Chad has had a little different path on his way to real estate investing than I’ve ever heard. He started by getting into Magic The Gathering card trading, got into day trading, and then got into real estate investing. How has playing Magic The Gathering helped him with his career? Tune in to find out! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“If your process is good, you will be net positive overall” – Chad Kastel
Chad Kastel Real Estate Background:
- Real estate investor since 2016
- 1st property was a two structure single property house hack, 2nd was a mix use triplex
- Licensed Realtor in Florida
- Based in Hollywood, FL
- Say hi to him at 609-705-7332 and chadkastelATgmail.com
- Best Ever Book: Best Ever Apartment Syndication Book
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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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Chad Kastel. How are you doing, Chad?
Chad Kastel: I’m great. How are you?
Joe Fairless: I’m doing well, and looking forward to our conversation. A little bit about Chad – his career is a day trader, and he’s been a real estate investor since 2016. His first property was a two-structure, single-property house-hack, and the second was a mixed-use triplex. He’s a licensed realtor in Florida, and he’s based in Hollywood, Florida.
With that being said, Chad, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Chad Kastel: A little bit about my background – I got into this card game called “Magic: The Gathering”, which is a strategic card game, and I think that was a foundation for me to get into day trading, which was also the foundation for me to get into real estate. My wife and I bought this two-structure property in Florida. We were house-hacking; we didn’t know we were house-hacking. It is a one-bedroom studio and a two-bedroom house. We lived in the studio and rented out the house for about two years, until we got pregnant. Then we got pregnant, and we moved into the house, and I bought my first real estate book in November, and then we ended up closing on a deal in January in Upstate New York. That’s where we’re at now.
Joe Fairless: Upstate New York… Aren’t you based in Hollywood, Florida?
Chad Kastel: I am, but I got my real estate license down here, so I could have access to the MLS… I looked at over 100 deals. I was trying to get a duplex or a triplex, and they all cash-flowed negative, except for two. Those cash-flowed positive at maybe $25.
Joe Fairless: [laughs] They were not appealing, huh?
Chad Kastel: No. We have all the information about how important cashflow is, and I decided I had to find something that fit what I wanted.
Joe Fairless: So what’s your connection with Upstate New York, besides a good property?
Chad Kastel: I had a business partner — we had [unintelligible [00:02:50].16] and he owns property up there, and I was just messaging him, kind of complaining about the ROI, and he was like “Oh, why don’t you look at Binghamton?” He owns property there, I did, and it just snowballed from there.
Joe Fairless: You’ve got some friends who went to Binghamton…
Chad Kastel: Not a bad area, besides the cold.
Joe Fairless: Right, yes. True. So explain to me — you said “Magic: The Gathering” card game led you to day trading, which led you to real estate… I think that’s how you connected the dots. Is that correct?
Chad Kastel: Yeah. It’s a long connection, but…
Joe Fairless: I’m not familiar with “Magic: The Gathering”… How has that helped you in business?
Chad Kastel: “Magic: The Gathering” is an information-based game, kind of similar to poker, where each player has information about each other, and you also have incomplete information… And from a young age it taught me the process of your decision-making is more important than the outcome, as long as that process was good. So it taught me essentially not to be short-term results-oriented. The example I use is if you’re late for work, but you find $500 on the street, that doesn’t mean you should be late for work again. You made a bad decision and it worked out, and vice-versa – you can make a good decision, and the game could not reward you, you could lose the game. So it taught me how to make those good decisions at around age 13.
Joe Fairless: Thank you for that. It’s interesting how that can be applied to life and business so directly. So the second was a mixed-use triplex, and that’s the one in Upstate New York?
Chad Kastel: Yes.
Joe Fairless: Tell us the numbers on that one, will you?
Chad Kastel: I bought it for $78,900 in January. As a commercial space, that’s rented. It’s rented for $800/month. I put about 5k into the two residential spaces to get them move-in ready. We’re just going through the process of now getting tenants in there. We’ve listed it at $875 each unit, which we pay for everything. The tenant doesn’t pay for electricity, or water…
Joe Fairless: All bills paid, huh?
Chad Kastel: Yeah. I think I’m going to eventually put a RUBS on and separate it, but I just didn’t do it for my first property. I expect after everything is said and done the property to net out about $800.
Joe Fairless: You’ve got a commercial tenant… What type of business do they have?
Chad Kastel: They’re called Paw Professionals and they are a dog grooming business.
Joe Fairless: And did you attract them to the property?
Chad Kastel: They’d been there for five years.
Joe Fairless: Okay, so you inherited them. And then when you were looking at the investment, what were some of your areas of focus in terms of them and their credit history, or the lease term, things of that nature?
Chad Kastel: You’re talking about the…
Joe Fairless: The commercial tenant.
Chad Kastel: Well, I was able to speak to the previous landlord. They had been there for seven years; excellent tenant, and didn’t move out on bad terms, and they had been at our place for five years, and spoke to the landlord that I bought the property from after we closed, and she had nothing but wonderful things to say… And I spoke to the tenant. Between those three things, we just signed a one-year lease.
Joe Fairless: Okay. And why a one-year?
Chad Kastel: That was her request. And I thought that I could be more forceful, but considering she’d been in business for so long and she said she didn’t plan to move, I didn’t really want to rock the boat with someone that’s pretty consistent, never misses rent payment, and could probably find better terms elsewhere.
Joe Fairless: Okay. What type of financing did you do on the triplex?
Chad Kastel: I bought it in cash. I actually made her two offers. She was asking 90k and I made an offer for 83k with a mortgage, or 73k in cash. We ended up meeting at 78k. I actually ended up trying to refinance, but there were some problems… This was one of the mistakes I made – I didn’t know that conventional banks didn’t wanna refinance a commercial property like that.
Joe Fairless: That’s what I was wondering about the type of financing… Okay. So what’s the latest with that?
Chad Kastel: I reached out to some close family members, and all have agreed once I get the place rented out that they would do the refinance for 5%… So it’s kind of a win/win.
Joe Fairless: What would the terms be, besides 5%?
Chad Kastel: 30-year fixed. They’re just in the position where they’re getting 2% on their money, and I’m offering them a much better option, and they’re offering me a really good option, and they know that I have experience with these things, and I wouldn’t put them in a spot where I couldn’t pay them back easily.
Joe Fairless: And what loan-to-value would you be able to get on that?
Chad Kastel: 75%.
Joe Fairless: Okay. What would the value be of the property after you have it stabilized?
Chad Kastel: We would value it at 90k. I think it was worth 90k. I think I just got a home run on my first deal.
Joe Fairless: Okay. So you’d get about 67.5k out of it, and you’d have a little bit in it, but… You’d be cash-flowing how much, after all that?
Chad Kastel: If I’m right, $9,600/year.
Joe Fairless: $9,600/year. Cool. So with your day trading as a full-time job, what aspects of day trading has allowed you to be a more savvy real estate investor as you get going?
Chad Kastel: Just feeling confident in making good bets. Jumping in on my first property – it wasn’t difficult. Once I knew the information… Between the time I picked up my first real estate and I was making offers was three weeks, and I wasn’t rushing it. I have a high risk tolerance, and I understand that, again, it’s about the process. You take all the right, positive steps, and you do that property after property after property. Of course, things are gonna go wrong, of course mistakes are gonna be made, but if your process is good, you will be net positive overall. I really enjoy that about trading; there’s nobody that tells me whether I’m good or not. The numbers are just there, or they’re not. And it’s the same thing with real estate. You can’t fake it to yourself.
Joe Fairless: Who’s managing the triplex?
Chad Kastel: I have a property manager. I ended up going on Bigger Pockets, reaching out to a bunch of people, and a bunch of different people recommended this one property manager. His name is Tom DeAngelo.
Joe Fairless: What type of fee structure does Tom have?
Chad Kastel: He’s charging me 9% of the gross rental, plus half the first month’s rent when he fills the place.
Joe Fairless: And how long ago did you close on it?
Chad Kastel: January 19th.
Joe Fairless: Okay, so three or so months ago. Any unexpected challenges over those three months?
Chad Kastel: Yes!
Joe Fairless: That was an emphatic yes…
Chad Kastel: Yes. I made several mistakes. I don’t think it’ll end up mattering, because the deal is sweet, but… It was my first project, and I was a little nervous in terms of managing it, so I was planning on selling sweat equity to a mutual friend of my business partner from Binghamton. He was a maintenance guy and owned a construction company, and wanted to get into property management, and that didn’t go well. So he was supposed to do everything, and he just disappeared. Thankfully, I had already interviewed a bunch of property managers, so I was able to seamlessly move into the other property manager without scrambling.
Joe Fairless: And when you take a look at all the lessons learned from this triplex, when you look at the next deal to purchase, what are some things you’re gonna take with you to that next purchase?
Chad Kastel: Well, look at the insurance ahead of time. I ended up losing a little bit of money on that, because it was just more expensive than I anticipated. I could have gotten quotes. And I should have looked at asset protection before I bought it.
Joe Fairless: Based on your experience as a day trader or real estate investor and a “Magic: The Gathering” player, what’s your best advice ever for real estate investors?
Chad Kastel: New?
Joe Fairless: Yeah.
Chad Kastel: We’ve heard this over again – you have to do it. There’s a million reasons not to, and there’s a million people who have told me, in every endeavor I’ve taken, the awful stories they’ve heard, from trading to traveling to real estate. You have to just learn and do it. Don’t hesitate, just engorge yourself in it.
The other thing is just take one step at a time, just do a little bit every day and you’ll learn, you’ll get confidence.
Joe Fairless: If you had to start over and you had no properties, and no money in the bank account, what would you do to build that back up?
Chad Kastel: Knowing what I know now, I think if you can find a deal, it’s very easy to get money. I would learn the trade, and then just network through meetings, through Bigger Pockets, go to the Best Ever Conference… It’s very easy. Someone can get money from me if they bring me a home run. I’m sure it’s the same for you.
Joe Fairless: Yeah, it’s true. We’re gonna do a lightning round. Let’s do it. First, a quick word from our Best Ever partners.
Break: [00:11:41].22] to [00:12:34].12]
Joe Fairless: Alright, best ever book you’ve recently read?
Chad Kastel: Right now I’m reading your apartment syndication book. And I always think the book that you’re reading right now is your best ever book, but probably The Miracle Morning in terms of how that impacted every other step along the way.
Joe Fairless: Was that a back-handed compliment? I’m messing with you, but it was like “Every book I’m reading right now is usually the best ever, but I’m reading yours and that’s not, so I’d say The Miracle Morning.” [laughs]
Chad Kastel: Oh, no, no, no… I probably just misspoke.
Joe Fairless: I know, I’m messing with you. It was funny how you said it. What’s the worst business deal that you’ve done? You’ve done two deals in real estate, but maybe it’s a day trading thing, or something… Can you tell us about that?
Chad Kastel: Well, I’m gonna say the first house I bought, the house-hack. It’s profitable, I’m doing well with it, but I bought out of ignorance. I bought out of “Oh, I have money. I need to invest it. Real estate is good.” All I knew at that point was “Real estate is good.” We profit through Airbnb, but if we had to just straight rent it out, it would be cashflow negative, and that’s a really bad place to be, because if the stock market crashes, or there’s some major problem with the economy, vacation is the first thing to go. So I think that’s probably my worst deal.
Joe Fairless: Best ever way you like to give back to the community?
Chad Kastel: I like teaching. Regardless of what it is. I like teaching tennis. That’s my why, that’s what I’m gonna get into when I have enough passive income to retire – take on students and teach them about life on and off the court.
Joe Fairless: How can the Best Ever listeners reach you?
Chad Kastel: My phone number is 609-705-7332. My e-mail address is firstname.lastname@example.org. I’m sure it’ll be listed in the show notes.
Joe Fairless: It sure will be. Well, Chad, thank you for being on the show, talking about your first deal, and then also talking about the triplex, which is a unique second deal, in that it’s got a commercial tenant where you’ve got $800/month from them, and then you’re putting in $5,000 in renovations for the other two units, for regular residential tenants… And the challenges getting the refi, but that’s also probably the opportunity for why you were able to purchase the property, because there are some challenging components to mixed-use…
But that’s okay, because you’re solving for it, and the beauty of that is because there’s an additional challenge and it’s not by any means a challenge that torpedoes the deal, you were forced to reach out to your close family members, and you’re going to secure a loan with them, and as a result of doing that, they’re benefitting, because as you said, they’re getting 2% wherever their money is, and now they’re gonna get 5%. And then you’re benefitting, not only because you have a solution, but also it’s the long-term relationship that you’re building with them from a business standpoint. I think that’s something that gets missed a lot when people buy the traditional triplexes and duplexes, and stay with the traditional approaches. The other approach, where you buy mixed use or commercial – it’s got some other components to it, but those components forced you to grow, and then they can lead to bigger and bigger things.
I really appreciate you being on the show. Thanks for sharing your story. I hope you have a best ever day, and we’ll talk to you again soon.
Chad Kastel: Thanks, Joe. I really appreciate it.