Become Wealthy by Increasing Income and Cutting Expenses to be Successful in Real Estate Investing

Being wealthy is all about increasing your income and cutting your expenses. As you begin building your real estate investing business, cash is how you will build your business quickly.

As you cut expenses and increase income, you will have even more money to invest in rental properties.

Today I have a treat for you! I have an investor who has been investing in rental properties for a very long time and his name is Sam Montgomery.

We are going to be talking about how he went from working a job at UPS to quitting his job and starting a business running and selling birds, as well as investing in real estate rental properties.

Now, he has so many properties, and he is moving his family from California to Idaho. They are super excited.

Hopefully you are going to learn a ton from Sam, because he has a lot of experience renting cheaper properties, cutting expenses, and living a life where he could quit his job. It isn’t just about increasing your income, it is also about decreasing your expenses and Sam has done that and more, including fixing up properties and Section 8.

Sam Montgomery – Investor & Father of Two

• Sam has been married to his wife for five years and he has two kids.
• He has been friends with Dustin for about 10 years.
• He has been investing in real estate for about 12 years, and he bought his first two properties in Houston, Texas before he met Dustin. He made a lot of mistakes.
• Sam has been self-employed for about 20 years — he buys and sells parakeets. He goes to L.A. once a week to sell birds. He started doing rental properties to stabilize his income from his business.
• Previous to selling birds, Sam worked at UPS for eight years loading and unloading trucks and sorting packages. He loved the work and his co-workers. When he went full time, they asked him to work 14 hours a day. At the time, he was working his bird business on the side, and after eight months of working full time, he decided to quit without notice. He taped his notice to his manager’s computer and walked away.
• Sam knew he was going to quit his job, so he used up three weeks of vacation with the plan of going back in and giving his two weeks’ notice. After his vacation, he went back for a day and he couldn’t stand it so he finished out the day and that was it.

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Tell us about your start investing in Houston,  why it went wrong, and what you could have done better.

• Sam was running his bird business and it was feast or famine. He wanted to buy rental properties to stabilize his monthly income, where it wasn’t such a hustle.
• He picked Houston because it felt like L.A. and he thought the property values might go up. The properties were cheaper, because they weren’t in California.
• Before Texas, he got a hold of a guy in San Diego, because he was renting out houses to college kids. The guy would find a house near the university in San Diego and put ten college kids in there. The house was $600,000 and after you paid expenses, you could pocket $1,000 a month. Sam almost did invested in that property, but he got scared at the huge note, which was $2,000 or $3,000 a month. He was afraid of what would happen if the kids didn’t pay.
• Sam backed out of that and he and his wife went to Houston. All he knew was that a mortgage for $100,000 costs about $500 a month. He went off a ballpark figure of interest being $100 a month and property taxes being about $100 a month.
• Sam and his wife drove around Houston with a realtor and he found two homes that were in a part of Houston where you could build a mobile home park if you wanted. Each home was on one acre of land, and he thought he could put five mobile homes on each acre for $10,000 a piece and rent them out.
• Both homes shared a well and the sellers wanted $200,000 total, but Sam offered $100,000 for both and they took the offer. The sellers took the offer, because the parents died and there were ten kids that just wanted to sell.
• Sam wasn’t able to look into one of the properties before buying it, but he didn’t think it mattered because it was such a good selling price.
• After he bought them, he found out one house had flooring that was falling down. Sam brought his own construction guys and they drank beer and worked on the house for about two or three weeks and they fixed it up for a couple thousand dollars and rented them out.
• Sam went back home and he didn’t have a property manager. He had a woman who always wanted a licensed contractor and he went back and forth with her. When he went back to check out the problems, he ended up meeting the guy he eventually sold the property to.
• Ultimately, the problem was that the people weren’t paying their rent on time and he had a lot of vacancies. There is a school tax in Houston that Sam didn’t know about and flood insurance he didn’t calculate right. Sam’s investment of $100,000, which he thought would be $700 a month ended up being $1,350 a month.
• Sam was drowning. He met the gentleman who was renting one of the houses who owned a local lawn service and Sam sold him the property.
• Sam got out of the business quickly and threw his hands in the air and decided to pump the brakes. A year later, he met Dustin at a kid’s birthday party. They started talking about their businesses. Dustin had about eight properties at that point. Sam was the first person Dustin talked to about investing in real estate that wanted to get into it. Sam was shocked that Dustin was using Zillow to find $20,000 to $50,000 houses, because he lived in California.

What was it like buying that first property and then jumping back in and buying the second one? How did you do it?

• Sam was excited to buy his second property. He figured it had to work, and if it didn’t he would just have an extra payment of $1,500, so he bought his second property.
• Sam loves buying cheaper homes in other states. He wasn’t excited at the prospect of losing $20,000, but nothing ventured, nothing gained. It was a small outlay of cash compared to other businesses and you can always get out of it by selling.
• The property manager Sam hired was a great communicator and he looked out for Sam’s best interest.
• With Sam’s first purchase, he had two properties and a mobile home and he was overwhelmed. Just the thought of only having one property and spending $2,000 to $3,000 before he could list it on Craigslist was palatable.

In finding a good property manager, what does that tell you about managing the property yourself?

• Sam believes that if you are going to invest out of state, you need to have a property manager, because you are not going to be there.
• If you are going to do this, find a good property manager, even if you have to go back there and interview ten different people. Don’t give up. It doesn’t matter how personable they are, they just need to do what they say they are going to do in a timely manner and return your phone calls.
• If you can get property manager referrals from friends, that can save you a lot of time. If Sam had to start the process from scratch, he would just go back there and spend a week.

How many properties do you have now?

• Sam now has nine properties, not including 2 in Texas.

You are moving your family from California to Idaho. How do you feel about doing that and not needing a job? Is that a relief?

• Sam is very entrepreneurial, and he doesn’t think he could do anything else. He listens to Gary Vaynerchuk and he feels the same way.
• Sam doesn’t care if he loses everything, he is not going to get a job. He will find a hustle.
• Sam is a little nervous about the bird business, because he won’t be there every week, but it is time to work smarter not harder. The passive income from Ohio is giving him comfort that they wouldn’t need to move or get on food stamps.

What are your favorite things about having rental properties?

• Sam likes the simplicity of owning rental properties compared to other types of businesses. If you own a taco truck, there are so many intricacies to worry about. With real estate, the only thing you need to worry about are repairs and evictions.
• As the years have gone on, they have weeded out the bad tenants and Sam’s phone rings less often. It is getting better.
• The fact that you get a monthly check instead of a 401(k) that you can’t control is awesome.
• The one downside with cheaper homes in Ohio is that they don’t appreciate like homes in California, but you can’t have it all.

Did you have any trouble getting your wife on-board with investing in real estate and your businesses?

• Sam’s wife is more gung ho than he is. He couldn’t have married someone who would hold him back.
• The cost of parakeets fluctuates and one time the cost was down to $1.25, which is the lowest he has ever seen. Sam wanted to max out his credit cards to buy more. He took out $40,000 on his credit cards and bought 20,000 parakeets. He called his wife and she said okay.
• As long as you are out there hustling, your kids are going to look at you and admire that you didn’t need to go to a job every day.

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Name a couple of failures or troubles you came across?

• The school tax in Texas is insane and it keeps rising every year. Unexpected property taxes, flood insurance, etc., look around the corner and talk to other people about what to expect, if you are not familiar with the area.
• Don’t buy three properties right off the bat. If Sam was going to invest in a new area, he would buy one property, hold it for six months, and try it out. That way, you can work out all of the unforeseen problems before you are in too deep.
• The water bill in Ohio surprised him the most, because your tenant isn’t required to pay it in full every month. The tenant can just pay part of it and the balance keeps growing. Sam now has his property manager watch the balance, and when it gets up to $500, they shut the water off until the tenant pays it in full. The water bill stays with the property and you will be stuck with it when the tenant leaves.
• Don’t be so gung ho.
• Section 8, which is a government program, is a beautiful thing. If your income is less than a certain amount, the government will come in and give you a payment voucher. You can rent a property to a person and the government will reimburse the landlord once a month. People who don’t pay rent are the number one thing you need to watch. Once a year, the government does an inspection to make sure your property is up to snuff and it keeps your property manager honest and your tenants taking care of it.
• With Section 8, your property will rent faster, but it takes longer to get it rented initially, because you have to go through the bureaucracy. It will cost a little more, because the government will want to see certain things done. About half of his properties are Section 8, and it has stabilized Sam’s income.

If you were to go back to your pre-investing self, what tips would you give yourself?

• He would tell himself to buy a very cheap house in a good neighborhood where there is very high demand, somewhere back east.
• Try to pay cash for it if it is between $15,000 and $25,000. You could even put it on a credit card with zero percent interest. Do one, get a property manager, experience all of the pitfalls, and then build on that one property.
• If he was 18 and single, he would get a construction job, live cheaply, and save all of his money. Once you start buying properties, it snowballs.
• Dustin bought two properties with a credit card at 0.13 percent for the life of the card. He took out $14,000 on it. You just have to do it right.
• Don’t be afraid to evict people. If they’ve lived in your property for two or three years and they have been regular payers, you can give them a week or two. If you have someone new in there who is regularly late, start the eviction process.

Do you do background checks?

• Sam hasn’t had an eviction in so long, he can’t remember how he does it!
• Yes, be with a property manager who does background and credit checks.

Do you have a strategy for buying new properties? What are you doing now to help your business grow?

• Sam likes to keep it simple and buy one house after the other.
• He is going to get a mortgage on a $30,000 house and then buy one a year. He wants to stop the treadmill of having just enough to cover his expenses.
• Just do it — buy one, then rinse and repeat.

Where are you looking to invest now? Are you thinking of other places?

• Sam is still investing in Ohio.
• There were so many unexpected things in Texas that he doesn’t want any surprises.

If you were to start all over and you only had $1,000, how would you start over? What would you do?

• If it was now, he would do the debt snowball, cut his standard of living, and then buy a house. After that he would buy a second property.
• If Sam was 18 and single with no obligations, he would buy a camper, work construction, stay at Walmart, and buy a property every six months.

What are your thoughts about college?

• Sam thinks college is a joke. He sees the way the world is going and between Amazon, government regulation, and artificial intelligence.
• Best case scenario is you get a government job and you love it, whether it is as a doctor, lawyer, or construction worker. All of those jobs are based on the government, because of Medicaid and interest rates. If your passion is being a doctor and working 80 hours a week, more power to you.
• Sam doesn’t see the point in going $50,000 into debt to become a teacher and making $50,000 or $60,000. Sam is an entrepreneur at heart. If someone isn’t, maybe going to college is their only option. There is no right or wrong answer. Sam doesn’t function well with a huge debt load.
• Sam’s main goal is to spend more time with his family. You can’t make more time, and lifestyle is his big push. He isn’t driven by material goods — he doesn’t care what kind of car he drives.
• With real estate, you don’t need to be shackled to a job.
• It makes you less efficient to have a big bank account, because you lose the need to hustle. Always have the perspective to make the most on each property and control expenses. You always need to look at your expenses and question them.
• Always have that drive and stay sharp to make sure you are not getting lazy.
• Don’t be afraid to lowball people on their properties. If you get a realtor who turns their nose up when you offer 30 or 50 less, you need to move on. They are focused on their commission. Do your research and find out what they owe on the property, then offer them $1,000 more than they owe.
• Property Radar is an app that allows you to pull up the map and it will tell you who owns the property, how much they owe, and when they bought it. It is currently only available in California and a couple of other states.
• You don’t realize you are learning about real estate as you are investing. You just need to do it and fail or do it and succeed. You are only going to fail if you bite off more than you can chew or if you give up. You can choose to offer lease to own. There are always options.
• Lease with an option to buy is a lease with an option to buy in ten years for zero dollars. There are two contracts: the lease is one and the contract to buy is the other. The contract to buy only kicks in after those ten years are up. The current owner still pays the property taxes, to make sure they are paid.

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