Jonathan Hayek (02:30):
You put in your time teaching, and you can get a great pension and great benefits for the rest of your life. But you’ve got to put in the time, and it is hard work. I taught for eight years. I also dabbled in the non-for-profit world. I worked on an Indian reservation in Arizona, building houses there. So I did that for two years. I got married in Arizona and we wanted to take a trip overseas, so we spent eight months in New Zealand. We lived in New Zealand for eight months. I picked apples there. I planted onions there. I worked in a vineyard there, just like minimum wage stuff, but hey, we’re in New Zealand for eight months. So, that was awesome, but we were broke.

Jonathan Hayek (03:10):
So as that time was ending, we were thinking about the next step. And teaching was the skill set that I had, and I know I could make a decent living doing it. So I went back and taught for an additional two years, and we did a little bit of geoarbitrage. When we came back to the States from New Zealand, we were home-based in Arizona, and we wanted to leave Arizona. Arizona does not pay teachers well, and it’s really hot in Arizona, so we wanted to leave Arizona. So we looked for a place that paid teachers well, and that also had a low cost of living because we knew we wanted to get involved in real estate investing. And then, we also wanted to stay out West. So I just did a bunch of research.

Jonathan Hayek (03:49):
What pays teachers well is out West and has a reasonable cost of living. And we stumbled on Wyoming. So of all places, Wyoming actually pays teachers well here, just the way that their funding is set up. And so we took a trip to Wyoming, toured the state and we settled on Cheyenne. I got a teaching job. I subbed for half a year, and then I got a full-time teaching job. From there, we just got involved in real estate meetups and eventually started buying properties. And here I am here today.

Robert Leonard (04:19):
As you’re telling me the story about your dad and your background. I was thinking of the book, Rich Dad, Poor Dad, that a lot of people have read and your dad’s story just reminds me exactly of what Robert Kiyosaki calls, “the Poor Dad.”

Jonathan Hayek (04:31):
So, I’ve obviously read Rich Dad, Poor Dad, and the lessons in it are amazing. I’m one of the few where, because of my background in teaching, some of the lessons rubbed me the wrong way a little bit. I totally understand the sentiment, But as a former teacher, part of me gets a little defensive because he does not speak real kindly about teachers and the public school mindset. Now having been outside of teaching and education for a few years, I get it because now I’m on the other side of it. But upon reading it for the first time, I admittedly was a little defensive about my teaching background.

Robert Leonard (05:07):
Understandably so, but your story is exactly what he was explaining in the book. Your core portfolio is worth about 2.5 million, and we’ll dive into the specifics of some of your properties in just a bit. But I don’t want people to write off this episode because they hear that $2.5 million figure and think, Oh, Jonathan is some guru and he’s not relatable or that they can’t do it, or that you had some special advantage that they don’t have. That number is big, and it’s probably a bit ahead of most people listening to the show. But what intrigued me about your story and why I wanted to have you on the show is because I think you are a real life relatable example of what truly is possible for everyone listening today.

Robert Leonard (05:46):
You were a school teacher. You didn’t come from a wealthy family or even an entrepreneurial family. You’ve really just figured it out all on your own. So tell us a bit more about, how you manage to actually start investing when you got to Wyoming while you were working at W2 job, like many of the people that are listening to the show today.

Jonathan Hayek (06:02):
I am certainly not a guru. My wife and I, Allison, we really started from nothing. When we moved to Cheyenne, we had probably $5,000 to our name. And so, a piece of advice that I’ve learned since then, and I feel like I was living at a time, but a mantra that I live by is your why has to be bigger than your how. And so, starting out, wanting to be a real estate investor, but having no money, it was like, “Okay, I know what I want. I know why I want it for financial freedom and time freedom. I do not know how to get there.” So I can tell you a little bit about our first deal. It was kind of a crazy deal. So our first deal, we were looking for a house to live in. We moved to Cheyenne, we were living in an apartment and we were looking for a single family home. And so, we saw this house on auction.com, on an online auction site.

Jonathan Hayek (06:53):
There were a few pictures and it was one of the few houses where you could actually get into and see the inside of. Most of those online sites do not allow you to see the inside, but for whatever reason, this particular house, they allowed tours. And so we contacted the agent, the listing provided the agent contact information and we toured it and it was a disaster. There had been squatters in it. We heard from neighbors after we bought it, all the stories from the house. But I guess the story is the owners passed away. A kid inherited it and was just not an upstanding individual. And so he had druggie friends and squatters that came to live in the house. So there were holes in the floor. There were these nice Oak wood floors, how you get a whole in hardwood floors, I don’t know, but this house had it and holes in the walls and cat feces everywhere.

Jonathan Hayek (07:44):
It was nasty, but we saw the numbers and we saw the opening bid. And we were like, I think there’s a lot of money to make on this house. But of course the elephant in the room is we don’t have any money. Those online auction sites, they don’t want you to get financing. It’s got to be a cash deal. We started talking to some friends, so I’ve got kind of some mentor real estate minded friends that I’ve been in contact with, really since I was five years old. And so I told them about this deal, and one of them said, “Well, actually, I’ve got the self-directed Roth IRA, and I’m looking to do something with the money.” We crunched our numbers as best we could, and we made a bid on this online auction and we won. My guess is we were up against mostly investors, and since we were going to live there, everyone has to live somewhere. And so we were maybe willing to bid slightly more than investors would, but we ended up paying 1365 for that house.

Jonathan Hayek (08:37):
The end of the story is two years later, we sold it for 268. And so we had the benefit of natural appreciation in the market and then we added value to the house. We totally transformed the house, probably put 60 grand into it. I did the majority of the work myself. And so we initially funded that first deal with a private money loan. And then I was teaching at that time. And so we were able to fund some of the rehab, a lot of the rehab with my teaching salary, just eating rice and beans and living super cheap because we knew that we were adding a ton of value to the house. And so then after the rehab was done, we ended up refinancing it. Our refi appraisal did not come in at a desirable number. So then we ended up getting a HELOC, because we knew it was worth more than the appraised value.

Jonathan Hayek (09:24):
And we also had a separate unit in the basement. It was a pretty large house. It’s 2,400 square feet, and just my wife and I did not need that much space. And so we ended up living up top and we created a unit in the basement. The basement tenant largely paid our mortgage for that house. So it was a great first deal for us. We needed somewhere to live and also an intro to House Hacking for us.

Robert Leonard (09:47):
What was the benefit to the investor giving you the money? You don’t typically hear an investor like that giving money for somebody to buy a personal residence. We hear that all the time for investment properties. Like, “Hey, you want to partner on this deal together. Let’s tap into your IRA that you can’t use.” So that’s pretty common, but not so much on the personal residence. How did you plan on paying him back and what was his return?

Jonathan Hayek (10:06):
We knew as much as we could, bear in mind, we hadn’t done a deal at this time, but the numbers were what they were. And we just thought we can’t lose, which is a terrible way of thinking. Just thought this is a great deal, and we’re going to pay them back when we refi. And so the benefit for him was, we agreed on 10% interest. And so there were no initial loan fees, no points or anything. So he lent us a purchase price. We paid them 10% monthly, and now that’s a pretty large number. And so we had to watch our timeframe. I think it was over a thousand dollars a month that we were paying him just an interest only, no principal. So for him, it was an investment and investment secured by real estate is generally a pretty safe investment. And then he was also collecting 10% per month.

Jonathan Hayek (10:53):
This is also someone that I have known since I was five years old that agreed to do this. And so to the listeners, don’t expect someone off the street to agree to loan you $130,000 with no strings attached and without knowing your background. So we were fortunate there that we were able to get that private loan.

Robert Leonard (11:12):
Were the repayments, interest only?

Jonathan Hayek (11:15):
They were interested only. So we set up a mortgage, we set up a promissory note, everything was official. I went to a lawyer when I was working that deal and I had him draw up a mortgage and a promissory note. The cool thing about private money is you can work out the logistics with the lender, however you want. And so if the lender says, I only want interest payments, this lender did want monthly interest payments. I’ve worked with other private lenders where they’ve said, “No, I don’t really care about monthly interest payments. You can just pay me everything when the loan matures at the end, when you pay me back.” Those are really great because then you don’t have any monthly payments and you’ve gotten the private money loan.

Robert Leonard (11:57):
Did that initial lender only take the interest only payments monthly and not gain anything on the backend when you refinanced, did he just take back his principal or did you have to give additional on top of the principle that you borrowed?

Jonathan Hayek (12:08):
No, it was just a flat 10% per month. No origination fees, points or hard money loans. And there are some insane fees that can be associated with hard money loans, appraisal fees, and inspection fees and all kinds of fees. But for this particular lender, he’s the family friend. So he was perfectly happy with getting 10% on his money.

Robert Leonard (12:28):
Did you know what House Hacking was before you created that unit or did it just kind of come to fruition on your own?

Jonathan Hayek (12:35):
It really kind of came to fruition. I remember thinking as we were under contract for it, I was thinking about what are we going to do with this house? And I remember this side door to the house leading down the basement stairs. And I remember thinking, I wonder if we can do something with that side door. It’s kind of weird that there’s a side door that leads right down to the basement stairs. So the next time I was there, this was before we had even purchased it. I kind of went over the layout in the basement and I thought, I think we don’t need this space. It was a five bedroom house. We just didn’t need five bedrooms. We were able to mess with some plumbing in the basement and add some electrical lines to make a kitchen. And then it just happened, and we ended up actually getting more for it than we anticipated.

Jonathan Hayek (13:16):
So with House hacking, we’ve found kind of our niche in Cheyenne is kind of short to medium term workers. So in our house hacks, we’re now living in our second house hack. We have found that we get a better return on our money. Like we’re able to get higher rents if we furnish the unit and we do kind of short to medium term because there’s such low inventory for that timeframe. So like traveling nurses, traveling physical therapists, we’ve had traveling cardiologists. These people are only in town for a few months at a time. And it is really hard to find housing, furnished housing that’s willing to do a month to month lease like that. And we are willing to do a month to month lease like that because our thought is, if we get someone living in our basement that we’re not happy with, or we don’t want to be living in our basement, we only have to wait a few months and then they’re gone.

Jonathan Hayek (14:07):
The benefit is we get higher rents. Overall, we’ve had amazing tenants. These are professional well-paid people coming to town and we’ve had basically no vacancy because there are always people looking for short to medium term housing.

Robert Leonard (14:22):
I think it’s interest you kind of fell into House Hacking because that’s how I did too. My first property was a two bedroom condor and I was living there by myself and I realized I never even went in the second bedroom for probably three, four months. And I was like, Oh, I should probably do something with this. And I ended up just renting out the bedroom. I had no idea what House Hacking was at the time and then fast forward, like a year or so. I’ve stumped on BiggerPockets and found out what House Hacking was, and I was like, “Wow, I was actually already House Hacking and I didn’t even know it.”

Jonathan Hayek (14:46):
It’s pretty amazing. And what I like about House Hacking is there are so many different ways of doing it. So you’ve done it where you’re just renting out a bedroom. You can also do it where you buy a duplex and you live in one side of the duplex and rent the other side of the duplex. You can do it with a fourplex. A key thing with House Hacking is knowing your market and really that’s real estate to a T, know your market. So in my market, a good chunk of the city was built in the ’30, ’40s, ’50s, during that time as pre and post World War II, there’s an air force base here in town. A lot of the houses were built with separate units in the basement to house air force people. And over the decades, a lot of those units have gone unused, not kept up, but they’re still there.

Jonathan Hayek (15:33):
The plumbing is still there. The side door entrance is still there. Some of them even have separate electrical meters. And so we caught onto this and we thought, wow, in this neighborhood, almost all of the houses have this separate unit in the basement. And so we just started learning the market and knowing what to look for. In other markets, it might be different. You might have oversize two bedroom houses with a huge front room or a huge unfinished basement. And you can do something with those spaces. It might be the duplex or fourplex, it might be five bedroom houses in this market where you don’t need five bedroom houses. So there are so many different ways to tackle House Hacking, and it is so powerful.

Jonathan Hayek (16:14):
One of the big income sucks on someone’s budget, it’s housing, transportation, food. If you can reduce those expenses, you’re going to be way better off financially. So for most people, housing is such a big expense. And if you have extra room in your house that you’re not doing anything with anyway, why not make money off of it, and you might even get your mortgage paid for you.

Robert Leonard (16:37):
I totally understand why you house hacked for your first property. I’m on my third house hack. I think House Hacking is potentially one of the best investing strategies and especially for new investors, but what’s interesting is you own over $2.5 million in real estate, and you’re still House Hacking. Why is that?

Jonathan Hayek (16:54):
I own $2.5 million, and to a lot of people that sounds a lot and it is a good amount, but that doesn’t mean I’m a 2.5 millionaire. But it’s not like I’m making $2.5 million a year, I’m not making anywhere close to that. And so we have a certain lifestyle that we like to live. We are no longer beans and rice kind of people. We like to travel. We enjoy nice things. And so House Hacking is a way for us to offer clean and updated and nice housing to somebody, while also getting our mortgage paid. We’ve been investing for going on four years now, and we realized that if we want big results and we do, we still have high hopes of where we want to go.

Jonathan Hayek (17:38):
We have big dreams. If you want big results, you have to make big changes and be able to do some things that some people might see as extreme. But to us it’s just normal now because it’s a basement that we be using otherwise. And so, why not let someone else live there and pay our mortgage for us? It just makes sense. And if we want to continue to grow, we need that income.

Robert Leonard (18:00):
Do you think your decision to continue to house hack has played a big role in you being able to leave your W2 job?

Jonathan Hayek (18:06):
Absolutely, 100%. To people listening, what would you do if you didn’t have a housing payment? What would you do if someone else was paying your rent for you? What would you do if someone else was paying your mortgage for you? It is really, really powerful. So, that security part of having multiple streams of income. If you’ve got rentals, maybe you’ve got a side job, maybe you also have a W2 job and you’ve got income coming in from multiple sources. It actually reduces your risk. If you have that additional source of income, you’re likely more willing to take chances and to take risks.

Robert Leonard (18:40):
At what point in growing your real estate portfolio, did you feel that you were ready to take the leap and leave your W2 job behind?

Jonathan Hayek (18:48):
It was combination of discussions with my wife and just, how am I feeling at work and what do we want for our family? What do we want for our life? Where do we want to live? Where do we see ourselves in the next five years? Like I said before, teaching is a great profession. There are huge benefits, great holidays and summers off and spring break and winter break and all that. But we’re greedy people and we wanted more. So we wanted time, freedom. We wanted more financial freedom. When you work a W2 job, in most cases, there’s a cap of how much you’re going to earn. So unless you’re in a sales or commission-based profession with most W2 jobs, there’s only so much you can earn and there’s going to be a cap to it. And so it was a matter of talking with my wife and talking about how much we want to travel.

Jonathan Hayek (19:36):
Where do we want to live? How much free time do we want? If we have a child, how is the time split going to work in caring for that child? And ultimately kind of the nail in the coffin was I had a really bad year at work. It was a really rough year of teaching. And I think about November, December, almost halfway through the year I came home and I said, “Allison, this is it. This is my last year of teaching. I want to quit and let’s make a go with this.” And so, one concept that was really powerful for us was since we had some leave time, we are planners. So we are risk takers, but we are calculated risk takers. And so, one thing that was really powerful came up, a book that I don’t think gets enough attention is, Scott Trench, Set for Life.

Jonathan Hayek (20:18):
And in that book, he talks about having a runway fund. So basically you want to quit your W2 job, fine, but plan for it, think about your annual expenses. How much do you need to survive in a year and save up that money? And so we had flipped a house or two at that time. And I think at that time we were in the midst of flipping another house. So we said, “Okay, the income that we get from this flip, we wanted to save say $30,000 the year.” So we were going to get some income from this flip, and so we set that money aside in a separate account. We didn’t touch it. And that was our runway fund. I made that decision in November, we closed on that flip in say February. And so we took the proceeds from that flip and we set it into a separate account as a teacher I’m paid through August.

Jonathan Hayek (21:07):
And so I knew we were going to have income through August and then come September, we had a runway fund. We had a year’s worth of income, a year’s worth of money that we could say, let’s give it a go. Let’s try to make a run at real estate investing full time. What’s the worst case scenario that happens? I have to go back to teaching. That’s not the end of the world. And so as things unfolded by that time, we had a duplex and we had an additional fourplex that we were working on by then. So when you quit your W2 job, you all of a sudden have time to work on real estate and to find deals and work on funding and figure out strategy. Whereas you may not have the time or bandwidth to work on those things while you have your W2 job. So quitting, the W2 job was really a springboard for taking off in real estate investing.

Robert Leonard (21:54):
It’s funny, you mentioned Scott, because I was actually just out in Colorado with him about two weeks ago. And I’m actually recording an episode with him in about an hour once you and I hang up, I’ll be hopping on with Scott to record an episode for the podcast. They’ll probably come out a little bit different times, depending on when you’re listening to this. But yeah, Scott’s book is great. I have it downstairs on my bookshelf, Set for Life with tons of highlights and tons of sticky notes throughout that whole book. I absolutely love it. What’s interesting is that you set yourself up to retire more from savings that you had rather than a specific unit count that a lot of times investors say, okay, once I hit five units, 10 units, 20 units, 50 units, whatever it is, then I’ll leave my W2. It sounds for you, it was more, let me save up this money. Then I can quit, and then I can scale my real estate portfolio to get to the number of units or properties that I want.

Jonathan Hayek (22:40):
The way we looked at it was ultimately about income. It’s going to take a long time for you to earn enough passive income to support your lifestyle, depending on what your lifestyle is. We felt life is short. Life is precious. We’re not willing to wait five years from now for us to have enough passive income to quit my job. Because if you do have a W2 job, it’s going to take that much longer to get that passive income. Because if you’re working your full-time W2 job, that means you’re not looking for deals as much. You’re not looking for funding as much. You’re not working on your own properties, rehabbing and remodeling. I really think it’s going to take exponentially longer to reach your passive income number, if you continue to have your W2 job. There is nothing wrong with having W2 jobs.

Jonathan Hayek (23:27):
If you love your W2 job, keep your W2 job. That’s ultimately what everyone is after. I mean, we want happiness. We want freedom, time freedom and financial freedom. If you get some of those things from your W2 job, keep it. And you want to do real estate on the side, great do that. But if you are like so many people and you hate your W2 job, and you’re just waiting for that day that you get this magical number of passive income, you’ll get there. If you keep working at it, but it’s going to take time. And as a typical millennial, I’m impatient. I didn’t want to wait the five or seven or 10 or 15 years that it would have taken to get to the number that it took me probably four years to get to our income, where right now our passive income is supporting our monthly expenses, and additionally, allowing us to buy real estate.

Robert Leonard (24:18):
When do you think you’ll stop house hacking?

Jonathan Hayek (24:21):
There’s no end in sight. We’ve been in our current house about a year and a half. So our strategy is to buy a home that we can house hack, stay in it two years. And two years is that magical number for the capital gains exclusion. So we’re benefiting from great appreciation. I think most people are in a lot of markets around the country. And so we add value. So we have to buy a house that’s under priced. There’s got to be something wrong with it. It’s on the market for a while, there’s holes in the floor and holes in the walls and there’s something wrong with it. So we add value, increase the value, benefit from appreciation for two years and then sell it.

Jonathan Hayek (24:58):
And when you sell, after you’ve lived in a house for two years, you don’t have to pay tax on the gains up to a certain amount. I’m not an accountant, I’m not a CPA, so I can’t advise you on exactly what the strategy is. But for us, I believe for a married couple, if we gain less than $500,000 on our single family house, we don’t have to pay taxes on it. It’s essentially making anywhere from an extra 20% to 40% on the sale of a house. And so House Hacking is so powerful because you have someone else paying your principal down. And then when you go to sell, you get that principal back. There are strategies where you could hold onto the house. The general capital gains rule is you have to have lived in the house for two out of the last five years.

Jonathan Hayek (25:40):
So you can’t hold onto it forever and get that capital gains exclusion. Like the house we’re living in right now, we’ve been in for a year and a half. We’re looking at our next house. We’ll probably keep this as a rental for a year or two because this neighborhood is just exploding right now. So we’ll probably get a bunch more appreciation over the next few years. The next house we’re looking at, we’re also looking at House Hacking. So it’s that powerful of a strategy that we’re going to keep doing it.

Robert Leonard (26:04):
So there’s no end in sight. You think you’ll do a third and fourth, fifth, maybe?

Jonathan Hayek (26:09):
We’ll see. We have one small baby right now. It also comes down to space and lifestyle. And so if we have any more kids, we might need the space, but right now it’s a no-brainer, it’s so powerful. So we’re going to keep going.

Robert Leonard (26:23):
A common piece of advice in the real estate world is to really focus on one strategy, get really good at it, and just continue to do that. You’ve chosen to flip properties and buy rentals, which are two very different strategies. First, how do you think of this dynamic of picking one strategy and going all in versus doing multiple strategies at once?

Jonathan Hayek (26:44):
There are so many different strategies in real estate. That’s why it’s so cool. And that’s why we love it because there is no one size fits all. And so for us, perhaps like a lot of listeners, we just didn’t have the cash. When you buy investment properties, you’re often going to be required to put 20 to 25% down. And when you start talking about fourplexes and eightplexes and bigger, that’s a big chunk of money. We just simply didn’t have it. And so flipping was a way to get income in order to buy multi-family properties and get that passive income. So that was the strategy we would like to not flip forever. Flipping can be a really high tax endeavor, can make a lot of money, but you’re going to pay a lot of taxes. And it’s really hands-on, you’re either doing work yourself or you’re managing contractors, you’re getting funds.

Jonathan Hayek (27:36):
So our ideal is to get enough passive income where we no longer have to flip and our passive income and refinancing our passive income can pay for additional real estate. We flip not because it’s super fun or we love it. It is those things, but it is ultimately a means to an end to generate cash.

Robert Leonard (27:55):
Did you work full-time W2 job while you were still flipping properties and buying rentals? Or did you wait until you left the W2 to do multiple real estate strategies?

Jonathan Hayek (28:05):
In the beginning stages, I was doing both. So it was nights and weekends working on houses, days going to school and being a teacher. So I told you that story about our first deal. So that was a live in flip, that was nights and weekends working on that. We did flip two houses while I was still teaching. And one of them was a summer break project. It kind of bled into the fall, but it was largely a summer break project. And then another flip was nights and weekends going over there, working on it, painting, putting in cabinets, tiling showers at nine o’clock at night.

Robert Leonard (28:40):
What does your portfolio look like today? How many units do you have? What kind of properties are they all, break that down for us a little bit.

Jonathan Hayek (28:47):
So we currently have 20 rental doors and we flip anywhere from zero to five properties a year. So I’m not one of the big guys doing 50 flips a year. I don’t desire to be that big. Like I said, flipping is a means to an end in order to build passive income. And so we have an eightplex, a fourplex and a bunch of duplexes currently.

Robert Leonard (29:11):
And are they all in Cheyenne, Wyoming where you live?

Jonathan Hayek (29:15):
They are. So we are not long distance real estate investing yet. They’re all in this market. Cheyenne is a small town, and so I’ve learned the market. I know values like pretty much any neighborhood. I can give you a ballpark value. I know multifamily values. I know what units are going to rent for. And so that’s one of the benefits of choosing a market and going with it and especially a small market. I know it intimately. And so for our multi-families really try to focus on purpose built multi-families. So, because of the age of a lot of the houses here, some have been added on multiple times and a bunch of goofy additions. We are kind of past the point of looking for properties like that. So, our purpose built eightplex in the ’70s, it has current electrical, current plumbing, there’s copper plumbing and not galvanize. Is purpose-built as an eightplex versus being piecemealed together over the decades. So those are really the properties that we’re looking for.

Robert Leonard (30:10):
One of the most common things when somebody actually owns a property that they are confronted with is pets, depending on what kind of rental you are, what kind of market you’re in a lot of people like pets, and that’s often something that people have to consider. And if you’ve been a renter before, you’ve probably had a situation where the landlord said, “No pets.” How do you approach this as a rental property owner? Do you allow pets in your rentals?

Jonathan Hayek (30:32):
We’re getting ready to close on a flip that I purchased back in November. And I posted this picture to Instagram. We had the furnace cleaned and I pulled out the furnace filter and it was just absolutely caked in dog hair. The previous tenants living in this house, I think had four dogs and who knows how long it had been since they had cleaned the ducts and the furnace, it was nasty. But having said that we do allow pets in our units. And the reason is it’s a strategic, competitive advantage. In our town, I would guess 90 to 95% of rentals do not allow pets. And we do allow pets because there is a huge market of renters that have pets and they need a place to live. And so it comes down to screening. We screen our tenants, we do credit checks, background checks, income checks, reference checks.

Jonathan Hayek (31:24):
And if the renter passes our screening process, they’re likely to be a responsible person and they’re likely to be responsible with their pet. So that’s our philosophy. We really haven’t gotten burned on it yet. And then another thing we do with our rentals is we take out all the carpets. So, no carpet in any of our rentals, we put in either vinyl plank or sheet vinyl. And so that cleans up really easily. It doesn’t hold odors. You don’t have to change it every few years, like you do carpet, you don’t have to hire a carpet cleaner. So those are a couple things that we do to allow pets. And then it’s also additional income. So we charge a non-refundable pet deposit and we charge monthly pet rent. So it does increase income as well.

Robert Leonard (32:06):
Actually approach it very similar. I don’t charge a monthly pet fee, but I do charge a non-refundable pet deposit or fee when somebody signs a new lease. And that can be a pretty good source of income for us. Usually, if they’re willing to pay that, they’re often going to take care of the place. And for me, it’s more about the type of property that I’m buying in terms of whether I’ll allow pets or not. So if I’m going to buy a 20 unit apartment building, I probably would lean more towards not allowing pets, but right now I have a small portfolio of single-family rentals. Oftentimes we get really high quality family oriented tenants in those properties. And in that case, my business partner and I are totally okay with having pets because they generally take care of the property and knock on wood. I don’t want to jinx anything, but so far, that’s worked really well for us. It’s provided a little bit additional income. It’s allowed the families to keep their pets and we’ve gotten really good quality tenants from it.

Jonathan Hayek (32:55):
And we basically have zero vacancy, thanks to allowing pets. I get calls almost every day of people looking for apartments that will take their pet. They ask if we have breed restrictions, we don’t have breed restrictions. We have rented two pit bulls before, but the caveat is we really try to meet the dogs beforehand. And so when we do a showing, we encourage the tenants to bring their pet. And what we’re looking for is pets that are obviously potty trained, that know to go to the bathroom outside, friendly. We don’t have as much of an issue with cats, and friendly dogs, dogs that aren’t going to bark a lot.

Jonathan Hayek (33:30):
And we’ve had one in the past where the dog just barks like crazy. And it’s in a building that’s just not conducive to that. So, we learned from it and move on. It helps reducing vacancy, increases income, but for some people they’re just not going to mess with it. The obvious rebuttal for having pets is they’re going to ruin your apartment and it’s going to cost you more to fix what they ruin than you made. And it’s certainly possible, but unlikely if you’re screening your tenants correctly.

Robert Leonard (33:59):
What mistakes have you made along the way, what would you go back and do a little bit differently if you could?

Jonathan Hayek (34:04):
So we have lost money on one deal, it was a flip. I ran my numbers so that we were going to make 40 grand on it. We got in there and everything was fine, but then the snow started falling. We had a really wet spring and we kept getting water in the basement and there was no sump pump or anything. And so we’re like, all right, this is weird, but all right, I guess we’ll put a sump pump in. We put sump pump in and the water still kept coming. And we had no idea where it was coming from. And so I got bids from basement specialists that guaranteed to clean up the water and you’ll never have water in your basement again. And they wanted 25 grand. I was hesitant to do that, obviously because of the price and nobody could target the source of the water.

Jonathan Hayek (34:49):
Like where is it coming in? What are you going to do to fix the problem, if you don’t know what the problem is. So as things dried out the water receded a little bit, but we ended up just selling the house because I was concerned about where it was going from there. And so we sold it for about a $5,000 loss. We had to put about 10 grand into it along the way. So we sold it for about a $5,000 loss. And I think the lesson from that is about due diligence. So I think when I was purchasing that house, maybe I got a little cocky or arrogant in doing my inspections and I just didn’t look closely enough. There probably would have been signs in the basement that there had been water in the past. So I really should have dove deeper into that and asked more questions and questioned that a little more.

Jonathan Hayek (35:31):
Another lesson that I’ve learned along the way is one of my faults is I tend to see things and houses with Rose-colored glasses. So there was a fourplex that I was really excited about, came on the market and it was a 1% rule. It was fourplex, units were rented for $750 a month, each one, and it was leased at $300,000. So, perfect 1% rule deal, where the rents are $3,000, purchase price $300,000. So monthly rents are 1% of the purchase price. So I thought, man, a MLS deal, that’s a 1% deal. Great. So we went through with it and about a week into owning the building, people started complaining that their electricity was going out. I’m like, okay, that’s kind of weird. I’ll go over and I self-manage. And so I went over, checked it out and I found the fuse boxes. So this building was built in 1940 and they used fuses back then.

Jonathan Hayek (36:22):
Nowadays we use circuit breakers. This building had not been updated with circuit breakers, circuit panels. It had old style fuse boxes. And so every time someone would run too much electricity, they’d run the microwave and the hairdryer at the same time, it blow the fuse. And I had to go over and change the fuses. There was only one line going to each unit. Back in 1940, they didn’t use nearly the electricity that we use today. And so the electrical system was simply outdated. And so I owned that property for a year then just decided to move on from it. And another thing about that building is there was no laundry onsite.

Jonathan Hayek (37:01):
And I did notice that when I was in the due diligence period of buying it, but my Rose-colored glasses just said, “Oh, I won’t have a problem renting that. No problem. People can just go to the laundromat.” But that was a building that I did have more vacancy in than my other buildings. And I think a large part was because of a lack of laundry onsite. So just knowing the amenities that tenants are going to want and being aware of those big systems that are really expensive to fix.

Robert Leonard (37:28):
When you think back to when you were just starting to invest, what do you know now that you didn’t know back then that would have helped you grow your wealth and your portfolio exponentially faster?

Jonathan Hayek (37:40):
I think obvious answer that a lot of people give is start earlier and it might be obvious and cliche, but it is so true. You can see those charts about compound interest and the value of investing. If you start investing at 20, versus 30, versus 40, versus 50, and how much more money you end up with at the end, the same is true for real estate investing. I started investing when I was 31. I just think, man, if I would’ve started investing when I was 25 even, five or six years earlier, the difference that would have made just with how much the market has exploded since then. And the knowledge gained starting earlier is an obvious piece of advice. Best time to plant a tree was 10 years ago, second, best time to plant the tree today. So I really take that to heart and try not to waste any time.

Jonathan Hayek (38:28):
The other piece of advice that I would encourage people to do early on is not be afraid to delegate responsibilities to contractors. Contractors, if you’re going to flip and rehab and remodel, contractors, they can be the bane of your existence or they can really make your business. And so I was more interested in doing it myself early on. I was able to save money. I was able to learn a lot doing things myself, but if you use contractors, you can scale. And it also frees up your time to do other things, whether that’s more real estate investing or whether that’s spending time with your family or doing other things that you enjoy. And so, not being afraid to delegate, start with small jobs, but don’t be afraid to use contractors. Inspect what you expect. Don’t assume a contractor is going to do the right thing all the time because they’re not.

Jonathan Hayek (39:19):
So make sure you watch contractors carefully, but nurture those relationships. And a relationship with a good contractor really can be worth millions.

Robert Leonard (39:29):
Jonathan, thanks for joining me on the show today. For those listening that are interested in learning more about your journey and want to connect with you, where’s the best place for them to go?

Jonathan Hayek (39:38):
This was really fun, Robert. I really enjoyed being here. Give me a follow on Instagram at Endurance Properties. Give me a follow, send me a DM. Ask me any questions you want. I’m a former teacher. I love teaching. I love answering questions. I love talking real estate. So follow me on Instagram at Endurance Properties.

Robert Leonard (39:57):
I will put a link to Jonathan’s Instagram in the show notes below, so you guys can connect with him there. Jonathan, thanks so much.

Jonathan Hayek (40:04):
Thanks for having me.

Robert Leonard (40:06):
All right, guys. That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro (40:12):
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