Instant Leverage Podcast Episode 55: Walking Through My Latest Real Estate Investment Step By Step

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Welcome to the instant leverage podcast, where we show you how to get maximum output from your life and business. With minimum input, please subscribe and leave a review. Welcome To another episode of the instant leverage podcast. In this episode, I wanted to walk you guys through a couple of real estate deals that I'm doing. And I think this is super important because number one, when, when I, I, I did a whole masterclass for my, my private clients on, uh, this exact topic. And I walked them through for about an hour, how I found the deals, how I sourced the deals high, negotiated them, put them together, et cetera. So here's a kind of what I've been working on lately. And this is, this is something that I'm super, super excited about is diving into this real estate game. And ultimately, uh, I'm super inspired by people who build amazing things. Like I look at, I live in, in a downtown area and I look outside and it's super inspiring. The people that have built these buildings that were at one point, they were just an idea in someone's head and they had to go out and find the lot and buy the lot and draw the plans and, uh, get architects and get bank financing and investors in all these different things and contractors and general contractors and permits. And then, you know, one or two years later, you have this amazing building, right? So I think that's super cool. So I think that eventually that's going to be one of my plays, but for right now, I started off as a real estate investor. So I believe that you should focus. So you shouldn't have too many other businesses or things going on, but I think that one active income stream and one passive income stream is okay, so I'll walk you through this episode. It'll be me walking you through these, these two deals. One of which we've closed on one of which is under contract and closing in about three weeks now. So, uh, first deal was in, uh, Florida, North Florida, Tallahassee, Florida. And it's two properties, two houses on one lot. So you can consider the detached duplex. And the way that I found this was through running a Facebook ad, you know, I got into the real estate game and I said, Hey, I, I have my strengths already. Like I know digital advertising, I know some sales. So I was like, let me just play to my strengths. So I ran a Facebook ad and that ad started to generate a couple of leads in the ad is, is along the lines of, Hey, do you own a property single unit multiunit in Tallahassee, Florida, that, uh, you want to sell, I'll take it in whatever condition and I'll guarantee you an offer within 24 hours. And, uh, it was ultimately very, very simple as that. It was very much along the lines of that. Um, a few other things I included was like, Hey, I won't jerk you around or, or give you the run around. Um, it was essentially pretty, pretty straightforward. So, um, essentially what ended up happening was we were getting leads for about $80 a lead. And the, I think the first deal was like the third lead that came in, um, all, all the leads picked up a few, just weren't a good fit. So, uh, immediate interest because this property was rented for 950 per unit. So it was rented for $1,900 a month. And, uh, I talked to the owner and she's like, well, I got it for 75. And I'd like to get a little walkway, a little something. And, uh, that's it. So ended up, uh, putting it under contract at 80 grand. And basically that would mean if you got traditional bank financing, you'd have to put down, uh, anywhere between 16 to $20,000 upfront. Uh, we did an inspection and it needed about, uh, needed a new roof needed, had some drain issues, a bunch of stuff, right. So we needed about $20,000 in repairs as well. So I, uh, put it under contract. Everything was all good. Two tenants completely rented at the time. And, uh, the numbers were, is going to be like a, somewhere like, uh, uh, 40% cash on cash return. So you put in a 40 grand, it was CA it was going to cashflow around, uh, 12 to 13 K per year. I believe I don't have the numbers in front of me, but, uh, if my memory serves me. Right, right. So essentially, uh, it was a hit it out of the park deal. So here's where things got kind of complicated, uh, when, when trying to get the bank financing loan, the bank financing note, because the property was so irregular, it was two houses on one lot. It, um, it confused, it basically made the deal extremely complicated, right? Because essentially this property was what you call a non-conforming multifamily property. So that means that if one of the units were to burn down, burn down, uh, we'd have to get a, uh, permission from the city to rebuild it the same way. And the bank needed to see that permission first, before deciding to loan on it. So what we ended up doing was, uh, we were going to fall out of contract with the seller because getting this letter from the city took minimum 10 days. Right? So, uh, we had already fallen out of, out of a contract once it had been delayed because everybody and their mom was refinancing at this time of the year. So bank financing was slow and ultimately, uh, we fell out a contract, almost lost the deal, got back in contract. And I knew if we fill out a contract again, the deal would be lost. So, uh, me and some of my close friends have been talking for awhile about forming a real estate company and me running it and being the CEO of it. Yeah. And, uh, that's what happened. So I said, Hey guys, this is a great opportunity for us to kind of partner together. Um, the, we formed the real estate company. They put up the money for the deal and we bought it outright cash with the intention of refinancing it in six months. So remember I said, I bought this property for 80 years and the property was rented for 1900. So in real estate, there is a rule called the 1% rule. Some people live the 1% rule. Some people hate the 1% rule. I treat it as a rule of thumb. Right. Which basically tells me if the property is rented for 1% of the total cashflow of the property, then, uh, it's, it would probably probably cashflow on a month to month basis, meaning it would probably turn a profit every year, single month. Right. So I know that a lot of them investors pay attention to this rule. So I saw that in and she said, Hey, it's running 1900. Um, and I got for 80 grand. So I'm like, in my mind, I'm like, okay, quick math, 1% rule would mean that this property would someone w w it would still cashflow at 190 grand purchase price. Right. So I was like, there's, there's an opportunity there. But because of the fact that it has this irregular issue in bank financing is difficult. It's probably going to have to be a cash deal if we ever sell it. So, uh, we could pull out. So I conservatively estimated we could resell this property for 160 grand. So here is the play, right? So we had to dump cash in to pick this up 80 grand plus a 20 in repairs. So we're a hundred grand all in, right? So the property I think, is, would appraise for minimum 160,000 or at the bare minimum, I'd be able to sell it that much. So 160 times 0.7. And the reason I say 0.7 is because the bank will give you a loan on your house. How so if you have a house, let's say you have a hundred thousand dollar house. I think we'll say, Hey, I'll give you 70 K right now, and then you can pay it back as an, as a regular mortgage. So, uh, we're able to pull out 112, a thousand dollars from this deal. Remember we only have 100,000. Okay. And so what we're doing is, uh, six months from now, we're going to refinance. We're going to pull 112, even though we only have a hundred in it, pay ourselves back. And then now we essentially have this free rental property that's producing cashflow each year and every month. So, um, the, the question, it was like, you know, Jr. How did, how did you learn all this, uh, over the past, like four or five months in my spare time, I listened to real estate part, I guess. And I, uh, bought like 10 different real books that I went through. And I have like, you know, eight others that I still haven't gone through. And, uh, I found like a local mentor, like one of my buddies that I got introduced through another friend that was investing. He wasn't a realtor in an active investor. And I kinda just, you know, started asking him questions all the time and hanging out with him and, and just kind of getting the scoop on real estate investing. So, um, that is the first deal. And the player there is six months from now, we're going to pull our money out, pull out one 12 minimum, basically get 12 grand paid back that's tax-free because it's alone. And then now we have this 112 to roll into the next deal, to do the same thing over and over again. And this is how you can accelerate your wealth in this, in this country. Right? So that, that hundred grand that I essentially got together with my friends and they, they threw down on this deal. Um, and now we're doing, we're going to do this at scale with apartments and stuff like that. That a hundred grand is now going to be reused over and over and over again, to keep acquiring new properties. So that's deal, number one, deal number two, because all, you might have all these red flags that came up in your head. Hey, Jr. Well, I, you know, I don't have, uh, I don't have rich friends or I don't have credit to, to be able to finance or get a loan or whatever. So, um, number one, and I know that, I know this is, this is the sentiment because, uh, when I brought this up, when I shared this with my coaching clients, the, these were kind of the objections that I get to go. I wish I had friends like that or whatever, right guys, the bottom line, as in real estate, the deal, the deal is harder to find than the money. If you can find the deal, then you can find the money. No deal equals no money. Good deal. It's easy to get money. When I, when I did this deal, I had like five people. I didn't even post about this. Right. I didn't even post about this on social media. I had one of, one of my business partners posted like one post about it. And I got like five people hit me up. And like, AJR why don't you tell me about this? I would've thrown down on this deal as well. So the problem is not, not the financing of the deal. The problem is you don't have the knowledge if you have the knowledge and find the money, right. So onto deal. Number two, because I, I wanted to show this contrast because deal, number one, we didn't use a bank, but we could have, um, had I been a little bit more savvy knowing what I was getting into a little earlier, um, I could have fixed that issue with the city a little bit earlier, and the closing would have gone fine. So deal number two, uh, same thing, Facebook ads. And, uh, this was a triplex and a house on one lot. So four units total, a guy owned it for 30 years and essentially, uh, it was paid off. So we, we toured the property and, uh, this, this one I'm actually partnering with that same realtor friend that I told you guys about. And, uh, kind of funny. I actually I'll, I'll pause until this story here is the power of connections. Here's the power of, of just being savvy and asking questions, right? So you might be thinking like, well, do I don't know anybody, right. So let me tell you the story of how I met this, this realtor that, that has now become like, such a blessing for me in terms of just such an amazing resource. And now we're doing this deal together. So 2019, I moved to Tallahassee, Florida. I go to the ClickFunnels group. I say, Hey guys, uh, is anyone in Tallahassee, ClickFunnels group, 200,000 people at the time. Now it's way bigger. And, uh, one person responds to my posts guy named Jeremy. He's like, Hey, I'm in Tallahassee. Let's meet up. Cool. I meet up with him. I have pizza, great guy. And I'm like, Hey Jeremy, do you know any other entrepreneurs? I should meet any in the area. Do you know any other heavy hitters? And Jeremy's like, yeah, I actually do know this guy named Vincent, uh, introduced me to Vincent. I meet up with Vincent great guy. I asked him the same thing. Hey, do you know any other entrepreneurs? You should meet this guy, blast me out in like an email chain of like seven people. Right. And I meet up with all of them, right. And through that, I met a guy named Scott. Now Scott was a, he w he's what you call an entrepreneur. So he basically worked at this business center, uh, and he knew all the business people in the area. He brought me to this business event. And through Scott, I met this guy named Dustin. Now Dustin is where it gets interesting. Dustin owned a marketing agency and a brick and mortar, great, amazing revenue. And, uh, he brought me in for a day of consulting, right? He needed help with some ClickFunnel stuff. Funny enough, kind of come full circle. And, uh, ultimately he paid me for a one day consulting session. Him and I was all his employees met one of his employees, Raphael Raphael at the time was dating. Uh, someone who has to this day become one of my best friends, uh, Gina. And, uh, she ended up introducing me. We started talking about real estate investing. She is an active investor, introduces me to Ray, which now we're doing, uh, this deal. And we actually might be doing a second deal together that we're going to be discussing today. So I'll keep you guys updated. I'll, I'll, I'll talk about every, every deal that we buy and acquire, I'll share the numbers on here. So, and you guys can kind of follow along and, uh, and, uh, hopefully this inspires you to start investing as well. It's a lot of fun. So, uh, met Ray and for the first year of re knowing me this, this, this dude is great. He's such a long game guy for the first year. All he'd really did was educate me. Right? And, uh, we would hang out, spend time together. He told me about, uh, real estate, his real estate properties, his deals, and a super young dude has like eight properties under his belt. So, um, year goes by I'm, I'm, I'm like the worst client ever, right? Because I'm not buying anything. I'm asking a lot of questions. I am taking the time to get educated and, uh, nevermind it. Right. And then a year goes by and I'm like, Hey, I really want to, I've been, you know, talking about this for a while. I need to do it. So I run the, and uh, this Lee, I think this was the fourth lead that came in, um, was this triplex in house. So talk to Ray about it. I'm like, Hey, I think this is a great deal, but I think it's a little over my head. Would you be interested in coming on it with me? We, we, uh, he's like, sure. We talked to the owner, we negotiate or financing. So if you don't know what seller financing is, this is, this is instant leverage. This is instant leverage at its finest, right? So seller financing is essentially when the seller becomes your bank. And because the seller is your bank, it's much more flexible. So the purchase price on this one is, uh, around $274,000. Uh, each unit was rented for $600 per unit, right? We are going to increase the rent per unit. Uh, they're all three bedroom, two bathrooms in a good part of town. So think, just know no matter what part of the world you're in. Think about living in a three bed, two bath place in a good part of town for $600. That's seems ridiculous. Right? So this guy has owned it for 30 years. Never increased the rents and he's paid off. So he's been happily collecting. And, uh, so we see this and we're like, Oh, this is an opportunity. Um, but because of the way that the property's divided, it's a triplex and a house on one lot. Um, the, uh, there's difficulty there in loaning, right? Again, because it's in a regular property, banks would have a hard time load loaning, and it would have to be a commercial loan, which would mean 30% down. Right. So 30% down is essentially a hundred thousand dollars on almost a hundred thousand dollars on this property, if I'm doing my math. Right. So let's say two 74 times 0.3, it's 80 to 82,000. Right? Plus it needs a little bit of, of, of love. One of the units is a one, one and a half. We're going to convert that into a three. Um, so all in about a hundred K, right? So we go to the, the seller and we're like, Hey man, um, this deal does not work for us, uh, because we have, we would have to get a commercial loan and commercial loans are not as good as your residential. They're not 30, typically not 30 years. They're usually 20 some. And the rate changes every five. So, uh, we went to them and we said, Hey, Hey, would you be willing to finance this for us? And he said, eh, you know, he's an older guy, 65. He's like, I, I would love to. He's like, but I also, I really, you wouldn't want to just, you know, clean my hands with the property if I can. Um, so we negotiate with him. He wanted 20% down. We said, Hey, we're thinking we were thinking 10. And, uh, we went a little back and forth and we settled at 13% down. So 13% down. Uh, and I'll walk you guys through the numbers on this two 74 times, uh, 0.13 is 35, six 20, right? So 35, six 20 is our initial investment. Plus we have to redo that, that, uh, unit, and then we're gonna get the rents up to 4,000. We, we determined that this would cashflow about $22,000 a year. So divide that into our initial investment of a third 30, I think I said 32 plus the 15 that it needs. Um, and this is, these are very conservative numbers, right? So that's 47 all in. And this is gonna, this deal is going to make about 22,000 per year. So $47. So 46%, uh, 46.8% cash on cash return. Once we raised the rents, um, now everybody's locked into a lease for, I think about seven or eight more months. So ultimately what we're going to do is once these leases are up, we're going to raise the rent to a thousand dollars per unit. Uh, we have to renovate the basement. That's a one and a half, but it's huge. It's like 900 square feet, a thousand square feet for one, one and a half. Um, so we're gonna turn that into a three three-two. I mean, that's not huge, but compared to the utilization that we're getting now, it is, um, and it has a house that's 1600 square feet on the same lot that is going to, uh, rent for about 11, uh, minimum a thousand on the high end, probably around 1300, 1400. So here's what we're thinking. Uh, once we raise all these rents, uh, the, the deal with the, the seller financing to kind of backup for a second was that he he's going to sell or finance us. But in five years we have to make a balloon payment. So in five years we have to go find another lender or renegotiate with him, find another lender, or pay him off completely right. Take out a new loan. But at that point, the value of this property that we're picking up for two 75, two 74, the value of this property, once the rents are raised as a commercial property is going to be in the four 50 to 500 range, right? So this guys, this is, this is the most exciting. This is how wealth is created, right? This is leverage. This is the definition of leverage. We found an asset that was undervalued. We got amazing financing. And, uh, you know, we're going to add value to it by increasing the rents, right? So my play it's like, I want to do this at scale. This is four units. I want to do this with like a 32 unit. I want to do this with like a 64 unit, right? So you might be sitting here saying, well, Jr. You know, this, this deal is 50 K all in. I know you're splitting someone. I don't have 25 K to drop on this. Right. I don't have 30 K 40 K. Right. Um, now here's the deal. It's a 46% cash on cash return. So what if, let's say you did this deal on your own. And the only reason I have a deal, I have a partner in this deal and I could have done this on my own, regardless of if I had the money or not, because it's such a great deal. And I'll explain that in a sec. But the, the reason why I decided to go in with a partner is because number one, he's a great guy and getting to partner with somebody who knows what they're doing in this market has been doing it for five plus years, invaluable. Right? Totally worth the equity that I'm giving up. So let's say you, you found this deal and you had no money, right? So it's a 46% cash on cash return. The average bank pays less than 1% return, right? So if you have an uncle, sister, cousin, mother, brother, or anybody in your network, I'm sure there's someone in your network that would have done this deal. And if, even if not, let's say you don't know anybody, right? You're not in any communities. You don't know anybody that has money. You don't know anybody that's in business. There's also hard money lenders out there that you can reach out to. So let's say you had no money. Um, and you found an investor and I'm telling you guys finding this deal is harder than finding the person that's going to fund it. So, uh, this deal 46% cash on cash return. Let's say I told somebody, I went to somebody and I said, Hey, I need you to finance this deal for me. So I need you to put up the money up front and I'll pay you a 10% return for the next five years. So let's say they put up 50 grand, right. To make this happen. A 10% return on 50 grand is five grand a year. Right? And remember I said that the deals cash flowing 22 grand a year. So a 10% return. Well, that's collateralized because they have equity in the building, right? It's a relatively safe investment is very, very, it would be so easy to get somebody to agree to. You could even give him 20%. You give him 15%, right. And it's still a great deal for them and for you because you're adding to your net worth. Now, now you control this asset and own half of it, right? And you don't even have to give it back. What are, you can just give them the return. So, Hey, I, I owe you a $10,000 a year. If you're giving them a 20% return, right. Or an, I own a hundred percent of the building, but I'm going to give you $10,000 a year. As long as I'm using your money, three to four years down the line, you have a solid rental history. You have this income producing asset, you could refinance it, pay off your investor, or do whatever, whatever you have to do, get a new loan, pay them off. Or at that point, maybe save some money, pay them off, pay them back. So ultimately there's just so, so much that could have been done here without you having your own money. And I think that not having money, I was thinking, I'm thinking about these hard. I think that not having money in real estate will actually work to your advantage in the beginning, right? Because if you come into real estate with millions of dollars, you're not going to be creative enough to think like, Oh, well, let me, let me ask this guy. If he can do seller financing, right. Or let me look off market on Facebook ads and run Facebook ads for deals, right? So you're not going to think of these creative strategies because it takes work. So if you have millions of dollars, you're going to go to your realtor and say, Hey, let me buy something on Zillow. That makes an a, a 7% return because I'm getting one at the bank and have somewhere to park my money and take advantage of the tax benefits and appreciation and all that stuff. Um, but if you don't have the money, you're not going to do that. You're going to get creative, right. And then, uh, once you have a nice portfolio and you've built up something, uh, uh, decent, you'll have all the skills, you'll still have the, like the, the, I started reading this book, the power broke by Daymond, John. And this is, is no realer than in real estate, right? Because if you don't have, if when you have money, you get lazy. You're not going to do the, the, the fundamental hard stuff, like set up a Facebook ad and talk to all these sellers. And so you're going to default to the easiest thing, because you're going to, you know, you have money, so you probably don't have a ton of time. So, um, I think that not having money in real estate is actually starting out with not a lot of money is actually an advantage, because if you, uh, because of what I just said, right. Having money is gonna make you, you you're gonna use that money as a crutch, right? So, uh, any one of you listening could have done one of these deals that I'm doing, and, uh, you could have done it without any of your own money. You could have done it with some of your money. You could have done it through a hard money lender. So the guys, the money is not an excuse. Uh, it's the Reese, it's there. It's your resourcefulness. If you are creative enough, if you're hardworking enough, if you are savvy enough, you will find a way to make this happen. So, uh, if you like episodes like this, I'm back on Instagram. I took a hiatus for awhile, and I'm back on Instagram. If you like episodes like this, uh, let me know on Instagram at D J R Reavis, and I'll keep doing these, uh, deal breakdowns as we acquire new real estate holdings. Um, shout out to my business partners, uh, Joel Kaplan, Mark Coulter, Sergio Tavarez, uh, they run an amazing company now called seven-figure agency. We've incorporated our business Tesseract real estate, and we're going to dominate 10,000 units is our goal. So thank you guys so much for listening. Uh, let me know if you guys enjoy this and I will see you guys on the next episode of the instant leverage podcast.