Pod Insights BiggerPockets Real Estate Podcast Financial Freedom in 11 Years Thanks to This “Perfect” Rental Strategy About this episode Imagine getting paid to buy rental properties. Well, it’s more than possible, and today’s investor proves it. After spending months looking for the “perfect BRRRR” property, Jon Kessler stumbled upon it and, through a series of fortunate events, got paid $50,000 to buy a cash-flowing rental property. And guess what? This wasn’t a one-time occurrence. Jon repeated this strategy multiple times to build his real estate portfolio with little money and reach financial freedom in just 11 years! So what is the “perfect BRRRR” strategy, and how can you repeat it to get paid at the closing table, just like Jon? Today, Jon is walking us through his decade-long real estate investing journey, starting with being tens of thousands of dollars underwater on his home in 2008 to getting paid to buy rental properties, building an off-market lead business, and eventually getting to his true goal: financial freedom and truly passive income. Jon faced a LOT of ups and downs. He started with zero investing experience, had non-paying tenants, a home with negative equity, and built his real estate portfolio all while working a full-time job and raising kids. Think you can’t invest in real estate in your situation? Jon will prove you couldn’t be more wrong! In This Episode We Cover: The “perfect BRRRR” investing strategy that pays YOU to buy rentals Financial freedom in just a decade and why it’s still more than possible Why you should turn your primary residence into a rental property when you move out Working with wholesalers and how to score super underpriced real estate deals How Jon finds his off-market real estate deals and the method he uses to contact motivated sellers 100% passive income and what Jon is investing in now for more time freedom And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! Ask Your Question on the BiggerPockets Forums BiggerPockets YouTube Apply to Be a BiggerPockets Podcast Guest! Join the Future of Real Estate Investing with Fundrise PassivePockets Maximize Your Real Estate Investing with a Self-Directed IRA from Equity Trust Grab the BRRRR Book Sign Up for the BiggerPocket Real Estate Newsletter Find an Investor-Friendly Agent in Your Area BiggerPockets Real Estate 1072 - How to Make More Passive Income with Fewer Rentals (& ACTUALLY Retire Early) Connect with Jon (00:00) Intro (01:55) "Accidental” Landlord (04:59) Buying His First True Rental (08:05) Finding the BRRRR Method (12:28) Getting Paid to Buy Rentals (18:09) SUPER Underpriced Homes (21:36) Finding Off-Market Deals (25:06) Shifting to “Passive” Income (29:00) 100% Passive Investing Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1093 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected] . Learn more about your ad choices. Visit megaphone.fm/adchoices
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Dave Meyer? The Perfect Burr. You may have heard of it, but only a few investors have ever actually pulled it off. Today, we're speaking with one of those investors who not only executed a perfect Burr deal, but pulled out an additional $50,000 more than what he originally invested.
0:23 Dave Meyer? Hey, everyone. It's Dave Meyer here. I'm the head of real estate investing at BiggerPockets and the host of the BiggerPockets Real Estate Podcast, where we teach you how to achieve financial freedom through real estate. And today's guest has done just that. We've got an investor story with a guy named John Kessler from Baltimore, Maryland, on deck for you. And one thing I really like about John's story is that his investing career has three distinct stages. If you've listened to any of the shows recently where we've had Chad Carson on as a guest, most recently, episode 1072, you'll hear Chad's framework, where he talks about having a starter phase, a builder or growth phase, and then at the
1:05 Dave Meyer? end, sort of a harvester phase. And John's career follows this framework and path. In his first six years, he acquired five properties. Then, in the next five years, in his builder phase, he scaled up to 19 units, including a wholesaling business. And that's when he did that Burr deal, where he was able to pull out more than 100% of the capital he invested. Now, 12 years later, John has achieved financial freedom and is investing more passively, so he has time to spend with his family. So as we hear John describe how he built his real estate business, I encourage each of you to listen and think about which stage of investing you're in right now, and whether you're prioritizing your time and your money
1:49 Dave Meyer? accordingly, or if maybe you need to readjust. All right, let's bring on John Kessler. John, welcome to the BiggerPockets Podcast. Thank you for joining us.
1:59 Speaker 01 Absolutely. Excited to be here. Thanks for having me.
2:02 Dave Meyer? Yeah, absolutely. So, give us a little bit of background. Tell us a little bit about yourself and why you first started looking into real estate in the first place, when I think it was like 10, 11 years ago now.
2:13 Speaker 01 Yeah, it was a while. So, my background is, I'm in tech. I still have a full-time W2 job, married, father of three, so, you know, real estate's not my full-time thing. It has always been a side hustle, but
2:25 Dave Meyer? Max?
2:26 Speaker 01 Got my start a little bit by accident. You know, my first experience with an investment property was, it was a primary residence that I turned into a rental lot of necessity. So, what happened was in 2006, I bought my first house for myself.
2:40 Dave Meyer? Okay.
2:40 Speaker 01 And I was a single guy at the time, and it was this little two-bed, one-bath, 900-square-foot house, and it was plenty of room when it was just me. But, six years later, married, we have a one-year-old, we have another one on the way, and we're just outgrowing it. So,
2:53 Dave Meyer? Yeah.
2:54 Speaker 01 the wife and I decided it was time to upgrade, and the problem is, in 2008, there was a little bit of a real estate correction.
3:00 Dave Meyer? Heard about it.
3:01 Speaker 01 Yeah, yeah. I was so far underwater on that first property, it just would have completely wiped out my down payment. So, the only option was to give being a landlord a try, and that's how I kind of got my start.
3:13 Dave Meyer? Wow. So, you are the prototypical, we call them accidental or reluctant landlords. Like, you never
3:19 Speaker 01 Oh, yeah.
3:19 Dave Meyer? sought out being a landlord. You didn't come to this by financial freedom. It just was necessity.
3:26 Speaker 01 Yeah.
3:26 Dave Meyer? Do you mind telling us a little bit about that primary residence? What'd you buy the property for in 2006?
3:33 Speaker 01 Yeah, so, this should give you an idea of how inflated prices were. So, I bought that house for $150,000 in 2006. I financed 100% of it, which is something you could actually do at the time.
3:46 Dave Meyer? Yep.
3:46 Speaker 01 It's not what it was cracked up to be. It actually wasn't that good of a thing. Two years later, after the crash, I think I would have been lucky to sell it for about $90,000. So, I was underwater about 60 grand, which was almost 50%, like, within two years.
3:59 Dave Meyer? Wow. I'm sorry to hear that. So, fortunately, it sounds like, though, when you were looking To buy your second primary residence in 2012, you had saved up enough money that you could put your down payment on this new primary, but you had to hold on to the other one because you don't want to have to come out of pocket to pay the bank, right?
4:19 Speaker 01 Yeah, yeah, that wasn't a choice. Like I could have sold it and been homeless and or go back to renting or I could have bought a house. There was no in between.
4:27 Dave Meyer? So what was that like becoming a landlord with a young family and working full time?
4:33 Speaker 01 I got really lucky in hindsight. Looking back, knowing what I know now, my original tenant was really easy. It was a friend of a friend. You know, she kept the place nice. She paid on time. She only called when there was like a real issue. So she honestly really helped me forget that I had this rental property.
4:48 Dave Meyer? Oh, that's good.
4:49 Speaker 01 Yeah, zero cash flow. I was renting it out for pretty much what the mortgage was. I was fine with that. I wasn't trying to make money. I was just trying to kick the can down the road a few years and then, you know, figure it out.
4:59 Dave Meyer? Well, it sounds like that worked and you were at least able to kick the can down the road. How did you go from this sort of accidental landlord position to actively trying to grow a business?
5:10 Speaker 01 Yeah, so I still didn't really have any intention of being a real estate investor, but about two years later in 2014, I had managed to save up some money again. And the, I don't know, kind of fear of being a landlord was gone, even though I didn't have a ton of experience. It now seemed like an option and I was already putting money in the stock market through a 401k through work. And I still didn't know what I was doing, but I knew enough to be able to look at 2014 prices and say, if I just bought a similar house, but rented it out for the same amount, instead of breaking even, I'd be making, I don't know, maybe four or 500 bucks a month. You know, there's something here.
5:47 Dave Meyer? Because prices were still below where they were in 2006?
5:51 Speaker 01 Oh, yeah. Yeah. So I called the, I called the realtor who sold me my second house because I knew that he had been a landlord just from talking to him from when I bought my, my second house. And I asked for his advice, you know, what to buy, where to buy. And he helped me find something. So.
6:05 Dave Meyer? No, it's great.
6:05 Speaker 01 Yeah, it was even in the same neighborhood as the first one. Turns out I kind of got lucky with that location. Second one was a three bed, one bath townhome, same neighborhood and it was turn It was fully renovated, nothing high end, but it was, you know, well maintained. It was fine, moving ready.
6:19 Dave Meyer? Great.
6:20 Speaker 01 And I paid a hundred eight thousand for it. That was the purchase price.
6:23 Dave Meyer? And how did that landlord experience compare to your ideal tenant in the first one?
6:28 Speaker 01 I got lucky again, but in a different way. Still didn't know what I was doing. Didn't have good tenant screening in place. And I moved somebody in who on paper I never should have placed. Luckily, they didn't really cause damage to the property. They didn't mess it up, but they did stop paying rent pretty early on. So I got to go through that experience. Was lucky enough. I didn't actually have to evict them. They moved out willingly, but got the other, the other end of the spectrum with that second tenant.
6:52 Dave Meyer? Man, so why did you keep going after this? I'm always curious to hear these things because everyone takes lumps early in their career. It just happens. I'm always just want to understand sort of the mentality that you approached because you had a bunch of other stuff going on. You had a couple of challenging situations early on. What drove you to, to build and scale from here?
7:15 Speaker 01 Well, I'm not just saying that because I'm here, but shortly after buying that second property, I stumbled on the, the bigger pockets podcast.
7:22 Dave Meyer? Okay.
7:23 Speaker 01 Feel like I started to get a real education there, started learning a little bit more about how to all the stuff, you know, manage a property. I got exposed to the BRRRR method and that kind of just opened my eyes to what is actually possible. So.
7:36 Dave Meyer? Honestly, it's not that dissimilar story that we hear a lot. My, I myself, I didn't know about bigger pockets. I did my first two deals and was managing like seven units at that point before I really discovered the podcast or working at bigger pockets. And then it was like, oh my God, I have been doing everything completely wrong. But luckily I was still, you know, turning a profit, doing okay, having done everything wrong. And that was pretty exciting to me that like, man.
8:01 Speaker 01 Oh, yeah.
8:01 Dave Meyer? I can get so much better at this and thankfully I did. So it sounds like discovering the BRRRR method is sort of what? Put you in another gear in your investing. Is that right?
8:12 Speaker 01 Yeah, it was a combination of that. And it was also the fact that I had this family now. We actually have three kids and we kind of had them back to back to back. So there's maybe a four year gap between one and two, and I was working a much more demanding. job than I am now. And I spent a lot of time in the office away from the family and it really started to bother me that I didn't have more time with them. So
8:32 Dave Meyer? Sure.
8:33 Speaker 01 Between that and listening to BiggerPockets, I started to plan an exit strategy, so to speak, which didn't quite work because I'm still, I still have a W2 job. Now, now it's kind of by choice, not because I have to.
8:44 Dave Meyer? When was this?
8:45 Speaker 01 Around 2018, I felt like I had enough capital built back up to try it again. And this was my first attempt at a burr. Same neighborhood, another three bed, one bath townhome. This one really didn't need a ton of work, mostly cosmetic. I bought it for about 92,000. And at the time I was still doing a lot of the work myself, but I think I put maybe seven or $8,000 worth of materials in it.
9:08 Dave Meyer? Oh, that's not bad. I mean,
9:09 Speaker 01 Yeah.
9:09 Dave Meyer? It's for a cheap house, you know, it's still a lot, but it's not bad.
9:13 Speaker 01 Yeah, yeah, no, it wasn't bad at all. And it appraised for about 125 when I was done. So I ended up being able to pull out a little bit of my capital, not all of it.
9:24 Dave Meyer? And you got hooked.
9:25 Speaker 01 Yeah. Oh, yeah. Oh, yeah. That proved the concept to me. I was, I was ready. So, I mean, it was later on that year I did my second one. I got a little more aggressive. I also hired a general contractor because it was taking too much of my time away from the family to do the work myself. So I finally started hiring people.
9:40 Dave Meyer? But it's kind of beneficial, right? To do it yourself a little bit at first because then you at least you know what you're looking for and what some of the pitfalls are going to be and where the challenges lie.
9:50 Speaker 01 Yeah. And I also quickly realized that I really wasn't saving money doing it myself because how fast can a contractor remodel a bathroom versus me? It's going to take me three months of weekends.
9:59 Dave Meyer? Hundred percent.
10:00 Speaker 01 And if I had just worked my regular job, I would have came out hugely ahead.
10:04 Dave Meyer? Yeah, you only save money doing things yourself if you're actually good at it. If you're not good at it, you're losing money and time and efficiency and you're not scaling. We've talked about it many times on the show, but it's worth repeating as many times as is necessary. Only do these things yourself if you are confident and able to do them.
10:23 Speaker 01 Yeah, I agree. I mean, even now, like, you know, I'm in tech, I'm pretty good with, with a lot of different tech related things and I still outsource a lot of tech aspects of investing to other people.
10:35 Dave Meyer? All right. I want to hear how you scaled up to your next burr, John. But first we need to take a quick break. We'll be right back. Do you ever notice how every passive investment somehow turns into a very active lifestyle? Active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand new construction homes 10% below market value in the best markets across the country without making real estate your second job? That's exactly what rent to retirement does. They're a full-service turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of their down payment back at closing, plus interest rates as low as 3.75%. They've partnered with BiggerPockets for over a decade, helping thousands invest smarter. If you want to do the
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14:01 Dave Meyer? Welcome back everyone to the BiggerPockets Podcast. We're here with investor John Kessler talking about how he went from accidental landlord to doing his first BRRRR. So back to your story, John. You did your first BRRRR, you did it yourself. What did you do next? How did you sort of develop a more scalable business model for yourself?
14:20 Speaker 01 So what happened? I did, I did two BRRRRs. They were both off the MLS in 2018. I was able to get most of my capital, maybe half the most, back out. And in 2019, I had this idea in my head that I had to do a perfect BRRRR, so I started passing on deals where I was going to be leaving capital in. I just wanted to accelerate the velocity, kind of had the opposite effect. I think I was being too picky.
14:42 Dave Meyer? I just want to explain to everyone, John, before you do, what a perfect BRRRR is. So BRRRR stands for buy, rehab, rent, refinance, repeat. Basically, you buy a property, you put additional capital into it to improve that, you rent it out and get a stable tenant there, then you refinance it. And why? You refinance it is to pull some of your capital out. Ideally, you're able to take out at least your renovation costs, maybe some of your initial down payment as much as possible. And the term quote unquote, perfect burr is when you're able to take out 100% of your equity. So if John on a deal was to invest 100 grand in both acquisition costs and renovation costs,
15:25 Dave Meyer? then when he did a cash out refi after doing the renovation, should he be able to take out that $100,000? That's a perfect burr. Sorry, John, just want to explain that, but please go on.
15:36 Speaker 01 That's what I thought I had to do because I didn't really have a clearly defined goal. And I just started to get obsessed with this concept of a perfect burr. So it took me a while, took me about seven or eight months to find another deal that I thought worked. I actually took an assignment from a wholesaler. This is the first wholesale assignment that I ever took. This is a wholesaler I met at a meetup and this was kind of, kind of a sign of the times. Shortly thereafter, I found out that I was not going to be able to close on that anytime soon because COVID happened. And this was a foreclosure auction deal and they put a moratorium on foreclosures. So I didn't know when I was going to be able to close on this deal. I had this contract and it was just kind of held in limbo indefinitely.
16:16 Dave Meyer? And did you have earnest money down?
16:18 Speaker 01 Yeah, I put down, I put down a pretty sizable deposit. It was about $13,000 actually with the title company.
16:24 Dave Meyer? Oh, wow. And so that was just sitting there.
16:27 Speaker 01 That was just sitting there with the title company in escrow. And I was also responsible for the property taxes of the property until it closed, until it was ratified.
16:36 Dave Meyer? Oh, no. Okay.
16:37 Speaker 01 Well, that deal actually turned into one of the best deals I ever did because of the moratorium.
16:43 Dave Meyer? Tell me about it. I want to hear that.
16:45 Speaker 01 I was not able to close on that property for two years. So that's how long the moratorium lasted and it was lifted in late 2021. And between 2019 and 2021, property values went up significantly and interest rates dropped. So I had that under contract for $120,000. This was a single family detached and it was a four bedroom. And I knew that I could turn it into a five bedroom, which is Really good for voucher programs, which I do a fair bit of. I closed on it. I actually got a private loan from a coworker. He lent me around a hundred and ninety thousand dollars for the purchase. So I was actually able to take about almost fifty thousand dollars cash home from the closing table from the purchase.
17:30 Speaker 01 I did my remodel. The remodel was about forty five thousand dollars. So I used pretty much roughly the cash I took home. And then when I placed the tenant and refinanced it, it appraised for three hundred and thirty thousand dollars.
17:41 Dave Meyer? What?
17:42 Speaker 01 So, yeah, so I pulled about fifty thousand dollars out of it, more than I put into it.
17:48 Dave Meyer? Oh, my God.
17:49 Speaker 01 Yeah, it was incredible. And that's a thirty year fixed. It's a four and a half percent loan. Monthly payment with taxes and insurance is sixteen hundred.
17:56 Dave Meyer? Wow.
17:57 Speaker 01 And today it's rented out for about twenty seven fifty right now.
18:01 Dave Meyer? Oh, my God. Wow. They they need to come up with a word other than perfect burr, because that's better than perfect, right?
18:08 Speaker 01 Yeah.
18:08 Dave Meyer? Just pulling a hundred percent out is not perfect. If if you could. There's a more perfect version that you have invented, John, by taking out fifty grand more than what you put into the deal. That's incredible.
18:18 Speaker 01 Yeah, all you need is a pandemic and, you know, to delay closing by two years and it's easy.
18:23 Dave Meyer? I mean, how worried were you during those two years, though? Were you seeing the property value go up? Because I mean, like, starting like midsummer twenty twenty, things were were already starting to go a little bit crazy.
18:34 Speaker 01 Originally, I was a little grouchy that my, you know, my thirteen thousand dollar earnest money deposit was tied up.
18:40 Dave Meyer? Sure.
18:41 Speaker 01 And I was also frustrated because it had taken me so long to find a deal that I thought was good enough. But I moved on to I didn't wait for that to close. I moved on to other deals. But then as time went on, I just got more and more excited for this deal, just because I saw these numbers.
18:54 Dave Meyer? Yeah.
18:55 Speaker 01 I was like, just making money. I didn't even own the property. It was fantastic.
18:58 Dave Meyer? Yeah, that's unbelievable. Wow, that's pretty cool. I just want to take a, you know, detour here because I'm curious about the philosophy, looking back on it. Do you regret waiting to try and find a perfect burr? Or would you have been better off, like, just doing some solid deals and not holding out?
19:18 Speaker 01 I believe I would have been better just doing solid deals and holding out. And I I had no real reason to wait for a perfect burr. I just got it in my head that that's what I needed.
19:26 Dave Meyer? Yeah, yeah.
19:27 Speaker 01 It was actually a episode of BiggerPockets that kind of got me unstuck. David Green was talking and they weren't, this wasn't even the subject of the episode. He just, you know, how was your weekend? He's like, oh yeah, it's great. I just got an appraisal on one of my properties. I'm only going to leave $12,000 in it. And I thought to myself, wait, wait, you can do that? That's allowed?
19:45 Dave Meyer? Like that it wasn't perfect and he left the money in the deal? Yeah.
19:48 Speaker 01 I just needed to hear like an expert say, it's okay.
19:51 Dave Meyer? Of course.
19:51 Speaker 01 And then I sat down and put pen to paper and actually, what is my goal? And then I realized I could afford to leave a little bit more in some of these deals.
19:59 Dave Meyer? Absolutely. And the reason I bring it up is because I hear this mentality a lot these days because burr is harder. It's always going to be harder when you're not in this just rapidly appreciating environment and honestly unusually rapidly appreciating environment. That it's always going to be harder to be able to pull a hundred percent of your equity out. But I've done a burr in the last year. Like I still think that could work.
20:23 Dave Meyer? I'm not a perfect one, but I guess I'd never really seen that as my goal. And I witnessed a lot of investors sort of falling into a similar trap that you did, John, where it's kind of like you're expecting this perfect situation where in today's day and age, you might just need to be a little bit more patient for your second deal or your third deal and just like do the deal that's in front of you. It's not for everyone. Some people might want to hold out, but I do witness a lot of people sort of wanting to hit that grand slam, but might be missing triples or home runs, you know, in the, in the meantime, holding out for those kinds of deals.
21:01 Speaker 01 Oh yeah, absolutely. And, you know, I think it gets easier as you accumulate more rentals and get more cash flow. It gets a little easier to not pull all of your capital back out.
21:10 Dave Meyer? That's true. Like, once you have more irons in the fire, if you will, you know, it's not like you need to get a hundred percent out so you could do that second deal or do that third deal when it's your eighth deal or your 10th deal, you know, it's a little bit easier to just slow down. That's definitely true. So in the meantime, John, like when you were doing, you were waiting for the moratorium to come up, were you doing any other deals?
21:31 Speaker 01 Yes, I did one more off the MLS later that year, and that was a perfect burr.
21:35 Dave Meyer? Nice, two.
21:37 Speaker 01 I, yeah, I mean, there were some that went the other way, too. So they're not all, they're not perfect.
21:41 Dave Meyer? Good to know, yeah.
21:42 Speaker 01 Yeah, yeah. So that was my last deal that I ever did on the MLS, even, even through today. That's when I realized I could start to leave a little bit more money and I wanted to try to accelerate. And even though I'm off the idea of doing a perfect burr, I still saw the MLS as being a little too competitive. So I started networking with wholesalers a bit more. And one day I put a post on Facebook and this investor group for locals, just kind of describing what I was looking for. And within, I would say 10 minutes, a wholesaler replied with a contract he had signed less than a half hour before I made that post. And I ended up taking three assignments from him in less than a month.
22:15 Dave Meyer? Wow.
22:16 Speaker 01 So it was a very well timed, kind of fortuitous Facebook post.
22:20 Dave Meyer? So these were for burrs?
22:22 Speaker 01 Yes.
22:22 Dave Meyer? Okay. And how much better of a deal do you think you got because you went with a wholesaler than for buying an MLS deal?
22:29 Speaker 01 So what happened was, actually, let me ask you this. You probably know where I'm going with this. Across all three deals, how much do you think I paid in assignment fees total?
22:37 Dave Meyer? I mean, just guessing based on what your deals were costing, I don't know, 20 grand across the three?
22:42 Speaker 01 I paid $80,000 in assignment fees, eight.
22:46 Dave Meyer? Whoa.
22:47 Speaker 01 Across three deals. And I wasn't upset about it, but I was jealous because they worked. Like the numbers worked. I was able to pull out a lot of my money on all three of these deals. I was actually happy that this wholesaler made this much money off of me because I figured he was going to keep bringing me deals. Like this is great.
23:05 Dave Meyer? To be candid, I've never bought a deal from a wholesale. I've looked at a lot of deals from wholesalers, but I was figuring with the price point of the houses you were looking at, you know, you're paying five, 10 grand, maybe per assignment fee.
23:16 Speaker 01 I don't know what his secret sauce was. He was getting incredible deals, incredible deals. Like these were so far below what they could have sold for in the MLS. It was incredible.
23:26 Dave Meyer? I mean, to, to be fair to the wholesale, you were willing to pay up.
23:30 Speaker 01 Oh, yeah.
23:30 Dave Meyer? I averaged $25,000, $27,000 per.
23:34 Dave Meyer? Per assignment because the deal was still so good that it was worth it even when you were paying that large assignment fee. I mean,
23:41 Speaker 01 That is correct.
23:42 Dave Meyer? If that wholesaler is creating value and you're willing to pay for that value, I mean, why not?
23:46 Speaker 01 Absolutely. And I really did get probably more than half my capital out on each one like this. This was working. I would have kept buying them.
23:52 Dave Meyer? Yeah.
23:53 Speaker 01 From him, but we just never made another one work. So those were the only three I bought from him. But when I saw those assignment fees, I thought, I don't really know how to go get my own off-market deals, but for $80,000, I bet I can figure it out. So that's what I started doing. I hopped on BiggerPockets and I just found someone who kind of owned a direct mail company and I reached out and got their advice and I just started sending letters like
24:13 Dave Meyer? Oh, okay.
24:14 Speaker 01 Couple of months later.
24:15 Dave Meyer? So you're basically like, yeah, this was great. I found these three great deals, but I'd rather do these deals and not pay $80,000 for it. Okay. Well, good for you. I'm still waiting for the part of the story, John, where you you work less because it seems like you just keep taking on more and more stuff.
24:33 Speaker 01 Yeah. The way I went about it was definitely not the ideal way. If you're trying to work less, I did it the hardest way possible.
24:39 Dave Meyer? All right. Well, I want to hear more about how you started a wholesaling business, but we do have to take another break. We'll be right back.
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30:06 Dave Meyer? Welcome back everyone. We're here with John Kessler. When we left off, John was telling us how he had just paid $80,000 in assignment fees for three wholesale deals that he purchased. But then he was motivated to, it sounds like you started your own wholesaling company, right, John? Tell us how you went about that.
30:23 Speaker 01 Yeah. So again, I just didn't know what I was doing. I went on BiggerPockets. I found someone running a direct mail company. I had no particular reason for choosing direct mail. I was just aware of it.
30:34 Dave Meyer? A popular strategy.
30:35 Speaker 01 Yeah, we hopped on a call. He kind of gave me some advice and I just started pulling data and sending mail. And at the time, I actually did not intend to be a wholesaler. But once you start marketing, you never know what you're going to get. And people started calling with properties that didn't fit my particular criteria, but you don't want to waste marketing dollars. So I ended up starting to do some assignments too.
30:57 Dave Meyer? Okay. So yeah, originally you were just looking for yourself. You just wanted deal flow for your own properties. What were you looking for? More burrs?
31:05 Speaker 01 Yeah, more burrs. I was just sticking with what I knew, the neighborhoods I knew. These little three-bedroom townhomes seemed to be working out really well for me. So that's all I was mailing. It was a pretty small amount of records at the time, maybe 800 letters a month. And it was working. The phone was ringing.
31:19 Dave Meyer? How long did it take you for the phone to start ringing?
31:22 Speaker 01 I mean, probably the day the mail hit, it started ringing.
31:25 Dave Meyer? Okay, wow.
31:26 Speaker 01 I mean, there's a delay between when you send letters and when they land, but it was less than a week after I put my order in, I just started getting calls. And I got, I got my first deal within a month from that first batch.
31:36 Dave Meyer? That's fast, because we talked to a lot of people who do this direct to seller. And usually it's, you know, three months, six months, nine months of grinding. So just for everyone listening, that is normal. It is normal for it to take a while. And that is something you need to know, is that you might not hit it immediately. Are you still doing this? You still running the wholesaling operation?
31:55 Speaker 01 Not the same way. So, and it was similar to when I first tried out Burr and it worked. You know, I tried direct mail and it worked and I got hooked. And I just started throwing gas on the fire, kind of going faster than, than the system. Well, I had no systems. Faster than I should have, based on what I had in place. And I was in such a hurry. I started just jumping from marketing channel to marketing channel and just throwing more and more marketing dollars in it and it was working. It just wasn't optimized, so it was very labor intense and I was doing all aspects of it. I didn't have any, any real help with it.
32:28 Dave Meyer? And you're still working full time, right?
32:30 Speaker 01 Correct, working full time, still have three school age kids at home and I was, I wouldn't recommend anyone else do it the way I did because I was definitely burning myself out, you know?
32:39 Dave Meyer? Yeah, it's, it sounds a little bit like you were sort of getting away from the original intent of, of starting this business.
32:45 Speaker 01 Yeah, very, very much so, very much so. I was working all day, family in the afternoon and then in weekends, I was on the phone, looking at properties, managing contractors. I was still self-managing my rentals. After a while, I hired a property manager and he also helped me with construction management. So that did help me, free me up quite a bit, but the amount of marketing I was doing at the time was, was still a lot. So I did that for about two years and I scaled from five units to 19 units.
33:13 Dave Meyer? Amazing.
33:13 Speaker 01 Over those two years. Yeah, and I also wholesaled a few dozen contracts and I tried to do a few flips along the way. Those didn't go great, but I tried it out and early 2023, I finally realized I need to pump the brakes. I'm, I'm burned out, also out of money, which is important too.
33:32 Dave Meyer? Yeah, it has a way of slowing you down when you run out of money.
33:35 Speaker 01 Yeah.
33:35 Dave Meyer? But it sounds like you were ready sort of mentally to, to, to slow down.
33:40 Speaker 01 Yeah, I was ready to slow down. It was hard to go from being that active to nothing overnight. So it kind of took me a while to kind of figure out how to relax. And that was in 2023 and I still wanted to do something, but I wasn't sure what that next step was going to be. So what I ended up doing was I started to focus on more passive avenues and partnerships where maybe I can lend my expertise and money, but not my time. And that's what I'm doing now. So just to give you an example, I'm still wholesaling, but I'm doing it with partners now. I was just sending mail in their markets and the leads would go directly into their systems and they would take it from there. I was passive after I sent mail and we would just split it on the backend if it worked out.
34:22 Dave Meyer? So yeah, that's. Generating more active income for you on top of your W2. I mean, 19 units, an amazing accomplishment. Congratulations. Are you feeling good about that and sort of just sitting on those right now?
34:36 Speaker 01 Yes, I am. I mean, if I come across another rental that works, I'll buy it. I'm just not out there aggressively looking. I still, you know, talk to wholesalers and evaluate deals. It's just, you know, rates are in the mid to high sevens right now. It's just hard to make things pencil out. And I've also learned that expenses on these rentals are a lot higher than I ever anticipated them to be. So I'm even more conservative in my cash flow estimates than I used to be.
34:59 Dave Meyer? Yeah, I think that that's very wise. Do you think that's just because of the nature of the homes that you're buying or just all rentals?
35:06 Speaker 01 I think it's, it's probably both. I think people have a tendency to underestimate, but these houses are also 90 to 100 years old. So there is capex. It's also what I would consider maybe a B minus neighborhood. And I also deal with a lot of voucher and section eight tenants. And I'm not saying that all voucher tenants will beat up your property. But in my experience, the average voucher tenant is a little rougher on your property. You also have those annual section eight inspections and you have to fix more things than you would with a market tenant. So that kind of thing all affects the bottom line.
35:41 Dave Meyer? So how are you feeling then about your portfolio right now? You set out to, to earn some passive income, to spend more time with your family. Do you feel like you've achieved that?
35:50 Speaker 01 I do, you know, the original goal, even though I didn't go about it a very smart way, was to get to a level where if we had to, we could live off of passive income. And we're there. I could today stop working and just live off the cash flow. It would not be a lifestyle that we wanted. We would have to budget, you know, all that stuff, but we could do it if we had to.
36:12 Dave Meyer? That's amazing. Congratulations. That's so cool.
36:14 Speaker 01 Thank you. That is a very comforting feeling just to know. It's almost like I have a second adult in the house working full time. So that's how it feels.
36:22 Dave Meyer? So to help our audience level set and set expectations, how long did it take you from starting as a somewhat accidental landlord to be in that place? Comfort that you're in now.
36:35 Speaker 01 I would turn the clock back to the second rental. That's when I found bigger pockets. And that's when I first had the idea that I was going to achieve financial freedom from this. From that second rental, it's been exactly 11 years. From the first rental, it's been like 14.
36:50 Dave Meyer? Unbelievable. Good for you. Well, I did this math recently where I was talking about almost anyone. If you just are diligent about it, regardless of sort of your income level, if you really stick with it, like 10 to 15 years is a realistic timeframe for people. And it sounds like you've sort of fallen right into that timeframe as well. And I don't know about you, but for me, that timeframe went very quickly. And I know for some people it seems like, oh, I can't wait that long, but it's fun. It's engaging. You know, it's busy, but it's absolutely worth it, at least in my opinion.
37:22 Speaker 01 Yeah, it was. It was very stressful at times and it was a lot of fun. Most of the time I had a really good time doing it.
37:28 Dave Meyer? That's great. Yeah. Well, thank you so much for joining us, John. Before we go, any last thoughts or ideas about what the future holds for you and your portfolio before we go?
37:36 Speaker 01 Yeah, I'm pivoting, like I said, more passive direction and the future is probably going to be a lot of syndications as a limited partner. Doing that through a self-directed 401k now. And I really like just receiving a check and not having to deal with tenant issues. That's a lot of fun.
37:51 Dave Meyer? It's pretty great.
37:52 Speaker 01 Yeah, yeah.
37:54 Dave Meyer? It is. It's kind of the traditional sort of arc of a of an investor, right? Like you do all this active stuff. You try a lot of things and then 10, 15 years in, you're good enough, you know enough to to be able to do these LPs passive investments. I started doing it, I guess. Exactly 10 years into it and it's pretty great. I really like having a balance.
38:13 Speaker 01 Yep, likewise.
38:14 Dave Meyer? Have you done any yet?
38:16 Speaker 01 I did. I just, I just put some money into one. It's my first one, probably about five months ago from a self-directed 401k and so far it's working out.
38:24 Dave Meyer? Multifamily?
38:25 Speaker 01 Yep, commercial multifamily. It's out in Indiana.
38:28 Dave Meyer? Oh, cool. Awesome. Well, good luck to you. And yeah, if anyone wants to learn more about syndications passive investing, we don't have time to get into it now, but BiggerPockets has a whole podcast called PassivePockets you could check out if you want to learn more about that type of real estate investing. Well, John, thank you so much for joining us, sharing your story with us and best of luck to you as you transition to a more passive investor.
38:51 Speaker 01 Absolutely. Thank you very much for having me. This was fun.
38:53 Dave Meyer? Absolutely. And thank you all so much for listening. If you want to apply to be on the show, just like John, go to biggerpockets.com/guests. You can fill out a form there. Tell us a little bit about your story and you may just be selected to join me here on the podcast to talk about your real estate investing journey. Thanks again for listening. For BiggerPockets, I'm Dave Meyer. We'll see you next time.
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