Ep #119 – Eric Bowlin owns 26 units making his family about $130K in income per year.
Here’s some of what you will learn:
- Why a “Plex” is a good start into multifamily real estate.
- Why you should get into wholesaling and flipping.
- Why you should drive for dollars.
- Why you should find motivated sellers.
- How to find motivated sellers.
- How to find out what your local landlord-tenant laws are.
- The process of evicting a tenant.
- Why you should invest in a tenant friendly state.
- Find out what your state requires as far as tenant security deposits.
- How to minimize your eviction rate.
- The difference between being a landlord and being an investor.
- Management vs. Investment.
- Why you should leverage certain jobs.
- Why you should always have a plan when looking at deals.
- Book recommendation: “Earn What You’re Really Worth, Maximize Your Income at Any Time in Any Market” by Brian Tracy
- Learn more about Eric https://idealrei.com/
- Connect with me on Facebook at Rod Khleif.
- Text Rod to 41411 or visit RodKhleif.com for a FREE copy of my book, “How to Create Lifetime Cash Flow Through Multifamily Properties.”
Full Transcript Below:
Ep 119 – Eric Bowlin owns 26 units making his family about $130K in income per year
Welcome. This is the Lifetime Cash Flow Through Real Estate Investing Podcast. This is where you’ll learn strategies to help you achieve lifetime financial freedom through real estate investment. Your host, Rod Khleif, has owned over 2,000 homes and apartments. And he brings experts in all aspects of real estate investment and management on to the show. Now, here’s your host, Rod Khleif.
Rod Khleif: I have a couple of house keeping thing for you guys. I wanna mention to you that we have some partnership opportunities coming up. We’re actively buying small apartment buildings and mobile home parks. If you’ve got an interest in potentially partnering with me on some deals and looking over my shoulder as we do them together, send me an email. Either myself or my partner Robert will get on the phone with you and get into more detail about these opportunities that are coming up.
That email is firstname.lastname@example.org. Again, that’s email@example.com, if you have an interest in partnering with me.
Over the last year, I’ve spoken with or communicated with literally almost a thousand of you, and I have to tell you, it’s been awesome. Lots of you have asked me for coaching and mentoring, or to create some materials for you to help maximize this business, how to get into it, and take action.
I will tell you, I didn’t start this podcast with the intent to do that, but after so many of you have asked, I finally decided to do it and I’ve done it. In a few weeks, I’m launching an awesome course and coaching program. I wanna help you crush it in this business and build your own life time cash flow quickly. If you wanna get some information about that stuff when it comes out, when it becomes available, text the word CRUSH, to 41411.
Lastly, I just wanna ask you a favor. If any of you listening, has purchased a multi-family property as a result of what you’ve learned or been inspired by on this podcast, please email me at firstname.lastname@example.org and tell me about it. That’s r-o-d-k-h-l-e-i-f.com.
I can’t tell you how much I enjoy getting those emails and talking to you guys about your deals, so please give me that gift when you buy a property. Alright, let’s get to it.
Rod Khleif: Welcome to another edition of How to Build Lifetime Cash Flow, I’m Rod Khleif, and I am thrilled you’re here. I know you’re gonna get value from the gentleman we’re interviewing today. His name is Eric Bowlin. He’s got a unique story, particularly career related, about the shift that he made. The guy owns $2 million worth of real estate now but it’s very interesting how he got into real estate and in his career shift. I’m gonna let you tell it. Eric, welcome to the show.
Eric Bowlin: Hey, thanks for having me, Rod. Appreciate it.
Rod Khleif: Absolutely. Expand on my introduction and tell my listeners, how you got started and what you were doing initially, and that shift I was referring to.
Eric Bowlin: Sure. Well, the way I got started is accidental. Like a lot of people get accidentally become a landlord or a real estate investor. I was going to grad school. I was working on my PhD in economics, where I met my wife. We wanted to buy a home, but we also wanted to be near our school.
In the way, northeast is, as many a cities, is there are the small multi-family homes scattered throughout the city, and it, where my school was, that’s just the whole area, so if we wanted to buy a home, and live anywhere near a school, that’s what we had to buy.
Rod Khleif: Where was that area?
Eric Bowlin: That was in Worcester, Massachusetts.
Rod Khleif: Oh, yeah. Okay. Super.
Eric Bowlin: So we bought a three-family, a three-decker. They’re one on top of each other on the Northeast up there.
Rod Khleif: That’s very unique to that area as well. My dad used to live in Spencer which is near Worcester, and these three-deckers are literally, each floor is another unit. You don’t see that in may places. And they’re older too. Right? How old was that first one?
Eric Bowlin: Yes. So that was built in 1890.
Rod Khleif: Right. Right. So that’s, they’re kinda unique. But anyway, continue. So you bought this triplex but just because you had, or three-family, because you needed a place to live, and that’s all that was available in that area.
Eric Bowlin: That’s right.
Rod Khleif: Okay.
Eric Bowlin: We knew kinda what we were getting into. We thought about being a landlord, getting the extra money, and originally, the plan was we’re going to sell it after a few years, once we got out of grad school and buy a regular home and be regular…
Rod Khleif: Right. Right.
Eric Bowlin: So that was the original plan but I had an epiphany one night. Essentially, somebody came at a random hour, paid me rent. I sat down, we put the money on the table and I realized that was the easiest money I’ve ever earned.The wheels start grinding and I realized, this is what I’m going to do.
Rod Khleif: You just made a decision, like Tony Robbins says, “Your moments of decision, your destiny is shaped.” So you just made a decision. You were done and grad school, and PhD is out the window and you’re focused on real estate.
Eric Bowlin: Yeah, I didn’t drop out of program…
Rod Khleif: Okay.
Eric Bowlin: Suddenly. I deployed to Afghanistan 2010…
Rod Khleif: Oh, thank you for your service.
Eric Bowlin: Thank you. I appreciate it. So I bought the property at the end of 2009. I deployed in the middle of 2010. I came back in 2011. So I had a whole year there where I could really think and learn about real estate. I was reading books and just really thinking about what I wanted to do.
During that deployment, I realized, for sure, real estate is what I’m going to do. When I came back, I left the program and I got into real estate full time.
Rod Khleif: Wow. So you were kinda forced to reflect over there in the middle of nowhere… What kind of books did you read, by the way? Did you read the Rich Dad, Poor Dad, and the common real estate driving books?
Eric Bowlin: I actually read Rich Dad, Poor Dad after I came back. I didn’t even know about it.
Rod Khleif: Wow.
Eric Bowlin: At the time, I was reading about how to… I can’t remember the exact book names now…
Rod Khleif: Okay.
Eric Bowlin: But everything about buying foreclosures, buying multi-family, buying apartment buildings, how to be a landlord…
Rod Khleif: Awesome.
Eric Bowlin: All of that really.
Rod Khleif: Good for you. So you self-educated while you were over there. That’s fantastic. Tell us about that first deal. Let’s talk numbers. When did you buy it?
Eric Bowlin: I bought it in November of 2009.
Rod Khleif: Fantastic time. Of course, the market was crashed so what’d you pay?
Eric Bowlin: I paid 115,000.
Rod Khleif: Wow, for a three-family. How many bedrooms each floor?
Eric Bowlin: Two.
Rod Khleif: Wow. People listening to this are just jaws dropped. What a fantastic deal. So what kind if rents were you getting?
Eric Bowlin: Well, let’s put it in perspective. At the time, looking back, I feel like I over paid for it.
Rod Khleif: Yeah.
Eric Bowlin: The market was very bad at the time. Well, very good, depending on any perspective.
Rod Khleif: Yeah, well, trust me, you didn’t. [chuckles] What kind of rents were you getting?
Eric Bowlin: One floor was vacant, and it probably should have been getting… At the time, he was only getting about 550 or 600 for the bigger apartments. The smaller one is getting 400. After I moved in to the vacant unit, and I eventually got the tenants out over the course of the first year. I bumped the rents up to 650 and 750, five years ago. Now, I’m getting more than that, but…
Rod Khleif: Wow. You were cash flowing, actually, right out of the gate.
Eric Bowlin: Absolutely. Day one, even on with those lower rents, I was cash flowing.
Rod Khleif: Right. Wow, and living for free. I know you guys have heard me say it, what if… I mean, you fell into this by default because you didn’t have a choice, because that’s all that was available, but those of you listening, wanna get into real estate, go out there an find a plex. Find a duplex, find a triplex, find a four-plex, and start there. It’s less intimidating. It’s really just like buying a house.
Not much different, the financing is the same. In fact, the advantages are, you can actually use the rents from the units to qualify for the plex. And 30-year fixed financing, great interest rates, low down payments. It’s just a fantastic way to start and build a portfolio. You fell into it by default, but those of you listening, go out and seek those deals out.
You don’t have to find a deal for 115,000. You can pay a lot more than that because the rents are much better right now. So anyway, you started with this triplex, you had this epiphany, you came back, and then what?
Eric Bowlin: Yeah, so I also seconded. Anybody that I know that’s trying to get into real estate, I highly, highly recommend buying two-three-four-family property. Just ‘cause you can live for cash, for basically nothing, have somebody else pay your bills. And then that frees up more money for you to invest somewhere else.
Rod Khleif: Fantastic. Fantastic. So what was the next one?
Eric Bowlin: After I came back from Afghanistan. I bought a flipped, and I won’t go in to that too much. But originally, I thought I wanted to fix and flip houses. What I really learned from doing that flip was that I didn’t like doing it. And I really liked…
Rod Khleif: Why not? Let me ask you, why not?
Eric Bowlin: ‘Cause it was basically a full time job. I have to be there everyday, checking on the contractors, making sure…
Rod Khleif: Love it. Love it. Love it. And that’s what I wanted my listeners to hear. Because it is a great way to make money, those of you listening that don’t have a lot of money, flipping and wholesaling houses is a great way to get into this business. And I am gonna have, I guess, really quasi-gift for you, very, very soon on that topic. But I’m not gonna give you any more detail than that. But trust me, you’re gonna like it.
But the bottom line is flipping and wholesaling is a job though. And so, if you’re gonna do it, do with the mindset that ultimately use that money to buy multi-family properties and build lifetime cash flow.
But you learned right out of the gate. You tried to do a flip… talk about, what happened? It did not go well, or…?
Eric Bowlin: I didn’t earn as much as I was hoping there. I made a little bit of money, but the way I looked at it is, like going to college, but somebody paying you to go to college, so… I made some money and learned a lot from it. So I think that.
Rod Khleif: Good. Good. Good. So you flipped the house, or flipped the property and tell us about your second deal.
Eric Bowlin: Yeah. So then I got back into rentals and I bought a four-family. That was a management play.
Rod Khleif: What does that mean to you?
Eric Bowlin: Basically, the owner used to live there, owned it for 30-40 years, and then she retired to Florida, and was having his son, manage it. Unfortunately, his son was a heroine addict and he had zero standards for his tenants, and just wanted to get his next fix.
Eric Bowlin: Real bad situation for them but that’s an opportunity to buy, where you can… That literally was the worst house in the entire street that I was buying.
Rod Khleif: Wow.
Eric Bowlin: So by removing them all from the property and putting in some decent tenants. I was able to improve not only the property but the street as well.
Rod Khleif: Right. Oh, no question, you made everybody happy. Now, how did you find it?
Eric Bowlin: I actually found that deal through the MLS.
Rod Khleif: Through the MLS. I will tell you guys listening, you should drive for dollars, and you will find deals. Like he said, it was the worst house on the block. That’s what you’re gonna be looking for when you’re driving around.
And the key to a deal, is finding a motivated seller. I wanna talk about that some more with you, because that was a motivated seller. Talk about that, actually. Go ahead.
Eric Bowlin: Yeah. So she … When I drove up to the property the first time, I actually almost kept driving. The guy had several pitbulls up front, that were barking at people and trying to bite them and stuff. I’m like, “Oh my god, this is absolutely horrible.” But then I decided to ask a little bit. More details, why the owner is selling? And get some more information about it.
That’s when I started to figure out, this might be an opportunity for a motivated seller. I actually threw out a crazy low offer. They were originally asking… And this is still 2012, so the market hadn’t recovered at that point. It was kinda of flat at the bottom at the time.
It was worth about 200,000. They are asking 150,000 and I offered 65,000.
Rod Khleif: Holy cow.
Eric Bowlin: And they countered back at 75.
Rod Khleif: Wow. Wow. One more time, run through those numbers one more time.
Eric Bowlin: It appraised out at 200, after I refinanced it at the end.
Rod Khleif: And you paid 75.
Eric Bowlin: I paid 75,000. I only needed… I put $15,000 worth of work into it. Other than removing the tenants.
Rod Khleif: One more time what they were asking. I missed that.
Eric Bowlin: They were asking about 150,000.
Rod Khleif: 150, but you offered 65, you totally low-balled. Guys, the message, the moral of the story here is, the key is motivation. And you always wanna be looking for motivation.
I know that Massachusetts is also a tenant friendly environment and there are other opportunities to find motivated sellers and tell us about… Actually, before you tell us, I wanna finish my thought.
A great methodology to finding deals is to actually contact owners that are dealing with evictions. Driving for dollars, like I just said is a great way, but go to the eviction court or go online, find out who’s evicting tenants, and call them. Or send them a letter and tell them you’re interested in buying their property or buying a property.
You’ll be surprised, if they’re having financial challenges particularly in a tenant friendly environment, which I wanna have you talk about here in a minute. It could be a great opportunity for you to get a great deal like this.
There’s nothing better than finding a motivated seller because as evidenced by the numbers that you just threw out. What is the landlord-tenant scenario there in Massachusetts? How hard is it to get a tenant out?
Eric Bowlin: In my experience, if it’s a straightforward non-payment of rent, and you have all your paperwork in line, it’s about eight weeks.
Rod Khleif: Wow. So two months. So if it takes two months to get them out, then you factor in a couple of weeks to fix it up. You’re gonna lose three months worth of rent, period. Minimum. And that’s if you kick butt and get it done, and get it re-rented. So wow, that’s painful
Eric Bowlin: It’s six weeks, just to get to court.
Rod Khleif: Six weeks, just to get to court. And I will tell you, guys that are listening, you need to find out what your local landlord-tenant laws are like. There are multiple ways you can do that. One, you could just search it online. Or you can find the local eviction attorney. The attorney that specializes in eviction, there’s always one in every market. And you can learn from them.
But I will tell you, I’ve been in an eviction court and it’s very painful when you see a newbie come in there trying to evict someone and they don’t have their paper work right. I think the judges actually get pleasure out of making them start over you do not want to be that person.
Let me tell you it’s very painful, particularly if you’re in a place like Mass, where you go through the process. You get to court eight weeks later and you find out you have to start all over again. This is speaking from experience. I’ve been there. It is no fun.
Eric Bowlin: Absolutely. They pretty much love sending you starting everything over.
Rod Khleif: Oh, yeah. I think they high-five in the back, in the judge’s chambers when they’re able to do that. So guys, those of you listening, talk to a property management company if you’re brand new to starting this process. Have someone walk you through the process.
Ideally, I would suggest an attorney. I’d get an eviction attorney to do your first one. Look at his paperwork, model his paperwork, make sure you know the deadlines because the timing is critical. But back to the opportunity, incredible opportunities in a tenant friendly rather environment.
Eric Bowlin: Absolutely. A lot of people say only invest in landlord friendly states. That’s true from a frustration perspective but I think there’s a lot more opportunity… Or at least there’s more different ways of finding value if you’re in a tenant friendly state because then, it opens all that much more management opportunity like that. That play…
Rod Khleif: Sure. Sure. People that are struggling to manage their properties, that are frustrated, that run of bad tenants, and sometimes, just luck of the draw. You can do everything right and still get bad tenants. But in that environment, you certainly need to get first, last security…
Eric Bowlin: Yes.
Rod Khleif: And anything else you can get up front, in anticipation of problems. And in particularly in those markets, that’s not uncommon to request that and get it.
Eric Bowlin: Yeah.
Rod Khleif: So people are used to paying it, but it’s…
Eric Bowlin: There’s a lot of regulations involved with that too, at least in Massachusetts. They regulate how much you can actually collect from the tenant and what you can do with, you have to put it in Escrow…
Rod Khleif: Good you brought that up. Guys, you need to find out what your state requires, as far as your tenant security deposits. Now many states require you to put it in a separate Escrow account, and let the tenants know where it’s being held. Some states require it to be in an interest-bearing account and give the interest to the tenant or in some states you can put in your lease that you can take the interest or not have interest in.
I recommend you do not do an interest-bearing account. You just don’t deal with it if you can avoid it. But very important for you to know where to put those security deposits ‘cause they will hang you out to dry if you get a professional tenant.
What I mean by professional is they are experts at beating the system and screwing landlords. They prey on newbies, so make sure you know the rules and the regs. Go to your local REIA meetings and chat up other landlords, and get advice. If you don’t have a mentor get advice on your local environment.
Eric Bowlin: Part of the system we implemented, and where we found a lot of value was through this tenant management play. We implemented a screening process for the tenants. Fortunately, up to this point, it’s been what, seven-eight years, and we haven’t had to evict one single tenant that we put in place.
Rod Khleif: Really. Okay. Let’s expand on that. Tell us about that process.
Eric Bowlin: Well, I mean it’s not a perfect process. I know we’ll have to go through an eviction eventually. But all the evictions I’ve done were the people that I, all the problems that I bought…
Rod Khleif: Right, the people, existing tenant base.
Eric Bowlin: Right. Exactly.
Rod Khleif: Okay.
Eric Bowlin: So basically, the biggest thing I do is, believe it or not, most people don’t do it. I just check the court records. It’s all publicly available. I just say, have you ever been evicted?
Rod Khleif: Every tenant application should ask that question.
Eric Bowlin: Yes… But a lot of background checks, especially the ones you do online, don’t actually pick it up, at least in Massachusetts. So I go to the courthouse website. It used to, I have to go to the courthouse to do it. Now, you can do it online.
I just check, and I check every county. See if they’ve been in court in any of the counties in Massachusetts.
Rod Khleif: Now, that’s smart. It’s not that hard to do online. You’re talking 15-20 minutes…
Eric Bowlin: Yeah.
Rod Khleif: Once you get good at it. You just put in their name properly, and you’ll find them if they’ve been evicted.
Eric Bowlin: Absolutely. That’s the number one thing. I find, pretty much, most applicants, if they’ve ever been evicted, they’re lying… I will take a person who’s been evicted, if they’re up front about it, and explain why, and I can verify the reason why. ‘Cause a lot of times, there might be like a complaint, and they withhold the rent the wrong way, and then they might get evicted ‘cause they didn’t withhold rent the correct way. That may be a legitimate reason, and I’ll work with them.
Rod Khleif: There are some landlords from hell too. I just helped a friend with one. That happens sometimes. What else do you do? Besides check to see if they’ve been evicted.
Eric Bowlin: That’s the number one thing. I check to see if they owe any money, if they’ve been taken to court for owing any money. That’s the biggest. That’s the core part of it.
Rod Khleif: Okay.
Eric Bowlin: Also, on the applications, I don’t know, there’s not a system specifically, but you can look at an application, you’d see if something doesn’t line up. It doesn’t make sense what they’re saying. And then obviously, all the standard stuff; verifying their income, doing a background check…
Rod Khleif: If things don’t line up, typically financial, based on their income, based on their expenses, you do the math and it doesn’t make sense. That you’ll see that…
Eric Bowlin: Right.
Rod Khleif: Or maybe in their job history, things don’t make sense. I always recommend calling the landlord before the last landlord. ‘Cause the last landlord maybe wanting to get them out and will say anything just to get him out.
But the other thing I will tell you, those of you listening, I wanna add to great land lording and property management is you literally need to sit down with them when you sign the lease. Don’t just throw it in front of them, sign it, and be done.
Tell them what you expect. Tell them, “Hey listen, I’m gonna do everything I can to take care of you if you have a problem I’m gonna fix it as quick as possible.
Rod Khleif: “And if you don’t pay me the rent, I have to start an eviction on the fifth. I just don’t have a choice because I have a mortgage. I just need you to understand that so there’s no surprises.”
Just verbally telling that is very, very powerful and will greatly reduce your problems. Talking about what you expect from them and what they can expect from you. So you got to make sure you do that.
Eric Bowlin: Yeah. Absolutely. I 100% agree with that and it’s funny ‘cause as you’re saying that, that made me think of a quick story, if I could.
Rod Khleif: Sure.
Eric Bowlin: Just, a lot of tenants, even if you tell them all that, they still feel very entitled. I had one tenant that didn’t pay me, and I said, “Hey, we got bills to pay.” They were like, “Well, I thought you owned this property free and clear. No mortgage. So that like why do you need to collect the rent from me?” They were wrong in their assumption. I did have mortgage on it. But they actually believed that they don’t have to pay, just because they think you don’t have a mortgage on that.
Rod Khleif: Wow.
Eric Bowlin: But anyway…
Rod Khleif: Interesting rationale there. But yeah, I’m not surprised at that. I’ve had some crazy, crazy rationales as well. Let me ask you this, you’re now up to 26 units and they’re all in Worcester?
Eric Bowlin: They’re all at Worcester County but they’re not all in the city of Worcester.
Rod Khleif: Okay. Okay. What’s next for you?
Eric Bowlin: Yeah, so I’ll just go through my story a little bit more.
Rod Khleif: Sure. Sure.
Eric Bowlin: We moved to Texas two years ago, from Massachusetts. We always wanted to move south. We didn’t know where. We had some really bad weather a couple of years ago and decided to go on vacation, check out the Dallas area, and fell in love with it.
A few months later we actually moved here after our trip…
Rod Khleif: Wow.
Eric Bowlin: When I move to Texas, ‘cause we’ve been talking a lot about land lording, I realized when we moved that there was a difference between being a landlord and being a real estate investor. Up to that point, I had thought they were one and the same.
And then I realized, I can have other people do the take the phone calls, do the repairs, and all the stuff. I can just focus on buying property that I like.
Rod Khleif: Sure.
Eric Bowlin: My mindset started to changed two years ago to become an investor and focus on financial independence or that freedom through investing. Then I started…
In Dallas, there’s a lot of people doing syndicating. I started learning about syndicating, going to meet ups in the area, and I found your website as well. Through that, I started to get this change in my mind that I could get other people’s money, other than close friends and family that could fund deals for me.
Rod Khleif: Sure. That’s how you get into the bigger deals.
Eric Bowlin: Absolutely. So over the last year, we’ve started moving in that direction.
Rod Khleif: Fantastic. You’re learning, you’re educating yourself, and maybe starting you know, just to have conversations with potential investors. And that’s what you do, you start, you develop an elevator pitch, “Hey Joe, this is what I’m doing. I’ve got to 26 units. I’ve been very successful. And I’m going to start partnering up with people or bringing investors in. If you know anybody that’s interested let me know.” That’s how you start the process. Good for you.
Eric Bowlin: That’s actually what I’ve been doing.
Rod Khleif: That’s awesome. No, that’s great. There’s some great opportunities in Texas. I just literally interviewed somebody, earlier this week in Houston. A young couple, they listened to what I told them, they put a picture of an apartment building on the wall.
They started mailing. They mailed 300 handwritten letters. They bought a 32 unit with $10,000 a month in cash flow.
Eric Bowlin: Yeah, that’s awesome.
Rod Khleif: Yeah, by the end of the year they had 10 grand a month in cash flow. Let’s get back to what you were talking about as far as management versus investment. Now, did you hire a property management company or what did you do to offload your management?
Eric Bowlin: Yes. I actually trained a person. It’s part-time ‘cause I don’t own enough for full-time management. I trained a person to do a lot of the stuff I was doing.
Rod Khleif: So you basically brought on a property manager to manage for you, a part-time employee. Fantastic. That’s the way I’ve done it for years. That’s what I advocate.
I get people on the show sometimes, that hire property management companies, and that’s fine, particularly if you’re getting started. But in my experience, I’ve always had to manage the management company. Now, there are good ones out there, particularly in the large players. They’re good ones. They will sometimes bring you deals as well. So there’s some advantages to using property management.
But all of the really big players that I do business with, typically self-manage. Like you’re talking about here. So my definition of self-management is having employees do the management for you. It’s not you doing, taking the phone calls, and dealing with the tenants.
Eric Bowlin: Right.
Rod Khleif: It’s doing what you just described. So you’re realizing the importance of leveraging. Leveraging the things you don’t enjoy. Guys, that applies to anything. In fact, I did a Driving Force clip on leverage. Anything that you don’t enjoy doing, chances are you’re not very good at it anyway so hire people to do it for you.
Eric Bowlin: Yeah.
Rod Khleif: I mean, think about what the value of your time is. I use the lawn-mowing example. If you can pay somebody $10 an hour to mow your lawn and you’re worth 30 to $50 an hour I mean it’s really a common-sense situation.
To maximize your investment opportunities you have to leverage things. For you it was management, and for many people it’s hiring someone to help with management. I’ve had a full-time property manager… She’s in the other the end of my office for years and so…
Eric Bowlin: Yeah. Getting started, if you only own a couple of small multi-families, you can go ahead and take the time to do the work. Save the money, and then you can reinvest that, and grow a little faster in the beginning.
But you get to a certain point where you just don’t have the time. You can spend your time… I actually… So great story about that, there was one time; I decided to take a day-off. I was doing all my projects. I was managing everything myself, and this was back when I was living in Massachusetts.
I took a day off, and I had to pay somebody else to do the work that I was going to do that day. But during that day, I actually found a deal that I ended up buying, and had made me like $25,000.
Rod Khleif: There you go.
Eric Bowlin: So that was like my $25,000 day-off.
Rod Khleif: There you go. And that’s a great story that brings home the point of leveraging out things that you shouldn’t be doing. So the more days off, quote un-quote, that you can take, the more money you’re gonna make because you’re going to find deals. You’re gonna be working on what you enjoy which is treasure hunting. I call it treasure hunting. Looking for deals.
Eric Bowlin: Absolutely.
Rod Khleif: That’s awesome. Let me ask you this, what suggestions would you have for people that are listening, that maybe haven’t taken action yet? What would you tell those people?
Eric Bowlin: The most important thing that I think is having a plan. A lot of people are scared to take the first step. They analyze, analyze deals, and even if they have a great deal, they might not even jump on it. So having a good plan in place, and having people that… Knowing other real estate investors that you can bounce an idea off of. So somebody, like a lot of people…
Rod Khleif: You said things here and I want to dissect that.
Eric Bowlin: Okay.
Rod Khleif: Definitely, I agree with having other people to bounce ideas off of and throw a deal by and have peer group. You guys, I hammer that all the time. You’ve got to go out there go to your local REIA meetings go, to your meet-up groups.
But the first thing you said was having a plan, and I like that. Are you going to the point where, if you set some parameters and you meet those parameters in your plan, then you pull the trigger, is that where you’re going with that?
Eric Bowlin: Yes. So as far as planning, being a military officer, infantry officer, basically, we learn that it’s about planning. I kinda took all that planning; education that I had received and I applied that to my business model.
One of the most important things you mentioned was parameter. If you don’t know what you’re looking for returns, then you don’t know if you have a good deal. Is it, are you looking for 20% cash on cash? Looking for 10%? Like 30%? Whatever it is, if you don’t have that number and I brought a deal to you and said, “Hey, this is gonna earn 25%.” If you don’t even know if 25% meets your goals, then you don’t know to say yes or no. So that’s the first thing.
Rod Khleif: Yeah, then basically, you’re just checking off boxes. Okay, I got this cash on cash return, this is the cap rate I’m looking for, this is my debt service coverage ratio that I can live with, and there you go. Boom.
Guys, those of you listening, I’m gonna give you kind of my trifecta, as it relates to those three numbers, which are very good numbers to utilize. I don’t buy anything unless it’s at least an eight cap or can get you an eight cap very quickly, number one. Number two, I always look for a 1.6% debt service coverage ratio or the ability to get there very quickly. Absolute minimum. And three, I always look for at least a 12% cash on cash or better, and usually it’s better.
Those are the 3 minimums, that out of the top of my head that I would recommend you have. Now, the debt service coverage ratio is just dividing your total debt payment by your net operating income. That’s how you come up with that debt service coverage ratio.
Any bank is going to look at that, and they’re gonna require something probably in the 1.25 to 1.5 range depending upon the bank. But I always go 1.6 minimum and more if I can get it.
You set a plan, and I love this. For those of you that are analytical. Because if you set your parameters, and you write them down, and you find a deal that meets those parameters, then it’s time to pull the trigger. Right?
Eric Bowlin: Absolutely.
Rod Khleif: Okay.
Eric Bowlin: But there’s two sides to that, because anytime you punch something into a spreadsheet, you can make it work, if you want to.
Eric Bowlin: You kind of have to know what your assumptions are. Like what repairs costs? What your rents are going to be? And make sure you have those, and don’t start adjusting things to bump those numbers up.
Rod Khleif: Oh, good point. I’m glad you added that. Very good point, I wouldn’t have thought to add that. Thank you. That’s good.
Eric Bowlin: Especially, for newer people that are trying to get in, they just want to find a deal.
Rod Khleif: Right.
Eric Bowlin: And they might… I think everybody catches themselves doing it from time to time.
Eric Bowlin: Like, “Well, maybe that rent is actually $20 higher”, or whatever.
Rod Khleif: Right. You justify, and you make these little justifications to make a deal work but guys this business is empirical. It’s numbers. The numbers don’t lie. Make sure you don’t adjust those numbers unless you’re certain of your adjustments.
Now, I’m really glad you brought that up. If you talk to people that are interested in getting in this business, what books do you recommend?
Eric Bowlin: It’s cliché at this point but, Rich Dad, Poor Dad.
Rod Khleif: Sure.
Eric Bowlin: It was the book that I read on 2011, when I came back from Afghanistan. That changed my perspective also, a lot. On my journey, that was one of the foundational books for me. I highly recommend that book to anybody that hasn’t read it.
Rod Khleif: Sure. Yeah, we’ve had most of his authors on the show here. People like Diane Kennedy, his tax person. Ken McElroy, who he has invested with, who I met at a syndication boot camp from the Rich Guys TV show… Who else has been on the show? Garrett Sutton, a lot of his authors. I hope I’m gonna get Robert on the show, eventually. They keep hinting about it, so let’s hope. Let’s hope that happens.
Eric Bowlin: Yeah.
Rod Khleif: Yeah, that book’s fantastic. Anything else you can recommend?
Eric Bowlin: Yeah. Another book that I like… There’s mainly one nugget that I pull out of it. There’s Psychology of Selling by Brian Tracy. I really liked it because he talks about determining your internal worth, and saying that, “You’re not going to earn more, 10% more or less, than what you think you’re worth.” That right there just shows the power of your own mind saying, “If I change what I think I’m worth, then I’m gonna change what I earn.”
Rod Khleif: Absolutely. Yeah, Brian Tracy is awesome. And Tony Robbins, kinda similar message, “You will make what you must make.” It’s your must, okay. It’s not, you can dream and wish and should, and use words like that, but you will make what you must make. And it’s based on your self-worth like Brian Tracy just described. It’s what you think you’re worth. The mind connection is so powerful that it will actually hamstring you if you don’t elevate your target net worth and your target income goals.
Eric Bowlin: It’s absolutely true. I did sales for a little bit when I came to Texas, just ‘cause we weren’t sure what kind of money we’d be earning from our properties when we moved. So I did that as like a safety. I did some sales, and one of the things he mentioned is if you got people doing commissions only sales, if they have a really great day, a great morning, they’ll leave early ‘cause they made their money for the day. Then on other days when they’re not earning anything, they’ll stay late to make that money. He said, “You should actually be doing a reverse. On the great days, you should be staying long, and on the bad days you should be leaving and spend your time elsewhere.”
I saw that at what I was doing and it’s…
Rod Khleif: Sure, no question.
Eric Bowlin: It’s just change your mentality, yeah. I think then you’ll earn more.
Rod Khleif: When you’re in the groove, when you’re in the zone, don’t screw it up and leave. Especially, if you’re on commission sales, absolutely, no, I totally agree. Okay, well listen, last question. If you could go back in time, what would you tell your younger self about this business? What changes would you make?
Eric Bowlin: If I could go back in time, I would have bought more during the recession.
Rod Khleif: [chuckles] I hear that so often, as the answer to that question. Guys, I hope you’re listening. That’s a clue. Get into this business if you’re not, and obviously, all things being equal, you’ve got to make sure the deals a deal, but that’s awesome.
Eric Bowlin: And the other thing is, at the beginning, I probably was more of a scarcity mentality than abundance mentality. I didn’t think about using other people’s money to help me get these deals, ‘cause I didn’t want to share in with the deal with them. The deals is the market had already turned by the time I realized like, “Wow, I can do 10 times as many deals if I just borrow money or bring equity partner on some of these small multi-families.
If I had realized that back in 2011, I could have done 10 times as many deals. But I didn’t realize that till too late.
Rod Khleif: Sure. Sure, 50% of something is a whole lot better than zero of nothing. You’re exactly right. Well listen, thanks for being on the show, buddy. I will have your contact information in the show notes. I really appreciate you taking the time to talk to us today.
Eric Bowlin: I appreciate you having me on, thank you.
Rod Khleif: Absolutely. Take care.
Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please subscribe, and then take a moment to visit iTunes and leave a five star rating and review. For more resources to connect with us further, please visit our website at lifetimecashflowpodcast.com. Tune in next week for our next show.