real estate investment partners

JF1278: High School Friends Turned Investing Partners with Kris Kohlstedt & Cody Dover

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Kris and Cody went to the same high school, went to separate colleges, crossed paths again and went to a Rich Dad Poor Dad seminar, and caught the real estate bug! They started immediately putting deals together, purchasing four properties in 5 months. To hear an up-and-coming story of two investors who will be very successful, tune into this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Kristofer Kohlstedt Background:

-Recent college graduate, just turned 23, retired collegiate basketball player and is a real estate investor

-Purchased 4 properties, 5 units in 5 months

-Acquired mentors and investors, now hunting for apartment complexes to purchase

-Big advocate on the mental approach to life and creative ways to solve problems

-9-5 work is at ABC Financial where I travel the country and train clients how to use our software.

-Based in Little Rock, Arkansas

-Best Ever Book: How to Make Money in Small Apartments

 

Say hi to them at:

Website: journeyestateinvestments.com

Facebook Group: https://www.facebook.com/TheGuysInRea…

 

Cody Dover:

-Instagram: https://www.instagram.com/cody.dover/…

-LinkedIn: https://www.linkedin.com/in/cody-dove…

-Facebook: https://www.facebook.com/cody.dover.7…

-Snapchat: Dover23

-Email: Cody@journeyestateinvestments.com

 

Kris Kohlstedt:

-Instagram: https://www.instagram.com/kriskohlste…

-LinkedIn: https://www.linkedin.com/in/kristofer…

-Facebook: https://www.facebook.com/kris.kohlste…

-Snapchat: Kris_Kohlstedt

-Email: Kris@journeyestateinvestments.com

 


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TRANSCRIPTION

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 of that fluffy stuff. With us today, Kris Kohlstedt and Cody Dover. How are you two doing?

Cody Dover: Man, doing awesome.

Joe Fairless: Well, that’s great to hear. Nice to have you two on the show. A little bit about Chris and Cody – they are 23 years old, they just started investing five months ago, and within a five-month span they have closed on three deals totaling five units. They’ve done those three deals using a different technique – one with no money, one with bringing in partners who have an equity stake, and one just traditionally. So we’re gonna dive into that and how they got their start so quickly. With that being said, Chris and Cody, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Kris Kohlstedt: Yeah, so like you mentioned, we did five units in five months. Our big focus was really just getting started and just getting things going. Now our focus is more on the multifamily space, so we are trying to transition into the syndication process, which is actually how we stumbled upon you, Joe, in the first place.

Joe Fairless: Sweet.

Cody Dover: And to kind of piggyback more off of what Kris has said, really we’ve just found a model that works for us, and getting into units with tenants, already occupied. That can be good or bad, depending on where you are and who the tenant is, but for us and for the time being it worked out, so we’ve figured why not take this model elsewhere and kind of level up, so to speak, into apartments?

Joe Fairless: Cool. Well, let’s talk about what you’ve done, and that will give us some more context for where you’re going and how you’ll apply those lessons for future stuff. Let’s talk about your first deal… Tell us about that, please.

Cody Dover: The first deal was a little more traditional, as Kris said. This deal came off of Facebook; a family friend was selling it, and we were like “Well, this could be a deal, this could not be…”, so we looked into it, we ran some numbers and it seemed to work. And mind you, this was our first deal, so we really didn’t know what to expect.

In that deal we just scraped up about $5,000 total between the two of us to bring to closing for the down payment, and that was all we needed to get into the deal. Looking ahead now, that deal is making us around 72% cash on cash return for the year that we’ve had it, and after that, moving forward, I’ll kind of let Kris explain the next two deals, but we really just didn’t want to scrape up any more money after that.

Joe Fairless: That’s incredible. Let’s dig into the first one before we move on to number two and number three… First off, how do you two know each other?

Cody Dover: Well, we went to high school together, and then we kind of parter ways throughout college, and then after college we kind of stumbled back upon each other. It’s kind of a funny story, because our friends — we’re the only people posting about books on Snapchat, so we just kind of linked up and started talking about books. We were like, “Wow, not too many of us read like we’re doing. We should do something.” Chris invited me to a Rich Dad, Poor Dad seminar one night, and no questions asked, I was down. We went, and that was really where it all started.

Joe Fairless: Okay. You two were looking at this first deal, and you said you ran the numbers to see if it would work… You hadn’t done a deal before, so what numbers were you running and how did you know to run those numbers?

Cody Dover: For getting started for us we did have the Rich Dad, Poor Dad education, so to speak; we invested in that program.

Joe Fairless: How much?

Cody Dover: It was $16,000, but we both split that, so it was $8,000 a piece. And just to dive into that really quickly – we quickly when we got to our local market and went to our local meetup, I was asking everybody “Hey, what education programs did you get in?” and everyone was like “I didn’t do one.” So for me it was kind of like, “Well, I guess you don’t really need the Rich Dad, Poor Dad education.”

But nonetheless, I stumbled upon Bigger Pockets and found their analysis sheet. From their analysis sheet, it lines out what your income is, what are your expenses, what is your total return for the year and what’s your cash on cash return. So I kind of put some formulas together in an Excel document and that’s where we began running numbers, using the income and general expenses for a property.

Joe Fairless: Okay.

Cody Dover: And now for the analysis, I kind of overdid the numbers because of safety, because it was our first deal… And the numbers still worked. It met the 2% rule, so to speak.

Joe Fairless: How much is the all-in price which includes the purchase and the renovations, and what do you rent it for?

Cody Dover: The purchase price was $30,000, so we were trying to stick to a simple model –  get a house that didn’t need a lot of work to it – and that’s just what we did. This house, even though it may be $30,000, it really didn’t need any work to it, with the tenants already living there. It rents for $600, so if you do the 2% rule, it’s 2% right on point.

Joe Fairless: You said you brought $5,000 to the closing table for your down payment… How did you get financed with that?

Cody Dover: Well, the $5,000 came out of our own pockets, $2,500 each, and then we got a commercial balloon note, a three-year amortized over 25 years, from a local bank. That was only 15% down, which is the lowest that we’ve found thus far.

Joe Fairless: What was that like? You said it was a commercial loan… Was it like a community bank or a credit union locally?

Cody Dover: That was a community bank.

Joe Fairless: Okay, community bank. What was that process like, working with a community bank for the first time?

Cody Dover: It was interesting. I travel for work, and whenever I am home — or back then when we started, I would literally go to all the community banks or call on them and just tell them, “Hey, we’re getting into real estate. We’re trying to learn the ropes, basically”, and anyone that was interested in building a relationship was one that we wanted to stick with… As opposed to some people, they have like a cut and dry process; there was a couple of them, like this bank in particular, that we stumbled upon, and they wanted to build a relationship… So we knew that we wanted to work with them, and they also offered that 15% down, which was an easy way for us to get into this, a cheaper way.

Joe Fairless: What bank is it?

Cody Dover: Eagle Banking Trust.

Joe Fairless: Eagle Banking Trust. And they’re in Little Rock, or…?

Cody Dover: I believe they’re only in Arkansas right now. Don’t quote me, I could be wrong, but they are here.

Joe Fairless: Cool. And you two are headquartered in Little Rock, Arkansas? Got it. That’s the first deal, you brought $5,000 into the deal; you each brought $2,500, and you got a loan from Eagle Banking Trust, which is a community bank locally. You found the deal from someone on Facebook, a family friend; you ran the numbers from a Bigger Pockets spreadsheet and you had the foundational knowledge for what the heck is going on through the Rich Dad, Poor Dad program. So what about the second deal?

Cody Dover: Right. So the second deal was a little different. Kris and I were searching for deals, and he started just putting in low-ball offers. I think we submitted around 30-40 low-ball offers, and coming back we had about eight get accepted, and of these eight was a duplex. There was no negotiation going on, nothing. The seller just wanted out. So we ended up getting this duplex at —

Kris Kohlstedt: 71k.

Cody Dover: Let’s see… It was at $0 down because we were able to finance the down payment, so…

Joe Fairless: What did you just say? I didn’t get that part.

Kris Kohlstedt: So the purchase price for the property was 71k. That was the offer we submitted. They were asking 105k. Once we knew our offer was accepted, we immediately said “Okay, who do we know that can fund this down payment? Because we need to get this deal done.” And we called on family and friends, we went to the local meetups, and we ended up finding financing. It was $12,000; I think it was two that we paid as a down payment… Close to 12k.

Joe Fairless: You basically brought in someone for $12,000, which was the down payment of the $71,000 purchase price?

Cody Dover: Right, and they don’t have an equity stake in this property. What we did was just an under-the-table loan, to carry for six years at 6%. So it’s really a no-brainer for us to be able to get into a duplex that’s cash-flowing from day one, to get into it with nothing out of our own pockets. That kind of just debunked the myth that a lot of people think you have to have money in real estate. It’s also a bonus to have, but for those getting started or not knowing what to do, it’s all about the hustle and the grind and grit that you put forward to be able to get where you wanna be.

Joe Fairless: Amen! I second that, that’s for sure. I wanna make sure I’m understanding that correctly… You said the loan was $12,000, and you got the loan from someone – we’ll get to that in a second – and it was at 6% for how long?

Cody Dover: Six years.

Joe Fairless: For six years, okay. 6% of 6 years. Is there a pre-payment penalty?

Cody Dover: No. So it comes out to be about $256/month.

Joe Fairless: And that is interest plus principal payment?

Cody Dover: Right.

Joe Fairless: Okay. And with that loan on the property, plus your mortgage, are you able to still make money?

Cody Dover: Oh, absolutely. It’s around $400-$500 in profit a month after everything’s taken care of.

Joe Fairless: That’s great. That’s outstanding. Now, the person who brought the $12,000, how did you meet him/her?

Cody Dover: It was just a family friend; they’d seen what we were doing and what we were getting into, and we built that trust over the years with him… So really, we just kind of pitched him “Hey, we’re looking at this deal. It’s really a no-brainer for us. What can we do?” and they said “Well, you know…” — really, we’re just walking them down the path that “You have money sitting there that’s not earning but 1% or 2% in your CD or whatever at your local bank. Why not take this and earn a couple more basis points and help us out? We help you out and we give you more interest”, and that’s really where it started.

Joe Fairless: Who suggested the 6%, you or them?

Cody Dover: I believe it was them, and we didn’t negotiate from there because that was fine for us.

Joe Fairless: Okay, cool.

Kris Kohlstedt: Yeah, we were definitely in agreement about that.

Joe Fairless: And what type of loan do you have on this property?

Cody Dover: The same thing, a commercial balloon.

Joe Fairless: With Eagle Banking Trust?

Cody Dover: Yeah, with Eagle Bank.

Joe Fairless: Cool, good stuff. Anything else on this deal that you wanna mention?

Kris Kohlstedt: Yes. This deal – the duplex appraised for $105,000, so we actually had $34,000 of instant equity, and both of the sides of the duplex were occupied, so we came into it already cash-flowing, and they are still there.

Joe Fairless: That’s outstanding. Now the third deal. Tell us about that one.

Kris Kohlstedt: This one we were in negotiations for — it was actually a couple months before we closed the deal. This was a package of homes. We stumbled upon these properties and it was just really — the seller was kind of being a pain; she wanted top dollar in the market, and I said “No way.” Anyway, we go back and forth, got her down, and she said “Okay, I agree at $75,000 total”, which means 37,5k each.

Cody Dover: For two.

Kris Kohlstedt: For two, yeah. So we agreed upon that, and now we said “Okay, we need to raise the money”, so back to the same strategy – family, friends, local meetups. Our local meetup does this thing called Deal or No Deal where you can present your deals and see how to find creative financing, or people can help you run through the numbers. So we mentioned the deal, we mentioned that we needed some money, that we were interested in doing an equity stake with someone else, that that was an option.

A couple approached us and said “Hey, we’d like to fund your down payment and do an equity stake with you guys.” From there, we did close on that deal and that one is I think our most profitable, actually.

Cody Dover: Right, yeah.

Joe Fairless: You said 75k total for these two homes… How much was she originally looking to get for the two homes in total?

Cody Dover: She was trying to get $50,000 each for them, so probably around 100k(ish) for two houses. But this was an investor from California, and I guess she didn’t really know the market that she was into well, and the market that it’s in is a really good rental market with houses up there that average anywhere from 40k to 60k. But with this being on the lower end, we were able to knock it down a little.

Joe Fairless: Damn, those investors from California… [laughs] Kidding. I’d say statistically, the state that has the second most listeners of this podcast are California, so I’m just kidding, California Best Ever listeners. Alright, so how did you get this financed? It was through Eagle Banking Trust again?

Cody Dover: Right [unintelligible [00:14:46].28] same lender.

Joe Fairless: And are they fine with you on the second deal? Because you mentioned something, you said an under the table loan… Are they fine with you borrowing the money for the down payment from someone else?

Kris Kohlstedt: Yes, and that’s the difference in a commercial note from the bank [unintelligible [00:15:05].08] They don’t want the down payment to be from another source, whereas the commercial allows you to bring it from wherever you find it.

Joe Fairless: So on the third deal, what are the terms for your loan?

Cody Dover: They’re all the same, they’re all three years, amortized over 25, right around 6,5%. So the percent is a little higher than we would ideally want, but however, the houses are a little bit cheaper, so it’s not an alarming number.

What I like about this deal – and I haven’t talked to Kris about this – we’d much rather have 50% of a deal than nothing of nothing. That’s why we’re able to bring on partners, because we knew we didn’t have the financing, and instead of just walking away, going back to [unintelligible [00:15:51].08] we went out, hustled and found the right pair, and here we are.

Joe Fairless: You read my mind for the next question I was gonna ask, and that was how you structured it with these investors, so it sounds like you two in total have 50% and the couple has the other 50%?

Kris Kohlstedt: Right. So they brought the down payment and we brought the closing. The difference between the two is around $6,000, so what we were doing is paying them on a two-year note right around $175 a month to accommodate for the gap in between of what we brought to the table.

Joe Fairless: Okay, I like it.

Kris Kohlstedt: So then it’ll eventually balance out 50/50 and then we’ll obviously have a 50/50 share, because everyone’s in it equally.

Joe Fairless: In the meantime, are you two splitting the profits 50/50 because you’re also paying them back the difference on a separate note?

Kris Kohlstedt: Yeah, it’s all 50/50, and then aside from that, whether or not we get our money or not from the renters, we still pay them an even $175/month.

Joe Fairless: Right, right. Okay, I get it. [unintelligible [00:16:53].18] Cool. That’s great stuff. You two certainly are resourceful, and that is going to serve you very well. It already has, and it will continue to serve you very well. What has been one surprising aspect of these deals that when presented the same circumstance you would do it differently?

Kris Kohlstedt: I think I would try to do all of these with no money down. So we did have some negotiations with the owners, but if I could go back and do it again, I would have a lot more conversation with them to really try and break down the barrier and see what are your goals and in what ways can we meet those goals and also get ourselves into the deal to create a win/win situation?

We did have realtors for two of them, but now looking back, knowing what I know now, that’s the one thing I would change.

Cody Dover: Yeah, and to kind of piggyback off what Kris said, really it’s more so walking them down the path, to say “Well, what do you need the money for?” That’s something we didn’t really know how to do or what to do, so we just assumed “Well, we have money in the bank. Why not just unload it all on this first property?” Well, after the first property we realized that we’re low on cash, we don’t have any reserves, and if we’re trying to scale this thing we’re gonna have to take another approach to it.

That’s one thing I wish we had done – really approach the owners themselves and kind of walk them down the path and see “What are you trying to do with the funds that you get? Are you trying to purchase, pay down debt?” and then kind of let them know the capital gains tax will hit them, unless they [unintelligible [00:18:24].21]

Joe Fairless: Based on your experience as real estate investors, what is your best real estate investing advice ever?

Cody Dover: Really to invest in yourself first. You need to learn as much as you can with the resources you have. With this big thing called the internet nowadays, you can pretty much do a lot of stuff, connecting with people, networking, sourcing and searching for deals… But really, it all starts with you and taking advantage of what you have in front of you, and where you wanna go.

Kris Kohlstedt: And I would say to be proactive and to be resilient. Being proactive meaning you’re going out, you’re connecting with people, you’re trying to build a relationship with your power team – your CPA, your bankers, your realtors – all the people that aid in this real estate transaction. Be proactive and meet those people, be proactive in searching for a property, running numbers constantly until it’s second nature to you… But also being resilient. So if you don’t get a deal, not to beat your head on the wall but to bounce back and say “Hey, I’m gonna go find another deal and I’m gonna get it done.” So just to really not give up.

Something that I try to do a lot – and this is what I would like to give advice to other people… We all have limitations, and the idea of creating $0 out of your own pocket transactions with real estate is you have to become aware of those ways to do so. So just raising the awareness and taking off those limitations that you have on yourself.

Joe Fairless: Are you two ready for the Best Ever Lightning Round?

Kris Kohlstedt: Let’s do it!

Cody Dover: Let’s get it!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:19:54].21] to [[00:20:41].17]

Joe Fairless: Best ever book you’ve read?

Cody Dover: For me it’s gonna be “How To Make Big Money In Smaller Apartments” by Lance Edwards.

Joe Fairless: And I heard Rich Dad, Poor Dad?

Kris Kohlstedt: Yeah, that was the started book for me that got me going, and I have to credit that. Emerging Real Estate Markets is a good one.

Joe Fairless: David Lindahl. Yeah, that is a good one. Best ever deal you two have done?

Cody Dover: It’s gonna have to be the duplex with no money down. Of course, we had instant equity and didn’t have to put a penny out of our own pocket.

Kris Kohlstedt: Yeah, and I would say the most valuable, even more than the duplex, is investing in yourself and your journey, just like we talked about. That’s why we named our company Journey Estate Investments, because we’re all on a journey.

Joe Fairless: Best ever way you two like to give back?

Cody Dover: We just like to provide value to others. We know that we’re the ones new, and there’s a lot of other people out there stumbling whether or not they can get into it and having those beliefs… So we just like to enlighten people and let them know that we’re here to help them and that there is a way.

Joe Fairless: And how can the Best Ever listeners get in touch with you two?

Kris Kohlstedt: You can go to JourneyEstateInvestments.com/bestever. We’ve made a quick video for you guys so that you guys can be introduced to us, put a face to the name and get to know us a little bit more.

Joe Fairless: Well, Kris and Cody, thank you for being on the show. Congrats on your success out of the gate, very quickly, in what you’ve done, and the deals and the case studies that you’ve walked us through will serve as inspiration for not only beginning investors, but also seasoned investors who want to take a different approach or maybe scale their business if they’re running low on using their own money, maybe bringing in other people to do joint ventures with… And just the creativity that you two have exercised to get deals done and financed, both from an equity and a debt standpoint. Thanks for sharing the details of each of those three.

I hope you have a best ever day, and we’ll talk to you soon.

Cody Dover: Thanks, Joe.

Kris Kohlstedt: Thanks so much, Joe.

best ever real estate pro advice

JF1156: How To Build Wealth Through Single Family Investments with Paul Thompson

Listen to the Episode Below (23:09)
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When Paul realized that the perfect time to start investing was never going to come, he jumped in! Now doing about three deals per month, Paul is able to help himself, as well as helping others build wealth with passive cash flow. Tune in to hear how he is able to find and close so many owner financed deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Paul Thompson Real Estate Background:

  • Professional landlord and real estate transaction engineer
  • Began investing 2 years ago and control 22 units and I’ve been involved in about 30 deals
  • Specializes in creating win-win solutions
  • Assists frustrated landlords and busy professionals earn higher return so they can build wealth and retire earlier.
  • Based in Little Rock, Arkansas
  • Say hi to him at www.wincorehomes.com
  • Best Ever Book: 7 Strategies of Wealth and Happiness by Jim Rohn

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, 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 of that fluff. With us today, Paul Thompson. How are you doing, Paul?

Paul Thompson: Great, thanks for having me.

Joe Fairless: Me pleasure, nice to have you on the show. A little bit about Paul… He is a professional landlord and real estate transaction engineer – I haven’t heard that; I like that. He began investing two years ago and control 22 units and has been involved in about 30 deals. He is focused on win/win situations. He’s based in Little Rock, Arkansas. With that being said, Paul, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Paul Thompson: Yeah. My background is that I was an armchair real estate investor for many years, but I’m an engineer by trade, so I kind of over-analyzed things too much. I went into all kinds of investing. I was a realtor for a short time, got a Masters in Business, but then life kind of got in the way – work, kids, that sort of thing, and I ever really did was invest in index funds in my IRA or 401k.

One day I just realized that there’s never gonna be a perfect time to start a side hustle and really focus on building real wealth. Based on that research, I discovered that real estate I feel like is the perfect vehicle to build meaningful wealth… So I read all the books, scoured the internet, listened to every podcast that’s out there, and in the span of about two months I bought nine single-family rentals here in central Arkansas where I live, and now I’m up to about 25 single-family houses, and I’ve been involved in about 30-40 deals – assignments, and notes, and [unintelligible [00:02:42].10]

I’m doing about three deals a month now I guess, and my strategy is just to build wealth with little deals on single-family houses, three and four bedrooms here in central Arkansas.

Joe Fairless: Let’s talk about this… How about when in the span of two months you got nine rentals – how did you pay for those rentals?

Paul Thompson: On those I bought them with private money and then refi-ed them into traditional commercial loans. So it’s the buy, rent, rehab and refi.

Joe Fairless: How did you do that in two months?

Paul Thompson: I just started networking. I went to my local REIA and found people who were either wholesalers or other investors that had properties that were distressed or just had a motivated seller. One of the deals had six houses in one, so that kind of supercharged me a little bit; so it was four deals in nine units altogether, and they were all single-family houses. I had the knowledge, I had done enough of the reading and I had been in business for a while. It wasn’t like I was 21 years old, I was in my late thirties. I’m not gonna wait anymore, I’m gonna do these deals.

Joe Fairless: This certainly is important in your journey, these two months where you went ballistic and gotten these nine rental units… Walk us through each one of them please, these four deals. How much was the first one, how did you get the financing etc.?

Paul Thompson: Sure. So the first one was a rental that I bought for about 30k and then put about 10k into it. I got a private money loan that I found through a contact on Bigger Pockets. She did what they call “bullet loans”. It’s 10% on whatever you borrow from her, and it’s due in a year, and you can pay it back in one month or you can pay it back in 12 months. So it’s just a flat 10% period. No points. I still do deals with her all the time; she’s kind of like the little resident matriarch here in central Arkansas and lends to a lot of people… And those are her terms. She does 10% over prime, so now it’s 11%. It’s just non-negotiable. But for a $30,000 property that’s not that much money, considering I didn’t have $30,000 to lend myself.

So I bought the property, did some rehab that I funded out of my pocket, so I put about 10k into it… So I’m into it for about 40k. I refi-ed it and it rents for $650. I still have it, and it’s a solid little rental.

Joe Fairless: What lender did you use on the refinance?

Paul Thompson: I used a local commercial bank. I had a 5% interest, I had 20-year am, and it has a five-year balloon on it, like the difficult commercial loan does.

Joe Fairless: What are you planning on doing within five years with it?

Paul Thompson: Five years, if interest rates are doing well, I’ll just roll it to the next — because that’s all you really have to do… If we’re not in the middle 2008, we’ll just refi it, basically. It wouldn’t have all that extra fees, and we’d just do it at the current rates then. So if the prevailing winds of interest rates are at 15%, I’ll just roll it. Otherwise, I can sell it. I have enough equity into it. It’s probably worth about 65k now, so I have quite a bit of equity to play with… So I have some exit strategies.

At this point I’ve gained enough experience that I can find private money pretty quickly; it’s typically a little higher than 5%, so I’m not really in a rush to refi that into a 6% or 8% private money loan.

Joe Fairless: Okay. What about the next deal?

Paul Thompson: The next deal was another property I think I bought for 29k, and it rents for $600. The tenant was in place, so that tenant is still there. She’s lived there for 28 years, it’s crazy. She could have bought the house twice over; she could have made the rent payments to a mortgage company instead of to a landlord, but such it is… I think I’ve been in the house once, and I haven’t been back.

Joe Fairless: You bought it for 29k, it rents for $600… Have you done a refinance on it?

Paul Thompson: Yeah, I sure did. I did a refi on that one, and on the other and the next deal, which was a six-unit, I basically did a portfolio loan [unintelligible [00:06:27].29] refi-ed them, so I only pay one mortgage note for eight properties.

Joe Fairless: Okay. Did you have equity in them, so that when you did the refinance you don’t have to be out of pocket?

Paul Thompson: Correct, and I was lucky enough to find a mortgage company that did what they call an in-house assessment for the value, an appraisal… So there’s a lot of value in shopping around your local community banks, and you can get some pretty amazing terms.

Joe Fairless: What bank did you use?

Paul Thompson: This one I think was Central Bank of Arkansas. It’s one of the smallest banks here in Arkansas. It’s one of the second or third smallest banks in the state.

Joe Fairless: Okay. And you said you’re an engineer by trade… What type of engineer?

Paul Thompson: Network engineer. I’ve got a degree in computer engineering, and I do networking for an IP telecom company… So I just like to solve problems.

Joe Fairless: Okay. With your background and your education, I’m sure you’ve thought through the if-then scenarios… Is there a five-year balloon on this portfolio?

Paul Thompson: Yes.

Joe Fairless: Okay. What happens if the lending environment is not favorable in five years and as a result if you get private money it’s gonna be at a high interest rate because of what’s going on… What do you do?

Paul Thompson: I think that’s a really good question, and it’s actually the reason why I’ve stopped doing that very strategy. I did it on those eight properties and I haven’t done it since. Now if I can’t get fixed no call loans, then I don’t do it anymore… Because if there’s ever anything I worry about with investing, it’s the debt on those balloon notes. Those paid properties, they’re all so small that I could probably almost just pay them off if I had to; I could raise the funds, I could borrow against my 401k and put 50k into it, and pay off half the loan just by doing that. So there’s a lot of different strategies you can do if you get desperate. But not everyone gets there; I would rather just use my network of financial friends to lend to me on that.

I could go back and try and find somebody who would be willing to buy the property for me, and then I’d lend it back to myself or I’d pay them the interest rate as if they were the bank. So basically, set up a reverse owner financing deal [unintelligible [00:08:41].29] but that’s the kind of things that you would do if things don’t go well. You plan for the worst and hope for the best.

Joe Fairless: Are they cash-flowing?

Paul Thompson: Yeah. They’re low-income properties, I would say… Or middle class, working class properties, and they cash-flow very well. They tend to be some of the more higher management costs as far as just dealing with the tenants, because [unintelligible [00:09:07].15] but I would say of the eight, probably five of them I have fantastic tenants and I never hear from them. Three of them are fairly high maintenance and they end up not staying in that long and I have to turn them to somebody else, and it’s just part of the maintenance costs are higher.

Joe Fairless: What are some things you’ve learned managing these properties that you didn’t know before?

Paul Thompson: Oh, man… I’ve learned that people in this economic class are fantastic negotiators. They often don’t make a lot of money. I thought I was a shrewd business guy, right? These folks – it’s all they have; they don’t have a lot of money, and they’ve been scramping their entire life, and they are very good negotiators. Even people who are not telling lies, just people who are just looking at it as a business transaction. They will find some angle that I just never thought that was possible… And you just have to learn to be very fair and firm. If you always have the same policies — the number one lesson that I learned about being a landlord is I am never the decision-maker, even if I am the decision-maker. I never make a decision on the spot. “Oh, okay, that’s an interesting question you just asked me. I don’t know the answer to that; let me think about that with my partner and get back to you.” Then I go and have a conversation with my partner, my wife, or me, or just think about it, and like “You know what, I don’t think that works for me. I’m gonna go back and come back with this.” I think you’re much better off to be a slow negotiator than a quick negotiator, because you’ll out-negotiate yourself in the midst of a negotiation.

Joe Fairless: That’s one thing I do as well. I am never the one who has the power to make the decision if I’m speaking to a resident. It’s always “I’ve got to talk to the team and someone more important than me and ask them what their thoughts are.” I’m not the final say.

Paul Thompson: And I’ve noticed that when you start setting yourself up like that instead of being the decision-maker, people ask you less things. When they know you’re the decision-maker, they start to kind of nibble at you and you have to say “Well, I can’t make that kind of a decision. That’s way above my pay grade.”

Joe Fairless: Yeah. Now let’s move on to your other acquisition. We’ve just talked about the nine rentals, now talk us through the other ones please.

Paul Thompson: The subsequent ones have been more of what I consider the more creative financing style where you’re doing [unintelligible [00:11:23].27] owner financing, lease options or buying with private money. Those four levers are what I use now almost exclusively, where I buy subject to [unintelligible [00:11:35].13] and then owner financing. Owner financing is probably my favorite, because that way — I feel like it’s one of the best win/win scenarios around. I pitch myself a lot as I help frustrated landlords earn passive income so that they can enjoy the cashflow without all the hassle of dealing with tenants. I take on that burden and I help them enjoy the passive cashflow that they probably wanted from real estate to begin with.

Joe Fairless: How do you do that?

Paul Thompson: For one, I’m the president of the [unintelligible [00:12:03].11] so I just get a lot of deals and landlords that are frustrated coming to me a lot. So I’m just in front of people who are landlords, and if they’re expressing an interest that they want to sell, then they’ll say “I’ll share this with everybody in the group, but I’m gonna pick my president [unintelligible [00:12:18].19] and share with you that I’m interested in buying on an acquisition mode, and I would be happy to talk to you about that.” And I just ask the question “What would you do if you could tell him right now?” and most of the people would just start asking a few questions; it’s not about the cash anymore, it’s that they don’t want the headache.

I said “Well, what would you be interested in taking for some of these?” and they’ll throw a number like $50,000. I’ll say “Well, I’ve been looking to invest $50,000. Where would you put that to get a high rate of return?” They’ll say “I don’t know, I’ll just stick it in the bank.” I said “Well, what kind of interest rate are you getting on that? Less than 1%? Well, okay, if I can show you how you can get four times that, would you be interested in hearing more about that?” And then that just opens up the conversation to where I found their problem point – they don’t wanna deal with the headaches and the hassle with the tenants, but they’re enjoying the cashflow. They don’t really want a pile of cash, they still wanna maintain that stream of cash, and I just give them the solution to that.

Joe Fairless: Thank you for walking through that, that’s really helpful. How about give an example of an owner financing deal you’ve done, with the numbers?

Paul Thompson: Sure. I’ve bought one property for 64k, it rents for $830… I think I’ve put 12k down, which is a little bit higher than I usually do, but he was willing to take 4% interest; I can’t get 4% interest even at a 30-year fixed, so I was pretty happy with those terms. So I’m paying him $400 until the end, in 15 years. So in 15 years I’ll have a house fully paid for, that’s cash-flowing for me about $250/month, and it’s in a really good neighborhood that has some gentrification going on, so I feel like there’s potential for appreciation. I don’t ever really count on that, but it’s nice. This is a cashflow market, it’s not about appreciation, but it’s just a solid house, and [unintelligible [00:14:01].09] to get that check for me every month.

Joe Fairless: Does he own it free and clear?

Paul Thompson: He did.

Joe Fairless: Okay. So there’s no other mortgage that you need to worry about.

Paul Thompson: Right. You can still do a [unintelligible [00:14:11].22] when there’s an underlying mortgage, but it’s just kind of like [unintelligible [00:14:15].06] and a lot of times I found with those that the moving parts are just so complex that it would have to be a really compelling deal to go through the headache.

Joe Fairless: Right.

Paul Thompson: And there are a lot of houses that are free and clear. There’s landlords that have been in it for a long time, and they’ve had them free and clear for a long time. They’re often times very happy to find out that there’s capital gains advantages, they don’t have to pay the taxes all at once… They can just pay the taxes on it as they get the payments. All they have to do is recapture their depreciation, so I give them enough of a down payment to accommodate for that. I walk them through the numbers and I show them how to do that, and if I can’t, I’ll pull in their CPA, and often times I find their CPA is one of my best advocates, because they’re representing the seller, but I’m asking questions that the seller may not think to, and then their accountant will confirm it.

Joe Fairless: That’s great stuff – very straightforward and play-by-play playbook for how to get owner financing deals from current landlords. I’m grateful and I know a lot of best ever listeners are grateful for that.

Let’s see, with your portfolio now – that’s your focus… Now we’re gonna go back to what you said earlier – three and four-bedroom houses. So that’s what you’re looking for now, the kind of owner financing deals?

Paul Thompson: Yeah, some sort of creative strategy where I put as little money into it as I can get away with, and then that they are solid, cash-flowing properties that I’m getting some sort of terms on, or I can get at a low enough of a cash discount where I can use private money and just fund the deal. That’s kind of my other angle – create a deal structuring, then using private money; I probably do private money on probably half of my deals now. There’s more money out there than there are deals, you just have to build that trust component with people, so that they trust that you’re gonna continue to pay them the returns that you’ve promised.

Joe Fairless: What’s something we should watch out for if we’re gonna follow this approach?

Paul Thompson: For using the private money?

Joe Fairless: Either that, or the owner financing thing.

Paul Thompson: Anytime you’re doing creative deals at all, you have to learn and know the rules. It’s really easy for — you hear about the books that you read, the podcasts that you have, and somebody just gives you a flashy demonstration, and it sounds good and in principle it is good, but knowing the mechanics of that is really, really helpful. So knowing that a seller has to capture depreciation is not something you wanna find out after the fact, when they are doing their taxes the next year and they find out they have to pay taxes because of the deal you structured.

Joe Fairless: Who’s on your team that helps you make sure that the deals are structured properly?

Paul Thompson: I would say it’s just me. I have a pretty simple process, but what I’ve done is I’ve done the homework on the front-end. I’m not doing something that I don’t fundamentally understand first. Some of the best ever advice you can give – and you hear it a lot – is to find a mentor. And whether it’s somebody you just find locally or someone you pay to be a real estate guru – whichever, you pick your preference there, but it’s really helpful to have somebody that you can trust and talk to about the deals.

I kind of have a local mastermind group that we work and talk our deals through. They don’t formally review our deals, but  we’re talking strategies all the time and I’ve actually considered going into the Airbnb and I’ve been trying to figure out how you’re supposed to structure those from a tax point of view, and right now there isn’t a clear answer that I can tell. You just have to kind of do it and hope that the IRS comes down on your side [unintelligible [00:17:48].07]

Joe Fairless: Based on your experience as a real estate investor – I know you’ve just mentioned the mentor thing – what is your additional best real estate investing advice ever?

Paul Thompson: Why are most people investor in the first place, and why do people consider real estate? That’s because they want more out of life, and they don’t wanna be chained to a cubicle, they want a more fulfilled life. [unintelligible [00:18:10].19] So real estate isn’t really about the physical house or the [unintelligible [00:18:15].11] it’s just a really useful asset class that allows us to design the life of our dreams.

I sat on the sidelines for 15 years, telling myself that I was a risk-averse person. This was just a code for “I’m afraid of failing.” Then I just suddenly realized that if I’m going to make this happen, I kind of discovered that I have to make a living at the service of others and not at the expense of others, and that kind of concept really changed my life. So now when I meet other people, I’m not thinking how they can help me, I’m thinking how I can serve them. So the best ever advice ever is thinking through the eyes of the person you’re talking to; this applies to buying houses, raising money, selling houses, or even if you’re just referring your photographer freelancer to a good client.

The lesson is deals happen because the other side needs something, and if I can engineer a way for the other side to win and I also get something that I need, then it’s a true win/win scenario. Sometimes there’s nothing more than just referring a friend, other times it’s showing someone they can earn a higher or more consistent rate of return, while avoiding the volatility of the stock market. So the best ever advice is to find out the pain point of the other person and solve it.

Joe Fairless: I love that. Are you ready for the Best Ever Lightning Round?

Paul Thompson: Let’s do it!

Joe Fairless: Okay, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:19:37].15] to [[00:20:38].01]

Joe Fairless: Best ever book you’ve read?

Paul Thompson: Seven Strategies Of Wealth And Happiness, by Jim Rohn.

Joe Fairless: Best ever deal you’ve done?

Paul Thompson: The first one, because I did it.

Joe Fairless: What’s a mistake you’ve made on a transaction, that you haven’t mentioned?

Paul Thompson: I didn’t get the insurance in place; I didn’t have the details of the deal that failed, and it’s because I didn’t have a checklist, so now I have a checklist for everything so that I don’t have to remember what to do next.

Joe Fairless: Best ever way you like to give back?

Paul Thompson: I like to pay that mentorship that I received forward. I offer the same deal to anyone that was given to me by my first mentor, and I give away tons of free advice, and I will do a free strategy session for anyone who’s trying to get started.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Paul Thompson: I have a website where I send people – it’s wincorehomes.com; I think you have that in the show notes.

Joe Fairless: I do have that in the show notes. Thank you so much for being on the show and talking about your deals. Boy, once the light turned on with you, holy cow – you went all in! I’m glad that you walked us through step-by-step how you did that, as well as the potential risk with the five-year balloon and how you’re looking to mitigate that risk as much as possible in the meantime.

Additionally, the owner financing deals from current landlords – how to get owner financing deals from current landlords and the dialogue that you have with them. For any Best Ever listener who’s looking to do what you’re doing in their market, you just gave them the flow of the conversation; I hate scripts, but the flow and the general parameter or structure of the conversation – you walked us through it, as well as bringing in their CPA and then how you structure the actual deal.

Thanks for being on the show. Great stuff, great job getting going so quickly out of the gate once you decided. I hope you have a best ever day, and we’ll talk to you soon.

Paul Thompson: Thanks so much!