Rich Carey is a Commander in the Air Force, currently stationed in Korea. While on active duty he paid off his $280k mortgage in six years and $32k in student loans in 1 year. He flips houses and purchases rental property with cash while living overseas in the military. He currently owns 20 rental properties mortgage free. He also operates - despite a demanding schedule and frequent travel - the website RichOnMoney.com
Financial security is something that comes up frequently in my interviews. Veterans talks about how important it is to have enough time after Active Duty to be able to find your ideal job... and this may take 6-9 months. Rich is an exceptional example of someone on Active Duty who has lived below his means, and invested wisely to provide financial freedom when he leaves the military. His lessons are applicable to every career path, and whether you are on Active Duty or already transitioned to a civilian career.
- StoryBox - People trust each other more than advertising. StoryBox provides the tools and supports businesses need to take the best things customers say about them, and use them to drive more sales and referrals. StoryBox offers a 10% discount to companies employing veterans of the US Armed Forces.
- Audible is offering one FREE audio book to Beyond the Uniform listeners. You can claim this offer here, and see a list of books recommended by my guests at BeyondTheUniform.io/books
Articles on RichOnMoney.com that we reference
- 1% rule - https://richonmoney.com/how-much-money-will-i-make-from-my-rental
- Rent vs. Buy - https://richonmoney.com/buy-rent/
- 50% Rule - https://richonmoney.com/complete-guide-to-real-estate-investing/
- Bigger Pockets - perhaps the best online resource of real estate investing. Rich finds their podcast the most useful.
- AffordAnything.com - great real estate, also looking at AirBNB property as an investment. Great articles about her approach to real estate
- CoachCarson.com - a business in a small town, and they have several multi-family units that they own as a business as well.
- The Book on Investing in Real Estate with No (and Low) Money Down: Real Life Strategies for Investing in Real Estate Using Other People's Money
Transcript & Time Stamps
Joining me from today from South Korea is Rich Carey. I want to give a special thanks to Doug Norman who has been a guest on Beyond the Uniform. Rich is currently a Commander in the Air Force stationed at Osan Air Base in South Korea. While on active duty, Rich has paid off $280,000 of mortgage in six years as well as $32,000 of student loans in less than a year. He currently owns over 20 rental properties completely mortgage free. He also operates the website Rich On Money.
Could you share with our audience how you first got started in real estate?
When I entered the military in 2000, I had a desire to get into real estate right away but that’s not always possible in the military. I wanted to buy real estate but Guam isn’t the best place to own real estate. While I was there, there were typhoons and earthquakes. My next assignment was Washington, DC in 2003. I was excited to get there and I purchased a townhouse for $280,000. At the time, that seemed like a lot of money. The value of the home then grew to $450,000. I had a mistaken idea in my head that I was a real estate genius. But in reality I just had good timing. I tried to buy more houses but I didn’t end up buying anymore there. Shortly after that, I ended up flipping new construction.
What do you mean by ‘flipping new construction’?
I think everyone has probably heard about flipping houses. I think what a lot of people have not heard about is flipping new construction which happens more commonly during real estate booms. I saw everyone else doing this and decided to do the same thing. You go to these places where new houses are being built. There's usually a trailer there with a model of what the area will look like when it’s done. So you purchase a home that hasn’t been built yet and you start picking things out for the home. So I went all out and got crown molding and vaulted ceilings. You lock in the purchase price but the home hasn’t even been built yet. So the building process takes a year. Supposedly, the value of the home grows in the time that it’s being built so if you sell the home, you have the opportunity to make a profit.
The unfortunate thing is that this was in 2005 which was getting toward the top of the market where the real estate market bubble was about to burst. So during the building process, the value of the home did not grow. I realized that I was going to have trouble selling or renting the home. The only people interested in renting the property were Section 8 renters. The Section 8 renters had a lot more children that I was interested in having in the rental property. So I decided to try to sell the property. But I barely broke even on the home. The houses around me that sold after me were losing money. The value of the houses were going down, some were going into foreclosure. The neighborhood ended up being pretty run down.
If you had hung on to that house, you probably would have ended up losing money, right?
Yes that’s right. There were also other problems brewing in the real estate market that I was unaware of at the time. So then I went on to move to Monterey, CA. I still had the real estate bug and I felt like if I did it right, I could make some money. I will still riding high on how well I had done selling that first property. I got to California and was looking in the Carmel area. Real estate agents were telling me I would make a ton of money. I came extremely close to buying a two bedroom home for $900,000 but got cold feet at the last second because it just seemed like too much. And I’m glad I held off because house prices in that area went way down over the next two years. Some people that bought in that area bought and then the home lost almost half its value.
What I love about your story is that even after these points where it would have been very easy to stop, you kept at the real estate business because it was something that interested you.
And it certainly came up again in my career. While I was overseas in Japan, I ended up flipping houses with a business partner in the United States. Then when I bought my first rental property in Montgomery, AL, I had some scary things happen to me. I felt like I was making a lot of mistakes as a real estate investor. I remember my wife telling me at the time, ’Wow that was kind of a scary experience, good thing you’re getting out of real estate’. And I said ‘What are you talking about? I want to buy even more properties.’
Do you have any recommendations for paying off debt?
People that hear my story think ‘Oh wow! Those are all the things that he’s done - he’s rich, he’s set for life!’ But that’s not really where the financial independence comes from. I started setting myself up financially before I started investing in real estate. I did that by paying off my mortgage, living below my means, and investing well. I used real estate as a way to build wealth along the way.”
There’s a mindset that some people buy into in which we spend a large amount of our income on houses, cars, vacations, and just things in general. From very early in my career, I focused on living below my means. When I was in Monterey, the BAH was $2200 but we lived in a home that cost us $1300 a month so I was able to pocket the difference. We also didn’t take expensive vacations or ever buy new cars. Things like always needing to buy the newest things will kill your chance at financial freedom. Think about buying used vehicles that you can completely pay off. If you want to take a vacation you don’t need to fly first class and stay in the best hotels. You can do so in a much cheaper way. This might not sound really sexy but this is the way I lived my life that allowed me to buy large amounts of real estate.
How important is having a specific goal that allows you to sacrifice in the short term?
It was certainly important. Everyone has their passion. My passion is real estate. For me it was in the numbers. I have a mortgage and got an idea that it would be smart to pay that off. And that was a goal that I had. Then I started investing in real estate in Montgomery, Alabama. Homes there were relatively inexpensive. My goal was to own many of them and have them all paid off. Having that as a goal definitely helped me ultimately get there.
Why do you feel it’s so important to pay for things in full?
This is kind of complicated to explain and I’ll caveat this…. Let’s put two scenarios side by side. You could buy a property every year and have a mortgage where you’re putting 20% down. The other option is that you would buy a house with cash every year. With all things being equal, the ability of leveraging real estate, in most situations you would come out with a higher net worth using the mortgages. When you get 3-4% appreciation every year, that gets magnified. However, I would also argue that the opposite is true. If the market goes down, you could be stuck in a downturn.
My portfolio is a good example. Even if I didn’t have a downturn, if the military bases near my properties closed, the value would go way down. If the houses were mortgaged, that could potentially ruin me. But once you get the house paid off, it’s no longer a risk as far as getting caught in a downturn.
So you take a more conservative approach that minimizes your risk in the market.
Exactly. And the other thing is that if I kept mortgages on my properties, I could potentially make more money in the long run. And I’m not ruling out that that could be a strategy I might have in the future. But what has been in my mind as I have paid my properties off is that I want the option that when I get out of the military, I won't have any financial obligations and I will have the freedom to do what I want.
When it comes to paying off something like a car, I think that’s a no brainer. I’m not a big fan of taking out a loan to buy a car. I think you might be buying something you don’t need in the first place and the interest you’re paying could be money that you’re throwing in the trash.
It’s what you value in life. I’m trying to teach my children about money. I”m trying to get these life lessons across to my son. We just got off a three year tour in Germany where the headquarters of Porsche and Mercedes are. My son would always be asking me what my favorite Porsche was. And I’d always say, “What is better? Having a Porsche or having $150,000 in the bank?” You could have a Porsche but be poor and not have much money in the bank. Or you could buy a more affordable vehicle and put the extra money in the bank.
I recently read the book Happy Money. One of the premises was that most of the things we buy don’t impact our long term happiness.
And that’s the point I’m trying to get across to my son. And of course part of the reason why he answers that way is just to get a reaction from me.
What is the best way for someone to buy their first property?
One of the main things I want to say is that I think everyone in the military has seen someone buy a house at every duty station and then rented those out in order to build their wealth. So then they think that’s a great idea. But that almost never works. That’s actually a really bad idea. You end up having a lot of reluctant landlords. The numbers have to be right if you’re going to buy a property you’re only going to live in for three years. So you need to think not that it’s a property you want to live in but that it’s a property you want to rent out. I think that’s the #1 advice I would give.
When I was in Montgomery, AL, I went there with no intention of buying a house. The neighborhood I rented in was a great neighborhood. But I ended up finding properties in Montgomery that were amazing rental properties. My point is that I rented in one area but bought houses in another and made them rental properties.
How do you evaluate a potential rental property?
One thing is numbers wise - will it work? Also you need to make sure people would want to live there. Also having a good property manager that understands the area is important. Additionally, you need to keep in mind the 1% rule. If you buy a property and fix it up and get it ready to be rented out, you need to be ready to rent it out for 1% of that price.
So if you buy a house for $100,000, you need to be able to rent it out for $1000. That means that this would potentially be a decent rental property. This can give you a great gauge for whether a property would make a good rental.
And I would also argue that if you can’t rent it out when you transfer out of that location, it probably isn’t worth buying in the first place. People worry that if they are renting they are throwing money away but that isn’t necessarily true. When you own a property, there’s so many extra things that go into that. The way a mortgage works, for the first few years of payments, you’re paying off almost exclusively interest rather than the cost of the house itself. I think this is widely misunderstood but very important to understand.
What other questions commonly come up when you’re speaking with people about real estate?
The next thing is the 50% rule. This is something that happens a lot when people buy real estate. People don’t lie to themselves but they misunderstand how cash flow works. People will say that they’re making money when they're actually losing money. Say you buy a property and then rent it out. You have a mortgage payment which let’s just say is $800. If you’re renting the property for $900 a month, some people believe that they are cash flowing $100 on that property. I would argue that in this case you are actually potentially losing money because you’re not considering the cost of repairing things, paying taxes, HOA fees, insurance, etc. So the way that I explain it is the 50% rule. When you get money from rent, 50% of that money will actually go to expenses. If you’re getting $1000 a month in rent, your expenses are probably around $500 a month. And that’s a conservative estimate. These are rules to help you determine how much money you can actually make on a property.
Do you have any resources you would recommend to listeners interested in real estate?
On my website Rich On Money, my cornerstone document is my Complete Guide to Real Estate Investing. One of the main things that I list is Bigger Pockets. The website charges you for a premium membership but you don’t necessarily need the membership. There is still a lot of useful information there. My favorite part of the website is their podcasts. I just started listening to them to better understand the way money can be made in real estate. I would definitely recommend listening to these podcasts. There’s about 260 - they’ve been doing them for a few years.
I also like Afford Anything by Paula Pant. She does real estate kind of like I do. She even tinkered with Airbnb. She also talks about prioritizing how you spend your money. I like Coach Carson’s website too. He has a business in a small town where they have several small family homes. He has achieved financial independence through this. He talks a lot about how he has used real estate to achieve financial independence.
Another thing that’s important is to dig into these website and read some books. Financially set yourself up where you can do something like this. I don't recommend a no money down strategy. I personally think it’s smarter to have some money saved up and go into it a little more prepared.
Is there anything else you’d like to share with our listeners?
My approach to property management companies is that it’s very important to find a good property manager. When you move away from a location, you need to put some time and energy into finding someone to manage the property. A good property manager is worth their weight in gold. All of my 20 properties are being managed and I pay them but I use them to do so many things.
How can you vet a property manager? Ask for references. I also ask their references for other references. This way you reach people who weren’t cherry picked by the property manager who can give you an honest viewpoint of the property management company.
I’m not a fan of managing your own properties, I’m a fan of using a property management company.
Thanks so much Rich. I think you've provided some incredible insight into the real estate business.