How I Bought 20 Rental Properties in Cash

Some people choose to take out loans to buy their rental properties and others choose to pay cash. Today, we're going to explore why you might want to consider buying in cash and how to do it.

I've invited someone on the show who owns 20 rental properties free and clear. No mortgage, no debt, and he doesn't owe a dime to anyone.

Rich Carey is my guest today. He's married, has two children, and currently serves in the military. He has a passion for real estate investing and teaching others how to pursue financial independence. His story of investing success has been featured in Bigger Pockets, MarketWatch and Business Insider.

Andy Hill: How did you get started with real estate?

Rich Carey: I was married when I came into the military in 2000. I always had a passion for real estate and wanted to buy something, but unfortunately, my first assignment was overseas. It was in Guam.

I don't know if many people know where Guam is. It's actually a U.S. territory, but it's out in the middle of nowhere in the Pacific. Lots of hurricanes and lots of earthquakes.

I didn't want to buy real estate oceanfront in a place that has earthquakes and typhoons all the time. I actually had my apartment wiped out by a typhoon while I was there, so that was probably prophetic.

It wasn't until I moved back to the states in 2003 that I was able to finally buy a property, and that was in Alexandria, Virginia. I bought a townhouse with a mortgage.

It was actually 10% down and then 90% was financed. The rest of the down payment was financed, which they did back then, at 7%. And then the mortgage interest rate was at 5.5%, which I thought was extremely low at the time.

I bought it for $280,000 thinking that it was way too expensive and probably going to be the worst mistake of my life. Of course, that ended up not being true.

Rich Carey with two kids by river — Rich Carey and his two kids

Did you buy your first home as a place to live or a rental?

When you're in the military, it's a place to live but you're going to live there for maybe three years. In my career, it's more likely that I stayed somewhere for one or two years.

I stayed in D.C. for two years and then actually I moved to Monterey, California to attend graduate school and language school. I was there for three years and then I moved to Japan for five years.

How did you expand your real estate holdings from there?

At this point, I'm renting the house out in D.C. and I've tried a couple of different things. I tried flipping a house. When the bubble hit, I didn't know it was the bubble at the time. I realized that I didn't make as much money as people were making in the past, and I thought that I just picked the wrong neighborhood. But it turns out the bubble was bursting.

I was overseas in Japan by this time and I was a big saver. Definitely frugal. I should say we; it was more my wife probably.

We were investing conservatively. We were putting lots of money away. Another thing I did that was kind of interesting from Japan was I started flipping houses with a partner.

My partner was actually in Alexandria, Virginia. He lived right across the street from where my townhouse was, which was still a rental for me.

We flipped houses together. I was putting up the money. By money, I mean that I was taking out mortgages and he was doing the legwork. I flipped houses about eight times from Japan, and that of course, fueled my ability to put money aside was I able to use later to purchase houses.

How were you successful in managing real estate investments from overseas?

I made money and there was a lot of trust. The person that I flipped houses with, we had a lot of trust. I just knew from my personal relationship with him and watching him do it with other people, and his reputation in the neighborhood and in the community, that this was a trustworthy guy.

Well, first of all, flipping houses with a partner when you're not even present… I'm not going to recommend that to anybody.

He could've easily ripped me off by doctoring different documents and, you know, making up work that didn't happen, and all kinds of things. But I did it. I flipped houses with him and it was a way that I made some money.

Managing that one rental as a military member living overseas, it just wasn't that hard. I …

Had the neighbor that lived across the street who was my real estate agent/investor/partner/friend.
Knew the AC guy
Knew the plumber

I just had a handful of people that I just knew I need to call when something went wrong. The people that I rented to were always in the military. Really, the whole time that I owned that house, and I owned it from '03 to '16, it just really wasn't that hard to manage it myself.

You can manage one property yourself in certain situations. And again, you have to also understand that I bought a property that would be considered an upper-middle-class neighborhood. You have fewer problems with tenants.

Certainly some people invest in neighborhoods. If you're buying a house for $40,000 and then renting it out for $800 a month, you're dealing with a different problem set, and that may require heavier management skills that would be hard to do from Japan.

Why did you make the switch from flipping to buy-and-hold rental properties?

By this point, I hadn't found any of these podcasts. I hadn't found BiggerPockets, this community and the right books yet.

Just trying things and seeing if they worked. I had this rental property but I didn't feel like I was making that much money. It seemed like I should be making more money.

So I moved to Montgomery, Alabama for an assignment in 2013, and at that point, I ran into another military member on the first day of our new training there. And he introduced himself to the whole class. He'd already been there for two years.

“My name's so-and-so, I've been here for two years already, you know, these are my hobbies, this is what I like to do. And, by the way, I own a bunch of properties here in Montgomery and I'm making a ton of money, and I'm going to be able to retire early.”

Everybody's just kind of like, okay whatever. And I was like, “What did that guy say?!”

On the break, I made a beeline for him, and I'm like, “What are you talking about? Tell me about this. How much do these houses cost? How does property management work? Do you have a real estate agent? I mean, have you figured this all out? Where are your contractors? How are you getting the money for it?”

And he explained everything to me, and I realized quickly that he was making a lot more money, a lot more return on investment than I was in D.C..

So I asked him if he would show me how to do it. Because I wanted to do the same thing he was doing.

And essentially that's what I did. I went from having no properties and having very little experience with real estate, to buying six properties in the ten months that I was there. Because of the financial situation that I was in, saving, investing, flipping houses, being frugal, I was able to pay cash for those houses.

Those houses cost me between $25,000 and $45,000 each. You got to consider, when I was flipping houses in D.C., I was spending more than double that just on the down payment for the flips that I was doing. To me, these houses were so cheap.

People wonder, well, why did you decide to pay cash for these houses?

At this price point, to me, it almost seems silly to try to get a mortgage for $30,000 or $40,000. Out of these six houses I bought, I actually did get a mortgage on one of them. Even though I had the money, I'm like, well I'm going to see if I can get a mortgage on it.

It was actually very hard. I had to go to about six different banks. The fees were just as high as if, you know, the house would've cost $500,000.

There were still tons of fees involved. After I got the loan, a couple of months later, I'm like, this is stupid. I just paid the loan off.

How did you find a property management company?

I spoke earlier about the military member that introduced me to this whole process. Well, he already knew this management company, and they were friends, and they were already managing his properties.

He was getting ready to move away at the same time as me. It was a husband and wife couple. I'd met them and they seemed very nice. They owned a lot of real estate themselves. Several hundred houses in the area.

I think it's because I had those ten months of working closely with them on small issues. Like, should I buy a new fridge or used one? And they'd give me my options.

When problems came up with the property while I was there, the management company would call me and talk to me in detail about different options. “You could do this to fix it but that would cost more. You could do this and it'd be cheaper, but like, here are the risks with doing it cheaper”.

I realized very quickly that they were very concerned about saving me money and that they were very in the weeds about small amounts of money, which surprised me. I just got the sense that these were really, really good people that I could trust. And I worked closely with them over those ten months.

I realized, “I don't think these people are going to rip me off. I think that we will benefit from working together. I'm going to put some trust in them and I'm going to use them while I'm overseas.”

You have 20 rental properties now. How much income is that producing?

I think if we want to try to make it simple for everybody, let's just say that on average I paid $40,000 per property, right?

Then I would say on average it rents out for $900 a month now. Then I would consider that about half ($450) is what I keep as profit or pure income.

And the rest all gets eaten up by expenses.

$450 x 20 = $9,000 per month.

This varies a lot. Every month is different. I have really fat months and I have lean months where I do huge rehab on a house or something. But on average that's how it works.

Do you also invest in the stock market as well?

Obviously, I paid cash for all of these houses and people are just kind of like, where did he get the cash? Like, is he a drug lord or something? Or is he a trust fund baby?

My wife didn't work and I'm an officer in the military, so my salary is decent. But by no means is it an engineer or a doctor's salary.

I always saved, invested, lived frugally, and I always maxed out my IRAs ever since 1999 for me and my wife. We have something like a 401K. It's called a TSP in the military. I've been maxing that out for a long time. Right now I think the max for that is $19,000 a year, and I'm maxing that out.

Those are all on mutual funds. Until I started buying houses in 2013, I was putting all the extra money I had, just under the S&P 500 index fund, in a normal brokerage account.

I don't believe in picking stocks or any of that stuff. I believe in the tried and true investing. But, I did fall in love with real estate. I did pretty much liquidate all of my stocks and mutual funds outside of retirement accounts and use that to pay cash for houses, which is an unusual thing to do. I will admit.

What advice would you have for someone looking to buy their first rental property in cash?

There is a lifestyle change involved. If the reason you don't have any money is that you …

Are in debt
Have a nice car
Have a Harley
Own a jet ski
Are always getting a new iPhone every year …

Then there's going to be some things that you'll need to change in your life.

I think changing how much your car costs, changing how much it costs where you live, changing what you spend on travel, these are some of the biggest costs that you've got to think about first. Trim those way back and start putting that money away. Just start putting it away.

If you've got debt, you've got to pay it off. I think everybody here saw how I did it. This isn't a story where I was heavily in debt and then a year later I owned 20 properties free and clear. That doesn't happen in real life. And if it does happen in real life, those people go on to sell some sort of a course, and that course is usually B.S..

My point is, there isn't an easy answer. The answer is, get rid of your debt, trim your obligations, and you need to find ways to make more money.

I flipped houses. My wife took extra jobs so that we could pay off my debt. And find a way to save a lot more money and just make it happen.

How do you find a good rental property deal?

About buying a house in cash… I think it's kind of cool. I think it's great peace of mind that I own all my properties, you know, free and clear. But I think it's totally responsible to put 20% down to buy a property for yourself or for an investment.

And as long as you wait until that property is stabilized, you can see that it's making money. And you can see that you've got good management in place, you've had everything in place for a while and it looks good, and then you have another 20% and you're ready to buy a second property… I think that's smart.

Being debt free is pretty cool. I think it's great for me being close to retirement. But not everybody has to run out and pay cash for a house.

If you wanted to get started, first of all, I've always used real estate agents. Just like I spent a lot of time finding the right property manager, you want to find a way to find the best real estate agent. It is worth doing.

The real estate agents that have won awards for doing the most volume, they have a great reputation… You ask around, check online and use all the online tools that you can.

Get referrals from different places. But you want a very good agent to help you find a house. And, it's worth the money if they're a good agent.

The other thing I'll say about agents too, and this is true in everything that I've done in real estate, is once you start working with an agent, if they are not doing everything you want them to do, you need to tell them. If they're not fixing it, you need to fire them.

I know it's harder for some people to do. You're going to pay them a fortune when you buy that house, right?

6% or 3% to them and 3% to the other agent. Make sure that you are getting exactly what you expect. A high level of support and a high level of getting questions answered, getting emails answered, and responsiveness.

Use an agent. That's a big part of it. Now, if you're talking about investing in real estate then there's a lot more to learn. There's the 1% rule. You're going to want to read up on real estate. I like to always say: