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episode # 254

Your Real Estate Retirement Plan Simplified with Jenny Bayless & Chris Lopez

Looking for a simple plan to retire from real estate? We’ve got you covered! In keeping with our ever-growing list of top-tier real estate investors, Colorado investors Jenny Bayless and Chris Lopez sit down with Adam & Matt to discuss a concrete plan for how real estate investing can get you out of your day job – for good. Take this job and retire it! What is a holistic approach to real estate investing? What are the most important criteria for a great investment? How do you analyze & effectively pivot to changing market conditions? And what kind of planning & action is needed to retire from real estate sooner than you ever thought possible. Listen up for a big 2021!

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Episode Summary


 

Please tell us about yourselves.

Chris: Back in college I was on a regular track to get a degree and get a good job. I had my eyes opened to investing and real estate after reading Rich Dad, Poor Dad. I first started in entrepreneurship and learned about investing and managing money. I had some successes and made my fair share of mistakes. About 6-7 years ago, it was time for me to move on from those businesses and I decided to finally pursue real estate. I wanted to do something I was interested in and that worked for my long term goals. Being an agent and focusing on rentals and long term investing was the right fit for me. I became an investor and got some traction in Denver. I then met Jenny and we began working together.

Jenny: I started out as an accountant, which I did for about 10 years. In 2016 I started investing in real estate when I realized I couldn’t gain wealth without investing. I started out of state and then went in-state, investing in Colorado. I’ve invested in a variety of ways over the years. A few years ago I started working as a real estate agent and earlier this year I partnered with Chris.

Why real estate?

Chris: I believe in making your money work for you. I tried day trading for a few years but realized all the time I was putting in wasn’t giving me a good return. I knew I wanted to find something that would give me long term income. Real estate trends are a lot easier to see than trends in the stock market. You can also pull different levers, such as different financing or being an active investor. My goal is to have $13,000/month in real estate income. The exit strategy is rental properties that cash flow, so my focus is on rental investing. I’ve been learning a lot and seeing how I can adapt what I’m learning to the rental market.

Can you tell us about your market? What do investments look like?

Chris: The Denver and Colorado Springs markets are similar but Denver is slightly more expensive.

Jenny: I was living in a suburb of Denver and learned that Colorado Springs has a vibrant market but is priced lower than Denver. So I thought I had a better chance of getting a good deal if I invested there. This was about four years ago so people have started to catch on; our margins are getting tighter. Prices are appreciating – about 10% from last year. But there are still deals out there, especially if you take a holistic perspective. On average, we’re looking at a mid-five cap rate.

Can you tell us more about the holistic perspective and how you got into real estate, Jenny?

Jenny: Real estate is something you can tangibly see and hold. There are also lots of different components to it, which I enjoy. There’s tax savings, potential for appreciation, cash flow and pay down. All of that goes towards your initial investment. You can also utilize leverage to finance the initial investment or use the BRRR Method. There’s no one right way of pursuing this, which is why I find real estate so fun.

The BRRR Method (Buy, Renovate, Refinance, Rent, Repeat): Purchase a property below market value, fix it up, rent it out at market rate, refinance it to pull out the additional equity and repeat by using that money to buy your next property.

I had been using this method for eight properties in Colorado Springs. But it’s getting harder to find properties in the market that would work for the BRRR Method, so I haven’t done it for about a year and a half now.

We’ve been primarily looking at assets we’ve already done the BRRR Method on and have gotten them appraised. We’re using that cash to invest in new properties. We’re buying and holding. We put in a lot of work up front and we’re reaping the benefits now.

Does the BRRR Method work in Denver, Chris?

Chris: It’s similar to what Jenny is experiencing in Springs. Denver is about two years ahead of Colorado Springs. It’s been hard to BRRR here for the last 4-5 years because we have such low inventory. In a seller’s market, everything is trading at a premium.

Our strategy now is to find a property in a good asset class with good cash flow in areas that are appreciating. In Denver, that’s in multi-family and condo/townhomes. That’s a 4-6 cap rate. In Denver you can still find properties that cash flow with a 20-25% down payment and expect appreciation.

We do trade up games. We’ll buy properties in a wave of growth and ride that growth. In 3-7 years, we’ll see good equity gain. That’s a good opportunity to cash out and reinvest those proceeds. Or sometimes it makes more sense to sell and trade up to a bigger unit.

Can you share some examples of what you’re doing?

Chris: I bought my first rental property in Reno, Nevada in 2010. I knew nothing about real estate but prices were cheap. It was $67,000. I lived there for a couple of years and then turned it into a rental property. I bought this property for 0% down payment as an older couple was looking to invest in something.

Fast forward to 2018, it appreciated from $67,000 to $230,000. Rents had gone up from $1000 to $1300. So it was a 30% increase in rent but almost 3x the value. I wanted to pull out the equity but it was going to hurt my cash flow. So I realized the best route was selling. My proceeds were $175,000 after everything was done. I reinvested that into a new property in Denver that cash flows better and earns me more money each year.

You have to look at each property and see what is going to be the better strategy.

How did you find markets that were good for investing and how did you end up in your local market?

Jenny: I was living right outside of DC when I first started investing, and it was very expensive to invest there. I invested in a few properties in the Midwest as it was cheaper. After purchasing my first property in Colorado and comparing the performance of in-state and out of state, including the holistic perspective, Colorado was the clear winner. It’s tempting to invest out of state when you see the numbers, but you have to think about the market long term.

How do you analyze a market and find the gaps?

Jenny: I look at assets that are not being used to their full potential. In Colorado Springs, there are lots of properties with rec rooms in the basement. To me, that’s an easy opportunity to turn that space into an extra bedroom and bathroom. That’s an easy win. As Chris mentioned, Denver offers good opportunities for house hacking (living in one unit while renting out the others). Affordable rentals are getting harder to find so house hacking allows owners to provide lower-priced housing while still being real estate investors.

Chris: It’s about balancing the science (the numbers and rules) with the art (the neighbourhoods). I like to keep things simple: The trend is your friend. Where is population growth? Where is development happening? Where are the tax incentives? Where is the big thing opening? There are areas on the west side of Denver that have popped – so what is the next neighbourhood over?

How does education factor into your business or investing strategy?

Jenny: Our philosophy is to be with an investor for the life cycle of their investing careers. We want to educate people on the basics of investing as well as provide localized content on different strategies. Chris also offers a portfolio analysis. From getting an investor started to maximizing their portfolio, we’re excited about helping people along the way.

Chris: Jenny and I were both investors first and then became realtors because we enjoy teaching others. We educate investors and teach them how to ensure a property passes the sniff test, so they don’t get stuck over-analyzing. There are policies in Denver that protect the buyer. We have to teach investors what that “good enough” point is and what fits for what they’re looking for. When it comes time for offers, we need to act fast. When we get to contracts, then we can do our due diligence and ensure it all makes sense, or else back out. We help our clients make decisions but we also get to geek out on everything we love.

Are there any simple rules for building a portfolio?

Chris: Yes! I love to simplify abstract goals. 8/10 of our clients want $10,000 per month. The simplest method to achieve that is to acquire a lot, trade up or refinance, and then once you’ve hit your desired income, you can reposition your properties for your next stage of life.  

So if you’re in Denver and want $10,000 per month in income, you need $15,000 per month in gross rent from paid off properties. We often see 25-30% of each dollar coming in going to operating expenses, which is how we get that $15,000 number. That’s the goal we’re working towards.

Don’t worry about the 7th house you’re buying if you’re just on your first or second. Keep buying properties and analyze them each year to see if it’s time to trade up or refinance. You don’t need 300 doors; 8-10 properties can allow you to achieve this goal. Having a long term goal allows you to take action and not get stuck on the small details.

How do you approach timing the market or do you?

Jenny: I don’t recommend timing the market. I don’t think you’ll ever win doing so. I think it’s important for properties to cash flow and that is the first layer of safety. Chris and I have talked through planning for the worst, and that cash flow protects you. Cash reserves and equity are important too. Look at things from a safety perspective. Don’t get tripped up over $10,000 here or there. It won’t matter in the long run.

Can we talk about the teams you’ve built for your properties?

Jenny: Chris hates this, but I self-manage my properties. I like the sense of control. But for rehabs and renovations, I don’t do any of that myself. I hire professionals.

Chris: I use property managers. I’m not worried about losing a few dollars here or there but I am worried about the big event that might wipe me out. The small margin of hiring a property manager shouldn’t make or break you; it’s the cost of doing business. But it minimizes your chance of not doing anything wrong. I also like the time and headache saved working with a property manager. I can manage everything with a few text messages each month. I can use that saved time to enjoy my life or build our business, which is a greater return for me.

You can only self-manage for so long or else you can’t scale.

Is there a book you recommend to investors?

Jenny: Cash Flow Quadrant and The Book on Managing Rental Properties. Cash Flow Quadrant opened my eyes to the different ways of operating. The Book on Managing Rental Properties was helpful as I prefer to manage everything myself.

Chris: Rich Dad, Poor Dad is great for the conceptual mindset shift, though lacking details. Set for Life is a great book too. I like that it looks at the global financial picture for individuals.

What is one piece of advice you’d give your 18 year old self?

Chris: Realize you’re 18 and life is long. Think long term and be patient. It’s hard to get rich in five years but it’s a lot easier in 20 years. Be patient and play the long game.

Jenny: If I knew about the concept of house hacking, I think my life would have been dramatically different. I think that would have been a powerful way to propel early adulthood.

Find out more: envisionrea.com

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