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Tennessee Real Estate Insider is your go-to podcast for uncovering the latest trends, tips, and investment opportunities in Tennessee’s real estate market. Whether you’re a first-time homebuyer, seasoned investor, or just curious about the industry, we provide expert insights and local knowledge to help you navigate the ever-evolving real estate landscape with confidence.
0:00:00 - (Allison Spencer): Welcome to Tennessee Real Estate Insider. I'm your host, Allison Spencer, top producing real estate agent and property investor here in East Tennessee. And today we're welcoming Kara Johnson.
0:00:11 - (Kara Johnson): Hello. So happy to be here.
0:00:14 - (Allison Spencer): Kara is my sister and she's also an incredible property investor and renovator. So Kara, today our episode is about investing 101 how to get started. Awesome. Really excited to have you here to bring your expertise. So we're going to dive in and get started. Woohoo.
0:00:36 - (Kara Johnson): I'm excited.
0:00:37 - (Allison Spencer): What is the kind of starting point for you to get started and how did you decide why. Why did you decide to get started in real estate? What was the motivation for you and what attracted you to real estate investing?
0:00:52 - (Kara Johnson): Yeah, so my husband and I, we really, when we first got married, we knew that we wanted to have passive income. We did not want to be, you know, stuck to a job until we were 60. And so kind of our goal was to figure out a way to build passive income. And so the more that we looked and read and dived into what that would look like, we found that there were multiple avenues to be able to do that, one of them being rentals.
0:01:26 - (Kara Johnson): And so we decided, okay, that's going to be, that's going to be our goal. And here we are.
0:01:30 - (Allison Spencer): That's awesome. That's so exciting. You know, Matt and I, my husband, we also have invested and that was one of the motivating things for us was passive income. Yeah, our great grandmother went 45 years living off of rental income. And so that was highly motivating for us to say, how can we work really hard now so that we don't have to work as much later.
0:01:55 - (Kara Johnson): Exactly.
0:01:56 - (Allison Spencer): So producing that passive income was the reason why for us. I know that, you know, there's a quote out there that says 90% of millionaires do so through owning real estate. And I think it's an amazing opportunity to grow your wealth with less risk. And so for us, the why passive income is a huge motivator for a lot of real estate investors. And what people choose to do with that passive income is, you know, a personal decision. I know that there's a lot of great opportunities out there for that passive income.
0:02:34 - (Allison Spencer): So diving straight in, if someone's like, yes, I want that passive income, I want to get started in real estate. What is the first step step to take? How does someone who doesn't own a rental property get started?
0:02:48 - (Kara Johnson): Yeah, I think that's a question that a lot of people find themselves in when they want to do it. But they don't feel like they can. And for us, and I think even for you, you know, we didn't start out with a ton of money to get going, and so that can feel intimidating. But Luke, my husband, he screams this from the rooftops to anybody that will listen. If you want to get started in, you know, rentals and investment in real estate, it's as simple as buying your first house. For us, we bought our first house three and a half percent down, and then we lived in it, and then we actually ended up buying another primary property a year later and then rented the last one. And so we moved into each one of our properties, allowing us not to have to come with a ton of money down.
0:03:40 - (Kara Johnson): We saved up the little that we had and we just kept kind of doing that until we could get to a place that I was like, I'm not moving again.
0:03:48 - (Allison Spencer): I have three kids.
0:03:49 - (Kara Johnson): I'm not doing it. But at that point we had kind of built an ability to have other finances that we could use, which we'll probably talk about in a minute. But really, at the end of the day, we just packed up our stuff and just moved in and just tried to build it that way.
0:04:05 - (Allison Spencer): Absolutely. We did the same thing. I say, you know, the first step is to just buy your first home and turn it into a rental property. And I think I was 20 years old when we bought our first investment property.
0:04:22 - (Kara Johnson): That's amazing.
0:04:24 - (Allison Spencer): And we were just highly motivated. Of course, this was back in 2009, so there were a lot of foreclosure options. And we decided to purchase a foreclosure so that we would have equity in the home and move into it. It's a beautiful home. But then it gave us the opportunity to utilize the equity that was in the home, to take that equity out of the home and go and purchase another home. So starting with saving up, that's the first step. If you're looking, you know, someone's watching today and they want to get started, save that 3%, three and a half percent.
0:05:08 - (Allison Spencer): That is the hardest part. The hardest part in getting started is just getting started.
0:05:12 - (Kara Johnson): Yeah.
0:05:13 - (Allison Spencer): But once you buy a home, searching for the right home, which we'll get to in a minute, but buying a home that's going to leverage you and give you opportunity. It doesn't have to be your dream home. Just get started. A lot of buyers who contact me who are first time home buyers who want to get started in real estate investing, ask me all the time, what should I look for, what should I do, how Do I get started and purchasing your first home and then keeping it for the long haul, deciding that you want to turn that into a rental property so that you can have that passive income.
0:05:48 - (Kara Johnson): And I think when you even say that, like, I think it's so good to remember that houses are not perfect. And you. And the idea of being committed to a house does not mean that it has to be. You know, there are a lot of, a lot of houses that we have now that we use as rentals. Like, we have done a lot to those homes. But the more basic that you can have in a house, you know, those ranch style houses, the, the split foyers, that, that there's not a whole lot, you know, to it.
0:06:17 - (Kara Johnson): I think sometimes those are the best investments that people are like, I don't know, like, do I want this for forever? And even with, you know, when you were saying saving, the idea for us, like at the time we were making $4,000 between the two of us a month, you know, I mean, you really don't have to make. Now, obviously the economy has changed since 2018, but at that time, we had decided a year prior this is what we want to do. And so goal setting is so huge.
0:06:49 - (Kara Johnson): If you want to do it, you have to start putting goals forward.
0:06:52 - (Allison Spencer): Absolutely.
0:06:53 - (Kara Johnson): Setting goals so that you get to that. Because for us, we were like, okay, we're gonna take a couple hundred dollars that we have extra a month, we're gonna put it away so that we can save up three and a half percent. And then it kind of snowballs. It gets easier every time it does.
0:07:06 - (Allison Spencer): Because you can save up the three and a half percent. And then if you buy a home with equity, you can get a heloc, a home equity line of credit to utilize that to purchase another property. But if you can't, in this market, maybe there, it's a slim chance that there's not a lot of equity there. You can continue to save up that 3.5% to then go and purchase another property. Because once you've moved into the next property, the current property you're in turns into a rental property.
0:07:39 - (Allison Spencer): And so when you go to buy a home, what are some of the things that you look for in an investable property so that you can begin to cash flow? What are some things that you all look for when purchasing a house or maybe advising someone who's looking to purchase a rental property that they're going to move out of?
0:07:58 - (Kara Johnson): Yes.
0:07:59 - (Allison Spencer): What, what are some things you all looked for?
0:08:01 - (Kara Johnson): So I would say for us, you Know, our specific goals were, you know, single family homes. Those are the rentals that we have. And so location was a really big deal for us. We wanted families, we wanted somebody that may be there longer term going to take good care of the property. And so, you know, for us we tried and it was easier then, it still is possible now, but we tried to find homes that needed a little bit of work so you could fix it up, but was in a great location. And so location was a really big deal for us.
0:08:35 - (Kara Johnson): It also was a big deal for us to have at least three bedrooms starting out because we were again, trying to hit a specific demographic of people and that.
0:08:48 - (Allison Spencer): You bring up a really good point there to focus on your goals first. What are your goals? Who are you looking to reach? Yes, we also had the similar goal of we want single family homes. I know that when it comes to rental investments, you could have a single family home, you could have commercial properties, multifamily homes. For me as well, I have found it to be less stressful to have a single family home. And since I lived in each of these houses right when we first started easier, I wanted a single family home. And I thought, well, what is something. If I'm going to like this and it's going to be a priority to me, another family is going to find this a priority as well.
0:09:29 - (Kara Johnson): Absolutely, absolutely. Absolutely. That's exactly what. And there, you know, and I think that there are other, you know, it's not bad to want the multifamily so that will. And you know, a big or a duplex or triplex or things like that. And if those, those are particular goals based on the person. But for us, that's kind of what we looked at when we first got started. Okay, we want this, you know, a single family home. We want a home. We came in and we renovated each one of our homes to make it easier for us.
0:10:00 - (Kara Johnson): So we weren't necessarily scared off by, you know, problems that the home may have because we pretty much went into each of the homes and just fixed it up so that it was ready to go so that, you know, long term it would rent.
0:10:15 - (Allison Spencer): Well, I think too, it's hard for first time homebuyers or first time investors to have enough money to go and purchase a multifamily. So I think it does tend to go towards single family homes or condos or apartments which can turn into fantastic rentals.
0:10:31 - (Kara Johnson): Yes.
0:10:31 - (Allison Spencer): So you all, I would say, are a little more risk taker than myself and Matt.
0:10:37 - (Kara Johnson): Yes, we kind of look for More.
0:10:39 - (Allison Spencer): Turnkey rentals, whereas you all are remodeling the rental.
0:10:43 - (Kara Johnson): Yeah.
0:10:44 - (Allison Spencer): So how did you come up with the finances when you were first getting started to put the money back into a home that you were purchasing?
0:10:54 - (Kara Johnson): Yeah, great question. So because we had moved into the home, we actually, it was a slow process. It's very different than it is now. Now we are settled in our house and so we use the HELOC just like what you were referencing, and we are able to fix up houses that way. But before, when we would move into a home, we would kind of come up with a list of things that we knew that we wanted to fix and it would be okay. You know what, this month we are going to, you know, put new countertops in.
0:11:23 - (Kara Johnson): Okay. In two months we're going to be changing out the vanity. And we would kind of piecemeal it. The first two properties that we lived in, you know, it was definitely over a span of time and we didn't feel the pressure that all of a sudden we had to get it done immediately because we were living in those homes. And so we were just kind of making do with what we had at the time. But the end goal being, hey, this is going to be a rental.
0:11:49 - (Allison Spencer): Absolutely. And I think too, it's helpful for anybody getting started to just take it one step at a time and to say, this is not a, this is a marathon. It's, you know, we got to take it one step at a time.
0:12:03 - (Kara Johnson): Yeah.
0:12:04 - (Allison Spencer): And it's a snowball effect. Getting started, you know, slower at the beginning is going to accumulate because now if you go and you're like, hey, I have a rental property, the bank is going to count that as income. They're going to approve you for a higher loan to go and purchase another home. So now you can take the money from that, count it as income, and then go and purchase another property. Well, when you do that, now you've got two rentals.
0:12:36 - (Kara Johnson): Right.
0:12:36 - (Allison Spencer): And now you have cash flow coming in from both of those. And now it's a snowball effect. So you can actually take the cash flow that's coming in, put it aside, and then say, hey, once this reaches enough for another down payment, I'm going to go ahead and purchase another property. Yes, now you have three and four. And that income, that passive income, is becoming greater. But that brings me to the next point and the final point for today's podcast.
0:13:03 - (Allison Spencer): How do you know what property to choose and how do you evaluate if it's going to be a successful cash flowing property? Do you have a certain set number in mind that you look for for each property or how do you evaluate that?
0:13:17 - (Kara Johnson): So for us, that definitely has kind of evolved over time. The biggest thing for us was that we needed it to cash flow. We. We ran numbers. I'm not a numbers person. That's why I hired you.
0:13:30 - (Allison Spencer): But I do manage her property.
0:13:32 - (Kara Johnson): Yes, she's fabulous. So, yeah. So we typically would sit down and kind of go over, how much is this house? How much does this house cost? What would this house appraise at? You know, how much do we need to put into it? What are the properties around it renting for? Right. Because that's a really big indication on if it's worth your time and your investment. Absolutely. You know, in 2018, that number was different for us just because how the housing market was not as expensive.
0:14:03 - (Kara Johnson): But again, like we talked about just a minute ago, it still is worth it to do it now. So the money that we're cash flowing now, that that number may have dropped to some, but we still are cash flowing and so making sure, kind of looking at your own budget, you know, because for us, that was a really big thing. Equity was not something that was the forefront for us, even though that was a n bonus and most of our rentals now have a lot of equity in them.
0:14:32 - (Kara Johnson): But really the main thing we were looking at is the numbers, you know, tallying it all up, putting in the monthly cash.
0:14:39 - (Allison Spencer): I think that's important when you're evaluating your goals, to determine is it going to is your purpose cash flow, is your purpose equity, what is the strategy there? And taking the cash flow for us, when we started, we wanted at least a minimum of $300 cash flow a month. That's after mortgage, tax, insurance, maintenance, all of those things that you're factoring in. And that's why it's so important if you are getting started to consult with a real estate agent, a professional me, and you know, evaluate is this take the emotion out of the property, take the aesthetic away and say, is this going to cash flow the properties? Because property value changes and rent changes, it is ever changing. And I will say that the properties we cash flowed $300 on back in 2009.
0:15:28 - (Allison Spencer): We're now cash flowing over $1,000 a month on those properties. And that's just the exciting thing about real estate. That's why I think it's important that you just start now, because the properties that you're going to invest in now are going to improve 10 years from now, 15 years from now. And so finding a good group of people so that you can avoid real estate investing pitfalls, which we are going to touch on in the next episode. So thank you, Cara. You offered so much great insight.
0:15:57 - (Allison Spencer): Thank you for having me, as always. Tune in next time for our next podcast.