Changing His Family’s Future with 3 “Boring” Rentals and $2,500/Month Cash Flow

Ashley:
What if I told you that someone bought their first rental property with about $10,000 in Chicago while still in grad school because today’s guest did exactly that. And what I love about this story is how simple it started. No fancy strategy, no real estate background, just asking one question, how do I stop paying rent?

Tony:
Yeah. And this episode is such a good reminder that you don’t need to wait until everything is perfect to get started. Kadeem didn’t come from money, didn’t have a massive income, and didn’t know the term house hacking at the time. He just saw an opportunity and took action.

Ashley:
This is the Real Estate Rookie podcast. I’m Ashley Kehr.

Tony:
And I’m Tony j Robinson. And with that, let’s give a big warm welcome to Kadeem Kadeem. Thanks for joining us today, brother. Thank you guys so much for having me. Excited.

Ashley:
Kadeem, take us back to the very beginning. What was your life like before real estate and what originally made you start thinking about housing differently?

Kadeem:
So it really started in undergraduate school. The first two years we lived on campus, so you had not a care in the world. Things just kind of flew past you. And then junior year we had to live off campus and I can remember me and two buddies, we were paying 14, 14, 75, some crazy number that we’ll just round to 1500 a piece for a 1000 square foot apartment. Now this is my very first apartment, so those numbers sounded okay to me. There was pretty much monopoly around Illinois State University where you just pay what they said, you didn’t have an option. And then my senior year, me and my fraternity brothers, we rented a house and it ended up being like $400 a person. And so immediately like, okay, I’m never having a traditional apartment, I’ll just get a house and either rent it with friends or buy it and they pay me directly. And then again, that idea of house hacking was born there. I was telling people I made something up. You’ll never forget. This is this new concept. I’m going to coin this phrase, I don’t even remember what I called it, but it for sure wasn’t house hacking and I for sure hadn’t heard it before. I just knew living with friends, living with a group of people to combine to cover the bills made so much more sense.

Ashley:
So you didn’t even know that the term was house hacking. So how did the idea of buying a property instead of renting actually come to you because of the situation you were in?

Kadeem:
Well, I knew that the house that we were renting was significantly bigger than that thousand square foot apartment that I shared with two other people. It was three floors. It was massive compared to the $400 out of pocket it cost me. And so I thought, Ooh, I can just recreate this. I’ll take a room, I’ll find some friends to take some rooms and we’ll buy a big house. And if it’s in my name or we renting it, it doesn’t matter. Everyone’s a little bit better off than going the $1,500 for a small apartment route.

Tony:
1500 bucks per person for an apartment. That’s wild, crazy.

Kadeem:
$4,500 for a thousand square this. And what

Tony:
Year is this Kadeem?

Kadeem:
This was 20 16, 20 17.

Tony:
Wow, man, that’s crazy. High rent. Okay, so you go through this experience and that kind of opens your eyes to say, and there’s got to be a better way to do this. And it’s funny kadeem, because we hear that so often. It could be the moment that someone’s just writing the rent check or submitting their rent payment online and they kind of look around and they’re like, man, there’s like four units in here and if all four of us are all paying the same amount, like this landlord’s making a killing, I can do this too. So it’s a very common backstory that we hear about what folks think about that kind of motivates them into getting started. So you didn’t know that it was house hacking, but you have this idea, so once that seed is planted, what is your next move? How do you actually turn that into something that’s worthwhile?

Kadeem:
Yep. So we’ll skip back to undergraduate. I remember watching people blow refund checks and I don’t know if all the listeners know, but if you get, whether it be scholarship or any financial aid above the cost of school, they cut that in half and they give you half in the fall, half in the spring. So they would get those refund checks and say, here, rental provider, here’s the rent for the year. So when I went off to graduate school, I remember being in the financial aid office and the lady was like, how much do you want? And I thought maybe she misspoke. That’s not really how it goes. I’m an expert on borrowing money. I know how to borrow money for school. I’m like, well, what exactly? Give me the exact number for tuition for the cost and then I’ll do my own math of adding in housing expenses.
And she sat me down. There was a much older woman and she said, sir, that’s just not how this works. A lot of your classmates are, I know you are a traditional student, but a lot of your classmates are full-fledged adults. I wasn’t quite the adult yet. And they have kids and they have mortgages and they have cars and they are in this program that did not allow us to work. It was full-time. We had a full-time in school, internship, practicum, it didn’t work. They’re supplementing their lives off of this loan. If you give me a number, I’ll put that number in way too much pressure. I think I was 21 and you’re telling me I’ll write you a blank check. That’s just way too much pressure. And normally when I tell the story, I say I hung up on her and I called her back the next day. It was about a week later and I didn’t hang up. I was polite. I don’t have an answer for you today, but I can come back and in a week’s time again without BiggerPockets as what ended up being my biggest information source. But before BiggerPockets I was like, I just created a new thing.

Tony:
Kadeem. I just want to understand that it sounds like there was maybe some fear and some shock in that moment, but why was that? Was it because you were worried about having that much money and not spending it the right way? Or why were you nervous? Why couldn’t you give her a number in that moment?

Kadeem:
So the goal was just to take enough money for school and then I’ll scrape by whatever everything else looks like. But when she said no, basically you have an opportunity to cover your housing expense. I wasn’t going into that conversation thinking that that was the math I needed to do. So not only was she in my mind saying, how much money do you want me to give you? Plain and simple. It was also that I just wasn’t prepared for anything above to agreeing for the exact tuition amount.

Tony:
Now, Kadeem, I got to give you some credit because my first year in college, like many students, I got a refund above and beyond my tuition for financial aid. And I was 18 years old. I had never seen, I don’t even think a four figure check in my life at that point. So the very first refund that I got for financial aid, I went straight to at t and I bought not one but two iPhones, one for me and one for my girlfriend who later became my wife. So I guess it worked out well, but that was the most irresponsible thing that an 18-year-old could have done.

Kadeem:
There was a lot of PlayStation fours floating around ISU campus around disbursement time. Everyone was buying their game systems, buying shoes, whatever.

Tony:
And luckily as I got older, I started to realize that this isn’t free money. I had grants, but I also had loans associated with that as well. So then it was my rent money and that’s what I use it for.

Kadeem:
So thank God in undergrad they actually have a cap. They won’t let you just do whatever you want there. But in graduate school, that cap was lifted and when I called her back a week later, I hit in my mind, okay, 3.5% down. I know roughly with Google how much things are selling for. We had went beyond the idea of buying a house because I was with my girlfriend at the time. Now my wife, does she want a roommate? Probably not. So how about we buy an apartment building where all of the apartments are super small and that’s the same as a roommate. We just have our own separate kitchens. That’s really the only big difference. And that ended up being 10,500. That’s 3.5% down on the 300,000 building. So I went called her, Hey, I need a 10,500 refund check disbursement. And because they split it into two, the fall and the spring, I had to ask for double that. And then when I got the second one, I just gave her right back. Nope, didn’t eat that one. Just needed the first one.

Ashley:
Interesting. Okay, so you’re planning ahead, you’re getting that 10,000 upfront, but you asked for 20 and then in the spring you’re just paying 10 of that back. So in this week period of her telling you you can get whatever until you call her back, is that where you’re actually going and looking up deals and analyzing?

Kadeem:
That’s the first time any of this really went beyond just like, oh, I shouldn’t pay rent no more. Right? This is when we’re looking it up and I can remember my wife again, my girlfriend at the time found the property and this week we had a realtor, we had a lender, we had all of this and explaining the situation, they’re like, okay, this is how we got to do it. We had a lawyer, everyone’s kind of pro bono because they know the money’s coming on the end, so everyone’s like, I’ll give you whatever you need. It sounds like you guys are truly dedicated. You’re doing your research. We got the disbursement and we had to let it, what’s it called, season because I didn’t have a job. I didn’t have a job. They weren’t loaning to me regardless of how, unless I had enough money to buy the building outright, it couldn’t be in my name.
So we had to let the building the money season, we bought it FHA in my wife’s name again, girlfriend at the time. I keep making that distinction because then we got married in the second bill we bought in my name, we kind of flip flopped there. It was 290,000 I think all in. We had to pay 12,000 out of pocket, and that was with the closing costs and all that good stuff. That’s roughly 4% altogether, and we have never paid a housing expense out of pocket 2018. That’s the last time we’ve come out of pocket for a housing expense.

Ashley:
I want to clarify the seasoning piece because that is a very important rule regulation with getting a loan. A lot of people know you’re going to get a loan, don’t go out and buy furniture and finance it while you’re waiting for your house to close. Don’t go out and buy a car, but also when you’re going to get pre-approved for the loan, especially when it’s your primary residence, they’re going to want to know where the funds came from. So if you’re buying it in your wife’s names, the funds need to come from her. So what was that process like getting the funds actually seasoned? So they showed into her account. What was the timeframe they had to sit in her account for?

Kadeem:
So I don’t remember off the top of my head, but I think it’s like three months or so. It ended up being a lot longer than that, but I think the minimum was because they only asked for three months check stubs and they was like, we don’t care what happened prior to the check stubs that you provide for us with the bank statements. Luckily enough, me and my wife had a shared bank account at the time, so all my money was her money on paper. It was really easy there. We just had to wait enough times to where when we submitted documentation, they didn’t have to ask the question of where this money came from.

Ashley:
And then was there any questioning about that? It was where I guess you didn’t have this because you waited the seasoning period, but do you think if you wouldn’t have waited and you would’ve gone ahead, do you think they would’ve denied you because technically that was borrowing funds from the loan, from the student loans?

Kadeem:
I think so. In my mind, if I’m a bank, knowing what I know about banks now, I would say I’m loaning to you on the fact that clearly you’re a good steward with money and you’ve saved this, but if you just got it all in one lump sum, maybe you aren’t a good, you haven’t proven yourself to be someone worthy of me loaning to. So I think that that question would’ve come up.

Ashley:
Okay. So tell us about that first property that you found and you’re looking at properties, you get your 10 K secured while you’re waiting for the funds to season. Are the same properties still available or are you pulling up other properties and putting offers in?

Kadeem:
They’re not, we hadn’t started looking until things were seasoned. The bank wanted to, there was no point in looking without an actual pre-approval. So we had to wait a little bit. I think we saw maybe five properties. And the one that we happened to pick was one that my wife found and what sold her and what sold to us is the fact that the unit that we moved into was so well upgraded that even by today’s standards you’d say, oh, they recently upgraded this unit. It still looks really, really, really nice. So my wife was like, Hey, this is the one we’re moving into. All of the other properties with all of the meat on the bones that you kept talking about, no, I don’t want to live there. I don’t want to live in that situation. But this one at the very least, looks nice enough. It’s comfortable enough mind. It was a five bedroom, two bath apartment. It’s two of us. We didn’t have children. It’s just I’m like, what do we even need five bedrooms? It was massive, but it was also upgraded to the point where she felt comfortable. So pretty much sold us there.

Tony:
And just from an underwriting and analyzing perspective, kadeem, what did that part look like? Or was it really just, Hey, we first want to prioritize us having a clean, safe space to live?

Kadeem:
Right. So because it took a long time from refund check to purchase, I learned all I need to know. The learning is exponential. Once you hit about 80% understanding, you’ll gain a little bit over time, but you have the bulk of it. So I’m like, okay, rents not just minus mortgage, but I’ll pay utilities. My mom’s a homeowner, so it was like, mom, what are you paying for? Tell me everything you pay for so that I can start roping that into my math. The rents were the first floor. We lived on the second floor. The first floor was 1100. The basement was, it was a legal basement. Apartment was 700, the mortgage was 1550. I had no idea what the water bill would go for. My mom’s like I know with my house’s water bill, but I have no idea with a multi-unit water bill.
Well, it couldn’t be. $700 we’re good. All of the wiring was set to where everyone paid their own utilities, excluding the water bill. So I’m like, as long as the water bill isn’t $700 a month, we don’t have rent anymore. We don’t come out of pocket. And it ended up being like $125 a month. We paid every other month cashflow from the beginning. We made every mistake known to man, but because the deal was so good on paper 18 coming in, 14 going out, all those mistakes just kind of got wrapped into it. We were perfectly fine.

Ashley:
Well, I want to hear more about this deal and your next deal, but let’s take a short break and when we come back we’ll get into more of the numbers on this deal. We’ll be right back. Okay. Welcome back. So to recap, you had told us you used an FHA loan on this three and a half percent down. You had 10,000 for a down payment during the loan process. Were there any other fees or expenses or maybe even during the due diligence and inspection of this property that came up that might’ve surprised you?

Kadeem:
Not surprised me because again, BiggerPockets had me by then, so I pretty much knew the costs. I didn’t know, I think it was a thousand dollars or roughly that for the actual, not the appraisal, but the guy who’s on our team, I figured the appraiser is on the team of the bank inspector,

Tony:
Like your property inspector.

Kadeem:
Okay. Yeah, the inspector came. He was a nice old man. He said, I’m not doing this twice, so come with me, come to every room with me and I’ll talk out loud. So you should be able to do this next time. Can I do it now? No. But he walked us through exactly what was wrong and he was like, look, it’s a lot wrong on paper, but it’s perfectly fit for what it is you’re trying to do. There’s some concrete knot level, but as long as no one trips, you’re fine. It’s not that bad. That was a cost. I think we had to pay a few times, whatever the fee is to keep the loan rolling because of how long this process took, I think it took maybe six or seven months to close. It was ridiculous. And we had our own apartments, so we were still paying rents and we’re like, Hey, we need to move in. We’ll never pay rent again. But we’re kind of on a timeline of not just ourselves, but the deal of itself.

Ashley:
What’s one thing we have not mentioned in probably a year on this podcast is PMI. So did you pay PMI with this loan and can you explain what it is?

Kadeem:
Yep. So private mortgage insurance, because we didn’t have 20% equity, we didn’t put 20% down. It’s almost like insurance on the loan itself. I think it ended up being like $50 extra. Again, that’s in that 1450 total PIT, I guess PMI add that in there as well. That doesn’t roll off the tongue as well as PITI. But that additional property Property, oh shoot, I just lost it. Loan insurance essentially, right? It was about $50. So yeah, we paid that. We still pay that oddly enough, because we have not refinanced out of the FHA loan. It’s a 4.2. I mean, let’s keep it there. No need to disturb the interest rate, but yeah, so we still pay it. We’ll address that down the line.

Tony:
Two quick things. Kadeem on the PMI. Well, first, I actually just learned this past year that you can get denied PMI. So PMI is a form of insurance and there are only so many companies in the United States that offer PMI and there are certain properties that they’ll underwrite themselves and they won’t approve for private mortgage insurance. So that was something new to me. So just know as you’re shopping for PMI, there’s an opportunity that someone could say No.

Ashley:
Tony, I have a question on that. Does that mean the lender wouldn’t lend to you Them?

Tony:
Yeah, the lender wouldn’t close.

Ashley:
No. Yeah, or

Tony:
Unless you went up to at least 20% down. But without the PMI, they wouldn’t close on it. And it was actually, it was an investor that I knew that was working with the lender that I knew, and that’s kind of how I got wrapped into it. But the second part of PMI, and even this is more so for you, is that even if you don’t refinance, if the appraised value of the home has increased, where when you compare that to your current loan balance, you’ve got at least that 20% margin. Now a lot of lenders will still remove that PMI even without refinancing. So it could be in your best interest to go call. It’s been a while since you guys purchased that.

Kadeem:
Yeah, we recently went to go sell. So we have on the books and official appraisal where they should have taken it off, if that’s the case.

Tony:
Yeah, so go back and show that to ’em. That could be a way to maybe get the PMI removed. But you mentioned FHA, and I’ve got two questions around that. A lot of folks are worried about FHA because of the kind of hoops you have to jump through during the purchase process and more specifically around the inspection, like the FHA inspection, and you mentioned you were there for it. Were there any hurdles specifically related to the fact that this was an FHA loan that you can call out for Ricky listeners so they know what to look out for as they go through this process?

Kadeem:
So not on the buying end. Again, we tried to sell the property and we were selling it to someone within FHA loan. And so I saw it firsthand the other side. But if I was to look, it’s a whole bunch of little stuff. The paint on the brick outside, can’t have any, chipping a whole bunch of little things that as a buyer, if I’m advising the buyer, you should be happy because these are safeguards for you. Yes, it’s a lot of hoops, but it’s a lot of hoops to make sure that you are buying something that has good bones, that’s going to work for you. The bank is on your side. If you get messed up, they get messed up. So they’re putting these extra hurdles for your advancement for you to make sure that you are purchasing something that’s really good.

Tony:
And I think that’s where a lot of folks also have hesitation is when they are the seller and if they’ve got two offers, one’s FHA one’s conventional or cash, the FHA usually gets bumped down a few rungs, another loan product that’s really common, but then also has its hurdles. Is the VA loan ash. Have you ever worked with the VA loan in that way?

Ashley:
Yeah, so Daryl’s a veteran and he’s doing his first VA loan right now. And from what came back from the inspection, it’s more like safety issues I guess. Instead of actual repairs, there’s two sump pumps in the basement and they needed covers on ’em. Some electrical outlets didn’t have outlet covers on it. There is two stairwells that lead into the basement and one didn’t have a handrail, so it needs a handrail. So those are pretty easy things to do. And then the other thing is there’s an exterior shed that has some rotting wood and paint chipping and they want the rotting wood replaced and the chipping paint it repainted. The problem is is it’s zero degrees right now. Paint is not going to stick. So Saturday is our day to actually go there. The seller already took care of the sump pumps, the outlet covers, so we just have to do the handrail and then we’re like, we have to figure out what to do with this shed.
And so I think we’re either going to take some metal siding from a Morton building and just tack it on there. Oh, it’s got brand new siding, or we’re going to just have to rip out pieces of the wood and just put it up and maybe paint it inside and let it dry, then put it up. I don’t know. We’re going to assess more, but that’s what at least our list was. And I’ve only sold a house to maybe one person that used an FHA loan, and it was kind of a similar thing, more like they’re wanting it to comply with code enforcement laws and stuff,

Tony:
Which in the grand scheme of things isn’t all that terrible. But for a seller who wants convenience during the sales transaction, a lot of times they’ll just want the person who’s going to overlook those things or maybe take care of it themselves.

Ashley:
And this is holding up the loan too, because you have the appraiser come and then they tell you the things and then they have to come back and inspect. I have to schedule with the seller. When can we go and do this stuff or if they’re going to do it. So it’s a lot of back and forth also. And one thing too that delayed the loan was we’ve got the appraisal, but we want to make sure that we have loan commitment, so don’t go and do the repairs. So we could have started a couple weeks ago, but then we had to wait for commitment and then it’s like, okay, now go, but everybody else is ready to close.

Tony:
Yeah, and then in New York, everything takes long anyway, so you add this on top. And actually my closing two years, it’ll be 2030 by the time she close. Don’t say that because

Ashley:
That did happen to be on the property I’m sitting in right now in two years. Two years

Tony:
To close. Well, Kade, I think one last question from you on the first house hack, and I think this is the question that a lot of people ask is even if you have your own separate space, you’re still somewhat living close to your own tenants. And how was the experience for you self-managing for the first time, and what guardrails or kind of boundaries were you able to set with your tenants to make sure that even though they were your neighbors, you still had some level of privacy?

Kadeem:
It was terrible. Just to sum it up, that first round of tenants, I can remember calling my tenant and I can hear her talking not only through the phone but through the floor. He was right under us and she had been there for 10 years. So from her perspective, and this was her argument, you’re the new guy, what do you mean? How are you going to come here? I’m like, but I own the building. I get to set some rules. And she knew we owned the building, and so it wasn’t as professional as we would want it to have been. When we finally turned over our units and had new people come in, then we can put some guardrails up. Right now it’s a little bit more professional, but those first tenants for whom they saw us walk through the property, so I’m like, I know you’re the owner. You were here seven months ago. You were here and now you’re upstairs. I know you’re the owner. And now I can pull on heartstrings and I’m not bargaining at the Walmart checkout line for prices because I know that the person who I’m talking to don’t set them. And when you’re talking to the person who has full control over setting some of the parameters of your agreement, you try for that. So it was definitely difficult until we got new tenants in

Tony:
Kadeem. One follow-up to that is what tactics, or I guess what experiences did you have where they were trying to maybe negotiate with you and how did you navigate that? Did you find yourself not falling victim? I think that’s the wrong phrase, but did you find yourself having empathy for them in that situation and maybe bending the rules or was it you were able to kind of stick to the guns of what the lease said?

Kadeem:
So let’s paint the picture. I was a full-time graduate student. I had a full-time internship. I had a full-time job and was a full-time landlord all rolling. And these were section eight tenants. And I asked my wife, what were the rents back then? And she told me, she was like, but remember we never got their portion. I think it was like 700. And then she was supposed to pay a hundred, not in the year she lived there. Did she pay her 100? And it was like, I can fight this lady over a hundred dollars, but I got school or I got to go to work or a lot of things we ended up budging on because the deal still worked to where if it keeps the piece of the building, keep it and then we’ll just make sure that things are in place whenever you’re no longer our tenant.

Ashley:
Did you guys end up evicting her or terminating the lease or how did she ended up moving out?

Kadeem:
Oddly enough, and this is our discomfort with section eight, is that it works perfect for normal moral people, but if you are immoral, you can take full advantage of it. And we failed an inspection because they were like mouse droppings. And then we had someone come back, sprayed, do all this stuff. We had all the receipts for the company who came and did all of the abatement, but the lady never swept the mouse drop. And I’m like, I’m not going in your apartment to sweep this up. But she knew if they were still there, we would fail again. So even though we paid for the exterminator, we failed again. We went like three months without getting rent from section eight, which everyone considers like, oh, it’s guaranteed if everyone’s moral, it’s guaranteed. But there are definitely people who know the system enough to where they can use that against you. And eventually it was like, Hey lady, if you don’t want to be here, we’ll cut it. We’ll give you a great review, the section eight, and then you can just go somewhere else. And that’s what ended up happening.

Ashley:
So a blessing in disguise, I guess

Kadeem:
Minus the three months we missed out on, but yeah.

Ashley:
Yeah, yeah. But an eviction probably would’ve been just as costly and more of a headache and more time consuming for you to be able to do that. So once the tenant left, did you go and renovate this unit at all or was it already pretty turnkey Besides cleaning up the mouse dropping?

Kadeem:
It was pretty turnkey. It was super minor. One thing that we have across all of our units is it’s all the exact color paint, all the exact cabinets. So with that unit we established the like this is what every single unit moving forward will look like. The next turnover, we just repainted everything to that. So it wasn’t a lot for that particular unit, but that unit was super important because it set the standard for what we would use for every other unit moving forward. And I lived there, so I was doing all the work.

Ashley:
One thing before we go to break I want to touch on is you had mentioned that you and your wife kind of put a strategy together where this first property was in her name and then you went on to get the second property in your name. Can you explain why you decided on this strategy?

Kadeem:
We had to, right, but I know you can only have one FHA loan in your name at a time. And with that assistance with the down payment, that 3.5% down, that was the only way we were able to do it. So we asked ourselves, okay, well I can’t do it in your name. We can refi out. It didn’t really make sense for us at that time. So the second one would be in my name. And then I know we talk about a third deal, the third building we bought mentally with our daughter in mind, and so it’s not in her name, but it’s her building. So we put it on a 15 year mortgage thinking that, oh, this is your first birthday present. By the time you’re old enough to need a car, your building will buy your car. And then when you go to college, your building will pay for your college and then that’ll be the seed money. And so that’s why after the third building, my wife was like, I’m done. We’re getting a house. We’re not moving around anymore. It’s only three of us. We have three buildings. That’s enough.

Tony:
Kadima. I guess we’re kind of going through this quickly, but you went from one to two to three in what sounds like a relatively short period of time. The first one, FHA, the second one was FHA in your name. And what about the third one? How did you finance that one?

Kadeem:
The third one was conventional, so we had to put 25% down.

Tony:
That was just you being able to save all that money from not having living expenses.

Kadeem:
Yep. So we say one bought two, one and two bought three, and then one, two, and three brought our primary house, what we were able to build from the ground up two years ago.

Tony:
That is fantastic. Let me ask one last question across the portfolio right now. Just like ballpark, what’s your cashflow across all those units?

Kadeem:
So we do not have to ballpark, I took notes. We collect a little over $10,000 a month in rent. We bring in, we save about 25% for maintenance CapEx vacancy because I do the management, there’s a little bit of savings there. So profit for the month is about $2,500, and that’s the mortgage on our primary house. So we kind of say we’re still not paying out of pocket any housing related expenses.

Tony:
Kade, congratulations man, because thank you. To go from sitting in the financial aid office all

Kadeem:
Started

Tony:
Right to now being at a point where you’ve got three different investment properties, a new primary that you love, and all of this has been funded by your ability to execute as a real estate investor is I think such an inspiration to everyone that’s listening. Because a lot of times we think about the end goal of real estate investing and different people have different goals, but for a lot of people it’s like, oh, I want to quit my job, or I want to do this, or I want to do that. But there are so many other ways that real estate can change your life for the better. And something as simple as, I don’t have to worry about paying my mortgage every month because I’ve got three other properties that are paying it for me. There is a peace of mind that comes with that that would be hard to get elsewhere.
So man, I love your story. Congratulations brother. So we’re going to take a short break, but when we come back, we’re going to dig into how Kadeem story has evolved and how has investing strategy evolved. We’ll be right back after this. Alright, welcome back. So Kadeem, we just heard before the break about how you scaled at the portfolio and again, congratulations on that. Now, you briefly mentioned that the first bought second, the first and second bought the third, the first, second and third helped you pay for the fourth. I want to talk a little bit more about the third property. I know that one required a little bit more money down. What was slightly different? Because you said that one wasn’t FHA. So just walk us through how that deal was different than the first two.

Kadeem:
It was a lot less expensive as far as the purchase price of the building because we had to come up with 25% down. So it wasn’t a three flat like the others, it was a two flat, which is a two unit building. I know it’s flats being different things, different places, but it really wasn’t that far off. It was a lot quicker. We didn’t have to jump through the hoops of FHA, but we also didn’t have the guide rails of FHA. So all of that due diligence of making sure that it would make sense, that it was safe foundation, all that good stuff was on me and my wife to make sure that this was the deal that we wanted. But I tell everybody, it’s just math. The math makes sense. We got a nice little spreadsheet that we use and here’s what the expenses will be, include all of them, don’t cheat yourself, include all of those expenses. Here’s what you’d likely get, which is just like as a renter, if you know how to find out what an apartment would rent for, then you can just do that backwards and find out what you would rent an apartment for. So this is how much they would rent for, this is how much it would cost. This is what the mortgage would be. There’s a million mortgage calculators out there. It was really easy to say this makes sense on paper. And then we pulled the trigger.

Ashley:
So this property was a two flat tune it, and so you were going to move into one or this was purely investment.

Kadeem:
Purely investment. So it was 160,000 and we put $40,000 down, which still blows my mind to say to even think that we had $40,000 cash. Even though we talk about the portfolio paying our mortgage, we actually do not contribute to the portfolio all. And we never have since the initial $12,000, which you can argue is also not us personally contributing to it, it has been fully self-sustained. And once we realize, Ooh, we shouldn’t pay ourselves rent, pretend we should literally make a second bank account and pay ourselves rent and have the rent once we cut ties with the business altogether, we’ve not intermingled our money at all. And we looked up and said, oh, we have enough for another purchase.

Ashley:
I think that is a really hard portion of being that diligent to just let that money grow and to not touch it and to say, oh, let’s go on a vacation. We’ve got 10 grand extra, we don’t need it. And being able to, when you have that income creep and not having that lifestyle creep with it actually does take a lot of diligence to stay motivated as to why you invested in real estate in the first place. And not only real estate. If you got a big bonus or you got a pay raise or something like that, it’s very, very easy for somebody to have that lifestyle creep that goes up with your increase in income. So congratulations on being strict with yourself to not touch that. And when you did touch it, you continue to invest.

Kadeem:
We still fall a victim to that within our personal lives, but our income creep, our lifestyle creep is strictly based on our nine to fives. My wife’s a nurse practitioner, I’m a child psychologist, so it’s like if you want more, you got to do more in your primary job, but this is just separate.

Ashley:
Let’s look at the numbers on this real quick. So how many years since the purchase of that first property did it take you to accumulate that $40,000 in there?

Kadeem:
So we bought it in 2018. We bought the second property in 2020. I know that you only have to live in the unit for one year. It took us two years management issues, learning curves, and then one year after that, so in a three year span we bought two buildings.

Ashley:
And then how much equity has accumulated in those properties since you bought the first one?

Kadeem:
So we include our primary residence, given that it was bought by the real estate as well. We have about $970,000 in outstanding mortgages, but $1.8 million in total value. So $800,000 in equity.

Ashley:
That’s incredible.

Kadeem:
It’s hard to say

Ashley:
How else they’re going to find $800,000 that you can tap in over that many years.

Kadeem:
We tried to last year sell the first property. We bought it for two 90. We have about two 40 left on it. We started at 3.5%. So it’s taken a very long time to start paying down that mortgage. But it’s value that 600. So just eight years of waiting with it being a hundred percent self-sufficient is roughly $350,000 in equity. And if we could have sold it, we would’ve 10 31 exchanged it into a larger building. And then I would maybe taken up that whole, maybe I’ll be a property manager to benefit from the real estate professional and then just do this full time that’s still on the books if that ends up happening. If not, I have a four month old daughter who’s in need of a building by her first birthday. So either we’re ten thirty one exchanging or we’re just going to buy another two three flat for her first birthday as well.

Tony:
I love this theory of compounding because I think people don’t realize just how, and I’m not talking about compounding in the sense of the stock market and interest and all that stuff. I mean the compounding of your portfolio, because it took you all this time to get that first deal together, but then the first deal fed into the second deal and the first and second fed into the third, the first, second and third fed into the fourth. The first through fourth will feed into the fifth. And the time between each deal starts to get shorter and shorter because this machine that you’ve built gets stronger and stronger. And we talk about it all the time, but it’s like if someone were just to invest in a very boring fashion for the better part of a decade, for most people, they could probably put themselves in a position to at least be somewhat job optional and maybe have options around working less or maybe taking a lower paying job that they enjoy more if they really just focused in for 10 years. And we’ve seen this story over and over and over from so many amazing guests and kadeem. I mean, your story is one that I hope really, really resonates with people because you didn’t do anything sexy. You didn’t do anything earth shattering. You just showed up, put one foot in front of the other and it compounded over time. So man, I love your story.

Ashley:
So I guess before we wrap up here, one thing that you talked about was buying a property for your daughter, but how has real estate really changed the outlook on your kids’ future compared to how you grew up?

Kadeem:
So single parent household, that’s not necessarily real estate related, but just looking at the what’s to come for my daughter, we bring her to the properties all the time. She’s five years old, but she does understand that, oh, this is my, and she’ll say, no, no, no, that’s my property. You did all that work. Yes, but you did that for my property. And she kind of understands the idea of ownership that we rented out or we loan it to people and they pay us. And she was like, oh, well, once it’s paid off, and mind you, this is a five-year-old talking. Once it’s paid off, I won’t need a job. I could just live there for free. And I’m like, you got the right mindset, right? That’s not how it’s going to pan out. But that’s the thought process. You have something that you own that you can live in yourself, you can sell whatever it looks like.
We’ll guide her through that. But I know if I started with that much seed money, oh, it would’ve been over, it would’ve been retired by now. It would’ve been, would’ve an entirely different story. And we’ve been able to, not just for my daughter setting her future up, but when this made sense on paper, we told everybody, we knew everybody with an earshot. I’m yelling like, this makes sense, this makes sense. When it made sense to my mom, she said, oh, okay, cool. Went to her 401k. My mom owns so much more real estate than we do. And started after we started because she had more capital to employ. But I have friends who bought it and used me as resources like, Hey, you have a plumber. I don’t because they’re transient, but I can help you find one. The community that we’ve built within my immediate family, my immediate friend group, everyone’s kind of planning out for their futures, and this is not what I grew up with. This is not the community I grew up in. Yeah,

Tony:
Kadeem, all the more reason. I love your story even more, man. Aside from all the success though, you mentioned some challenges along the way. We’ve hit some of them, but I guess if you could zoom out 30,000 foot view, are there any maybe larger mistakes, strategic kind of mistakes maybe that you feel that you’ve made that Ricky should think about as they get ready to jump into their first deal?

Kadeem:
I didn’t start soon. I didn’t start in college. If I was really smart, I would’ve come up with this and instead of renting a house, I would’ve bought that house that my friends and I’d still have a property in a college town. I think this just worked so well. I didn’t make this up. You guys didn’t make this up. Math has one, plus one has always equal two. Before we knew it was it did. Real estate has always worked so well that even when you overpaid, because I’ve overpaid for so many things in the grand scheme of things, just do it. Even the mistakes that you can come up with are so small at that 30,000 foot view that once I look up from that vantage point, I don’t even see mistakes. They’re just little blips,

Ashley:
Kadeem. I have to ask that college house, have you ever gone back and looked at what it’s valued at now or what people are paying for rent now?

Kadeem:
I looked at what the mortgage was when we lived there and we were paying maybe like $2,000 combined with the five people paying $400. And I think the mortgage should have been like a thousand dollars. And again, resonated with this idea that don’t tell anyone. And I guess we can’t do this on the podcast, but my plan is still to go back and buy a house in my college town where I still know people from my fraternity and say, you guys can live here. Don’t mess it up. But knowing that you have a constant recycling potential tenants, all of whom are paying with refund checks who don’t have a grasp of money yet, and they’re like, here it is the whole year in one, that’s still a plan.

Ashley:
Well, anyone listening that knows the best flooring that makes beer spills less sticky, reach out to Kadeem, whoever is frat Alice who’s going to purchase there. Well, thank you so much for coming on the podcast today. We really appreciated you taking the time to share your story and also all of the knowledge that you’ve obtained since you bought that first property. Where can people reach out to you and find out more information?

Kadeem:
Because I’m not a realtor or anything like that. You can follow me on Instagram. I document almost everything we do. I’m really bad at it, so don’t be surprised. But I’m trying to get a little bit better on Instagram. I’m Kadeem Ali, so K-A-D-E-E-M-A-L-I, which is just my middle name. And then TikTok is Kadeem the Ali, because I started the TikTok a long time ago, forgot about the password and couldn’t keep my original name. So Kadeem Ali on Instagram and Kadeem the Ali on TikTok.

Ashley:
Well, thank you guys so much for listening today. I’m Ashley. He’s Tony, and we’ll see you guys on the next episode.