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Welcome to Capitalizing Your Life—the podcast that shows you how to take control of your money, build lasting wealth, and create financial freedom using the Infinite Banking Concept. If you're ready to make your cash flow work for you instead of someone else… you’re in the right place.
Episode 5 Transcript
00:00:15
Glenn
Welcome everyone to The Millionaire Journey podcast. I'm your host, Glenn Yaney. The goal of this podcast is to guide and empower you on your journey towards financial independence. Today, my guest is Caleb Johnson. Welcome.
Caleb
Hi Glenn. Thanks for having me, man.
Glenn
Yeah. Thanks for working through our technical difficulties, looking forward to hearing your story. If you could just tell us a little bit about yourself and where you're at, how you got to where you're at today?
Caleb
Yeah. So I - in high school - had two, sometimes three jobs at one point and got into business when I was 18. I started in multi-level marketing with Amway. And once I was 19, I learned about real estate and that 90% of millionaires had gotten their millions through real estate. And I thought that was pretty good odds if I wanted to have success and get the goals that I wanted in life. And that's when I decided to go full force in real estate. I learned through free resources, podcasts, and started in residential. I did that for three years, started with a house hack. I did a flip as well; and I learned, we lost money on the flip, so I learned I'm not a flipper by any means more of a cash flow investor. And then three years into my residential journey, I started surrounding myself with apartment investors and they really showed me just the opportunity with apartments. And so for the last three years, that's what I've been doing is apartments focused and we own 5 apartments. Well, we bought 5 apartments in the last three years, one retail facility, and I focus on 75 plus units today.
Glenn
So you have a total of 75 units, or is that you base your purchases off of 75 or more?
Caleb
Yeah. So my current portfolio is 117 units, but today I focus on new acquisitions of 75 units or larger.
Glenn
Wow. So, when you think about management of the 75 unit portfolio, do you focus on certain markets or how does that work?
Caleb
Yeah. So, I focus on Arizona, Texas, and Oklahoma. I own property in New Mexico and I'm kind of torn if I wanna invest in New Mexico still because it's a blue state and we've - it took us 10-11 - no, it took us 13 months to evict one person.
Glenn
Wow.
Caleb
And so. You know, they just work the system and so I don't know. I still, like New Mexico's vacancy is very low, so it's a great market in that respect, but city and government’s more challenging there. So, I focus in certain markets in Arizona, Texas and then Oklahoma.
Glenn
Yeah, I'm kind of spoiled being in Florida, it seems like it takes about four… three to six weeks to get somebody out.
Caleb
Mm-hmm. Definitely.
Glenn
So if you could…Where did you get your first down payment? How did you buy? How did you start that process of buying real estate?
Caleb
My first property ever or my first commercial?
Glenn
Well, really just getting into really how did you buy that first property?
Caleb
My first property was a fourplex that I house hacked. And just to explain what house hacking is - is let's say you buy, you can buy, a 1-4 unit, so a single family home or a small multifamily. You can live in one of the bedrooms or one of the units. And I bought a fourplex, so I lived in one of the units. And there were already 3 renters living in the other three, so I inherited those tenants and I only needed an FHA loan. So the down payment was 3 ½ % of the purchase, so I needed about $10,500 and then plus, you know, a couple grand reserves and a bank account. And that's all I needed to actually get my foot in the door.
Glenn
I think that's such a crucial step that I've seen with people that start young. Obviously it's just when you get into - once you remove that housing cost, it's so much easier to save money is what it comes down to.
Caleb
It is way easier, and then at some point you're getting paid at the same time. If you –
Glenn
Exactly.
Caleb
If you have 4 units or maybe multiple bedrooms, it's just icing on the cake.
Glenn
So how long did you stay in that house hack or the place that for the 4 units?
Speaker 2
So I owned it probably about 15 months - something like that. And then once we sold it well, once I sold it, I rolled the capital gains into a 1031 exchange.
Glenn
Wow. Okay, so what did you purchase that fourplex for? And what did you sell it for?
Caleb
I bought it for $300,000 and sold for $535,000. I think was the price.
Glenn
Beautiful. Yeah. Really. And then just over 18 months - or you said 15 months?
Caleb
15 - something like that.
Glenn
Yeah. So,15 months walk away with $150,000 then isn't terrible, right? Is that about what you netted?
Caleb
No. Yeah, about $170,000.
Glenn
Ohh beautiful.
Caleb
Yeah, and praise God, I mean the Phoenix market. You know, it was - I think we bought that, I bought that 2018 or 2019, and really rode that perfect timing. I mean in 18 months. It was definitely - definitely a blessing.
00:05:24
Glenn
So I worked for a larger institution before I got into investing for myself and we had our market, we had 22 markets that we were in, and Phoenix was one of them. And when I first started they were the lowest rent. It was like their average rent for a single-family home was like $1300 and then during COVID, it was, I think it went to like $1900 to $2000 a month for a very short period. Like it was mind blowing on how fast and that one market was the market. Or that, you know, that you're competing with - like Tampa was competing against Phoenix - and the Phoenix market was just totally annihilating all of us. They’re are like 99.5% occupied at all times, you know. And they, and that company, they weren't like raising rents aggressively; it was just like there was so much demand in Phoenix market, and that market just shifted overnight. What do you think the main driver for Phoenix is why it grew so quickly?
Caleb
You know, that's a good question, and a lot of it is just job growth, and there was such a lack of supply. And so many people came from California during that time.
Glenn
Yeah.
Caleb
I mean, I think at one point the number was we had 150 people per day moving from California to Phoenix. And so that was - you had this huge influx of people and then you had this lack of supply – and that's, I mean, that's kind of what caused it. And Phoenix is such a diversified job market. So we're blessed in that regard. And so weather's nice, you know, not in the summer, but so a lot of those things kind of factored into that.
Glenn
Yeah, I remember this one conference call I had for work, and it was the big boss asked me. He said, “Hey, what are you guys doing in Florida?” And I was just like, “Well, we're answering the phones is what we're doing.” You know, there was just so many people moving in at that time. And I think Phoenix and Tampa, or Florida in general, just had such a population increase during that time. So you did the house hack, you bought your - you netted about $170,000 - and feels like free money because you just lived there and got paid $170,000. What was the next step from there - you started to partner with some people?
Caleb
Yeah, I don't remember the exact next step, but I know I rolled those gains into a 1031 of that retail facility that was a joint partnership, a joint venture, where me and maybe 3-4 other people went into that acquisition and did a flip as well. I didn't come out of pocket myself for that. That didn't go so well, but then did another house hack that was a duplex. And so the house hack went well. Again, every investment for me that is like cash flow focused has gone great. I have been blessed to buy in a great economic time, so I'm not going to discount that by any means. But that was kind of the next steps in the next progression for me.
Glenn
Yeah, definitely. So I'm assuming you started raising investors capital at a certain point?
Caleb
Hmm – mm.
Glenn
Like how, how did that work and how did you start rolling that out?
Caleb
Well, starting off younger, I didn't have a big network. You know, my family, their workforce, housing… They've had the same jobs for maybe 20-30 years - my mom and dad. And so coming from that, I didn't have any kind of real estate background. I didn't know anybody in the space, so I had a network. That was the biggest thing for me starting off, I just networked, networked, networked. So I would go to local meet up events. I would network online like bigger pockets - had a really good platform – that it was like Facebook for real estate. And so I would make a goal every day I'm going to connect with five new people every day. And just start those conversations organically and then from there, hopefully I’ll meet some partners along the way and build my database.
Now that's how we found my first partner for that flip, and then from there, once I started in commercial, I had been building all these relationships in real estate for investors. So I had this big database of people and the way I thought I would get my foot in the door was raising capital for commercial properties. And my first property was 16 units, so fairly small. The purchase was $755,000 and I needed about $285,000 to around $300,000 to actually close it. And I remember calling up all my investors. You know, you have your A-list, your B-list and your C-list. A-list is like people you know will probably want to invest. They have money. B is they might have money, they might not - or they might want to invest. C is they probably don't have money and they probably don't want to invest. And I called everyone - A, B, and C. And nobody wanted to invest. And I thought, “Well, crap.” And so we're like a month in, I'm already under contract on this property and I have my own EMD - my earnest money at risk. So maybe it's like $10,000 or something like that. And one of my partners really connected me with another one of his investors. So long story short, we got that deal done. I found three investors to actually acquire that property, but that was learning that was not my strong suit when I thought it would be and kind of falling on my face. So I had to pivot to really buy more properties to where my main role wasn't raising capital, my main role was actually finding the properties.
00:10:52
Glenn
So today like what would be your role?
Caleb
You know, that was three years ago. And maybe 2 years ago when I bought my first property in a commercial - and I'd say I'm leaning more towards - I'm still acquisitions - probably I teeter between like 60% to 50% of my day-to-day is acquisitions and the other 40% to 50% is raising capital. So, I’m continuing to meet new investors and look at offerings that I can partner with other people on (that I know, like, and trust, that have a reputation with multifamily) and then partner with them and then bring my investor database.
Glenn
Yeah. So with management, are you able to third party management companies or how does that work?
Caleb
Yeah. So, we have asset managers, which is generally me, but we do have property managers for the day-to-day; so I don't deal with trash tenants toilets. It depends on the property, but sometimes I do need to fill the role of contacting contractors to actually do a larger job, right? So, to pave a parking lot, interior renovations. For small stuff like work orders, throughout, you know, any given day a toilet leaks, I don't get that phone call. The property manager deals with that. But larger things sometimes I do need to fill that role, but other times it's not the case. And so just depends on the property manager, depends on the size of the property, depends on the state, you know, and just the boots on the ground that we actually have there.
Glenn
And how often? As, I guess, the asset manager, since you're not… all of your properties aren't closed, how often do you feel the need to walk your properties?
Caleb
Umm, depending on what stage the property is in - so if we just bought this property, I'll probably fly out there - it's normal within a month, right? To make sure kind of everything's progressing. Usually it's once a quarter and then if the property is stabilized maybe once a year. If everything's running really smoothly, management is really taking care of everything, and there's no - we're cash flowing, and so there's no reason to visit the property, I'll still go out there. You know, it's good practice to go out there often, maybe once a year, twice a year, or something like that.
Glenn
Yeah, we're working on… you know, we're at about 330 - 330 units - and but they're all local. So it's very easy for me to get in my car and just drive up to the property. And it takes time; you know, I find myself staying busy by going to look at properties. And really, just recently we started implementing processes of like - I have my property managers that they'll go drive the properties once a month and then I plan on driving these properties once a quarter so they have to spot check the things that I used to spot check - make sure there's all the trash, like for mobile home parks, you know, you got to make sure there's no trash laying around, no hoarding type stuff. And we're just working on that process right now, that's why I ask. Because I'm the main purpose of this - I love these podcasts because I can - I can learn what other people are doing and dig deep into what everybody else is also doing.
Caleb
Right, right. If you if you have someone that lives on site, that's a like a full-time maintenance person, that's even better - because they can go, they can be at the property every day. They are there every day and maybe they have a unit on the property depending on I mean it I think you could do the same thing with mobile home parks as you do with apartments.
Glenn
Ohh yeah.
Caleb
And that's another route to take if your portfolio can sustain that expense, right? To having a - technically a vacant unit - or you're giving someone a concession for living there. So, depends though, but there's yeah, several strategies.
00:14:34
Glenn
So, in the multifamily world, you know, the media… obviously you can read the headlines and so how how did you go about financing these a lot of these deals that you that you purchased?
Caleb
A lot of them - we bought 4 in 2022 and financing was still - except towards the back end of 2022 - our last… so we bought 1 in February, 2 in June, and then 1 in July and then August, September, I think even July, interest rates were starting to creep up from what I remember. And either you go regional bank or through a broker lender, and then the broker lender will connect you with the bank to work with. And all three of the four - three of those four- are fixed rate. One is, yeah, one is floating and so we're trying to manage that. But that's - that's the type of debt that we got on them.
Glenn
So when it's a floating rate, how does that….when does that adjust? Does it adjust monthly, quarterly?
Caleb
It adjusts - from my understanding - it adjusts every 30 days - every month it adjusts. I haven't read through those loan docs, and it's been a year, so I don't know, maybe it's every day? It's floating based off of prime, and so, well prime adjusts every day, so maybe it adjusts every day.
Glenn
Yeah, so… But a year ago, the rates were still somewhat high. I mean, they weren't like where they were before… like they were still in the fives and sixes at that time? Right? So, it's not like it's too bad.
Caleb
No, I think the floating going into it was five?
Glenn
Yeah.
Caleb
That's maybe… maybe.... No, no it was 5. And then but now I think we're paying like 13-12% since it's floating.
Glenn
Hmm. Yeah. I was just thinking 12%, you know, so how do you think that property is going? Is it weathering the storm or…?
Caleb
Yeah, it is. You know, we projected market rents to be $1,250. And they're all 2 bed/1 Bath, 2 bed/1 ½ bath townhomes. So very desirable units. It's a 30-unit property in Albuquerque, NM. Vacancies are still very low, so demand is high. And we projected market rents to be $1,250 and we're getting $1,450 on renovated units and $1,350 just on classics with minimal upgrades. So even though we're paying a huge increase in interest, the rents have gone up so much - so that's great. And we also wanted to - we looked at investing in a rate cap. The reason we didn't go with that was, I think if maybe the rate cap would have been $150,000; and we could actually self-fund, like have some money set aside, that would be our “rate cap.”
Glenn
Reserves, yes.
Caleb
And then would just pull from that additional capital. So, we raised like an extra $100,000 to kind of mitigate that risk because doing that was actually cheaper compared to a rate cap.
00:17:29
Glenn
Yeah. So that was always like my thought. I actually met with the banker the other day and they're talking about interest rates adjusting. And I thought to myself, I'm like, “Well, all these interest rates are adjusting, but a lot of these…” Say if they're on five-year notes… a lot of these, you know, operators weren't estimating that rents would have gone as high as they are now. So like if you think we're going into 2024, so we'll say 2019. We're talking about rates adjusting from things that were bought in the past, like in 2019. Obviously, rents have almost gone up - we'll just say 30 to 40%. So if there is some kind of a rate adjustment, I think that a lot of these properties will still be able to weather the storm just because of the fact that the rents have shot up so much that you know the multifamily operators were just killing it at that time. And it's not like they're going to go into default, it's just that they'll just operate as a normal investment property is what I'd like to assume. I don't see it being - maybe the future price might go down than what we thought it was in 2022 or so, or 2020 or whatever, but at the same time, I think that these rents aren't going anywhere at this time. You know, they're not going down and if they do, it's just like a couple percentage compared to how much they've gone up.
Caleb
I hear you. Yeah. So I'm seeing a lot of people that bought in 2021-2022 with bridge financing, and if, let's say their interest rates fixed - okay, but a lot of them had very high rent growth projections and in Phoenix we're already seeing a decline in rent. And so again, like you said, kind of a couple of points, right? It's not - not huge, but I will say actually I know of a couple of friends of mine that are renters. Their apartments aren't raising the rents whenever they sign new leases, they are finding other places that have $100 less than what they're currently paying. And so there, that is a real thing in this market, at least my market, Phoenix. And because we had so much, such a spike, I mean, at one point, I think we had like 27% rent growth in one year. So I'm still seeing a lot of people that are going to be in hot water, especially when their bridge debt is coming due and they won't be able to refinance at the price that they thought. And so they're either going to need to do a capital call and do a cash in refinance, opposed to a cash out refinance or they're going to need to sell at a large discount. And I'm already seeing opportunities come up that are like that, where I asked a broker, you know, “Why are they selling this this property? They bought it in 2021 – 2022.” And he said, “Yeah, they overpaid for it and they know they're going to lose money on it, but they just need to get out.” And so that's realistic in this market today.
00:20:10
Glenn
Yeah, a lot of 1031s as well. You know, we bought a 21-unit apartment complex that was a 1031 and we pretty much paid them for what they paid. But it was like a while ago, but they rolled it in just thinking that, you know, these things were gonna happen. There was one other thing I was gonna say… Oh, yeah. So the other thing that's hard right now, and I used to - because I worked at a company. We just watch every metric. It was a big single family home operator. They owned 50,000 homes and the one thing that would happen in September to December is it would always feel like rents are about to crater. It would always feel that way, every single year.
And I feel like that's the area we're in, so it's hard to judge the market in this time frame for rental because what happens is about at this time, right after Thanksgiving, the market would start to get busier again and then January to February, it would be like on fire like no matter what. I would be like getting upset because I'm the leasing manager and I want a low price to lease, you know. But I would see these prices and they would be jacking them up to like $200 per unit. And it was just like… “This is insane. We're never going to lease these things. Do you want to leave them vacant?” You know? And. And they would get them on the market, and they would just, they would lease. And it was always like mind blowing around the February to May time frame when the market is so strong. It’s when people are starting to get placed for their new schools. Yeah, it was a time to raise rents. It was between, I would say, between January and that May time frame. And then by, what I would say is, in June, it would always be like, “Alright, you're trying to get the most rents in May, so you're inflated. Your inventory is a little bit higher than it should be. People are still leasing like crazy. And then by July, you want to like, start lowering those rents; but they will be lower in September, October, November from my experience of working and leasing. So it's like, you know, I always felt like doomsday during September, October, November because sales would just be slower. It's the time when people are just getting started back in schools just. You know holidays, traveling and stuff like that. I think January is going to… I think we'll be fine with rents. I've noticed it myself. We used to get $1,300 for these certain mobile homes out in this area. And then it's been…we're struggling to get like $1,100 right now, but I would imagine that in the December time frame when people are off school, they tend to move more and I think that's what's going to end up happening.
Caleb
Hm-mmm. I think you're right. Absolutely. And I've also seen it depend on the market to market. Because let's say in Phoenix, AZ it is a great time to move during the winter, right?
Glenn
Yeah, yeah.
Caleb
I mean, the weather’s 50-60°. High is going to be like 65°, maybe 70°. Great time to move. Now in the summer it's terrible. It's 115° outside. No one wants to do that unless they have to. Now, compared to my property in Oklahoma, it's exactly like you said, Glenn. It's so dead after September, like near Halloween time through January. Because it's so cold, they get ice often in January, so people don't want to move. They just want to stay where they are. And then once spring comes, that's when more people are active. They're looking at more units. And so if you want to rent something during this kind of winter time, at least in that market, you have to give some serious concessions to actually move any vacant units that you have. And it's also, if you can, it's also really a good idea to stagger your leases, right? So, meaning your leases don't come up in January, because if you have a vacancy in January, it's probably going to be sitting for at least a month, maybe two months until the weather heats up a little bit and then people are actually looking at moving again.
00:24:03
Glenn
Yup - So, I guess do you go from here? What's the future goals?
Caleb
Future goals, man, I love… you know, I got into this business for non-monetary purposes, right? Like I wanted to spend more time with family and ministry work. Just do what I want, when I want, with who I want. So that's always the forefront of my mind and making sure I have a good work-life balance. So, scheduling some time on my calendar every day to do that. And I wanna continue doing that because I love real estate, I love doing what I do. But it doesn't define who I am. Well… I almost feel like real estate flows through my blood sometimes. I love it, you know… just makes sense. So that's always very important to me to make sure I have that work-life balance.
But when it comes to business, I'm growing out this program where I help people do what I've done. Right? In the last three years, acquiring 5 apartments. So, I have that program that's very hands-on, very interactive. So, this time in my life I'm focusing on building that out.
And then from there acquiring more assets. Right? I think 2024 is going to be a great year. Again, like we talked about for bridge debts coming due. We're going to be able to buy some properties at a great discount. So, I'm looking for more acquisitions in 2024. And then from there growing the portfolio - and I don't feel like I'm the type of person to build a 2,000 – 3,000-unit portfolio myself. Maybe hiring out people to get to that point - lord willing. But we'll see, man. I mean, I'm happy with 1000 units, 800 units and just kind of keeping it that small. That small range - I know for some people that can sound big once you get to a certain point. It's just repetition, right? It's just like any other day job. You just repetition, repetition, and you just get the work done.
Glenn
Yeah, I don't know really where it would stop because it's almost like it gets easier. So like your first four units was probably harder than to buy the next 50 after that, or so. You know?
Caleb
Right. Absolutely.
Glenn
Yeah. So what we'll do is we'll have all of Caleb's contact information in the bottom. You'll see him. He's on LinkedIn. I know you're on YouTube. Yeah, he's all over social media, so you'll be able to reach out to him there. And I appreciate you coming on, Caleb.
Caleb
Well, thank you for your time, Glenn. I really enjoyed it.