What is the most effective step to achieving financial freedom? Financial education. Sam Wilson’s guest today is John Rickgarn, the Creator of Wealth & Freedom Nexus. John talks with Sam about having his first fourplex in Marshall, Minnesota, and then leveling up to having multiple properties across six states. His main sources of capital? His retirement accounts and getting into syndications. If you want to know more about how John achieved financial freedom, this episode’s for you. Listen and enjoy this episode!
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Achieving Financial Freedom One Bill At A Time With John Rickgarn
John Rickgarn, welcome to the show.
Thanks for having me. A pleasure to be here.
The pleasure is mine. There are three questions I ask everybody who comes to the show. It is where did you start, where are you now and how did you get there? I tell everybody who comes on give us a very truncated version, but if you don’t mind, use this time to give us that version, also maybe a little bit more of your background. Tell us a little bit more about who you are.
You don’t get an upfront tax break with a Roth IRA, but it grows tax-free.
My name is John Rickgarn. When asked what I do, I introduce myself as an investor, educator, and realtor. I invest in real estate. I educate others on real estate and investing. I’m also a real estate agent as well. I’m one of the minorities of the investor-friendly agents. As far as my background, I started learning about investing. I deep-dived into the Rich Dad Poor Dad book in 2014. In 2016, I made the jump into my first real estate investment. Since then, I snowballed from my first fourplex here in Marshall, Minnesota, to multiple properties across six states as well as getting into syndications through my retirement accounts.
Were you an investor before you became an agent?
Yes. I started investing in 2016. In my previous life, I was an office equipment salesperson and I did that for twelve years. After numerous gray hairs and ulcers, I decided it was time for a change. I figured I had had good luck with real estate investing. I have learned a lot from real estate investing and becoming an agent seems to be the best fit. I could also educate others to maybe get their first home but also build their real estate portfolio.
What was the first deal you bought?
The first deal I bought was a fourplex in my hometown, Marshall, Minnesota. I had a very truncated wish list of what I wanted, which met the 1% rule, newer construction, and vinyl or steel siding. My wife was even like, “You are never going to find that.” As luck would have it, I found it on them on an MLS listing. Back to the Rich Dad Poor Dad lesson of, “Don’t say I can’t afford it. Ask how can you afford it.” It is a fourplex for $300,000. I don’t know anyone that has a 25% sitting in a bank account for that downpayment. I learned that you could take your contributions out of a Roth IRA tax-free and I had one since I was nineteen. I got a little creative and that is how I started my real estate investing journey.
I have not heard that before, and that is not a commonly understood thing. Walk us through those contributions.
There are two retirement accounts. The traditional side is called tax-deferred, where you put in money and you get a tax break up front. The gross is tax-free and when you take it out of retirement, then you pay taxes. I’m more a fan of a Roth IRA that you put in the contributions. You don’t get an upfront tax break but a gross tax-free. When you take it out, it is tax-free as well. If you are lucky like Peter Thiel, you can do this and get a $5 billion Roth IRA built up.
There are few nuances with this, but any of your contributions, you can pull out tax-free because you already paid taxes on that. While the IRS cuts it off, your earnings can’t be pulled out until you are 59.5 years old without penalties. If you put in $30,000 and it grows to $60,000, you could take out that initial $30,000 because that was your contribution.
Maybe it is not the best strategy for everyone, but in your case, it made all the sense in the world. It was like, “I can pull this out and I have my downpayment.” You bought a fourplex. How did you go from a fourplex to across five states?
I started in Minnesota in 2016. The next one came from our property manager that they had someone call in for a reference for a tenant. Through the conversation like, “We were looking at selling our duplex.” Scott gave me a call and it was like, “If you are looking for an off-market property, this might be one for you.” It was in their territory and they managed it, so it worked out well. That has been our cash cow of all our properties ever since.
We decided to jump across the state lines. My wife has family in Arizona, so we decided to get a condo down there. It’s our second home/vacation rental then I had the best start when COVID hit in 2020. I didn’t have a lot of income, but 2021 has been performing well for us. I then jumped into the turnkey investing space down in Birmingham, Alabama and Memphis, Tennessee. The last acquisition was an off-market property duplex in Davenport, Iowa. The owner lives in California. We had met up on a podcast and started talking. He wanted to roll the proceeds into an assisted living facility, fund, or something like that, so it worked out well for both of us.
I love the courage to keep moving forward like, “The one foot in front seems to make sense.” How are you able to fund all of these opportunities?
It is a mix of things. As I said, I started with a fourplex. That was the jumping-off point with pulling out of my Roth IRA. At that time, I still had a day job selling office equipment and was successful with it. I had a number of years pulled in six figures. My wife and I were the proverbial dinks, double income, no kids, so it is a little bit more spendable income. We didn’t have any children at that time, so I was able to utilize more from savings.
At that time, I was very much maxed out your IRA and maxed out your 401(k). In 2016, I took a step back from that and pulled back my contributions to get the match at my workplace. That allowed for thousands of dollars over the course of four years. I was like, “Instead of putting a retirement, let’s put these in a down payment for properties.”
You can get more passive cash flow with equity growth.
Were you still a W-2 employee when you were buying all of these, or had you then transitioned out of that?
I was a W-2 employee with the first four acquisitions, and then after that, I transitioned from it. In the last acquisition, I got the most creative. I worked with the local bank that our fourplex had gained in value quite a bit, so we had some equity to tap in there. Working with the local bank had a 0% downpayment. It was 100% finance. The downpayment was a first lien, ten-year amortization that was pulled from the equity of our portfolio. That acts as a downpayment, so 25% downpayment then 75% remaining for the duplex down in Davenport. Out-of-pocket was pretty much just some of the closing costs or appraisal.
What was it like getting bank financing without a job?
The first one was a little bit tricky. They had to redo the entire financing. My wife is still a W-2 employee and I could utilize her income. At that point, I had built up our rental portfolio. On paper, it looks like our business has a loss because of depreciation. Not all banks do this, but I found one. They take your tax returns then add back in the depreciation to show an actual income that they can use towards financing other properties.
Let’s talk about things that maybe you have run into along the way. Were there tools or strategies that you have used in this process to grow your portfolio?
The biggest thing is education and due diligence. On average, for every deal, we have purchased or property purchased. We looked at between $50,000 and $100,000 before pulling the trigger. I tend to be extremely conservative. I have seen a lot of pro formas that are pie in the sky, no vacancy, no maintenance, and top of the market rents.
I take that apart. It’s like, “Let’s put this in for the rent. Let’s factor in this. No, this doesn’t cashflow. I’m out.” That has been my game from the get-go is I’m 100% cashflow. If appreciation comes, that is great, but I’m not going to feed an alligator per se with negative income month after month and hoping that appreciation bills me out later.
Has there been any bad advice that you have received along the way?
I don’t know about bad advice but maybe misguided on the appreciation side like, “Invest for appreciation.” I should have gone to the Dallas-Fort Worth market several years ago. There was a fourplex down in Florida that would be worth about $280,000 more than what we have purchased for. I kicked myself for not pulling the trigger on that.
At the end of the day, I looked at my portfolio. It is cashflowing and two of our properties have appreciated amazingly but that wasn’t my main focus. It was cashflow, then appreciation next. As we have been building our portfolio, we’re taking that appreciation out through cash-out refinances or lines of credit to use as downpayment for additional properties.
What was one of the biggest challenges that you faced in your business?
It is the lack of inventory nationwide and finding a good deal and long waitlists for different turnkey providers. My initial goal was to try to get two properties a year. It has been more one property a year for the last few years. By the same token, it has to meet my criteria. I’m not going to give up my criteria or what I look for to buy something just to buy.
Even if there is extravagant appreciation going on the market now, I would say it is maybe a little bit slower going. That is why I have started to go into more syndications and some more group funding or private lending. Eventually, the market is going to turn around. We will get caught up with the inventory struggle and whatever the new normal is going to be. I think we will be there.
Is there anything about your business or yourself that you want to forecast the next twelve months and say, “This is something I want to work on and change actively?”
In the next twelve months, I’m choosing a good solid financial position. I want us more on the lines of having extra reserves and additional credit lines on-hand. I would rather have the funds available for the eventual new deal that comes up, be ready to jump and have a good reserve-based there in case something extraordinary happens on a property that is not so much of a negative cashflow and going to hinder me. I can pull that from reserves and be in a solid position even if that means, “I could take this for a downpayment on another property, but let’s take a step back and leave this for the what-ifs.”
Tell us about your journey to becoming an LP. You said that is the reason why you have gone more into group syndications and things like that. What does that mean to you and how have you found success in being a passive investor?
It is with the limited partner and the syndications that are primarily through my self-directed retirement accounts. As I mentioned, I took out my contributions and still had a sizeable nest egg. I looked at it as, “If I took out all my contributions, I have an infinite return sitting here. Let’s see how I can grow that.” As I researched more into private lending, limited partners, and 506(b) syndications, I realized that I could get into more deals and more passive cashflow, possibly some equity growth that would continue to grow my retirement account with minimal hands-on or need to get involved, and also, higher growth than the volatile stock market.
Let’s jump here into the final four questions. What is one resource or tool you find you can’t live without?
I’m going to throw out my podcast here, Wealth & Freedom Nexus, where I share my journey and shortcut for a lot of others of what’s worked out best for my journey. Beyond that, many of the audience have heard of the book Rich Dad Poor Dad. I still read that every single year to get a nugget out of that once or twice. Have that as the mindset of buying assets that produce cashflow that can pay your bills and fund your lifestyle.
If you could help our audience to avoid one mistake in real estate, what would it be and how would you avoid it?
I got hit with this and I have only seen this mentioned in one PDF in my entire research. If you are purchasing a property and you look at the property taxes, double-check to see if there is a homestead exclusion because once the house goes from homeowner occupied to non-owner occupied, in many places, you will lose that exemption, and your property taxes could jump, even though your value of the property may not go up a dime. That was my biggest mistake and I never thought of looking into it. That is my little nugget to share. Running your numbers and looking at the tax numbers very closely to see if there is a homestead exclusion that is going to go away once you purchase that as a rental.
When it comes to investing in the world, what is one thing you are doing now to make the world a better place?
I am sharing my journey and what I have learned. I believe education should be abundant, especially financial education. All of us can work to get to a better place. My tagline on my website is, “Financial Freedom: One bill at a time.” If anyone out there is like, “$10,000 a month or whatever the number may seem a little bit too daunting.” Work it backwards. What is the monthly recurring bill? Everyone seems to have a Netflix subscription for $15 a month. What asset can you bring to the table that produces $15 to $20 a month in passive income? Have that bill paid for and then keep moving up.
Financial education should be abundant.
That is very simple and practical. If our audience wants to get in touch with you, what is the best way to do that or learn more about you?
Interesting fact, there are only three Rickgarns in the world. I’m not too difficult to find if you Google my name, John Rickgarn. You can find me on LinkedIn and Instagram. Go to Rickgarn.com and that will redirect you to my website.
John, thank you much for your time. It’s been great having you on the show. I do appreciate it.
Thank you. It’s been great to be here.
Important Links:
- John Rickgarn
- Rich Dad Poor Dad
- Wealth & Freedom Nexus Podcast
- LinkedIn – @JohnRickgarnMBA
- Instagram – @WFreedomNexus
- Twitter – @WFreedomNexus
- https://www.YouTube.com/channel/UCHknisS7CBlnD6mgTJugA7w – Wealth and Freedom Nexus
- Rickgarn.com
About John Rickgarn
Investor. Educator. Realtor. That is how John introduces himself when asked ‘What do you do?’