#119: Strategies to Manage Single Family Homes while Still Working a Full Time Job
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Welcome back to another episode of The Richer Geek Podcast. I am happy to have Ryan Shaw. If you are ready to start building your real estate portfolio and aren’t sure how to consistently find profitable deals that make rather than cost, you money and find high quality tenants who don’t punch holes in your walls or start a pot farm in your garage – real stories by the way – then Ryan can help you.
In this episode, we’re discussing…
[1:09] Why considered W2 income important when he first got started
[2:09] How did he started investing in real estate
[3:41] Before he retires, how is he planning that… getting more real estate?
[4:34] His financial strategies on his properties before he retires
[6:21] His mindset and his plan to expand and own more properties
[8:53] If all his houses are bedroom rental
[9:19] The type of tenants he deals with
[11:06] How the sublease works on the leasing period
[14:42] If he has any ambitious on doing multifamily houses
[17:33] Where does he see himself in five years
Resources from Ryan
+ Read the transcript
Mike Stohler
What if you could be doing something smarter with your money that creates income. Now, if you're wanting to get ahead financially, and enjoy greater freedom of choice, if you want a comfortable retirement, and you know you'll have more choices, if you can do more with your money. Now, if you've wondered who else is creating ways to make their money work for them, and you want actionable ideas, with honest pros and cons, and no fluff. Welcome to the Richard geek podcast. Where you here helping people find creative ways to build wealth and financial freedom. I'm Mike Stohler, and in this podcast, you'll hear from others who are already doing these things, and learn how you can too.
Alright, everybody, welcome back to another episode of the richer geek podcast. I am happy to have Ryan Shaw on how you doing Ryan?
Ryan Chaw
Hey, how's it going? My cam honored to be on the podcast.
Mike Stohler
Yeah. So we are going to talk for all of you listeners that are thinking about getting into real estate part time, while keeping your W two. That's a little bit what we're going to go over. And, you know, Ryan, one of the things is very important when I first started in investing was that w two? You know, it's kind of like that something that you really had to have in order to buy the properties. Is that something that you realize also when you first got started?
Ryan Chaw
Yeah, definitely a lot of lenders want to see like some sort of work history or see that you're, you know, making more income each year or at least a job offer letter to see that you're making that w two income to lend to you. That's for conventional financing. conventional financing is one of the best type of financings out there, you have like the lowest rates as a W two worker.
Mike Stohler
How did you get started in investing in real estate?
Ryan Chaw
Yeah, you know, I also inspired my grandpa, he bought a couple properties in the Bay Area. We all know those properties went up by crazy, the rent went up, and it paid for his expenses. And also, he was able to pay for part of my college tuition and my brothers as well. I also saw my friend get into it. While I was in college, he rented out the house hack, he bought a property next to campus, and he rents out two roommates. And I was like, hey, I can do the same thing. So I basically started out in 2016, bought my first property, I actually had to save up a lot of money. So I didn't actually have to if I wanted to house hack, but I saved up a lot because I wanted to be in the best position to purchase as much property as possible. So I worked a couple jobs, two jobs, actually. And I worked overtime, I would work like from 7:30am, sometimes to 10pm. So I'll do like a double shift. And that allowed me that basically put me in the best position to be able to buy those real estate. And so I bought one a year rented out by the bedroom, and now I'm making $17,580 per month in rental income. So it's about $6,000 per month in cash flow. And I'll be able to retire next year at 31.
Mike Stohler
Now, before you retire, how are you? How are you going to? Are you just what you're planning on getting more real estate if you no longer have that w two?
Ryan Chaw
Yeah, that's a great question. So right now I'm tapping into the equity on some of my properties. So I'm going to actually purchase probably two more this year, two more next year. And for me that I feel like that's enough cash flow, I'll be having around 9000 or $10,000 in cash flow per month. So I feel that's enough cash flow to Live a good, comfortable life and pay for my expenses so that I can be able to have that time freedom and flexibility for myself, I actually plan on selling one of the houses and paying off like three other houses with the equity that just that house has already paid off. And then I'll just have a couple of houses that are mortgages and some that are fully paid off. And then, you know, my plan is to just basically use that passive income to explore other ventures in my life.
Mike Stohler
Now, you're you've been at it for five years now and you're still in your 20s Right? Yeah. 29 Okay. Yeah, you know, I'm still going at it and I'm much older than you. But so, you want to pay some off and if so, what is When you talk about the internal rates of return and the cash flow, do you think it's tell me that tell our listeners the differences between why you should have some debt on some and then why you want to pay cash on others? You don't cash them out.
Ryan Chaw
Yeah, I mean, for me, it's a little bit of a peace of mind. I mean, that's always something a lot of people ask, but what I believe in is leveraging as much as you can at the beginning, because it's kind of like planting seeds to grow into a garden, you want to plant a lot of seeds, and then wait for it to grow, rather than, you know, wait and accumulate and try to get all that capital to buy a property in cash. And then you can only plant like one seed, right. So that's kind of the idea, I wanted to first leverage as much as possible. That's why I tapped into the equity on my properties using a HELOC. And plan to do the more he locks this year, to purchase more properties. But then in the end, I kind of want to be at the stage where I have some paid off. So if the economy were to crash, or something like that some unforeseen event occurs like COVID, I'm still, you know, not going to be struggling to pay off and pay those mortgages.
Mike Stohler
And why do you want to stop at six or seven or eight? Why not keep going? Are you just sitting there like, well, you know, this amounts fine for me. And, you know, why not own 100 properties?
Ryan Chaw
Yeah, that's a great question. I always plan on expanding actually, what I plan to do, though, is, of course, have that retirement step. And then I, I want to do some mindset work and kind of take a little bit of a break to kind of clear my head and see where do I want to go next, with my business, with my life, with my relationships, and career and all of that. But most likely, I will be continuing buying properties, using something more like a limited partnership, where I'm the general partner, and then I have limited partners that come in, and I'll either promise like an 8% interest rate, or maybe I might allow them to have some of the equity on the property.
Mike Stohler
And do you. And that's a good idea, because we do syndications. And we also have some JV’s, from joint ventures. So that's, that's how we're able to really grow and expand are all yours that you have the rentals are the least own are you doing? You said your house hacking on one of them?
Ryan Chaw
Yes, I'm actually able to live. So the one I just purchased. Actually, I'll run through the numbers real quick. I bought for 511,000 All from the equity on the HELOC that I took out. So I didn't have to put in money from my own pocket, I use the equity that was kind of building up on my other properties to purchase it. And then, you know, I pay maybe a 5% 5.5% interest rate on that HELOC. So that's about $5,500 per year. And that's what 400 A month or so. And then my mortgage on it is 2300. So altogether, that's about $2,700 or $2,800. And then I'm making 3650 Because I rented out the four other bedrooms, I actually added a fifth bedroom and rented out the four others, I stay in the master. And then I put in a couple into one of the bedrooms. So I was able to make a little bit more from that. And so I'm making the spread between 3650 and the $2,800 minus some other expenses. So I'm basically living for free while this house is appreciating. And my equity is being paid down by the tenants or I get equity pay down loan pay down from the tenants
Mike Stohler
or all of your other houses a four bedroom rental.
Ryan Chaw
Yes, exactly. So what I typically do is I'll buy like a three bed two bath that has a large square footage typically over 1500 square foot and I can usually add a fourth and a fifth bedroom to those houses to increase my rent by $600 per room. So with two bedrooms, that's an extra $1,200 to $1,400
Mike Stohler
What type of tenant Are you getting that is only interested in just a bedroom?
Ryan Chaw
YES student tenants so a lot of people are worried like Oh, are they going to you know be party years college party frat guys and destroy your house right? But for me, I found that's not the case if you target the right type of tenant, so I target tenants that are more like professional school students, pharmacy dentistry, medical doctors, nurses, that type of deal people who are maybe juniors and seniors in college and more serious about finally earning their degree. I also target colleges that are on usually the top colleges list as well.
Mike Stohler
And so they have just like a shared family room. They're just doing the specialty Lee like dorm rooms, right? You're just doing that. And are they on 12 month leases or month to month
Ryan Chaw
12 months. So it's like the college dormitories and that it's yeah, you shared the kitchen and things like that. But there's still a lot more space compared to the dormitories. Like there's the living room area. There's the backyard, the garage for storage, they have laundry room, and all that type of stuff. So we're basically offering the student more privacy more space compared to the on campus dormitories, and we're charging half the rent. So we're charging maybe about $600 versus you pay $1,200. And you have to bunk with someone at the university. So for many, it's a blue ocean market. Honestly, a lot of students want to save money during college and lower their student debt. So it's a win win situation for everyone. And yes, one year leases, and they have the option of subleasing during the summertime to summer school.
Mike Stohler
Oh, really? So you allow them to sublease. Do you have to? Definitely do you have to verify or do an application for the sublease?
Ryan Chaw
No, actually. So it's for the sub letter, basically, what you have is you still have the primary tenant on your lease. So your agreement is with the primary tenant. So it's up to the primary tenant to go ahead and that person that they want to bring in, but usually it's like their friends, or it's like somebody, you know, another student, that's part of the off campus housing Facebook group. And so that's usually what we bring.
Mike Stohler
What happens if the sub lessor doesn't pay,
Ryan Chaw
then the primary tenant unfortunately, is still responsible for paying the rent. But with you know, what I say is, hey, you know, choose somebody you trust that them yourself, I would recommend collecting like a security deposit in case they stop paying you, and then you pay us. So if you collect a security deposit, at least you're good for the next couple of months, and then we can work to resolve that situation. But I haven't, here's the thing, a lot of people are worried about evictions. So there's two main problems in real estate, sorry, there's evictions and then a tenant not paying, right. So for this niche, where you're investing in student housing and renting out to students, it's usually the parents that are going to be paying the rent. And so no parents gonna just stop paying rent for their child and risks, like the eviction process, and all of that. So I've never really had to deal with that type of circumstance. And because I choose the right tenants,
Mike Stohler
what kind of addendums do you use for the sublease?
Ryan Chaw
I actually stay in my lease contract, no subleasing unless written, written consent from the landlord, essentially.
Mike Stohler
Okay, yeah, I'm just going through because we have a lot of homes. I'm just kind of going through the process. Yeah. Well, the process that you're doing, then just some of the liability. Issues that that could pop up? And might, you know, especially with the landlord tenant laws in California the way that they are.
Ryan Chaw
Yeah, definitely. And that's why I recommend you collect a pretty large security deposit either a one to one and a half times one security deposit. That's just in case something were to be broken or, you know, something happened in the comment area, then at least you can take from the deposit if if something were to happen like that, but I haven't had too many issues again, because I do the right marketing. And I really vet my tenants before I bring them in.
Mike Stohler
Yeah. So if the you know, what happens if the sublease doesn't want to leave? Yeah. And then the person that's on the contract says, hey, you need to get out. And now you have an issue with the sublease. And they're not even on the lease.
Ryan Chaw
Yeah, so in that case, what I would do is usually I do actually get contact info from everyone at least. And so a lot of times, they'll list like, you know, their parents, for emergency and all that. So, if it were to get to that point, there are there is a step by step process, I would of course, contact the parents and I'll of course talk directly with them. If the tenant still can't resolve it themselves. And then after that, I would just say he, you know, I'm just gonna call up the parent and say, Hey, this is the situation can you help me out here?
Mike Stohler
Yeah, I'm trusting. Yeah, it's, I see, you know, we could talk about this off off recording but yeah, I mean, I it's an interesting way to do things. Hmm. All right, do you have any ambitions on doing like multifamily, you're just gonna stick with single family houses,
Ryan Chaw
maybe multifamily student housing. So like, accomplished complexes nearby because I just really liked this model, right? The student has is not the one actually paying the rents to parents. So it's they have an authority figure in case something were to happen, right. And it's, it's separated. So like, if the tenant gets mad at you, you're not going to all of a sudden stop not getting rents, right? versus in a normal single family. If the tenant doesn't like something, or they expect you to make this repair, or whenever you have a bad relationship with them, all of a sudden they stopped paying rent. Now you're stuck with potentially doing an eviction?
Mike Stohler
Yeah. Do you make the parents cosign? Yes, definitely. Whenever possible. Yeah. Yeah. Cuz if. If the if the kids think that mom's gonna Mom and Dad's gonna pay and then you don't you evicted, then they don't leave and you have to have some type of recourse? Exactly. Especially if that sub list is there, then what if they stopped paying? Now it goes back on the original parents. And they're not going to like that someone else is actually living there. And they have to be responsible. So I can just see.
Ryan Chaw
Right? Yeah, potential there. Exactly. Well,
Mike Stohler
a lot of different potentials. So why don't you spread to
Ryan Chaw
invest in there? Sorry. Like, follow up with it. I do try to invest at colleges where they do have, like summer school sessions pretty frequently. So my college actually the pharmacy school has year round schooling, so they go through summer as well. Same for dentistry, they go through summer. So I kind of like try to find schools that have that so that I'm not worried about having to deal with subleasing. And a lot of times, the students don't even want to submit sublease, they, you know, they, they'll go on their summer vacation, and then they might use the house for radically during the summer. So they're like, I might as well just store my things there. So that I don't have to move out and then move back in next year. Right. So a lot of people are just doing that, because it's honestly, it's not too much and rent, you know, it's a fraction of what they would pay on campus. So it just makes sense for a lot of them to just do that.
Mike Stohler
So where do you see yourself in five years? You have six properties, five years, where do you see yourself.
Ryan Chaw
So that will be five years plus 29 to 34, I might be working my pharmacy shift like once or twice, or maybe three times a week, I still have yet to decide that because I really do love the profession, because we're helping people and giving back to the community, especially during this pandemic, one of the things I did was went out and gave a lot of the COVID vaccines. And so, you know, it kind of helped. I mean, there's obviously there's some controversy, but I believe it did help kind of help end the pandemic. And so I'll be doing that part time. But I do want to eventually get into like medical research, because one thing that happened when I was two years old was I had a life threatening allergic reaction, anaphylaxis, to peanuts.
And so ever since then, I've always struggled with these allergies throughout my life. And one of my big goals before I pass away is to find a cure for allergies. So either investing in medical research for that, or starting my own medical research company. So you know, I have all these I had all these big goals since I was a child and just working, you know, 40 years as a pharmacist, even though it's great, and I'm giving back to community, I didn't want that to be my only impact on the world.
Mike Stohler
Okay, well, very good. Now, where can everybody find you?
Ryan Chaw
Yeah, so I offer coaching for the student housing business. And for those who are just interested in the student housing industry in general, or those who are just trying to get started in real estate, I provide this free guide, which kind of goes through the step by step of how I did it. It's at www dot newbie real estate investing.com/guide that's www dot Nuby real estate investing.com/guide and newbies spelled any WBI e i also have a weekly newsletter so you'll get weekly emails about kind of the obstacles that I encountered on my journey and how I solved them. And the step by step strategies that I've used to build my portfolio to a multiple six figures.
Mike Stohler
Perfect. Well Ryan, I appreciate you coming on and hope everyone checks it out. And newbie real estate investing.com Thanks a lot, Ryan. Hey, thanks, Mike.
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ABOUT RYAN CHAW
I wasn’t the most educated investor when I first started investing in real estate. I was inspired by my grandpa who went into real estate and was able to retire early. He had income coming in from his rentals until a ripe old age. With that income, he helped put my brother and I through our schooling.
When I started, I figured I might was well just “wing-it.” Didn’t have a mentor or coach. Very soon I realized what a bad idea that was.
I knew nothing about what kind of house to purchase, how to market for high quality tenants, and how to maintain the house.
I was simply an impatient kid who wanted to get started. In fact, I only looked at 2 deals before buying one of them!
This became one of the biggest investment mistakes I ever made…
After closing on the property, I found out that it needed millions of repairs. A pipe broke on one of my tenants and the sewage overflowed out of the sink onto the kitchen and bathroom floor! It smelled putrid. I had to frantically call plumbers all around the area. This was around 12 midnight on a weekend, so you can probably imagine I had to call a lot of numbers before I finally found a service to clean the (literal) shit up.