#31: How To House Hack Your Way To Financial Independence with Cody Berman

Full Transcription Of Today’s Episode

Trevor Oldham  00:44

Hey, everybody, welcome back to The Real Estate Investing Exposure Podcast. Today on the show, we have Cody Berman. He’s the creator of Fly To FI, and CO hosts of the FI shows. Cody quit his corporate banking job at 22 to pursue entrepreneurship full time, he has found success working on many different types of side hustles and creating multiple streams of passive income. Cody, super excited to have you on the show today.

Cody Berman  01:10

Yes, super excited to be here.

Trevor Oldham  01:12

And Cody, for our audience out there that’s listening for the very first time, and they’ve never heard of you. And they’re just coming across you. I love you just to walk them through how you got started into the world of real estate investing and sort of what your portfolio looks like today.

Cody Berman  01:27

Sure, I’ll do the quick elevator pitch. So I came into real estate from kind of the side hustle passive income Avenue, I read The Four Hour Workweek when I was 19 years old. I became obsessed with passive income and side hustles. And what Tim Ferriss called muses, and that book, started, a couple of businesses started to get some passive income through those and then the pandemic hit. And honestly, I was kind of bored and looking for other investment opportunities. I had interviewed and talked to a bunch of people who had been just crushing in real estate and I’m like, why don’t I have any properties? Why haven’t I really didn’t like Towson real estate? So I just kind of went in,  whole hog and started looking at properties, started 20 properties, acquired that first property in September of 2019, or 2020. It was right before the pandemic and the rest is history at this point. Now, me and my fiance own 11 doors together, we have four units, three of them are three units, and then we have a duplex as well.

Trevor Oldham  02:23

And for our audience out there that are listening for these properties. Did you house hack? Or did you just buy them outright and say,  you buy a three or four family and rent them all out? Or was your strategy more on the line of  living one of the units and then renting out the other two or three remaining?

Cody Berman  02:36

So the initial plan, this is an interesting question, was to house hack. So we actually bought a property down in the eastern border of Central Connecticut. And I know we were chatting before Trevor, we’re both Massachusetts guys. So not too far away. But we actually ended up moving down there for a couple of months. The plan when we were looking at the property we’re going to acquire the property was to house hack. Unfortunately, as a serial entrepreneur, and I know you mentioned in my bio, I quit that corporate banking job when I was 22. And I didn’t have that long with track record with one business, I kind of had my hand and a lot of different pots. And unfortunately, banks don’t really like that. So I’m going through the whole lending process, I’m working with traditional lenders getting the FHA loan for approval and going to put 3.5% down and how Zack, and then they come back and they’re like, hey, Cody, like some of the things have changed is again, right at the beginning of the pandemic. And they’re like none of your income counts, because you haven’t reached a two year seasoning period. I was like, oh my god, like what am I gonna do now? So the long story short, Trevor, I wanted to do house hacking with the 3.5% down, but I ended up going the commercial loan route, because there’s a lot more of a gray area there. And that’s how I bought my first three properties through commercial loans.

Trevor Oldham  03:45

And for our audience out there, that is listening. Obviously, we’re in Massachusetts, there’s different areas in Massachusetts, where you can invest in,  very expensive for those listening, Boston,  getting 10 miles outside of Boston can be very expensive. And you mentioned that you’re investing  right over the border and say Connecticut and down sort of picture you’re about 3040 miles west of Boston, and then go a little bit south over in that area. Was there a reason why you sort of,  chose those areas compared to more Eastern Massachusetts and looking more towards Boston.

Cody Berman  04:18

Yeah, the main reason was, quite frankly, just the price to rent ratios. So I started looking in Worcester, which is like dead center and Massachusetts for those who don’t know. And before I blindly went in and  started looking at properties, I was like, oh,  get a triplex for 300k it’s going to rent for 4500 a month and gross rent like 1500 a floor perfect. I start to look at these properties. And they’re like, 500,550 600, and I was like, Oh, God, this is not at all what I was expecting. So a friend of mine’s real estate investor was like, Dude, you gotta jump the border, start looking at Connecticut and Rhode Island. The price to rent is just so much more attractive. I was like, All right. So my fiance Lauren and I started looking at properties and the first one we ended up closing on And  this is kind of skipping over,  20 or 30, tours and offers that fell through and all this, all this stuff. But the first one we closed on, we bought for 235,000. And now gross rents are 3400 a month, so way over the 1% rule, whereas the properties I was looking at in Central Massachusetts, where if I was lucky, just barely scraping the 1% rule. So ultimately, it was a price to rent play.

Trevor Oldham  05:25

Oh, and I can definitely agree with that. I know myself, me and my fiance, we’re currently renting an apartment, and we’re looking to do our first house hack. And we’re actually looking more in New York, which she’s from outside of Albany. And that’s the sort of same exact thing that we ran into when we’re looking at,  say, again, people for those of us and not to get too specific, we’re looking outside of Boston,  just doesn’t even make sense, looking to purchase a property. This, I can definitely attest to that,  the same sort of thing outs out and,  Western Mass and, and even in New York, which is significantly cheaper to buy the property, like you mentioned to 35 plus your,  you’re now getting $3,400 a month, and rent.  I think for those listening in the audience, when you are sort of looking into real estate,  even if it’s not in your general area, you can sort of look outside of that, which sort of sounds a little bit like that you did.

Cody Berman  06:11

Exactly. It wasn’t going crazy far, it wasn’t like I was investing in Mississippi or I was going to the southwest United States, it was like a 4550 minute drive. But it was far enough where the prices and the rents were just so different from  the market that was right next to me, the local market.

Trevor Oldham  06:28

And let’s see, there’s someone in our audience,  I sort of asked him this question on my own. But  I wanted to go out, and we don’t say purchase a multi family property, but dealing with friends and family that their typical philosophy is go out and buy a single family home, and they just can’t see that sort of, I guess the advantages of buying,  a three and four family and being able to live,  have a very low monthly mortgage, or have no monthly mortgage, or even getting paid to live in that sort of space. So as you’re going through the process, did you encounter any problems like without family, friends, or even your fiance, or girlfriend on your end?

Cody Berman  07:02

So fiance, 100%, on board, family, my mom is super supportive, my brother understands. But I do have some family that are like, What are you doing, you can afford a nice house. And you can have the ranch with the four bedrooms, four baths, I’m like I know. But I’m choosing to do this because now I have a massive gap between my income and expenses. When it comes to friends, a lot of them seem interested in what I’m doing. They’ll ask about real estate, they’ll ask about the numbers, they’ll ask about how they can get started investing, but very few have actually taken action. Unfortunately, the reason I’m doing this, though, and I know obviously, you understand this, and probably a large percentage of your listeners are just having that gap when you’re young, like I’m 25 right now. And I’m literally getting paid $1,200 a month to live where I’m living right now. Because we’re kind of in a house hacky situation where we have this one bed, one bath detached ranch next to it’s part of the same property that I bought. But next to us is a four bed, two bath, multifamily apartment, and 600 square feet of office space. So we rent both of those out like we could go live in the four bed, two bath, it’s a lot nicer than the place we live in. But this totally works for us. It’s just myself and my fiance, Lauren, we’re making money to live here. So I’m happy to sacrifice a couple years in my 20s. Again, it’s not like a slum, it’s not a bad house. But it’s not the beautiful American Ranch that everyone’s kind of envisioning, with the four beds, four baths, 5000 square feet with a huge yard. I just don’t need that at this point in my life. Does everyone agree with me? And Has everyone been convinced that this is the right move? No. But I know that financially, in the end, this is going to drastically reduce my path to financial independence, which I actually reached earlier this year. And just wealth building, it’s gonna allow me to accumulate so much more wealth so much faster, not having that housing is typically the biggest line item in anyone’s budget.

Trevor Oldham  08:43

I most certainly have, and I think that’s an excellent overview for the audience. And as you’ve been going out there,  you started off small and now you’ve grown your portfolio to 11 units. Are there any  looking back over the last couple of years? Are there any  issues that you encountered that you wish you would have known beforehand that you wish to share with our audience or any sort of learning experience you’ve had as you’ve gone on to build your portfolio?

Cody Berman  09:04

Oh man, great question. Lots of learning experiences. If you have a weak stomach, I would urge you to not invest in hands on real estate if you want to get into real estate, do REITs, or do syndications. Do things where you’re not directly involved, but a lot of learning lessons. So even just this past year, we had like a ton of flooding. And you might have been exposed to that a little bit Trevor, since we’re close to each other same geographical area and one of our basements flooded, the sump pump fails. And I had to replace a boiler. It was absolute mayhem for a couple of days, but it ended up getting sorted out and  we had built enough of an emergency fund for that property where it wasn’t a big deal. But if you’re not ready for that, like that can be a huge hit. I mean, we had spent we ended up spending like almost nine grand or 10 grand in one weekend, like fixing everything, which is totally scary. No one prepares you for that. Everyone just says oh yeah,  make sure it’s the 1% rule. You have a property. It’s awesome. You’re going to be making this monthly cash flow every month. You’re going to reach financial independence, but there are a lot of hardships. You have to be ready for those things that come out of left field that you’re not 100% prepared for. So I guess that’s my biggest piece of advice is,  prepare for the unexpected, don’t,  don’t feel like oh, I wasn’t ready for this, I know that things are gonna happen that are completely out of your control, and just,  have the money have the systems in place to, I guess, remedy that when it happens.

Trevor Oldham  10:24

And obviously, when those problems come up,  you can never foresee flooding, especially needing to replace a boiler. But when you first get started, you have sort of a six or 12 month reserve fund set in place for those emergencies. That is you just rip off the band aid and go at it with no sort of emergency fund.

Cody Berman  10:42

We did have an emergency fund for that first property, I was very deliberate, I did a lot of research and learning upfront, listening to podcasts, watching YouTube, reading blogs, reading books, about just everything about buying a property. So I knew that I needed to have some kind of a cash reserve. And I also went in with, I was trying to at least try to go in with like a contractor’s eyes. So I walk through a property, okay, this boiler is going to go that’s seven or eight grand, okay, this roof is going to need to be replaced in the next three years, that’s 15 grand, okay, this electrical needs to be redone, that’s three or four grand. And the more reps we got in which again, we toured like probably 15, or 20, or 30 properties, before we ended up buying that first property and getting those reps in was really important, because then I had a much better gauge of how much money I needed to have in reserves for a specific property. So it definitely varies from property to property. And usually I have a pretty good idea of what could go wrong, not in the flooding scenario, but that’s where an emergency fund comes in. But yeah, most of the time, I’m setting aside cash for the things that I know are going to go like a roof or a boiler or some kind of a system that’s outdated.

Trevor Oldham  11:44

And speaking along those lines, as  you’re getting a monthly income coming in to you. So  set aside 10 or 20% of the income for those capital expenditures.

Cody Berman  11:54

As of right now, we have not pulled any of our profits out of our real estate investing business, we have just only used it to reinvest into our own properties and to buy new properties. So we’re not taking any kind of a salary right now, which might be typical from the average real estate investor. But that’s just what’s worked for us. It makes us feel better that we have this nice cushion and allows us to just redeploy that capital whenever we need to.

Trevor Oldham  12:16

I think that’s definitely a good example of sort of snowballing from that one property and then collecting that cash, eventually getting that other down payment on another property. But  let’s say looking at, in the future, you’re looking at three to five years out and you do have these 11 units across a couple of different  sort of properties, are you still looking to continue to buy say three and four family or use that looking to be the investor that takes all those sells them, consolidates it and then goes out and buy 120 unit property?

Cody Berman  12:44

I have been looking at larger unit properties, there just haven’t been any great deals that have caught my eye. A lot of them I know you mentioned earlier are out in eastern Massachusetts near the Boston area. And those price rents just don’t make a whole lot of sense. There is not much of a housing inventory right now for those types of units. But I’m absolutely looking for that type of stuff. To say that I am never going to buy a triplex or quadruplex or any smaller unit like that, again, I think that’s not fair to say. I think if the right deal pops up at the right time for the right price in the right location, I’m all for it. I’m just looking for deals I don’t I’m not like married to one specific type. I’m not married to one specific location, I’m just trying to,  real estate for me is a vehicle to passive income and building wealth and early retirement. Nothing else. It’s not like I  I love the look of these three bed, two bath ranch houses. And I have to buy those. It’s just a vehicle to me. So I’m just doing what makes the most mathematical sense.

Trevor Oldham  13:41

I think that’s an excellent, really excellent overview for the audience. And I want to switch gears a little bit when we’re going into,  talking towards early retirement. I think that’s something that really stood out to me when I was going out and reading your bio, is that you left your corporate banking job at 22. And for those listening in the audience,  sometimes when someone is trying to retire early, quitting their job may not seem like the best thing. I’d love for you just to walk us through sort of your mindset back when you were 22 and why you decided to leave that so  go ahead and pursue entrepreneurship full time.

Cody Berman  14:12

So like I mentioned at the beginning of this podcast, I got really obsessed with business building and side hustles when I was 19. So as a sophomore in college, I started a couple companies, some of them succeeded. Some of them failed. The one that kind of first got the most legs was a disc golf manufacturing company. So I was making money doing that. Started doing freelancing, building websites, writing blog posts, doing podcasts editing, all sorts of stuff. So while I was in my corporate job I was working on side hustle stuff while I was at work. I don’t recommend doing that if you have a boss that’s super micromanaging. But I was also working like before work and after work I was just side hustling my butt off like I was working 1516 hours every single day on you know sometimes on my real job or my  my nine to five my day job and then sometimes on the side hustles so what I do It wasn’t like I just quit. And I didn’t have any other source of income. It wasn’t a ton of income, but I was making 1000 to 1200 a month. And I guess this is a perfect segue into keeping your expenses low, especially at the beginning is a really good way to open up your options and kind of design that perfect lifestyle. Because for me, I was only spending about 1000 or $1,200 a month at that time, I was still living like a college kid who still had the same car. So I was living in cheap housing that was buying inexpensive groceries and not going out that much. So my side hustle income, and my expenses were essentially the same. So they were like netting, zero. So when I quit that corporate job, I’m like, You know what I am, like sustaining myself, I don’t have any kind of a buffer, I don’t have a gap between my income and my expenses. But I’m, I’m at least at a point where I’m not going to starve. And at that point, I’d also saved up about 50 grand. So my rationale was, okay, I’m spending what’s called $1,000 a month for easy math, I 50 grand saved up, like, that’s 50 months of entrepreneurial freedom, where I can try all these different things.  if they fail, that sucks, but at least I had this buffer, and I literally, it’s like, over, it’s over four years, that’s 48 months before years, I have a four years and change to kind of just try my hand at entrepreneurship, if I kept my expense that was the same. So that’s ultimately why I felt confident enough to go out and take that leap.

Trevor Oldham  16:15

And I think that’s an excellent,  another example for ions. Boy, you still want to go out and take the leap. You aren’t taking it with $0.  it’s funny to me, sometimes you’re new here, like,  burn the bridges. But I think it’s also smart about burning those bridges. I think you gave a good example of how you were when you burned them. But you also weren’t, if you didn’t, you lost a couple of freelance clients in the next month, you weren’t going to be moving back home with mom and dad.

Cody Berman  16:40

Speaking of burning bridges, just a quick aside. So when I quit that corporate job again, it was only seven months in so I kind of understood what they were coming from but in a harsh way to say I walked into my boss’s office like the day or the day after or two days after I quit. And he tells me that I was a waste of time and resources.

Trevor Oldham  16:59

That’s one of the best feelings in the world.

Cody Berman  17:02

But hey, I knew for me like I had been a part of this community financial independence is real estate investing passive income, I knew that there were people doing this stuff. So I mean, looking back, it was the best decision I ever made. But in the moment, yeah, that it sucks here and your boss tells you that?

Trevor Oldham  17:16

Yeah, I can definitely imagine that,  hopping into the financial independence fire movement. Howard says, with your passive income streams, you obviously outside of the real estate, which is pretty self explanatory for the audience,  you have you have a tenant come in, and the mortgage is $1,000 a month, and they pay you $1,200 a month, you have that $200 of passive income. But for those in the audience that say that they want to build up a passive income stream to potentially take the money that they make and invest in real estate into units, or just to sort of get ahead, are there any things that you would recommend whether that’s freelancing? Or are there any sites or any resources that you could recommend for them?

Cody Berman  17:57

So I think I should just quickly differentiate between passive income and side hustles. Because something like freelance writing, yes, you can make money, but it’s not passive income, you are working, you’re trading your time for money in that scenario. So anything like the things I mentioned, before that I was doing freelancing, building websites, podcast editing, none of those were passive income, but they allowed me to save up this huge nest egg, or this huge emergency fund, where I could quit my job. Passive income would be something like I know, you mentioned real estate, but even just investing in like the stock market or investing in some kind of a market like whether that’s it could be crypto, it could be the stock market that could be in a small business, something where your capital is working for you, you are not trading your time for money. So an example, a recent example, over the past couple years, I have built up a few online courses, I did put a ton of work in upfront and  made them Tip Top as good as I could possibly make them used audience feedback and did a lot of polling and things like that to make them as good as I possibly could. And now those things essentially run themselves. Whereas I don’t have to spend nearly as much time as I was, when I initially built those up. You can do the same thing with a small business like if you have any side hustle can be scalable. Let me just take a step back. So let’s say you have a dog walking business. And my friend Grant gives this example. His friend, I think his name is Matt, had a dog walking business. He was walking dogs. He’s doing kind of what I was doing. Freelancing is trading time for money. He ended up hiring like a bunch of his buddies, he built this dog walking company. Now he’s kind of sitting at the COC he still had, he’s effectively still the same business. But now it’s passive income. He has all these people working under him. He’s taking the margin between what the dog owners are paying his dog walkers. And now he has this awesome business. So that’s kind of the way I like to differentiate between passive income and freelancing. I just want people to know that if you’re driving for Uber, or freelance writing, or podcast editing, or whatever, that’s awesome, and that can definitely add to the bottom line. But you want to start to invest in some of these things where your capital is working for you. And that is where passive income is so powerful.

Trevor Oldham  19:57

Yeah, I think that’s another  excellent example for our audience and that’s sort of similar to how I got the start in the company that I now run back in college, I was freelancing. And then once I graduated college I was freelancing for about two years, brought on a first part time employee, had them take sort of,  share the work and now looking at quite four years later, having a full team of people under me. So for those listening to the audience, freelancing can still get you started. And then you can sort of look at that long term picture of going out there and building a team. And you sort of make that, like you mentioned, with your friends sort of that margin in between.

Cody Berman  20:30

Exactly, yeah, it’s so powerful once you kind of think about side hustles like that, because oftentimes, most people 99% of people work for their entire life, they’re trading their time for money on a linear basis. It’s the people who get ahead, who realize that they can spend time investing in things like real estate, or index funds, or stocks or crypto. And those are the people that get ahead, because now their capital is working for them. So it’s like, you’re, you’re almost building your work army, like, it’s not just you that’s earning money for your net worth anymore. Now you have your money, also working alongside you, which is just so powerful, especially when you start to get huge sums of money, like multiple properties, or $100,000 in your brokerage account.

Trevor Oldham  21:12

I think that’s another really good example. And let’s say that someone is in our audience,  and obviously, this is a prevailing problem in America, and it’s coming out of school with student debt, I’m not sure exactly what the average is, in America at the moment, let’s say hypothetically, it’s 35,000, would you recommend that before someone goes out and invest in real estate that they,  let’s say, pay that off, pay that half down, or make the, let’s say, two or $300, monthly payments, and then take the additional money that they have still saved, and then put that aside to invest in real estate.

Cody Berman  21:43

So number one, I would say, to make sure that your student loans are at the lowest rates possible. So there are some really good sites that do this, I know there’s like earnest and credible and so phi, if you can get your student loans down to like three or 4% rate, I would absolutely say go and invest that money, like invest any extra money,  obviously make your minimum payments, I’m not saying don’t pay your student loans, make the minimum payments, but then start to invest, like start to invest in stocks invest in real estate, because  oftentimes, you’re going to be making greater than a three or 4% return, hopefully. Now over the past 100 years, the stock market has returned about 8%, seven or 8% with compound interest, and  taking all that into consideration. So most of the time, like over the long run, it’s going to be a wise financial decision to do that. So yeah, I would definitely say, don’t wait until you’re completely out of debt to invest as long as this is debt that’s like,  4% or below if you have 25%, credit card debt, and you have $50,000 of that, my God take care of that first, before you start, like throwing money into stocks, real estate.

Trevor Oldham  22:43

That’s perfect. And for those listening in the audience, I actually saw that I paid off my student loans by refinance earnestly and they gave me a great, I forgot exactly what the rate was Bruce between three and four. So other than what I think the federal government was, like, 7%. And when I saw that I, I refinanced out of that pretty quickly, but for those in the audience, there’s,  if you’re paying 7% of the government on a loan, just take it, put it into private. It’ll be a lot better on that. And but but Cody, I wanted to say, I’m really enjoying this interview today. And I just had a couple quick questions I wanted to ask you before we end today, let’s do it. Awesome. Do you happen to have a favorite real estate investing or business book that you’d recommend for our audience, check out.

Cody Berman  23:25

Real estate investing, or business book, I’m gonna say Profit First. I think that’s a really good book, if you’re trying to get your feet wet and entrepreneurship, start businesses and understand kind of the economics of running a business. So talking about,  taking your business to podcasting you or the dog walker, that I talked about talking about scaling. And  knowing, putting the profits first, basically building a company so that you’re kind of built around being profitable, so that you’re not running yourself into the ground years later.

Trevor Oldham  23:53

I think that’s an excellent book for audiences to check out. And then the last question of the day is, where can our audience find you?

Cody Berman  24:00

So if you like listening to podcasts like this one, you’ll probably enjoy my podcast, The FI show the financial independence show where we highlight people’s journeys to financial independence, those who are just starting those who are in the middle, and those who have achieved financial independence through all different means and forms real estate business, just straight up w two job and investing and everything in between. So yeah, check me out at the fire show.

Trevor Oldham  24:22

Awesome. I’ll make sure to include that in the show notes for today’s episode. And Cody. Thanks again for hopping on.

Cody Berman  24:28

Thank you, Trevor. This is a ton of fun.