JF1033: Buying Properties With $0 Out Of Pocket!
From Africa to Canada, she can buy and teach her methods across continents! After starting with buy & hold properties, Thembi realized she needed money sooner than they could provide. When she began with Rent to Own, she never looked back!
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Thembi Bheka Real Estate Background:
-Founder of Real Estate Real Riches, an education platform for individuals in Africa to invest in real estate
-CEO and Real estate investor at Infinity Housing Solutions
-She came to Canada from Zimbabwe with $5 in her pocket
-Mentor with Kelowna Community Resources, a government organization to help immigrants
-Based in British Columbia, Canada
-Say hi to her at http://realestaterealriches.com/
-Best Ever Book: The One Thing
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.
With us today – Thembi Bheka. How are you doing, Thembi?
Thembi Bheka: I’m doing great! Thank you, Joe, for having me today.
Joe Fairless: My pleasure, nice to have you on the show. A little bit about Thembi – she is the founder of Real Estate Real Riches, which is an education platform for individuals in Africa to invest in real estate. She came to Canada, where she currently resides, from Zimbabwe, with five bucks in the pocket. She is the CEO and a real estate investor at Infinity Housing Solutions, as well. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Thembi Bheka: Yes. Hello, Best Ever listeners. I hope this will be the best ever show for you. I came to Canada, as you said, in 2001; I trained as a registered nurse. However, during that time I realized that I wanted some financial freedom and I also wanted some time to spend with my children. I started investing in real estate in 2008.
When I started, I started as buy and hold, basically buying properties for the long term, and I realized that wasn’t going to give me what I needed quite fast… So I transitioned into what they call rent to own and agreements for sale.
Joe Fairless: Are you doing rents to own now?
Thembi Bheka: Yes, I do mainly rent to own and agreements for sale, which I believe in the U.S. is known as seller financing.
Joe Fairless: Okay, and what is it called in Canada?
Thembi Bheka: Agreements for sale.
Joe Fairless: Agreements for sale, okay. Cool. You’re from Zimbabwe, right?
Thembi Bheka: Yes.
Joe Fairless: What is the program that you have? Do you have something with people who live in Zimbabwe to help invest in real estate?
Thembi Bheka: Yes. So what I have is a training platform where I help people in Africa to find out how to get properties with no money down, using seller financing, which is also agreements for sale, as I said… Because what I found [unintelligible [00:04:22].14] and people would just stay forever until they’re 70 years old before they even own their first home, trying to save money. And most of the banks, even if they are banks, do not qualify easily as you would anywhere else in the world.
That’s when I realized that there was a need, there was that gap where we could bridge the financing gap between individuals who are selling and individuals who need to buy a home.
Joe Fairless: Let’s talk about the last agreements for sale/seller financing deal that you did. Can you tell us the number son it?
Thembi Bheka: Yes, it’s actually what I’m working on right now; it’s three properties, all with one seller. This is in Canada. The seller needs 182k/property for a townhouse, and he wants really no money down. All he wants me to pay him is this one, which is listed with an agent, and he wants agent fees for that one, which is going to be about 20k.
It rents for about $1,400 in the area. Currently, the mortgage is $600/month and condo fees are about $300, so I will be cash-flowing probably about $400/month, and I’m not putting any of my money.
Joe Fairless: So you’ve got a seller who’s got three properties, each of them $182,000, and he’s agreed to sell them to you for no money down… What type of financing terms do you give him?
Thembi Bheka: I’m taking over the mortgage from the bank. He has a mortgage already at the bank, so basically I am getting in and taking over the mortgage. They agreed to extend the mortgage for another three years, so we have a five-year term with that mortgage.
So I’ve been taking over the mortgage, the property taxes, the interest and the insurance, and just getting into this property.
Joe Fairless: And why is this a good deal for him?
Thembi Bheka: Because he just wants to get out of the property. He’s tired of dealing with tenants.
Joe Fairless: But why wouldn’t he sell them traditionally? Because there is no equity in the deal?
Thembi Bheka: There is equity… There’s about 25k in each property, but once you pay the realtor fees and you pay all these legal fees and you pay the cancellation fees for your mortgage, he really was gonna walk out with nothing. So this is a good benefit for him… At least he doesn’t have to go through the pain of trying to sell it. And the market is not great right now in Edmonton – this is a property in Edmonton. The market is not that great for him to sell.
It could stay for six months without finding a buyer right now… So this is a fast way for him to let the property go.
Joe Fairless: And how do you give him the confidence that you will pay the mortgage in particular, so that he doesn’t get foreclosed on and hurt his credit?
Thembi Bheka: Our company is a reputable company; we’ve been doing this for a long time, so that also gives us the confidence and it gives anybody the confidence. But even then, we do have an agreement with the lawyer.
We don’t just sign this in the backyard, we sign it in front of the lawyer. We have an agreement which obliges me to do this; if I don’t do this, he could go after me and sue me.
Joe Fairless: Okay. And that is for all three properties?
Thembi Bheka: For all the three properties, yes.
Joe Fairless: How did you come across him?
Thembi Bheka: He called me from my website. I have a website which I haven’t advertised forever, and I just got a call a couple of weeks ago… He actually said, “I only have one property and I need to sell it because I’m tired of managing the tenants and it’s empty right now. Then as we got to speak, as I got to know him more, I found out that he actually has three, and then he was willing to let me take the three as a package.
Joe Fairless: What is his situation where he doesn’t want to just continue to sit on these properties? What’s the life circumstance?
Thembi Bheka: He’s tired. As an investor sometimes – especially if you buy without the right fundamentals, it is easy to get tired, especially if you don’t have the right training of what kind of tenants to put into your property… You get all these tenants who come and trash the place. Then you clean it up and then another tenant comes and trashes the place and you clean it up…
Without a good knowledge and without a basic foundation of where you’re going to go, it’s easy to [unintelligible [00:08:42].25] and it’s easy to get tired. That’s why you need a solid foundation in real estate and solid education, to be able to screen your tenants properly.
Probably what has happened with him is he’s just had all these tenants coming, trashing the place and leaving. This property is newly renovated; he just renovated them and he didn’t put anyone in them. He probably just decided “I do not want to deal with a tenant anymore. I am just exhausted with this and I want out.”
Joe Fairless: Wow, what a find. Congratulations on that one!
Thembi Bheka: Thank you!
Joe Fairless: Tell us about your least favorite deal that you’ve done.
Thembi Bheka: It’s the first property I ever bought, in 2008. I bought it because it was pretty. I didn’t look at the numbers, and I didn’t screen the tenants. I didn’t know anything about screening the tenants. I just got it and said, “Oh yeah, I’ve got a property and somebody’s looking for a place to rent. You’re in!”
What happened is those tenants stayed with me for five years, and I never did any checks. I didn’t know that you’re supposed to go check the property. After five years I went in, because they started not paying rent, and I kept giving them longer and longer periods to extend… I think it was after six months of not paying rent that I went in and the place was a mess.
Joe Fairless: How so?
Thembi Bheka: It’s funny, because when I went in, Joe, I went in with a potential renter. I advertised it to say, “Oh, I have another property if you wanna come and see…”, before even looking at this property. First of all, you come by the door, there’s garbage everywhere. Garbage!
I’m like, “Oh, this is embarrassing. I should clean up the garbage real quick before these other potential tenants come in.” As soon as I finish cleaning up the garbage, the potential tenants come in, and I open the door, and this smell… I can never get rid of it even up to now… It hits me! I can smell it just talking about it! It just hits me in the face.
I didn’t know what it was, but it turns out that when you have many cats and they just pee in the house for five years, it really gets it in a mess. The smell was so bad… We had to rip out everything. So I learned a lot…
Joe Fairless: Yeah, I’ve been in a similar situation when we were doing due diligence on an apartment community and there was a hoarder who had just stuff stacked to the ceiling in some cases, and not only did they have cat pee and poop everywhere, but they had dead cats, two of them, that had been decomposing in the closet. It was just a terrible, horrific scene. And the smell – holy moly…
The inspector would not go in there until he got a hazmat suit. He literally was in a marshmallow suit with a visor and the head gear and everything whenever he went in to inspect it.
Thembi Bheka: Wow… That’s probably your best deal.
Joe Fairless: [laughs] We did end up buying it, but they had to get it fixed before we ended up closing. So this 2008 pretty property – how much did you buy it for?
Thembi Bheka: 285k.
Joe Fairless: And where did you end up with it?
Thembi Bheka: I still own it up to now, and I’ll tell you what it’s worth – 240k.
Joe Fairless: Yeah, it happens sometimes, huh?
Thembi Bheka: Yeah… And I have put in at least 10k in that property. As I said, I just bought because I had [unintelligible [00:12:14].02] real estate you can be successful, and I just didn’t think of the fundamentals.
Joe Fairless: How do you run the numbers now when you look at a deal?
Thembi Bheka: I calculate basically what the mortgage is going to be, and everything… When I calculate my mortgage, I put in a buffer because we know that interest rates go up and down, right? Right now our interest rate is kind of very low, about 2.5%.
Joe Fairless: 2.5%?! Oh, man… Lucky you!
Thembi Bheka: Yes. So when I calculate a property, I don’t calculate with 2.5%, I calculate with 5%. I put in a buffer for that, because I know they’ll go up. Then I add in the property management, which is something I never used to do before. So I add in the property management, the vacancy rate, which I calculate for one month’s rent (which is 8% vacancy rate), and maintenance fees, because the property needs to be maintained, and I usually put 10% for maintenance fees.
So I add in all those as a buffer… Not that it’s gonna happen, but just in case it happens, I have some money in the bank.
Joe Fairless: With the interest rates being as low as they are, and then you’re projecting 5% — why are you projecting 5%, unless you’re doing a variable versus a fixed interest rate on your properties?
Thembi Bheka: I try to go variable as much as I can.
Joe Fairless: Oh, really? Why?
Thembi Bheka: Because long-term research has shown that when you go variable, at the end of the day – usually not just in a year, but over 25 years – you actually make more money than when you go fixed. And I also like the fact that I don’t have to be tied down too if I have to get rid of the mortgage or cancel a property.
Joe Fairless: I remember interviewing someone – I forget who it was, but he talked about how it does make sense to do variable interest rates in certain scenarios, and it’s interesting that you’re doing it in every scenario when you can.
Thembi Bheka: Especially right now, with the way the economy is. The rate is so low, it makes sense to do variable. But having said that, I do have a [unintelligible [00:14:21].14] creeping up, sometimes I could lock in, but usually, I try to go variable.
Joe Fairless: Do you find that you’re at a competitive disadvantage sometimes when you’re making offers on properties and you’re running the numbers in this way where you’re doubling the interest rate, and others probably are not running the numbers that way, therefore they might be able to pay more?
Thembi Bheka: Yes, I do, but it makes me sleep at night. For me the most important thing is having sleep at night and spending time with my children. What I found, especially with the first property where I just assumed things were going to stay constant [unintelligible [00:14:59].21] fees will never go up, I found myself being stressed, not even being able to pay a property manager because I don’t even have the money to pay a property manager upfront. So I’d rather have a big buffer, than have less.
Joe Fairless: What is your best real estate investing advice ever?
Thembi Bheka: Start with your why. In any transaction, when you have to do with a seller or you have to do with a buyer, just find out what is their big WHY. Why do they want to sell this property? Instead of focusing on the financial aspect, you’d be surprised how much you can [unintelligible [00:15:30].24] when you focus on the why.
Joe Fairless: Can you tell us a story of when you have focused on the why and it has helped the transaction?
Thembi Bheka: This property of land – 10-acre land – which I made an offer on and it was 450k… The realtor had listed this land and he kept saying “Oh, the seller wants the money, the seller wants the money.” Then I asked if I could meet with the seller, and I spoke to the seller and I asked him “So what do you need the money for?” He says, “I just wanna put it in the bank account.” Then I explained to him that “You do realize that when you take this money upfront and you put it in the bank account, you’re going to [unintelligible [00:16:07].01] capital gains, and also you’re going to be getting very little interest.”
What happened is I gave him options to say, “Well, maybe what I could do is I could give you just a little bit upfront, and then pay you over a certain number of years, that way you don’t have to pay that much in capital gains.” That seller was so happy and I ended up getting the deal.
Joe Fairless: Beautiful! Thank you for sharing that. That should be in everyone’s tool kit that’s for sure. Regardless of what type of deal we’re working on, we should always have that conversation.
Thembi Bheka: Exactly.
Joe Fairless: Now, are you ready for the Best Ever Lightning Round?
Thembi Bheka: Yes!
Joe Fairless: Okay, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Thembi Bheka: The One Thing.
Joe Fairless: Best ever deal you’ve done?
Thembi Bheka: I guess the three deals I just spoke about – the agreement for sale deal.
Joe Fairless: What’s a mistake that you haven’t mentioned so far that you’ve made on a deal that comes to mind?
Thembi Bheka: Using emotions when dealing with tenants.
Joe Fairless: Best ever way you like to give back?
Thembi Bheka: Teaching other people to invest in real estate.
Joe Fairless: And where can the Best Ever listeners get in touch with you?
Thembi Bheka: RealEstateRealRiches.com.
Joe Fairless: That will be in the show notes page, so Best Ever listeners, you can click on the link and check out her website.
Thembi, thank you so much for being on the show and sharing your experience starting from scratch, coming from Zimbabwe to Canada… You started out as a registered nurse, and then decided that you wanted to focus more on long-term wealth and spending your time how you wanna spend it.
Then the properties – the three properties that you’re working on right now, with the seller who is just tired and wants to get away from the deals, and the value exchange that each of you are providing… More so he’s providing to you than you’re providing to him, but I think if we were to ask him, he would say you’re providing a lot of value too, because it’s a peace of mind.
Also, talking about the agreement with lawyers that you have in place so that he could come after you if you don’t adhere to what you said you would do; that’s an important part, I’m glad that you mentioned that… Because when people hear that story, initially at least, I think “Well, what’s the catch?” So it is drafted up and there are some repercussions if you don’t live up to what you will be doing.
Also, the 2008 pretty property that stunk really bad after five years of tenants living there, lessons learned and then how you run the numbers now with the interest rate padding, the vacancy, the maintenance fees… And start with the WHY questions that you want to know for every transaction – Why are they selling? And you gave the wonderful story of how you were able to work yourself into a deal with a little upfront and money over a period of time, versus more money upfront.
Thanks so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
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