Karen’s story is inspiring. She waitressed for 11 years then decided to become a real estate investor. Not knowing where to start she joined a mentoring and education group, Lifestyles Unlimited.
Three years later she has 8 houses, makes $1,600/mo passive income from her properties, and now mentors others who are just starting out.
She sees herself in a few years owning apartment buildings. I believe she will, too. In this interview Karen explains how she got started, how she finds and finances her properties, and how she gets good tenants.
Transcription by SpeechPad
Damon: All right. Hi, Karen. It’s good to see you.
Karen: Thank you.
Damon: Welcome to the interview everybody who’s watching this. Today I’m interviewing Karen Davis, who is a successful real estate investor. I’ve been able to watch Karen over the last couple of years and see the things that she’s been doing in investing. I’m really looking forward to this interview, Karen, because I have a lot of respect for what you’ve been able to accomplish and especially for somebody who’s relatively young. So I want to start off kind of in that area. How old were you when you got started in real estate investing?
Karen: So that, 27.
Damon: Twenty-seven years old, okay. How long have you been investing in properties?
Karen: Three years. You’re giving away my age now.
Damon: [laughs] I’m sorry. I won’t put a date on the posting here, so people won’t know.
Karen: I love it.
Damon: How many properties do you own?
Karen: I am currently at 8, but I have bought and sold 12 transactions. So, right at this point in time, I hold eight.
Damon: You hold eight. So you’ve had a total of, you’ve purchased 12 properties. Am I right in thinking that?
Karen: I’ve flipped two, and I’m actually flipping another. So, I’ve owned ten the most.
Damon: Okay, ten at the most and currently you have eight. If you don’t mind me asking, how much passive income or monthly cash flow are you receiving from the properties that you currently hold?
Karen: Today, it’s about $1,600, because I have, and that varies. Some of them are majority of the cash flow and some of them are lower cash flow. So, about $1,600 is a safe number.
Damon: Okay, excellent. And then the other part of this question is how much capital gains or how much wealth have you built for yourself through purchasing these properties?
Karen: It’s been a while since I’ve done the calculations, but $150,000 to $200,000.
Damon: $150,000 to $200,000 dollars, right. Excellent. I mean, that’s really good over three years and being able to do that.
Karen: I had negative net worth previous to real estate.
Damon: Okay. So if you had negative net worth before you got into real estate, it kind of begs the question, how did you get started?
Karen: Actually, Lifestyles was obviously the major point. How I actually started purchasing and acquiring property was by making contacts with other members, some non-members as well. Actually partnering and right now it’s called or the term is private money. So I have private lenders who are funding my deals, which allows me to acquire the property in my name without having to use my credit or any of my money.
Damon: Okay. So you’re not going to a standard bank to get the financing. You’re going to private individuals or private companies who have their own terms, their own way of doing this, and you’re able to borrow the money that way?
Karen: Yes. I’ve gone through a lender from start to finish on only one property. All the rest have been private lenders, which is very nice.
Damon: I know a lot of people who are watching this, who are just getting started, are wondering about that. How do I get started if I don’t have enough money to go out and use conventional loans to do this? So that’s a great example of how you were able to do that.
Karen: Yeah. I think there’s a lot of people out there right now who are in a similar situation to myself. I do get a lot of phone calls. I do mentor a lot of people in this department, because, quite frankly, it’s just not as easy as it was. I don’t know. Before I started, I guess it was very easy to get financing. You didn’t need the income or the proof of the income. It’s just a different ballgame today.
Damon: Yeah. The money’s a lot tighter now than it used to be. It’s harder to come by. But is it safe to say that it’s still possible to get financing even if you don’t have a perfect credit score and a lot of money in the bank?
Karen: Yeah. Through a lender, it’s going to be more difficult if you’re not in the prime lender category. However, there are programs where you can get into a loan or buy a house if you buy the house at a great enough discount. So, yes, and then if you’re considering the private lending aspect of it, which again that’s not through an institution, anybody, anybody can get that money. It might take you a little bit longer because it will involve the networking and the meeting people and the trustworthy factor that goes along with people lending money to other people.
Karen: But anybody can do it. Yeah, lending is still occurring. The money didn’t disappear.
Damon: Okay. There’s just different channels, different avenues to get it. It might be a little bit harder, but it’s still doable.
Damon: Okay. Now you mentioned that you’re a mentor. Can you describe what you do in terms of mentoring people to real estate and using the experience that you’ve gained?
Karen: Sure. Really what I do here at Lifestyles is we have a lot of new members who come in. They sometimes are similar to what my situation was. Honestly, I just like to watch design shows. I didn’t even know you could do this. I was just a waitress. A lot of people are in that category where they’re just clueless. They’ve either heard on the radio or some other group that this is possible, but they know nothing. So I will take them step by step through the process. The classes that we have at Lifestyles do that for me and for them. But after, if there are questions or if there’s something that they’re stuck or something they encounter during whatever process, the evaluating, the locating, the managing, even during closing people will call. So I’ll help them with that, because most of the time it’s something that I’ve already experienced. If it’s not something that I’ve experienced, I’ll hang up the phone, I’ll go find the answer, and then I’ll give them a call back.
Damon: I see. Okay. So you’re working with a lot of people who are just getting started. They are trying to figure out how to get the financing done, even trying to figure out how the whole thing works. You’re able to talk to them, help them, and lead them through that.
Karen: Well, yeah, one of the things that not only I do but the other mentors and even just the people who teach the classes here, showing the people the opportunities or the options that they have. If you don’t know something, you don’t know. Once you’re introduced to it, then it becomes an option.
Karen: So it also opens up the idea, well, I guess, what you really, you can do anything you want. I learn as well, which is great. The more I’m talking and teaching people and helping people out, I’m also learning from other members, other mentors that are here. I’m not the oldest person in the world, so obviously someone else has done it before me. It’s just kind of like a paying it forward scenario.
Damon: Is there somebody that you can think of that you’ve been able to help that you think, that kind of showcases this taking somebody who doesn’t . . . you mentioned that you were a waitress before you got into this. Obviously, your life is different now then it was then. You’re helping people in a different way. But have you worked with anybody who you’ve seen make these kind of changes?
Karen: Oh, totally. I don’t have any names, obviously. I’m sure that’s not what you’re looking for. But there are people that I’ll put on my mental list that I cannot wait until they buy their first house. I cannot wait until whatever their situation is turns around, because that’s what makes me love my job that much more. So, yeah, there are plenty of people. Sometimes it’s easy to forget about those people. So I really should not do the mental list but maybe the physical lists, so I can follow up. But, yeah, it’s very gratifying.
Damon: Very gratifying. Yeah, excellent.
Damon: Let’s talk about some of the how-to. How do you do certain things. For example, let’s talk about finding properties. How do you recommend that somebody go out and find properties? Using yourself as an example, how do you do that?
Karen: I actually don’t recommend that people physically go out and look for properties or even sit on the computer and look for properties. I recommend that people use the sources available to them. Being that there’s real estate agents out there and so many of them, use other people to look for you, because this is a business and you need time to run the business or do whatever else you like to do. So what I tell people to do is contact agents and have agents search for you. And you’ll . . .
Damon: When you say agents, you mean real estate agents?
Karen: Real estate agents, yeah. Contact real estate agents, have them look for property for you, and you’ll go through quite a few. But you really want to have solid real estate agents on your team, because what you’re trying to do is build this team to help grow your business. Also, contacting and getting wholesalers to be on your team as well, because they . . .
Damon: Now, what are wholesalers, for people that aren’t familiar with that?
Karen: A wholesaler is someone who will go out and get a property under contract, and it’s not always for a negative reason. They will physically go out and knock on someone’s door if they see a property that, in their mind, looks like it might be coming up for sale or should be coming for sale. They’ll get the property under contract with that individual, and then sell that contract over to another person and make a fee, which is essentially and very simply put similar to what agents will do. Agents will make a fee for doing the same thing that wholesalers are doing. However you find the property doesn’t matter, just have other people find it for you. Do the homework. Do your due diligence on every single property. I don’t care where it comes from, because it’s your money, it’s your numbers, and it’s all about the numbers. That’s the very first thing I tell people to do.
Damon: Use real estate agents, contact wholesalers, use other people to find those properties. Then how do you determine if you should purchase a property once somebody presents one to you?
Karen: When someone presents a property to you, you need to evaluate it, because without getting sales comparables, and a comparable is something where the situation, or the property will be almost identical to the property you’re looking at as far as square footage, bedrooms, bathrooms, garage. Break that all down into price per square foot. Get the value of the property you’re looking at, and from there you’ll be able to determine whether or not it’s worth what they’re asking or less or more. Then you can move forward from there.
Damon: Okay. So you find a property using other people. You do this evaluation that you referred to. You determine, yeah, this is a property that I want to purchase. What would be the next step for somebody?
Karen: The next step would be . . . let’s say you have an agent who brought it to you, you’ve evaluated it, it makes sense, the numbers are great. You will call your realtor back or e-mail them back, text them or whatever it is and have them write an offer. Now, if they’re an agent, they know the rules and the laws and they have their contracts in place, so they will put that together and send it back to you. I actually have members who will send me the contract before they sign it that the realtor has put together for them. I will look at it and make sure that it looks, it makes sense and go over with them what is in each part of the contract just so they’re aware so they can make their own decisions. I don’t make the decisions for people. I let them know what they should be looking for when they’re doing this so they don’t have to call me next time.
Damon: Right. So you’re teaching them how to fish not just giving them the fish, using that analogy.
Karen: Correct. Yes.
Damon: Okay. The person, they go make an offer on this property. The deal closes. Now they need to fix up the house and get a tenant. What do you do to make sure that you’re going to get a good tenant into that property?
Karen: Well, it’s all about the screening process. There are a lot of renters out there and there always will be. Not every single person wants to own a home. People have different priorities. Some people have different financial situations. So, whatever it is, there’s always going to be renters, and there will always be renters calling you left and right. Once it’s fixed up and you’re looking to get someone in there and you’ve got these calls coming in, the screening process is such that they will fill out an application, and as a renter almost all of them are very aware of this process. You will submit that application to a company. You can do it yourself as well, but it’s, again, using other people to do things for you is much easier. The company will do the research on that individual as far as their rent history, their criminal history, their credit, their income verification, etc. From that point, you then will take those results and make a decision as to whether or not they fit your requirements, your landlord requirements, and whether or not they can move into the house, because it is your house. Don’t ever forget that. You don’t have to let anyone live there if they don’t meet your standards.
Damon: Have you ever had a tenant that has gotten through your screening process and then actually been a problem once they got into the property?
Karen: Yeah. I wouldn’t say problem, I would say . . . sometimes things happen. People lose their job. They fight with their girlfriend, boyfriend, who knows. Things happen. You have no control over that. However, if you screen people, it’s highly unlikely that if you’ve done the proper screening and you’ve done the screening completely, that that’s really going to ever occur. It’s very rare that you will get a perfect person in there unless they’re crazy, where they’ll tear your house up. Sometimes things happen and, again, there’s really nothing that you can do about it. However, let’s say someone fibbed, which is illegal, on their application and you’ve put them in the property and they tear the property up. The security deposit that you required that they give you before moving in as part of the agreement is kind of your safety net. It shouldn’t be looked at as that way, but let’s again say that this is something that has happened out of the blue. You know that that is what you have for repairs, for things that you didn’t plan for.
Damon: One of the things I found out when I was just starting investing as well, because I was concerned about this, what if I put somebody in my property and they tear it up and destroy it? In addition to the deposit, you also have insurance on the property. So the deposit can actually, if they really tear it up, the deposit can cover your deductible, and the insurance will actually take care of repairing it. As a landlord, it helped me feel a lot better knowing that I was actually protected against that kind of thing.
Karen: Yeah. There are a lot of, well, there are not a lot. There are certain things that you will do steps A, B, C, through E, F, G, who knows. There are certain things that you will do that I certainly, if people are at that stage and they’re calling, that you will do before you get someone in there. You will actually line up insurance to cover, as a landlord. Again, insurance is insurance, so it’s just that. You get as much as you want or as little as required by law. You can get an insane amount of insurance if that makes you feel better. But know that when you’re doing that it’s all part of your numbers game. So that will determine whether or not you’re even going to buy the house. Yeah, insurance takes care of the things that you definitely don’t expect or you don’t plan for.
Damon: What you’re saying about the cost is that if you insure against, say, everything, you buy the Rolls Royce insurance policy, that’s going to cost you more money. But you’ve run the numbers, you know how much you’re going to be able to rent the property for, you know how much you’re buying it for, how much it’s going to cost to get it ready to rent. If you can pay that higher premium on the insurance and you still have a good cash flow and all the numbers look good, then it’s fine, there’s no problem with that.
Karen: Absolutely, yeah. If that’s, and again, everyone has different goals. If they’re looking for cash flow, then that’s something that they will obviously consider. If they’re looking to put their money in something tangible and the cash flow they can play with the numbers there a little bit, then obviously that’s what you’re going to do. Everything is going to be specific to you as an individual and what you’re trying to accomplish.
Damon: Right. Okay. I wanted to ask you too, what’s you’re primary goal? Are you going for cash flow, or are you trying to build wealth at this point?
Karen: At this point, I’m actually trying to do a little bit of both. Actually, it’s possible because the market is, just, that is available right now. I’m looking for not the cash flow so much but really the building the wealth, because at some point I would like to progress into bigger things, maybe buy small apartment complexes or large apartment complexes. So, yeah, for me, it’s really the wealth building and the equity capture.
Damon: Okay. When you started three years ago on your investing, what did you envision? Did you set a goal for yourself? Or did you just kind of stumble into this and start?
Karen: Originally, like the very first time I walked in, I had no clue. Like I said, I didn’t even really know what I was coming to. When we sat down and did our goals for the very first year, we actually just went the single family route. Okay, let’s try to get three properties this year. We ended up getting five in six months. It happens a lot faster, and it’s totally dependent on you as an individual. Obviously, if you don’t have very much time, get other people to do it for you. It can go very, very quickly. Then, once you start to realize these goals and realize that what you originally thought you were capable of is way more than what you ever expected, that’s when you start to think the big picture. Okay, what do I really want to do? Because now, again, it opens up the opportunity and the options for people or individuals once you, I guess, internalize.
Damon: Are you saying once you believe that you can do this, once you believe that it works because you’ve done a little bit of it, that your vision grows? That your goals actually become greater because you realize what you can actually do.
Karen: Yeah, absolutely. Once you see that what you’re doing is happening so much faster, then, yeah, it opens the door. Obviously, you can do anything that you want. Sometimes it’s difficult to believe that until you start doing it. I think that was a pretty big shocker.
Damon: Right. So now you’re at a point where your envisioning yourself getting into bigger deals, apartment complexes, really going for it. Whereas maybe a couple of years you didn’t even know that was available. If you did, you may have thought there’s no way I’ll ever do that.
Karen: I never ever thought about this. Didn’t even cross my mind. I actually had thought quite often what was I going to do, because I didn’t have a degree and I was just a really great waitress. I thought that’s what I was going to do. I was going to have to work at a better restaurant to get better tips. Yeah, this was a total 180. I hope I never, I will never waitress again.
Damon: You will not go back to that?
Karen: Eleven years is plenty.
Damon: How much time a week, not per week, how much time a month do you spend being a landlord, being an investor? Because I want to compare that to how much time you spent waitressing to make money.
Karen: I don’t know where any of the money that I made waitressing went, so there you go. Now, the properties that we own, that are rented or selling one, I am spending each month maybe half an hour to hour — and that would be stretching it — doing my paperwork, making sure my bills are paid and my business is running properly.
Damon: You’re saying an hour or so a month of doing the accounting and the managing the business, basically.
Karen: Yeah, correct.
Damon: Okay. Now, acquiring a property, that’s going to take more time, right, when you go out and purchase, you’re doing all the work to purchase it and the rehab. Do you find that once you get a tenant into the property there’s not very much time required?
Karen: Correct. Yeah, there’s very little, if any. When you do everything right, you don’t have anything. Again, one in a million, things happen. But when you follow the model and do what works, you spend little to no time each month just keeping up with your business, and that’s really all there is to it.
Damon: That’s great. So it beats waitressing, you would agree with that?
Karen: Yes, any day.
Damon: Okay. Now, we just have a couple of minutes left. So I want to know what advice do you have for people who are just getting started, kind of at that state where you were at a few years ago, where you just barely caught the vision of it but you hadn’t done anything yet? What advice do you give to people?
Karen: If you’re interested slightly, then you’re already on the right page. You’re already on the right path. My suggestion is don’t try to do it alone. Get help. Surround yourself with people who are doing it, because the positive feedback and the positive reinforcements help you more than you will know. If you don’t have that, you don’t have what works as a guide. If you don’t have people who are actually doing it or people who have done it, then it makes it that much more difficult and easy for you to fail at something. If you fail at it and you don’t try again, then you will probably end up being that person who says I hate real estate, it doesn’t work. But there’s real estate everywhere and people are making tons of money off of it. So find the people who are doing it right and hang out with them and learn from them, because if that’s where you want to be, then that’s where you need to learn or who you need to learn from in order to get there. That’s my biggest suggestion. Get educated, as much as possible, and ask questions to people who are doing and doing it correctly.
Damon: Excellent advice, Karen. I really want to thank you for taking the time today to share your thoughts, share your experience. I know a lot of people will find this very helpful, and your story is very inspiring. You were at one place, and now here you are just a few years later, increased your wealth by $150,000. You’ve got $1,600 a month cash flow coming in, spending very little time at it. I just love the fact that you have this vision for where you’re going to be in the future, that you believe in yourself and you believe you can do this. It’s very inspiring.
Karen: Anytime. I really enjoy helping people, so anything that helps, I’m all about it.
Damon: Excellent. Thank you very much, Karen.
Damon: Talk to you later.