210: Creative Real Estate Investing: Mastering Lease Options, Subject-To Deals, and Tax Advantages
LISTEN AND SUBSCRIBE
Apple Podcasts | Google Play | Stitcher | Spotify
Tired of the same old real estate investing strategies? It’s time to think outside the box! In this episode of The Richer Geek Podcast, we are joined by Andy Kiel to explore powerful strategies like lease options, subject-to-deals, and tax-friendly investment structures.
Andy shares how he transitioned from the frustrations of traditional landlording to mastering innovative investment tactics that generate cash flow, reduce risk, and help buyers who don’t qualify for conventional loans. He breaks down how he finds and structures deals, partners with investors, and leverages tax benefits like Section 179 depreciation to maximize returns.
With rising interest rates and a shifting market, creative financing is more important than ever. Whether you're an experienced investor or just getting started, this episode will give you insider knowledge to unlock hidden real estate opportunities and scale your portfolio—without relying on traditional bank loans.
In this episode, we’re discussing…
Lease Options: Unlock the power of lease options to attract renters who aspire to be homeowners—perfect for self-employed individuals or those with credit challenges. Andy explains why this hybrid approach offers flexibility and profitability.
Subject-To Transactions: Learn how to acquire properties by taking over existing mortgage payments—legally and ethically. Andy outlines how to avoid due-on-sale clause issues and structure deals the right way.
Joint Venture Partnerships: Discover how strategic real estate partnerships can help you scale faster, whether you’re targeting immediate cash flow, long-term appreciation, or tax benefits.
Tax Benefits & Section 179 Depreciation: Find out how savvy investors use Section 179 depreciation to maximize deductions on HVAC systems, roofs, and even mature landscaping—legally reducing their taxable income.
Navigating the Market: Interest rates are rising, but opportunities still exist. Learn how to negotiate, structure deals, and create cash flow in today’s challenging real estate landscape.
Finding Deals & Creative Financing: Andy reveals where he sources off-market deals—from wholesalers to realtors—and how he secures properties using seller financing, subject-to strategies, and joint ventures.
Compounding Wealth: Understand the power of reinvesting cash flow to grow your portfolio steadily and build long-term financial freedom.
Second-Chance Homeownership: Real estate investing isn’t just about profits—it’s also about helping families achieve homeownership when traditional lenders say no.
Resources from Andy
LinkedIn | The Win3 Team | (520) 539-9591
Resources from Mike and Nichole
+ Read the transcript
Mike Stohler: Hey everybody, welcome back to another episode of The Richer Geek Podcast. Today I've got an old friend of mine, Andy Kiel, and the reason why I brought Andy on is he does investments a little bit differently from your regular buying and holding and being a landlord and renting. He has some great information, some great stories.
I think all of you would be remiss not to follow these plans or reach out to Andy when the time comes, if you're looking to diversify your portfolio. Andy, how you doing?
Andy Kiel: I'm doing great. Thanks for having me, Mike.
Mike Stohler: Absolutely. I'd like to start off the podcast every week by having people get to know you.
Who is Andy Kiel? Give us a little bit of a history where you came from and what you're doing now.
Andy Kiel: I grew up in the Midwest in a town outside of Chicago. Elgin, Illinois. And I've always been interested in investing and real estate in 1991, literally the day I turned 21, which was the legal requirement in Illinois, I got my real estate license.
And as most people do when they get the real estate license, they started off learning how to sell real estate and eventually as I got better at that, I started learning to invest in real estate more. I actually had my first investment property younger than that, so I was always interested in learning about income property and so forth, and eventually that morphed into buying a number of single family homes that we rented out, and then we started thinking getting bigger and better and getting into multi family, we bought a duplex, and then we bought a couple of six units.
And at one point we ended up buying a 24 unit, and that was in roughly the 2007-2008 era, and we all knew what happened right about that point, and I actually found out even before the market did its thing that I really wasn't a big, so we got to our high point in that era. And I found out that I really didn't like owning straight rental properties, especially what we own, which was, let's call it what it is. C class not so great of neighborhood properties and on paper, they sound wonderful because they appear to cash flow, but in reality they need a lot of maintenance.
They need a lot of repairs. They need a lot of management. And I found myself being a pretty miserable human being at that point, because I love buying the property, but I hated managing tenants. And I even hated managing management companies even more. So that 24 unit was eventually my undoing.
We had a commercial loan on that property and even though it was current, the bank ended up foreclosing on us because it fell below a vacancy factor. And actually one of their own board of directors bought the property back from the bank. And we got stuck with the tax bill on that. So that wasn't a particularly wonderful time in my life.
But ironically, looking back, that's probably one of the best things that could have ever happened to me. I still realized that I loved real estate. I knew that was really the path to financial freedom. And right after that year, I had to go get a job and work for a living again for a little while and rebuild.
I was actually very blessed that I was hired by a company that was bought out by Intuit. Which is as I'm sure most of the audience knows, makers of TurboTax and QuickBooks. So a couple really big names there and I got to learn those pieces of software a lot more. It was pretty good with taxes before, but I definitely learned a lot.
Really great company to work for. And what was a lot of fun there is they gave me an opportunity to leave Illinois and I was pretty much done with that. The weather was not my favorite, so they gave me an opportunity to transfer to Reno, Nevada. And then later I got an opportunity to transfer to Tucson, Arizona, where I am currently.
So much nicer, at least for me. I love the area. I love the weather so much better here. And a little bit different market too. So when I got out to Tucson, Arizona, I really knew that I wanted to fully get back into real estate investing. And as much as I liked into it, I also knew that my time there was limited because they do layoffs every year.
And it's not personal, it's just corporate America, and, at one point I started in Illinois, they shut down the whole building. So no rhyme or reason to it. It was just, "Okay, we're shutting it down. You're all laid off. Some of you can transfer, but most of you are gone." I knew that I didn't want to be stuck looking for a job again, especially since I don't have a college degree and I'd built myself up into making a pretty good income and into it.
So I got back into real estate investing and we actually share a mentor by the name of John Burley. Is really who taught so much of what we currently do. So when I moved out to Tucson, we started with just a twist on her old friend, the buy and hold investment, but with a lease option exit strategy.
So what we now do today is we buy single family homes. And we look at the exit strategy by doing a lease option. So we try to find a family that's underserved by the banking business where they really want to own a home, but the bank won't let them. So that's our special niche in this and I started saying before that I was actually feeling pretty blessed by what all that bad stuff that happened with the bank foreclosure and what we learned there because that actually deeply impacted my credit.
And I also really knew that I wanted to move forward in real estate. But I didn't have the credit to get bank loans. So if I was going to do this, I had to get very creative. So I learned how to do things like really specialize in owner financing, getting the seller to finance the property doing things like subject to transactions, which is basically we'll go in and take over the payments on the seller's pre-existing loan.
Now, we've done lots of those transactions and that's really one of those things that's talked about a lot especially in YouTube channels and some of the other channels out there. In my opinion, It's often taught very wrong, almost to a criminal level. I have pretty strong feelings about how to do those and how to do those right.
And there's a lot of people out there, sadly, that, in my opinion are teaching that very wrong, where they're setting both the investors and the sellers up for failure.
Mike Stohler: So let's talk about that a little bit because one of the things I know, when I mentioned your name around the circles, is your ability to do the Subject-To's. Let's just do a couple bullet points:
How are people doing it wrong? What's the correct way to do Subject-To? And are you just knocking on doors? How are you finding those, that type of information?
Andy Kiel: Actually, I'm finding those transactions mainly by word of mouth. I think as any, at least single family investor should get started is just talk to everybody, let people know that you're an investor.
Most of us have some kind of real estate investment group in their area. In our case, we have AZREIA, which is big in Phoenix and Tucson. Really wonderful people I've met there. There's still a lot of these lead in signs, what they call "bandit signs “around neighborhoods saying, " Do you want to sell your house?"
I actually used to call those on a regular basis, not because I was interested in selling the house, but I know those tended to be people that were looking for deals and they would often wholesale them off to the end investors. So I'd call them up and say, "Hey, are you looking for cash buyers?
I'm one. If you run across this particular type of house, call me. I'm interested." And then sometimes they didn't even know what a Subject-To was, or they'd run across a seller that was in a bind, and we could figure that out. Occasionally, realtors would even give us referrals.
Ironically enough, I was presented one from another realtor that had it listed on the market. And I'm doing a subject-to with his loan. He's familiar with it enough and he has a desperate need to get some quick cash. So he was very open to that idea. That was just one we put together last week.
Mike Stohler: What is a subject-to? So you're talking to the seller, the person has the loan, you're taking over their mortgage. Now, how does that work with the mortgage? Are you able to put it in your LLC and just be like a property management group that's paying this mortgage?'
Andy Kiel: Yeah, basically that's how we do it. There's a lot of ways that are taught, in my opinion, wrong, but the way we do is subject-to is when we find a seller that is willing to let us take over the payments on their loan. And we need to be really crystal clear on what that means. If they have 27 years left on that loan, we have no intention of paying it off early.
We are going to most likely carry it that whole 27 years. That means it's going to stay on their credit. And if we don't make the payment, it's going to have an impact on their credit. If we default, it will still be a foreclosure on their credit. There's real risk there. And we can't candy coat that in any way, shape or form.
We have a good track record and history of never ever missing a payment, but there's no way of smoothing that over in any other way than there is risk to the seller there. But no, that being said, we'll go in, we'll use a title company. We will record the transaction for the whole world to see.
And that's where I think a lot of folks out there teach it wrong because they teach a model that usually refers to using a trust and trying to hide it from the lender and that's by definition, that's fraud. So no one can accuse us of fraud because we are that the term is openly and notoriously telling the world that We're doing this and the problem is in most loans.
There's a subsection, it's Paragraph 18. That says, there's a due on sale provision. So what we're absolutely violating that due on sale, and that lender could come in and call the loan and the reality is we wouldn't be happy about it, but we can deal with it. We have the ability to refinance that property if it happens.
And that's what we tend to teach when we talk about subject-to transactions, "Can you handle the call? Great. If you can do the deal, it's wonderful." We just picked up a property not long ago that was a 2. 25 percent interest rate.
Mike Stohler: There you go.
And that's probably the only reason, Andy, that the bank would call.
Because, ladies and gentlemen, most of the time, 99 percent of the time, the bank will never call this loan because, there are payments being made and they don't want the houses back. They're not in the real estate business. They're into collecting your money business. The only time that I've seen in the past that they've actually called is when it's at 2 points, some interest, it is not 6 percent and they may call that loan to see if Andy or his team, be forced them to get a higher interest rate.
Have you seen that yet? Where they've called you on because of interest rates?
Andy Kiel: We've had two of them where the lender has threatened to call us. One of them, I just took it head on. I called the department that reached out and basically asked, " How do we solve this?"
And she said, "Oh, that's an easy solution. I just need you to put the mailing address back to the property address." Okay. And it was that simple to solve it. That's all they really wanted. They didn't want to call the loan. They just saw some policy was not adhered to. And that fixed that particular problem.
I thought that was really funny. But I'd love to address what I think is a little bit of a fallacy out there. We tend to think because interest rates today are like in the high sixes or thereabouts the lenders want to take that money and that's lent out at the twos and the threes and I'm not a banker and I don't have that background but I have heard and I tend to believe that it's really not about what the loan is because at the time the lender most likely lent out that money at two and a quarter percent, they were borrowing from the Fed at zero.
So they have a two and a quarter percent spread on that money. Today they probably have a little bit less than a two percent spread on that money because they're borrowing at the at the Federal Reserve, I think five and a half and they're lending it out It's a six and a half six and three quarters.
They have less than a spread on that. Part of my basis in fact for this is about a year ago. One of the big servicing companies, Lakeview Loan Servicing, actually was sending out notices to people with these low interest rates loan loans asking them to call them before they sold their house, "We might be able to transfer your loan to your new borrower."
They were actually trying to keep those low interest rate loans in play.
Mike Stohler: Wow.
Andy Kiel: I was very fascinated by that information. Again, I don't know that for sure, but I tend to believe it to be true that you think about it in the wrong way
Mike Stohler: Yeah, that's interesting. How do people invest with you?
Because it's a little bit different. You don't really do the syndications of the funds. It's more of a joint venture maybe. And there's a split, so you bring on investors and you purchase these houses. How do you do that?
Andy Kiel: Yeah. So we use a joint venture model. And we always partner with a, either a single investor or like a married couple.
We don't go into syndications or anything too complicated. Really just try to match the investor with the investment. So we can do a lot of creative things with based on our investor’s needs. So if somebody wants immediate cash flow now, we can work with that if they're looking to build out some kind of a retirement plan in 5 years, 10 years, 15 years. We can work with that. If someone's more interested in appreciation, we can focus a little bit more there. If somebody is looking at tax benefits, we can focus on that. So we really try to match the investment with the investor’s needs.
Mike Stohler: Talked a little bit about, what you do with the lease option. Let's dig into that a little bit more. These are people that medical bills, maybe they co-sign for a kid and now their credits not where it should be, but they still make some good money, but the banks won't touch them.
And it's also feel good, because you're giving someone an opportunity to get a second house and help build their credit. So tell us a little bit in detail what the lease option is and the two separate. Why it's a lease and an option instead of just a rent to own.
Andy Kiel: Yeah. Those terms are almost synonymous, but to be specific, it is a lease, so we do a one-year lease that we will renew and a 10-year option. So we choose to do a 10-year option because historically, most folks think they can fix their credit in two or three years.
The reality is most don't. And a big subset of our rent to own residents some of them are credit challenged, but actually more of them are challenged because they're either self-employed or business owners. And they sometimes just need to make a decision for two to three solid years to, in many cases, just not take all the deductions that they're entitled to and push their income up higher so they can qualify for a bank loan.
That can be a little painful because the tax implications of that hurt. So we're giving them an opportunity to lock in there, their price for 10 years and I have a really just fun example of that exercised their option. It's been about two years now, but one of our first couples that we put into a home.
And this was a little scary for us. We met them because they weren't married at the time. Chris was, or still is, owns a landscaping business. And Casey was just actually a number of months sober and they had met at Narcotics Anonymous. A scary thing, especially when Chris just got divorced, Casey was separated from a significant other and it felt pretty high risk, but something about these folks just told us that we wanted to take that risk and put them in the house because they seem very genuine and sincere about wanting to do this. Fast forward about five years,
and they ended up exercising the option. Chris now has a thriving landscaping business. Casey actually refocused her addictive behaviors from the bad stuff. And she opened up a gym and she's placed in multiple bodybuilding competitions. And she's now my personal trainer, which is really fun.
And ironically, they didn't even get bank financing when they exercised the option on the house, they met someone that had some money and wanted to get into note investing through their Narcotics Anonymous group, and they funded the purchase of their home. So they exercised and now, they have title to this house and such a fun success story. Probably one of my favorite phone calls I've ever made in my life.
When I called up Chris, who's a gruff landscaper, just an emotional kind of guy, I called him up right after I got word from the title company and I just uttered the simple words, "Congratulations, homeowner." And he broke down and cried on the phone. It was just so cool.
Mike Stohler: Yeah.
Andy Kiel: He and Casey never believed that they would ever be a homeowner from the background that they came from.
Mike Stohler: Yeah. And, I've done the lease options myself and it's a wonderful story because we are giving people a second chance in home ownership where the system won't allow it. So it is very cool. So tell us some stories of before we were on the air,
but your California investor and just some of the different scenarios are out there for people that might want to invest.
Andy Kiel: Yeah, so my ex- boss at Intuit was actually my very first capital investor, the first JV agreement we did. At the time, it was about a 10-year time horizon where he wanted to leave Intuit, get out of the Intuit's corporate headquarters, just for reference, sits right next to Google's corporate headquarters in Mountain View, California some of the most expensive real estate in the nation.
My ex- boss is a high- income earner and he's basically in a little bit above a 50 percent tax bracket based on his income. So he's always looking for some kind of basically anything that can help him out from a tax perspective, but as a high W-2 income earner, there's not a lot of options out there, but real estate actually worked out to be very good for him.
There were some hoops to jump through and he did need to put in enough time to be qualified from IRS perspective. I'm not going to go down that rabbit hole, but it wasn't that difficult to do. But one of the really cool things about investing in especially single family homes is we now have the ability to do Section 179 depreciation on certain aspects of the single family home.
And for those in Tucson, this is neat because the IRS says it's based on the replacement value. So we can take deductions on the obvious things like air conditioners, HVAC systems, flooring, appliances fixtures, those types of things. What's a little bit more unknown and interesting is we can depreciate things like vegetation, septic tanks, wells but what's really fascinating from our location is again, they based it on replacement value.
If I find a Tucson home that has maybe a mature saguaro cactus and a couple of palm trees, those are easily in the tens of thousands of dollars to replace. And we can easily take a big depreciation up front if we choose to. And we're pretty conservative about that. But in the case of this California investor, once we had him qualified we were able to take pretty conservative.
I think we took about a $40,000 depreciation, Section 179 depreciation in year one. And mathematically that came out to a $18,000 tax credit for him to buy a house. So he was basically able to offset, just about that much income when he bought that property and basically the government's helping you by giving you an $18,000 tax credit, not deduction, but actual credit is how it amounted to, that's one aspect that made that really fun.
But the second piece of that is because he's got a 10-year time horizon to want to fully retire. He wanted to supplement his retirement income. We mutually agreed not to take any profits when we. When we purchased these properties. So we started with one and it turned into two, three, four, and we're up to six homes together.
So we've never taken a penny of profit. We've always taken that money and we bought them with leverage. My partner went in he used his credit and down payment. We managed the properties. That's how we partner. But house number one we did with a 75 percent loan to value loan. And then we did it again and again.
So we just took all of the positive cash flow from all the properties and started paying down the highest interest rate loan first and then the second and then the third. So we're effectively one free and clear house. Two more are well on their way. And at the end of that 10-year period, we should have a free and clear portfolio that'll throw off somewhere between $6,000-$7,000 a month income to each one of us
once we have it free and clear, so that's just the power of compounding and not taking the instant gratification of taking the money right away. We're just deciding not to take it and let it snowball.
Mike Stohler: Yeah, that's very cool. You do that again and that's $14,000 a month
total that you can do on this and then. And that's just six houses, imagine if you have, a dozen or more. So it's really good. Talk to us about what you're seeing, is it a little bit harder? The interest rates are up; the cost of housing is up. Does that matter to you when looking at a portfolio?
Does it make you want to do the subject-to is a little bit more because just the cost?
Andy Kiel: That's a great question. The real estate market is very cyclical. We always adjust based on what we're seeing and like currently the interest rates are higher. The prices are higher. I'd love to turn back the clock to the good old days of 2021 when the interest rates were in the threes and the prices were lower, but in a lot of ways, this is more fun of a market to operate in because back then we were, everybody was fighting for, one listing came on the market and it was, in some cases, 10 or 15 offers, and it was just a battle all the time. And we were buying some pretty gunky properties back in that day, just because we wanted to get our hands on whatever we could.
So it's just a little bit different market where we can ask for bigger discounts. We're not going in over asking price all the time. Sellers are more open to seller financing and open to the idea of doing a subject-to, because there's not a hundred buyers out there tripping over their property.
They're struggling to get it sold and they're fighting with price reduction after price reduction. And if they really need to move, we can solve that problem. Is it more difficult to find properties that cash flow? Yes, absolutely. We have to be very particular about what we're buying, but they're still out there if you know what to look for.
And we've purchased I think five properties in the last two months that fit our criteria. And generally speaking, I want to see a double digit cash on cash return. I want to see at least $400, preferably $500 to $600 a month per house in positive cash flow. And then there's a couple of other criteria that we're looking at when we're buying a home.
They're definitely still out there and as the market conditions feel like they're getting worse, there's actually more opportunity in my opinion.
Mike Stohler: Sure. Yeah, that's a very good point. Andy, before we wrap up, how can people find you? If they're interested in just learning more about this and maybe being an investor, how can they find you?
Andy Kiel: I can be reached at 520 539 9591. And we offer a couple of different things. Aside from being an investor myself, where we can partner with folks, I also own a part owner of a real estate office. So even if it's just helping someone buy an investment property on their own, happy to help in that regard too.
Mike Stohler: And you're on LinkedIn and Facebook I'm sure and we're in a lot of different circles, if you're interested give him a call and it's been great having you on The Richer Geek Podcast and have a great morning.
Andy Kiel: Thanks for having me, Mike. Really appreciate it.
The information, statements, comments, views, and opinions (collectively, “Information”) provided in this podcast are not intended to be and should not be construed as financial, economic, legal, accounting, tax or other advice. For our full disclosure, click here.
ABOUT ANDREW KIEL
Andy Kiel, President of Optimize Investments, manages 100+ single-family lease option homes. He's also a real estate broker with the Win3 Team at Epique Realty. A creative real estate investor specializing in lease options, subject-to deals, and joint ventures, Andy helps investors build wealth through cash flow, appreciation, and tax-advantaged strategies like Section 179 depreciation.