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welcome to personal finance for long-term investors where we believe Benjamin Franklin's advice that an
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investment in knowledge pays the best interest both in finances and in your life every episode teaches you personal
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finance and long-term investing in simple terms now here's your host Jesse Kramer hello and welcome to personal
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finance for long-term investors my name is Jesse Kramer and yes if you missed episode 100 we recently rebranded from
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the best interest podcast two personal finance for long-term investors I explained the reasons in episode 100
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though to be fair you might hear me slip up from time to time I think three plus
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years of podcasting habits are slow to fade away but anyway welcome to personal finance for long-term investors and
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today we have Chad Carson joining us in the world of blogging podcasting YouTube
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Etc I consider Chad to be one of the most straightforward and helpful resources on the topic of residential
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real estate investing and being a landlord two top ICS that my regular readers and listeners will know that I
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don't spend too much time talking about Jad has some serious chops on the topic
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and what I really like about his message that it's very approachable to people
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who are either one just looking to learn more and and potentially get started and
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or two not interested in a real estate Empire per se but rather just interested in a quote unquote small But Mighty real
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estate portfolio you know a couple houses one house three or four something like that but before we get to Chad
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today let's do a customary review of of the week and then I want to explain a
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little bit of my personal feelings on residential real estate so this review comes from shenanigan 7 who said
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personal finance content that everyone needs five stars Jesse is such a natural podcaster who knows how to connect with
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his guests and dive into their stories with easy conversation the valuable lessons covered here are what you would
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get from Paid coaching or advising start downloading episodes now and expand your
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knowledge thank you shenanigan uh if you're listening to this drop me an email to Jesse bestin interest. blog yes
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my email address is still associated with my blog the best interest so the email address is jesse. blog and we'll
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get you hooked up with a super soft best interest t-shirt and listeners thank you
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as always for the emails for the questions the YouTube comments the reviews on Apple podcasts the ratings on
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Spotify I really appreciate it if you haven't done so yourself please share your thoughts with me and share your
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thoughts with prospective future listeners let them know why they should tune in too okay so let's begin to talk
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about residential real estate investing in residential real estate it's an interesting topic for anyone looking to
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build wealth especially for those who aren't necessarily convinced about the
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idea of stocks or bonds or more traditional publicly traded Investments or maybe for people who are looking for
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diversification away from stocks and bonds I think one of the main reasons why is that real estate feels very
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tangible unlike stocks or bonds yes you're buying a piece of a business in a
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stock or with a bond you are loaning someone money and expecting to be repaid it doesn't necessarily feel Tang ible
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always because you're kind of buying a contract or buying a piece of paper or
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you're you're buying a line in a in a spreadsheet somewhere that says that you
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own a 100 shares of Apple real estate instead is something that you can touch you can live in you can drive by right
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to show off to your friends and family and it's also an investment strategy that many people equate with stability
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and long-term growth unlike say the stock market where many people see the volatility up the stock market and it
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kind of turns them away they don't really like it well other than a few rare occasions in history volatility
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like that doesn't exist in residential real estate it tends to be more stable
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but is it as straightforward as just okay buy a house step one rent it out step two and then rake in the cash step
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three well not quite so let's dig in starting with some of the pros I think one of the first and most obvious pros
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of residental real estate is the income that you receive if you buy the right property in the right location rental
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income can be consistent and and reliable stream of cash flow every month your tenants will pay you rent and after
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you cover your expenses like mortgage payments Insurance maintenance what's left over go straight into your pocket
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it can be a terrific regular income source and then there's the appreciation
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in the underlying asset now historically real estate values tend to go up over the long term and there are dips like
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2008 that can be very very painful dips but over the long run over decades property prices generally rise we've
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seen that in abundance over the last you know 5 to seven years and that means you're building your wealth without
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doing much Beyond holding the asset and then we get into some of the real magic of real estate and that's leverage right
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the magic of Leverage in my opinion is is one of the primary drivers behind real estate being such a powerful
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investment if it's done right now I'm sure I've talked about it here on the
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podcast I know I've written about it on the blog Leverage is also a financial
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weapon of mass destruction right we have to be really careful with leverage but if we use it correctly it can be very
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very powerful it's kind of like nuclear energy I suppose right it's the kind of
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thing that on the one hand can power entire cities and on the other hand it can also blow up entire cities right
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it's it's all about how you use it real estate is one of the few Investments
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where you can use other people's money that's a loan from the bank to make a
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purchase so if you buy a a $300,000 property with a 20% down payment that's $60,000 of your own money but if you do
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it right you will reap the benefit of the entire $300,000 in value if the property appreciates by 5% well that's a
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$115,000 gain not on 300,000 it's A1 15,000 gain on your 60 it's a 25% return
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it's hard to do that consistently inside of a a brokerage account investing in
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stocks and bonds now if the value of the property goes against you well leverage
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really hurts or if simply you don't run your real estate like the business that
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it is and and you really need to think about it like a business well maybe your income maybe your cash flow is negative
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and you're really not getting any sort of long-term benefit from owning the property the appreciation is nice but by
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the time you pay off your debt with interest included maybe you're not getting any sort of gain so again
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leverage can be very very powerful you'll hear Chad talk about leverage today and in the bigger picture it's one
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of the great Parts about real estate investing uh yes there are tax benefits too you can usually deduct mortgage
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interest property taxes and even some depreciation which is essentially Uncle Sam letting you claim a loss on an asset
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that actually might be gaining in value kind of just like finding random money in your pocket every year that's
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something that you'd want to talk about with your accountant to make sure that
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you are including the tax benefits properly in your annual tax return another big Plus in the real estate
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world as far as I see it at least is control when you invest in real estate you're not just throwing money into the
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stock market and hoping for the best you're not trusting your money with some
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other executive board to run a business as they see fit whereas you are just really a junior partner that doesn't get
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to make any decisions when you invest in real estate your own properties you can
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make decisions that directly affect your investment performance it is 100% in your control you can renovate to
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increase property value you can raise rent to match the market rates you can choose different types of tenants to
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minimize risk there's a level of agency here that you don't necessarily get with
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stocks or with mutual funds and then there's the diversification argument real estate can balance out your overall
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portfolio especially if most of your assets are in stocks and bonds when the stock market takes a nose dive well your
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real estate Investments are probably going to hold steady providing a hedge against that volatility but before you
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go out and buy your first duplex we need to pump the brakes a little bit and talk
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about some of the cons so first up the costs of real estate are one of the major cons real estate is not cheap
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you've got to come up with a down payment closing costs an emergency fund for repairs then there's the ongoing
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stuff the property taxes the maintenance the insurance the lovely calls at 2 a.m.
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when a tendance water heater decides that it's retiring early there are a lot
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of costs that can add up and if you are unlucky enough to pick the wrong property those costs can absolutely
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outweigh the benefits and that brings me to another point when it comes to the luck or the lack of luck of picking the
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right property we're talking here about the example I used before is investing
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$60,000 of your own Capital into a single house now for many of you listening you might not have $60,000 out
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there invested in a single company but having $60,000 in a single house is way riskier than having $660,000 in a single
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stock because when you have it in a single house you are investing right in in one single piece of property
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you're investing in one building that you hope was built right you're investing in one building that you hope
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all the previous owners took care of it you're investing in one neighborhood
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inside of one city right you're investing really in one market where you're really crossing your fingers that
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the long-term prospects for that market are are positive if you're investing
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$60,000 in apple well yes it's concentrated it is a concentrated investment don't get me wrong but at
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least in my opinion the risks associated with apple this massive company with all
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this momentum behind it those risks are far smaller than the risks of investing in a single property so that's one of
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the cons of investing in residential Real Estate another one are the tenants themselves being a landlord is not for
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the faint of heart the dream tenant they pay rent on time they keep the place spotless they never bother you they
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might even mow the lawn for you the nightmare tenant though they trash your property they ghost you on rent they
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leave you with legal bills to evict them and let's be honest tenants are humans
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just like investors are humans and we talk here about you know the the fail ability of investors and our lizard
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brain and our monkey brain leading us to do things that aren't necessarily in our
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own best interest well tenants are humans too and they have emergencies they lose jobs they just flake out
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sometimes it's part of the deal of being a landlord and it's no fun another one
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of the cons is liquidity real estate isn't something that you can just go log
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in and sell with a few clicks if you need cash quickly it's not going to be easy to offload a property especially in
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a down Market real estate transactions take time often months and they come with costs like agent fees closing costs
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legal fees that will eat into your profits we also have to think about Market risks right we already talked
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about this a little bit local economies matter a city with a booming tech industry might see property value sore
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but if that industry crashes so might the real estate market and risk isn't just National it's it's hyper local risk
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so you need to research neighborhoods school districts crime rates future development plans it's a lot of homework
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you'll hear Chad dive into a lot of this later on it's very interesting to hear
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his process one of the last cons that I think about is the time commitment real estate can feel like a part-time job if
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you're doing it right it probably will feel like a part-time job and if it doesn't feel like a part-time job it's
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probably because you are Outsourcing a lot of your work which also means you are Outsourcing a lot of your profits
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even if you hire a property manager you'll still need to manage them that's
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assuming you find a good one the passive income people Rave about real estate but
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it's not so passive when you're unclogging toilets or negotiating lease renewals or keeping up with the latest
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landlord tenant law so should you be a landlord if you're considering becoming a landlord I think
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you need to think about your own personality are you patient are you good at managing people are you handy or at
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least willing to pay someone else who is Handy being a landlord isn't just about
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collecting rent checks it's about solving problems some of those problems are as small as a leaky faucet but
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sometimes they're as big as a lawsuit you also need to consider your personal
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financial goals something we always talk about here are you looking for monthly cash flow are you banking on long-term
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appreciation May be both well knowing your goals will help you choose the right property because not all real
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estate Investments are created equal a property in a high growth City might appreciate faster but it also might come
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with lower rental yields a property in a stable Market might generate consistent
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income but offer little appreciation so you need to pick your poison there another consideration and a big
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consideration that we're going to talk about today with Chad is scalability owning one rental property might be
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manageable but what happens when you own five or 10 or more the challenges in some cases multiply
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but in other cases you get economies of scale working in your favor you're probably going to need to form an LLC
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for legal protection maybe even one LLC per property at some point you're going
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to want to hire a property manager or Outsource to a real estate investment firm they're great problems to have if
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your portfolio is growing but there's still problems that you need to solve for some people real estate investing is
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a fantastic way to build wealth and for others it's simply a headache waiting to
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happen and I can speak to this firsthand I have multiple people I know some of them clients so I I can really see under
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the hood and real estate investing commercial or residential the idea of real estate leverage right boring money
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and investing it wisely and and taking care of these properties has led to amazing success for them I also know
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some people personally who at at some point in their life owned some residential real estate you know maybe
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four six 10 doors something like that you know a couple houses in in a market and after five or seven or 10 years said
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this sucks I cannot wait to sell these houses I'm going to take whatever income
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and appreciation I've gotten so far I'm going to take all my chips off the table
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I hate being a landlord it it works differently for different people and and knowing yourself is a big part of that
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if you're not ready to buy property outright there are other ways to get in the game There's real estate investment
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trusts which let you invest in real estate without the hassle of owning property crowdfunding platforms are
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another option allowing you to pull money with other investors to buy larger Properties or developments there are
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private real estate investing opportunities that's something where you know I I work at a firm where 13 or so
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years ago we realized that our clients were coming to us asking us questions about real estate investment
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opportunities and we ended up providing a service to those clients where we will
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go out and find opportunities for them to invest in really interesting lucrative uh vetted investment
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opportunities but it takes all the heavy lifting off of our clients right it puts
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the heavy lifting onto our investment analysts forming the LLC etc etc etc but then at the end of the day the
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individual investors folks like you they get the the benefits from investing in this real estate so these kind of
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Alternatives whether it's a re a crowdfunding a private investment they can offer diversification and
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potentially strong returns without the Daily Grind of being a landlord so should you invest in residential real
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estate maybe maybe not but whatever you do you got to make sure the numbers make
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sense real estate isn't Magic right it's just math and when you do it right it's
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math that can pay off for for decades and decades and decades but a solid investment starts with a clear plan with
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realistic expect ations and maybe a really good plumber on speed dial here's
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a quick ad and then we'll get back to the show did you know my written Blog the best interest was nominated for 2022
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personal finance blog of the year and it's been highlighted in the Wall Street
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Journal Yahoo finance and on CNBC I love writing especially when that writing is
00:14:48
to share financial education and I usually write one or two articles per week you can read them all at bestin
00:14:55
interest. blog again the web address is bestin interest. blog check it out and now we're going to bring Chad Carson on
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to the podcast though most people call him Coach they call him Coach because he actually played football at Clemson
00:15:09
University You' never know it he's just a kind softspoken guy not saying that
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football players can't be kind other than the fact that he's 6'4 and you know
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clearly a strong athletic human being you wouldn't suspect that he's a football player what he is now is a real
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estate investor World traveler uh father and husband to a great family he shares
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a lot of his real estate investing expertise with the wider world of DIY investors like you and specifically Chad
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makes a strong case for what he calls the small But Mighty real estate investor saying you know you don't need
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to own triple digit properties you don't need to have a full-on real estate management company instead we can start
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with the end in mind start with your goals in life start with your financial goals and your timeline specifically and
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then work backward to an appropriate amount of real estate exposure for you and your family and your personal
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portfolio anyway I don't want to bury the lead too much so without further Ado here is
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coach Chad [Music] Carson Chad thanks for joining us today and I think of you as one of the
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internet's go-to resources for the everyday kind of mom and pop style person who is interested in owning some
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rental real estate perhaps they already own rental real estate or a small duplex
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or or something like that you know we're not really talking the the Thousand door
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real estate Emperors here but because of that I can think of all these questions
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that come to mind at least come to my mind about owning a rental house maybe it's the location finding good tenants
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doing due diligence how to fund it or Finance it and so I kind of want to start going down that lane if that's
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okay with you how does the average mom and popop investor someone who might be listening today go about getting good
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answers to all those kind of question marks before diving into this rental real estate world yeah well thanks than
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you for having me and thank you for the introduction the thing I love about real
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estate for people who are curious about it is that it's not rocket science it it
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can be intimidating but the good news is that the things that make good real estate Investments are very intuitive
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and if if you've lived in a house as a rental or lived in an apartment as a rental or if you've owned your own home
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some of the the reasons you chose that property to live in are the exact same reasons that you want to choose a good
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real estate investment at least the approach that I take for small I call it small and mighty investors and so that
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intuitive approach means pick locations where people want to live it's it's as
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simple as that like if there's a demand because you want demand you want people
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to live in your rentals you eventually want to be able to sell your rental one day so you want people who want to buy
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it so like that when I'm coaching people to pick locations which is probably the
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first important most important fundamental of real estate is you've heard people say location location
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location well it's because that is you're really not buying a house you're
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buying a neighborhood you're buying a region of the country so I I almost look
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at it like imagine your the solar system you know the sun is the center of the solar system well when you pick a real
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estate investment you want to find a city or a region that has like an economic Sun you want a place where
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there people have good jobs so I I I grew up in Atlanta Georgia so Atlanta is like the economic Sun so at the center
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there's lots of jobs there's lots of people working there and then I like to
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but I'm a small investor so then instead of investing right in the center of the
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sun where it's really expensive I like going to these satellite cities that are
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like 15 minutes 20 minutes 30 minutes outside the city and there's actually a
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term that I read one time called serban locations s Ur rb- an meaning it's Suburban but it's got a little bit of an
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urban feel to it it's got a town center it's an old town that has a court square
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or something where it's walkable and it's still a good interesting place to
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live it has its own gravity but it still has it's still kind of close enough to
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the Sun that you have jobs and and people can work but then you have this quality of life and this affordability
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that happens more in the suburbs than the city so that's that's one idea maybe
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that's a good place to jump off yeah oh it definitely is because a couple questions immediately come to mind I'll
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just start with one of them which is that idea of kind of doing your own Regional economic research it sounds
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like as part of the house buying process do you have any metrics or tips that people can look into when it comes to
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evaluating it's like naturally I would just look in my own backyard but how do
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I I'm kind of biased towards that so how do I zoom out and really look at the
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bigger picture of if I should even be investing in my local region to begin with well the good news is most parts of
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the country actually are still are doing pretty well the we have a kind of a benefit of abundance in the United
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States that and also Canada if people are listening in Canada I mean just most parts of the country are doing well but
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I would say like that let's start with the opposite of what you don't want a
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place where you would not want to invest is typically a place where the population's decreasing population
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growth and real estate investing prices are very closely correlated and one one of the reason you think about basic
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economics is it's a supply and demand thing it's really difficult although it
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happens in Bur where it's really difficult to build new housing because of the cost of it because of zoning
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there's a lot of reasons why but Supply can be kind of limited it goes up and
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burst but so really what you pay attent attention to is the demand and so if you
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go to like let's say for example you go to a small town that has one Factory and
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that factory goes out of business that all of a sudden the demand for your rentals and your sales is gone like
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evaporates that's where you could see houses going down by like 50% and that's
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also why I say go to an economic Sun there's tons of economic suns in the United States like I mentioned Atlanta
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you know the southeas the Southern United States is doing pretty well right in the last 101 15 years but the last
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two years like as of 2025 what they used to call the old Rust Belt you know the Midwest Upstate New York those have been
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some of the hottest parts of the country so it's it's like I would say just pick
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a place that and and use you don't have to do like super analytical like if you
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were a hedge fund or something you would get really analytical quantitative with
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this as a small investor I think you literally can look at things like there's a U-Haul if you go to U-Haul's
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website they have a trend uh they can they show you where most people are moving in the United States like people
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where the U-Haul trucks going South Carolina where I live happens to be one of the number one this year it's kind of
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interesting but just like find a little Trend like that look go to the local Chamber of Commerce website to find out
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what you know where do people work like when when I'm coaching people I I say
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like do a little one-page description like almost like a promo of your town why should I live there what what am I
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going to do what's what are the attractions here is it the natural resources is it a lake is it the fact
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that it has three S&P 500 Index you know companies that are really big is it
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because of the hospital this year like there's something that's drawing people
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to your town make sure you know why that is and make sure it's a little bit more
00:21:40
of a diverse economy instead of the one factory town yeah well you you you hit on a lot of uh local pain points there
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with the one factory town I'm thinking to myself you know Rochester was the home of Kodak back in the day and codex
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demise even in a a metropolitan area of a million people codex demise was really
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impacted the region over the last 30 some odd years but to your other point there Chad which is uh people are moving
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back to the Rust Belt which I think a couple of Rochester suburbs a couple of our ZIP codes were in like some some
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sort of metric whether it's like home buys or days on Market being super low
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the the idea being that demand for some of our Suburban housing here in Rochester is is on the rise again I'm
00:22:23
interested though Chad so kind of personal finance and investing has this common problem I'd say and whether we're
00:22:29
talking about real estate investing or some other type of investing and the problem is well we don't want to go in
00:22:34
blind so we want to do our research and as we do our research it kind of builds up confidence and hopefully eventually
00:22:40
we reach a point where we're confident enough to P to pull the trigger and actually go off and and do the investing
00:22:45
that we're hoping to do but a lot of people get stuck and they either get stuck on the hamster wheel of analysis
00:22:51
paralysis and they they keep on thinking they need to learn more learn more learn
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more and they never actually do the thing they never actually invest or maybe they end up on the other side
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which is they dive in head first before they even know how to swim and they end up way over their heads is there
00:23:05
anything that you can recommend or in your coaching experience with clients or just in your own experience I mean how
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do I build enough confidence to to dive into this pool and and and actually execute on it yeah well the first is
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that you're absolutely right there's there's a ton of things that can
00:23:21
overwhelm you as a new whether you're doing personal finance investing in the
00:23:24
stock market or investing in real estate I mean it could be overwhelming when you're new and so what I think what I
00:23:29
can try to help with is let's narrow down all of those things you have to worry about to like the top things that
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could really hurt you like one of the things you really need to worry about and we've already covered one of those
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like location if you the biggest mistakes I've made in my career have been on a micro scale investing in the
00:23:45
wrong locations so if if you get the region right if you just find a region where it's generally good to invest and
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then you you go to a location and I'll give you a little rule of thumb this is
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definitely not scientific but every town has like a scale of prices like and you
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know the highest price properties all the way to the lowest price and Real Estate Investors use like a rough rule
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of thumb calling them A B C D the way I look at that if if you go look on Zillow
00:24:09
this is an easy exercise to do the a Properties or the a neighborhoods are the most expensive properties in your
00:24:15
town both by price of resale and also by rent so you can actually go on a Zillow
00:24:19
map for free and look at that today and just say all right that's the a area
00:24:22
that's where the million dollar properties are in my town well go down a level and most by the way the a
00:24:28
locations are mainly owner occupied so these are almost all people owning their homes there's very few rental properties
00:24:33
in a location now go one step down we call it a b location there might be like 80 90% owners but then maybe 10 to 20%
00:24:41
rentals that's one of my favorite places to own right now it's one of the safest
00:24:45
place you're not going to get as good a cash flow necessarily as you will going
00:24:49
down the rung of the ladder a little bit to what like a CA location would be more
00:24:52
like a blue collar location this maybe 50/50 rentals and owners it might be a neighborhood that's older kind of gone
00:24:58
through some transitions it used to be a A or B but it's kind of it's gone
00:25:02
through all neighborhoods go through Transitions and and then you get to D and D D can be a little controversial
00:25:07
because sometimes historically it was neighborhoods that were disinvested for for all sorts of reason there was red
00:25:12
lining going on cities and so no fault of the people who lived there it was just a location that was just had crime
00:25:19
had things going on there are investors who invest there and some of the dations
00:25:22
are coming back and doing well so there's ways to make money there but it's for a new investor you don't want
00:25:27
to start there probably want to start in C if you have the the means to do it I would say B minus would be a good
00:25:33
location in my town just to give you real numbers today in Clemson South Carolina which probably similar to
00:25:37
Rochester prices a single family house that would be worth like 300,000 maybe maybe 250 would probably rent for 1,800
00:25:45
bucks 2,000 bucks somewhere in there so it might be like a $2,000 rental that you buy for 250 to 300,000 somewhere in
00:25:52
there that's a that's an example for me of a b bclass property and the reason
00:25:58
that's more attractive so this we're going to answer your question is like
00:26:00
how do you avoid the biggest mistakes and actually get off get off the sidelines and actually do it number one
00:26:05
start with a loc a region and a neighborhood that is less scary that you can actually it's just easier to to do
00:26:11
and then the second two mistakes that I would say you want to avoid are the the remodeling of the property it's fun to
00:26:17
watch httv and see these Fix and Flip shows and all that and but they they leave out a lot of details because a
00:26:23
project management of remodeling projects is hard it's not easy I've been
00:26:26
doing it for 21 years and it's still part I still make mistakes so I would say find properties that have at most
00:26:32
cosmetic remodeling hey change the carpet out paint some walls but like the bones are good the kitchen's good you
00:26:38
don't have to rip out bathrooms you don't have to do electrical stuff avoid
00:26:41
like really old properties that haven't been remodeled lately if you get the
00:26:44
right location avoid Big Fix uppers and then number three get your financing right and what do I mean by that the
00:26:52
biggest deal is make sure the payment that you make on your mortgage is a lot less than the rent that you're
00:26:59
collecting on that property so a rule of thumb might be like 50% or less would be
00:27:04
kind of a good kind of starting plate that you want to get more detailed in your analysis than that but if if if
00:27:09
your mortgage payment is a th000 bucks and your rent's 2,000 bucks it gives you
00:27:13
a lot of you know leeway there to pay taxes and insurance and maintenance and management and what that might mean
00:27:19
today because interest rates are a little bit higher than they've been you might have to make a bigger down payment
00:27:23
to make that work and that's okay like you don't need to hit a home run on your
00:27:27
first deal and so to summarize all that get the right region fix get a property not a fix upper get a mortgage payment
00:27:34
that's reasonable low and I would I would even say a 30-year fixed is the best scenario don't try to get crazy
00:27:40
weird adjustable rates and all that stuff just get a 30-year fixed if you do those three things you might not hit a
00:27:46
home run but you're not gonna get killed you're not going to lose a bunch of
00:27:49
money what's the argument for those who don't know Chad what's the argument for
00:27:54
getting a mortgage in the first place understandably for some people it might be the only way that they can Finance
00:27:59
the house at all is through borrowing money but if someone is sitting out there and they're saying you know what
00:28:04
I've got money in my 401k I've got a lot of stuff set aside we're sitting on too
00:28:08
much cash as is and rather than plowing money into the stock market right now I might throw a couple hundred thousand
00:28:13
dollars at a rental house should that person do that or would you still advise they go the mortgage route I think it
00:28:19
depends on what stage of your investing you're in and I use a little rule of
00:28:23
thumb to help people figure out what stage they're in i' say there's three
00:28:26
rental stages you're a starter stage stage is when you're just a baby investor you're just getting started
00:28:30
your goal is just to get a deal or two and you're early in your your wealth building journey and then you get into
00:28:35
the wealth building phase where you like I have a $50,000 Nest EG or 100,000 I'm
00:28:39
trying to grow that to a million bucks that's like the second stage the third
00:28:42
stage which it sounds more like your question somebody already has a pretty big 401K they're getting closer to
00:28:47
retirement I call that the Harvester phase where you're actually trying to have more time have more cash flow your
00:28:54
peace of mind and your risk reduction is really important to you I'm actually in
00:28:57
that stage personally now you I'm 45 years old but I've been investing for 21
00:29:01
years and so I'm in the Harvester phase I don't like borrowing money like as
00:29:05
much I I like either making a big down payment or paying cash for something so I have no problem if somebody wants to
00:29:10
do that and they have $200,000 and they want to go buy a rental property the downside of that the reason people use
00:29:16
Leverage is because the your return on investment is typically going to be higher by using leverage if if things go
00:29:23
well they're going to go a lot better when you use debt right but if they go
00:29:26
bad if things go bad you know then debt actually makes it even worse so that's
00:29:31
where I've only seen one way that friends of mine or people I knew went out of business at real estate and it
00:29:36
was because of their bad debt because they didn't make their mortgage payment
00:29:39
during the Great Recession D they had balloon all sorts of crazy kind of commercial notes even today in 2025
00:29:45
they're not in the residential world but more the commercial World their investors losing 100% of their money
00:29:51
because of big huge apartment comp complexes where the the debt reset and they're having the interest rates are
00:29:58
higher so getting the debt right is really important so if you just pay cash for it all good um you're going to
00:30:03
you're going to get a lower return but when you're in the Harvester phase
00:30:06
that's not it's not as big a deal you're not trying to grow as much as just
00:30:09
trying to Peace of Mind sleep well at night so either one can work that makes sense going back you mentioned some of
00:30:15
the renovations as being a sticking point that you want to avoid a house that requires major Renovations
00:30:20
especially if it's your first fora into real estate investing only out of curiosity do you pick up a hammer and do
00:30:26
the work yourself Chad was there a time in your career when you did or or if there was a time when you did some of
00:30:32
the renovation yourself what was that transition like from being the laborer to now just being the project manager I
00:30:38
know my skills and I am not a skilled fixer uper handyman although there are I I have people I know other investors who
00:30:45
do a great job and they do choose to get involved and get their hands dirty so it
00:30:50
just depends on your skills I'm I'm more of a you know negotiator a spreadsheet
00:30:53
person a you know I just like the money and the financing you just you just have
00:30:57
to know what your strengths are and what what you're good at the cool thing about
00:31:00
real estate is there's a bunch of areas you can add value and you can add value
00:31:04
in the finding the deal which is one of my favorite parts of it is you know you can hunt for a deal find a property that
00:31:09
nobody knows about negotiate directly with the seller even though it's not even on the market I love doing that I
00:31:14
do a lot of you know just direct Outreach to Sellers and find properties like that you can add value there you
00:31:19
can add value by fixing the property up and instead of hiring a contractor you can do a lot of the work yourself that's
00:31:25
cool too and for somebody who's just doing one deal a year that could be an awesome way to build some wealth and
00:31:30
have some Sweat Equity in a deal so I think that's viable too is it just you
00:31:35
just have to kind of figure out your strengths for me it just wasn't my interest it wasn't my strengths I'm just
00:31:39
not good at it you can ask my wife she's like how why do I always have to change
00:31:43
all that the light fixtures out Chad why can't you do this and I'm like well I'm
00:31:46
I'm really in not in the real estate business I'm in the finance business I'm
00:31:49
you know I just kind of joke about it well how about the idea where if you are getting into this process odds are you
00:31:56
have a full-time job maybe you have family You've Got A busy life I mean that's really the point is that you have
00:32:00
a busy life and then on top of it the idea is you have to gain some sort of expertise in in real estate investing or
00:32:07
at least you have to learn enough to to really know what you're doing so how do
00:32:11
the people that that you help Chad or how do you recommend that someone go about this process while also
00:32:16
maintaining all the other responsibilities that they already have in their life I'd say two things take it
00:32:22
slowly I have a mentor named John sha he wrote a a book called Building Wealth one house at a time and always talked
00:32:28
about just buy one house take a deep breath take a break and just absorb it learn it don't try to like get too fast
00:32:35
like it's like when you run a when you run a race there's always people like in
00:32:38
a 5k or 10k race who like Sprint out ahead at the beginning you like run run run and you always see them like a half
00:32:43
a mile mile down the road and they're like huffing and puffing on the sidelines right that that you can do the
00:32:48
equivalent in real estate and business of starting too fast so pace yourself don't try to get ahead of yourself
00:32:53
that's one way because you just doing one property you're not going to overwhelm yourself yes there might be
00:32:58
some hassles here and there like I the first property I bought as a rental was a fourplex that I moved into I moved
00:33:03
into one unit and I rented the other three units out that's called a house hack where you basically can rent out
00:33:08
part of your property you live in and help cover your mortgage payment I think that's one of the best strategies for
00:33:13
those of you who are anybody who's interested or willing to live in a property that they can rent out it's
00:33:17
awesome you could do it by living in a duplex a Triplex a fourplex or a house that has a a accessory dwelling unit or
00:33:23
a granny flat something like that that's a great way to do it but the point was I
00:33:26
I learned by doing it I didn't know how to manage properties I didn't know what
00:33:29
I was doing so I just had to learn but you know YouTube's free you can listen
00:33:33
to podcasts like this there's lots of information there's free software out
00:33:37
there or very lowcost software Zillow has a rental manager where you can like collect rent uh for free I use that a
00:33:44
little bit there's also some paid ones Avil AV a i l and a bunch of other ones
00:33:49
that stessa is another one s SSA so if you just look up rental software they they basically have systematized things
00:33:56
that 15 years ago you would have had to pay like a thousand bucks a month to a property
00:34:01
management software to do the same kind of things they do today for free or very
00:34:04
low cost and that's good for us as small landlords because we can use that software we can look very professional
00:34:11
with our tenants it can help us stay organized you G have to learn some things but it's not going to be rocket
00:34:16
science again it's going to be the main hardest thing to do is build a team of
00:34:20
people to help you do what you're trying to do so like if you're not going to be
00:34:23
fixing plumbing and doing all that which I don't you just got to build a a network and people
00:34:28
so that takes time if you're self-managing you have to just meet other investors and talk to people but
00:34:32
you can also hire a property manager and then you just have to build one relationship with the property manager
00:34:37
and then they hire all those other people to help you out so there's there's a couple ways you can do it I I
00:34:42
assume there are probably some cost differences I mean the more the more that you keep inhouse and not using a
00:34:47
property manager the more that you earn the better your margins who are some of those team members or at least the very
00:34:53
biggest most important team members that you have Chad well I use a property manager these days I I used to I used to
00:34:59
manage it myself and that's fine but you know I pay 10% typically of the rent to
00:35:03
a property manager which for me is much is worth it like they they earn it like property managers are not getting rich
00:35:10
but I'll just tell you that it's not a high margin business so I think it's
00:35:13
worth it in the long run to hire a property manager for me it has been because I let me let me qualify that I
00:35:18
have student rentals is a big part of my portfolio those are a little bit more active they a little bit there's a lot
00:35:23
more leasing they move out every year or two on the other hand I have some properties I do still self-managed there
00:35:28
are single family houses where families live there and they stay for four four years 5 years 10 years so I think
00:35:34
picking the right property makes a big difference in how active you're gonna
00:35:38
have to be I have people I know who have 10 properties that they self-manage and
00:35:43
they work two to four hours a month something like that on their properties is once they're stabilized you know if
00:35:48
you're you're getting ought and all that it takes more time but I I lived in
00:35:51
Spain with my family for a year and I counted I measured it with all my properties that we have we spent I spent
00:35:57
two or three hours a week managing the managers so once you get stabilized this could be a very part-time business you
00:36:04
still have to pay attention to it still have to do bookkeeping and but I mean people pay attention to their stocks too
00:36:09
they look at the stock market for two or three hours a week as well and they worry about it whereas real estate you
00:36:13
can actually have some control over you know the biggest problems I've had of
00:36:16
tenants not paying a big maintenance issue and most problems I have like the maintenance you can solve that problem
00:36:21
by writing a check you pay some money and they fix it right I mean it's not great but it's you can solve it's just
00:36:27
money whereas you know there some tenant issues there might be some personality issues but if you have a property
00:36:31
manager they'll solve that too and it's just money you're going to miss some
00:36:34
rent you're GNA so I try to remind myself of that because it is stressful and people how tenants and toilets and
00:36:39
all this stuff you write a check you solve it and then you either get a higher return or a lower return but it's
00:36:44
not the end of the world that's interesting Chad and I should have asked you this back when we were talking about
00:36:49
loans and leverage because something that a question that I've heard more than once is the idea of is when you get
00:36:56
started if you don't have really any seed Capital to begin with well is the first thing you have to do to save up
00:37:02
money just to get rolling or is there a way with basically very little of your own Capital upfront to somehow secure a
00:37:10
loan and get started in this business so what are the pros and cons of kind of the various levels of Leverage that one
00:37:17
can take and what do you tend to recommend for for people that you work with yeah like if you just took the
00:37:22
average in real estate most loans require you to put 20 to 25% down that's like the traditional typical way you do
00:37:29
it especially as a real estate investor so if you're going to get a real estate
00:37:32
investing loan expect 20 to 25% down now that being said a lot of people don't
00:37:38
have you know if you're buying a $300,000 property you know that's a lot
00:37:40
of money like 60 to 80,000 bucks I mean that that's when you're first starting
00:37:44
that's really difficult I I get that I was the same boat so then that's where
00:37:47
you have to get creative and I mentioned house hacking earlier in addition to the
00:37:52
the benefit of having renters help pay for your mortgage payment another benefit is when you move into a propert
00:37:57
and you live in the property there are actually lower down payment programs where you can get into a property for
00:38:03
three three and a half% down that's an FHA program Federal housing Administration if you're if you happen
00:38:08
to be a veteran there's a 0% down Loan program which is probably the best the
00:38:13
best out there there's also but even with conventional mortgages which are like the typical if you ever hear like
00:38:18
Fanny May and Freddy Mack or some terms thrown around those are your conventional mortgages they they have 5%
00:38:23
down payment programs as well if you live in the property if you choose to live in a property and you could do what
00:38:29
I talked about earlier living in a multiunit property but even if you just live in a house that you know it's not
00:38:33
going to be your forever home but it's it's a nice simple house it's good for
00:38:36
your family at that time of your life instead of selling that property keep the property and then go buy another
00:38:42
house to move into and just that that you keep that property as a rental I've
00:38:45
seen people build a three four five house portfolio just by doing that over a 10 to 15 year period just Mo just
00:38:52
moving a few times so that's that's where you can you by being a little creative by being willing to move use
00:38:57
your your your housing as a kind of a leverage point you can get in with lower down payments and then you keep that
00:39:04
loan over time and that's the way I got started that's the way a lot of people
00:39:07
get started I think that's one of the best approaches I still remember it was
00:39:12
2019 and a guy from Fidelity came in to speak to my then employer about personal
00:39:17
finance in general and about our 401k plan in particular there were 60 or so of us who attended mostly 50 plus years
00:39:23
old clearly with retirement on their minds and nothing against this individual from Fidelity but
00:39:29
unfortunately the guy just didn't really know what he was talking about it ended
00:39:32
up being a major disappointment and a bunch of my colleagues afterwards said in short you know man we're really
00:39:37
thirsty for Good Financial retirement information where do we go find it now does that sound true listeners for you
00:39:44
and your colleagues last year either in person or via Zoom I spoke to about 800 employees at 11 different organizations
00:39:52
sometimes about personal finance in general sometimes about specifics of their retirement plans sometimes about
00:39:57
that the nitty-gritty details of Social Security and withdrawal planning and retirement math the point being if
00:40:03
you're interested in inviting me to come talk money to you to your colleagues
00:40:07
where you work that is absolutely something I'm interested in talking to you about simply drop me an email to
00:40:12
Jesse at bestin interest. blog and let's start a conversation you've mentioned it
00:40:16
here that the small and mighty real estate investor that's a term that I think you coin I think that's that's
00:40:21
your phrase right I might have stolen it from somebody but I I've run with it
00:40:26
anyway but but I really I really like the idea because a lot of the real estate content that you someone might be
00:40:32
exposed to online is you know how to build this multi hundred unit real estate Empire when really your focus is
00:40:39
on like no no you can build a wonderful life you can reach Financial Independence you can do all these great
00:40:44
things with singled digigit doors or maybe a dozen rentals or a couple dozen it's it's just a smaller but certainly
00:40:51
Mighty Empire if you will but the question then is for me at least scale and and it's an understanding I have
00:40:59
maybe it's true or not is that the more you scale in real estate kind of the
00:41:03
better your margins become you have one plumber that can handle a ton of different properties instead of one guy
00:41:10
who only has a few different properties and if you're small and mighty that the
00:41:14
small might hurt you in terms of those margins or that lack of scale so I guess I'm just asking myself first off correct
00:41:21
me if I'm wrong because odds are I'm probably missing something important but
00:41:25
then the second part of the question is how many proper is enough and and how does the average Small Time landlord get
00:41:30
there yeah this is definitely a button for me to thank you for letting me get on this pedestal I love it I love it
00:41:36
there there there's a lot of there's a lot of I think it's oversold that you
00:41:39
have to go big there there's people out there talk about you should 10x you should go big and that in business
00:41:44
schools for example you'll hear a lot of times saying they talk about scale and
00:41:48
how if you're a big business in the tech world there's a lot of benefits to
00:41:52
having an economy of scale of having you know one product you sell to a million customers like I get that that that's a
00:41:57
pretty good business principle but it doesn't apply it doesn't have to apply
00:42:01
there's always pluses and minuses there's a lot of risk that goes on when
00:42:04
you grow like for every person who makes it with this big business there's like
00:42:08
thousands of others who Crash and Burn and and lose all their money and so I think if if you want to like find a way
00:42:15
that is both safe and resilient and you can actually have a high probability of succeeding with a successful business
00:42:22
model the small Mighty approach not only to real estate but just to business in general I think makes much more sense
00:42:28
for those of us who are who who don't have Ambitions to necessarily take over
00:42:31
the world and be like a we just want to have a A Life That's flexible and freedom and options for me personally
00:42:37
I'll just explain my strategy my goal was always to to travel my wife and I when we first met was we wanted to go
00:42:43
live abroad and have time to when we have kids now we have two kids who are 13 and 11 but when before we had kids we
00:42:49
wanted to live abroad and have them speak Spanish my wife's a Spanish teacher and that was just like that's
00:42:55
our why that's our goal and having a thousand units would not necessarily help us accomplish that because it would
00:43:01
take all of our time it would require me to be on site yes I'm sure the people
00:43:05
who have a thousand units say you could hire people to do all that stuff but it is a big there's always on your mind
00:43:11
there's always things going on so like what I like to find is a sweet spot where you're big enough to accomplish
00:43:16
all your financial goals but let's flip it on his head let's say what's the
00:43:20
simplest smallest portfolio that I can have that still accomplishes my goals because the simpler it is the less
00:43:27
hassle it's going to be the less moving Parts it's going to be the more I can
00:43:30
travel the more I can do the things I want to do and so it's really just starting with that thing you want to do
00:43:34
in your life and then say how much would that cost in both terms of time in terms
00:43:39
of money and for me I want to be a time billionaire like I want to have a ton of
00:43:42
flexibility in time and then I won have enough money because the money is just is there to pay the bills is there to
00:43:48
pay for the splits do all that but what I really need to live is the time and and so for me so let's give you a
00:43:54
specific example every portfolio is a little different but I would us this like 10 property portfolio example so
00:43:59
let's say you had 10 properties that are kind of similar to the numbers I was
00:44:02
sharing earlier where each property rents for 2,000 bucks per month and let's say after all your expenses and
00:44:10
let's say you also paid these properties off this you you start off with debt but
00:44:13
eventually you pay them off 10 15 years from now yeah well those properties that
00:44:16
rent for 2,000 bucks a month maybe you make at least a thousand bucks per month probably a little bit more after all all
00:44:22
your expenses are paid so a th000 bucks times 10 properties is $10,000 per month
00:44:29
times 12 months that's 120,000 bucks per year so I could own 10 properties which
00:44:34
just you have to just if you don't own rental just trust me that that's a very
00:44:37
part-time job it might sound like a lot but owning 10 properties if you have a property manager it's going to be a
00:44:42
couple month hours a month just doing some bookkeeping if if you self-manage it maybe it's an hour or two per week
00:44:47
but you have 120,000 bucks per month per year coming in on a very part-time job and the question now is that what do you
00:44:54
do with the rest of your time you still have a lot of flexib ibility a lot of time and that's the reality of what I've
00:45:00
seen people who get to that Harvester phase it's not always easy there's a lot
00:45:03
of bumps in the road but that's like the end goal is having the small portfolio
00:45:08
that is either you know low debt or no debt paid off so it's a stable kind of
00:45:12
harvester portfolio and then you start doing what you set out to do in the first place which for me was travel
00:45:17
living abroad um starting other passion businesses which for me is writing a book or teaching or doing podcast
00:45:24
talking to you about it so this is what I love to do is teach and so but I think
00:45:28
many of us get caught up in careers and jobs that aren't necessarily what our
00:45:32
calling was it's not what we are passionate about we just do it for the paycheck and what I think is cool about
00:45:37
financial Independence in all its forms is it frees up those options for you to start saying just like you did when you
00:45:43
were a kid like what do I what do I want to be when I grow up like what do I want
00:45:46
to do with my time and that's beautiful like that's that opens up a lot of
00:45:50
possibilities that are much more than money it's much more than getting a thousand units is much more important
00:45:56
yeah f abbility optionality and I like what you're were saying there Chad just
00:46:00
the idea of getting into this whole process with the end in mind I think a lot of people whether it's the stock
00:46:07
market whether it's real estate they say well I'm gonna own it because I've heard
00:46:12
that's a good thing or I'm going to own it because other people in my life own
00:46:16
this type of asset too or I just want more money right I'm going to invest because I want my money to do something
00:46:21
I I want more money and that's okay that's a start but I do think it's more
00:46:26
important to start with the the end in mind and say okay so now we've fast forwarded 20 years and you have more
00:46:31
money now you have enough money to do a lot of different things what do you want
00:46:34
to do now is the answer still just more money and eventually I think most people
00:46:38
will realize oh no there's actually some other life goal in mind and the money is
00:46:42
just a means to an end it's just a tool to help you get there and now you could
00:46:46
start to think about right sizing your portfolio whatever that means for you absolutely yeah I think the problem when
00:46:52
you first start there's nothing wrong with wanting money like we're both
00:46:54
investors we like money totally totally totally a good motivation but at some point you're if you're like me you're
00:46:59
going to find that the bigger challenge is once you start getting money is how do you say I have enough like that
00:47:05
that's that's tricky like I yeah what was that like for you I mean still it's
00:47:09
an ongoing struggle but having a partner who you can have discussions with I think helps a lot having somebody who
00:47:14
you can kind of talk about values and what's important to you for me being a
00:47:18
parent it was like a big deal like just it kind of forces you into a a less selfish hey I just got to Ser these kids
00:47:24
need me I got to do what I got to do so I think it it starts it got me thinking about other goals other than just
00:47:30
climbing and growing but I think another thing that was just I think we lose our
00:47:35
imagination or at least I did of like what are you really passionate about what are you good at and so it takes
00:47:39
some self-reflection and I think sometimes it's so easy to quantify making money that it just becomes the
00:47:45
default way to measure life instead of saying like well maybe me spending a certain number of hours serving these
00:47:52
people in this way even if I didn't make money would really be fulfilling to me I
00:47:57
would really do what I'm I want to do on on this Earth that's harder to quantify
00:48:00
it's a little bit more fuzzy and yet when when people are sitting on the deathbed they typically talk about the
00:48:05
relationships they had the impact they made the people that they left a legacy with like those are the things that we
00:48:12
really are deep down really important to us but it's hard to can we build that
00:48:17
into our business model that's that's what we've tried to do I have a business
00:48:20
partner when I say we so we we've had kind of fits and starts where we've
00:48:24
we've gone down the path of even grow trying to grow big in 7 and we you know
00:48:28
we had some painful moments trying to just survive through the Great Recession and it forced us to sort of to you know
00:48:34
that that's typically what I I learn when I touch the fire you know it forced
00:48:37
me to forced me to learn about you know wait a minute I really want to get big do I really want to do that or or would
00:48:42
it be going this other direction where I keep it smaller that's how I learn but
00:48:45
hopefully people can learn by listening as well right right yeah no no one's on
00:48:49
their deathbed saying don't you know I own 760 units exactly exactly well I suppose Chad there's a good chance we've
00:48:57
already touched on a few of the seven rules of the small and mighty real estate investor but for either the rules
00:49:04
that we haven't touched on yet or just if there are any of those seven rules
00:49:08
that you really think stand out for someone just getting into this or if there's just a couple of the seven rules
00:49:14
that you are your personal favorites can you talk us through those what we just talked about I another way describing it
00:49:20
is life first business second I think it's so easy and my I'm speak pointing
00:49:25
to myself here it's so easy to to let the the money is Fun the quantifying and
00:49:30
the the growing and the building a business it should be a lot of fun if you and by the way if you're getting
00:49:34
into real estate and it's not fun or if you're not kind of curious about it it's
00:49:38
probably the wrong thing to get into there's other ways to make money if you
00:49:41
just want to be a lot more passive and just press a button you know own index funds I own index funds as well like
00:49:46
that's a nice passive way to invest like real estate's even when it's passive
00:49:49
it's more involved so if you're not having fun with it you shouldn't be
00:49:53
getting into it that being said though like it's the biggest deal I think and
00:49:57
one of the rules that I try to emphasize and try to set apart with my style of real estate investing is putting your
00:50:02
life first and working it backwards from those values getting clear on what's
00:50:05
important to you if you have a family if you have a partner you know what's important to to you as a family and then
00:50:11
don't be afraid to measure success a little bit differently and what I'm
00:50:15
going to say is like sometimes if you have five properties or two properties or one property that's not going to look
00:50:20
as in sexy on Instagram to say oh I my two properties look at me you know but that's okay like I I want to validate
00:50:27
that and say that's that's awesome like that's that's amazing one property two
00:50:32
properties can set you you know just two properties could make you more income and retirement than most people make
00:50:37
from their social security check isn't that amazing like that's that should be
00:50:41
we should celebrate that instead of just saying the most successful people are the people on the pedestal who have all
00:50:47
this money we should s i I think we should celebrate those people who have worked their tails off they've got two
00:50:53
properties they paid it off they've changed the trajectory of their family they're living a better life that's not
00:50:59
as Instagram worthy maybe but I think it's really cool I mean there is a magical dollar amount out there Chad or
00:51:05
maybe not dollar amount but there's a magical amount of money it's just I I
00:51:09
don't think many of our listeners are aware of it it's called enough it's
00:51:13
going to look a little different for everybody but when you've met someone or
00:51:16
if you've reached that own point in your life when you say oh I have enough whether it's the money I've socked away
00:51:21
for retirement whether it's the number of rentals I own that are supplying me
00:51:25
cash flow to sit there and say I have enough to do anything and everything I want to do in this world and isn't that
00:51:30
great that is a wonderful thing so Chad for any listeners right now who are either saying okay I want to go read
00:51:36
Chad's book check out his podcast check out his YouTube any other content channels I'm missing their Chad how can
00:51:42
people find you that's the best place yeah if you just search for Coach Carson
00:51:45
on YouTube or I publish on YouTube every Monday I'm I'm gonna start doing an
00:51:49
extra podcast episode on Fridays in audio only so if you you listen on Spotify or any of the podcast channels
00:51:55
just search for Coach Carson or real estate investing with Coach Carson that's the channel and if you like to
00:52:00
read a book I've written two books one's called retire early with real estate the
00:52:03
other the more recent one is called the small and mighty real estate investor both are published by Bigger Pockets so
00:52:08
you can look on Bigger Pockets website and search for my name or just Google my name plus the small and mighty investor
00:52:14
and that'll come up awesome and listeners we will do the homework for you and we will throw as many relevant
00:52:19
links as we can in the show notes so Chad coach Carson thank you so much for stopping by the best interest podcast
00:52:25
it's been a pleasure thanks for having me Jesse thanks for tuning in to this
00:52:28
episode of personal finance for long-term investors if you have a question for Jesse to answer on a future
00:52:34
episode send him an email over at his Blog the best interest his email address is Jesse best bestin interest. blog
00:52:42
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00:52:49
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00:52:56
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00:53:01
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