Starting back in October 2016:
After graduating college in May of 2016, I didn’t know what I wanted to do, I was now free and ready to take on the next chapter. However, I knew what I didn’t want to do... that was work a 9-5 and lose all the freedom I had. I got to thinking already how could I earn an income while not having to rely on a 9-5 job that I didn’t much like. So I became curious about business.
It started when I was invited to a FREE real estate seminar. That moment moving forward, I knew I could do something like what they are teaching. So me being a curious go getter, I bought the course and split it with another partner ($16k) total — only one thing.. I didn’t have any money other than a few credit cards. However, while at this course, they taught us how to leverage INTEREST FREE Credit Cards so that I could buy this course, learn the material in it and be off on my way becoming a “Real Estate Investor”. The difference in me and the rest of the majority is I didn’t allow “the whole money excuse” to be my first excuse, I thought to myself how can I get $8k to come up with knowing that when I learn this stuff, I can do it OVER AND OVER again. I realized that I can pay off my $8k over the next 12 months interest free on a credit card I got, which would buy me some time to learn real life monopoly. I think I was only paying like $87/min a month to pay off my $8k. Not bad especially when I was learning practical steps to take to buy my first property.
3 months later in January of 2017, we had our first rental.. fast forward 5 months later in May of 2017 we already have closed on 5 properties.. talk about going into short term debt by paying for a course to now owning a Quarter of a million dollars worth of real estate. From there, every opportunity opened up and asked how can we do it bigger and go after apartments, office buildings etc.. my eyes were introduced to the abundance of things you could do if you simply allow your mind not to limit you..
Looking back, we set ourselves up for success early on by going to real estate meetups, every state has a national chapter called the REIA, Real Estate investing association. It was there at these meetups where we gained more knowledge, talked with people, building rapport and relationships to ultimately finding money through these relationships. (Now it’s not always about just “getting money” but more so about providing value by producing returns on these people’s money)
Mind you we didn’t know anyone when we started, we didn’t have much money in the bank (all the excuses I heard currently from others). So every excuse that’s going through your mind right now, was the same level playing field for us, except we asked ourselves how can I vs I can’t.
Big difference there. But so these next 3 months, we were networking, asking questions, becoming students all over again. Made a presence on Bigger pockets (like Facebook, but for real estate) I connected with people, and just simply did my own research by reading forums and blogs to gain multiple perspectives OUTSIDE of this course.
January 2017: Upon closing our first deal, didn’t know what to do, how to close, or anything (remember we are no different than you, we just followed the next step) anyways — our first deal came from FACEBOOK. A guy I knew posted his rental up for sale. It was $35k, I called him up from Facebook, inquired more about the property and boom! Negotiated him down to $30k and now we have a contract. We met in person to sign, then I’m like what’s next. Now I need to get financing. So I asked people in my current network that I had met previously during the 3 months going through the learning process. I called a guy named Paul, who I still talk with today and said “Man I have a house under contract, what do I do next?” — he gave me a number to a local banker, I explained to this guy I’m new, we have a house under contract, what do you need from me.
So I submitted via email all docs he needed to see if I can get approved for this small loan with a partner (mind you it’s easier to get approved for an “investment property” vs a home you are going to live in) the bank understands you will be making money on this asset so it’s easier to get approved — so this was me just following the next step, getting financing.
Now when the bank loans you money for an investment, typically you have to come up with 15-25% down on the purchase price. This bank happened to only want 15% from us off of $30k so that we have “skin in the game”. So 15% of $30k is $4,500. After adding in some closing cost, we ended up needing to have about $5,500 total to get into this $30k investment property that will cash flow about $300/month in net profit. (This is one of many reasons why Real Estate is good.. because of LEVERAGE) — Just for you math wizards out there, $300*12 = $3600. We made about $3,600 that first year. Keep in mind we only have $5,500 total cash in the deal (the bank has the rest) so in year 2, we get all of our initial investment back, everything else is from that point is “house money”.. now you are asking me, wait a minute.. you didn’t have much $, how did you come up with $5,500 to close? I had a few grand saved up, and a partner to split the cost. So my half only needed to come up with $2,250. Which wiped me clean out, had no more money.. but had an investment (that was now paying us).
From there on out, we had to change our plan, if we wanted to scale this business, we could not rely on using OUR OWN money to get into these deals.. (if that was the case, I’d have to wait another 6-12 months just to save up) that’s not going to get me anywhere fast. So the next 4 deals we resorted to OPM — other people’s money to close on those deals. Let me walk you through it.
March 2017: The next 4 deals came quickly after we realized it’s the SAME process we did for the first house, the next deal happened to be a package of 2 homes side by side. After months negotiating with the seller, we finally got them down to a price we wanted: $37,500 each totaling $75,000. Again, we needed to come up with 15% of the $75k to close this deal. That number comes out to be $11,250. Rather stop right there, we knew enough people by then who we could get to come up with the $11k.
So I was at a real estate meetup one night called “Deal or no deal” where you bring all deals to the table, I stood up in a small room of about 10 people and just casually constructed my mini pitch of the 2 houses we had under contract. A couple came up to us after and wanted more information.. We closed the next week using all of their money and we split the deal 50/50.
they provided the cash, we found the deal, and now we are managing the deal..leaving this couple completely out of it (they are considered passive investors). All they do is collect a paycheck we send every month from net profits. After successfully “raising money” we knew there was more to come..This particular “deal structure” between us and the couple was called an “equity split” meaning we didn’t owe them anything back except 50% of what both properties produce in cash flow and at the sale years later when that time comes.
May 2017: After doing an “equity deal” giving up 50% of our profits, the next deal we did was a duplex (2 units). We found this after submitting about 20 lowball offers to many properties we liked. This one was the one that stuck and accepted at our price of $72k. AGAIN...needing 15% down, we needed to come up with $10,800. So what do we do, instead of looking for investors that wanted “equity in the deal” we found someone (this time a family member) who was sitting on some money in a savings account not earning any interest..So I pitched to him, let me borrow the cash you aren’t doing anything with, and we’ll pay you back as if you were just a normal bank loan. So we negotiated a 6% for 6 years loan through this family member..
This simply means we would pay him back $256 every month for the next 6 years.. He didn’t want any part of the deal, just wanted to lend money and be fully out of it. This is called raising DEBT..It’s debt because we are going INTO more debt by paying him off no matter how the property performs, we owe him $256/mo for the next 72 months (6 years). (Before going into this deal structure, we had to make sure the numbers worked (cash flowed) even by paying back the extra $256 from the $15k we borrowed -- that we still came out on top each month. (remember the previous deal, we gave our “equity partners” 50% of whatever the property produced; equity)
Now this deal is considered “debt”, so we pay a flat fee every month paying off the debt. What’s good about this deal is again, we got into it without a penny out of our pockets..AND had INSTANT EQUITY. Meaning we bought the duplex for $72k and it was worth (appraised) for $105k.. Right away we created an additional $30k worth of equity to play with.. At the time of writing this (March 2019) we now have about $50k in equity to tap into and use for a down payment on another property…(crazyyyy right?! We created money out of nothing from a property that cash flows about $400/month and now working with $50k of equity to tap into whenever)!!