Out-of-State Rental Investing: Lessons From a $60K Real Estate Mistake

John Rickgarn (00:00)
I just say bar boring because like I said, started investing, you know, 10 years ago and you know, there’s always kind of like the, you know, silver bullet or big, you know, deal of the week or something that’s catching everyone’s attention. You know, there was the VRBO Airbnb craze of buy a house, do short term. The money’s a lot higher. Do that or multifamily investing syndication. Everyone was tripping over themselves, getting into that, buying properties at a

a two cap or some ridiculous thing. And now you hear stories of companies going under and defaulting on loans where, you know, single family homes, one, they tend to have less or less turnover than an apartment complex or a duplex. Actually just, I think it was last week, our property manager texted. It’s like, yeah, they just resigned. can’t remember what the increase was, but they just resigned for a two year lease renewal. So they’ll have been on the property for nine years if they move out at the end of that.

Cody Crabb (02:27)
Welcome back to the Real Estate Pros podcast by Investor Fuel. I’m your host, Cody Crabb. And today I’m talking to John Rickgarn, a single family investor who’s been active for years, worked across multiple markets and is now narrowing his focus into Birmingham, Alabama, with long term single family rentals. John, thanks so much for hopping on today. It’s pleasure.

John Rickgarn (02:45)
Yeah, thanks for having me. has been a while since I’ve on a podcast, so it kind of brought back memories.

Cody Crabb (02:50)
Well, I’m glad we have you here. ⁓ So just to start out, can you give us a little intro? You’re a real estate investor, but you also have ⁓ many things going right now. Just give us a little preview of all those things that you just mentioned to me.

John Rickgarn (03:04)
And about the easiest way I introduce myself as an investor educator and realtor, which pretty much encompasses everything I do. I’ve been investing in some way, or form for over 20 years. Real estate investing. started it’ll be 10 years ago this August. Then I have been a licensed realtor for six years, but I’m very, very part-time. Don’t advertise much. Kind of just work with friends and family. But yeah, 2016 actually started with a fourplex.

⁓ long story short grew very aggressively for about five years and then had a duplex in Iowa. That’s, well, metaphorically speaking was a radioactive dumpster fire that had a really pivot from, ⁓ reposition myself, take a break, ⁓ stabilize. And then, ⁓ like you mentioned in the intro of all the markets we’ve been in Birmingham, Alabama has been by far the best. it’s like, well, might as well just concentrate more there.

Cody Crabb (03:58)
Yeah, well, I’d love to get ⁓ some thoughts on that and get more as we kind of dive in. ⁓ But to start out, you’re not in Birmingham, Alabama. No, you are quite a ways away from Birmingham, Alabama. ⁓ Tell us a little bit how the heck you manage that. not that cannot be an easy task. And I’d be curious to know how you’ve made that work.

John Rickgarn (04:17)
Sure. So actually, it started probably over 10 years ago, just, you at the time I was a full-time salesperson for a company. So it wasn’t uncommon to spend 100, 200 miles on the road a day. So what do you do? Listen to podcasts to pass the time. Came across the company called Spartan Invest in Birmingham. ⁓ Really liked what they had, talked to them on the phone, did several site visits, really liked the market. So yeah. ⁓

see 2019 ⁓ made the jump of our first property there first out of state property and then continue to invest with them and hoping to continue to invest with them in a couple of years and it kind of doubled down our portfolio there.

Cody Crabb (05:01)
Cool, cool, cool. ⁓ So what keeps you there? I mean, I’m assuming obviously we’re talking about the deep south here, which everyone knows, like you get a house for a nickel down there. But tell us kind of what else keeps you there?

John Rickgarn (05:15)
Yeah, really just, you know, so taking a step back and markets I’ve invested in has been, I’m home state, Minnesota. So Marshall, Minnesota, Wilmer, Memphis, Tennessee, Davenport, Iowa, and then Birmingham, Alabama, the suburbs for that area. I’ve been down there four or five, six times. Really liked the area in general. So a little tax tip if you can write off a business trip, but it’s, you know,

of blended in with fond of vacation. That’s always kind of a nice thing. But insurance premiums are low. It’s the Alabama itself is the 49th lowest for property taxes in the United States. Very landlord friendly, very good team to work down there. still remember this was probably eight years ago. Yeah, eight years ago was doing a site visit, actually walked some of their properties and we were actually dead set on one. It’s like, all right, sounds good. We’ll do this.

And then the, one of the owners called me up from her cell and this is a couple of weeks later. It’s like, yeah, I’m going to advise you not to buy this. And it’s like, okay, what’s wrong. And long story short, they were doing a inspection. had to bring in an engineer. There was some very, very serious structural defects. Long story short, they had to bulldoze the property, sell the lot at a loss. But I really looked at it’s like, I know providers that would have just slapped some paint on it’s like, yep, this is good. Go ahead and you know, send us the money. I.

know some investors that have been burned by some less than ethical operators. So that really stood out for me. It’s like, OK, they really want to have this long term relationship. They’re not just going to shove something to have us take the loss versus them.

Cody Crabb (07:41)
Yeah. Yeah. Well, I mean, that’s the, the long-term is really what matters in this industry because you just never know. mean, I’ve talked to the amount of people that I’ve talked to that are like, yeah, I met some guy at a bakery. Turns out he had a billion dollar portfolio and he hired me the next day. Like it’s, really is like the stories you hear just are so crazy. ⁓ do you have trouble with the kind of, mean, because this is such a people business, ⁓ I’d be curious to know like how the heck do you network?

because I feel like a lot of that is done in person. And so because you’re so far away from the market you’re investing in, how do you make that work?

John Rickgarn (08:17)
I really I’d say boots on the ground just a really good team. I know what’s that?

Cody Crabb (08:24)
Just going there or just having people there?

John Rickgarn (08:25)
Just having people there, yeah. I’ve been down the area too. I haven’t been down in Birmingham for, it’ll be four years that I was last down there, but just really good boots on the ground, really good contacts. mean, you mentioned networking. I’ve networked with people nationally and internationally. I’m big believer of six degrees of separation that between you and I or you and anyone else, there’s only six people in between. you know, know someone that knows someone just kind of expands from there.

Cody Crabb (08:50)
Yeah, yeah, yeah. Well, that’s that’s true. I mean, I actually just talked to someone who was talking about LinkedIn and he was saying, well, people don’t tend to realize is if I connect with someone, I also get to connect with their entire network. Yeah. So exactly. So it’s like you don’t necessarily like sure. One connection is great on LinkedIn, but that’s not just one connection. You’re over to all their connections, which is exactly. So, yeah, yeah, that’s. ⁓

Well, I’d love to hear how did that bad deal that you mentioned, how did that teach you to change kind of how you vet properties now then?

John Rickgarn (09:25)
I guess kind of a there was multiple things with it, but I think at first I kind of went to like the I was to call it It was on the big short the hot hand fallacy like Rhea just have like one good deal after another like oh, this is easy You know every deal is gonna be good. So I had bought a fourplex a duplex condo Three single-family homes. It’s like hey, let’s get another duplex and it was off-market Visited on paper. Everything looks good

Um, see if I remember the order of this, but a couple of weeks after I purchased the property, the property management company went AWOL, which is like, okay, fine. I, in every market, I already always have like a primary property manager, then a backup of someone retires or something happens. No problem. Gave them a call. It’s like, all right, switch over. Then the property was vacant. All right. We need to some turnover stuff. Sounds good. Uh, you know, wired some money to start with that the day after.

that company filed for bankruptcy. So then I had to find a third property management company. ⁓ By the time I got all this settled, the property was vacant for about a year and a half until we got both sides ⁓ filled. So you think of paying the mortgage, insurance taxes, everything while there’s no rent coming in or very little at one point. Finally got stabilized. Interesting thing, if you just go to Wikipedia or Google,

Look up Davenport, Iowa apartment complex and there’s actually a Wikipedia page of an apartment that did collapse and there was tons of lawsuits tons of I think there is actually a death if I remember correctly So the property inspectors were way over here on stuff then they went way over on the other side To the point that when we wanted to sell our property they had like a four-page list of things that needed to be done

to the property up to sell. Otherwise they want to renew the rental life single all the way down to like scraping all the windows and repaying them. It’s like, this isn’t an FHA loan. just a private sale cash. But if you don’t do it, you don’t get the ⁓ rental life.

Cody Crabb (11:28)
And

what’s crazy about that is you’re dealing with the opposite problem before. Yeah, so you literally both ends of the spectrum problems Exactly. How often does that happen? That’s crazy.

John Rickgarn (12:13)
But yeah,

I started tolling it up and bought the property for 130, sold it for 99. I had to come with cash to closing, which no one likes to do. And then with the maintenance, the repairs, the bankruptcy, everything, I know it was over $60,000. were out once I hit 60, I just stopped counting. wasn’t going to get more ticked off at that point. I mean, we sold it, it’s done, licked our wounds, repositioned. But you were kind of asking, what’d you learn from it?

⁓ one thing that did help is I did have a lot of contacts and I up having to a third property manager. So I’ve always been like, whether it’s local, whether it’s out of state, whatever, always have a plan B, always have a backup property manager, insurance company, whatever, just, you know, people retire, people die. Something happens. got to back up.

Cody Crabb (13:00)
smart

kind of have like if I change today what would I change to?

John Rickgarn (13:03)
Yeah.

The other thing I learned and I won’t mention names since this will be broadcast, but when I was looking up and doing my due diligence, you know, you look up, talk to the current owner and okay, things sound good. They’ve had for this blah, blah, blah. Well, I learned it might not be a bad idea to look at previous owners as well because the previous investor bought it from a basically a fix and flipper. A lot of people in the area don’t think very highly of him.

Uh, that’s, um, kind of shady work, really cheap work, shall we say to the point I was kind of debating. I reached out to the realtor about eight months after we sold them thinking, well, gosh, we did finally get stabilized. We did finally have rent money coming in. Gosh, you know, should have we kept that? I don’t know. How’s this doing? So I just sent her a text one time. She’s like, well, yeah, we had to replace the roof when they did that new roof repair back in 20. I can’t remember. Uh, they,

slap shingles on shingles didn’t do a good job. So they had to rip everything off and redo it. Like, okay, now I’m good. I’m glad that we sold it.

Cody Crabb (14:06)
Yeah, yeah, yeah. man. Yeah, but I think that’s one of my favorite things to talk about in the podcast because stuff like that is like you just remember it like it’s like the guy that gets scammed three times is gonna be like the most vigilant of all time about not getting scammed again So that it’s that kind of thing I mean lived experience is gonna be the best not just the best teacher but like you will not forget if no

John Rickgarn (14:31)
Unless

I Alzheimer’s or something.

Cody Crabb (14:34)
That

60 grand plus lesson that you learned was 60 grand. So you’re going to make it count. So what do people underestimate? when I asked you what you did, kind of when we were talking at the very first, said, do boring long-term rentals. I’d be curious, first of all, what do you think about? Why do you think they’re boring? Why did you say that? But I’m curious to know, what is it that…

Why do you stick with it? If it’s the boring thing, mean, boring does not equal bad, but sometimes the boring jobs pay a lot more sometimes. I’d be curious to know what you think.

John Rickgarn (15:12)
No, I just say bar boring because like I said, started investing, you know, 10 years ago and you know, there’s always kind of like the, you know, silver bullet or big, you know, deal of the week or something that’s catching everyone’s attention. You know, there was the VRBO Airbnb craze of buy a house, do short term. The money’s a lot higher. Do that or multifamily investing syndication. Everyone was tripping over themselves, getting into that, buying properties at a

a two cap or some ridiculous thing. And now you hear stories of companies going under and defaulting on loans where, you know, single family homes, one, they tend to have less or less turnover than an apartment complex or a duplex. Actually just, I think it was last week, our property manager texted. It’s like, yeah, they just resigned. can’t remember what the increase was, but they just resigned for a two year lease renewal. So they’ll have been on the property for nine years if they move out at the end of that.

And it’s like, well, I definitely didn’t have that on our four plex. It was like every year or two we had turned over. So just very consistent, a lot less headaches. And I, the way I look at it’s like, I always look at.

Cody Crabb (16:20)
Boring? Give me boring. That sounds amazing.

John Rickgarn (16:23)
kind

look at like my experience with the radioactive dumpster fire duplex. ⁓ When you have a single family home, you have a lot more exit strategies that can be sold to a single family, you know, first time homebuyer on a contract for deed for someone that can’t qualify for conventional cash sale, another investor, you have so many more exits versus yeah, you can have a duplex, maybe have the entrepreneurial that’s like, hey, I’ll live in one unit and rent out the other.

but generally speaking, that’s gonna be only more for investors or syndicators, single family homes. got a lot more buyers available basically.

Cody Crabb (17:41)
Yeah, that’s, I find that interesting. mean, the, the amount of times I’ve heard people be like, talk about like the, the sexy real estate, like they want to do, you know what I mean? Like they’re like, want to own a nightclub or a movie theater or something, something cool like that. And then, you talk to those people and they’re like, please don’t know, don’t do that. And, and, and people like this that have like these.

Like I met a guy who literally all he does is buy vacant lots. That’s all he does. And nothing, nothing built on him, nothing built around them, just vacant lots. And I’m, he’s, he’s doing amazingly well, but like, if you looked at in terms of boring, that’s as boring as it’s literally dirt. Like there’s nothing there. So, so, uh, I think there’s something to be said for, for boring. A lot of people would kill for boring. Uh, and speaking of that, actually, uh, that same strategy you mentioned contract to deed.

as a strategy. Now this is something that a lot of people don’t know about. I only just learned about this recently as a strategy. Can you kind of give us a little bit of info on that and why it might be even more boring than your typical strategy?

John Rickgarn (18:44)
Yeah, without a, I mean, different states call them different things. there’s mortgages, deed of trust here in Minnesota and other places called the contract for deed. Basically you’re setting up a private agreement, similar to a bank loan. So the buyer buys the property from the seller, but versus going to bank of America, old national, whatever the seller acts as the bank. It’s like, okay, you’re going to pay me the call it the mortgage payment.

And then you don’t have to worry about the tenants. You don’t have to worry about insurance or tax increases. You literally just collect a check once a month. And like we were talking off camera when we, because we sold our duplex, it was on a note. I think it was at 8%. And net what we get now, or gross if you want to look at it that way, is basically what we getting net before after utilities and insurance and all that.

I just sit back, you’ll get a check as long as he pays. And that’s the other caveat with it is if the person ever defaults, then you just take the property back, you still have the deed until the final payment is made. Hence the term contract for a property deed essentially. So very hands off very

Cody Crabb (19:54)
So you don’t owe any of that money back. So you don’t owe them any of that money back if that happens.

John Rickgarn (19:56)
What’s up?

Right. Yeah. They default. I mean, yeah, there’s always the horror stories you hear of one, you know, obviously due to due diligence on the person that’s buying it. ⁓ did three months of payments and defaults that I took the property back. They trashed the place. So I collected, you know, three thousand in payments by the put twenty thousand dollars to get it up to snuff again. Yeah. Yeah. You have those two. But I mean, it’s definitely a lot more laid back and less less stressful.

Cody Crabb (20:25)
Yeah, that’s I talked to someone who that was kind all they did was these and they and they were talking about it’s like all the benefits of having renters. Yeah. And all the benefits of selling the property outright. And he’s like, it’s I can’t imagine a better. Yeah. So something different, something to explore at least. mean, that’s that’s the whole point of doing this podcast is someone is going to hear that and be like.

John Rickgarn (20:36)
Yeah.

Cody Crabb (20:48)
Ding. Like it even looks like I have a light bulb over my head. Doesn’t it? Yeah. think it’s a mood poster. Yeah. It’s a planet of some kind. Yeah. Oh, they yeah, that’s that’s why I love kind of talking to people of all of all, you know, all experience levels and doing different things in different places because you just never know what what you’re going to find out, you know, as a strategy or something like that. What’s what’s got you excited? What’s coming up next for you, John? That’s

John Rickgarn (20:56)
Okay.

Cody Crabb (21:15)
That’s go big.

John Rickgarn (21:16)
Um, I think just excited, uh, so kind of back to that contract for deed, um, was kind of planning ahead, you know, sketch out the numbers for the next two, three years. I mean, obviously interest rates are higher than they were, you know, 2021, but it was kind of run the numbers. It’s like, okay, when they do that final balloon payment for the contract for deed. Probably can do three, maybe four, um, you know, down payments of other properties. So again, go back to Birmingham, but then I was even talking with the lender.

I’m sure you talked on this podcast before about DSCR loans versus conventional Talk to him a little bit. It’s like well, I’ve had this too in Birmingham It uses up one or a Fannie Freddie slots May just do a cash out refinance do a bundle loan on those two and then have some additional cash to put for down payments So heck we might even triple down in Birmingham once everything’s said and done here in the next three four years

Cody Crabb (22:06)
Yeah, yeah. Well, that’s super exciting. mean, it seems like you’ve got some places to go. You got some runway. It looks like you got a plan, so that’s great. And you mentioned you’ve been pretty busy lately, but it’s probably exciting that you got the light at the end of the tunnel coming. Yeah. Yeah, that’s great. Well, thank you so much for hopping on the show today. I think this has been really great. ⁓ If people want to get in touch with you, if they want to work with you, first of all, who should be doing that? And second of all, how can they get in touch with you?

John Rickgarn (22:32)
I would say just anything feel free to Google me or go to LinkedIn interesting a Factoid there’s only three people with the last name Rickgarn in the entire world, so I’m not too hard to find So you just Google it go I’d to end here You know if I was John Smith to be like, okay, is that the one in Annapolis the one in Indiana? Yeah, so forth

Cody Crabb (22:51)
John, look at my name. am very familiar with it. Yeah. Although I’m not the only one, if you can believe that. Anyway, sorry, go ahead.

John Rickgarn (22:58)
But I would say just kind of high level, like anyone that’s interested in real estate investments, notes or contract for deeds. I’m really big in self-directed retirements accounts. You know, that’s a whole nother podcast in itself, but really just like connecting with people of, you know, working middle-class people. It’s like, gosh, I just can’t really seem to get ahead. I don’t necessarily want to be the next Elon Musk, but Hey, if I could have a better net worth or some other additional income streams that are not tied to my job.

Well, that’s what I’ve been doing the last 10 years.

Cody Crabb (23:28)
Well, and people say, mean, people talk about, you know, real estate investing, like to get rich and like, you know, stuff like that. But most people don’t really need that much money to live on for all of the money that you spend. mean, if you really look at the expenses, you actually, you know, you actually use the amount that a W2 worker would earn. mean, if you just kind of put that in real estate terms, it doesn’t need to be a big portfolio to hit that point.

So maybe not rich, but certainly just ⁓ picking what you want to do.

John Rickgarn (23:59)
Exactly. mean, well, I even just really short story. Like I said, I’ve been a licensed riller for six years. I’m helping one of my old students just graduated last month. So I was a 21, 22 or 23. And, uh, you know, a of people like all young kids, know, Gen Z, they can’t possibly afford homes. It’s like, he’s buying a very basic starter home here in Marshall, Minnesota, three and a half percent down payment. He had the money. He’ll get a 30 year mortgage. And oh, by the way, he’s going to be renting out,

house hacking basically to his house and probably going to almost live there for free a couple years from now he’ll buy a new house do that as a rental and just build his portfolio there at lot earlier than I started.

Cody Crabb (24:37)
I

was gonna say it sounds like a good kid to know honestly. Yeah, he’s going places. Yeah, exactly Yeah, I think a lot of people listening to this would like if I had started To can you imagine? Yeah But thank you so much I mean this is I think this has been really really helpful for for our listeners And thank you listeners for giving us some of your time as well If you like what you heard today, go ahead and give us a like subscribe follow comment all the things Make sure to not miss another episode so that you can get more conversations like this

John Rickgarn (24:46)
Yeah.

Cody Crabb (25:07)
John, thanks so much for hopping on today. I really appreciate it.

John Rickgarn (25:09)
Yeah, thanks for having me. This was fun.

Cody Crabb (25:11)
Take care, see you next time.