REI Mom, Anna Kelley, joins Jonathan on this episode to talk about her journey the last five years. Five years ago, Anna made a 5-year plan to free herself from her 9-5 job through real estate investing. She is now a month out from retiring from her job – right on schedule. Motivated by the freedom to spend time with her family and not simply money, Anna is the real thing. Listen in as she explains what a disciplined, conservative approach to investing really requires and how she has achieved her goal to retire in 5 years.
Retire in 5 years with real estate investing
Anna made a goal five years ago to replace her six-figure income through real estate investing. At the time she owned 12 buildings. She had purchased them for extra cash flow. She had renovated theses units and raised their values, so banks began to let her tap into their equity, which could allow her to grow her real estate career. She knew if she could continue to buy property and raise values, she could buy more cash flowing assets and eventually replace her income to be more present with her kids. Anna figured that she would need 60 units to replace an income of $150k/year after debt service and repairs. After 4 years, she had 5 million in equity and an income of $120/year, but she was faced with 2 large insurance claims at her properties. Be sure to listen to hear how Anna faced these unexpected costs and still hit her goal to retire in 5 years through real estate investing!
What Anna looks for in property, tenants, and areas she invests in
Anna has invested in all types of property: single family, multifamily, 4-plexes… 4-plex units are her sweet spot because they have the benefits of a commercial building when they appraise and have an economy of scale by having 4 units under one roof. However, as she has progressed in her real estate investing career, she has begun to look at apartments that she can syndicate with others.
Anna invests locally near Hershey, Pennsylvania, where most tenants are middle class. There are some tenants below the average income pool, but they are typically hardworking. She focuses on having a stable tenant base and is able to achieve this due to the local market and through good tenant screening on the front end. Her goal is to have a middle-class tenant that stays for a long time and wants to be in her unit.
When looking at an area to invest in, Anna looks for class B to C+ areas with strong schools. She wants to see diversity in the area with things to do in town: good recreation, museums, and restaurants. Economic stability and diversity in employment also help make a good area to invest in. Listen to this whole episode to hear Anna explain more!
A conservative approach to real estate investing
Anna is a big believer in a conservative approach to real estate investing. She believes that economic indicators show that the market is nearing or at the end of an expansion period. During the last financial downturn, she was extremely affected – losing retirement and hearing whispers of losing her job. The past serves as a reminder to her to not overextend – personally or in real estate investing. She says to be cautious with debt and to ask yourself the questions: can you still make payments without rents? What about if you have to reduce rent? To be conservative, she chooses to model flat rent growth and a higher cap rate upon exits instead of projecting a percentage increase in rent growth.
The biggest surprises as a real estate investor
Anna shares two of her biggest surprises as a real estate investor. When she started out, she was not great on tenant screening and let her heart get the best of her. She made sacrifices on rent amounts and whether people could have pets. She ended up with tenants who killed profits and made her life miserable. She rented to people she shouldn’t have. She learned to go with her gut on renters and to have standards that she sticks with! The people you rent to are just as important as the building you buy! Anna was also surprised when things cost more to renovate than expected. She says to expect things to go over budget and to look at the age of the building to predict whether things will need to be replaced.
In This Episode Anna Kelley says…
- [1:49] Who she is, and her 5 year plan to retirement through real estate
- [10:20] The difference between her plan and reality
- [13:49] What she looks for when buying property
- [16:08] The ideal tenant profile
- [21:46] Criteria she looks at when considering buying in an area
- [31:00] Her conservative approach to investing
- [40:09] Lessening risk with buying and lending
- [47:01] Her biggest surprises as a real estate investor
- [49:11] Where she is going in the next 5 years
Resources Mentioned In The Episode
- Jonathan@MultifamilyLaunchpad.com – Learn to be an asset manager and Investor
- Bellwether Enterprise(sponsor) – contact Will Oldham firstname.lastname@example.org