Get Coached on the Opportunity for Passive Income | The Unrealest

Kyle Stoner: Welcome to the Unrealest Podcast today. If you wanted to learn about real estate investing, today is your day. It's a great day for the podcast. I'll be speaking with a prolific real estate investor, who also has an online course and has done tons of real estate investing on his own along with coaching.

But first I want to start with our unreal stat of the day. And the stat is that every year about 250,000 homes are flipped or bought and sold for investment. That's about 5% of the market. Just a gigantic number. I'm here to talk about that and other things with my good friend, Kyle O'Keefe. He's an investor with over 20 years of experience. He's also the founder of RentHouseMillionaire.com. Kyle, welcome to the show. 

Kyle O'Keefe: Hi. Thanks for having me. 

Kyle Stoner: My pleasure. So tell me more about what you do, why you do it. Why are you so excited about being an investor and teaching other people how to invest in real estate? 

Kyle O'Keefe: Yeah, for sure. My store, in a snapshot, is that: When I got started in real estate, I was very hungry to have more time. I was working all the time and I was looking for something that could give me a better financial plan. And I found real estate. Specifically, I found the idea of passive income, which is the core of what I do now: teaching that opportunity.

And fast forward to where we are now: I was lucky to go through the school of hard knocks and learn a lot about real estate. I read a lot of books and took a lot of classes and my background is actually in teaching and coaching. So that was my professional life. That was my day job, per se. 

On the side, I was adding real estate and what it allowed me to do was grow- what I would call- a “wealth portfolio” on the side. I got to a certain point where I didn't need my job anymore. I was making enough money with real estate and enough passive income to where I didn't have to clock in. 

Because of my passion for coaching and teaching- don't get me wrong, I love making money- but when you can actually see someone who comes up to you and they're like, “Hey, this totally changed my life, this changed the way I think about things,” there's a little bit more fulfillment and purpose there. It totally gets me super excited. I'm really passionate and hungry to watch other people be successful. I designed a class, using my coaching experience and my teaching experience, that makes real estate fast and easy. It's the class that I wanted when I started out. When I say school of “hard knocks,” I mean fun lessons that you learn - 

Kyle Stoner: You had to actually go out and learn it. You had to learn it by doing it 

Kyle O'Keefe: - from making mistakes. There are a lot of courses that are theory and the theory's important. The strategy's good, but at the end of the day, you have to be able to take action. And that's what we focus on. And that's really the coaching aspect of it. 

There's teaching, which is just a lot of book stuff. And then there's coaching, which is actually getting in and doing it. Do the activities and do stuff. And this is really what I wanted for myself. I've been really pouring into it over the last two years and watching people make a lot of money during real estate.

Kyle Stoner: So what I love about what you're doing is it's, you figured out how to get financial freedom for yourself. Your story reminds me of so many other people I've heard that have gotten into real estate investing where they had a main job that was paying their bills and they said, “Okay, this is fine or good, but I want something else, something more.”

And they find that in real estate because it's one of these weird opportunities where you can make a lot of money on the side. Obviously, there are side gigs out there, but sometimes it's hard to actually generate real wealth on the side. And that's something that you've done and now you're teaching it to other people.

I think that's so cool. I would love to flip back to that unreal stat. It's a gigantic market, right? It's 250,000 homes every year. How are you giving your students an edge with that in mind? What are you teaching them that's different? 

Kyle O'Keefe: Yeah. The cool thing about real estate is this isn't some newly invented thing. As you said, it's a huge number. There are a lot of people doing it which is good and bad. The good news is that if you get into this or you want to go flip a house, you don't have to reinvent the wheel.

The bad news is you're not alone, so there are other people doing it too. Where we come in and where we give people the edge is that I'm not specifically geared to just teaching people to come in and just flip houses. We're more than just, “Hey, I'm going to show you how to do this and buy your first house,” which is obviously important.

And we spend a lot of time focusing on, all the physical criteria, all the financial criteria, all the things that it takes in order for you to go out and purchase your house, and we have strategies for that. But our program is really focused on that financial freedom aspect.

So we talk a lot about strategy, we talk about the market right now as we sit here today and ask “Is it the best time to go in?” And this is a question I get all the time, so I'll throw this one back. “Is it the best time to go and flip a house?” 

The simple answer is, “Can you go flip a house?” Yes. “Is it strategically the best time to do it?” Possibly not. You might pay more attention to putting rentals in your portfolio right now because inventory's up, prices are coming down, and you have some economic factors that are out there helping us strategically.

And again, everything we do in terms of the edge we give is just going to be this forward-looking, long-term strategic plan that says, “If I'm going to add real estate, I want to add it in the smartest way possible.” 

Kyle Stoner: And we, you're not talking about one flip or one house. You're thinking about the long-term strategic vision of my financial freedom.

Kyle O'Keefe: Absolutely. Look, flipping a house and making $25,000 is fun. Sounds great. Flipping 15 houses over one-three years and making $25,000 times 15 is more fun! 

Kyle Stoner: Life changing. Let's talk about that a little bit more. I think a lot of my listeners are hearing this and thinking “Must be nice.” Because they're thinking, “Oh, I could never. I don't have enough money to even start this.” So what is the lowest amount? How do I get in? Assuming I'm not a wealthy person. If I've got a nine-to-five job, and I’m breaking my back and I want to get in because I want to get that financial freedom. Where do I start? 

Kyle O'Keefe: The first place to start is education. Because what education is going to do for you is it's going to give you an opportunity to see predictable outcomes. There are statistics out there that show that real estate creates more millionaires than anything else, you can Google them.

If that's the case, then why wouldn't more people do it? Why is there that pass-off? And for me, the simple answer is just fear. Like people don't know what that next step is.

They might think “I might mess up because it's so much money” or “I don't have any money to invest.” Those are all basically fear points. When you get into education and you actually see what it is, you understand that it's fear. It’s the acronym, False Evidence Appearing Real.

When you actually look into it, [those fears are] not real. And that's what we do in this program. I'm not sitting in front of people telling them I know everything about real estate. I pull back the curtains to my business and I specifically say, “These are the things that work for me. This is the way I did it.”  I was teaching and coaching and I had no money. So when I started, back in 2002, one of the cool things is they started doing around 2004 a hundred percent financing. I would go in with an 80/20 or a 90/10 mortgage.

There are still lots of programs out there where you can go in and get 95/5 on the mortgage and things like that, but I started to build my portfolio based on going in with a 30-year fixed in my own name and adding one deal at a time. With no money down. So when you talk about what's the bare minimum?  For me, it was zero.

Kyle Stoner: But you had to put in the work it to educate yourself. Although you educated yourself by doing it. Now a lot more tools are available for people.

Kyle O'Keefe: Yeah. So my funny story started when I was in the process of reading a book. With teaching and coaching,  I'd start work at 6:00 AM at the high school because I would actually coach in the morning.  Then I would get out of school (teaching) and I would turn around and I'd coach club soccer in the evenings until 9:00 PM. So I was working from 6 till 10. I'd eat dinner at 10 o'clock at night and then I'd wake up at five and go do it all over again and coach on the weekends.

I realized I couldn’t do that for the rest of my life. It's not like I had extra time laying around. I didn't have extra money laying around since teachers don't make a lot of money. But I had a W2 income, so I was bankable. And then essentially I just went out and I bought a house. 

I was reading a book. My wife came in and she goes, “Hey, our neighbors are selling their house.” I tossed the book over my shoulder, ran out the front door and I got really close to 'em and said, “Hey, I want your house. I want your house.” They were like, “Hold on.” Because I had been reading about rentals and I thought their house would be a perfect rental. And I negotiated it and bought it on the spot.

That was my first deal. It was the fact that I had read about what a rental can do for you. Okay. And that deal made me $360 a month of passive income. I put a renter in it within three weeks and I didn't have to do anything.

And what I mean by “I didn't do anything,” I mean that I shifted my income away from the time requirement for me to be there to the asset of the house earning the income. It's a little funny because I was next door, so my tenants would see me. But they didn't want to see me. And that's the beauty of real estate when you are renting a house. When you flip it, it's gone forever. It's not like you really see them or mess with them anymore. The asset has earned you money and you made money. Specifically, you made cash.

But on the rental side, you can't go sit on the couch at your tenant's house. You're legally not allowed to. And so the cool thing is it gives you time back.

I was hunting for time. I was working so much that I was hungry for time. I didn't have a ton of money, but I learned enough to know there are ways to do real estate without money.

Another part of my business in real estate that I've rolled into is that I'm a hard money lender as well. We use hard money quite a bit in our business. Hard money is a real estate term. That's specifically where the loan is dedicated to the property.

So the house is a “hard asset”, so they call it “hard money” because it's leaned on the house. This means that if I go to the bank right now and I want to get a mortgage on a house, they’ll ask me for three years of tax returns, and my pay stubs. 

The way we do real estate is we basically, we put up the asset and we say, “Hey, here's a property. These are the numbers on the property.” So very similar that you scrutinize the numbers and you make sure that you have proper, collateral coverage, and proper risk protection for the lending institution, the bank, the hard money loan guy, the private money investor, or whatever it is.

But essentially the asset is the protection on a mortgage, like a 30-year fixed mortgage. My job is protection, so they want to see my W2, they want to prove that I can pay that. We detach the borrower from its commercial loan. 

Kyle Stoner: You're giving a loan into an LLC? 

Kyle O'Keefe: Yes. We get into these business loans because it's dedicated specifically to the property. Now there's still some scrutiny on me because I've have to be a good steward of the money. I've have to be essentially able to receive the money.

So they still look at me a little bit on a hard money loan. The majority of it is looked at on the hard asset itself. Just as a quick example: let's say you have a house that's worth $100,000 in the marketplace, okay? But it's completely falling apart and it's terrible and it doesn't look any good.

This might be a deal that somebody sells for $60,000 and I'm just trying to keep numbers simple. This would be a distressed property. Now typically these houses, even if you wanted to come in and buy it with bank money, you couldn't anyways. 

Kyle Stoner: The bank isn't going to underwrite this thing that's so dilapidated. 

Kyle O'Keefe: Absolutely. It's not going to pass inspections. It's not going to do all that. That's where we have the opportunity, and that's where hard money is really important because we can come in and we can borrow against that because the protection for the lender is that they're buying a house at 60% of the market.

The bank has numbers that they loan out, and the hard money lender will have numbers and fees that they loan out. But that's pretty much one way to come in and get money to do real estate without having your own money.

Kyle Stoner: And so that hard loan, it can be up to 100% of the home price. 

Kyle O'Keefe: It depends on the lender. What you referred to there was going to be the actual cost that you paid. And that would be a loan to cost.

They have another one that's a loan to value. Essentially a hard money lender will really take in that future potential value and be able to lend on loan to value. So a lot of times, like on our side - 

Kyle Stoner:  I want to make sure we don't go too fast, especially for me or for our listeners actually. So you're talking about this house you think in the future is really worth something closer to $100,000, but we can get it for $60,000, but it's going to require some investment. We have to fix the roof, we have to fix some pipes. But the hard money is taking all that into consideration and they're loaning against the property.

Kyle O'Keefe: Correct. So a lot of times with our groups, we'll say, “Okay, we're buying the house, so the purchase of the house is $60,0000 and we're going to take a hard money loan at $80,000. At closing, that gives us some rehab money. If you look at your out-of-pocket, what am I out of pocket right now? Nothing. Zero. 

Kyle Stoner: It's your time… 

Kyle O'Keefe: Yep. It's knowledge, it’s time, it's the future effort that I'm going to go and put forward. But essentially I'm going to get this check for rehab. And sometimes, a lot of times, the lender will protect themselves. So there's a reimbursement part where it's called “hold back.”

We're not going to actually give you that money. But a lot of our guys will go out and they do zero out-of-pocket deals. It's because you go and you're able to buy an asset that's worth hundred or hundreds of thousands of dollars with essentially none of your own money.

Kyle Stoner: Yeah. I love that. Okay switching gears just a little bit We've talked about your website, RentHouseMillionaire.com. We've talked about how you give your students an edge. What is the biggest misconception about being a real estate investor?

Kyle O'Keefe: Yeah, there's some funny stuff. One of the kids that I was coaching, their dad was an attorney, and I ended up five or six years later going and bringing him some deals because he was doing title closings.

I brought him some really, like a really impressive set of deals and I was doing a lot of stuff with him and he looked at me and he was like, “Man, what is all this?” And I was like, “This is what I do.” He was totally looking down his nose at me, saying I was just a soccer coach, and I was like, “No, this is actually my business that I run.” And he goes, “Oh, so you're a slum lord.” And I thought, “Oh man, there's no winning with you.”

There are two kinds of big misconceptions. One misconception is that you perceive real estate investors as a used car salesman or a slum lord. The other misconception is that you have to have money. So you have these two extremes that if you don't have money, you're going to run a business that takes advantage of people, or you're able to buy nice properties, you do have money. Anybody can run a bad business. Anybody can go out there and cut corners in their business or their job. You don't become a slum lord because you get into real estate. A slum lord has that characterization and that mentality and that attitude before coming in, they would bring that baggage with them.

Kyle Stoner: It's funny. We talk about this a lot actually internally at Unreal Estate. If someone’s a software developer, people kinda get excited. “Oh, so you write code! I can't even understand code!”

 Yeah. There are great ones. Just like anything else. There are great developers. There are average developers and there are really bad ones, and we've seen them all. People that are buying or investing in real estate, there are people that are good people and they bring that to the table. There are people who just aren't good people. They don't want the best for everyone involved. Maybe they want to be a “slum lord” and not get the most out of it and not take care of somebody. There’s good and bad in every single field.

I would never run into it thinking like, “Oh, because somebody is buying, or renting a property, they have to be the worst”. It's funny you say that. 

Kyle O'Keefe: Sometimes, on that misconception side, you get this idea of having a lack of compassion. It's “Oh, they're late on rent because of all these factors.” 

It's your business. Ultimately if you have a personal wealth portfolio that's full of rentals, you're going to decide how you deal with that. From my side, we try to work with all of our people.

We have a philosophy. It's basically a result-based theory that says if you do good, you'll get good results. If you do bad, you're going to get bad results. And we would, in our business, prefer good results. We always try to do good.

There's also the idea that if you have limited finances, there's only so much that you can do. If you don't have money to go fix the leaky toilet, then you're the slum lord. That's where people run into needing to stage their business in an effective way to where they're smart about how they go into it because maintenance is a real part of it.

People have to be aware of that. And you might jump into real estate and be like, “Hey, I'm going to go and do all this stuff.” You just have to make sure that you're checking every box.  

Kyle Stoner: That's part of what you teach is having a budget for, I would assume there's an annual budget for what I should expect on maintenance for, say, a duplex versus a single-family home or an apartment building, et cetera.

Kyle O'Keefe: Yeah. And then, so just a little distinction. My course doesn’t do any multifamily units. We specifically only do single-family residents like detached properties. We talk a lot about why we're actually very strategic in why we do that.

We have three learning phases within the class. And as you get into phase three, you start to talk about additional avenues in real estate, which would be other things like multi-family, land development, car wash, and other passive income vehicles. 

Kyle Stoner: Awesome. Okay, so lastly I know that you've used our platform before. Why is using a flat fee platform important to you as an investor versus going to a traditional real estate agent where you pay the full 6%? 

Kyle O'Keefe: I will preface this by the fact that I previously had a Texas real estate license. So I have operated as a real estate agent on both the commercial side and the residential side. And so the hard part for me, and I'll just be open and candid, is that I love real estate agents.

Real estate agents play a huge part in our business, right? But there are certain aspects to the way real estate agents operate. Let's say I've bought a house, I've rehabbed it, I've gotten it ready, and I'm going to list it.

Then I go to a real estate agent and I work with multiple agents. They're, again, let me emphasize, they're a massive part of your team. Like for me, they're very important to my business. But if I go to them to list the property, essentially they are legally bound to represent me. Which means that they're not allowed to represent buyers. Okay. So they can't even talk. 

Kyle Stoner: Or if they do, they have to do a disclosure form.

Kyle O'Keefe: Yes, and there's this intermediary position that they can hold. There are obvious conflicts of interest that come up. And honestly, it costs me more money. At the end of the day, my business is about generating profit if I'm flipping a house and if I'm listing a house. I want to go in and I want to maximize that profit.

There are variables that I can control as I go into that. There's a saying that says “It costs what it costs.” That's true, but almost everything in real estate is negotiable. And you can go out and shop. A toilet at Home Depot might cost more than a toilet at Lowe's or vice versa. That's the beauty of competition, is you go out and shop. But by using a flat fee broker, I can save a substantial part of the fee which makes my deal more profitable.

It's funny you ask the question, “Why would you use a flat fee broker?” As a real estate investor, why on Earth wouldn't you? That's really the better question.

Kyle Stoner: We see this a lot. Before we started doing buyers as well. it used to be about 40% of our business was investors. Then all of a sudden we built this buy side.

So that started growing very quickly. But it always blew my mind whenever I met an investor that didn't use a flat fee. I don't care if it was us or somebody else. I was like, “Why are you giving up? Because it's hitting your IRR, right? It's hitting your actual bottom-line return. 

Kyle O'Keefe: There is a component to it. One of the big things that we highlight in the class is the ability that real estate can give you your time back if you set real estate up in an effective way with it being passive income. Even when I flip a deal, I'm not swinging hammers, I'm not changing out toilets, I'm not going to maintenance calls… This is how we structure everything so that you can do your real estate quickly and easily. You have this part of it where real estate investors want to protect their time. If I'm going to hire an agent, I might be willing to pay them.

Especially initially for their expertise, and that might be a component of it. Maybe on your first deal or two, you bring them in to really supervise you as you get your feet wet and get involved and learn more about it because doing your deals is where you're going to learn the most.

But after that, as you move into becoming your own expert on real estate, you're going to find that the amount of time that you spend using Unreal Estate and using a flat fee broker, it's not a substantial thing. Essentially I'll get a text message that says, “Hey, want to see the property?”

This is using the flat fee broker. They text me and I just text them back and I get the information and it takes me 30 seconds. And so to save 3%, which, on a $100,000 house is $3,000. On a $300,000 house, I can save $9,000 by spending 30 seconds on a text. Yeah, that's a no-brainer.

Kyle Stoner: I agree. Okay, so just to recap: RentHouseMillionaire.com is a place where you can learn how to become a real estate investor. You've got Kyle O’Keefe here who did it from the ground up before there were even online classes that could teach you how to do this.

He went through the sort of school of hard knocks. It sounds like the cool thing about this is you don't have to have a lot of money to get into this. It's really educating yourself, jumping in and going. That's something that's exciting to me. 

Lastly, it sounds like you do have to be smart about not only being a good practitioner (doing good and getting good) but also the fees. [You have to] think about, “Where can you save and still get top dollar?” That's an important thing if you're doing this for profit. 

Kyle O'Keefe: Financial freedom and time freedom, there's opportunity out there and you can do this in such an easy way. It's not like I didn't know you could do it in an easy way when I started, but we've designed it into this step by step process where you're literally checking boxes and then you're adding and growing wealth. That's yours, it's not the company that you work for. 

It's your deal. You get this opportunity to shift from an earned income into an asset-based income. Warren Buffet says, “If you don't find a way to make money when you sleep, you're going to work for the rest of your life.”

For me, I wasn't interested in just working all the time. And don't get me wrong, hard work is important. I think hard work works. But I would rather work hard and work smart than just clock in every day. That's just me personally. 

Kyle Stoner: No, I'm with you and I understand this.

I get what you're saying, this idea that you can work all those years and then when you get to the point where you're finally able to enjoy what you've saved up, it's hard to enjoy it because maybe you don't have the mobility and the energy to do all these things.

And if you can get that financial freedom earlier, that's when you can begin taking advantage of some of these things. 

Kyle O'Keefe: Absolutely. Honestly, the structure of our retirement system is a dangerous thing. It's the golden goose, right? It says, “Hey, once you get to your retirement age, you're going to kill that goose and it's going to stop laying eggs for you.”

Whereas if you build this real estate business where you have assets that continuously create income for you, you don't have to worry about running out of money. That's a great point. That's an important aspect of it too. 

Kyle Stoner: Thank you so much for being with us today. I would love to have you on again even more after, I feel like I learned so much talking to you. I have more questions now. But, we're out of time. So thank you so much. RentHouseMillionaire.com is where you can find Kyle, learn more about being a real estate investor, and that'll be the end of the show. Thank you. 

Kyle O'Keefe: Okay. Awesome. Bye.