Creating a Five Year Plan to Financial Freedom with the REIMOM! – Anna Kelley

Hey everyone, and welcome to another episode of the Everything Real Estate Investing show with Sean Pan. Today, we have Anna Kelley. Anna is a real estate investor in central Pennsylvania and has recently achieved financial freedom after five years of deliberate investing. She’ll share her story about how she got into real estate investing and what she did to retire so that she can have free time to be with her family. If you liked this episode be sure to give it a five star review and subscribe to the show to automatically get notified when a new episode comes up. We release episodes every Wednesday and Sunday. Enjoy!

Sean: [00:01:15] Anna, please introduce yourself and let everyone know how did you get into real estate investing?

Anna: [00:01:20] So, my name is Anna Kelley and some of you might know me on Facebook as “REI Mom”. I have a consulting and women’s investing group called “REI Mom”. And that’s where that name kind of came from. I run a women’s only meetup group in central Pennsylvania called “REI Like A Girl” and I have been investing in real estate on and off for about 20 years, but really got serious about investing about five years ago. And about five years ago I really set out a five-year plan to be able to replace my six figure income with rental income. You know, just that consistent passive income that would allow me the true freedom to be with my children and not have to work a full-time job. So I set out a five-year plan and I’ve just been aggressively buying small rental properties in order to meet that threshold and I did it in about four years and then I saved a year’s salary and six months expenses for all my properties over the next year. So it took me truly almost exactly five years from the time that I set out to plan until I retired last week.

Sean: [00:02:32] Congratulations, that’s an amazing story. And I wanted to go a bit deeper. So you said you had a five-year plan that you were going to be where you are today, so that’s amazing. But what did you do exactly? Like what was that first thing you did?

Anna: [00:02:47] Sure. So backing up a little bit, even though it was like a five-year nose to the grindstone, here’s my plan, you know getting really serious. I had started to kind of do that back in 2007-2008 and as you know, right after that is when the financial world kind of collapsed and also real estate. I work for AIG Life Insurance company and we were right in the middle of insuring all of these companies that went down. So I almost lost my job. All the lenders that knew I work for AIG wouldn’t lend to me anymore while we were waiting to see what happens. So I had 12 units in 07-08 and when everything kind of collapsed it was very difficult to get any more financing for me. And so I was kind of put on hold for a couple years and at that point, I was just so busy trying to figure out how I was going to survive financially if AIG went under and not being able to borrow money that I didn’t think very much about alternative solutions like buying on seller financing or not using banks or using other people’s money. So for me personally, it was like 5 years before the banks finally started saying, “Okay. Yes. We see your job as safe, we’ll let you borrow from your equity.” So a long journey, but five years ago when I asked the banks “Hey, can I just borrow the equity that I’ve built up in these three buildings and 12 units?”, that’s when they said yes, and that’s when I said, “Okay, I’m going to start this five-year plan” and really get serious. And so I went to a real estate networking group meeting and I hadn’t been to one in a really long time. And so the very first meeting that I went to, a seller stood up and said “hey, I’ve got this three unit building that I want to sell”, and it was in a town right next to me. So I walked up to him and said “let’s chat about it, and are you willing to do owner financing?” And he actually had a large capital gain. He was going to have to pay and he said “Let’s sit down and talk.” So we met for lunch and put together a deal and I bought that 3-unit building that I knew I could convert to a four unit. So it had kind of a value play there as well. And that was my first deal back when I went, “Okay, I’m back in it. And now I’m going to get real serious and and figure out how I can truly start aggressively buying and how long it would take me to replace my income with that rental income.”

Sean: [00:05:07] That’s awesome. How did you figure out that creative solution of knowing that you can convert the three-unit to a four-unit?

Anna: [00:05:15] Sure. So this particular property was kind of interesting. It was an old farmhouse and it had formerly been the house of an owner of a 55+ trailer park or mobile home community and what he did is he took his home and converted it into three apartments at one point and then he had this extra space that could have been made into an efficiency and it was a former leasing office. So it was leased, it was for sale as a three-unit plus this little storage building, but it had plumbing and it had a bathroom and I thought, “you know what, I can just turn this into an efficiency unit and make this thing a four-unit. So that’s exactly what I did.

Sean: [00:05:53] Do you require special permits to do that?

Anna: [00:05:55] No, not really because we already had plumbing and it had already been kind of zoned for that. So I just had to get an exception to make an efficiency instead of an office.

Sean: [00:06:04] Awesome. So this was five years ago. I’m assuming you don’t just have a four-unit. Because you can’t be done with just one 4-unit complex. What happened after that?

Anna: [00:06:12] Sure. So when you asked about the five-year plan, I have a background in private banking and so I was an advisor and teaching people what to do with their wealth once they had a lot of money. But I really didn’t have a lot my of my own and I knew a lot of my very wealthy clients had a lot of real estate and so they would tell me, as I told them, “Oh you need to invest in stocks and bonds and mutual funds”, some of them kind of laughed at me and said, “You know, I make a lot more than that in real estate”, but they wanted some diversification. So I always knew that real estate was powerful. And I had done a lot of research before I started buying my 12 units in 2007 and knew that if you could buy them low, force the appreciation by raising the rents and lowering the expenses, you can really grow wealth very quickly. And so I had a lot of book knowledge. I had listened to webinars and and read some blogs and things like that. I just never had the money I felt I need to get started. And so when I did decide I really need to work myself out of my job, because I work for AIG and AIG always came out on top and it was stable but each division kept having layoffs and layoffs and layoffs. So I knew my time was probably coming as our division was being going to be sold five years ago. And it was kind of the impetus to make me say I’ve got to figure something out. And I work for a major corporation because I worked in a big city before I moved to PA and they let me work from home. But I knew that living in rural PA amongst horses and buggies and farmland and chickens, it wasn’t very likely that I was going to find another six-figure job working from home and I needed to get creative and figure something out. And so since I had those 12 units and I had kind of experimented with property management and construction and learning how to be a landlord with those 12 units over several years, I knew that there was power in that and if I could just have that equity I could figure out how to continue to grow my portfolio basically by buying them, renovating them, refinancing them and then just repeating the process, putting a tenant in it. So I had that background that led me up to that and then I just put pen to paper and said what do I make per unit on these? What can I make realistically per unit on these and how many more will I need to buy to get there and how much cash am I going to need to actually do it if I’m going through banks? How many deals would I need owner financed? And I just created a formula like this is my target property, this is how much I need to make four-door after I’ve renovated it and gotten a second mortgage on it. And then here’s what I’m going to have left that I can bank on. So I just backed into the number and figure it out. I need 12 units a year over five years of like four unit apartment buildings in my area.

Sean: [00:08:59] And so is your entire portfolio in Pennsylvania?

Anna: [00:09:03] All of my portfolio right now is in Pennsylvania. It’s all within about half an hour from my home.

Sean: [00:09:08] Wow, that’s amazing. So you can drive up to I guess any building that has issues. Right?

Anna: [00:09:12] Absolutely. And that was really critical for me. It’s not that I necessarily recommend that everybody has to do it that way but because I did work a full-time job and I have four children, they range from 8 to 16, we’re extremely busy. And so, you know, we have sports seven days a week, we go to church, we have different activities we’re in. And so I really just didn’t have time to drive out to places far away or to jump on flights as something happened. And so I just felt it was wise for me to be very actively involved in purchasing and overseeing the construction in the beginning to be quite honest with you. It was a ton of sweat equity. So my husband and I learned how to redo a property. And I painted. I can’t tell you how many late nights before tenants moved in and you know, just learn to do everything completely on our own because we really didn’t have the money to pay other people to do it at that point. So because of our time and our finances, it just made sense to buy local, put in sweat equity and then as you grow start to kind of expand. So I’m actively looking at deals now outside of my market, but everything that I have to date is is here in Central PA.

Sean: [00:10:23] And did you hire out property management relatively soon or did you try to do it yourself for a while?

Anna: [00:10:29] So again this kind of comes back to everybody has a unique situation and a family dynamic that makes managing properties either themselves or using a property management company more preferential. So for ourselves, my husband is a chiropractor. And in 2007, we started his business with several hundred thousands of dollars in debt. And when 2008 happened, also healthcare changed and reimbursements, what he was paid by insurance for chiropractic visits, were cut more than in half in about a two-year period. And in a little town of 7,000 people with five chiropractors, you can’t just market your way to more patients. So it took him a long time to just break even on everything he was doing and we figured it really didn’t make sense for him to stay open five days a week given the flow of patients. So what he decided to do was stay open three days a week and the other two days a week work on putting in sweat equity into buildings. So because it kind of worked, the dynamic, and he actually kind of enjoyed it, it gave him an outlet outside of just the chiropractic, he really handled the maintenance stuff and updating the unit in the beginning and still does baseline maintenance on his own as well. So I handle all of the finances and the tenants and the people and again because we’re in a small town there are not a lot of great property management company options. So I had a couple units that I gave to a property management companies and let’s just see how this goes. They were in a slightly rougher area just a little further away. I call them like a C- to D+ and I thought I experimented with “hey, these have super great cash flow. They’re super cheap. Let’s just see how helpful they can be” We’ve put those with a PM Company and it was a disaster Sean. I mean the PM company’s hired administrative assistants to be property managers, maintenance people and people that had absolutely no knowledge of anything related to a building or people or the laws. And so we just had so much trouble finding good property management that we just decided “You know what, we can continue to do it. Our buildings were completely rehabbed each unit at a time. So very little goes wrong. And we also live in an area where there’s an above-average income. And so our tenant pool is hard-working white collar and blue collar. We have very little vacancy, they pay their rent. And so there’s really not a heavy property management on a day-to-day involved in what we do. So it just made sense for us and for the units that we have now and how close they are to just continue to self-manage for now. Now with that said I do also own larger properties. So I also have a 73-unit apartment building that I bought with partners last year. We have a 31-unit that we’re closing on next week as well. And so with those bigger properties where you can afford with the economies of scale and all the rest of it, you can afford on-site property management. That’s definitely preferred. And I love being an asset manager on those buildings rather than the property manager and the person that’s having to call the contractors for maintenance issues. So, you know, it just depends on where you’re starting. Are you starting with a lot of money and you can invest but you don’t have time? Then you’re going to hire everything out. If you’re starting with no money but time, you do it yourself until you can afford not to.

Sean: [00:14:03] Yeah, really good advice. So you talked about how you have some properties in like rougher areas in your neighborhood, you know, there’s usually like a trade-off between investing in a rougher neighborhood for higher cash flow and a better neighborhood for lower cash flow but higher potential appreciation. Do you have any advice between that balance and where have you fallen in that spectrum?

Anna: [00:14:24] Absolutely, so I cannot express enough that unless you are extremely experienced, have a lot of capital, and can afford to not meet your business plan not to go into a C- or D or D+ area because while on paper they look like they cash flow, the reality is in many situations and I’d say the vast majority of owners that I know who have attempted to have that type of portfolio, your economic vacancy is just so high. So when you’re buying an asset you’re dependent on rents, but you’re renting to people that can’t afford to pay that rent, then you’re going to have issues or if you’re in an area that’s high crime. You can offer the nicest property you can, update it and think that people are going to stay but if they’re worried about the safety of their children when they run to the store, they’re not going to stay there. If the school districts are terrible and they want more for their kids, they’re not going to stay there. So your vacancy rates are always so much higher than what you project and anticipate and so is your economic occupancy because if I’m not able to pay, so a lot of them are delinquent. The other thing that I have found is, and I’ve flat-out had property management companies tell me, “you expect too much, these tenants don’t need you to repaint these apartments. You can just leave it like it is, it’s this particular city” and they kind of have a slumlord mentality because they mostly managed for slum lords. And so, it’s difficult and scary to manage them yourself. Especially if you’re a female or you have children when you’re in an area that you don’t feel safe going into and most of the companies that are there unfortunately for small owners just aren’t doing the best thing for the tenants or for the owners. And so I can’t tell you how many investors I know that have gone in those areas hoping to turn things around and have been disappointed and lost a lot of money and have had a hard time selling because you don’t have a lot of buyers that want to buy in those areas. So I experimented with just a few because I bought them so cheap. I bought a three-unit, for example, that I bought for 25,000 dollars a unit. And I thought “oh my goodness. The rents are not much lower than they are in my nice Class B and B+ area. But I’m buying them significantly cheaper, less than half of what I would pay in a nicer area.” And so I thought I’d have to lose a lot in vacancies for it not to go well and believe it or not it did not go well. So in a year and a half I quickly sold those properties. I made a good profit on them thankfully because I bought them right but I would not go back and buy anymore in that type of area, at least not where I am, you know in my investing today.

Sean: [00:17:11] See, it was a solution there then. Everyone should just stay away from those bad areas?

Anna: [00:17:15] You know, it’s hard to say anything blanket everyone, you know, everyone has different risk tolerances and different skill sets and different reasons for investing. So if you’re just thinking “I’m going to put on my money there and I’m going to make this great cash flow” and you’re only looking at cash flow, you miss out on a lot of other components of the investment. You know, how quickly can you sell it if you have to sell it? Can you sell it? What’s your liability if somebody shoots somebody in that building or if somebody breaks in and raped somebody in that building? There are a lot of things that you really can’t control and risk that you open yourself up to that people don’t think about and you know, I’ve had these conversations with investors and some are like, “oh you’re just risk-averse” and I’m not risk-averse. I will take very contemplated risks if I know how to mitigate them. But with those type of areas the crime is really the biggest factor and keeping you from being able to offer safe housing, keep tenants, and be able to sell the building when you need liquidity. And so I just much prefer spending a little bit more money on a price for unit and being in a slightly nicer neighborhood. Maybe you’re in a class B area and it’s a Class C building. So it’s an older building and maybe that particular neighborhood is a little below moderate income but you’re still in safe areas where there are good schools and you can just kind of renovate that building to bring it up to the class B standards. You’re going to make much more money in the long term on the fact that your tenants are going to stay, you’re going to have a low vacancy rates, people are going to be able to pay, so your economic occupancy is going to be higher and you’ll be able to sell those when you need to because they’re going to be very liquid and it’s the type of properties that people are going to want to buy. They’re just all around a much better investment, and it doesn’t take a whole lot more money to buy in those areas if you’re buying an older building than it does to buy in a little bit rougher area. Especially if you’re leveraging it, you’re only coming up with the 20% down.

Sean: [00:19:27] Great answer. I guess if you’re learning how to get to multifamily you go to somewhere like David Lindhal boot camp and it’ll teach you about some buying criteria, the holy trinity, you know, they want 12% cash on cash returns or like 10-cap and stuff like that. Honestly I was looking at that kind of stuff. It was very difficult to find something that matched those numbers. Unless it was in the hood right? I was wondering if you could share what are your buying criteria? And what do you look for in properties?

Anna: [00:19:51] Yeah. So, again kind of the main factor is going to be being in a nice neighborhood where I’m going to be able to make sure that I have a great tenant pool, that if I have to get rid of somebody I’m going to be able to easily re-rent it being in a great school district at least, much higher than average and above average good rated school where there are some economic diversity and employers around. So for example, I like areas that are near hospitals in different recessionary times. There’s been a lot of studies done in what areas did better and worse and when you’re kind of near a major hospital, those areas tend to do better during a recession where hospitals are other businesses come. And so for my area and areas that I’m targeting out of state as well, I like to see a diverse employer pool. So I might have manufacturing, I might have trucking, I might have education, big colleges, hospitals, tech companies. So the more diverse that area is in terms of the employers there that’ll draw better tenant pool that you can choose from and you’re going to pretty well have a pretty stable asset. So that is super important to me and something that is almost a non-negotiable now for me when I invest. But you have to balance that, like you said, with what are your goals for cash flow? How quickly do you really need to get there and how much time do you have to invest to turn assets around? What kind of team do you have around you that might have experience that can kind of compensate for some of those factors that I might not like in the hood for example. So you just kind of have to ask yourself what makes sense for you, but I like those types of assets and I always target a 10% cash on cash return minimum on my money. And in reality with a four-unit that I buy, when I’m buying them and I’m putting 20% down, a lot of times I’m using my own equity from one building to buy into another building and my returns are 20% to 30% and even with a second mortgage on them oftentimes because I’ve raised the value of this property significantly above what I bought them for, my returns are truly infinite. So if you buy right and you buy in areas where you’re buying well below market, which is absolutely critical and you’re renovating them, enforcing that value significantly, then you create a property that is a 20 or 30+ return property. You might not buy it at the cap rate that you think but you’ve got to kind of balance what is the cap rate. And what is the potential that I have to raise the value of that property significantly. So for example, if I found a property that was going to make $20,000 a year. I’d say I don’t want to pay more than $200,000 because that’s about a 10-cap. But if I know that I can pay $205K but I can get a hundred percent financing OR the rents are $300 per unit below market, I might negotiate up to where “I’m really kind of below that 10 cap, but I’ve got so much upside that I’m okay with slightly over paying because I’ve got all that upside or I’ve got really low rate leverage or owner financing that gives me kind of some extra benefits to push that cash-on-cash and that IRR long term.

Sean: [00:23:22] I guess I’ll summarize, you’re  looking for maybe a 10% cash on cash within one year or so of acquiring the property?

Anna: [00:23:28] At least, yeah.

Sean: [00:23:29] Very cool. So what would you say to people who can’t find that necessarily in their area? For example, we’re here in the Bay Area. We’re not finding 10% cash on cash. What would you recommend for somebody like me who wants to get to multi family who wants to get cash flow on there?

Anna: [00:23:46] So there’s different things. And again, I think it comes back to how active can you be. Do you have more time or do you have more money? If you’ve got money and you can afford to hire a team or to partner with someone else that can help you take down deals that is kind of boots on the ground in another location where you can find 10 caps, then I’d recommend that you partner with someone else in an area that is producing those kind of cap rates consistently and give up a piece of the deal in exchange for them being more active in the process. If you’ve got the down payment and they’re in a position to manage it or oversee the property manager in that location from afar, then split the deal like 50/50 if it makes sense. And you’ll do better on a cap rate basis going in with a partner and going 50/50 in those kind of areas than maybe you are trying to buy it a 4 or 5 cap and in the Bay Area in California. So I think that’s probably the one of the wisest ways to do if you’ve got some capital to start with. Because you’re not going to be able to offer a partner much else other than finding a deal or overseeing kind of asset management, if they’re doing more of the work they’re going to want you to put in some of the capital. And the other option is just on your own. Go out and buy properties from afar working with property managers and brokers that you know have good contacts that can say I’ve got this type of property. Maybe it’s a turnkey rental, for example. So in PA, there are turnkey rental providers that they go in, they buy properties dirt cheap, they rehab them, and then they put a tenant in place for you and they put in a property management company that they either partner with their own. So you can buy that rental turnkey and you might not get a crazy deal on the property. But you’re still going to get a better cap rate than what you’re going to get in the Bay Area. So that’s kind of a really truly passive way that you could do it. And then a third way is to partner with a lot of other people on a syndication and the thing about apartment syndication is a lot of them right now are very overpriced where we are in the economic cycle and the building cycle. It’s crazy what people are paying for properties, you know, they’re buying them 4-cap, 5-cap, 6-cap, 7-cap. And when you look at that on a tax adjusted basis and inflation, you’re really basically parking your asset for no money. That 4-7% percent is basically wiped out just by the fact that you’ve got taxes and inflation, so I wouldn’t invest in a syndication. That was only paying that. But if I could invest with a small group of people that were buying properties in an area where they could offer me a 9-10% cash on cash because they’re buying really well or in an area that’s very stable but not as competitive as like your major metros were all the other big investors are coming and the hedge funds that are trying to park cash then you might be better off just investing as a truly passive investor and getting a 9 or 10% cash on cash return without really having to do any of the work that’s involved in owning your own. So it really just depends again on you and how much time in cash you have as to what the right strategy is.

Sean: [00:27:06] Nice! And how are you acquiring your deals when you’re first getting started?

Anna: [00:27:10] Honestly, a lot of them I got off of MLS at first because I targeted 4-unit buildings. And the main reason that I did that is because my area didn’t have a lot of big complexes and a couple that they did have I knew I could never afford so I didn’t want to be buying singles because the cash-on-cash are not great on singles and if you have one month that it’s vacant then you might lose your entire years worth of return from one tenant not being there. And so singles, while there is a place in most portfolios for single families and well-placed areas that you can buy below market, they’re not really the way that you’re going to quickly grow a portfolio and cash flow. And so similarly with duplexes they typically are sold higher than what we would pay as investors because a lot of people want to buy than to live in one and run out the other and they overpay. And so my only real option at that point was to go to the four-unit buildings. I didn’t have the liquidity required for commercial loans for five units and plus at one point. And so even though I’d find some deals or a little bit bigger, they wanted six-month liquidity on everything that I owned and they wanted more net worth than I had. And so it just made sense for me to say “hey, I’m going to buy another 4-unit.” And so I bought the four units and that really was the way that I built my portfolio mostly on buying a four-unit building well below market and needed a lot of work in a really nice area, going in and updating those buildings, lowering the expenses and then raising the value quite a bit, cashing out with a second mortgage and using that to buy another building that would have another 4-unit that had more cash flow. So that was kind of my sweet spot and there weren’t a lot of other investors in my area quite frankly buying them. So they would sit on the market and nobody was looking for him because most people that were just getting started we’re looking for singles or duplexes and they didn’t have the cash to buy bigger or they were going after much bigger deals because they had more money than I did. So those four units, I was one of the only people buying them up in town for a couple of years. Now, people have kind of noticed that my area’s so nice that they’re trying to come invest here, but I still get a lot of them off of MLS. I also have bought off of auction sites like Xome and Hubzu and Auction.com. Small multis and even some singles that we have bought and decided that we were going to raise the value cash output a tenant and keep them and take the equity to buy 4 units. And quite a few word-of-mouth properties have come to me as well just through attorneys and other investors who I bought. For example a four unit from a retiring landlord and then he told someone else, “Hey, we just structured a seller finance deal and she’s saving me all my capital gains and you should call her when you want to sell” and I took down another property that way so between MLS and auction sites and word of mouth that’s been like 95% of my properties with maybe the other five percent coming from mailings.

Sean: [00:30:22] So you sound like you have a really nice thing going on. And when I hear stories like yours or if I read something in a book and I hear all the breakdowns in the stories of how everything worked out, it sounds pretty simple, like just look at the numbers, buy right and you’re good. But you know, that’s not really how reality works. So are there any challenges that you’ve encountered that you didn’t expect and that wasn’t written in books or podcasts.

Anna: [00:30:44] Sure. You know, I like to tell people three things that I can remember that are really important to know. One is when you’re buying rental properties for your own portfolio and trying to grow a stable cash flowing portfolio of properties you rarely ever buy something that’s truly passive. I say and believe completely that passive income is built on the blood, sweat, and tears of active income. It is hard work. It’s not complicated. The process is simple. The process is repeatable and you do it over and over again, but it’s hard. So it’s harder to find deals than you might think. Sometimes it’s harder to finance and then you might think, sometimes it’s harder to rehab them at the budget that you think you’re going to be able to rehab them, or to get tenants out then you might think it’s harder sometimes to find good tenants and keep good tenants than what the books might tell you depending on your demographic. So everything has a learning curve and everything has hurdles that will pop up that you’ve got to learn to jump through. And that you’ve really got the grit and determination to push through because there are some seasons in this investing time that I’ve had over the last five years and really over 12 years that I’ve been in PA that I wanted to quit where it was hard. You know, you’re not only doing properties at least for me I was doing it part-time. So, you know, I’m working a day job. I’ve got four kids. I pick them up after school. I’m in at least two different sports places almost every single day of my life. And then I’m handling the tenants and handling maintenance calls and handling emergencies and then you know, you have a storm come through and you have flooding that areas never flooded in years and years and years and all of a sudden something comes in and you’ve got a flood in four basements and a roof blow off a building. You know, I’ve had those things happen like all at one time. And you’re going “Oh my gosh. I’ve got a day job. I can’t leave here. I got to pick up my kids.” These tenants are screaming. I can’t get any contractors to come out because they’re all out everywhere else at the same time when the whole town’s under water or when there’s six inches of snow and you’ve just got to learn to juggle and handle everything that comes. So self managing and building your own portfolio comes with a lot of time commitment and a lot of hurdles and it can get pretty stressful but you just have to have the mentality that no matter what comes I’m playing the long game. I’m going to get through this and it’s going to get easier as I go and it has for some people that are not working a full-time job. Maybe you don’t have kids and you’ve got a lot more time on your hands. It may not be nearly as stressful to go out and start building up a portfolio. But it’s just really going to depend on you and the type of asset you’re acquiring. How much money you have and how much of your own time you have to put in them until you build that net worth?

Sean: [00:33:47] That’s crazy. Is that the kind of natural disasters you see in Pennsylvania like tornadoes and stuff?

Anna: [00:33:52] Yes often. It’s amazing Sean. I moved here from Texas and you think of tornadoes in Texas, but I experienced maybe three or four warnings my whole life and I moved to Central PA there’s earthquakes, there’s tornadoes, there’s hurricanes that come this far out and there’s flooding, and snow, a lot of snow. So you have things like that that come up but you just don’t expect and natural disasters you just really can’t control so you can have your building set up with some pumps like we had some pumps in two of these basements. And the one tenant had I guess unplugged a sub pump who knows when. So it didn’t work and it filled with water and then the other one just failed. And so, you know, you think that you’ve mitigated every risk and then things happen. We lost a roof during a tornado and there’s just always things that happen. So you just got to be prepared for that stuff and have enough cash set aside that you can handle it when it comes.

Sean: [00:34:54] But your own personal house wasn’t affected by those natural disasters, right?

Anna: [00:34:57] I actually had a period last spring where we had major rains. Like I said, I had like three or four basements underwater. I lost half of a roof on a property and we lost shingles on our own new house twice because we had like weeks of storms and winds and everything coming in. So all that time and we’re going “oh my gosh”, we had big insurance claims, I had a pressure relief valve go bad in a third floor basement on a multi-unit that created a massive amount of mold in about a month period before we discovered it. Had to re-home all the tenants in that building and go through claims and this was all at the same time. So last February to March, I thought I’m never going to buy another property again. I can’t handle it anymore but we got through it. But you know insurance policies have caps and limits and deductibles and tenants get ticked off and leave and threats of lawsuits. I mean, there are all kinds of things that can go wrong that you think “oh these things are never going to go wrong.” So when you get into this business, you have to be prepared for bumps in the roads and unexpecteds, you know, there’s a reason that banks want you to have six months of expenses liquid. None of us investors ever want to do that. But you know, it’s wise because things do happen. So, you know you just prepare for all kinds of things.

Sean: [00:36:18] Yeah, that’s crazy. It’s like when it rains it pours and it all happens at the same time.

Anna: [00:36:23] Oh, absolutely. But it’s all worth it Sean. If I could say anything, it’s all worth it. Like I would do it all over again. Really for 10 years, I’ve worked about 80 hours a week in order to try to get to this place of financial freedom. Five years with a strong plan and the bank’s actually cooperating. But it’s been a lot of hard work and a lot of time but I’ve gone literally from couple hundred thousand net worth to several million dollars net worth and high, nice six-figure rental passive income in five years and it’s like what else is ever going to get you there? There isn’t anything that I know of. I’ve invested and worked with very high net individuals who’ve invested in everything from commodities to stocks and mutual funds and hedge funds offshore. And there is nothing like real estate, especially multifamily real estate to grow wealth out there.

Sean: [00:37:22] Yeah, that’s amazing. So we’re talking about financial freedom. Go ahead and let everyone know what just happened.

Anna: [00:37:28] So I retired. I actually gave my retirement notice, thank you so much, almost two months ago and last week was my last week at my job. I had been with AIG for over 20 years and it’s still surreal that I’ve actually reached that level of financial freedom, and I’m just so thankful and so blessed and really a living proof that if I can do it working full-time with four kids anybody can do it. If you create a plan you have a really compelling reason for doing it and you just have grit and determination for sticking to it and taking action every single day. You can you reach that level of financial freedom. So it’s exciting if I never did another deal ever. We would be financially content, you know, obviously my vision is higher and you know now I want to have a legacy well for my children and teach them how to do real estate and teach them how to make wise money decisions and continue to buy much larger multifamily buildings and with other investors and teach them how to invest passively and then maybe eventually as a general partner and actively. So the sky’s the limit but I don’t feel that pressure that I have to buy another deal because we’ve reached that level of financial freedom now, it’s just amazing.

Sean: [00:38:47] That’s awesome. But now what are you going to do with your free time? Now, you have the entire day all to yourself. What are you gonna do with that time?

Anna: [00:38:55] Well, you know for me, I know I say to retirement people like, “oh you’re going to sit at home and relax.” It’s like no I still have a full time real estate business that I run. It’s just that I’m going from two businesses, both my job and my full time real estate business to one. So I’m still going to be working full-time but just only what I’ve got. And also going after some some larger multi-family and starting to syndicate. So my goal for myself and my financial freedom is really that when my kids are home from school at the end of the day that I am a wife and a mom and I’m not up till midnight at one o’clock in the morning. Like I have been for years handling everything that I need to juggle because I’ve been able to get it done before 4 o’clock and you know in the afternoon. So my plan for retirement is 2 hours a day really just focusing on myself and prayer and time with God and working out because I really haven’t been able to do that consistently and I’ve gained a lot of weight over the years just trying to balance all these other things going on, and five hours a day just really working hard. I’m pretty good at compacting my time and being really efficient and getting a lot of stuff done during the time that I’m working. So my plan is 5 hours a day working and if there’s days that we want to travel it might be an hour a day, and the next day it might be an eight hour day and I work a little later than the kids are home from school. But my vision of freedom isn’t you know, sit back and relax forever. It’s work hard during the day but focus on taking care of myself and doing things for me now when I’ve just been doing taking care of everybody else until then. And then working a few hours a day and growing the real estate business however big it can get allowing me to do it within that number of hours a day I never want to build up a business so big that I end up working 80 hours a week again, because I’ve done it for 10 years so I’m at the point where I want slow growth that’s manageable that allows me to have a completely stress-free evening with my children and my husband and just be present with them at night and be able to enjoy each other in these last few years I have with them at home.

Sean: [00:41:07] And like those five hours you work they can be whatever time you want because you have your own schedule. Exactly the best feeling. I want to kind of dig a little bit deeper: sometimes when as entrepreneurs we work a lot but we end up spinning especially as new investors. We end up just spinning, we call it spin your tires. They were working on something. We were spinning our wheels. We don’t know what we’re doing. So what will you be doing for those five hours? Like what does five hours of work look like to you?

Anna: [00:41:36] Sure. So I think what’s really important is that you get really clear about your vision. What are you aiming for? And what are you trying to accomplish and I think that everybody starting to get into real estate or whether you’re already in it you’ve got to say, “why am I trying to do what I’m doing in these five hours? What’s my ultimate end goal? And how can I grow my business and spend those hours that I’m working in a way that gives me balance in my life now and not just make you completely overwhelmed and filling yourself with busy work?” So some people work hard but you’re stressed because you’re dealing with 20 things and some of them are like things that you aren’t really making money for doing, you’re just spinning your wheels instead of really focusing on the strategic things that are going to get you to that next level. And so what has helped me as I always every single day is I look at my plan and every single day I look at my budget and I created this massive spreadsheet which has my whole life on it. And so, I had on here, “Okay. I need this many properties. My goal is I better buy a property this month.” Well, all the little things that happen with the property management and the maintenance and the tennis and all the things that could distract me as much as possible I’m going to like try to get my husband to do that or I’m going to call contractors to handle it and I’m going to focus on finding deals, calling banks, getting new relationships, moving money around in a way that it’s strategically there so that my credit score stays super high, but I’m borrowing from like creating business lines so that they stay off my personal credit, and then using those lines for my rehabs and then paying them off. I mean those kind of things are going to help you to keep a good credit score, find deals, find money, and continue to grow. Those are the things that I’m going to spend most of my time on. All those other little things that come along, I’ll time block myself. So I’m like, “okay, I’m going to give myself an hour.” Before when I worked full-time my lunch break hour was to handle all the little stuff that had to happen during business hours, like going to the bank or calling a lender, meeting someone for a lease. So I time block and say this hour is going to be spent doing all of the urgent things for today that I have to do that really aren’t going to get me anywhere. And outside of that hour I just don’t do them unless it’s an absolute emergency. So time blocking in categories of being able to say this hour today I’m focusing on money making activities, this hour a day I’m building networking and relationships. So I may be having a call with investors or other brokers for an in-markets that I’m going after larger deals now. And so you kind of structure your time based upon what’s going to make you the most money, what has to be done, and what’s going to help you to do it in such a way that it meets not only your five-year plan and your three-year plan and your one-year plan, but your vision for life and balance.

Sean: [00:44:43] Yeah, I really like that. Especially thinking about what is the end goal. Why are you doing the work in the first place?

Anna: [00:44:50] Yeah, and it’s really the only thing that gonna keep you going when you get overwhelmed with your time.

Sean: [00:44:56] Exactly. Now you mentioned that you want to start going to multifamily syndications. What does that look like to you?

Anna: [00:45:02] Sure. So about a year ago I had met my goal of six-figure passive income and a five million dollars worth of property that was kind of my goal: six-figure passive 5 million. And I met it after four years. And I said now that I’m here I need to save up a bunch of money, but I want to go bigger. So I’ve always wanted to do bigger deals. I just didn’t really have the time to go after them. So my plan has always been get to five years where you build your own portfolio of buildings that you want to keep long term for 20-30 years so that you can depend on those and then start building bigger chunks of cash without flipping property because I’ve done that and I don’t want to do that, and get bigger chunks of cash and additional cash flowing income coming in from rentals to allow us to help pay for our kids schools and weddings and go on vacations and all those things that you know are just your day-to-day. And so I knew that I wanted to take down larger multi-family deals. It was kind of in my 10 year plan. So a year ago, I decided to get really aggressive into just re-educating myself on managing larger complexes and the differences between the smaller ones. The financial fundamentals are very similar if not almost exactly the same. It’s just that you’re buying ten units instead of five or a hundred units instead of 10. And so I knew what I really needed to do was to start building my network so that I could not just rely on my own liquidity and my own cash to continue to invest so I started reaching out to some people that I knew also had a 100-200 units and were already very experienced in real estate, flips some properties, but wanted to go bigger and get into larger multi-family. And I ended up last August to September finding a really nice off-market deal that was 73 units and it had about 40 storage units and I found the deal. I got it under contract and under pressure because it was being listed the next week and I reached out to an investor and said, “hey, let’s put this deal together and let’s let’s syndicate it” and I worked with SEC compliance and hedge funds in my day job. So I understood the rules around solicitation and what a private placement is, and I’ve reviewed hundreds of PPM’s so I had a background that made me comfortable with jumping in and saying, “okay, let’s solicit money and let’s do it the right way” But we went out to our first investor and he really liked the deal. It was a very strong deal, stronger than a lot of these other multifamily syndications that you can find right now and it was in our backyard. So we went to him and he liked the deal so much that we really were able to just take it down with the three of us. So we didn’t have to go to an SEC attorney and you know produce a PPM and solicit a lot of investors. We just did it with the three of us as more of a joint venture. And then we found another one. So we have a 31-unit that we’re closing on next week and while doing these as a joint venture, I’m also very actively evaluating deals in certain markets and have been for six to nine months. But I haven’t found the right deals that I’m willing to put out to an investor with the right fundamentals that I feel like are strong enough return with the right amount of risk for where we are in the market cycle. So I just haven’t taken down a larger one, but we’re prepared to syndicate and looking to actively do that. And so the main thing that I’m trying to do is just to educate myself on how to go out and find other investors especially for deals out of state, outside of what’s just in my own. And then just to really hone in on the complexities of the SEC solicitation and making sure we’re doing it the right way if we’re reaching out and starting to network with other co-sponsors to raise money for multiples of people in the same deal. So it’s just kind of educating myself on on that piece of the multifamily where all of the rest of the life cycle of buying and selling I feel like I’ve gone through with a smaller stuff.

Sean: [00:49:16] Yeah, that’s awesome that you were being so resourceful to be able to close a large deal. Yeah, I thought you were kind of scared doing it because I think you have to take care of it all by yourselves, but that’s not the case at all.

Anna: [00:49:24] Right and I think as you do deals, you’re always going to have fear and everything that you haven’t done. You’re going to be a little scared and you just got to learn to like push through the fear and have confidence in yourself. The first time I went to a bank to ask for money for a four-unit building I was scared. The first time I ask the seller to seller finance a loan, I was scared. The first time I asked someone for two million dollars for an investment I was a little scared but yet I had enough confidence that every time I pushed forward and push through a fear and made myself do it and it went well, that you know, the worst thing is somebody could say no and then you do it again. So as you take calculated risks and as you take small risks and push through that fear, you become much more confident in yourself, and then you build up that experience of going through lots of different things that you are afraid to do and you realize you can do it. Everybody that’s doing the next big thing that you think is so amazing is a human being just like you and I. They have their own life, their own family, they have same fears and emotions and confidence. It’s just that they’re willing to take that risk and they’re willing to put themselves out there and just go for it. And so that’s what it takes to be successful is just to say I’ve got this and I have something to bring to the table and I’m offering other people an opportunity. I’m not just begging for money.

Sean: [00:50:46] Was that deal found from a mailer?

Anna: [00:50:49] No, honestly, I just feel like I was very blessed to find that. I ran into the seller who I was an acquaintance of but I didn’t really know that he own that building and we just chance ran into one another literally two days before he was listing. He had the brokerage agreement. He had already gone through the marketing package and had a listing package with the large brokerage and was going to be listing at the next week. So I ran into him and when he said “I’ve got a building for sale, it’s seven and a half million dollars.” I said, “oh great. I’d love to see you tomorrow.” He’s like, “I’m listing it next week” and I said “let me see it tomorrow” and he was leaving town that weekend. So because he knew me and he knew that I had bought a lot of stuff in our area and we had an acquaintance relationship he said yes, and I think if a lot of other people had said that he would have said “no, I’m listing next week. Just talk to my broker.” So the experience that I had and the reputation I built in my area really gave me the in so that I could capitalize on that opportunity when it came but it’s kind of serendipitous that it had even came to me, but I was able to negotiate it and then bring in the partners and because we all had equity and net worth and experience in real estate it was very easy for us to finance it and take it down.

Sean: [00:52:05] Awesome. Congratulations. So we’re about to wrap it up for today. But before we go, I want to touch upon these two things are pretty unique: one is obviously your REI Mom. The platform you’re using; and also your book that you co-authored with a bunch of other people. I was wondering if you could touch upon both of those things really quickly.

Anna: [00:52:27] Sure. So REI Mom, you know, I’ve had some branding that was really geared toward being a mom that I thought kind of helped me. So when I first started out, I would do mailers and I had branding that was Mom buys houses and I was the only one that wasn’t just a guy buying houses. And I can’t tell you how many women called me that wanted to sell their house or their 4-unit. And I do have some single family. I own 10 single family houses still to this day that are just really nice rentals, but I wanted to really let people see who I am and that I’m a mom doing real estate and I want to buy their property and honestly just my branding helped open up a lot of doors where when someone would call me and I’d say, “you know, I’m not this cutthroat real estate guy that’s going to offer you 20 cents on the dollar. I’m a mom that’s investing. And the reason I’m doing it is because I want to be home with my kids” and I told people that this is what I’m doing. I work full-time. I’m doing it on the side and I really want to create a win-win for both you and your family and me and my family and it was true. Branding it allowed me to have those conversations and honestly, most of the people that I talk to that had a property that I really wanted to buy, when I just shared my story, they reached out to me because I am a mom and a wife trying to take care of my family, it opened the doors to allow me to get some things under contract that I probably wouldn’t have been able to so. With that said I also have a heart for other women who want to be home with their kids and don’t see a way to do it and maybe have stayed and watched all these different shows or webinars or books and feel like I can’t do it. I work, I’ve got kids, it’s overwhelming because I want to encourage them that they can do it and they can build wealth that last and change the dynamic for their family forever. And so I really have a heart for other women wanting to be successful in real estate not just to become wealthy but to take care of their family and so I started REI Mom with that same kind of branding to show that you know, I’m a woman that does some coaching and mentoring and investing. And that once other women do come alongside and if it makes sense what I do, I’m happy to help them learn how to get in deals either as a general partner, limited partner, etc. And I run a meetup group now locally specifically for women in real estate. So it’s really something that pulls at my heart to be able to help other women in that way when it comes to the book. I was very blessed and fortunate to be asked by Kyle Wilson to be a co-author in this book called “Resilience: turning your setback into a comeback” and Kyle is a former business partner with Jim Rohn who a lot of people know and follow. Really one of the first leadership gurus if you will, but just teachers on business and success and he was also the publisher of chicken soup for the entrepreneurial soul. And when I met Kyle last year at a mastermind and told him a little bit about my story, it resonated with him and he said “I’d love to have you be a part of this book.” And so I wrote a chapter in this book just on my story of resilience. And you know, it’s a long story and I highly recommend that y’all grab it not just for my story, but for the stories of 30 different authors who have gone through really difficult things in life and have really come through the other end and the other side really just because they had that grit and resilience to push through, that no matter what comes they’re going to be okay, and they’re going to succeed. For myself I started as the oldest child of a single mom in Section 8 housing in San Antonio, Texas. And so I grew up very poor. My mom was in several very abusive marriages. So I’ve spent nights in shelters and we were on food stamps and really just wished for a better life and and if I just had money, I thought life would be different and things would be better and because I saw the challenges that my mom went through. It really gave me a drive even at a very young age to succeed and to be successful and so it pushed me to graduate high school early and graduate college and work full time when I went to school because I always had that whatever-it-takes attitude that I’m going to be different. And you learn that it’s a lot more than just the money and the drive as you grow and mature, but I just always wanted something better for my future and for my children and it drove me to push through and so I have lots of plans to succeed in a different way and even with the real estate, you know, thinking 20 years ago is going to flip my way to real estate riches and it didn’t happen because of the timing and different things. But in every obstacle that came I just was determined that I am going to be successful and I am going to do what it takes to give my children better and to not have them be latchkey kids and to get home with my babies by growing wealth just to kind of to take over and replace my income. So the drive and the resilience is just really what I think has helped me to be successful more than anything else. You don’t have to be super smart, you don’t have to be great with numbers. You just have to have grit and determination and be willing to do whatever it takes and to push through difficult experiences. And so that book was just something that really was a hard effort for me. And I was just so blessed to be a part of it. The people that have read it that have reached out to me and just thanking me for sharing and being raw. There’s so many stories like that in the book and so many of us face setbacks and think “I can’t do this. It’s just too hard. I’m not going to do it again.” And when we listen to the stories of other people that have overcome something it helps us to muster up that “I can do this” and “it is going to be okay” and helps us to have some hope and excitement and encouragement to keep pushing forward. So I was just really blessed to be a part of it.

Sean: [00:58:42] Yeah, I remember reading that book when you sent it to me and I finished your story within an hour and I was just so inspired and amazed that you came from such a humble background and to overcome those challenges and be where you are today it’s just like anything is possible.

Anna: [00:58:55] Absolutely. Thank you so much.

Sean: [00:58:58] No problem. How can people contact you if they want to learn more about what you’re doing or hear more about your story?

Anna: [00:59:03] Great, you know social media is something that everybody’s on today. If you want to follow me on social media. I am Anna REI Mom Kelley and I also have a Facebook group called “Creating wealth that lasts with REI Mom” where we talk about different ways to grow real estate wealth and to make sure you’re doing it in a wise and conservative way that lasts and you can find my website at REImom.com. And email me at info@REImom.com

Sean: [00:59:31] Great. Thank you so much for being on the show today. Everything was super inspiring and you just gave out a lot of great knowledge. I’m sure everyone in this episode will learn a lot today.

Anna: [00:59:40] Thank you so much. I’m honored to be here.

Sean: [00:59:42] Thank you so much. All right. Take care.

Here are some of the key takeaways that I got from speaking with Anna. If you want to get good deals, you need to specialize and find your niche. She was able to start by buying four-plexes at a good price in her neighborhood because no one else was looking at them. Lower priced properties in the hood may have great numbers on paper but in reality you have more issues and your true cash flow will be impacted by properties in good locations in a good school district. If you buy in a bad area, you’re going to get a lot of turnover, which can be one of your biggest expenses. So instead of trying to buy a good property in a bad location, you should look for a worst property in a great location. And when evaluating a deal, look at the potential of the building to see what you’re able to pay for it. If you’re out of state and want to get into cash flow properties there’s three things that you can do: one is you can partner with somebody; two, you can go to a turnkey provider; and three, you can be a passive investor in a syndication. Passive income is built on the blood, sweat and tears of active income. It’s simple but it’s hard work, but it’s all worth it. And finally, proper branding like calling yourself the REI Mom opens up huge opportunities that you normally wouldn’t have. Hope you all enjoyed the show. Thanks and have a great day.