What It Takes To Become A Real Estate Investor with Kathy Flett of Route 3116
Kathy Flett is a real estate investor and educator at Route 3116. I met her during one of her speaking events and when I came up to ask her what her favorite book was, I was taken aback when she said “well, my go-to is the Bible!”
She was soo kind to join me for coffee a few days after the event and talked all things investing. The topics that we discussed, she also teaches in her 6 week course. She walks her students through every step and covers everything they need to know about real estate investing, including the ones she wish she would’ve known when she first started! MOST of the things were jargon to me but she made it so easy to understand with her examples and stories. I’m a sucker for stories!
Aside from Real Estate, we talked about God so much. She has a tattoo that says “Abba’s Girl” and her company name, Route 3116, is from one of my favorite verses where the bible teaches how to be a boss!
Proverbs 31:16 “She considers a field and buys it; with the fruit of her hands she plants a vineyard.” Any #Proverbs31Woman here? :)
The way that she invites God into her business and life inspires me and by going back to her words, I grew in my faith. I hope you read it ‘til the end where she got me crying with her words! Who else bawls out when they’re interviewing someone? I promise Oprah better watch her throne.. 😂haha!
Connect with Kathy via the links below:
It is a very unconventional real estate story,
but my whole life is pretty much unconventional anyway! We actually got started on a paper route, you know how kids usually have a job where they deliver papers? In Sherwood Park, we get two papers a week and it’s actually kids that deliver our papers and so sometime ago, it was our oldest son’s turn to get his first job and so we got him a paper route. It quickly became the whole family’s first job and we were all helping him even though he was the only one making money, we were there for support.
And while we were on that route, there was a set of duplexes that kept going for sale and then they would sell. And they went for sale again and then they’d sell. It really got my mind turning like why are these duplexes doing that? Why do they keep going for sale and they’d sell and sale and sell? So I started to watch the MLS (Multiple Listing Service), so anything that’s on sale, that’s residential or commercial real estate, you can go online and see all the housing that’s on the market. This was a little bit before the internet or right at the beginning of the internet, so in a community that I lived in we actually had a TV Channel that was all real estate listings. I was glued to that channel for a long time. I noticed that the price of these houses went up and up and up, and this was in 2005. At the time I didn’t know how to read markets, I didn’t know that there was a cycle to all of this, I knew NOTHING except that every time that duplex went back up for sale, somebody was asking 5, 10 or 15 thousand dollars more! And I thought “Wow! Okay. Well, if this doesn’t stop, my kids are never gonna move out. They’ll never be able to afford to.”
So I convinced my husband to buy 2 properties, one for each son-- we’ve got two boys. And the idea was, once they became adults, we would say “Hey, here you go! Here are the keys. Happy adulting! Sell it, live in it, do what you want!” So that was the plan. But then we’ve got the bug because we’ve found out that you can actually make a lot of money on rental properties.
Honestly, we started this conversation before saying how much God is a big part of my life and He’s a big part of all of this, too! Like, I didn’t know what I was doing. I had no option but to say “Hey, how do I do this?” There was really nobody to go look at or talk to or whatever at that time. In 18-20 months we ended up buying 8 properties. The banks were giving out money like candy at that time it was ridiculous! Everything was rented out, everything was going great, we thought we had the cat by the tail and then.. 2008 hit. And we were in the middle of a recession. We didn’t know what to do because now I am working outside in the non-profit sector and my whole entire paycheck had to float over a million dollars in mortgages because we had too high of a vacancy rate in our properties. That’s what happens when you have a recession! You have a high vacancy rate. When there are no jobs, there are no people to rent your place!
When we came out of that recession that lasted about 2 years, we had a choice to make. We could either figure this out because there’s something to it.. There’s people making money in real estate all over the place OR we could just sell everything and call it a career. My husband and I do this together and we decided to just go for it. Learn everything that we could, figure it out and see if we could make it an even bigger goal of it.
We kind of implemented this strategy, that nobody else that I know of is doing and rather than leveraging mortgages or leveraging the bank, which is what most do, we leverage the value in our properties. And that has worked out really really well for us. And here we are now, we went into this last recession. Having learned so much, we implemented all that learning and we came into this last recession with 7 properties. We had bought and sold 16ish. We came into this recession with 7 properties, 3 of them completely paid off and no personal debt. And we did that all by real estate, paying everything down.
That’s what we’ve accomplished today and just we’re continuing to grow and grow. It’s going to be good!
We learned to do it by doing all the bad advice at first. And you know what, it wasn’t even that people meant to give us bad advice, they just generally don’t know what they don’t know. And we didn’t know either, so we didn’t realize that what they were telling us to do was completely backwards. So we learned really just through experience and trying to figure stuff out.
So we just learned a lot of stuff the hard way. A lot of banging on doors asking questions, talking to a lot of people, going to different events, going to different trainings and finally have now surrounded ourselves with the people that we need that we know KNOW what they’re doing, to help us go that next step and to move forward to grow even more.
Q: What do you mean by leveraging the value?
What we do by leveraging the value, over time, something that you buy.. cars no, but a house when you buy it, it generally increases in value. And then you’ve got tenants paying off your mortgage. So that creates that equity that I’ve talked about earlier, right? So you’ve got space in here that’s all paid off. When you sell it, you take that extra money and you put it on another property to pay that mortgage down. And that’s how you keep paying these mortgages faster! I’m always borrowing money. I’m always asking the bank for money. But I’m also paying everything down. So the idea is, come retirement, there is no debt, everything is paid off. And then there’s so much less to worry about. It’s why I teach people really only need 3 or 4 properties tops to help you have a very comfortable retirement. You don’t need this massive portfolio of a hundred doors.
Q: What does it take to become an investor in Real Estate?
A lot of guts! *laughs* Because it’s a lot of money. It’s big dollars! And a lot can go wrong really really fast. It takes the willingness to learn and to be vulnerable because it’s not always a nice industry to be in. Not everybody is friendly.
So there’s a vulnerability there that you just have to know and appreciate that some people are going to help you and some people aren’t. They’re gonna do quite the opposite. It’s not a reflection on the investor, it’s a reflection of that person. But it just is. Don’t take it personally. It’s just business and you just move on.
We’ve had a property up for sale and some realtors took some people through and gave us feedback that was NASTY! It was just brutal. I mean, so you didn’t like the place, go find something else. Right? We’ve had people come in and want to buy one of our places and absolutely low-ball us. It’s just offensive. I’m not dealing with you. And I’m not taking it personal but I’m not dealing with you. You either play nice in this sandbox, or go find another sandbox.
So that’s the vulnerability piece where you’re putting yourself out there but knowing at the same time that you can get attacked when you do that with.. tenants. That’s another place! You’re hoping that they’re gonna pay their rent on time, you’re hoping that they’re not gonna wreck anything. You’re hoping that you’re going to get along okay because this is a relationship. Whether you like it or not it’s still a relationship.
When I get my taxes done, I hope my accountant knows what she’s doing. Because if she doesn’t, it’s gonna cost me alot of money! And we ran into that. We had an accountant for years and she didn’t know what she was doing. We ended up paying waaaay more in taxes than we ever shouldve. But I was vulnerable. I didn’t know. I didn’t know what I didn’t know. I guess the accountant didn’t know what they didn’t know. So that’s what I mean by that. You just roll with the punches and deal with stuff as they come up.
We have two full-time businesses. This is one, and then there’s another vending machine business. It’s just one of those things where we were going “What should we do next? Real estate is fun and it’s great.” We kind of hit that plateau and on top of that, my husband worked in the oil and gas industry. I’ve been trying for a long time to get him to come see sort of the dark side of entrepreneurship. We were at a space where we weren't sure how many more rounds of layoffs he was going to make it through.
I sat down and I showed him the numbers of what we could do with real estate. I said “if you let me do this, and back me on it..” we were in it together but he’s never looked at the numbers side. He didn’t have any idea. He doesn’t have NOOO idea of the numbers side because he doesn’t wanna know. And I said, “listen, if you let me do this, I can retire you in 18 months.” Well then, there were more and more rounds of layoffs coming and we were like, we don’t have 18 months. So then, we just sort of sat down and said “okay, what are we going to do?” We need to figure out something. Then we got this amazing opportunity literally a gift handed to us with these vending machines and we had the money in the bank to get started in the business. Went and talk to our banker to say, you know what, can you fund the rest that we can’t do? We got the business plan. The business plan was approved and then a couple months ago, the end of October. I just looked at him and said, “Okay I can’t do both of these businesses by myself. You have to help me. You have to quit your job.” He went in on Monday morning and he said “Tomorrow’s my last day!” They thought he was kidding until he didn’t show up on Wednesday!
Q: What would it be like for someone who’s just starting?
Best starting point.. What you could do is work to getting that first home that you wanna buy! You could buy something that’s got a top and a bottom and rent out the other and live in the other to get started. Your tenant is actually going to pay your mortgage for you. They’re gonna pay some of the bills, you’re gonna pay some of the bills but not as much. Once you have some equity, go buy the house that you really want and rent out the downstairs. Now you’ve got two rentals. That’s one option. Some other things that people do is they will buy a fourplex and live in one. 4 units in one roof, you rent out the other three, and they’re all paying your bills for you. The only thing you have to do is have that down payment available. And there are different ways to do that, too!
Q: What would you have done differently?
The first bad advice that we got was from a mortgage broker. What he suggested we do, we took money out of the equity in our house, we’ve got that line of credit and we paid cash for the first rental that we bought. We should've just taken the down payment and we should've mortgaged the rest. Well now, I wanted to buy a second place but I didn’t have a down payment because the whole loan was tied up in one property. He said “that’s okay! Let’s just take the line of credit out of that property and go buy another one.” This doesn’t seem right to me because eventually, I’m limiting my buying power. And I’m just learning, right? I was really limiting my power by continuing down that road. So we ended up selling both of those properties, kind of starting fresh again and then we just took the down payments.
If I could go back and actually know what I know now.. Oh man. Well.. I wouldn’t be living in Canada right now. I would be in Ecuador where there’s no snow to shovel! *laughs* Anyways, the first thing I would’ve done is seeing the sign that was coming. There’s always always an indication that a recession is coming. You can just tell by how the news is going, how people are talking, what companies are making what kind of announcements, what are they spending their money on? AND at least, off loaded the money that we had before it hit. And then I would’ve sat tight on that money and just waited until we were coming this way *points upward* out of the recession and bought a whole bunch of places. And as I was doing that, I would’ve incorporated then because there’s a whole bunch of tax things that we did not take advantage of because we didn’t know and then built from there and I would be way further ahead. WAY further ahead.
Q: Can anybody do it?
Well, I guess the easy answer is yes. At the same time, do you have the personality for it?
Can you handle being good with people? It’s a people business.
If you’re not good with people, you’re not good with business.
You’re dealing with tenants, you’re dealing with contractors when you need something fixed, you’re dealing with condo boards and property management companies if you have condos. You’re dealing with realtors. You’re dealing with accountants. Lawyers. City taxes. Insurance companies. It’s a people business at the end of the day so if you’re good with people, you’re good with stress, if you’re okay with just sort of going with the flow, you’re gonna be alright. If you’re someone who’s forever panicking, forever cranky when things don’t go your way, then don’t do it. Because it’s gonna toss you over.
Q: What’s your business model?
Buy, hold and rent out. That’s our business model. We buy it, we hang on to it, we rent it out, that’s when the mortgage is getting paid down, that’s when the magic happens. The property is probably increasing in value because that’s what the market does. And then when it feels like it gets rid of it, I’l get rid of it and go buy something else.
Selling it again depends on the property. As little as 3 or 4 years, some I’ve had now for 10, actually 13 now! As long as it’s still making me money it doesn’t make sense to sell it and that’s the thing. And it also depends on what the market is doing. If the market is slowing down over here, but it’s picking up over here then I would probably want to take advantage of that.
It’s not a one size fits all. That’s the cool part about real estate. You can go whatever direction you want to if you have the guts for it.
It’s a matter of sitting down and saying okay, what do I want this to do for me 10, 15, 20 years down the road? And then you formulate your plan to get you there. You gotta think backwards. For example, you say, “I wanna be able to make $6000 a month in passive income off of my investment properties. How am I gonna get there?”
Everybody-- where they wanna be in 20 years is different. Some people are like, “I just want this to be somewhere for my kids to live in when they go to university.” Well then, that’s going to affect where you’re going to buy and what kind of place you want to get. It’s not a one size fits all. And it depends on what kind of risk you are willing to take because the more you buy, the bigger the bills.
Q: Kathy Talks About Her Tenants
We also are now very focused on properties that people with a fixed income would be looking for.. So someone who’s in pension, or someone who’s on some sort of assistance and can’t always afford an apartment. Because they just don’t make enough money.. Maybe their whole entire pension is only the amount of the rent, right? They are actually very very good tenants AND they deserve a home. That’s it. And so we buy properties, we fix them up.. I don’t put granite countertops or marble floors in them or anything like that but we buy properties and get them fixed up so they can look nice and then we can keep those rents down so that they have somewhere to live. It’s still making money and it’s a forgotten group of people. The stories that we’ve heard, they’re very often get treated so badly by landlords that it just breaks your heart.
Like one guy, I’ve been telling this story so much lately but I’ll tell it again. So we’ve got a relatively new tenant that just moved in and when he first came to look at the place. I’ve kind of showed him around and it didn’t take long. He’s like “yeah, yeah! It looks really nice but I don’t know if I can afford it.” Then he came back, and he’s like, “Can I go up and have a look again?” And I was working in the other units at the fourplex and I said “yeah! Go ahead. The door’s open.” So he went up, I thought nothing happened and he said “okay! Thanks. I will get back to you!” I went up to make sure the lights are turned off and all that.. And there was water in the tub! I don’t remember turning on the shower but maybe my husband did. But anyways he ended up moving in. He had a friend of his come over to visit and I overheard the conversation because I was right there working on the other units. He said “yeah, there’s even running water out of all the taps!” So wherever he was living before may have running water in the kitchen, but the tap in the bathroom was broken or vice versa. And these are the stories that you hear all the time so we decided that that will be our target market. It’s not the one that most want, which is great! It means I can have it all!
Q: What kind of moments make you say,
“wow, I’m doing the right thing. I have my purpose.”
When tenants reciprocate back. For example, we had a tenant who moved out because they had a job somewhere and they say “Kathy, can you just buy something in Calgary please so I can keep renting from you?” That’s a pretty cool pat on the back! What other landlord gets that? We’ve had tenants give us gifts when they're moving out saying thank you for being good landlords. It’s those moments where we go “wow. There’s something to this..” Well, today I just got to call up one of my tenants because I know that he’s looking for seasonal work and I said “Hey, a friend of mine just reached out to me and asked if I know anybody who shovels snow for the winter. Can I pass along your name?” I was able to make that connection.
Q: What made you say that it is a God story too?
When we first started, my husband is not a Christian, I am a Christian so when I first got this idea that literally the first thing I did was pray. “Lord, if you want me to buy two places. You’re gonna have to go talk to my husband, and I know he doesn’t talk to you so..” *laughs* I waited a couple of days and I approached him with this idea and he went “Oh! Yeah, let’s do it!”
Every decision, every move that we make is.. “Lord, where do you want me going next? How can I honor you in this? What do you want me to do? Who am I talking to?” That was a learned thing! Because when I first started, I was just kind of throwing up against the wall to see if it would stick, not even really realizing how much I can invite the Lord into this and let Him be the president of my company essentially instead of me trying to manage it all. He started directing my steps and that’s when things really started to go.
It was just letting my steps be ordered. Talking to the people that I needed to talk to and trusting even though I was hearing “no.” Maybe they said “no” but there’s another way. And that really set the stage for where we are today. The no is part of the process and I have learned that beyond a shadow of a doubt, when you know you’ve heard him and you know that God is giving you direction to go in, you just keep going.
Don’t get cranky at people, they’re just people doing what they can do. At the end of the day God gets His way. And if he has got something for you to do, you’re going to do it. As these roadblocks come up, they’re really not a road block! All it is is, “are you gonna trust Me with this? Yes you are. Well then let’s open that door up just a little bit. It’s not actually a road block. I’m just going to see if you’re gonna trust me.” That’s how God knows that he’s going to be able to trust you with everything that He has for you. Because He wants you to have it! He wants to know that you’re going to be so successful with it, you’re His baby! At the same time, He wants you to be strong. He wants you to be ready. He wants you to know that He’s got your back, that you’re the head and not the tail. He wants you to have that confirmation so deep in your heart that when those crappy days come, it doesn’t shake you. Getting to that point it’s not a lot of fun sometimes. *laughs* but yeah, the desires of your heart, He’s going to give you those desires because He put them there. You think they’re yours but they’re not! You have the heart of Christ, that’s what the word says.