JF2024 : Starting With a USDA Loan With Chad Duval
Chad started his journey at a bank straight out of college and after 3 months of working there, the crash of 2008 happened and he lost his job. His first house was with a USDA loan where he found a house with a basement where he lived while he rented out the top half of the house. He has recently bought a 15-unit and is now working on a 50-unit +.
Chad Duval Real Estate Background:
- Worked at a bank out of college, after 3 months of working there, the crash of 2008 happened and he lost his job
- House hacked his first investment, bought a 9 unit on seller financing, and most recently bought a 15 unit
- Based in Boston, MA
- Say hi to him at www.chadduval.com
Best Ever Tweet:
“If you can, continually be looking online or networking with everyone and you might actually get more deals.” – Chad Duval
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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Chad Duvall. How are you doing, Chad?
Chad Duvall: Good! How are you doing, Joe? Thanks for having me.
Joe Fairless: I am doing well, and it’s my pleasure. A little bit about Chad – he worked at a bank out of college, and after three months working there the 2008 crash happened, and he lost his job. He has house-hacked his first investment. He bought a 9-unit on seller-financing. Most recently he bought a 15-unit – congratulations on that. Based in Boston, Massachusetts. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Chad Duvall: Yeah, so you hit all the big highlights in real estate. As you know, ’08 was not the best year to graduate school… But yeah, I got a job at a bank because I had my uncle who was the president over there, and got me started over there… And like you said, three months into it I showed up to the bank and all of us were locked out, and they closed the branch. So after that, I kind of tried to dabble in a lot of different things. I moved to California, I worked anywhere from Kohl’s, at night, stocking shelves, to Sherwin-Williams, stocking shelves there, and just doing anything I could to pay the bills.
I kind of made myself move around. I made it to Miami, and Connecticut, and ultimately I landed back in Boston, where — I’m from the greater Boston area.
In 2014-2015 I was talking to my dad, who has been hounding me for years to buy a house… So I finally cracked, and went back to that same uncle that had got me the job a couple years prior, and I got approved for a USDA rural development loan, which is 100% financing… Which is an awesome loan product if you’re willing to move to rural areas of the country.
I ended up finding a property that had a full walk-out basement that I converted into an accessory unit and lived in that while I rented out the upstairs, all underneath this USDA rural development loan. And then from there, like you said, I scaled up to a 9-unit, then to a 15-unit, and now I’m looking to slowly get into the 50 to 100-unit properties.
Joe Fairless: So when I think of Boston, I don’t think of USDA rural loan being in Boston… So where was this?
Chad Duvall: This was in a small town called Colchester, CT. At the time I had taken a job in Connecticut in Essex, for an aerospace company, and it was about a 45-minute drive to work. I couldn’t qualify within the same area as the job was, so I had to move outside to Colchester, where there was really not that much around.
Joe Fairless: Yeah, well that’s the reason why they offer those loans, right?
Chad Duvall: Yeah… What I like to say is if you can put in a year of time to do it, to get into the game, then it’s a good product… But yeah, you might pull your hair out if you’re used to living in the city, for sure.
Joe Fairless: Right. It’s a year and then you can rent it out? Is that how it works?
Chad Duvall: Yeah. After a year you can move out of it and rent it out. Usually 12 months. I actually looked at the loan documents to confirm that too, just to make sure that they weren’t gonna call the note if they found out… But it’s very similar to what a lot of people do with the traditional FHA loan.
Joe Fairless: One catch-22 for that with the USDA rural loan is if you have a plan of renting it out – okay, great, but you’re in the middle of nowhere, so can you rent it out? So how did you get comfort in being able to rent it out prior to purchasing it?
Chad Duvall: I was super-green to it and kind of took a big gamble. I just did a quick scan on Zillow and Craigslist and kind of looked at what the market had… There was enough population that I knew that I could get it rented, I just didn’t know how much I could get it for… So basically, I bought the house because I knew that based on the upstairs where I was gonna rent it – it was like a 3-bed/2-bath – I definitely could make enough money to cover the mortgage and most of the expenses, just by doing a little bit of the Zillows, and that sort of thing.
Joe Fairless: Well, let’s talk about this nine-unit on seller financing. Tell us the story.
Chad Duvall: So after I moved into the basement of that USDA rural development property, I got that first check, and like a lot of people, it’s a weird experience. I was hooked instantly, and was like “Man, I’ve gotta get more of these.” And I was looking at just a couple duplexes, and maybe some fourplexes, but then I ended up stumbling upon this nine-unit, because what I was doing is on Craigslist I was typing in keywords like “seller financing”, “owner financing”, “second mortgages” and keywords like that… And I actually stumbled upon this 9-unit.
So I enquired about it, and they ended up carrying back 85%, and then I had to bring about 15% to the closing table… So it was a really quick transaction, everything was done through them and the title company.
Joe Fairless: Let’s talk more about it. You bought it for how much?
Chad Duvall: I bought it for $420,000.
Joe Fairless: $420,000. Where is it located?
Chad Duvall: In central New Hampshire.
Joe Fairless: What type of area is that?
Chad Duvall: It’s a small city called Laconia. It’s the outskirts of a pretty rural area, but it’s also a very touristy area. There’s a big lake there, so there’s a lot of influx of tourists in the summertime, so that brings in a lot of traffic. And the property is just on the outskirts to a lot of big malls; there’s a Walmart right there, and a few chain stores, too.
Joe Fairless: Why were they selling it via seller financing on Craigslist?
Chad Duvall: I think what they had decided as they talked to their accountant — they had owned the property for 20 years, and they owned it free and clear… And I guess they had listed it before, but then once they had it under contract, they realized that the tax implications are pretty significant on a $420,000 capital gains, pretty much… So they ended up relisting it and tried to do seller financing just to reduce that tax burden.
Joe Fairless: Okay. Your initial offer was how much?
Chad Duvall: I think with that it was actually really low. I think I was down at 380k(ish) and kind of worked the numbers back and forth… I ended on 420k, but it was on 420k because they ended up carrying more of the mortgage. At the original negotiations of the lower price I had to bring more money to the table, which ultimately I figured “I’ll pay a little bit more than I think it’s worth, but I think that’s a premium for having seller financing, and not have to go through the bank.”
Joe Fairless: What did they list it at?
Chad Duvall: I think they had it listed at 475k. But another little key indicator was that it had been sitting for a while. I think it was on the market for like 180 days when I had come across it.
Joe Fairless: And how did you know it had been on the market for 100-and-some days if you saw it on Craigslist?
Chad Duvall: Oh, I’m sorry. This one wasn’t on Craigslist. I think I was searching for keywords on realtor.com.
Joe Fairless: Oh, okay.
Chad Duvall: Yeah, sorry. I don’t think it was on Craigslist. I do continue to search on Craigslist for stuff, but I think that property was actually on realtor.com. And of course, those always tell you days on market.
Joe Fairless: Did they ask you about “Hey, have you done this before?”
Chad Duvall: They weren’t too interested in the real estate experience, because what we had talked about is they had a resident building manager that had been there for like 8-10 years, and she knew the property inside and out, and I had told them that I planned on keeping her on as a partner. No money invested in it, but keeping her on, because she knows the building. And when I had met her the first time, it was a really good feeling; she seemed like a decent person. So I told them I was gonna keep her on… So that kind of mitigated any of the risk in their mind, I think, as far as having real estate experience…
But I did have a resume, and I had my uncle, again… It’s just a recurring theme in my stories – my uncle; he helped a bunch. He wrote a nice recommendation, because I had worked for him for a couple of months, and he’s known me my whole life… So he really talked me up. The bank that he was working for talked me up, and then all of my other employers that I had been working with had given good references… So I guess they had relied heavily on the references and my secure financial situation at that time.
Joe Fairless: What was the business plan with that 9-unit?
Chad Duvall: At first it was to raise rents immediately, because it was definitely mismanaged. A lot of the rents were 10%-15% below market… So at the time was to raise rents for current tenants that didn’t have any leases in place, and then slowly turn over tenants, and just light-rehab units. Light rehabs meaning paint, carpets, some appliances, a few countertops here and there… But no crazy moving walls or stripping it down, or anything like that. So that was the biggest thing.
And then the second thing is once we started doing that, we also came across the RUBS policy; I don’t know if you’re familiar with that – Ration Utility Billing Service… Where we hired out a third-party to come in and evaluate the property, the square footage, and the usage and the occupancy, and then take all of our utilities and then calculate a bill per unit based on the occupancy and the square footage back to the tenants, and get a portion of that expense billed back to them. So those were the two main driving business plans.
Joe Fairless: What was your role in the renovation process?
Chad Duvall: At first it was me and my dad most of the time. My dad owns a construction business, so–
Joe Fairless: You had a very active role. Very hands-on role.
Chad Duvall: Yes, very active.
Joe Fairless: [laughs]
Chad Duvall: And then once I got three or four units into those, I’m like “Man, it’s too much for me.” Of course, I was working a full 9-to-5 and everything like that, and my dad was getting busy too, so we couldn’t put [unintelligible [00:10:01].27] So by the last unit I had fully hired right out.
Joe Fairless: When you closed on the 9-unit — how long ago was that?
Chad Duvall: That was in 2016. March of 2016.
Joe Fairless: Okay. What’s the status of the business plan?
Chad Duvall: Actually, two weeks ago we just actually sold that property. So what had happened is we had finished basically the business plan of it, and then went to go do a cash-out refi with it… And for some odd reason the property actually when we went to do the refi appraised significantly lower than it was valued… So at that time I had this 15-unit under contract, and that’s what I was gonna use for the down payment of it.
So what I ended up having to do was just take out as much as I could for that property, close on the 15-unit, but because I had to put so much of other money and scrounge at the last minute to get that down payment together for the 15-unit, I needed to sell the 9-unit now to recapture all of the equity, so that I can pay off all of that other stuff that I had to club together to close on that 15-unit… Which is so crazy, because that 9-unit, when I did sell it, the selling appraisal came in at 485k, and when I went to go do the cash-out refi a couple months before that, it had come in at 430-something. So it was a huge discrepancy, and I didn’t have enough time to fight it, because I had this other property that was getting ready to close… So it became kind of a cluster, pretty much…
Joe Fairless: Now let’s talk about this 15-unit. What’s the story with that?
Chad Duvall: That was kind of a funny story… It was Christmas time; my girlfriend lives in Chicago and we go back and forth there a couple times a year and at Christmas time. Last year we were flying home, and [unintelligible [00:11:43].14] so I’m always looking for things to do; I’m either working, or browsing real estate is a thing I do all the time… But I ended up coming across this 15-unit and then putting in a really, really low-ball offer on it… And ended up getting some traction on it while I was on this airplane on the way back from Christmas.
Long story short, I ended up getting them to carry a second on that particular purchase, and I got the bank to finance 80% of it. They carried back 75k and then I had to come with the balance of that at closing. So we closed it at 675k; they had originally listed it at 890k (I think it was).
So again, another very similar story – it’s really way over price. I don’t know if people were actually even taking it seriously and putting in offers because it was so over-priced… But I don’t see any downfall in putting in low-ball offers… So we ended up closing for 675k, and it’s been going pretty good. We closed in April, and this is the first property that I actually have full-time property management as well. It’s kind of a weird transition; I’m a little bored, because I don’t have to really do anything. All I have to do is manage the manager now once a month, so… It’s kind of a cool transition from duplex all the way to a 15-unit where I’m very hands-off.
Joe Fairless: What have been some challenges that you’ve come across with the deal? …whether it’s the management or something else.
Chad Duvall: Actually, the biggest challenge right now has been the tenant base when we took the property over. Apparently, the number one drug dealer in all of New Hampshire lived in that building and we didn’t know that… So two weeks after we closed on it we had a huge FBI drug raid, and all this stuff… So it’s been quite the hotbed for a lot of drug activity, and not a favorable tenant base. We’re trying to combat that. We’ve kicked out most of them and putting in better tenants. As you upgrade the units, you tend to level up your tenant base, so that’s kind of what we’ve been doing.
Joe Fairless: When you now are managing the manager, versus being the manager, what are some ways you’ve changed your approach? Because I’m sure that the early days you were approaching it one way as managing the manager, but now you’ve gotten into a system with managing the manager.
Chad Duvall: It’s hard for me — I’m still learning, of course, because the first couple of properties I had to do everything; so I took the bull by the horn. Now I had to transition into stopping myself from micro-managing, I guess… I think the pendulum has swung a little bit too far, where I’ve been a little bit too hands-off, because I’m seeing a few things slip, so I might have to reel it in a little bit… But that’s been the hardest transition for me since doing that.
Joe Fairless: And how are you working through that, so that you navigate that transition?
Chad Duvall: Yeah, it’s just more communication and being more honest with the property managers. I’ve planned out every time that I’m up in New Hampshire, because my family still lives up there… So I’m still up there quite a bit. What I’m trying to do is actually meet with them every time I’m up there, just to kind of get more face time and be more transparent about things that I’m seeing, or concerns that I have, or “Oh, you guys are doing really good here”, and that sort of thing.
Joe Fairless: What are some concerns that you’ve had?
Chad Duvall: Well, I drove by the property at Thanksgiving and there was a lot of large items around the dumpster, and I don’t know if that’s been addressed, or if they even know that that’s been going on… But with a lot of turnover, with all these bad tenants, they leave mattresses and beds and couches and they’re just putting it behind the dumpsters. That’s a cost for us, because we have to call a special company to come and take that out… So things like that I need to address and make sure that we’re all on the same page, and find ways to combat that with either cameras or whatever we’re gonna do.
Joe Fairless: You’ve got a 9-unit on seller financing that’s rockin’ and rollin’… How much money does that put in your pocket every month?
Chad Duvall: Full disclosure – I’ve never taken any money out of any of these properties. I’ve kind of just put them back into the properties.
Joe Fairless: What are you living off of?
Chad Duvall: I work a 9-to-5, and aerospace sales job. So that’s my real job. All this real estate is kind of on the side; the podcast, all of this. It’s my passion.
Joe Fairless: Good for you.
Chad Duvall: It’s so fun… But yeah, I do actually work a regular 9-to-5.
Joe Fairless: Okay. My respect for you just increased even more. Nice job.
Chad Duvall: Thanks, man. [laughs] It’s challenging some days. Some days I ask myself why I’m doing it. But again, going back to having full-time property management has freed up so much time that I can really focus on my 9-to-5. Having somebody else try to grow my portfolio while I’m working is a really nice bonus.
Joe Fairless: When were you doing those renovations on the 9-unit?
Chad Duvall: The lucky thing is in sales — I’m super-fortunate to work from home, so I can pretty much work from anywhere… But at that time I was just going up Friday afternoons and working all weekend. So it was a lot of weekend work, for sure.
Joe Fairless: Okay.
Chad Duvall: Because yeah, my job is pretty rigorous travel; I’m traveling a lot, so I couldn’t squeeze it in during the week… But yeah, definitely during weekends.
Joe Fairless: The 15-unit – what’s the anticipated hold period?
Chad Duvall: Right now, with the way the economy is going and everything like that, my anticipation is it’s gonna be a long hold. However, if we continue to see things increase and it becomes a point where I’ve got a lot of equity there, I might try to cash in on that and keep going bigger, because that’s the ultimate goal – to get into the 50 and 100-unit buildings, similar to yourself, and start syndicating a little bit… Only because, as you know from your story, you buy one property and you run out of money, and then you have to save and save and save; then you buy another one, and then save, save, save. And as you start getting bigger, it’ll be easier to a) raise money, and b) to manage, for sure.
Joe Fairless: Anything else that we haven’t talked about as it relates to the 9 or 15-unit that you think we should mention?
Chad Duvall: Not really, but I know that the market is a little different now… But if you can just continually be looking online, or networking… I shared this recently – the furnace guy that was at that 9-unit, he did all the furnace work for that, but he actually gave me some leads, because I’d been talking to him about how I’m wanting to buy more buildings, and certain things like that… That’s something I wanna reiterate about that 9-unit, is just talking with everybody – all your contractors, and brokers, and just make sure that everybody knows what you’re doing and you might actually get some more deals that way.
Joe Fairless: As a refresher, the two large deals, the 9 and the 15 – one you’ve found on realtor.com, most likely; and then where did you find the other one, the 15-unit?
Chad Duvall: The exact same way.
Joe Fairless: Okay. Realtor.com.
Chad Duvall: And talking to everybody about it; people are gonna give you leads. I haven’t closed any deals that way, full disclosure, but I know I’ve been getting a lot of options and been in communication with a lot of owners… And as soon as I talk to them, at least in my experience so far, they’re just not quite ready to sell. But the second they are, I know I’ll get a phone call from them.
Joe Fairless: Do you have a follow-up system?
Chad Duvall: Yes. Every six months I’m following up in my calendar. If you saw my calendar, it would cause you to go dizzy, because I have so many things in there… So every time I do it, I just move that notification six months out.
Joe Fairless: What’s your best real estate investing advice ever?
Chad Duvall: Start. You’ve gotta start to be in it, man. Gotta start. I know it’s cliché; you’re never ready to have kids, you’re never ready to do all these things, and real estate is the same thing – just start.
Joe Fairless: Now we’re gonna do a lightning round. Are you ready for it?
Chad Duvall: Yes.
Joe Fairless: Let’s do it! First, a quick word from our Best Ever partners.
Joe Fairless: What’s a mistake you’ve made on a transaction that we have not talked about already?
Chad Duvall: So the 15-unit that I just closed on in April – I didn’t get a proof of payment from the sellers that they had paid the last water bill, and ended up having to go to court to get that paid by them. So make sure at closing you have receipts and proof of all of the utilities being paid off, up to the closing date.
Joe Fairless: How much did it cost you to go to court?
Chad Duvall: We ended up settling after. $1,500, but we ended up adding that to the amount that they owed us.
Joe Fairless: What’s the best ever way you like to give back to the community?
Chad Duvall: Right now I think the best way that I’m doing it is through my podcast and my Instagram feed. I don’t consider myself an expert in real estate, but I have done a few deals, and I’m trying to give back at least some of the mistakes that I’ve been making, fumbling through to get these properties.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Chad Duvall: ChadDuval.com is the hub for everything. Again, my podcast is Start FM; it’s on iTunes, Stitcher, it’s on all the platforms. Those are the two main areas.
Joe Fairless: Fun conversation, talking about those two deals, and the USDA loan, too. That’s interesting. It doesn’t happen often where investors use that program, because a lot of people aren’t willing to move out to rural areas where you can get that type of loan… But you bite the bullet, and it could also be a wonderful thing to be out in the country.
Chad Duvall: Yeah, it’s a good way to test if you like it… Because I thought at the time when I was getting into it, I was like “Oh, this is gonna be awesome. I can cut the lawn, and paint this, and that…” and then I was realizing I was gone a lot, trying to go have fun with my friends, and I was like “Damn, I can’t. I have to go home and cut the lawn.”
Joe Fairless: Yeah, chop wood, and kill your dinner, and all sorts of things.
Chad Duvall: Yeah. So if anything, it will teach you if you like that stuff or not, if you’ve never done it before.
Joe Fairless: I’m glad you experienced it, because it was fun to talk about… And even more fun was the 9-unit and the 15-unit conversation. Thanks for being on the show, congrats on what you’ve done to date. I hope you have a best ever day, talk to you soon.
Chad Duvall: Thanks, Joe. I appreciate it.