Podcast 208. Renting by the Room with HomeRoom with Johnny Wolff

Average Joe Finances:
0:00

Welcome back to the Average Joe Finances podcast. I'm your host, Mike Cavaggioni, and today's guest is Johnny Wolf. So Johnny, super excited to have you on the show today. Thank you for taking some time to talk with me. I appreciate it.

Johnny Wolff:
0:13

Hi Mike. Thanks for having me, man. Really like the name of your show, really like your show as well, and I'm really excited to be here and share about real estate and homeroom.

Average Joe Finances:
0:21

Awesome. I'm excited to talk about those things with you. Hey, I wanna kick this off the same way I start every podcast episode, and we wanna know more about you. So if you could share a little bit about your background, your story, who is Johnny Wolff?

Johnny Wolff:
0:36

Sure. My current, career, you know what I'm doing is writing a company called Homeroom. And Coming to that point of starting that company when we do real estate investing and help people out state Buy properties was like a number of steps over 15 years. I bought my first investment property in 2008 when I was working remotely in the Bay Area. And that was kinda the beginning of my real estate journey. Started to do number crunching. I was a financial analyst and realized that if I invest in real estate, I'd do better than if I invested in Google or Amazon. And so I, decide in 2015 to go after buying a few more properties to move to Austin, Texas and invest in real estate more aggressively. And so I bought a number of homes in Austin from 2015 to 2018 and rented each of them out by the room because I wanted to buy these homes. The cashflow wasn't as good as I'd cuz even then Austin was getting pretty expensive and renting by the room matched my, the lifestyle I'd lived in the Bay Area cuz everyone lives with roommates and I had lived with roommates the whole time and those homes did really well. And in 2018 I picked up, moved to Kansas City to invest in real estate again, do the same strategy. And some friends of mine had noticed like the success I was having with that approach and asked me how they could invest in properties remotely and rent out each bedroom separately. And at the time, the. They couldn't, they could try, but, and so I, I saw a business opportunity where, hey, we can, I can offer what I, I'm gonna say, I'm gonna take this strategy that I use and offer it to other people as well. And so homeroom was born in 2018. We're now in 10 different metros. We've housed thousands of tenants that are renting by the room. And yeah, it's been, we've been. VC backed pretty good seed round in 2022, went through Y Combinator. And so yeah, that's my story and which got me to where I am with homeroom today.

Average Joe Finances:
2:24

Awesome. Yeah, I appreciate that, Johnny. That's pretty neat. Now I've heard of people doing this before actually. I was at a real estate conference two years ago. And I started learning about communal properties, right? Where, there was properties that had like common areas and then they rented 'em all out by the room. Like somebody would buy like a larger five or six bedroom house. Do you do it similar to that or is this a whole totally different thing?

Johnny Wolff:
2:49

Yeah that's it. There's a few ways. Few ways of describing it. The term co-living is one of the ways of describing it. House hacking, rent by the room, those are all three different ways of describing the same approach. And what it is you buy a single family home in all of these approaches. And then the room is the persons, that's their unit. And then the common areas are a lot of times furnished. And the kitchen will have essentials. And so then everyone can, live for a lot cheaper. And usually there's, there's different, there's also advantage, if you're moving from another city or state, if you move into one of these homes, you can make connections, friends, you may be able to, when I moved to Kansas City, I gotta go out to a bar with my roommates the first night I was there, right? And that doesn't, that's like an amenity that, an apartment complex can't offer you. So you're saving 50% on rent. And you can, make connections faster. So there's a lot of benefits. Obviously living with roommates has challenges too, but so does everything.

Average Joe Finances:
3:47

Yeah, no, absolutely. That's something that you probably don't think about too much, right? Oh, I'm gonna go move into a new place and new area. Don't know anybody but if you do it this way, this is one of those opportunities that, you don't start off quote unquote alone, right? You start off with a group of people that, that can show you around and and get you acclimated to the new area. So if you're moving to a new area, I can see how that's very beneficial Now, did you, when you bought your first property for yourself did you do the same thing? Did you house hack it and say, okay, I'm moving into this house and I'm gonna rent out these rooms and see if this works. Is that how everything came to fruition?

Johnny Wolff:
4:23

I was house hacking in the Bay Area for, from 2008 to 2015. We had a house in Sunnyville, which is right by Mountain View, where Google's located, and me and my friends had all moved into a house and we're renting by the room. And then my friends, One of'em got married, one of them moved to become a digital nomad. So they would leave and we would create, we basically would have people come in. And that's very typical and in a lot of places in the United States, people find roommates through Craigslist and Facebook. So I'd have 45 roommates by the time I moved to Austin. And when I moved to Austin, I bought a home and yes, that is what I did. I house hacked and w rent it out the room. But it used a lot of the framework I had we as a kind of a group had developed, over five years in Sunnyville.

Average Joe Finances:
5:07

Right on. Yeah. So that's good because it sparked that whole idea that kind of stuck with you when you moved to Austin. Now, when it comes to finding a property that's a good fit for this because not every home's gonna be a good fit to rent by the room, what are some things that you are looking for to say, okay, you know what, this might be a good fit to be a co-living space.

Johnny Wolff:
5:29

That's a really important part of this model. I think, you have single family, the single family home rental model works everywhere, right? It's, there's no home. It doesn't work for short term rentals, airbnb vacation rentals, it's not the case at all. There's some homes that are really terrible, Airbnbs, they're just, no one ever travels there, right? And so something, there's something similar here. An additional Airbnbs have to have certain things that are very appealing. And then the vacation rental folks were, will pay a premium for it. Co-living or run by the room is very similar. You gotta. But the specific needs are a little bit different. You gotta have enough parking. Really important. You don't wanna make the neighbor super mad. You need to have two full bathrooms. The more you, the more bathrooms you have, frankly the better. But just one we found is a log jam issue, and people are getting ready to go to work in the morning. We're typically taking a home that has, 1500 square feet plus, because usually these homes. The financial performance gets much better as you, if you're able to add a bedroom or two. And so we're usually looking for a home that's a bit, has a little bit of size to it and also has a, maybe a space that's no one's gonna use that then, and it has a window, so it'll become a bedroom really simply. So we're looking for those opportunities to basically take a single family home that might be rented for 1600 bucks a month. We do a little bit of construction, and now it's renting for 2,700 a month using co-living.

Average Joe Finances:
6:53

Yeah. That's fantastic. And then, from the tenant's perspective too, they're paying a lot less, you just have more people in that home now, but they're paying a lot less to be able to live in an area where, they probably would pay twice as much to live there. So that's huge as well. So yes, there's like small little sacrifices that actually everybody in this deal has to make, right? Like you as the owner of the property, you have to put some work into it, some construction, right? You have to make sure everything fits perfectly. To have a co-living space. And then the people that are living in the co-living space, like they give up some things too, right? Their private space really is only their room. Everywhere else is like open. So that's pretty big now. It's cool because like when I learned about this, I really started diving into, cause I thought it was really awesome strategy. The guy that I saw that was talking about this, like they were buying. Quote unquote monster houses, right? They were trying to find like the biggest house that, has five bedrooms. If they could add a sixth or seventh, they would if they could add a bathroom, they would. They really liked homes that had the Jack and Jill bathrooms, right? So two bedrooms connected to the bathroom or.

Johnny Wolff:
7:56

Those are cool.

Average Joe Finances:
7:56

Rooms that had their own bathroom and stuff. And sometimes they would just add another bathroom as well, which is a really big project if the plumbing's not already in place. So it just depends on what you're trying to do. But I always thought that this was so neat because you're actually solving much more than just a a problem for you, to try to make a little bit more rent money or a problem for somebody that needs to find a cheaper place to live, but you're also solving more like actual living space itself, right? Because we do have a crisis right now in America where there is not enough homes. For the people that we have, right? And yes, there's plenty of vacant homes out there. And there's a lot of stuff we can do with that. But at the same time, when it comes to actual livable space where people work and live a lot of times you need something creative to make it work for the community. So I think a lot of people don't look at it that way, right? You're actually creating something for the community as well. That. That not only adds value to the property, but adds value to the neighborhood and the community. Would you say that's true?

Johnny Wolff:
8:58

Yeah, I think, that's one of the parts that we're, candidly the most excited about. There's been studies on the number of square footage that's in the United States, and I think it's 1100 square foot of housing space per person. So that's a lot. Alright. The issue is that, I don't think we are. Thinking about it creatively enough, right? We have zoning regulation, we have housing doesn't evolve as quickly as other spaces. And I think there's this, Airbnbs are different, right? You're actually taking housing stock, especially when it's the most in areas that it's the most needed. Cuz a lot of times, like I was talking to someone about, Florida Airbnb and how there's some real big pushback on it. And it's cuz like they're on the coast, no one can buy starter homes. And then people are turning a lot of the homes into vacation rentals and suddenly the housing supply drops off a cliff. And so it, which is nice if you own a home, but it's problematic if someone's trying to get into their first home. But what this does actually creates housing supply on the market, right? So you take a single family home and you turn it into six units essentially, right? It's not or you create a, a non-nuclear family, and that drives housing pricing down, right? You're reallocating the space, you're using it more efficiently. It, a lot of these cities are having these conversations behind, all their account. How do we add more affordable housing? And how that's like the big question mark, the question everyone has because new supplies are so expensive that doing that affordable starter home is like not good business for most people at this point. So yeah, I mean we look at it and we don't see a better solution out there than this cuz the amount of construction that's needed to do this is not that much and it deploys quickly and it's flexible and where it can be deployed. And so yeah, we think it's a really valuable thing for. A nation that's having a housing crisis.

Average Joe Finances:
10:52

Yeah. And again, like I don't think a lot of people look at it that way either. When you think about the housing crisis that we have, where people need. Places to stay and yes. So one of the things you pointed out there with the Airbnb stuff and the short-term rentals I know what you're talking about with what they're dealing with in Florida, because out here in Hawaii, it's the same thing. So we have some really strict laws, especially where I live on Oahu for short-term rentals, there's only two areas where you can have short-term rentals. One of them's in Colina, actually there's three there. There's another spot on the North Shore and then in Waikiki. But they have to be zoned for it, right? You also have to have a license for it. So they only gave out 30,000 licenses. So you can buy a property that comes with the license, that's great. But if you buy a property that's in the zoned area and you're like, okay, cool. I got a property that's in a short term rental zoned area, and you're like, I'm gonna go put it on short term rental, all of a sudden you get a $10,000 fine. You're like, Hey, why'd this happen? Cause you didn't get a license. So they're really strict on that because like you said, they're on the. On the Florida coastline, you're, you run outta space where people can actually buy a home and live. The same thing here on Oahu, except, we're on an island and there's only so much you can build before there's no more room, right? So housing becomes very a very touchy subject out here. So that's why I think something like this would be a great strategy out here in Hawaii is, communal living. But again, too, there's also a lot of regulations on that. As well out here when it comes to how many people can live in a home, how many, kitchens you can have and all of that. So it can be it could be pretty difficult to make happen, but it looks like, one of the ways that, or one of the things that I always see too, like people that are creative with how they handle their real estate are the ones that are very successful. So you found a creative solution to making this happen. So I know people out here in Hawaii were listening to this and they said, Hey, This might be something that might be a good fit for me. They can be, probably find a creative way to make it happen. So I wanna get into that a little bit as well when it comes to the creativity behind this. What are some of the things you look at? I know you already said, like you'll try to add a bedroom things like that, or are there any other things that you look at that kind of help make a home more marketable as a co-living space? And then if there's a spot that you find let's say that there's not enough parking, is there a way that you could find a way to create more parking, build an additional driveway or anything like that? Like what kind of issues do you run into with zoning when it comes to making these properties work? That's loaded, loaded question here.

Johnny Wolff:
13:27

That was, I like you, I think you snuck in four and a half questions in one, which I like it. Let's do it. First comment is I agree with your point about creativity. I think, that ends up being what separates Creativity compounded over time means you, I think you just have outside success. And so I think that is exactly right. And that doesn't have to be with rent by the room. It just means like in your business, if you're gonna go into commodity land and just do the same thing as everybody else, the margins are pretty slim and you're gonna have trouble, like really getting out of it. But if you apply your creativity and then I think that's when stuff gets really good in terms of properties themselves. It's a balancing act, just with any rental property where as you get more central, the demand goes infinite, but then the price gets too high and your yields drop, right? And so that's really the kinda the balancing act that we have with co-living that's similar to single family rentals. But much different than short term rentals, right? Where in that case you wanna be in the center of the city. So we think of it, you got like the dense urban core. We're generally not there. And then the next ring out is like the beginning of suburb land, but reasonable density on a per square mile basis. For us, reasonable density is like two to two, to three to 4,000 people per square mile. When you drop below 2000, we have some challenges. We also have some data around net migration. We find that. Density is one factor that's really important, but if no one ever moves to the town and it's reasonably dent, that's a problem because to create a new type of housing, you almost have to have turnover of the tenants. So we have some reasonable density in a city outside of Kansas City. No one ever moved there. I lived in Kansas City and kinda just off the top of my head, I'm like, yeah, I don't remember ever knowing anyone that ever moved there. And so that's a negative too. But areas like Arlington and the DFW Metro, tons of people move there all the time. A lot of debt migration. That's really helpful for this type of living. So those are the, those are the things that from, in terms of a location standpoint, from a standpoint of customizing the property, I had a driveway to my property that has this co-living. So there, there's obviously, you can obviously do that. Just make sure you get it permitted because the city can see it. We, the more bedrooms you can get with the le less construction you spend walls still like honoring, making sure you get it permitted, all that stuff together. It creates kinda your best result. But roommates also really I. Square. I'm answering four questions in one, so I'm a little rambling here, so feel free to cut me off if you need it.

Average Joe Finances:
15:58

It's, no, it's cool, man. I was rambling when I asked, so I expect a ramly answer.

Johnny Wolff:
16:03

Excellent. I'm not even like saying this is the next question. And so the so in terms, so really like the dimensions of the bedroom matter quite a bit. Because we don't, most co-living spaces do not furnish the bedrooms. Some do, but it's more less frequent. And so when you have to think about it from like somebody moving into the city, they wanna have a pretty good life in a room. A eight by 12 room is, and a 10 by 10 room. Both sound the same square footage wise, but they're much different functionally because the bed and the desk and you're like, how do I make this all work? So that kind of stuff matters when you're looking at a co living home. So if youre, you're like I can get like seven bedrooms, but like three of them are just this like weird, rectangle. You'll get some premium rents and then you'll end up, your returns will be worse. So that's the thing you want to think about. Common areas don't matter as much to these tenants. They're getting a room, they understand that. But having a good room that's at least a square, 10 by 10, that matters to pretty much everyone. And that's a really crucial part to making sure you get the returns you think you're gonna get.

Average Joe Finances:
17:08

No, that's great. That's great to know. Now, what about certain things like do you ever add appliances to any of the rooms? Like maybe like a refrigerator, a microwave, or anything like that?

Johnny Wolff:
17:17

No, we're try, we're really trying to keep it, as the goal is to create communal living, right? So people have, we have a kitchen where everyone lives. We do, we provide a main managed service layer with main yard and the community, the central area is really like homerooms job to keep that in a good spot so people can enjoy it. But yeah, we actually, we, I don't think we allow, we don't allow appliances and rooms cuz utilities are shared by the tenants. Sure. Okay. So we're tr the goal is really to scooch them from being strangers to being a community over time.

Average Joe Finances:
17:45

Awesome. So do you split the utility bill between them, and bill them all separately?

Johnny Wolff:
17:49

Yeah.

Average Joe Finances:
17:49

Is that how that works?

Johnny Wolff:
17:50

We use an allocation methodology that's similar to multifamily homes. Okay. Where you just kinda throw them all the utility bills and they like run allocation methodology, which is, we could go into the math, it's not super fun, but it works. And it and the tenants are always like a little confused by how it all works. But that's part of the reason that that, I guess it's done that way. But it, but there are, they understand that if, in the summer utilities go up, you're gonna pay a little more.

Average Joe Finances:
18:16

Okay, Awesome. Now what about one of the things, so I'm a multifamily investor, right? And one of the things we look at a lot in the area that we're gonna buy an asset in is like the actual jobs there, right? What kind of communities are there? What kind of job availabilities there are, just the job industry itself. So is that something you look at? Like I, I know that you're looking you said it's like between the city and the suburbs, right? You want to have those highly densely populated suburban areas. But what about when it comes to job availability? What kind of industries are you looking for? Is there anything specific like that?

Johnny Wolff:
18:52

Yeah, we're a bit more agnostic there. I think the difference between. Like we generally, the way we think about like cities, we generally think about a city as kinda like the first layer that we take our investors through is, it's the way I looked about when I moved to Austin and I moved to Kansas City. I was like evaluating different economic forces in those cities. Probably a lot like what you guys are doing with the multifamily side. But I knew, I saw Austin kinda had their, the per capita in, the income was going up as well as the growth was really at the top of the chart. So I was like that my friend is the recipe for property appreciation. I'm going there. And so with Kansas City, I kinda looked at it and I said, and so I'm gonna move to Kansas City because, Prices are having a great stability and the yield is much higher. And so generally we look at we will talk to our investors and say, which type of investor are you between those two options? Or are you in the middle? And then we have other markets. So we're in 10 different markets. We, if you want appreciation, Austin's pretty solid. Tampa we think is really interesting. Charlotte, if you are looking for kind of a more cashflow, mark, we have Kansas City, Indy. So we're generally looking at like the whole economy, and then from a neighborhood standpoint, we typically see that the entire metro's housing volume, there's little like houses or little pockets of cities that will go up, but we, over time we've seen that cities go up together, right? Because if there, it ends up being like An efficient market in the sense that if one neighborhood goes up, then everything else begins to trail and then gentrification goes elsewhere. So we think that neighborhood specific focus is valuable, but I think picking the city you're in, I think is really the foundational most important part. And so that, that's what we do first. In terms of jobs. We have people at our service industry employees, we have people that work at our software engineers. We're pretty open cuz our price point's so low. Some people need low price, some people wanna save the money. We had a one, one young lady who I just was texting with. She was with us for four years. She's a data sign, a data analyst, and she's buying her own home. And she lived with homeroom, saved all this money, put it away, and then now she's gonna buy a house. So that there's different makes of folks that are with us. And They're all looking to save money for different reasons.

Average Joe Finances:
21:10

No that's fantastic. And key point there too, right? Some of the opportunity that you provide for those tenants, right? By being able to provide a more affordable living situation, they're able to save up and maybe go buy their first home and maybe get into real estate themselves. So that's awesome. Now can you tell me a little bit about homeroom itself and how it helps somebody that wants to break into this space, into this rent by room dynamic.

Johnny Wolff:
21:35

Yeah, that's really that's everything we're we've built since day one is to provide that opportunity for other people. We saw it as a it's a. It's not a saturated space, single family homes. Pretty saturated, very, been around for a long time. Short term rentals are getting saturated, and, seven or eight years ago. But we're at the early edge of this kind of run by the room, co-living there. There's some pluses, there's some negatives to that, obviously, right? Just like there was negatives to be an early Airbnb investor. But there's some, there's also some big opportunities. So we're helping investor, they come to us, we say, if you wanna invest with us, There's two ways you can go buy a house and put it on our platform, kinda like Airbnb, and we'll show you how to do that. The other option is you can buy through our process, which means you'll talk to one of our investment advisors. They'll help you pick the right market for you. They'll help you get pre-approved for our loan. They'll connect you to a local agent in the market, and that agent is trained to find homes specifically for this setup. And then once during the, the inspection phase, our team will actually review the inspection report and identify items that need to be repaired. We'll also get really dialed in estimates on how much you're gonna need to spend to get the rooms built. If we're adding bedrooms, And so then once you close, our team will actually do all the construction for you and do all the furnishings. We're usually pretty much online with the budget we tell you. And so you'll have a pretty good estimate while under contract, before you even have a chance to lose your option money, which is we feel really good about. That's the way that it works. Then once it's, the property's fully set up. Then we'll lease it out and we'll do all the maintenance management, all the accounting for you. So we're pretty much full stack turnkey. The difference is we're usually buying on the mls. We find that we do some off market deals, but because you're, increasing rent so much, it's really about getting the right house. And doing it relatively, doing it in a timely manner we think is better than waiting for a unicorn off-market deal that also meets this model.

Average Joe Finances:
24:15

Yeah. That's awesome, man. So Johnny, they, you guys provide a full soup to nuts service, right? Like a, We'll help you find the property, we'll help you manage the property. Everything, Hey, here's the stuff that needs to get fixed. Here's the, cost estimates and what you need to do. Yeah, this is basically a, like you said, a turnkey service. So that's that's really cool, man.

Johnny Wolff:
24:37

Thanks, man. Yeah, we It's not easy, but it is, it's what I would want if I was an investor. Sure. And that's what we're trying to do, our best to provide.

Average Joe Finances:
24:44

It's not easy, but you make it easier, for the investor because you're taking a lot of stuff off their plate upfront oh, that's.

Johnny Wolff:
24:51

Great. Let me, lemme make that clear. It's not easy for us, but it's easy for the investor.

Average Joe Finances:
24:56

There you go. There you go.

Johnny Wolff:
24:57

Sorry I make sure I clarify that. We do a lot so you don't have to essentially.

Average Joe Finances:
25:02

No, that's awesome. Now, so speaking of it not being easy for you guys, if somebody was to use homeroom, right? What kind of. Costs. Are they looking at what kind of management costs? What kind just to use your service in general? Is it something they'll pay for upfront or is it after the deal closes? Like how does that look when somebody, from start to finish on a deal?

Johnny Wolff:
25:26

Yeah. So we'll do, you can have, you can do your own construction. Most people don't, they do it with us we'll actually do the construction. We'll give you a quote. So you'll pay us a check at closing. For the construction work, and then we'll get it all done for you. And we have, we'll have we have a local partner and we have construction team centrally who manages the project. We usually do it very quickly. So that's one way you'll pay homeroom although it'll be going into your house. And then the other way is we charge. 18% of rent on an ongoing basis. And so it's definitely kinda like I talked about before, you have your single family home, which, the management fee is like a hundred bucks a month or 10% or, and lease up. Then you've got your vacation rentals. And if you get those fully managed by a company like Picasa you're gonna end up, sometimes it's up to 45%.

Average Joe Finances:
26:16

So each depend on Yeah, I was, I've seen it anywhere between 20 and 50%. For short term rentals.

Johnny Wolff:
26:21

Yeah. And so we began to realize, we initially were like, we're gonna just peg to the short, the single family rental market, cuz that makes sense. And and people would ask us like, Hey, are you sure that's the right, But we realized like competing on price with single family rentals was a terrible model cuz the level of service, like we do roommate mediation, we do, we like, we have like a guerrilla marketing team that's finding roommates.

Average Joe Finances:
26:41

Yeah. No there's a lot more involved than a.

Johnny Wolff:
26:43

Lot more

Average Joe Finances:
26:44

than like a single family home.

Johnny Wolff:
26:45

Lot more. Yeah, exactly. And there's a lot more involved. And also unlike Airbnb with Airbnb, like there's a platform that drives customers to your platform, right? We are our own platform to drive customers, right? So it just ended up, we're just going up in price and as long as we deliver and we make 30 or 40% more rent, we're essentially like a net positive, which is pretty, pretty phenomenal. You end up making more with us than if you had a home that you self-manage as a single family rental, which is.

Average Joe Finances:
27:13

Yeah no, that, that's the key thing to look for, right? So is the, if when you're looking at this, is the juice worth the squeeze, and if it is, then start squeezing that orange, so that's fantastic. I wanted to ask that just, for full transparency cuz there's probably some people listening right now that are like, Hey this is, Pretty interesting. This might be something I might consider doing, so I wanna make sure that, they're getting as much information and value out of this interview as possible. Okay. So Johnny, this has been absolutely phenomenal. I felt like I've learned so much more about co-living rentals. And I even sat through a seminar at a real estate conference two years ago, and I feel like I learned even more today. This is awesome, man. I would like to now transition this into something that we call the final round. It's when I'm gonna ask you the same four questions I ask everybody that comes on the show, and it'll give us a good idea of how you are when you have to deal with problems under pressure or anything like that. Give us a good idea of how homeroom deals with things as well. All right. If you're ready to go started,

Johnny Wolff:
28:10

I'm excited, man, and I'm excited that you learn more than that. You learn more than a conference. This is like great success.

Average Joe Finances:
28:17

Yeah, man. It's good stuff. Okay. Hey, so first question I'm gonna ask you, Johnny, is what's the biggest mistake that you have ever made in real estate?

Johnny Wolff:
28:30

The biggest mistake I ever made in real estate. So the biggest mistake I ever made in real estate, and it's a big one, is I got yield greedy. It was, what is this, like my 10th property? So I was not that inexperienced, but a little bit. And it was a property in Kansas City, but it wasn't in Kansas City. And it was a, it was like an hour north E west and the yield on paper was killer. It's 1.3% rule, it's gonna be great. The guy who was selling it to me was really nice. And it was a fourplex. And what I didn't look at, what I didn't do is a really intense underwriting, right? I looked at the numbers that he sent me. He had done a bunch of these. He said they were doing well, and there was like a garbage fee. The house, the units were just a little too small. There was also massive yards and I, and that needed to be cared for. And so at the end of the day, even when I had full occupancy, the cash yield wasn't that great. But because the units just weren't quite big enough, people were just churning nonstop. So like it was a constant bleed. In addition to that, I didn't really understand the area because like it was just, it was in the metro that I was living in, but it was outside of my sweet spot in terms of, How do these type of markets work? Because the city I was in was like, I think 20,000 people, just much more rural than I had ever. It was, maybe it was smaller than that. And so all these combined to be like a disaster of an investment. I eventually sold it, made basically nothing. And I was like, but it was the happiest day of like my real estate life when I finally got off my hands. So that, that would be mine. A lot of mistakes on that one for sure.

Average Joe Finances:
30:07

That was your boat of real estate. Cause they say everybody's two favorite times of having, of owning a boat is the day they buy it and the day they sell it. So.

Johnny Wolff:
30:17

Yeah.

Average Joe Finances:
30:18

That's awesome.

Johnny Wolff:
30:18

Exactly that. Still pretty pumped about that. I got off my hands when I did. It's yes.

Average Joe Finances:
30:23

I definitely, I appreciate your transparency with that, Johnny. And so this next question it ties into that, that these all kind of tie into each other. But what is something that you've learned that you wish you knew when you first started investing?

Johnny Wolff:
30:35

Yeah, I wish I would've, I think I would've wished I would've learned about the strategy that I started using in 2015 sooner. I think the truth is. The house hack or the buy locally and then do something creative with that space. Especially when you're like, cause I started investing right after college. When you're at that phase of investing, the house hack or some form of the house hack is like the single biggest wealth builder that you can deploy in your life. The bigger than a raise, bigger than a promotion, bigger than most anything. And so if you can figure out a way to just eke out owning a property. Especially in a market with some appreciation and not lose your too much money monthly, it's a killer cuz you can like look up in three to five years and have six figures and when you're like right outta college, six figures feels the lottery, right? So that, that's one thing I wish I would've thought about and been more cognizant is like with a primary residence's loan, you can get into a half million dollar home if you have a good enough income. Then you could make a hundred thousand dollars in the next three years if there's, if it's a nice run. And for you to save up that from your salary or raises or promotions would take, depending on your job. But most jobs, you're not gonna be able to save that kind of money up. It'll maybe take you five years, 10 years.

Average Joe Finances:
31:51

Yeah. No that's fantastic. And I think one of the things that you've mentioned a couple times here, Is, a lot of these properties with their appreciation, right? And that's, I think that's another thing. Yes, cashflow is super important, but if you're buying in the right area and like some of the indicators you were talking about earlier things that you look for to make sure that this is a good spot where the value of the home is gonna go up that appreciation can be significant. For any real estate investor. So I definitely appreciate appreciation. So I appreciate also that you've pointed that out a couple times here, that's one of the things you really should be paying attention to.

Johnny Wolff:
32:32

Okay. Yeah. Yeah. If, I think about because of my finance background, I think about real estate and markets kinda like stock types, right? There's some properties that are. And Mark is, I'd say like a tech growth stock, right? One that has upside, right? Maybe it doesn't yield a dividend, but it has upside. And I think, when you're what financial advisors will tell someone that early in their life is make good investments but make investments that have upside because you have a lot of time to catch up. If something goes wrong, you can kinda, and so I think, looking for that appreciation. I think it's pretty cool. You gotta make sure that it doesn't, make your debt to income ratio get all jacked. If you just buy all these appreciating properties and none of them are cash flowing at all, it can get you stuck from a loan standpoint. So you can't go completely crazy on one side of it, but if you can get enough cash flow that you look neutral and you have the most appreciation potential, that would be the, that would probably be the number one thing I would. Recommend for a 26 year old looking to buy their first property in Dallas or something. Is that mix cashflow neutral? Good enough, max appreciation.

Average Joe Finances:
33:38

Yeah, absolutely. And I like how you compared it to the, to stocks as well, right? Because you, with real estate you're buying potentially purchasing what you would purchase in the stock market. But it's something where you're gonna get a dividend right away. That's gonna start paying you right away. And then on top of that, it's gonna go up in value as well over time. So that's that, that's just a great way to look at it, especially for somebody that's, fresh outta school and they're like, okay, now I've dabbled a little bit in Robinhood, so I'm an investor now. But it's a good way for them to look at it like when you're looking at real estate. That's a good way to think about it. Okay, Johnny, so do you have any tips or tricks that you would recommend? To someone that is just getting started out today. Go back to that college student you were just talking about.

Johnny Wolff:
34:23

I think getting started, one of the things you have to, so it's a balance. Just like everything. But it, do you wanna get a great first deal? Sure. But should you, but I think you have to put a premium on like experience and learnings in your kind of early days over Numbers, right? You sh you, what you should learn is discipline around the numbers and don't underwrite like I did in that one property, right? Which I did better at the other nine, and those are doing well. But that one, I was starting a company at the time. I don't, so don't make sloppy, silly mistakes, right? But if there's a certain level that you're only gonna be able to get enough proficiency in the next three to six months while you prep to buy a property. But you're gonna learn most of it after you buy the property itself. And so the, I do have some, I do recommend, people potentially if they can, if they have the time, if it's your first deal doing and it's local, managing it yourself just to learn, you're gonna do worse financially. So you have to understand that you're not gonna be as good as a professional property manager, but you'll learn some stuff and then you'll appreciate your property manager down the road. And so I think that the premium on learning for your first few deals is super crucial. And You're not gonna get rich from your first deal. Maybe your seventh deal will be the one where you make a million in three years, right? But you learned it from, because you got that first, second, and third deal under your belt, and you kept moving fast. You kept taking risk. You take took, you, you put your money on the table and spun the will and like that got you to learn faster, more quickly, and more densely. And so by deal seven, you're ready, right? And so that's really the important thing.

Average Joe Finances:
35:58

That's a great point. That is a fantastic point, managing it yourself in the beginning. Yes. I did that, my first property, I was trying to manage it myself and hurdle and from 5,000 miles away out here in Hawaii, yeah, I've done that and it was painful for sure.

Johnny Wolff:
36:10

That's rough.

Average Joe Finances:
36:10

Definitely a lot of learning experiences, but that's important, right? Education. I learned that. I don't want to do that again. You learn those hard lessons when you do a lot of these things yourself.

Johnny Wolff:
36:22

There's basically basic mechanics around property management and if you know them it's valuable. It's not that valuable, but it's helpful, right? Because like then you can identify better property managers in the future. You understand how leasing works, leasing seasons work. You understand how annoying tenants can be. Like all these little things that like more knowledge, more nuanced knowledge in the details, it just makes you a bit better, right? Everything stacks up.

Average Joe Finances:
36:43

Yeah, absolutely. Johnny, the final question of the final round is, do you have a favorite business investing or real estate related book or podcast, or both?

Johnny Wolff:
36:59

That's a great question, and it's a little bit, this book is, I think it, it borderline. It's borderline. It's a book that me and a few Founding members in our kind of startup group, really it's called The Obstacles the Way. And it's kinda like leans on Stoic philosophy. It's by Ryan Holiday, but it really just talks about attitudes around challenges as they come up, which I think in an investing real estate and business, that's, Those are, you just get hit in the face over and over again and how you take that and turn it is really I think the most important kind of skill in business or investing. So I think that's really good, especially if you're just getting started. To to be using, to think about these challenges and how they become opportunities.

Average Joe Finances:
37:53

All right. Fair enough. Appreciate that. Great recommendation. Gonna have to add that one to the list. I don't think I have that one on the list yet, so I'm gonna have to add that one on. Okay. Johnny We had a fantastic interview. We talked about a lot of awesome things with what you're doing with homeroom. And just, what you've done in general since you started investing in real estate. So there's people listening right now that are like, Hey this is good stuff. This is something I'm interested in possibly doing myself, and I wanna know more. Johnny, where can people find more information about you? Do you have a website you could share with us for homeroom, for you? Any social media profiles you could share with us?

Johnny Wolff:
38:29

So live homeroom.com is our website. There's a invest in a Home is on there. There's also convert your home to co-living. We have a guide so you can check that out. And then you can also reach me at johnny@livehomeroom.com. I always put that out there because. Especially like the up and coming house hackers. Those are, it's like, it reminds me of myself and it's like I'm happy to help with that. Even house hacking that's not through homeroom is adding more affordable housing and probably building relationships. So really love to support that however I can.

Average Joe Finances:
38:59

Awesome. Appreciate that. I'm gonna make sure we have all those links in the show notes to make it easier for our listeners to just copy and paste or click away. The only thing I ask is that my, to my listeners, if you're driving right now, please don't do it while you're driving. Come back to this episode later. Okay. Alright. Hey, so to close things out. Johnny, do you have any final thoughts for our listeners?

Johnny Wolff:
39:20

Honestly, like I thought what you said earlier, it really, it was like, I think that's really important, right? I think how you do with obstacles, like I said about the book that I recommended is really crucial, but, Also how you use creativity, right? Because determination, resilience, I think is one of the foundational parts of starting a real estate business or investment strategy. But I think if you're resilient and never give up, but you don't use creativity, you just in going through a lot more pain and just like difficulty then if you use creativity to find, unique solutions that are gonna add, returns. And so I super agree with what you said there, which is like, Find ways to be creative and iterate and improve, and you gotta get to a point where you are the one creating your strategy. And your strategy you feel very compelled with because it's better than anything you've read in a book and you've learned, and you are now on the journey and directing it yourself. Once you get to that point, you, real estate investing becomes very powerful. So that's the sooner you can get there the better. And, highly recommend it.

Average Joe Finances:
40:23

Awesome. Hey I really appreciate your kind words and Johnny, I really appreciate you taking the time to, to join me on the podcast today. I thought this was a fantastic interview. Lot of value added to both me and my audience here. Really appreciate you taking the time, to have this conversation with me today.

Johnny Wolff:
40:40

Thanks Mike. It was fantastic to be here. You're an amazing host, which I had heard, but now I get to, now I actually get to now actually get to be here and be a part of it. So it was really cool. So thank you so much for having me. Thanks to your listeners to listening.

Average Joe Finances:
40:54

Awesome. Appreciate it. Hey, I also wanna thank my listeners for joining me and our special guest, Johnny Wolf, on the average Show Finances podcast. Go leave us a five star review and tell us what you liked about today's specific episode with Johnny. Aloha from Hawaii and have a great rest of your day.