Aaron’s Story: How one pharmacist is finding flexibility through real estate investing
This article was written by Aaron Howell, a 2000 graduate of West Virginia University School of Pharmacy. Aaron lives in Charlottesville, Virginia with his wife Megan and their dog Lucy. Aaron started working with Kroger as a technician his freshman year of college and signed on as a staff pharmacist after graduation. In 2008, he left Kroger for his current job as manager at Walmart Pharmacy and volunteers as Pharmacist in Charge for a local free clinic in Charlottesville. Aaron currently owns 14 rental units and is well on on his way to attaining his goal of having 20 in total. He is also a licensed pilot and serves as a mentor for local real estate investors.
I grew up in Princeton, West Virginia the son of a Coal Miner and Bookkeeper. My parents struggled financially all through my childhood and were divorced by the time I was two years old. I bounced around between both parents for a couple years and eventually lived with my grandmother from age 13 to when I graduated Pharmacy School. I was lower-middle class at best and more likely upper-lower class. I’m not telling you this to make you feel sorry for me, I’m telling you this because despite not one shred of entrepreneurial spirit in either parent, nor a moment in childhood that made me want to be a landlord, I was still able to find success in real estate.
Real Estate Journey
My first (and biggest) mistake in real estate was waiting 6 years after moving to Charlottesville to purchase my first residence. Picture mid-2006 (Homework – watch the Big Short) and I’m buying almost at the top of the market on a 1,200 square foot townhouse. Yeah, you can imagine what happened in 2008-2011. To make things worse, the townhouse was considered owner occupant only per Home Owners Association (HOA) regulations, meaning I couldn’t rent it out without the possibility of being punished by the HOA with a fine. In 2009, I moved into my current primary residence and attempted to sell the 2006 townhouse which at that point was on a constantly descending roller coaster ride on its price. I honestly don’t know how I did it but I made two mortgage payments for over a year before I decided to break the rules and rent it out. I found a tenant who lived in it for about 3-4 months before losing her job and moving away. I was fortunate to find another tenant quickly and she lived in the property until I sold it to her in 2016 at about a $55,000 less than I originally paid.
I know what you’re thinking “Why would I want to do real estate after that bad experience?” However, I was hooked after learning that I could get someone else to pay my mortgage and still reap all the tax benefits. During the time my tenant lived in the townhouse I also had paid down the principle enough to receive a small check at closing! (side note: I also skirted the ill will of the HOA and managed never to be fined.)
Now in 2011, on strange urgings by my non-entrepreneurial mother, we traveled to Las Vegas, who’d been hit hard by the real estate downturn, (again see the Big Short homework requirement) and purchased a property together. I duplicated the endeavor in 2012 solo and bought a 2nd single family house (SFH) again at a huge discount due to the market being in such bad shape. The deal with my mother would end up being my best deal by far. We purchased it at about $90,000 and just sold it for $210,000 less than 6 years later. On top of that, we only put about $4000 into it over entire time we owned it.
In late May/early June 2014 I went under contract on my first duplex (a 6 BR/2BA over/under duplex). The place needed tons of work due to flooding in the basement unit. At our home inspection you could smell the mold/mildew and see where the basement had flooded about 12 inches off the floor. There were actual tenants living in the basement during this time and the owners were anxious to sell because of all the deferred maintenance.
This is where my education in real estate really started expanding. The loan officer I was working with came up with the idea to pull out equity from one of my Vegas properties in order to fund the duplex here in Charlottesville. At this point, I had no idea that I could do that but, with guidance from the bank, we managed to pull it off. Now the day I closed on the duplex was the day I also passed my “checkride” (aka pilots license test), October 31, 2014. It was an awesome day and I was able to relieve some stress in my life in a big way that day. I ended up inheriting some tenants who were very good in the upstairs unit and although it took several months to get tenants in the downstairs unit, and about $27,000 in renovations, the property has been a cash cow in terms of cash flow. This is actually how I’ve funded most of my deals. Basically I’ve used a Home Equity line on my current residence to fund the expansion and I’ve pulled equity out of some of the early properties to fund further purchases.
Sometime in 2015 as I dug deeper into the real estate investing website, Bigger Pockets. An excellent resource for networking and education on all things real estate investing. It was then that I discovered Cleveland, Ohio as a market that was really affordable. My local market here in Virginia is tight and very expensive so discovering a market with so much inventory and low prices was a godsend. Since then I’ve purchased one SFH, a duplex and a quad. I’m currently under contract on two duplexes in Lakewood and Old Brooklyn. After selling our two Vegas properties and closing on the two duplexes under contract I’ll soon be up to 14 units.
Setting Goals and Priorities
Initially, I believed that paying off my mortgages was my number one goal. However, over time I’ve switched philosophies. Paying off a mortgage early is nearly useless to me because you don’t earn interest on your equity. Absolutely nothing! If you borrow from a bank you’re able to deduct the mortgage interest off your taxes. As a pharmacist, I’m looking for all the deductions I can get. If I pay off the mortgage, I lose that interest deduction and I have to hope for something to break at the property (which I then have to pay for) to be able to claim a deduction. I’d rather use the equity as leverage to get more properties. Ultimately, borrowing at 4-5% and earning 10-15% on a rental is a way better deal than getting nothing from equity.
Right now, I’m driving a vehicle that has a 160K miles and my technicians drive better cars than I do. The reason I don’t drive a newer vehicle is that I really want control over my expenses so I can have more income to devote to expanding and increasing my passive cash flow pool. I also want control over my time. Eventually, I’d like to get down to about 24 hours a week as a pharmacist. Walmart over the last couple years has changed (for the worse) and I’d like to have more control over how much time I have to spend there. It’s still a nice place to work and I still enjoy it after 17 years, but I’d just like more control over my time. I’d like to coach my kids soccer team (I don’t have any children yet) and to do that would require being available in the evenings. (Something that I don’t always have now) I also want my wife to have the option, should she choose, to stay home with our children and maybe only work a few days a week. In my spare time I love watching sports. My wife and I just returned from Houston to watch the Washington Nationals (her favorite team) play at Houston. I think one day we’d like to see all the Major League Ballparks so we’ve got some work to do being that we’ve only been to 8 so far.
How to get there
- Learn, learn, learn – You don’t know what you don’t know. Making up for that by learning as much as you can makes up for not knowing.
- Take action – Wayne Gretzky said “You miss 100 percent of the shots you never take”. I go to our local Real Estate Investors (REIA) meetings and half the people there are looking for their first deal. Now I get it that the local market isn’t the best for buyers but I’ll mention to them about investing at a distance and they look at me like I’m crazy. Sometimes you just have to take the plunge.
- Buy for cashflow – I think so much of a newer investor’s fear is thinking they’ll buy wrong or make a mistake. If you do the math and buy for cashflow, the value of the house doesn’t matter as much. (that mailbox money coming in every month will make you feel a lot better).
Mindset is also very important. I read every day on purpose. I know that by constantly thinking about a certain thing your mind makes ways for that thing to become possible (See Napoleon Hill’s Think and Grow Rich). If you change the way you think, you’ll change the way you act. If you change the way you act, you’ll change the results you get. If you change the results you get, you’ll change your desired outcomes. Just like Pharmacy School, you immerse yourself in a subject and after time you become more proficient.
Overall, I think being a pharmacist has slowed me down. I’m very comfortable being a pharmacist. I enjoy the weird people, fixing problems, dealing with staff issues. If I were more uncomfortable I think I would have started wanting to expand to 20 units sooner. My first home (the $55K loss townhouse) was just a really expensive education. I feel bad for waiting until 2006 to buy a personal residence but had I bought earlier in 2002-2003 I’d probably been in worse shape when the market downturn happened. I think I would have probably moved into something bigger and lost more than just that $55K in the long run. The townhouse was an education in timing, tenant relations, refinancing, selling and in being a landlord. I learned a lot now that I look back.
I’d recommend branching out into real estate for any pharmacist. Honestly, look at a pharmacist you know who’s 50-65 years old and ask yourself “Do I want to live like that?” If the answer is “No” then you need to ask yourself what will you do to make things different for yourself. You may not have the goal of 20 units or you may be just out of school and think you’re going to change the world (and you just may…. I’d never crush your dreams) but plans change over time and having options is an advantage when they do.
Aaron Howell, RPH
ahowell7@hotmail.com