and up. And all of a sudden they’re planning on retiring or moving in 2008. What happened? All of a sudden that big old number on that piece of paper got cut in half or worse. So I think that’s-
Alex Osenenko: That’s when I bought the house, but.
Steve Rozenberg: I would say, along the lines of what Justin said, Alex, my opinion is there’s two kinds of money, there’s realized and unrealized capital gain. You have unrealized, meaning it’s not going and hit pocket national bank. It’s sitting there, it’s there, but it’s not realized. Right? That’s the first difference. I think the second difference is I think that a lot of people, they use that as an excuse to tell themselves why they don’t have to buy real estate because they’re going, “Well, I’ve kind of got this, I’m okay.” But I think that’s just the negative self-talk that we maybe make ourselves feel better. The other thing I would say, and Justin, I’d like your thoughts on this is, I don’t know anyone that owns one piece of real estate and becomes wealthy.
Steve Rozenberg: It only works in multiples because what you’re getting is you’re getting multiple streams of income because when you own an income producing asset, like a rental property, it’s not just the appreciation, it’s not just the cash flow, don’t forget you have someone paying down the debt for you to zero, you have the depreciation, and you’re capturing equity when you purchase it. So to me, there’s five reasons you own real estate, and I don’t think one is stronger than the other depending on your goals. But if you only had one property, if Justin just had that property in Murphys, he would not be able to quit his job and be like, “I’m out of here. Later.”
Alex Osenenko: That is for sure. That is for sure. But here’s another question, would you guys maybe take turns. What do you recommend for people that have some equity in their homes, and I’m sure there’s a lot of people listening in that category, have some equity in their homes. Like I’ve read multiple things on Bigger Pockets and other communities and books, do you pull that equity out and use that as an investment vehicle for your future purchases? What’s your recommendation here?
Steve Rozenberg: Go ahead Justin. I’ll answer it after you.
Justin Hannah: I mean, first you got to look at what your financial situation is. So if you go and refinance the property, what’s that going to do to your mortgage? A lot of times, oftentimes that’ll end up reducing your mortgage if you have a huge equity in there and you have a higher interest payment from six or seven years ago, you can like keep your mortgage payment the same or even reduce it and take out some money. So that’s one thing I definitely think is key. If you don’t want to move or sell your property, take that money out and put it to work, because if you can refinance and take the money out now and then the property value goes down, well, at least you got your equity while the bank was still ready to lend you the money and then you can go and buy another property.
Justin Hannah: You can also do HELOC on it, but one thing about a HELOC that I think people don’t understand is, you can get the home equity line of credit to buy other property, but if something drastic happens in the economy, the bank has the right to call that loan back and they can call it back quickly, so you might be stuck in a hard spot to have to pay it back in a short amount of time
Alex Osenenko: And that’s the only downside of a HELOC, and he HELOC is just basically, what do they call this place, line of credit? I’m sorry.
Steve Rozenberg: Home Equity Line Of Credit. So you basically you have equity in the house. My thoughts, Alex are, so your question was, is if you’ve got equity in your home, do you pull that out? You’re right, it runs the spectrum. I can tell you personally my thoughts are, there’s what people say they should do, and then there’s what people do, it’s kind of like voting. Some people say they’re going to vote for one side and then they end up voting for another when no one’s looking. I think it’s the same in real estate. I can tell you that when you are upside down financially in some real estate situations because you overextended, which I was when I was buying all my rental properties, nobody can really make you feel better with the sleepless nights of wondering how you’re going to fix the situation because you’re overleveraged.
Steve Rozenberg: So that’s the side that nobody talks about when they go just pull all the money out of your house. It’s one thing to have the ability to, like for example, I have a lot of equity in my personal residence, so just like Justin said, I have a home equity line of credit, that gives me the ability to go find a deal, buy the deal cash, or I could use my own cash, but it never makes sense to tie up my own assets, so I will use the home equity line of credit. Let’s say a wholesaler or flipper has a property they need to close, I’ll use that money all close on it and then I’ll put a regular conventional loan on it, which is boring, it’s not as sexy, there’s the burn method and everything else. I try to do it simple because I’ve lived on that edge and I’ll tell you what, it’s great when you’re riding that line, but once you go over the top of that, it is not a very good feeling.
Steve Rozenberg: So you touch a stove once, you kind of have memories of it, and I still have memories of that hot stove when I had all those properties that I was way over leveraged on. Well, actually I wasn’t even over leverage on them, we were buying them at 60, 70 cents on the dollar, we just didn’t estimate the expenses and all the other stuff that went along with him once we owned them. Money is a… You find in my book, yeah, there’s my book.
Alex Osenenko: Dumpster Fire.
Steve Rozenberg: Yeah. Dumpster Fire.
Alex Osenenko: Dumpster Fire to Multimillionaire.
Steve Rozenberg: Again, that’s just my thoughts and again, money is a tool, but to me, it’s like a weapon, it’s like a gun. It can help you, but it can also hurt you if you don’t know how to use it correctly. So telling people, I think that when people say like, “Oh, go out and refi your home and use that money, buy … ” These people are not educated in this world, and they don’t know exactly what they’re doing and what the strategy is, all of a sudden they’re like, “Oh man, I went bankrupt and lost my house. Thanks a lot, Alex.” You know what I mean? Again, that’s just my thoughts on it. Again, I’m not telling people how to do it or not to do it, I’m just telling you how I lived, and the mistakes I made. And so I’m a probably a little more conservative than others because of my experience.
Justin Hannah: Well, that’s what I was getting at is by saying, make sure what’s going to happen when, let’s say, if you refinance. If it’s going to make you have a huge mortgage that you’re going to struggle paying, well, maybe you have to really think about that, maybe it’s not a great idea. Or if you’re planning on moving in a couple of years and know that you can sell your house and not be underwater on it, but whatever your plan is, it is an option, but just do the numbers is pretty much the-
Steve Rozenberg: And I think, Alex, for people that are watching that are curious, I think it all comes down to what the end goal is, just like Justin said. If part of your goal is to sell your house next year, probably not a good idea to over leverage the property. If you’re saying, “You know what, I’m going to be here forever, I’ve got $1 million in equity in this property, maybe I’ll pull out 300,000, I’m still in a good equity position of this. I don’t need to pull all the money out.” But depending on the goal, so you have the end goal and then you have the strategy. So circling back to Justin, what I’d like to hear now is we’ll take the pin out of that and go into Boise and let’s hear what the numbers are in Boise. And also I’d like to hear your thoughts on how you mentally made that shift and now you’re investing out of your area, there’s a lot more mental gymnastics and building of the team, I’m assuming, when you start going out of driving distance of where you’re at.
Justin Hannah: The numbers on the, let’s see, I have 12 units up there right now., I did have a single family house that I sold, but the 12 units I have consists of three fourplexes up there. Fourplexes are if people don’t know, they’re four unit, little apartment buildings. And I got each one of those fourplexes for 269 a piece, 269,000 a piece for each one of those, which was-
Steve Rozenberg: Did you buy as a bundle or did you buy, was it a package deal?
Justin Hannah: They were all by the same owner, but they weren’t sold as a package. I put an offer on one and they said, “By the way, we have these other ones.” And I said, “Well, I’ll buy those also.” So the 269 is actually the same price as what I sold my duplex for in California.
Justin Hannah: And so my duplex in California was renting for 950 per unit, and I sold it for 269 or 270. And the fourplexes at the time when I bought it, they were renting for, I think the average rent for each unit was like 675 up there. So it was a little bit less ramp, but it was four units for the same price. So what happened is I ended up 1031, I did a 1031 Exchange, which it’s like where you sell some properties and then you identify another group of properties or one property for a higher price and you have like, there’s all these restrictions of time and everything, but you can take the capital gains from the properties you’re selling, not pay taxes on it and roll them into another property.
Justin Hannah: And so I did that at 1031, two properties into these three, fourplexes in Idaho. So what that did though is I was able to pretty much buy, I put $210,000 down on these three properties combined in Idaho, these three fourplexes, $210,000 down, but all that $210,000 came from the 1031 Exchange. I think maybe like 190 of it did, and I added-
Steve Rozenberg: Did that full captured equity that you had in those two homes around in Murphys and Sonoma, that you pushed all of that into Idaho under the three fourplexes?
Justin Hannah: Correct, yeah. That was equity that I had. So really, in just these properties, I’ve bought some other single families, like one offs here and there, but for just this scenario, really, I got all of these 12 units in Idaho for an initial down payment of $18,000 on the half of a duplex that I bought in Livermore. And that money I didn’t even have, I sold my truck and sold my dirt bike to buy that and I fixed that up, sold it, bought a single family, bought a duplex, 1031 exchange equity in those, into these 12 units in Idaho.
Justin Hannah: So I pretty much over the time, you didn’t have to put a ton of extra money to get to this next level, I just like stuffed it up.
Steve Rozenberg: And what is now the monthly cashflow of the 12 units as opposed to the other units? What was the, if you were to factor in the duplex and the other one in California and what you rolled that into when it’s all said and done for the month?
Justin Hannah: So the cashflow for the single family and the duplex in California, that cashflow, if I remember right, was about $700 a month, after all expenses, property management and setting aside for CapEx and all that stuff. And now the cashflow on the 12 units today because I raised rents a little bit is like 3,100 a month.
Steve Rozenberg: Do you self-manage? I am a property manager in Idaho because you’re not there?
Justin Hannah: No, I have a property manager, and this is like total luck. I lucked out with like the most awesome property manager, she was already managing the properties for the past 10 years and she only charges a very… It’s not even a percentage based, it’s like a dollar amount per building. And so she only charges, it comes out to like 3% of the gross rents. And she does a great job, she lives locally. Where I bought the properties is actually in a little town called Mountain Home, Idaho, which is about 80 miles Southeast of Boise. And the reason why I focused on the area, there’s a big air force base there, Mountain Home Air Force Base, and they do a lot of like international training of other militaries, air force pilots, air and everything.
Justin Hannah: And what happened was that one time, a couple of years ago, I guess they took all the on-base housing and privatized it or something, I’m not sure exactly, but what it did is it pushed all the like Taiwanese Air Force and the other country’s air forces, it pushed them off base so they have to do off-base rentals. And there’s not a lot of building going on there, so the rental demographic that you have are all military personnel. And if anything about the military side of it, pretty much they can still like not pay you and things, but if you have to have a course of recourse to get your money, there’s avenues to get that through the military, through their chain of command. You know what I mean?
Alex Osenenko: Got it. It gives you a safety net and also access to qualified renters.
Steve Rozenberg: So Justin, when you made this decision and as this evolved, how did that pertain on the family side, like with your wife, and how did you get through that as far as… Because there may be fear on that side that you’ve got to make sure you’re in alignment like what’s he doing now? So can you talk through that just a little bit?
Justin Hannah: Yeah. That was actually… A little bit of background on that. My wife and I both, neither of our families really had any investing background, we’re like super middle-class, both of our families own their own small businesses, but it was just mom and pop businesses, you know. And both of our families came from, you settle in, you get the job, you work hard every day and you plan for retirement, and you stay in your one house and you live here for 50 years, that type of thing. And so my mindset really got shifted early when I started reading Rich Dad, Poor Dad and doing all that type of thing. But her, my wife, wasn’t quite there because she was focused at the time, we had a little boy and then she ended up getting pregnant and having, we had two other daughters.
Justin Hannah: So her focus is like being the stay at home mom, she’s not concerned about the future as much as like today because she’s got a whole plateful way more stress than I got going on. And me, I come home from work and all I can do is talk about the future. And she’s like, “Honey, help me in today, don’t just always be talking about… ” So it was like a battle for a long time. What really helped us, this was a key, because it caused a lot of drama in our lives, really me being on a different page, was that we would sit down and I would talk and explain to her and show her the numbers and show her the future, and then I got her to read a couple of books like Rich Dad, Poor Dad, The Millionaire Next Door, those types of books and kind of expand her horizon, you know what I mean?
Justin Hannah: So she got on board with it and she finally saw that I was making good choices and that the financial situation was improving, and our net worth grew. We went from a $5,000 net worth to $1.5 million dollar net worth in eight years. And that wasn’t just through appreciation, it was through making smart choices. And so finally, she got to the point where she’s like, “Okay, keep doing what you’re doing.” You know what I mean? She’s like happy with what’s happening, she’s like, “I trust you now.” And especially now that I have the podcast and I’m expanding my network and doing all this other stuff, she’s on board with it and actually started her own businesses and done some of that sort of things.
Steve Rozenberg: That’s awesome because I think that that is one of the most missed opportunities by entrepreneurs, myself included. When you first start off and you’re soaking up all this information, like a sponge and you come home from a convention and an event, whatever it is and you’re like, “I’m so excited. We’re doing this, we’re doing that.” And the other, your spouse is not aligned with you and it causes friction. At first, it may be more like, “Well, I’m going to let him do what he wants to do and go ahead. As long as it doesn’t affect my world, knock yourself out. Good luck. I’m proud of you.” But after a while, it’s like, “Hey, you’ve got real life going on here, I need your help.” And you’re like, “I am doing real life, I’m trying to build our future.” And so that’s when rubs start happening.
Steve Rozenberg: So that’s good that you did that because a lot of people don’t and it turns out to really affect the relationship as this progresses because now you’d be like, “Hey, we’re investing in Idaho.” And she may be like, “What? What are you talking about, Idaho?” Yeah, it can be a problem.
Justin Hannah: No, don’t get me wrong, there was a lot of friction for quite awhile because like I said, I was only thinking every single day, 24 hours a day, all I was thinking about was the future. And every single day, 24 hours a day, she was thinking about changing diapers and getting dinner made, you know what I mean? Or whatever she had to do with the house. And so it was like two different demographics, two different mindsets converging, and it was almost like at 0.2 ships passing in the night to where we’re both focused on different things. So we had to really like struggle, and we went through some therapy and that sort of thing to get each other on the same page, and now it’s all molding together more and more, and it’s great for sure.
Steve Rozenberg: When I had my business coach when we were coached growing our business, one of the things that they did is every year we had to get an alignment, meaning, myself, my wife, my business partner, his wife, we would have to go in with a business coach for, it’d be like two, three hours and he would basically make sure is everyone in alignment with what we’re doing with the business here? Like, “This is what we’re doing, this is the goal, these are the numbers.” And again, it was a very good way to bring everything that was possibly an issue out. And he used to laugh and say like, with us, it wasn’t as big of a problem, but he would say like, “Man, sometimes I’m like a marriage counselor in here.”
Steve Rozenberg: There would be other things that would pop up in this conversation, and he’s like, “I’m just here for the business conversation.” But that’s the deep seated things that start dividing relationships and family, so it’s more common than we may think because we’re so focused, we’re like, “Why don’t you see what I’m doing? I’m trying to do this for the family.” And they’re like, “I am doing it for the family myself. I’m actually the one taking care of the children and that.” So equity is important, but man, it is so vital to make sure you’re doing that. So I’m glad to hear that because that’s a question I always have for people and it’s not always as well received as it was for you, at least in the end, at the end result.
Justin Hannah: Yeah. And think about how much the divorce is going to cost down the road, so it’s better to work on it now because if you’re worth five or $10 million down the road, cut that in half and it’s gone or even more.
Alex Osenenko: Not just dollars, it’s the emotional, it’s the kids that pay ultimate price. There’s no way to undervalue the relationship side and an alignment side of whatever we want to do next. So like whether you take out equity or borrow 5,000 for your first property, like I think the partnerships with your spouse is just crucial and critical and alignment is critical. If you don’t mind, we got to wrap it up here in a few minutes, but I do want to shift, like make this like real segue way into GC and management of improvements. This is the question I’m going to start asking all of our guests because there’s one thing that I’m reading and looking and finding information wise, if you want to improve a property, do value add or whatever, that usually is a good way to build up equity, and the whole essence of the borrow method.
Alex Osenenko: However, a lot of people say that GCs like General Contractors are very difficult, notorious to find a good one, and they’re hard to manage. How do you deal with that, Justin? Are you had to do it in multiple locations? Do you do yourself? Do you hire people? Do you have family that does this?
Justin Hannah: Honestly, a great book for this is that, what is it? David Greene’s, Long-Distance Real Estate Investing book from BiggerPockets. He really dives into detail. I’ve made plenty of mistakes in the past, I’m sure I’m going to make…. Excuse me, multiple mistakes in the future. But that book recently I read, it really dives into detail on how to vet the contractors and vet your team and everything. But one thing I would say is just make sure for one, if you have a property manager and it’s an out-of-state, make sure your property manager is aligned with doing rehabs, like they’re capable of working with the contractor and keeping an eye on the project because that’s what I do with my property manager in Idaho.
Justin Hannah: She’s really good at staying on top of it, she’s really book and numbers oriented, and then make sure you get multiple quotes. Don’t just like talk to… Because people are like, they’re persuasive and they’re talking. If they got a real smooth talker they can come and talk to you about, the contractor come and meets with you, you really build rapport with him, you’re like, “Oh, this guy’s awesome. I really trust him.” That guy might just be a smooth talker, you know what I mean? He’s going to make you trust him real easily. So even if you really like the person, get multiple quotes and make them break it down, each line, item expense that they’re going to do.
Justin Hannah: Say, “I want you to list out on a sheet of paper everything you’re going to do and put a dollar amount next to that thing. So if you’re going to put new countertops in, how much is that going to cost? If you’re going to put new flooring in, how much is that going to cost? If you’re going to put a bathroom lights in, how much is that going to cost?” That way you have a breakdown of what he’s going to do and it’s not just the overall bid, and if they’re not willing to do that, maybe move on to another contractor.
Steve Rozenberg: That’s so smart. I always think of it as trust, but verify. It’s like, “That’s great. Now, I’d like to know the numbers.” I would take it a step further and I would even want to know, when we would get contractors for our property management company, we’d want to see their license, their insurance, we’d keep it on file, we’d actually have a set of expectations. We were big enough to be able to do that, we’d say, “We just want to make sure that we’re all on the same page. This is how we operate, this is how we expect you to operate. So we need you to sign, basically like a code of conduct to make sure.”
Steve Rozenberg: Now, obviously if you have one or two properties, probably not going to get a contractor to do that, but you’re also setting the tone of saying, “Look, this is what I expect of you, this is what you can expect of me. This is what I expect when I see a bid.” So it’s like before you even get into that dance with them, I mean, getting referrals of actually making the phone calls, I think the biggest… I think it’s so funny, people ask for referrals and they never actually call the referrals. I’m like, “Why would you even take the time? Call and talk to them, look them up online, social media. You can see what people are saying, you’re going to get an understanding of, is this person running a business or is it a side hobby that they do?”
Steve Rozenberg: All the things you said are so important because that’s how you can identify, are they actually running a business and are they fair? And then, can I compare it to other companies?
Justin Hannah: Yeah, for sure.
Alex Osenenko: Very good point. Well, this was very educational. I do appreciate Justin, you coming on and I’m going to cheer your success. The fact that you live in California, we’re losing a really good human being, maybe a family, a whole family, but Idaho is going to gain somebody. So it’s all good in the world. And those of you who are listening and possibly need a property management services, look, we’re in 50 markets, Mynd offers the best guarantees in the business, we’ll stand by our product. Give us a try, mynd.co, M-Y-N-D.co. Steve, can you talk through our social media adventures?
Steve Rozenberg: Yeah, sure. For those of you that want to reach out to Justin, if you go into the links, we’ll have links for his podcast show.
Alex Osenenko: It’s cool.
Steve Rozenberg: Yeah. Great podcast show, so definitely look up Justin. You can find him, we’ll have all the links on his social media, how to get ahold of him and find him. I’ll actually, I’m going to be a guest on his show next, so that’d be cool. And if you want to join our Facebook Group, we do have a great group, it’s called The Mastermynd, M-Y-N-D, The MasterMynd Real Estate Investment Club. And there you’re going to be able to talk and converse with a lot of other investors, be able to ask questions, see what’s going on, talk to people like Justin, myself, other people, and basically be able to engage and converse at a real time level.
Steve Rozenberg: And as well as our podcast show, like you said, we always try to have industry-leading experts on here. And just like with Justin, we not only want to talk about their successes, but we want to talk about their failures and how they’ve overcome those to be as successful they are and watch them on their journey. So I’d like to be able to open the door for Justin to be able to come back in the future and be able to hear how he’s doing, he’s got a lot of other stuff going on. And again, just educate yourself, understand that there’s other people out there just like you, just like us, out there fighting it out and trying to help educate you as well as learn from each other’s mistakes.
Steve Rozenberg: Justin, thank you so much for being on today, man. You’re an inspiration to people. I hope you’re able to quit your job and make tons of money and just have the happiness for your family. So thank you for coming on today, Justin. Alex, I appreciate you as always, my man. And if that is it, ladies and gentlemen, we will see you guys next week.
Justin Hannah: Yeah. Steve, Alex, thanks guys.
Steve Rozenberg: Hey, no problem. We’ll see you, Justin.
Alex Osenenko: See you next week. Thanks, Justin.
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