Brian: Hey guys! Happy Tuesday afternoon or morning if you’re on the West Coast. Deni and Brian here from Spark Rental. Super excited to have you with us. And we are joined today by Tom Brickman of The Frugal Gay. Tom, thanks for being with us.
Tom: Thanks for having me.
Brian: So for those of you who are not familiar with Tom, Tom recently retired at the age of 39 with real estate investments. So we’re going to talk today about exactly how he did that and how you can follow in his footsteps. So, Tom, you know, let’s rewind the clock a little bit here. Let’s start with just how you began your career. What field were you in? I know that you joined the Two Comma Club at the tender age of 31 while working at a movie theater. But let’s let’s back up even further and tell us how you got started in your career.
Tom: Sure. I went to the University of Toledo. I have a degree in business and minor in marketing, and I took a job right out of college at 23 with a movie theater. So that’s where I was for the last 15 and a half years. And I bought door one and two when I was 21. So that kind of got the kind of got I was a senior in college at the time and that kind of got the wheels rolling right there. And it was just it was a $90,000 duplex. I lived in the ugly unit upstairs. I rented out the nice unit downstairs.
Brian: House hacking.
Deni: Do you have a mentor or what made you decide at 21?
Tom: My dad was in real estate always. But not. He was a police officer. He was not like in real estate; in real estate. But he had a rental property or two rental properties while I was growing up and my mortgage and payment was $738 and I could rent the downstairs for 600 and I didn’t know anywhere I could live for $138. So I just that was my motive behind that that move at 21.
Deni: I love hearing that!
Brian: And how did you afford that deal? Broke or presumably broke college student.
Tom: So I cash flowed college and that’s why I worked. I worked at The Gap all through college and they did tuition reimbursement. And they also had a stock purchase plan. And it automatically came out of your check every two weeks to purchase gap stock. So I actually cashed in my Gap stock at 21 and that was my down payment. I had about $10,000 in Gap stock at the time and I rolled that right over and my down payment on my first house was $9,000. So that was how I got my foot in the door.
Brian: I love it.
Deni: Now, do you still own that property?
Tom: I do. It’s one of the very few that I still own from the beginning. I’ve sold off and scaled up a lot over time. But that one is still in my portfolio 20 or 18 years later.
Deni: That’s so cool.
Brian: So you said that you spent your 15 year career before you retired working for movie theaters. So what exactly were you doing for these movie theaters? I’m guessing you weren’t, like collecting tickets at the door.
Tom: I mean, whenever you had call offs, I was collecting tickets at the door, but I was a general manager. They moved when I was 23. They moved me to Texas. They said, We’re going to move you here for six months and move you back to Ohio. And I got to Texas and I never got that move back to Ohio. And that’s really where I was able to to grow wealth. I was in Texas at the right time and I started purchasing properties in Texas in 2009 at the bottom, and I moved around to five different locations. I used them so I could get mortgages and I could grow my wealth that way. But my passion always was with real estate. So I bought one in 2009 and that was, like I say, a financially traumatic experience because I had bought in 2004 and 2005, and I remember when I bought the one in 2005, like I remember signing the application when they were handing me the keys to the house. Like it was just such a easy process, no money down, just sign paperwork and you’ve got a house. And then I went to go get this one in Texas in 2009 and it was like, What are you talking about? Why do you need to know about all this? I mean, it was just like a wild process from from what I did in 2004 and 2005. And it just made a goal to buy one a year. And I bought what the investors were ignoring. I started with these ugly little condos, cash condos, for $26,000, $13,000. And I’ve traded almost all of those up now and turned them into houses or multifamily properties. Now.
Deni: Now, do you do any of the maintenance work and upgrading and all that yourself or hire contractors?
Tom: Both. So I have seven doors in Texas and I have 13 doors in Ohio and I do not. Do a lot of it. But like when I was in Ohio last week and my landscaper would not come mow the lawn. So I was out there mowing lawns and I went to Aldi and bought a battery operated lawn mower and I’ll paint and I’ll do demo and I’ll do that kind of stuff. But I do have two solid teams in Ohio and Texas that I lean on for the majority of the work.
Brian: So, you know, I remember reading on your website TheFrugalGay.com, for anyone who’s just joining us, that you reached a seven figure net worth. You know, we call the Two Comma Club at the age of 31. You know, while you’re working as a general manager at a movie theater, you said on your Web site that you were earning around 55,000 a year. So not an enormous salary by any stretch. So how was it that you were able to reach a seven figure net worth at a young age without having an enormous income? You know, was it mostly through a high savings rate through your investments? You know, talk us through that a little bit.
Tom: It was investments buying the right properties at the right time. One of the properties I bought in 2013 was a $15,000 purchase, and it turned out when I sold it in 2021, it was a $97,000 purchase. So a lot of it was just buying those right properties. I always bought the ugly stuff. I never bought anything, move and ready. So I always had value add opportunity and like even that one in 2009 when I bought it, it was a $26,000 property and I was able to to put, I don’t know, about $4,000 worth of. Paint and nice fixtures in it. And I turned and I sold it two years later for 57,000. So it was just a lot. It was almost all real estate. I had my 401. K and my traditional investments, but that that million dollars at 31 was definitely the real estate and just picking up the right doors. And I mean, I say one a year, but then there were times like in 2013, I put out three offers in one week and all three got accepted, which I was not expecting. And I just figured out a way to to make all three of them work.
Brian: So how has your real estate investing strategy changed as you have gotten older, as you’ve become more experienced? You mentioned that your first property in college was a duplex that you house packed and then you got into some of the ugly condos. And now it sounds that you’ve gotten more into multifamily. So kind of walk us through that evolution over time of how your investing strategy has changed.
Tom: I love the single families now and I used to avoid the single families and that was just not part of my strategy. But I know from having the multifamily, the single family, the condos, the mix is important. And when I’ve got that empty three bedroom, two bath, two car garage, that’s the most desirable. That’s the moneymaker for me. So it’s shifted from from. I looked at five houses on Sunday and I probably ten years ago would have put in offers on two of them because they are both salvageable. But they were really, really rough. And ten years later, I’m just like, man, this is too much work. I don’t want to dig myself into this deep hole and and put a put a mountain of pressure on myself to try and make these properties work. So I look at the dated ones now, which before I used to be, oh yeah, I can fix foundation. Oh yeah, I can do new roof and new HVAC and I mean, I used to, I’ve done that all and I did a hoarder house that, like that property alone. I just bought it at the right time, at the right price. And by the time I was done with it and I took it to a bank because I did everything with personal loans, with credit cards, I just figured out because I knew I couldn’t get a loan on it. And when I started to do the hard money process, I’m like, I don’t want to do this. I’m just going to figure this out on my own. But by the time I was 210 into this house and when I got back that appraisal and it came back at 425, I’m like, okay, this, this is this is awesome. I mean, it was a summer of Texas heat and no fun, but it boosted my net worth 200,000 by putting in that summer. So.
Deni: Wow. That’s awesome.
Brian: You mentioned getting in at the right price there in that particular example. So one of the challenges that I hear again and again from single family rental investors is how cap rates have really gone down in the U.S., how it’s so hard to find good deals, especially over the last two years as real estate is just going crazy during the pandemic and after the pandemic. So how do you go about finding excellent deals as a single family rental investor?
Tom: So I shifted back to Ohio, so I did that, those first original ones in Ohio, and then I did Texas, Texas, Texas. And then in 2017, 2018, I started getting priced out and I couldn’t make numbers work and I shifted back to Ohio and I can still find in May I bought a solid two bedroom, one bath, one car, garage, house for $52,000 in Ohio and in Texas. In Texas, that just doesn’t make sense. And I cash flow on that property. And I had a great tenant who takes care of the house better than I would and I inherited them. The I had passed on my business card in 2019 and he’s just like, Hey, I don’t want to be a landlord. My dad passed away. Do you want this house? And it was just a great deal. Wow. So I’ve looked at and I’m comfortable in Ohio, in Texas, and that’s why I stick with those two. And I always get DMS about Go to Kentucky, go to Alabama. So those are my two markets and I have affordability in Ohio right now. And I’m starting I was in Texas this weekend and I’m starting to see some of it come back a little bit in Texas with the distressed properties. But for me, I shifted to that other market where I know I’m not going to see the appreciation. I’m not going to have a $400,000 house there. And that $52,000 house that I bought in May is probably a $60,000 house. And I know it’s not going to go up much over the next ten or 20 years, but I’m going to cash flow on it for the next ten or 20 years.
Brian: That’ll make sense. So Texas has had an influx of population. So you’ve seen this crazy appreciation there. But like you said, it’s hard to find deals there. Now, Ohio, on the other end of the spectrum, not huge population growth, but much lower prices. And you can find those cash flowing deals that are better. So how do you go about finding these deals or these mostly distressed properties? You do this by networking through your SEO, through your website, like how do you find the deals I got?
Tom: I got to tell you, I was working with this couple and they wanted to buy a house. And we had looked at everything in Toledo, Ohio, and we were both ready to give up. And I tweet about Ohio a lot. I tweet about Dallas a lot, and I got a DM from a guy and he’s like, Hey, I own two duplexes, I’m going to dump them. Do you want addresses or Look at these? And he gave me the address and I’m like, Oh, that’s the zip code that I own my crack house. I don’t want that one. But then I looked and there’s like one pocket of like six good streets in it and it’s right by Costco and it’s real cool. So then I’m looking on Google Maps and I’m like, This might be a deal. I found them a great deal from a DM through Twitter. They’re super happy it appraised 10,000 more than what we got it for. It’s a perfect starter and they’re going to live in the upstairs, they’re going to rent out the downstairs. It almost covers their entire mortgage. So I get them from that. I found a house on Craigslist that I bought in 2020.
Tom: I don’t know. Everyone’s like, Oh, there’s scams. And yes, there’s 100 million scams on there. But I was looking for this certain street. I had lost a property down the road to a higher bid. And I’m like, Man, I want to be on the street. And I looked on Craigslist just one random December night and it was there and she’s like, I was the caretaker. I don’t want this house. It was left to me when he passed away. I don’t want to keep paying the bills. And I’m like, I can close this in a week. You really want to get rid of it? And I got it. So I found through Craigslist one of my the hoarder house came to me from a resale business and I was out there sourcing merchandise and the guy who sells us our nail polish is like, Hey, my mother in law passed away. Do you want this house? It’s hoarded. And and it was a great 200,000 profit house. And I’m like, yes, I will take the nail polish on the house. So I found deals. I have one under contract right now and it was just on Zillow and it’s just sat there and it is a solid two bedroom house. And, you know, investors always go for those three bedrooms and this is a 1200 square foot two bedroom. And I know I can make that third bedroom appear in 1200 square feet. So I went and looked at it and it’s really clean and it’s got good bones and it’s got the new roof and the new windows. And I’m like, everyone is ignoring this because it says two bedrooms, so you can find them. Still, if you look at the square footage and what can you do to make it? Work. So I found them.
Deni: All over that idea. I mean, people do overlook certain things and you don’t realize you can upgrade to that or change it.
Brian: Absolutely. So how do you currently fund your deals and how has that changed over the course of your real estate investing career?
Tom: I’m one of the more conservative ones. I do not carry a ton of debt on my 20 doors. I have mortgages on a couple of them, but that’s because that makes me sleep better, knowing that I need to collect rent from three or four people and I’m able to cover my all my bills on the other 20. So this year I sold my primary, which I lived in for the last three years, and I sold it at the right time. I was going to keep it as a rental, but that cleared up, so that kind of paved the way for the next three deals…
Brian: To buy in cash.
Tom: Yes, some of the Ohio ones are cash properties. I just secured a guidance line of credit, which is with a credit union here in Texas. And I’ve done business with them for a while and they basically say, if you bring us a deal and you put down 20%, we’ll write it on there. Write a loan for you on it. So I’ve been successful with those credit unions in both Ohio and in Texas. And yes, I don’t get the absolute best interest rate, but I also know that I can bring them nontraditional stuff. I have a commercial space in Ohio. And I know I couldn’t have gotten anyone to write anything on this. So I bought it cash. I fixed it up. I put four tenants in it and took it to the credit union. And they’re like, of course, we’ll write on this. It’s got a brand new roof. It’s got new HVAC. It’s got all this. Yes. What do you want? And we’ll do it. So I think looking at that non-traditional credit union, smaller banks was the key for me to continue to grow and form those relationships. So when I do have something non-traditional, like a it was a pizzeria and it’s now a barber shop. But it sat empty for 20 years. It was on a great corner. It was just poorly listed and we got a great deal on it. The guys were about to lose it to tax foreclosure and they’re just like, Yeah, we went in with a lower offer. It was a different market. It was 2018 or 2019, and they said no. And then they came back like a week later and they’re like, You still want it? And we’re like, Yep, we’ll take it for that. So I think looking at those nontraditional ways and you know, there’s a hard money lender that’s like itching for me to take a loan with them. So I’m open to all, but it’s got to be the right deal in the right terms and make sense for me to do it.
Deni: We do have a question from one of the Facebook watchers. As you said, you purchased a property for 26,000, then sold it for 57,000 over ten years. But what did you wind up paying in property tax, holding on to a property that long?
Tom: So the 26,000 I sold it two years later. I sold it in 2011 and I sold it for 57,000. And I lived in it and I rented out one of the rooms. It was a two bedroom, two bath. So it was perfect for house hacking and his rent basically covered my house payment and tax and then all I had to pay were the utilities. And I also didn’t have to pay capital gains because I lived in it.
Brian: Primary residence exclusion, right?
Tom: So I’ve done that a few times over the years and that’s, you know, when people DM me and they’re like, how do I get started? I’m like, find something you can house hack or you know, if I had to start over again today, I’d start with condos again. I’d find those two bedroom, two bath condos that are 89,000, 100,000 in Dallas. And I do it exactly the same way.
Brian: That’s something. How shocking is a recurring theme that Deni and I talk about all the time. Two Great way to get started. You get to use owner occupied financing, which is way cheaper and higher LTVs and all that good stuff. So yeah, You’re preaching to the choir here. So I love to ask real estate investors who have been around as long as you have about the low point in their story arc. You know, that moment when all hope seemed lost because, you know, we’ve all had those those really bad experiences as real estate investors. And usually those are the ones that you learn the most from. So I’m curious about the low point in your story arc as a as a real estate investor.
Tom: I did buy a crack house on eBay. It was auction dot com fulfilled by eBay. I’m sitting at my desk on e-Bay. So it was auction dot com, but they were advertising it on eBay. So I’m sitting at my desk at work and I’m bidding and I’m bidding and I know the zip code, but I don’t know the street. And I think it’s a different neighborhood than what it is. I’m texting my local friend, I’m like, Hey, when you go on lunch, can you drive by this? And she’s like, Yeah, I’ll drive by it. And then I got emotionally attached and I’m like, I’m buying this house. And I ended up winning it for four for $13,501. And it was definitely a crack house that definitely had bullets in the doorframe and bullets and the bullet holes in the windows. And my dad went out there and he’s like, I would just lose the $13,000. Now you’re going to regret it if you start spending money over here. And I mean, I’ve had a couple of those and I’ve had even during the hoarder house process where I’m like, Man, I don’t know how I’m going to pay for this because at that point it was all out of pocket and my cards were maxed. Everything was was leveraged at that moment. And I’ve just always been able to figure it out. But back to the crack house. I ignored him. I spent a ton of money. My total investment on that house was 39,000, and I’m glad I didn’t walk away from it. I did sell it last year for 54,000. I sold it to the tenant. I did financing for them. So I’m not just making the 54,000 because I know that that’s a tiny profit, but they’re paying me interest every month on their loan and he wouldn’t have qualified otherwise. So it’s kind of a win win where I got to make him a new homeowner. I got the property off of my books and now I collect a mortgage on it every month. And I’m not doing anything besides the initial 39,000 investment. So it was a win win for us, but there were lots of points during that process and it was hard to get it. I make it seem nice and easy in this 2 minutes, but it was a very rough property doing a renovation and I was going to do a short term rental that I bought in 2020, and I’d been working on this property for a year and a half, and that one was one of those that we did the inspection and it was in the middle of winter, and a million things get lost in the north when you’re in the middle of winter because your roof is covered in snow and you just don’t know the extent. And when we realize what we got ourselves into this budget of $60,000 to repair it turned into by the time we were done, we’ve spent 165,000 total into the house and we bought the house for 35,000. So we spent 130 and we were supposed to spend 60 on the renovation.
Deni: Oh, wow.
Tom: Prices doubled in 2021. So, I mean, that was I got a quote for an $8,000 roof. And by the time I put it on, it was a $14,000 roof. So some of it was not just me not knowing how to price things. It was just prices just ballooned by the time we got to it.
Brian: Yeah. I mean, there is always an element of risk in any kind of investing, including real estate investing, even for veteran investors like yourself.
Brian: It’s a perfect case study in that. So you recently retired from your full time job at the movie theater. What are you currently working on?
Tom: I work on the Frugal Gay almost every day. And what that is, is like, when I’m done with you guys. I have three coaching scheduled for this afternoon and just talk with other investors that are looking to get into it. I love the investors that I can talk to about Texas or about Ohio, but I have some that I talk to about Atlanta and other states and I’m doing frugal gay stuff. I have one tenant that I need to go get, sign a piece of paper because I do do section eight. So I fill my calendar with things that matter to me. I just was in Ohio last week visiting with family, and now that I left, I structure my calendar a lot differently and things that are important get put on it. This morning I just got back from the gym. I just went and made myself a salad. So I get to fill my day with things that matter and not things that matter to my boss, which is nice.
Deni: So you design your day the way you want it?
Deni: That’s awesome. And I did include the link to the frugal guy in our in our chat for anybody who wants to check that out.
Tom: Thank you!
Brian: You know, that’s actually a story that we hear again and again from people who retired, young, you know, reach financial independence from real estate investing, is that they they’ll go out and they’ll start a new business in addition to ramping up their real estate investing business. So and usually it’s an online business because it offers more flexibility. You can have less overhead, you can fewer startup costs. But that model of building some ongoing cash flow through real estate investments and then quitting your full time job and moving on to the next thing, the next thing being an online business that you control. It’s a story that we hear again and again and again from people like yourself who retired young. And it’s a great model. There’s a reason why we keep hearing it. It must work.
Tom: I love it! I still have a resale business that I started years ago. And I keep that up and it’s very low. I ship out two or three things a day and the Frugal Gay is the new edition. I’ve bought four new properties this year, which I got down to 16 doors and a lot of them were trade ups, like the one that I sold in Dallas. I’ve been able to trade up to a couple more larger properties, bigger properties that cash flow better. And if I had that job, I wouldn’t have been able to do that. So it’s nice having the flexibility to offer on a house that makes sense.
Brian: And just a quick follow up to that. You said you traded up the properties. Did you do a 1031 exchange?
Tom: So yes, over the years I’ve done it several times. This one was a primary residence, so I didn’t have to.
Brian: Final question before we wrap up for the day. What is your most important piece of advice that you would offer to either people looking to get started in real estate investing or people who are looking to scale up their real estate investing.
Tom: So I get a lot of people that are just like, there’s no affordable houses in Dallas. And then I pull up Zillow and I’m like, Look at all these below 200,000. You’ve got to start and you’ve got to scale up and it’s you can’t move into your dream house right off the bat, right? So I always encourage them to start with like the two bedroom, two bath condo and trade it up over time. Another piece of advice I love to give people and they don’t realize is even in the hottest markets, I’ve got a great house in Dallas last year that I put under contract the weekend of Thanksgiving because nobody wants to move during the holidays. So when you look in October, November, December, you’re going to find some deals. And we found a solid four bedroom house that we moved into. We put under contract at Thanksgiving. We moved into it January 1st, end of the year. And and just like there’s another one down the road that’s 480,000 that just went up at a different time. So it’s not about timing the market, but it’s about understanding the cycle of the market. And I love to put stuff under contract, especially in Dallas, in that October, November, December. People don’t want to move during the school year. So, you know, get yourself set, clear up your debt. And then when you’re ready, October, November, December, are those months that you’re sitting there with cash in your bank and you’re ready to go?
Brian: Now. It makes sense. Yes. And it reminds me of a Realtor dot com study I read a year or two back that they were talking about what’s the best time to buy a house? And they were saying, yes, some sellers do pull their listings off during the holidays, but even more buyers withdraw from the market during the holidays so that that ratio of buyers to sellers gets a little skewed during the holidays. Only the most serious buyers are out there, and of course only the most motivated sellers are out there, too, so they are ripe for lowball offers. All right. Well, on that note, Tom, thank you so much for joining us today. This was a lot of fun.
Tom: Yes, thank you for having me.
Deni: Great meeting you. And anybody. Please remember Tom. You can reach him at the Frugal Edgecomb and everybody. Have a great day and we’ll see you in next Tuesday.
Tom: Thank you, guys!
Brian: Bye bye. Thanks again, Tom. Talk to you guys soon.