Although many of the world’s millionaires gained their access to wealth with this method, investing in real estate still remains a challenge for most people. For many young black professionals encumbered with student debt or family support obligations, the idea of owning real estate constantly feels forever out of reach. Or does it?
Kendra Barnes, a former federal employee, was able to hack her way into owning multiple real estate properties in the Washington, DC, and Maryland area by her late twenties. She was able to generate six-figure rental income each year, which allowed her to retire from the 9 to 5 life in her early thirties! After a series of “lessons learned”, Kendra started her own online platform, The Key Resource, to coach new homebuyers on how to build wealth through a variety of real estate investment strategies as she continues to grow her real estate empire.
In this interview with BAUCE, Kendra shares how her “house hacking” strategy allowed her to accelerate the growth of her real estate portfolio and how other first-time homebuyers can make their real estate investing dreams a reality too.
Let’s start with why you started. Do you believe real estate investing is a way to get out of the rat race and achieve financial freedom?
Kendra: Most definitely. Real estate is definitely one of the best ways in my opinion to build wealth and to get out of the “rat race” and the “rat race” really signifies different things for different people. It could be living paycheck to paycheck. It could be working a job you hate. And what real estate simply does is it allows you to stop trading time for money and allows you to make your money to make money.
And so, you can take what money you do you have and put it into this “investment vehicle” and then watch it grow for you. So definitely it’s a way to build wealth and get out of the rat race because you’re making that passive income. The goal is then to make that passive income greater than your expenses. And at that point, that’s when you’re essentially out of the rat race.
Real estate investing appears glamourous but that’s not always the case. What are some of the challenges you experienced and the biggest lessons that you’ve learned along the way?
Kendra: Well, the first thing is we really dove into real estate investing not knowing what we were doing. When we got started six or seven years ago, there weren’t a lot of resources online. People weren’t really sharing information on social media as we see now. And to be honest, there weren’t any investors who looked like us, who were young and black that were really showing, people how to invest in real estate. So, we felt like we were kind of going blind and making mistakes as we went along.
But now people have this opportunity. There’s so much information out there. People now have an opportunity to really start out better than we did just, first of all, seeing that it can be done is so powerful. Right and then learning from others’ mistakes.
I think the mistake we made was kind of like jumping in blind. We didn’t even do any background research on any contingency plans. One thing people realize when they go real estate investing is you have to pivot sometimes. You may start out and say, “I’m going to get a renter” but that might not work out and you have to have a plan B and C. And so for us, we got a property that had a tenant in it already. The tenant moved out like a week after we got the keys to the place and we were like, “Wait! We don’t even know how to find tenants!” We didn’t plan for it because we thought we were going to be good because the property already had a tenant in it.
Whoa! So how did you all pull yourselves out of that situation?
Kendra: So we ended up putting the unit on Airbnb, which was kind of this like last-minute pivot out of desperation, but it ended up being one of the best decisions we ever made because Airbnb was a great moneymaker for that unit. Researching, educating yourself, and then taking action is really important because the action is going to be your best teacher.
It’s not a bad thing to buy a property that’s already occupied. There are so many good benefits to it, but sometimes you can buy someone else’s problems. The property we purchased was a four-unit building that we eventually “house hacked” which means we are buying the multiunit property, living in one unit and renting out the others. One of the struggles we kind of faced there was sharing walls with our tenants as landlords because we literally live in the same building. So we had to set boundaries, we had to draw a line between being business-minded and then being friendly to our tenants and being neighborly.
We learned a lot along the way, but even with all of those struggles, all of those ups and downs, it’s definitely worth it.
You mentioned the “house hacking” strategy and on your platform, you promote it as one of your top real estate investing strategies. Why is that?
Kendra: Because there are so many benefits to house hacking and I really wish I had known about it when I started because we would have saved so much money! We found out about the strategy just by happenstance. We had bought our first rental property, which was a multi-unit, but we never knew about house hacking at that point. We actually put down a 25% down payment for the property because we weren’t planning to house hack. When you’re buying a rental property that you’re not going to live in, you have to put anywhere from 20 to 25% down — that’s a lot of money. We didn’t know any other way.
It wasn’t until we were looking for our next property that things changed. I remember we were looking at these properties and I think we drove by the four-unit with our real estate agent and saw a “for sale” sign. We looked at the price and we were like, “Oh man, that looks like a great property, but we’ll never be able to afford that!” And the real estate agent dismantled that belief by telling us that we can use an FHA loan and only have to put down 3.5% if we lived in the home. She just started going through this list of benefits and we were like, wait a minute, wait a minute, wait a minute. We can buy the property, live in it and our tenants will pay our mortgage. Basically, we’ll be living there for free. Like, why didn’t anyone tell us about this? So that’s how we got into our next property.
Some of us are in the space where we have bills, student loans, and things like that and it makes you wonder, when am I ever going to be able to invest? And my message to people is you can literally do it now because of the house hacking method. Especially if you are a first time home buyer, there are so many grants and down payment assistance programs that you can use where you can literally get a multiunit building with no down payment or buy a building with $800 down or some crazy low amount of money. There’s just so much opportunity out there if you are, you know, going to employ this method.
You talked about the pros of “house hacking” but also some of the biggest challenges which are living with other tenants. Do you recommend investing in a single-family home or like a condo versus a multifamily home if your longterm goal is financial freedom?
Kendra: You know, that’s a tough one because real estate, it’s not a one size fits all situation. So it gets really hard to say this because it’s going to be different for every person and their individual goals. And then it’s really different when you start talking about different cities, right. And different parts of those cities and what the rental income looks like. A single-family home in Washington, DC is not going to produce the same type of income as a single-family home in Detroit, Michigan. It is so hard to say, which is best. Real estate is a numbers game. There shouldn’t be any emotion in it at all. It should be all numbers. And it really depends on what that person’s goals are. The first question I always ask my clients is what is your money goal?
Do you want to retire in two years? Do you want to make an extra $500 a month? Do you want to make enough to cover your student loan debt? Figure out what that number is. And then you can easily back into what strategy you need to use to get there. If it’s buying a multi-unit where you live there and basically have your living expenses covered, and you’re just breaking even, then you’re still saving the amount that you were paying in rent previously and reinvest this freed-up income or put that money towards student loans. So think about it, you know, in that frame of reference and just start with that money goal in mind.
Are there any situations where you would say renting may be a more ideal financial decision versus buying a home right now?
Kendra: Definitely. I always recommend that anyone who buys a home, or rental property, should have at least three to six months of expenses saved up. And so that’s personal expenses. And then if you’re buying a rental property, that’s your rental property expenses too. For example, if you’re buying a rental property and the mortgage is going to be a thousand dollars a month if you don’t have a renter for three to six months, can you afford that mortgage on your own and or not? Can you afford that mortgage on your own and your personal living expenses and not be broke and not be scrambling if you’re not in a situation where you could either afford your rental?
If you’re not in a situation where you can afford to pay your rental property mortgage on your own for a few months, or if you’re in a situation where you’re buying a home for yourself, and if you were laid off, you weren’t able to afford your mortgage for a few months, then I would say, it’s not ideal for you. So, savings is definitely key. We just discussed getting down payment assistance and creative ways to buy properties with no down payment or a low-down payment. Those are great, but you still have to save money, even if you’re able to get a property with no money down because of the maintenance costs and expenses month to month. If you are in a position where you don’t have that savings, I would say wait.
It’s clear that real estate investing is possible, but it may not be for everyone. What characteristics or mindset do you need to have to be successful in real estate investing overall?
Kendra: If you are looking for an easy way to make money, this is not it. Real estate investing is not easy all the time. We like to call it passive income and it’s passive to a point, but to get to that point where it’s passive does require hard work and you have to be willing to do things that other people are not willing to do to get there. And so, it can be hard sometimes, but I think also being broke is hard! And so you have to pick: do you want to have hardships being broke or from the journey, it takes to be a real estate in building wealth? I do truly believe that everyone can be a real estate investor. Every single person can do it, but I never want to pressure people to do it. If it’s not something they want to.
If real estate isn’t your thing, then make sure you’re investing somehow. Invest in stocks, you know, invest in something, make your money make money. If the only way that your money is making money is in a savings account, look at how much interest you make in a savings account at the end of the year: it’s like a dollar and some change! When you think about that compared to inflation, you’re actually losing money. And so, I just really urge everyone to kind of think about that and just get into investing somehow, if you want to get into real estate, you totally can do it. But if real estate investing is not for you definitely think of some other ways.
With real estate investing, we talked about house hacking. We’re talking about being a landlord to tenants. Those aren’t the only ways to invest. If that kind of investment style is cringe-worthy to you, like you don’t want to deal with tenants, just know that there are so many other ways you can get into real estate investing that is flexible and can be the right fit for you. You can flip houses. You can do wholesale. You can invest in tax lines – the opportunities are endless.