Ep. #93 John Maxim on Reaching Financial Independence by 40 with Real Estate

Rick Magliano

Deni: Hi, everyone.

Brian: Happy Tuesday. Brian Davis and Denise Supplee here from Spark Rental. And we are joined today by John Maxim, who at 44 years old is not only financially independent, but he has been financially independent for years now. So, John, welcome to the show.

John: Welcome. Nice to meet you, everybody.

Brian: We are super excited to have you with us today and to talk about exactly how you have achieved, what you have achieved and how other people can follow in your footsteps. So, without further ado, let’s rewind to the very beginning and talk about what you did before you got into real estate investing and how you got into investing your first property, how you found it, all those juicy details.

John: Yeah. So, we got to go back to when I was 21 years old. I was. I think I was donating plasma for a living for the moment. A lot of college parties and just not just barely making ends meet. And so, I got into real estate investing kind of by accident almost. Me and my roommates were in a two-bedroom apartment in, by Utah standards, the biggest ghetto in the state. We’re in this two-bedroom apartment, four of us sharing a room. And we just kind of were like, man, it seems like we could buy a house and have our own rooms and pay about the same. So, we went out and look. And against our parents, of course. And everybody was like, no, you shouldn’t buy houses with your friends. We did it anyway. So, we bought a house, three of us, one. One guy listened to his mom and decided not to get in. So, the three of us bought a house. And it wasn’t very long before we thought to ourselves, We’re really good friends. Why don’t the four of us, even though this is the thing we wanted to get away from, why don’t the four of us share this one big room in the house and we can rent the other rooms out? And then next thing I know. So, it had a converted garage, one car garage. It had been converted into like a living space. So, the three of us got bunk beds in there and then we rented all four of the bedrooms out for, I think it was $300 a month back then for a bedroom and a shared house. And basically, we made up our own little fraternity kind of situation, and then, you know, that covered our whole mortgage. And then we were like, hey, I bet if we instead of having one bunk bed in here with us, three friends, we could get another bunk. And so, then we got another bunk and rented that out for $200 a month and then all of a sudden.

Deni: Oh, my goodness.

John: We’re making cash flow. And then we had another room, which was really a storage room that didn’t have a window or a closet, but we rented that out as well to another guy. And so now we’re making $500 a month. And then I even at some point I told my roommates, I’m like, hey, I think I could sleep under the stairs, and we could rent my bunk out, too. And so, I actually this is before Harry Potter was ever written, I actually moved in under the stairs. I had a mattress in my dresser. I started to get addicted to the cash flow coming in from our thing. So, all said and done, we ended up having ten guys in a little house in the ghetto suburbs of Salt Lake City, and we were cash flow in about $1,000 a month on top of our mortgage. And just like we didn’t read any books, we didn’t go to any courses, we didn’t have real estate license. We just kind of happened upon it. I think they call that house hacking now.

Deni: It’s funny that because I was doing the same similar thing, I was a single mom, and I needed a way to pay bills. And that’s what I did. I rented rooms out and like smushed me and my kids together. And Brian was like, Oh, well, that’s house hacking. And he used to compare it to Harry Potter as well as Funny.

John: Yeah, yeah. No, it’s so. Yeah. So that was my first kind of experience. And that’s what kind of let me see. Like, wow, what if I had another house like this? I mean, we actually tried to start a business where we would make bachelor pads, but it didn’t work, so we thought it would be cool. But then the next property I bought was a four plex, which was just a straight typical rental property, and we were able to get financing on that. And actually, me and one of the other friends did it. The third guy listened to his mom and didn’t go buy another one. And so, you know, that’s just kind of how the journey started, where I started to see, wow, I can what if I never have a job again? And all I have is properties that pay me to rent, you know, just it just kind of opened my eyes early on.

Brian: And so, you earned good cash flow on that first standalone four plex.

John: Not really. Actually, did a really bad job of managing that. And we should have made good cash flow, but we weren’t, we weren’t very good landlords, and we didn’t fix it up properly. And then we’d let people get behind on their rent. And I’m not very good I’m never good when that stuff happens, I kind of have a big bleeding heart. And the more excuses you have, the longer you cannot pay kind of thing. And so, we actually didn’t do great on that first fourplex. It wasn’t until I started to hire property managers that my properties really started performing the way that they should. But that didn’t stop me from seeing the potential and continuing on, you know?

Brian: Yeah, no, I ask because, you know, most people blunder their way through their first few properties, right? I mean, most people don’t get it exactly right on the first go. So, tell us a little bit about how you scaled from there.

John: It’s probably you know; I didn’t do a lot of it very purposefully. What it actually led me to do is I wasn’t married; I didn’t have kids. I was 21. So, it just let me not work more. And I did a lot more partying and hanging out and not really having any purpose for a while. So, it wasn’t another like four years until I even bought another property. I was just pretty content there. I mean, I had a few off and odd jobs, and I went and got my real estate license thinking when we bought the four plex, I was just shocked that somebody got paid $3,000 to help us do that. I was like, why? So, I went and got my real estate license, but I didn’t use it. So, for like three years I just kind of sat stagnant. And then I happened upon a house that I could flip and was able to flip my first house just kind of out of there. And I did terribly on that. I didn’t do a very good job, so. It didn’t go well at first. But once I started to see the writing on the wall and started flipping houses, I started scaling up my house flipping first. And that’s probably one of my bigger regrets is that I kept flipping, kept flipping, kept flipping out three or four years in just flipped houses, five or six a year at that time and never kept any of them as rentals. Not still quite grasping what I had, in the beginning, figured out. But then once you start getting the cash flow and the time and once, I got married and started to have an actual why besides what am I doing Friday night? I really kind of turned my business into a business instead of just a source of income. And that’s when I really had to get purposeful about things and start to scale. Scale up and. And get more properties. Figure out how to pay taxes and do all the harsh.

Brian: Adulting?

John: Yeah. Yeah.

Deni: Now it’s the same guys that you started all this with. Any of them? Have any of them following you?

John: No, no, not at all. Both of them ended up getting married and buying a house, and we ended up selling that fourplex during the crash at a loss. And then it turned them off. They were they didn’t want to do real estate anymore. So, they both have moved into the one house and lived in that one house ever since and not bought any other real estate that I know of.

Brian: Wow. So, you never had a traditional 9 to 5 career at all?

John: Yeah. Not really. I mean, I did get a couple of I had a couple of jobs. I actually worked for a bank in their loss mitigation department for a short period after about the four-plex, which really kind of opened my eyes to how mortgages work and how lost mitigation works. And this was before the crash when loss mitigation really became a thing. And that opened a lot of doors for me, just the knowledge I gained there. But I only work there for like a year. Other than that, and it’s true, I joke about this, but I honestly have been fired from every job I’ve ever had.

John: Not much of an employee.

Brian: And how did you finance these deals? Because I assume you were a broke early 20-something in the beginning here. Right. And you didn’t you weren’t sitting on piles of cash. So how did you go about financing these early deals?

John: The truth I mean, the simple truth to that to that is I overpaid. Back then, I was getting I got both of those mortgages at seven and a quarter percent, which was the lowest interest rate they’d had ever seen at the time. And they had these programs, I think it was called the Nehemiah Program or something where the state would come in and pay your down payment at a little higher interest rate, and it was only a 3%. You’re still back at 3% FHA, we were able to get that 100% funded through FHA and other grant programs, which I think our I think the first house we bought was 126,000 was what it was worth. And it had been on the market for four months. And with this whole Nehemiah thing, it ended up being like 135. So, we ended up paying more than that house was worth. But because of the cash flow, that didn’t matter very much. And the same thing with the four plex we ended up paying. We actually were able to get some creative financing with the seller on that. But once again, because of that, we ended up paying technically more than we probably could have sold it for. But I wasn’t thinking about that at all. I just was like, well, will the rent cover the mortgage, so I don’t have to go do other things? And so being willing to overpay for things can sometimes allow you to get a property that you might not otherwise get. And when you think about how especially the last 20 years, every 5 to 10 years, our property’s doubling almost. If you can get the cash flow right, it maybe doesn’t matter as much as we think sometimes.

Brian: And how, as you’ve scaled up know, how has your approach to financing changed or changed over the years?

John: So, you know, you get to the ten conventional loans, you can only have ten conventional loans, right?

Brian: At most. I mean, you know, a lot of programs only allow four.

John: Oh, well, yeah, most of them will give you up to ten unless that’s changed. But I hit ten a while ago so. So maybe it has. Up until then, I didn’t really think very hard about the financing, but now pretty much I try and bare everything. And so, I’m usually buying it with hard money or my own money, depending on the situation. And then I get it. Right now, I’ve been getting a lot of DCR loans or commercial loans in order to finance the properties. But you know, the bird method that everyone talks about, which again house hacking, wholesaling, vermouth and all of these things I was doing before they became courses I guess, and you had to brand them, but you know, buying it and remodeling it and then getting all your money back so that you’re essentially in it for $0 is kind of my go-to for everything.

Brian: Yeah, it’s a great strategy. So, you know, for those of you in the audience who aren’t familiar with that acronym, Boro stands for Buy, Renovate, Rent, Refinance, Repeat. So, you pull your down payment back out when you refinance it after renovating it. Yeah, it’s a fantastic strategy. So, what has not gone according to plan for you? Because every real estate investor has horror stories, right? I mean, I’ve got plenty. You know, Deni has plenty. And in many ways, those are just as instructive, if not more instructive than the deals that go right. So, you know, what are some of the things that have gone wrong for you throughout your real estate investing career?

John: Oh, man. Everything! Yeah. You know, we’ve had a lot of I mean, I don’t even know where to start. There are so many issues. I can tell you early on in my career, on a four plex that I owned, I wasn’t I didn’t have a property manager. And, you know, in the beginning, we all do this. We think, oh, I can manage this on nights and weekends and whatever. And then once you get and I always tell even students and new people that are getting in, you know, once you get to three or four, you want to seriously think about getting property management. But we entrepreneurs don’t really like to listen to people, so we’ll still do six or seven or eight. And I so I was getting a little overextended where all my nights and weekends were spent fixing leaks and mowing lawns and doing all the crap that you have to do when you’re a property manager. Anyway, at that period I bought this four plex and I was self-managing, doing the ads, doing everything myself. And this guy was a professional rent thief that lived in one of my units and I didn’t realize it. And so, he would get behind and I would work with him and one excuse after another. The next thing I know, the guy is like four months behind. I’m like trying to get him out. So, I try to evict him once again on my own, and then he manipulates that system to where it keeps getting extended and pushed back.

John: And then one of my tenants moved out without my knowledge, and he moved somebody else into that unit. His girlfriend, it was a complicated family situation, moved his girlfriend into the basement unit. And so, I go over, unbeknownst to me, that squatters have rights and now I have to evict her. And it turned into a six-month opus where I ended up losing a whole bunch of money on this deal and really kind of like, taught me that there’s way better uses of my time than managing those deals. Because, you know, like nowadays, like I kind of laugh at how silly I was with this guy let him go so far because I can you know Utah’s pretty as far as evicting people it’s pretty landlord friendly like we can get somebody out in two weeks if I just hire the attorney that’s all he does. Like you can get him out, you know, 30 days if they contest, two weeks, if they don’t like it, it’s not that difficult. And if you use an attorney and do it the right way, it costs me $500, and they’re gone. And had I just, like, gone that route, I could have saved myself a ton of money on that on that property, you know. And, I mean, it ended up being a fine property, but it was a really hard lesson that caused a lot of stress and anguish and stuff, you know?

Brian: I hear you. Yeah, I’ve had professional attendance myself. It took me 11 months to get one guy out, and when I finally did get him out, he punched holes through every cabinet in the kitchen and ruined the flooring. And I mean all of that stuff. So, yeah, I know how that goes.

Deni: Yeah, and especially in as well, Utah seems a little more relaxed, but Philadelphia, I had one in Philly, and it was a year, and she knew how to play the system in Philly as tenant friendly.

John: Yeah. And so, you know, I mean, what do we learn from that is like learn kind of learn the rules and how those things kind of work because a professional thief can really, really get you if you’re not careful in your new you’re new at this, you know? Oh, yeah. Speaking of damage, I’ll just tell you, one time I had a guy who had three Rottweilers and we evicted. He got behind on his rent and we sent him an eviction notice he didn’t contest it, but he just left. And we walked into the house in the living room. The whole floor had been torn out. And in the basement were these three Rottweilers that had been there for probably. Oh, no one cleaning up after him. No, nothing. There were not the stairs had been torn out. He completely tore it out. It was crazy. I got the wildest pictures of it, but it was a huge, huge problem. And. And he just left his dogs behind. And wasn’t even supposed to have pets, by the way.

Deni: Wow.

Brian: Unbelievable. The things you see as a landlord. So, what advice would you give someone who is just getting into the real estate investing game, whether as a landlord, a rental investor, or a flipper, you know, someone maybe they haven’t bought any properties yet? Maybe they’ve just bought one or two. What’s the best advice that you would give to that person or to your 20, 23-year-old self? Same. Same concept here. You know, what advice would you give to people who are just getting into this?

John: You know, because of my journey, I can say one thing for certain, and it’s that. You just need to take massive action. And you know, what is more important than taking that action is to being okay with taking imperfect action. Because the only reason I got to where I am is because I just kind of like, what if it doesn’t work? Or What if I can’t pay it? Just kind of me. I just stumbled through it. I just jumped right in and figured it out. And I find so often in the real estate community, I do, I do speak and seminars and things like that. Like so many people are there and they’re spending all this time like learning and trying to make things perfect and then they never take action. And it actually it’s kind of got me out of coaching and stuff so often because I literally will tell people exactly what to do and they just won’t do it. So, if you’re just starting out, if you’re like, whatever, whatever you need to do to take that first step, take it. And like I said, my first three deals I overpaid for, and my parents told me not to do it and everyone told me not to do it. And I made out like a bandit. I literally didn’t have a job for like four straight years. And when I got married, my wife thought I was this Monopoly guy, even though I knew what I was doing. So, I didn’t even do it right. And still investing in real estate was a great situation for me.

Brian: I mean, you’re going to make mistakes as a novice real estate investor. And that’s something that Denny and I talk about all the time. And, you know, you have to be okay with the fact that you’re not going to get everything perfectly, especially in the first few deals. And that’s part of that is the tuition that you’re paying for a real estate investing education, right?

John: Yeah. And you can and I will say this, I mean, if you get a mentor and you go learn like that’s a that’s I think those are very valuable ways to pay. Or you can pay the fool’s tax like I did and just kind of stumble your way through. But if you’re just sitting on the sidelines waiting for the perfect deal, it’s probably never going to come. I mean, I can make, you know, I flip like 1000 houses, and I probably only call two of those the perfect deal, a bunch of them with just deals, you know. And so, I think the other thing, people just have a hard time getting comfortable with loss. And I try to tell people like, I don’t know any successful real estate investor that hasn’t lost money and they think, oh, I can’t do this because what if I lose money? Well, what if you lose money? I mean, you’ll figure it out and you’ll move on, and you’ll get better. And so that’s the only advice I’ve got.

Brian: I lost money.

Deni: A lot of money, probably.

Brian: Yeah. So, John, how how can people connect with you? What are you up to these days? You know, how can people reach out to you and connect with you, whether on real estate investing deals or anything else?

John: Honestly, the best way to get a hold of me nowadays is through Instagram or LinkedIn just DMS, their work great. I mean, I’m happy to share email and phone, but those are literally harder to reach me nowadays. So, if anyone wants to reach out, I always respond to every DM I get.

Deni: Chance Instagram is in the chat for anybody who wants to make a note of that.

Brian: Absolutely. Well, John, are there any other pieces of advice or comments that you have for the audience before we call this episode complete?

John: Now just you can do more than you think you can. And the other thing I always like to tell people is there’s more money out there than you realize. Just ask for it. That’s there.

Brian: Yeah. You know, it’s funny you say that. It’s one of the things that I hear. One of the questions that Deni and I get all the time from new investors is, you know, they kind of fret and they chewed their fingernails over financing and funding and, you know, where am I going to get the money? And honestly, that is one of the easier parts of real estate investing know. If you find a good deal, there is always going to be someone who’s willing to fund it for you. Finding good deals is way harder, as is managing contractors and managing tenants, and managing property managers. And you know, these are much harder parts of real estate investing, but everyone gets very fixated on the money piece.

John: So, and that’s because it scares them. But it really, I mean, they’ve got to take our advice. It really is the easiest part of the equation. If you have a good deal, find the deal first and the money will come.

Deni: Absolutely. I also put the article about John that we did. It’s in the chat as well. It’s a great just a great read.

Brian: Well, John, thank you so much for taking some time to join us today. We really appreciate it. And I love what you’re up to.

John: No, it’s great. Anytime we can chat in the game. I love it. I love chatting about this stuff now with people.

Deni: Great. Thank you so much, really. It’s been great. I’m sure people are loving it. I see the comments.

Brian: All right. Well, hopefully, we will have to bring you back on the show next year and hear about what you’re up to then. Yeah, in the meantime, yeah. Thanks again and we’ll talk to you soon.

John: All right. Thanks, guys.

Deni: Have a good day, everyone.

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