REAL ESTATE

$9K/Month Cash Flow, Scaling FAST, & Saving Thousands


Real estate investing and contracting go hand in hand, but not many investors are bold enough to tackle their own home renovations. Today’s guest is, however, and he’s about to show you the business model he uses to create a ton of cash flow, scale his portfolio, and save a fortune on taxes!

Welcome back to the Real Estate Rookie podcast! Today, we’re joined by Riley McFarland, who happens to be one of Ashley’s general contractors, as well as an investor closing in on twenty doors. Having grown up around real estate, Riley knew that owning rental properties was one of the best ways to build wealth. But after taking a few contracting jobs, he discovered a knack for home renovations as well. By combining the two, Riley has a thriving business that brings in $9,000 in monthly cash flow and more in tax benefits!

In this episode, Riley talks about how he runs his investing-contracting business like a developer and buys MORE rentals in the process. He also shares the best value-adds for boosting equity and why he prefers to buy the “ugliest” rentals he can find. He even gets into the process of estimating rehab costs during an initial walkthrough and leaves you with several crucial questions to ask before hiring a general contractor!

Ashley :
This is real estate Rookie episode 415. Value add is one of the best ways to buy a property, especially if you’re a general contractor and an investor as well. Welcome to the Real Estate Rookie podcast where three times a week we give you the inspiration, motivation, and stories you need to hear to get started in real estate. Our guests today can share the benefits of working with an investor who is a contractor and how to make investing possible. If you are a contractor, the other big benefit is they understand both sides of the budget and rehab that will keep your units rented all while keeping costs down. Pretty awesome, right? So let’s welcome one of my contractors, Riley McFarland. Riley, welcome to the show.

Riley :
Glad to be here.

Ashley :
So what was your exposure to construction that ended up helping you become a real estate investor?

Riley :
I’ve been around rentals and real estate basically my entire life. I was raised primarily by my grandparents from a young age, and my grandfather was a union electrician, so I was always around job sites. He would bring me to job sites even when I was seven years old, I was swinging a hammer and then he also owned a rental portfolio. So I grew up basically being mentored by him and seeing the value that owning real estate and owning rentals provided. Actually, if it wasn’t for my grandfather owning rental property, my family probably would’ve been in subsidized housing. We didn’t have any money growing up. My parents actually filed for bankruptcy, so the place we grew up was one of my grandfather’s rentals. So that was kind of a saving grace, and I know nowadays everybody calls it house hacking. It’s a nice trendy name, but we were poor and we lived in a duplex, so we couldn’t afford a single family home. My parents weren’t in that position. Later on, once they got their feet established again, they actually seller finance that house from my grandfather. So I kind of got to see that even when I was a kid, I started to understand that, oh, hey, the guy that’s living next door brings rent over every month, and then they take that rent and they give it to my grandfather. So it’s like, okay, I get this. We got a free place to live. So that was my first exposure to real estate.

Ashley :
And that’s so interesting as to the impact to physically see that transaction happening where you’re actually seeing your grandfather get paid every single month. The money switch hands is a core memory for you where nowadays everyone usually pays online and your kids aren’t seeing the impact of like, oh, the rent checks are coming in, this is how it’s happening. So when did you actually start investing? What was your first property?

Riley :
It was probably almost 15 years ago now. When I moved to Buffalo, I was renting, me and my sister were roommates and we were renting in a duplex in the city. And then probably six months after we started our lease, the owner came to us and he was moving out of state, so he came to us and asked if we wanted to buy the house. And I think I was 21 at the time, 2021. I didn’t really have a lot of money, but I scraped together, my sister scraped together, we got an FHA mortgage on it. I made a deal with the owner because there was certain things that needed to be repaired on the house that weren’t going to qualify for the FHA mortgage. So I made a deal to do the work included for a lesser sale price. So that was my first house, and then that actually ended up being converted into a triplex and into a partnership with me and my sister. So that was my first home purchase.

Ashley :
And then since then, in those 15 years, how many properties or how many deals have you done since then?

Riley :
Lots of deals. I did a lot of flips early on. In my twenties I was doing a lot of flips because Buffalo was a totally different market back then. Used to be able to buy houses for 30, 40 grand, put 20 into ’em and sell ’em for 150. So I was doing that at a pretty good pace. I would do like three a year, and I did that for a few years and then the market kind of got a little more competitive. But currently I own 16 residential units, commercial space. I have a single family home that I’m going to turn into, nurse housing, medium term rentals. That’ll be my first exposure with that. And then I just bought a really big house out in the suburbs that I’m flipping. So after a period of 10 years of not flipping, I’m finally getting back into it. The market has shifted again. So

Ashley :
There’s your overall portfolio, and did you start contracting right away when you were 21 and got that first house hack? Were you a contractor then, or did the investing and contracting kind of slow roll itself into that?

Riley :
Yeah, so I’m kind of like a unintentional contractor. I just kept getting jobs and I went back to college in my mid twenties. I thought I wanted to go into the medical industry and to support college and my bills. I was just doing jobs on the side as a contractor and I just kept getting referrals and referrals and referrals. And I got linked up with a couple investors who were from Canada and they were investing heavily in Buffalo at that time. So they just kept supplying me tons and tons of work on their rental portfolio. So I just got more and more experience working on rentals. I was using that income at the time to pay my bills and pay for college, and then later I transitioned to funding my own deals. So I just kind of rolled into it, just worked out.

Ashley :
So what would you say the big benefit of being a contractor and investing in real estate is any contractor listening to this show, why should they consider investing too?

Riley :
Well, so I’m turning 34 at the end of the month, and in let’s say the last five years I’ve started to notice I’m slowing down a little. I never thought it would happen to me, but contracting puts a toll on your body, and I don’t think it’s something that is long-term sustainable. If you want to live a healthy lifestyle, honestly, you got to really take care of yourself. So if you are a contractor, I think investing in real estate is a better long-term play because eventually your body’s going to give out on you. You can’t keep this game up forever. And because it is the same industry in a way, you can translate all your skills into your portfolio and save yourself a ton of time and energy versus someone who doesn’t have that skillset.

Ashley :
So we’re going to take a short break here, but when we get back, I want to kind of excite people and say, okay, you’re a contractor, but how much cashflow are you bringing in each month on your current portfolio? Maybe that will also get someone excited about becoming an investor too in real estate. So we’ll be right back and thank you guys so much for taking the time to actually check out our sponsors, you guys and the sponsors are what make the show happen, so we really appreciate it. Okay. Welcome back. When you are starting out, you may need to self-perform rehabs or maintenance, but it could also be costing you money and time. We are going to get into that. But first Riley, how much are you cash flowing per month on your current portfolio?

Riley :
So my gross is over 15,000 a month and my net is somewhere like the eight to 9,000 a month. So it’s pretty substantial cash flow.

Ashley :
So when you’re a rookie listener, hearing this as to like, okay, that’s pretty good, how did you make that happen? And this is also kind of a second income to you compared to your contracting business. What are the benefits of having almost, and I know everybody wants to treat their rental portfolio like a real business, I’m going to say, not saying don’t treat it like a side hustle, but this is almost like a second job for you that’s probably a little more passive than actually contracting. So tell us a little bit more about that.

Riley :
Yeah, so I’ve always used the contracting income to fuel my deals. You got to make the money to get the deals. So I kind of treat my business as not necessarily contracting and rental separate. I kind of combine them into more of a development type company structure. So yeah, the cashflow helps me on certain things to cover overhead and my other business as well. But yeah, it is more passive income. I treat my rentals a little differently, whereas I focus on value add and then I either pull the money out on a cash out refi or restructure the deals with private money where I can then buy more. And I’ve done this over the past three years with my new LLC, and I’ve been able to scale it really rapidly in that way because I do a lot of the work myself. The value add is just pure profit versus if I were to work for somebody in a contracting sense, that’s income and then at the end of the year it’s taxed. Whereas if you’re adding equity into your property, there is no tax unless you sell it, you can pull out all that equity tax free because it’s a loan and then you can transfer it to another property. So I think that’s the benefit of it. Basically my entire business model is the value add portion of it through my actual sweat equity.

Ashley :
I just want to break down again what you just said right there because I think it’s very important to understand that this is an option for someone, but you really have to be able to be patient and to have that delayed gratification because when you’re doing that rehab, you’re not getting a paycheck like you would from a W2. Even if you’re a contractor, you’re not getting maybe your draws from the person as you’re going along with the job and you’re having to wait until that refinance to actually get paid. But if doing the work pays you ends up paying you more than it actually would a W2 job, you’re absolutely right as you can go and you can get that money back, but then you’re paying that money back so your cashflow is not going to be as much. So even if you don’t refinance, or maybe you do and you don’t pull all the cash out, your cashflow is going to be higher than, which is going to be more money coming back to you because you don’t owe as much money.

Ashley :
So I think the nice thing is you have several different options with that. And what I want everyone to do is this is something you are considering. Should I do my own rehab or should I hire it out? Run the numbers. How much would it cost for you to hire a contractor to perform that rehab? How long would it take you to do the rehab yourself and take what you would pay the contractor and then take that into an hourly rate for you, and is that worth your time? So for example, say it breaks down that end, say it’s $20,000 to pay the contractor for the rehab and the rehab will take one month. Whether each of you do it say for you, that ends up being however, I’m just making numbers up. I can’t do math in my head, but say that ends up being $50 an hour, but you make a hundred dollars an hour at your W2.

Ashley :
Okay, in that sense, it probably makes sense for you to go and focus on your W2 job, make more money that way, and then pay the contractor because you’re not having to do the work. And then you’re making $50 above that too. So sit down and run the numbers on it, but this is a great option for you if you do have time on weekends or at night as to adding that sweat equity to the property. And Riley, I’m sure this helps you be able to have an advantage to get deals under contract because you’re not having that labor cost. So you can maybe be a little price a little bit higher, pay a little bit more for a property sometimes.

Riley :
Yeah, that’s exactly it. And I always like to say, give me the ugliest properties possible because they just have so much more potential for that value add. So when I look at properties, whether it be a multifamily or single family, I look at the ones that people don’t necessarily think look good, as long as it’s a good solid house, I’m definitely looking for the ugliest one on the block in a good neighborhood. Then just the cosmetic stuff is going to value add and you’re going to get all your money back almost immediately, and then you’re paying less for the property upfront. There’s that margin that you can make and then you can still get, if you’re renting it out, you can get a higher rent because now it looks pretty, right. So that’s what I’m actually doing it with a triplex right now. Actually, you walked through that one with the one I got it.

Ashley :
Oh yeah, yeah, I remember. Yeah,

Riley :
Yeah, yeah. It was hideous and everybody thought it was just a ton of work, but to me, all I see is gallons of paint and some flooring, that’s the cheap stuff and the price that I got it for versus what it’s going to appraise for is large. It’s more than the cost of the acquisition cost. So I’m basically getting all my money back once I refinance it, and then I’ll have three updated units which I can then justify, well, these are all nice and updated. I can justify the rents, so now my rents go up. And then if we’re doing A-D-S-C-R loan or a full dock loan, the bank’s going to look at that. Well, yeah, there’s the potential right there. We’ll loan this money, no problem. So that’s what I always look for in properties is the value add.

Ashley :
And a little bit I want to talk to you about what the actual value adds that you do that really make your properties appraise for what you want them to. But before we get into that, you talked about the cost of labor and the cost of materials. How much of a benefit is it being a contractor walking a property and knowing off the top of your ad is to, I already know what this rehab is going to cost. Can you maybe walk us through what your process is when you’re going through a property trying to determine the rehab and what you’re going to pay for

Riley :
It? Yeah, sure. So if I look at a property, the first things I’m looking at are the roof, the foundation, the siding, the windows. So the big ticket items, I will look at the mechanicals. Those things aren’t as much of a concern to me because I can do them myself. But like you said, walking through and getting a budget in my head, I do have just the experience of doing it for so many other people and doing it for myself. It’s like I already have the numbers in my head, like you said. So I can go in and be like, okay, my guy’s going to come in here. It’s $2,000 to paint the whole unit, this square footage here. I know what the cost of the flooring is, and I get a massive discount through my supplier. So I can mentally come up with something in my head and be like, okay, I think it’s going to be a $30,000 rehab. Whereas someone who doesn’t have that experience, they’re going to rely on whatever the contractor tells. So the contractor would be like, oh yeah, this is 70, $80,000 worth of work because he has to include his labor too. So I have the advantage of going through and seeing properties and maybe even at the price point that they’re selling for, I can make the margins, whereas someone else might not be able to if they’re relying on a contractor.

Ashley :
I have this flip that I should be closing on any day now. And when I didn’t walk the property and my partner did, and he never has ever walked a property before, but I was out of town, I’m like, just take as many pictures as you can take a video. So he goes through, sends it right away, send it to Riley, and I was like, do you think we can do this or that much? This is what the a RB will be, this is what I can pay for it. And he’s like, well, don’t hold me to this, but I think it can work for XML. But it’s like having a contractor in your tool belt. If you aren’t a contractor yourself and can’t kind of ballpark it, it’s good just to get an idea of what things can cost. And that is a huge benefit in making offers because that is one thing that really holds people back from actually taking action and getting started is they don’t know what things will cost to actually do the rehab. And it is really scary if you go over budget on a rehab like Riley did the roof, I think. Did you do the roof and the floor at the A-frame?

Riley :
Yep.

Ashley :
Yeah, that property, we actually had other contractors in there that were just going to do the whole thing for us, and we ended up having to fire them and Riley and one of the other guys he works with, Jordan came in and saved the day and they did those things, but we ended up going $40,000 over budget on this rehab because of all the things that went wrong with the first couple contractors. And then also some of my budgets were off for different line items like the flooring or the route for things like that because we were banking on using these other guys that had given us wrong estimates of something that probably wouldn’t have been a good job anyways. But if I was starting out as a rookie investor and I didn’t have my other investments, that $40,000 over budget would’ve been detrimental. I mean, think about it, it could have bankruptcy in some sense, but building that strong foundation first, and I was just taking on properties that had very cosmetic updates at first because I really didn’t have experience or knowledge of what actually went into a rehab. And when I first started out and I didn’t have a great contractor when I started out either, I was using a handyman that was a maintenance guy for the property management company I worked for. So let’s talk about finding a good contractor. So how would somebody go into a city and find you? Oh,

Riley :
That’s tough. I’m actually in a position now that I’m trying not to be found too much because I have such a good network of people like yourself, investors that I primarily am dedicated to. I’m only one person. There’s only so many hours in the day and I have so many deals going on that it’s very hard to actually get me to come to a property. If you’re a new investor, I’m probably not going to, I’d be like, Hey, why don’t you get a couple more properties under your belt? I would say you just got to call around and test the waters. Maybe talk to some realtors in the area that have dealt with maybe some of their clients that are higher volume investors. I do a lot of work with realtors and they do a lot of referrals. So it’s kind of all like a club, if you will. So they know who to call if they actually need something done.

Ashley :
So what do you think about going to a meetup or even just contacting local agents and saying, Hey, this is my business. I would love for you to come and see some of my work, things like that to use me as a referral. What is the best way to add those agents to your network? So they do refer you?

Riley :
Yeah, I mean, I personally haven’t done that. I’m actually on the other side of that. I have a lot of people reaching out to me constantly, and it’s just basically through Instagram. I post my work there. I do have Google business page and stuff like that. So there is contact information there. I’m not really branching out as much as they’re looking for contractors because we’re becoming more rare every day. I’ve turned down this year so much work because I just cannot handle the volume of incoming.

Ashley :
So are you saying if I see a contractor put an ad in the Penny Saver saying that they’re available for work, they’re probably not a good contractor since they’re actually marketing for work?

Riley :
Yeah, probably not. If you’re finding, yeah, I guess the moral of it is if you’re finding guys that are very available, they’re probably not good contractors because everybody that I know, all my friends that are in the industry, we are all equally slammed, busy. There is no shortage of work. There’s way too much, and just finding good reliable labor and subcontractors is probably the biggest hurdle that I have. I do have a good network of people, but it’s always evolving and always changing. So

Ashley :
Yeah, let’s talk about that part of it. With all these projects going on, how are you managing these? You’re working as a GC more at this point where you’re using a lot of subs, so there’s a lot of project management involved, some of the software, some of the systems you have in place to actually take care of all that.

Riley :
So actually I’m kind of a dinosaur when it comes to technology and because you’ve actually helped me out on the rental side. So I just within the last couple years, I’ve kind of transitioned everything to a more digital platform and taking a lot of the overhead off of my investment portfolio. That kind of runs itself now, but running multiple projects at a time is not easy. Luckily I have guys that I can trust so I can send them there or I can meet them there and be like, Hey, this is x, y, z, we need this done. I want you to focus on this week. And then systematically you have to stack everybody. You have the painters come in, then you have the flooring guys, then you have, so you got to systematically stack it that way so that they’re not stepping on each other’s toes and causing friction.

Riley :
I’m always every day texting everybody and asking for updates and making sure that they have what they need. A couple of my guys have bank cards. They can use my accounts directly. They know my suppliers, so I’ll be like, Hey, go here. I’ve already ordered the flooring. Just go pick it up, talk to Rick. And then they are very independent and that’s what they are is 10 90 nines. They’re independent contractors and I just give them the tools and the work to just go and do what they need to do. I work with different levels of jobs too, which means certain rental properties, the quality in certain neighborhoods doesn’t have to be the same as a $60,000 bathroom renovation in the suburbs. This just needs to be done properly. It needs to look good and it needs to fit the market. So I can stack different guys in different neighborhoods and knowing what their skillset is and the quality that they can provide is very helpful.

Ashley :
And as an investor too, knowing what price point you should be at. If you’re going to be doing a unit in a C-Class neighborhood for an investor who wants to maximize their cashflow, you’re not going to put granite countertops in. You’re not going to go and get expensive cabinets, you’re probably going to get the stock cabinets at Lowe’s. So having a contractor that understands that and doesn’t blow through your budget because they think this would look nicer on the project is definitely an advantage. So you did mention getting text. How do you track and how do you schedule keeping track of all of that?

Riley :
So I just use my Google calendar and then I have a task planner. It’s a journal that I do every morning while I’m having my coffee. I’ll write out all the tasks that I need to do for the day, and then I’ll write out tasks per guy that I have. So then I’ll update them and be like, Hey, we need to get X, Y, Z done by Wednesday. Then the flooring guy is coming on Thursday. A lot of it is kind of a controlled chaos to be honest. I do have a little bit of a DD, so I forget things, but just the constant communication is a big part of making sure that these projects move forward. For my rentals too, I have the rent ready. That’s been a big help, that tasks all the maintenance and everything. So I don’t even see any of that stuff. My maintenance guy just goes and handles

Ashley :
It. That’s a nice feeling, isn’t it? Yeah,

Riley :
Yeah, yeah. He gets the emails directly and he’ll just go and take care of it. And like I said, he has a bank card, so he’ll just go and get whatever he needs. He’ll go and do the job, he’ll cross it out on the rent ready and then he’ll give me receipts and I don’t even have to worry about it. So I know a lot of landlords and investors are like, I don’t want to fix toilets. I don’t want to do this. It’s like, well, I don’t anymore. I used to, but now I got a guy for that at that scalability. Now that I can pay that guy to do that

Ashley :
Because you’re paying him less than you would make being a GC on a project and your time is more valuable. Spent doing the projects right now. Yeah, correct. Well, coming up, we are going to cover some things investors should not skimp on in some affordable value add to increase rental desirability, not only just property management software we just discussed. So we’ll be right back. Welcome back. We are here with Riley. How can you make your rentals more desirable? So you just talked about, first of all, having rent ready, which if you are a BiggerPockets a pro member, you do get access to rent ready, so make sure you go to biggerpockets.com to check that out. But besides just the software, the tech stack, what are some affordable value adds that increase the rental desire but are really affordable and cheap to do?

Riley :
So? The ones that I always focus on, obviously a fresh coat of paint is the first thing I do in any unit. I always do. I have five colors that I am just religious to and I paint all my units the same. I’ll paint every room the same color too, so it’s easier to match. And then I do LVP pretty much in every unit. Some units have carpeting that’s just based on where they are and what they’re renting for. But yeah, those two things alone, just the LVP flooring and the paint can really change the look of the apartment and the tenants love it because super easy to maintain the floors. I do try to put in nice stainless appliances and usually some nice countertops and I mean those four or five things can really make a unit nice. And I pride myself on when I do walk tenants, prospective tenants through, they always are like, wow, this is nice. This is a really nice unit. It’s nicer than what’s in the area. So that’s what I always try to do to value add

Ashley :
For the countertops. Are you doing the laminate that look like it’s granite or quartz or what actual type of countertops are you putting in?

Riley :
Yeah, that depends on the unit itself, but I actually do like the laminate. There is a newer version, I call it not your grandparents’ laminate. It’s a Wilson RHD product that it has depth to it, it looks nice. You can do undermount sinks with it, and it’s very cost effective. And I mean you could do that. You could have it prefabbed, you can have it replaced and you’re tiling the next day. So in terms of turnaround time, it’s really quick too, and it looks good.

Ashley :
Interesting. Maybe we’ll have to use that on my new flip. I haven’t looked at that yet, I don’t think.

Riley :
Yeah, I have it in my own house, so it’s nice.

Ashley :
So we talked about flooring and using LVP. We talked about paint, we talked about countertops, and also being consistent with what your materials are, even though it may get boring, especially on your rentals as to keeping consistent with those things, it makes it so much easier. Every time you do a turnover, you know what the color is going to be, what flooring it is, if you need to replace something. There was this tip from this girl Lauren on Instagram, she’s wealth to rentals or whatever, the opposite of me,

Riley :
Rentals

Ashley :
To wealth. Our names are very similar. I think it’s rentals to wealth. And so she had given this tip before on her Instagram of taking a light cover in that room and on the back of the light cover you actually write what the wall paint is. So we do that a lot of times in our rentals too. If it’s not now, we pretty much use the standard norm, but writing it on the back of the light cover and then putting it on. So if you ever need to do a touchup, you can just pull the light cover off and see what the actual paint color was.

Riley :
Yeah, like I said, I paint pretty much. I have five colors total and I paint pretty much everything the same color. So even if it’s not that unit, but it’s the other unit and it’s the same color, I might even just have leftover paint and I can send ’em, be like, Hey, it’s in the storage room at 15 main, just go and touch up the wall. So it makes it easy.

Ashley :
So I want to go into some rapid fire questions here without taking too much of your time, but what makes a successful contractor in your opinion?

Riley :
I would say just having the communication of expectations. Anytime I’m working for somebody new, I want to make sure that I manage the expectations of what they think the final result is going to be. Whether that we kind of touched on it earlier, whether it’s like, okay, well this neighborhood doesn’t warrant that type of kitchen or that type of bath remodel. So having that upfront and just having a discussion about price point, about quality, about overall job performance, I think that makes a successful contractor. Then you guys are on the same page from day one, so the communication’s a big one. And then just taking pride of the work that you do. You don’t want to slap something together and just be like, oh, it’s good enough. No, you want to make sure that you put your stamp on something that you’re proud of.

Ashley :
The next thing is what are some questions you could ask a contractor when you’re vetting them for a job?

Riley :
Personally, I would ask them if they own any investment properties themselves, especially if you’re, this is what you’re doing, you’re contracting them for an investment property. It’d be like, well, do you own any or do you work with other investors? Are you working with them currently? Then you can kind of get an idea of, is he here to help me get my margins on this, or is he just trying to get as much money as he can? I mean, there’s guys like that too. It’s like, Hey, I’m going to charge you X, Y, and Z and maximize my profit. That’s not how I operate.

Ashley :
Yeah, I actually have a friend who’s the opposite of you. You want to work more with investors and he only wants to do high end properties remodels, so he’ll only work with high-end clients and then he’ll do only his own rental properties. But what are some of the things that contractors skimp on that everyone should watch out for?

Riley :
I would say all the prep stuff. So anything that’s in the rough stage like electrical, plumbing, insulation, shimming out the walls, making sure things are level and straight. That’s the area where you might get some skimping because you could cover a lot of stuff with drywall and then just be done with it. So you got to be careful. You can almost tell if you’re going into a job at that point and you could see like, Hey, this doesn’t look right. And if they’re, oh, no, no, you’ll never see it, that’s a red flag.

Ashley :
And the next question is how much do you think you’re saving by doing the work yourself? So maybe if you can think of one of your rentals and maybe the triplex that you’re doing right now as to how much money do you think you would’ve had to pay out if you weren’t using yourself and your subs to actually do the work?

Riley :
That’s a good question. The triplex deal that I just did wouldn’t work on paper for somebody else. It only works because I’m doing the work myself. For example, I could tell you that I’m doing all the electrical in the building, which was a complete rewire. I needed to put on all new panels, service meter sockets. I had to upgrade the service with the utility supplier. I’m doing that all myself. It’s probably 2,500 in material, whereas if you paid an electrician that’s 25 grand, it’s a substantial savings.

Ashley :
Okay. So are there any last tips you have for a contractor that’s considering investing?

Riley :
Yeah, I would say get into it as soon as you possibly can based on experience and the things that I’ve learned through my accountants and my lawyers, you’re really shooting yourself in the foot. If you’re a contractor and you’re not also investing, you’re overpaying for your tax burden, you’re not taking advantage of depreciation, the appreciation, the passive income, you’re just working yourself to the bone. And if you start investing now, it’s going to pay later in your forties and fifties when your knees hurt and your back hurts, and you can’t perform at the level that you are in your twenties and thirties. So it’s a long-term thing and you got to have the foresight to do it, but I recommend it. It’s what I’m doing and that’s what I’m banking on. So part of my business model is actually taking a percentage of all my contracting income and setting that aside. So I then have a stack of capital that I can invest into my own properties. And by doing that, I’m building wealth on the side and letting that wealth grow. So I’m actually taking the money that I earned and then putting it to work. I operate kind of as a development company is what my accountant has told me, and that’s how they’re able, development companies are able to scale and build projects and claim depreciation and increase their portfolio rapidly. So that’s what I’m operating as, and it’s been working very well.

Ashley :
And to tie this all together, what about the future? So what is your plan for retirement? What is your strategy in that sense?

Riley :
So right now, my goal is I’m heavily invested in one area and my goal is to actually revitalize the whole area. I own multiple multi-units all on the same block, and I’ve been fixing up the whole area. There’s a couple other investors in the area that are doing the same. So if we can kind of revitalize that area and I can keep picking up more rentals, eventually I would like to sell all of ’em as a package deal turnkey to another investor. My goal with that would be to set it up so that I could 10 31 it into a big project, like a hundred unit, something like that, or some commercial buildings. So I’m not trying to do the small scale two, three fourplex forever. I’m just trying to build a nice package deal for next guy.

Ashley :
And as an investor, hiring a contractor, what are some things that I should include in the scope of work where I should not be skimping on? So we talked about ways that a contractor could skimp on the job, but what are ways that an investor could skimp on a job and where they shouldn’t?

Riley :
You’ve got to think of your investment as a long-term thing. So I would personally recommend you don’t skip on anything that is like mechanicals. So if you’re going to replace a furnace, hot water tank, electrical panels, don’t skimp and go and get the cheapest thing you can get and throw it in there. You’re going to want to buy the higher quality stuff that’s going to last longer because you don’t want to put something in, and in five years, you’re replacing the hot water tank again, that’s going to eat away at your profits over time. So spend a little more money upfront and buy higher quality brands. Make sure that everything is done properly and it’ll just save you headaches. You don’t want to come in and be fixing furnaces and pipe leaks and hunting down electrical problems. All that stuff becomes expensive in the long term. So don’t skit there.

Ashley :
Well, Riley, thank you so much for joining us today on Real Estate Rookie. If you want to learn more about Riley, we’ll include his information in the show notes. If you’re watching on YouTube, you can find it in the description. Thank you guys for listening, and thank you for taking the time to check out our show sponsors. If you haven’t already, make sure you join us in the Real Estate Rookie Facebook group, and if you want to connect with Riley, you can find him on biggerpockets.com or you can connect with me on there also. So again, RI, thank you so much for taking the time to join us today and we’ll let you get back to work. I’m Ashley, and this has been Real Estate Rookie. We’ll see you guys next time.

 

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