Mindy: Welcome to the BiggerPockets Money podcast, where we interview Evan Miller and talk about his journey from being in the Air Force to becoming a CFP to landing on real estate full-time.
Mindy: Hello, hello, hello. My name is Mindy Jensen, and with me as always is my co-pilot co-host, Scott Trench.
Scott: Thanks, Mindy. Great to be here and always delighted to be your wingman.
Mindy: Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.
Scott: That’s right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, or go full-time as a real estate investor, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Mindy: Scott, I am very excited to bring on Evan Miller today to talk about real estate and the Air Force and CFP stuff. This is a fun conversation.
Scott: Absolutely. He Evan has picked up a cash flow positive asset including houses and a cash flow positive spouse every year for the last eight years in a row, and it’s really enabled him to uh build a solid portfolio and go full time into real estate investing.
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Scott: All right, before we bring in Evan, let’s take a quick break.
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Scott: And we’re back.
Mindy: Evan Miller is a financial planner turned real estate investor who can be heard on episode 217 of our sister show, The Real Estate Rookie podcast. He’s also the husband of our general manager of publishing at Bigger Pockets, Katie Miller. Evan, welcome to the Bigger Pockets Money podcast. I’m so excited to talk to you today.
Guest: Thanks Mindy. Hi Scott, Hi Mindy. It’s so great to be on the show. I’m a huge fan. I try not to fanboy too much, but it’s a, it’s really cool to actually get to be on the show and to talk to you guys in this context.
Mindy: Well Evan, let’s jump into your money story. Let’s look at the history of your experiences and journey with money.
Guest: Yeah, so I grew up in a big family, have five siblings, so six of us total and my parents raised us on a one income household and they didn’t have a ton of income, but they put us through, I did the math, there’s 54 years of, um, private school total. All of us attended the same school for nine years. Um, they remodeled their house while we were growing up, um, and just really made the most out of a relatively modest income and I think the reason they were able to do a lot of that was through Dave Ramsey. They did the total money makeover, all of that stuff that Dave Ramsey puts out. And we learned about the envelopes and like literally taking your spending money out of the bank account into cash, putting it in envelopes and I grew up on that and it, um, I loved it. I was always kind of a finance nerd before I even realized it and would like have like probably 10 different envelopes and um that would dictated how I would spend. And um you know, through high, that started when I was like before high school and then when I got into high school, I started being able to make my own money. Um, did a little lawn mowing business in the summer, um, worked some other jobs in the summer to to make some extra money and all that money was going into my envelopes. So I was watching everything I was spending um down to the last detail down to how many half pieces of gum I could chew throughout each day um in my classes. It was pretty OCD. So, um, that’s kind of how I approached it until I got, um, into college, but, um, I think it was a really powerful start and an awesome foundation that set me up to, um, kind of parlay into the entrepreneurial journey that I’ve started since then.
Scott: You, you, uh, I believe you decided to go into the Air Force after high school. Did you go to can you walk us through that journey and where college comes in and where the Air Force begins?
Guest: Yeah, so I it always been my dream to be a pilot. So, come, junior year and stuff, I started looking into the service academies and I ended up going to the Air Force Academy. Um something that’s really cool about the Air Force Academy is that they pay for your whole school. So, graduated from the Air Force Academy debt free. of sorts. I did have the debt of time. We had you have a commitment you have to serve for five years. Um, but a benefit of that commitment is you have an awesome job when you graduate, um, and a very clear um career progression, really for as long as you want, but certainly for the first five years. Um you graduate with about a $50,000 salary, um if you’re living in Denver. And then throughout the five years, you get automatic raises all the way up to you’re making about 100,000 um, by the time you make captain and you’re in your fifth year.
Scott: And Evan, that includes that that base salary is also buffered by allowances for food and housing. Is that correct? What would you estimate the total comp for a new Air Force graduate is, uh, 02.
Guest: So that is the total comp and it’s about 60% salary and 40% base allowance for housing. Um, and a cool thing about that is the BH doesn’t get taxed. So, um, the 100,000 once you’re a captain, so four years in, um, is is like 40% of that isn’t taxed. Um, it did it complicates it a little bit when you’re trying to go buy your buy your first houses. Um, but ultimately, if you get the right lender, it’s better because you’re not having to pay tax on that, so they can round up a little bit.
Scott: Awesome. And while you were at the Air Force Academy and getting started in your career, um, can you tell us a little bit about your financial habits? And were they the same as your peers? Did you spend like a sailor? Although that’s navy, but how did that go?
Guest: I certainly didn’t spend like a sailor. I tried to do nothing like a sailor. Um, but we there is quite the quite the um, spread of spending habits at the Air Force Academy for sure. Um, I continued my envelope strategy. I didn’t actually have envelopes. I switched it to an Excel sheet, but I would look at that Excel sheet, you know, now that we’re in Excel, we don’t we’re not limited by paper, so I had 20 plus categories of spending and then I would every time you get a paycheck every two weeks just like a normal W2, um and that paycheck already had every dollar spent and I would put it into my spreadsheet. Um, it would re, you know, replenish what I had been spending over the last couple weeks. And I would look at that, I mean, like every day sometimes, um, and at least every few days. Um, and that that was pretty different than the rest of the Air Force the rest of the cadets. There were some people that um, had pretty a pretty good financial background, but a lot of us, this was the first money we were making. And it was fun to go spend it. Um, and, you know, each year we started making more. We had some debts that we thankfully had to pay back to buy our uniforms and stuff in the first year. Um, but I managed to buy my first car that I bought, um, was a 1995 Honda Civic, uh, one of my favorite cars ever and it was it cost I think about $2,000, maybe $2,500, um, and drove that thing until I was almost done with my Air Force career, then I switched to a much fancier 2001 Forrester. So,
Scott: My understanding is that the smart thing to do for folks who are attending service academies is to use, I think you have a career starter loan that gives you $30 to $35,000 in very low interest debt to buy a a bright red, shiny, jacked up F-250 pickup truck. Why did you uh choose not to do that and was that common amongst your peers?
Guest: Either that or or Corvettes. There was a lot of Corvettes in the parking lot once you got to junior year, a lot of really fancy cars. A lot of these cadets had um college funds that their parents had as well. So, some of them their parents were able to just use that and buy them cars, but that wasn’t my life. My parents put a lot of money into my first 12 years of education and after that, it was it was up to us and but also there’s I mean, people were buying parachutes, people were buying um all guns, people all sorts of things that were not um all hobby related and they spent through that $35,000 real quick. and I saw some people, you know, when you graduate, you’re paying that off in five years. You get it’s a really low, it’s an awesome loan, really low interest, less than 1% and it’s because USAA knows we’re obligated to work for five years at least and we have a good salary. But that’s a it’s like a car payment. It’s like $5 to $600 a month. Not a small payment that takes a good chunk out of your um spending. Um I luckily didn’t consider that at all and took the loan and just invested it. Um I ended up having to pay it off early so that I could afford my first house, but I made like a couple thousand dollars um kind of free money in the process.
Mindy: Okay, I’ve never been in the military, but I have driven past the Air Force Academy on my way to other things in Colorado Springs. Do you have a lot of free time?
Guest: Uh, I had no free time. Yeah. No, not a lot of free time.
Mindy: So, there’s just Corvettes and big trucks sitting in the parking lot doing nothing, getting flat spots on their tires. Like there’s if you’re in the military, if you’re thinking about joining the military, you don’t have this luxurious, free lifestyle. Don’t go watch Top Gun and think that you’re just going to play sweaty volleyball all the time. You’re doing stuff all the time. You don’t have time to go drive these cars. So why are you making payments on these cars you can’t ever drive? Have a crappy car that you never drive or have no car. I mean, can you just if you’re at the Air Force Academy, could you just theoretically spend all of your time on campus base? Is is it a campus or a base or?
Guest: Both. Yep. It’s both in the cadet area, we called it on the hill, yeah.
Mindy: Like you could just spend all your time there.
Guest: You could. And save a bunch of money. Yeah, you you could really be set up really well. Um, the that is a good point. There’s a lot of Corvettes in the parking lot. There’s not a lot of MD parking lot space. It’s a lot of a lot of time in the parking lot. That was also a good point because that’s part kind of what got me into wanting to be a financial adviser, talking to people about personal finance. Um, was talking to Airmen once I was an officer and they would get their first big paychecks right out of high school. They were making like probably 40,000, 45,000, which is awesome, um, you know, right after you graduate and they’d go buy a $50,000 truck, put a $15,000 lift on it, start paying, you know, five miles to the gallon, um, when gas isn’t cheap and I would those were the the Airmen that I would really sit down and want to talk to and connect with try to change, change their perspective a little bit on that. But I mean, we were no different, well, most of the of my peers were no different. They wanted to have that fancy car. I actually had one of my friends tell me, Evan, there’s no reason that you shouldn’t be driving a nice car by the time you’re a an officer and I I would just looked at him and I was like, I’m never going to be driving a car that costs me more than um 2015’s version of $2,500. It’s just not a thing.
Mindy: Okay, life hack, if you are in the military, point to any car in the parking lot and say, that’s my car. The chances of you pointing to the person you’re talking to their actual car is very, very low. So, you can have a nice car, have in air quotes, a nice car without having the payments. There you go because it’s just going to sit in the parking lot anyway.
Guest: We have very similar opinions on cars and me, I think.
Scott: What do you think that the average airman ends that five-year commitment with in terms of net worth?
Guest: Yeah, graduated negative net worth, which is surprising because none of us have, you know, we have like a $250,000 education that we didn’t have to pay for, and we’re still managing that a lot of them are still managing to graduate with um no no savings. And then, um, I didn’t spend a lot of time socializing with other officers, but there was plenty of spending, you know, a lot of a lot of drinking, a lot of going out to bars and um those bar tabs can go up and just yeah, I don’t think you know, small savings if any. Um and a lot of people go negative.
Scott: And after the five years of service, that’s still negative.
Guest: Yeah, I would say so. Yeah, I had a I actually because I by the time I was getting out, I had um a few properties and um, just was starting to talk to people about real estate investing and people were asking me about it. And people that I had graduated with, you know, just were getting started. It’s all always from that to like some people do end up being super busy and managed to just let that keep them from spending and so there are some people that once they get into the captain and higher, they they can start accumulating some net worth. Um but most of them have no idea what to do with their their money. So, I I again, I was like listen to these podcasts, you know, I had a whole bunch of ideas.
Scott: And what can let’s let’s uh spoil the surprise. What was your net worth approximately at the time that you exited the Air Force or after the five-year commitment more specifically?
Guest: Yeah, it’s probably like a hundred, $150,000.
Scott: Awesome. It’s I was more towards the beginning of my investing career when the the gains are frustrating because you’re you know, you especially if you’re like me, I invested with VA loans and so I started with zero equity, negative equity actually by a couple thousand dollars and so that was like the the difficult part in the beginning was just being frustrated with how slowly it was accumulating, but now looking back, I mean it’s just keeps keeps growing and it’s a really, time is really on your side once you get going.
Scott: So how did you begin approaching investing and wealth building with an intentional focus? When did that begin in at the Academy, uh in the first few years of service? Walk us through the the journey and the the aha moment.
Guest: Yeah, it really started with my first house purchase. I don’t think I I was really into budgeting, really into being like money conscious and it was bugging me that I had a limited spending ability uh because I was never going to spend more than um my income certainly, but more accurately like 70% of my income. Um, and so that was always frustrating to me, but I didn’t really see a way to be building a net worth and then I bought my first condo. My uncle who had been who was a retired pilot in the Air Force told me like whatever you do, first thing you do when you get to your first duty station is buy a house. And so I I did that. I was fortunate for that to be in Denver where I’m from, really familiar with the area anyway. Um but I I did I bought my first condo and I really loved the process. I loved getting to know the city, um as we would call it now, getting to know the market and just going in and touring houses and learning about the, you know, the the various pockets of Denver. Loved the process and so I was like, how can I make this a thing? I didn’t want to be a real estate um agent. probably because of my job and probably just because that wasn’t what was exciting me, but so I I Googled uh investing in real estate and Brandon’s book, uh, the book on investing in real estate with low and no money down came up. So I I listened to that book. Brandon was still the narrator on that at the time. so I listened to Brandon for about eight and a half hours, uh and that got me hooked on the podcast. So I really am a um, product of of Bigger Pockets real estate content. Um I’ve listened to hundreds of episodes of of Bigger Pockets content including hundreds of Bigger Pockets money. Um so, uh that and then just read read book after book after book. So, I think, yeah, you guys can take a victory lap. That it’s definitely a huge, uh, huge contribution to my my learning.
Scott: We’re hearing that more and more, right? on all these episodes that a lot of these people are becoming getting a lot of what they know from Bigger Pockets.
Mindy: Yeah.
Guest: Awesome.
Mindy: I don’t want to toot our own horn, but
Guest: I’m tooting it. I’m tooting your horn.
Mindy: There’s a lot of information here and and you know, we’re we’re not incredible. selling anything. We’re just sharing this information because we want you to have it. I mean, school is so lacking in financial education and then you graduate, like at 18 you’re supposed to know what you want to do for the rest of your life. I mean, you wanted to be a pilot.
Guest: And I didn’t end up becoming a pilot.
Mindy: Oh, what did you do in the Air Force?
Guest: I was in intelligence. So I uh, yeah, I didn’t end up becoming a pilot. We can go down that path if you want, but
Scott: He could tell us but then he’d have to kill us.
Guest: Yes. Exactly.
Mindy: Okay, then I don’t want to know.
Guest: But
Mindy: I I think that it’s really unfortunate that we expect kids to literal kids to know what they want to do for the rest of their lives at age 18. So, that’s why we do the show to help people learn their money, uh, learn how to handle their money so that they can be better with it.
Scott: Evan, it sounds like you had an instinctive or a kind of a ingrained uh instinct to go and buy a a property from your uncle, uh, and you also had time in some capacity to immerse yourself in the world of self-education around real estate and investing. Is that a theme in military service that there’s a good amount of time if you want to use it that way to put in some earbuds and just absorb a tremendous amount of educational material?
Guest: It depends on the depends on the job, but yes, I I one of the reasons I didn’t become a pilot was because I was getting a um, like a fun ride with a with a pilot in an intelligence plane that just basically circles over um a combat zone and he was bragging to me that he had like over 300 combat hours and he said like 280 of those hours were spent watching Netflix. And I was like, I do not want to be doing that. But the amount of time that you have, no matter what you’re doing, even if you’re flying in a combat zone supporting live combat, you you there’s other things you can be doing. And for me, I was sitting um the watch floor out in um Aurora at Buckley Air Force Base and I spent to keep myself awake, um which this is a little bit embarrassing to admit, but to keep myself awake, I would be building spreadsheets and that could help me um underwrite properties. Um, that that made the 12-hour shift go by quick. So,
Mindy: Biggerpockets.com has a calculator.
Guest: And this is why you missed the big the Chinese balloon that was flying over us, right? Last month.
Scott: Well,
Mindy: He was out by then. That’s not his fault.
Guest: No, no, I I by that one, you’re right. But no, I do I do hope my commanders at the time were not listening right now. If I mean, it kept me awake so that I was available when something did happen. So, got to find find some way.
Mindy: But there is, you can use your time for multiple, multiple different ways in the Air Force and that was that was something that drove me nuts. I had a really secure, um, path that um, my I could stick with for the rest of my career if I wanted to, it just felt like I wasn’t maximizing the potential of that and I want to make sure it once I got to the end of the five years that I had kind of used that security to set myself up for something else um even if I had ended up staying in, but certainly if I was leaving. So,
Mindy: when did you first start thinking real estate is the way to go?
Guest: It was a slow, it was a slow process. I think I knew I wanted to be investing in real estate one way or the other, but I always thought it was um going to be a side thing. Um, until I I even like a couple years ago. After I got out of the military, I was pursuing my career in financial planning, getting my um CFP, and um, just understanding the world outside of the military, um, because it’s a very unique bubble that you’re in when you’re in the military and I barely knew like what modern technology looked like in the workplace because the Air Force is pretty behind on that. Um so once I got a feel for what um businesses was were like, I I realized having your own business or trying to build a business was really complicated and really hard. So, should probably focus on your strengths when it comes to what type of business you want to build. Um at one point I’d try I started a suits um like an e-commerce suits website and found out that you really got to know everything about suits if you’re going to start a company in it. So that’s when I was like, all right, I need to focus on something that I’m passionate about. I just the longer I was investing in real estate, the more I became passionate about it and maybe in the last year or two, I was started to really think I want to make real estate a full-time thing. And that it was just last year that I told Katie that I was like, I think I want to do this full-time. And I was really happy with her response. She was pretty open to it.
Scott: Going back a little bit, let’s walk through the timeline of deals that you did while in the Air Force. Can you walk us through, uh, those one by one?
Guest: Yeah, so I graduated in 2015. I had 10 months of um intelligence training, then I got to my first duty station in which was Buckley, my only duty station. Um, in the summer of 2016.
Scott: And that’s here in Colorado, near Denver.
Guest: Right, east of Denver in Aurora, yeah. Um, and so I was living, living in Southern Denver, looking for a house and we closed on the my first house, which is a which downtown a condo downtown, um, in uh, November of 2016. So, that was the the problem, that one’s still my only one that doesn’t actually cash flow. It basically breaks even. I didn’t buy it with investment in mind and so it was pretty expensive. I mean it’s an awesome place. I loved loved living there. Um so I bought that one in 2016 uh lived there for about a year, bought the next one close I closed on the next one at the very end of December in 2017.
Scott: And did you use a VA loan for either of these purchases?
Guest: VA loan for the Pearl Street one. It was too quick.
Scott: The first one.
Guest: Right, yeah, sorry, for the first one. So I use my VA loan on the first one and that purchase price was 375,000 and my loan on that was 383,000. So the VA loan and I’ve heard this come up on your on the EP Money a few times, but the VA loan actually covers 100% of the purchase price and closing costs up to 5% of the purchase price, which usually um, that covers all of it. So I actually got a check at the closing um at closing because my earnest money came back to me.
Scott: Evan, quick tangent on this. Uh, VA loans are assumable, right? So if you live in a military area, uh, even if you’re not military, I could say, Evan, I’d like to purchase your property from you and I’d like to assume your VA mortgage, your VA loan on that property and you’d be able to allow me to do that, right? And because VA loans are often purchased with 0% financing, even after the big run-up in equity values for the last two years, folks might only have 15, 20% equity. So, this would be a great place to go fishing for deals in military markets if there are or, uh, officers, for example, who have bought property using this type of loan product, probably don’t have a lot of equity and would be willing to sell to get out of that that mortgage. Is that is that a fair tangent and statement?
Guest: Yeah, it’s a fair, it’s a fair point. There’s a few, a few um nuances in there though. Um so with the VA loan, the conditions of that is you’re only allowed to hold one VA loan in your name per market. It’s not just one VA loan, it’s per market. So, as long as you’re moving, I think it’s like outside of a 50 mile radius, you can buy another house with a VA loan. So, that applies well, it is it’s you need to make sure that the seller knows that because the the loan’s still going to be on their name. But if they’re, I mean most military if they’re leaving and selling, they’re moving to a completely new state, maybe a completely new country and if they’re they can buy again using a VA loan. Like if I went from Buckley in Denver to um Colorado Springs, Peterson now Space Force space in in um Colorado Springs, that’s a new market. I could still use my VA loan down there. But if they were moving just to upgrade in town, which is what I was doing, well not upgrade but I was moving in town, I couldn’t re have another VA loan. But it is the the equity issue is a big thing for people moving.
Scott: And you must owner occupy as well, correct, right?
Guest: Right.
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Guest: Well, the the the seller must owner occupy and is that another condition of the of the assumable loans? I wasn’t I didn’t know that one.
Scott: I believe I we love to check this. This would be a great conversation in the Bigger Pockets Money Facebook group for folks that I can chime in with with additional details. My understanding though is that you to your point, uh you may be limiting the options of the seller and being able to use their VA loan off for another purchase depending on certain where certain conditions are met. And uh you must owner occupy the property with a VA or FHA loan that you assume.
Guest: Right, I think that’s a that’s kind of how a lot of these types of um, you know, hacks, you can call them in real estate investing are, like you you can’t take the hack and force it into a situation. You want to be aware of a whole bunch of different tools that you can apply and be able to apply the right tool in each situation because each thing is pretty nuanced and pretty specific to um a certain set of criteria and it’s not going to apply to every criteria. And when I was listening to that, I’ve listened to a few episodes on that few podcasts on that and um they are it’s a very specific scenario where that would work, but it will work really well in those scenarios. And as you’re going through your deal analysis and looking at a whole bunch of different deals, knowing that that’s a possibility could turn a like the mediocre potential into a really good option or turn you into a much better buyer if you’re able to be um, be able to help the sellers in that way.
Scott: Awesome. Let let’s let’s go, let’s resume your journey. Sorry for the interruption.
Guest: So the next one I bought was another townhouse in Southern Denver and I it was owner occupied but we put 5% down, um partnered with my parents on that. So I didn’t use any of my money there. Um, and that was about $277,000 purchase, um with 5% down and um, so that was the next year, basically one year later.
Scott: 2017.
Guest: 2017. And then I got married in 2018 and I didn’t personally purchase a property, but Katie had purchased one. So it was kind of like my purchase, my property acquisition, getting married because I added that to my to to our portfolio then. So that was 2018 and then um in September of 2019 um is when we closed on the the 10 unit that we um we own with a couple of investors in Omaha, um and we own a smaller portion of that, but I manage it. And then that’s that was that’s been a really fun story as well. Uh we still own that one and we’re hopefully getting close to the exit now. And then in January of 2020, I bought a single family home. We bought that with cash for $38,000 in Omaha. Um, and now I have people my phone’s ringing off the hook to buy it without having done anything to it. The tenant’s been a really great tenant. Probably the easiest property I’ve had was this one. Um, and they’re it’s appreciated people are offering for like 60 to $65,000 without even having remodeled it. So that’s been a really fun one. Um, I think I’ve had maybe three maintenance calls from that tenant over the last three years, so
Scott: So for five years in a row, you pick up a new cash flow positive asset, right? Property number one, property number two, wife, property number three, and then property number four because uh we got we added another property in the in the marriage. uh and then we have uh uh this Omaha property in 2020. So five years in a row, one asset at a time. Was that was that the plan going into this?
Guest: No, I wanted it to be way faster. I think it always drove me crazy how slow it felt um at the beginning like I said earlier. Um, but I was doing something, I think and now it’s super powerful how that set me up and one the took that those years passed, no matter how much I wanted them to slow down. And so like one at a time, really added up. Um, so now we have eight properties, but yeah, did it averaged out to one property a year all the way to this year. Um, we didn’t buy one, we, so we bought in January 2020, we bought that Omaha single family and then in May, we bought, we moved, um, into the house that we live in now and we Airbnb our basement, um, so that was the purchase in January in in 2020. So there was two in 2020. Then in 2021, we didn’t buy anything. And then last year, we bought two short-term rentals, um, down in the Gulf Coast shores. So, it it is one one a year, but those years really add up and it starts to be a nice looking portfolio. So,
Mindy: When did you know you were ready to make the leap from financial planner to full-time real estate investor?
Guest: Sometime last summer, um, there was a few, last last year was a really serendipitous year for for Katie and I. We um, had a baby, had our first baby. Um, we, I was looking at a a different firm. So I took a really deep dive into what I wanted my career to look like and just saw basically a five-year projection of what it would look like in the financial planning world, what a lead adviser because my trajectory was three to five years, if I was doing really well to become a lead adviser. And what that would look like, what my life would look like to get there and then what would my life would look like to really build on that after. And all of that stuff kind of put it into perspective that what I really wanted to pursue over the next three to five years was building my own our own real estate portfolio and our own real estate business. And then spreadsheets, again, were really big. I did a very detailed budget, looked at our income, all the different line items of our income, all of the expenses including taxes, including having child care and did the math on how much cash we were ending up with because I was working this job, um, after all expenses versus how much cash we would what how much more my job was adding. was really important to me to learn. And that was about $17,000 for a more than 40-hour a week um effort and for the prioritizing my attention. And that just was like, you know, not very exciting to see and it was kind of a the the kind of the last thing that pushed pushed us over to be committed to me working on real estate and knowing kind of the minimum that I needed to make in the first year to even you know, for our lifestyle to not even feel any different.
Scott: And how much did you expect, what did your spreadsheet tell you would happen if you quit and and went into real estate full-time?
Guest: Well, the first piece of that is being able to claim that I’m a real estate professional full-time. We have a whole bunch of real estate assets that we have not depreciated, not a whole bunch, I should say a handful for. Well like, but it’s, you know, it’s a few million dollars of um of equity that we haven’t been able to use and tax depreciation.
Scott: You mean you’ve been depreciating it, but it’s been a passive loss instead of an active loss offsetting your your taxable income, because you’re because you are in the good fortune of being above the $150,000 limit where you’re uh in a household income where you can use that that benefit. So, sorry if that’s way over people’s heads. This is that’s a great tax thing to go and and study. Uh we’ll link to some resources in the show notes.
Guest: There’s plenty of episodes about about that from Bigger Pockets, um, mostly, that are really helpful. Um, but it’s a very it’s a life-changing detail with real estate investing to be able to accelerate your depreciation and we were able to accelerate depreciation on our basement because it was our primary residence and we were using it as an investment. So we were able to accelerate depreciation one year, I think it was for our 2021 taxes. that was just crazy. We got like I think $15,000 back. The study costs $3,000, so we netted $12,000 that we normally would have had to pay in taxes. So that got our attention and we started thinking looking at how how to do that. And that’s why we focused on short-term rentals last year because as long as you are meeting the active participation requirement of 500 hours in the asset a year, you can depreciate, accelerate depreciation on those assets. Um, which is great, but I had to, you know, I had to be pushing beyond my 40-hour a week job to be acquiring those properties and managing them and making sure they were cash flowig assets. So it just wasn’t the lifestyle that that I wanted. and also, um, we had a few properties that we couldn’t accelerate the depreciation on. So it really I it was almost costing me money that it actually might have been costing us money for me to be working um because now that I can claim real estate professional, we can write off a lot of our W2 income that’s coming from Katie’s awesome job with bigger pockets and um that that $17,000 will quickly be made up by just um depreciating our real estate. And that’ll last for a couple years before I even need to be making any money, um which is not my goal, but that um pretty much immediately upon quitting, we had the access to tax um strategies that would make us more money than me working full-time.
Scott: Now, before folks listening have dollar signs popping up into their their brains with this, this is a this is not saving money on taxes. This is deferring taxes, right? So you’re you’re able to claim depreciation now, you will have to recapture it at some point unless you play the lifetime game of 1031 exchanging, deferring taxes indefinitely, and then dying and passing on all of your assets to your new wonderful daughter uh at that point the stepped up basis. So it’s possible to to defer them in perpetually, at least with the current tax law. But really what you’re doing is you’re if you were to sell these properties, you have to reclaim that that those that that depreciation and pay taxes on those gains, perhaps even at ordinary income tax levels, is that right?
Guest: It depends on the it depends on how long you had the asset, but um it for for most of the um, like if you’re selling the most of your real estate, it’ll be a capital gain at capital gains tax, tax rate. Um, I’m pretty I’m like 95% sure on that. Um, but that’s true. It is, it is a much more active and attention um requiring demanding way to do your real estate. You certainly have to be ready to manage the exits of all of these properties, um, very attentively and according to the laws of the day and you’re risking the today’s tax tax law to change, um, all of that is true and it’s still a really powerful way to start your career especially and to um supercharge it as you go each level.
Mindy: Okay, I just want to chime in here and say that I know we have talked about the real estate professional and this is capital R real estate, capital E, capital P, this is a tax designation that the IRS came up with. I know we’ve talked about it briefly in the past. Um, this is an official thing and essentially if you have a full-time job, you’re not going to qualify to be a real estate professional. You have to have more time spent, it’s a minimum of 750 hours a year and you can’t spend more time at another job than your real estate job. So, I want to um I just want to reiterate that this is an amazing thing, but it is not available for everyone. If you file taxes as a real estate professional, the IRS is going to take a real close look at your taxes. So, you definitely want to make sure you qualify and you definitely want to make sure that your tax professional understands what this is and is taking advantage of this for you.
Scott: Yeah, completely agree with what you said there Mindy. Um, that plug for finding tax professionals on Bigger Pockets is under the navigation bar under build your team, there is a tax professionals link and that will take you to some of the best tax professionals um that we’ve found on bigger pockets, uh usually active form participants, folks who have been around a long time and are used to working with uh real estate investors. And then I think that to your point on this REP status, real estate professional status, REPS, uh is is a really good option for someone in Evan and Katie’s situation. One person’s working a full-time job has stable cash flow to bring into the the family. other person is working on building the real estate empire and using the tax advantages that come with that. And it’s also particularly valuable at this point where after seven, eight years of investing, there’s a portfolio to depreciate that has assets that you can actually play these games with uh appropriately, uh games that you’re playing with the advice of your excellent tax professional.
Mindy: They’re not games.
Scott: Yeah, very specific approach. There you go.
Mindy: They’re strategies.
Scott: Um Evan, I want to circle back to where you’re going currently. So you are a real estate professional now, you’re full-time on real estate. Uh I believe that you just completed a flip in this market. Can you walk us through that and what your advice would be for other folks who are looking to get started in today’s market conditions?
Guest: Yeah, so um one of the things other things that lined up last year while I was considering um moving on from my full-time financial planning job was um more opportunities to flip um houses were coming up and I ended up meeting um an awesome couple um Sarah and Jose Guth Sala um and they they were wholesalers, they’re flippers in the Denver area and they had a couple properties that they thought I should um come look at and they they became really great mentors to me, um, especially Sarah, she worked, she she did just so much self so much selfless time to to help me make this a a success. Um, and so I guess that that’d be a piece of advice um, you hear this a lot, like go find a mentor. Um, I didn’t go find a mentor. I was being active, um, telling people about what I wanted to do, um, getting my my plan and what I’ve already done out there and um the right people can kind of came into my life and I was able to capitalize on that and um, really be able to have somebody that I could learn from. Um, but that’s that’s really important to be around other people who are doing it that you can you can bounce ideas off of that you can prevent like rabbit holes from from ruining your first project. So that that’d be a big piece. Um, but but so anyway, so we we ended up um, looking at several different properties. The one that ended up really being um, a good fit for for myself and uh the contractor that I worked with and he’s also my real estate agent. Um, we’ve worked for years together. Um, was a small condo um in Southern Denver and it um, the the budget was we we bought it for 230,000. Um, Target sale price was between 315 and $325,000. And the um construction costs was around 40,000 with $15 to $20,000 of other costs, holding costs and everything that comes that that came into the the transaction. Um, the one of the challenges at the beginning was knowing what the what the sell price could be because we were analyzing this property in November of 2022 and everybody knows all the ups and downs and the volatility that the real estate market and the interest rates experienced. So you can’t really have you don’t have too many comps as you look back. You have to look at like the for us we looked at the last three months of actual sales of condos that were really similar to this one that we were um going to be flipping. And if you’re flipping a condo, you need to be looking at pretty much that community or really similar communities like it. because as we were looking at the comps, we there’s a there’s a main thoroughfare just north 285 just north of this complex and right on the other side of that was another condo complex that had really similar numbers, two bed, two bath, um about 1,000 square foot condos. And they were all comping for about $100,000 more than these condos. And so that was confusing at the beginning, um, but that was a really important thing to clarify. We we literally just took comps in that um condo complex and a couple outside in the nearby areas. And then ran the numbers and um, I had run the numbers a lot. I think like I said, I like spreadsheets. I’ve analyzed hundreds of properties. Um, I’ve analyzed several um before um even considering doing a flip and then several during the process as well. Um, and then we went for it and closed. I partnered with Sarah on the loan um to get better terms, and then I brought all of the capital that was going to be needed, the private capital that was going to be needed, ran the project, she helped a ton with like design choices and um all the different details that you run into throughout throughout a flip and then um my the same guy who did worked on most of the work is the one that listed it and just last week actually we listed it on Friday and ended up with three offers all over asking and we were able to take one that was um $11,000 over our $325,000 asking price. So it turned out amazing, but some of the things that I kind of went into the project with were if it takes a couple extra months to sell, I’ll still make money or break even. Um if if we are designed if it’s like 5%, 10% below our um asking price, what we wanted to sell for, I would still break even. Um so this first one was learning how to do it going through the whole process and if we made money, great, and we did. So that’s that’s awesome.
Scott: What what was the total profit on this flip?
Guest: So the total before there was a few total profit was what probably about 20,000 it’s looking like. Um but the total profit was about 30. Uh I had one other investor and then um Sarah got a little bit of a cut for partnering with me a lot less than she deserved but um so we the total capital in, the total private capital that was required was about $60,000 and we made $30,000 in four months. So pretty good. A lot better result than I expected my first flip to be. And that’s all during kind of one of the scarier markets. um I am just saying that because I had a lot of doubters that were like, is this the right time to be flipping? Like, you’re crazy for doing your first flip right now and um, I guess not a lot of doubters. All of them my close family were supportive, my friends were supportive, but there’s just a lot of questions out there of like, what are you what are you thinking? And um, you know, it turned out to be really a successful thing, but it was because we I had a lot of experience in real estate. I knew Denver really well. I love running numbers. So I’ve run the numbers and I’ve very conservative numbers several times, over and over again. I’m said no to a lot of other properties that could have been good projects but weren’t the right fit. and then also had um a a couple of people that were really interested in my success and just great people that were helping all that happen.
Scott: Fantastic. I think this is I I think I think it’s a uh awesome approach. I think it’s against the grain uh of of conventional wisdom in this market and again, an outsider, I would say I’m a novice at understanding all of this stuff. I have never actually done a flip, for example, but it seems like it was buy high, sell higher for the last, you know, eight years. and your approach is kind of buy low, sell less low uh in the in this flipping market. Is that a is that a fair way to sum it up?
Guest: Definitely. And we went like we our after repair value that we looked at was lower than what properties had sold for in 2022. Um so we were expecting there not to be um appreciation and we were actually even though I personally didn’t think there was going to be any drop in the Denver market, um, you know, needed to take that into account because if there was ever a market that that would happen in, this was a this was it. Um and then if you get, you know, if there’s appreciation in the process, it’s awesome bonus, um, bonus profit. So and that’s that’s what happened and that’s a much better feeling than counting on getting there and then even meeting it. It’s just not not as satisfying a way to look um approach it.
Mindy: Evan, this has been a lot of fun, and I really appreciate you sharing all of these great tidbits. I love your your quote, I love running numbers. First of all, huge nerd, but second of all, get good at running numbers. If you don’t like running numbers, what are you doing in real estate? Why do you think you’re going to be successful in real estate if you can’t run the numbers? What does Brandon say? Like run 10 a day or something like that, 10 a week? Get really, really good at running numbers. Do you know who doesn’t run numbers anymore? Me. Do you know why? Cuz I do it all the time. I am an expert in my local city and I know because I’m a real estate agent. I am on the MLS all the time. I’m constantly seeing what houses are listed for, are selling for. I know what houses are renting for. I am flipping houses. I know how much it costs because I’m an agent, I am getting quotes all the time for roofs and air conditioners and appliances and and and and. So, I’m not running numbers. I just have this running list of how much stuff costs in my head. So as I’m walking through a property, I can say, this will be, oh, it needs a new roof, I bet because I can see through the ceiling. So, that’s $15 to $20,000 and the HVAC system was last replaced uh in the Roosevelt administration. So that’s going to need to be replaced. That’s $12,000 and I know this because I’ve already gotten 57 quotes for 57 properties that I sold last year. So, it’s going to be something that you either need to know like the back of your hand or run the numbers. Get good at running numbers. period.
Scott: Absolutely. You know, Brandon’s 10 a day is great. I I like the idea of just if you if you can analyze one deal a day. That’s 90 deals in a quarter, right? And if you pick the best deal out of that, that’s roughly one in a 100, right? Maybe do two on a couple of Saturdays and you’ve got you’ve rounded it out to a nice 100 deals in one quarter of the year. That’s a great ratio. You buy the best one of those deals, um you’re probably going to get a a pretty good one. And and that would be a very simple formula for someone who wants to, you know, flip in today’s market, right? You probably can still do it if you follow a simple rule of thumb like that. Uh I wonder if Evan would agree with us if he were here. So, um I also think that uh someone like uh Evan who loves running numbers like that, now all of a sudden that analysis counts towards your real estate professional status. That is your literally your job to run the numbers on these things. And so a lot of those benefits begin to stack up if you’re willing to do that uh that level of analysis uh to get into real estate investing. So, always start with the numbers, figure out what a good deal is. and I’d be remiss if I didn’t take this absolutely perfect opportunity to now plug the Bigger Pockets calculators, which are available to all of our pro members, which allow you to analyze those deals in a really simple but effective uh uh uh toolkit. We that integrates with our rent estimation tool on Bigger Pockets, so you can uh get some accurate uh if if we have the data, some if you’re in a market with very little very few properties, you’re going to need to find your own comps. We have accurate rental comps uh for many markets around the country and that will help you um again, get used to the the craft of analyzing deals, help you get started.
Mindy: Golly, Scott, where could I find these calculators?
Scott: Uh you can find them at biggerpockets.com and just hover under the tools section of our navigation bar.
Mindy: Or you could use a quick link and go to biggerpockets.com/calk, c a l c. Uh okay, another tip that Evan shared with us is, I think this is brilliant. Don’t try to force your scenario into a program. Use the program and all of the rules that come with the program because any of these programs are going to be a government sponsored program and they’re going to have a ton of rules involved. Use the program to your advantage. Figure out the rules. Like the government doesn’t hide these rules. They print them out in great detail online. You can find these rules, read them, understand them. The VA loan, if you qualify for a VA loan, go understand every rule about the VA loan. Call up your lender. They’re not that busy right now because lending has dropped a little bit since rates have increased. Call them up and ask them, explain to me the VA loan. If they can’t explain it to you, don’t use them as your VA lender. And not all lenders understand the intricacies of the VA lending process. I have an amazing VA lender. I get nothing for referring them. Email me, media biggerpockets.com and I will send you my VA lender link because she’s fantastic. But you just need to understand the programs that you’re using. Find the loopholes. There’s always a loophole. It’s a government program. So find the loopholes and use the program to your advantage.
Scott: Yeah, and three tips for doing that. One, network, right? Ask your lender, ask agents in your local market, ask peers and investors for tips. They will steer you towards these opportunities, many of which are so nuanced and so hyperlocal that we could never get to them on a podcast like this. The second is immerse yourself in content that is podcasts like this, right? And and really spend the hours, put that make that your default when you’re uh at work or at the gym or whatever and kind of immersing yourself in the world of real estate investing. And then third, marry the head of publishing at Bigger Pockets and get all the Bigger Pockets books for free.
Mindy: That last one isn’t going to work so well cuz she’s already married.
Scott: All right. Well, Mindy, should we get out of here?
Mindy: We should. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, Hakuna matata.
Scott: If you enjoyed today’s episode, please give us a five-star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.
Mindy: Bigger Pockets Money was created by Mindy Jensen and Scott Trench, produced by Calen Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank to the Bigger Pockets team for making this show possible.
