JF1408: Money IS NOT The Reason You’re Not A Real Estate Investor with Austin Miller

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A lot of people say the same thing “I’d love to flip a house (or have a rental) but I just don’t have the money”. Austin noticed that too and wrote a book called Free Houses to explain how we can acquire properties without having money of our own. With over 16 units bought with very little of his own money, his advice is obviously actionable for most people who will listen. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Austin Miller Real Estate Background:

  • Labeled as a creative financing real estate investor
  • Built a real estate portfolio of 16 units worth over $1.2 Million with little of his own money
  • Author of the book Free Houses
  • Say hi to him at http://www.hickoryhomebuyers.com/
  • Based in Springfield, MO
  • Best Ever Book: Rich Dad Poor Dad

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TRANSCRIPTIONS

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, Austin Miller. How are you doing, Austin?

Austin Miller: Joe, I’m great. How are you?

Joe Fairless: I’m great, nice to have you on the show. A  little bit about Austin – he is a creative financing real estate investor. In fact – there’s proof is in the pudding – he has built a real estate portfolio of 16 units, worth over 1.2 million dollars, with little of his own money. He’s written a book and it’s called “Free Houses.” He’s based in Springfield, Missouri.

With that being said, Austin, will you give the Best Ever listeners a little bit more about your background and your current focus?

Austin Miller: Absolutely, Joe. Background – I got started investing in real estate, single-family homes, around 2010. I just kind of have steadily done one or two flips and buy and holds ever since then, and haven’t looked back.

During my day job, I build houses, so I do have a construction company that allows me some time, freedom to still be in the real estate industry, and also have time to have other ways to create income. Currently, our focus is still the bread and butter single-family homes. We buy, rehab, put a tenant in there, and continue to unwind. That’s what we’re still doing today.

Joe Fairless: You wrote a book called Free Houses. I think there’s some people listening who want some free houses – how do we get some free houses?

Austin Miller: Well, I’ll tell you… The premise of the book is that nothing in life is truly free, but a lot of people will label things as free, like “Hey, I wanna buy you a free lunch”, but there’s still costs to you; you have to get in your car, you have to drive there, and most importantly, you have to spend about an hour of your time. Well, time is the most precious commodity that we have, and we can’t get it back… So for a lot of people, they wouldn’t exchange that one hour of time for not having to pay for food. But how I bring that into the analogy of real estate is whenever I tell people I’m a real estate investor, they almost always respond with the same phrase: “Man, I’d love to flip houses, I just don’t have the money.” Almost every person uses money as his/her reason for not investing in real estate.

The premise of the book and what I have shown through my experience and through each chapter, using different strategies, is that real estate is not free, investing isn’t free, but if you’re willing to spend some time and effort, you don’t have to spend any of your own money. So in today’s world, if we’re gonna label something as free, if it’s achieved without exchanging your own money – if that’s the case, then I’ve acquired a whole portfolio of free houses.

Joe Fairless: Alright, let’s talk about one of them. How do we acquire a free single-family home, knowing that monetarily it’s free, but we’re gonna need to put some time towards it?

Austin Miller: Sure. The first year that I got started in this I was thinking “Man, I’m gonna do this. I don’t know how, I don’t have money, I certainly can’t go put 20% down (because that’s what all the banks were asking of me)…” Joe, if you had a house that you’re like “Man, this is a good investment. It’s $100,000”, and you went to your banker and said “Hey, I wanna buy this house. Will you lend me some money?”, typically they’re gonna want what from you?

Joe Fairless: They’re gonna want some sort of collateral?

Austin Miller: They’re gonna want some collateral, right; they’re gonna want some skin in the game, and a lot of times it’s 20%. Many times it is. So what I quickly found out was “How do I come up with that 20%?” One of the things that I started realizing was people selling houses at a discounted price. So I called my banker and said, “Hey, what if I can get a house that’s worth $100,000 and I can get it for $50,000?” The conversation was completely different. It was like, “Man, he’s willing to work through some things, he’s willing to take that equity that I had ($50,000 in equity)…”, and equity, for those who don’t know, is defined as the difference between the value of an asset and the amount owed against it… But the conversation was completely different. They would allow me to take some of that equity as essentially a down payment.

So what I got to learning was that if I can prove or if I can show that I have 20% equity, a lot of the times that could negate some or all of my down payment. So what I started on the quest for was to try to find funding, so that I could purchase these deals and rehab these deals, and each chapter in the book is about how to do that, and different methods that I did that. Would you like me to go through maybe even just one of those?

Joe Fairless: Yeah, sure. So just so we’re on the same page, basically in order to buy the free house, we need to find a property that has equity built into it that you can then use as collateral with the lender, and then they take that equity as collateral, and then boom, you have no money into the deal.

Austin Miller: Absolutely.

Joe Fairless: Okay.

Austin Miller: And that collateral being 20%. Really, a lot of it falls under that 80/20 rule. 80% loan to value. So if it’s a $100,000 property, the value of it, I would want to be in it for no more than $80,000, so I have that 20% equity. And really, I think that most lenders, whether it be on the federal guidelines, or for the guidelines from each small bank, just whatever their internal guidelines are, they wanna see that 20%, and that’s kind of the bare minimum of what you need to have.

Joe Fairless: And I imagine it’s gonna be a local lender that’s doing this with you?

Austin Miller: Yeah, I’m always a fan of local lenders. Nothing against big banks, but whenever you’re talking to a local lender, you seem to really be able to talk to the decision-maker… And when they’re smaller banks and they have more control over what they’re gonna allow with their investors, as an investor you’re gonna have more negotiation power and you can kind of talk to them about what they would and would not be willing to do.

People are always like, “Man, how do I know if it’s a smaller local bank?” and I’m like, well, it’s usually called the first local bank of whatever town you’re in, or the community bank of wherever you live. The name a lot of times gives it away. Or “the State Bank of Missouri”, or whatever it may be.

Joe Fairless: Sure.

Austin Miller: Just making a few phone calls and talking to portfolio lenders, you can find out pretty quick what their guidelines are and whether they’re an investor-friendly bank.

Joe Fairless: And a portfolio lender is a lender who keeps the loan in their portfolio, therefore they don’t have to answer to underwriting guidelines that Bank of America, Wells Fargo, U.S. banks like that have to answer to.

Austin Miller: Sure. They’re not selling that loan off to a secondary market or another bank; they’re keeping that loan in-house, in their bank, most of the time.

Joe Fairless: So for your first deal where you did this, was it with a local lender?

Austin Miller: I got my long-term loan with a local lender, yes. My short-term loan I got from a hard-money lender.

Joe Fairless: Okay. Can you tell us the numbers and who did what?

Austin Miller: Yeah, absolutely. My first deal actually has nice, round numbers, which makes it easy for everyone. It was kind of a home run deal, which I always recommend for your first one… You wanna give yourself plenty of room on the first one. So I knew that I needed to find someone that could help me with a short-term loan before I got a long-term loan from the bank, so I started researching on hard money lenders.

The premise on a hard money lender is they’ll give you a short-term loan to purchase a property and fix it up, a real estate investment, and over that time period you’re gonna pay high interest to them, and usually it will have some type of fixed fee for just doing the loan. Then once the purchase and the rehab is completed, at that point in time you can go to an actual lending institution and get a long-term loan, and a lot of times that’s a community bank; that’s who I always deal with. At that point in time, get that loan, cash out on the property and pay off the hard money lender.

So when people ask me, “Hey, how do I find a hard money lender?” Well, you can go on Google right now and you could type in “hard money lender” in your area, or just “hard money lender”, “real estate hard money loans” and they’re all across the country.

Now, same thing with hard money lenders – it’s probably better to find someone in your area, because the first property I did, the hard money lender was in my town, and I actually met him. Small company, the guy just had a lot of capital, and he liked giving out real estate loans for the short-term and with a high interest on the money, and then a fee. That was just the way that he continued to make a living.

He wanted to see the house, and a lot of times the hard money lenders are more concerned with the property and whether or not it’s a good deal than it is with the person who’s asking for the money. They’re gonna wanna have an application filled out and all that, and maybe even meet you, maybe it’s a phone call, I don’t know, but they’re always very concerned with the property more so than the person. So the terms on my deal – the house was listed for about in the upper fifties; I wanna say it was like 56k-58k, and I ended up offering 44k, and we got it under contract.

Joe Fairless: You got it under contract with the first offer that you made, at 44k?

Austin Miller: Honestly, I can’t remember… I’ve offered 42k and they came back at 44k and I accepted… That sounds right. But our purchase price was 44k, and I knew just from running comps and studying the area and help from a real estate agent that it would probably appraise close to 100k, or 90k-100k.

Joe Fairless: As is?

Austin Miller: No, after repair value.

Joe Fairless: After repair, okay.

Austin Miller: So using the 80/20 rule, I thought, man, I’ve got up to $80,000 all-in that I need to be at to stay at that 80% loan-to-value to have that 20% equity. So I put $20,000 into it over the course of three months, and then my fee on the back-end to do the whole loan with the hard money lender was $2,000. My all-in loan after I had closing costs and things was $66,500. Once we were done with the purchase and the rehab, I then called in an appraisal and it appraised right at $100,000, so I was well below that 80/20 rule.

One of the things that people kind of get hung up on, specifically with hard money lenders, is the high interest, because you’re going to pay for those months that you’re rehabbing the property anywhere from 14% to 18%. Some people see that and they’re like “Oh my goodness, I can’t believe that you would pay a high interest like that.” But if you’re only paying it for three months, you make three payments of high interest, and at the end of it you get a house that cash-flows $250/month, that has all kinds of equity, to me that is worth it.

So many people will say, “Man, I wouldn’t pay that”, but at the end of the day that was the vehicle that allowed me to purchase this house. So the only out of pocket expense that I had were those three monthly payments on the high interest. The first month wasn’t a very high payment because I hadn’t drawn that much out on the construction. I think all in all it was like $1,800 between the three payments that it cost me out of pocket.

Then I had a house that was cash-flowing, I had a long-term loan, and a tenant in there, and cash-flowing about $250/month. So it was a very smooth transaction and it went off fairly well for me on my first one.

Joe Fairless: Once you get the appraisal back at $100,000 and you’re all-in at 67k, then you go to your community bank and then you get the long-term loan, right?

Austin Miller: Yes, that is absolutely correct.

Joe Fairless: What were the terms of that loan?

Austin Miller: A 20-year loan that is a 5-year fixed… So I should back up – at the time it was my first deal, so I just kept it in my own name, and I actually got a 20-year fixed at that point. But as I grew in my business, now everything is in an LLC, and I believe you can have a certain amount of properties in your own name (four or five or something) before you can no longer do that and get a long-term fixed rate loan. But as I got a real estate attorney, he said “Look, man, you should really be protecting yourself and have these in an LLC”, so I moved everything over to an LLC.

My typical loan right now, for the past several years, is a 20-year amortization, and it’s a five-year fixed, but a maximum of two points increase at five years.

Joe Fairless: And what bank do you use?

Austin Miller: For most of my transactions in Missouri I use a bank called the Bank of Missouri.

Joe Fairless: So that was your first property, and now to recap – you found a deal that had a lot of equity in it, you have a construction background, which was helpful in renovating it, getting it up to the appraisal value of $100,000, you’re all-in at $67,000, you then cash-out the hard money lender with a long-term loan that you have with a community bank, and now you’ve put some sweat equity into the deal, but you have not put any of your own money into the deal, and you have a property that has a long-term loan, and you move on to the next one. Is that right?

Austin Miller: That is absolutely right.

Joe Fairless: Cool. So right now you have 16 units…

Austin Miller: Just bought the 17th last week.

Joe Fairless: Congratulations on the 17th! So you have 17 units, and in your bio it says they’re worth over 1.2 million. How much of your money do you have in those properties, tied up, that came out of your pocket?

Austin Miller: Out of my pocket? Oh man, over the years, if any given year I put over $2,000 into the company, then that would just shock me.

One time we did end up making a down payment on a house that was — I think we bought it for like $15,000, so that was the big down payment, 20%; it was $3,000. [laughs] That was the biggest time I’ve ever put any of my own money into it.

Joe Fairless: So at most you have $20,000 out of pocket, tied up in this 1.2 million dollar portfolio that you’ve built. Is that accurate?

Austin Miller: That’s on the high end, I can tell you that.

Joe Fairless: Okay, at most. 20k is on the high end. So you have a portfolio of 1.2, although I’m  sure it’s a little bit more now that you got the 17th property… How much was the 17th property? What was the purchase?

Austin Miller: 15k.

Joe Fairless: Okay, 15k. So that’s incredible… And the examples you’ve mentioned so far – the last one was 15k, the first one was 44k, but then worth 100k… So I imagine there’s one that’s a little bit more than the others, especially like the last one that you bought for 15k… So what property is valued the highest?

Austin Miller: We’ve got a fourplex. Out of the 17 units, one of them is a fourplex. That one I think is somewhere around 180k-200k appraisal value.

Joe Fairless: Tell us about that one, will you?

Austin Miller: So that one was one that we found through some direct mail, and it was a seller that kind of just needed out. The property had been cash-flowing, and rented fully-occupied, kind of close to campus, nice two-story brick columns out front, really cool property…

Joe Fairless: Which campus?

Austin Miller: If you’re familiar with Springfield, Missouri, we’ve got  [[00:16:07].04] Missouri State is the biggest one, and it was pretty close to that one. It’s probably six blocks or so… But that was one that I was able to get at a deep enough discount from him to where we went in and just through purchasing in cash and then doing some minor things around the property I think we spent about $5,000, and that was all money that we’d built up from cashflow, so not out of pocket… But I partnered on this one because the acquisition cost was substantially — it’s one thing to come up with $10,000 or $20,000 for a purchase price, but whenever you’re talking about a six-figure purchase price, then it was a little out of my comfort zone then… So I brought on a partner and said “Hey, if you bring the cash, I’ve got the deal, and we’ll partner 50/50 on this and start an LLC.”

Agan, $5,000 into it just to really do some things like tree trimming, painting, a little bit of landscaping, cleaning it up… We just gave it a lot of curb appeal and made it look like a different place, that we then bought in cash, went back and had that appraised at almost $200,000 and we were able to pull all of our money back out and we cash-flow right at $200/unit.

Joe Fairless: What was the purchase price?

Austin Miller: The purchase price on that one was 140k, and we put $5,000 into it, and then it appraised for almost 200k.

Joe Fairless: That’s great.

Austin Miller: Yeah, that was a  good one.

Joe Fairless: The 140k that your partner brought – you said the 5k on top of that was from cashflow from the operations… Why not bring 145k to the deal and then just have it all done up front, and then move on?

Austin Miller: That was a negotiation on his side, like “I’ll bring the cash, but I want you, since you’ve done a lot of rehabs and stuff, I want you to put a little skin in the game, too. You can’t come up with 140k, but what can you come up with?” So I said, “Well, I’m giving it a facelift.”

Joe Fairless: Okay, so once you closed on it, he received 50% of his money, and then your 50% was invested back into the deal?

Austin Miller: No, he received all his money back, and he received 50% equity in it.

Joe Fairless: Right, but then you said the 5k came from cashflow after it closed, so…

Austin Miller: Yes, I get what you’re saying, yes.

Joe Fairless: So he got all of his money back from the transaction, but then once it closed, afterwards, he got his 50% cashflow, and then your 50% was invested back into the property, until the cap-ex stuff was done.

Austin Miller: Correct.

Joe Fairless: Cool. Alright. The structure – is that just a joint venture structure?

Austin Miller: Yeah, it’s just a partnership, LLC, very basic, that was drafted up by a real estate attorney.

Joe Fairless: So the key here, in all of your deals, it sounds like — well, there’s multiple keys… One is having an eye for properties that are under market value, but then the second is being able to deliver on the execution of bringing that value back up through sweat equity and also through overseeing the project. Would you say those are the two things that are critical to this? And if so, is there anything else that is critical to be able to buy these properties for little or no money out of pocket?

Austin Miller: Well, I would say the oversight… A lot of people — I get the connotation of “Yeah, it’s easy for you to say, because you’re in construction. I have no idea how much that stuff costs, and I wouldn’t know how to do a rehab…”, but my background was commercial construction, and when I got into flipping houses I didn’t know costs; it was kind of like a different world for me, so the first couple I hired out completely. I just got some good contractors that were referrals from other investors, and they were able to give me bids within X amount of days during my contingency period, my due diligence period, and that way I knew that my numbers were correct before going forward.

So I would say that that is definitely something that comes with time – learning about rehab costs in the construction industry, but it’s definitely not something that will hold you back. And I think that the biggest thing is just being able to be in the industry and the asset of bringing a deal forward, or finding a deal. If they were everywhere, then I would have the ability to go to someone and say “Hey, partner with me on this. This is a great deal.”

I found that the value is just me being able to produce those deals, and that can be done by anyone that is willing to get into finding real estate properties that are distressed, foreclosed, tax sales, auctions, direct marketing, other wholesalers… The list is endless on where to find deals. Right now, because the market is up, you have to work a little harder, but again, they’re still out there.

Joe Fairless: You’ve got 17 units and the value is over 1.2 million… How much do they cash-flow a month, in total?

Austin Miller: Our bare minimum per property is $200/door. Some do a little bit better than that, but usually — obviously, it depends on move-outs and whatnot, but around $3,500.

Joe Fairless: Got it. So $3,500 is for all of them, and then on the 4-unit you’ve got 50% ownership… Do you have any partners in any of the other deals, equity partners?

Austin Miller: Yeah, so on most of them I’m with one person. Usually, when you get into finding funding sources and private money… A lot of people say “You can find private money lenders all over the place”, but what I’ve found is most investors will do one or two deals with private money lenders, and then eventually they’ll kind of follow in step with somebody and partner with that person continuously. That’s kind of what happened to me.

Joe Fairless: Okay. So you’re personally cash-flowing around $1,700-$1,800 and you only have (at most) 20k in these deals. That’s a really good return.

Austin Miller: Yeah, I think so. A lot of people will be tempted to spend that on using this income to live or whatnot, but for me, I’m putting it back in the business… Because you never know when you’re gonna have a tough move-out or when you need to purchase a property.

Right now, one of the strategies I’m considering is just paying down existing loans at an aggressive rate, instead of just paying them on the 20-year notes.

Joe Fairless: This is really interesting, and I’m glad that you talked about your approach from start to finish. I was just doing the math… Your $1,700/month, times that by 12, that’s $20,400, so basically the all-in, at most, that you mentioned, is 20k, and you’re making approximately 20k/year on these investments, so that’s a really good return.

Austin Miller: Yeah. Real estate has been good to me in the fact that there’s a million excuses for not getting into it, but if you just really put your head down and get into it, the sky is the limit.

Joe Fairless: And I imagine the windfall of cash will be when these properties appreciate – let’s hope they do; fingers crossed. I know you’re clearly not banking on it, because you said you have a minimum cashflow requirement, so you’re not banking on appreciation… But if and when it happens, then you can start getting chunks of change through cash-out refinances, or if you’re paying them off some other creative methods, to then really scale faster once they start seasoning a bit.

Austin Miller: Absolutely. I started buying properties before I had kids, so hopefully by the time they’re in college, if I really need to, I can just sell one and pay for their tuition.

Joe Fairless: Hold old are they?

Austin Miller: We’ve got a 4 year old boy and a one year old girl.

Joe Fairless: You might need to sell a couple of them by the time they get to college… [laughter] Who knows what college tuition will be by then?

Austin Miller: Yeah…

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

Austin Miller: The best real estate investing advice ever would easily be just to get out there and do one, and be a doer. That’s one of the things I talk about in the book; there’s not a lot of fluff in the book, but we live in this age where being an entrepreneur is so attractive and so sexy that people just get caught up with — you don’t have to be a Robert Kiyosaki right out of the gates.

If you’ve got something that you wanna do, if it’s real estate investing, get out there and just do one. How much money can you lose on one small rental house?

I don’t consider myself an entrepreneur, I consider myself a hard-working small business owner and a real estate investor. So get out there and just do one.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Austin Miller: Oh, I love the lightning rounds.

Joe Fairless: Alright, then you’re gonna love it, because you’re gonna participate in it. First though, a quick word from our Best Ever partners.

Break: [[00:24:54].16] to [[00:25:56].23]

Joe Fairless: Okay, best ever book you’ve read?

Austin Miller: Real estate investing – Rich Dad, Poor Dad. Personal – easily the Bible.

Joe Fairless: What’s a mistake you’ve made on a deal?

Austin Miller: Letting my emotion get involved and trying to force the numbers to make the deal work.

Joe Fairless: What’s the best ever deal you’ve done?

Austin Miller: The best deal I’ve ever done – I sold a property twice… Because I bought a house on seven acres, and once I bought it, I fixed the house up, and then I also split the acreage in half… So I sold the acreage and then I sold the house and I made money twice.

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

Austin Miller: Teaching and volunteering in local ministries and local community advisory boards.

Joe Fairless: Lastly, what’s some advice you have for finding under market deals?

Austin Miller: Right now one of the best I have found them recently is auctions. It seems like, for whatever reason, in our market people are not going to auctions right now. I’ve never had really bought them before an auction, but what I’m seeing – I’ve gone to two and I bought one last week – is that for whatever reason, it’s a really good place to pick up deals right now.

Joe Fairless: And with you not putting the cash up, how do you structure that with your investor? Because cash is needed to do that.

Austin Miller: Well, it’s 10% down, and on this one I paid 10% down out of pocket, out of the real estate investing cashflow funds, and then whenever we cash back out on the long-term, we settle up then.

Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about what you’re doing?

Austin Miller: You can e-mail me at Austin@hickoryhomebuyers.com.

Joe Fairless: This has been a wonderful episode, especially for Best Ever listeners who are looking to get started, or they’re just looking to identify a model to help them scale with little money out of pocket. You’ve got properties where you’ve partnered with individuals, you’ve got your own properties – in total 17 units, worth over a million bucks…

You’ve put in, at most, $20,000 and you’re making approximately $20,000 a year from the rentals. You do that by finding properties that have equity built into them, they need some lovin’, you put in that lovin’, and then you find a long-term lender (you have a community bank that you use) and then you cash-flow and hold on to it.

Thanks for being on the show, I really appreciate you sharing your business model and how you do this. I hope you have a best ever day, and we’ll talk to you soon.

Austin Miller: Joe, thanks a lot, man. I really appreciate it.

 

JF1371: She’s #1 In The Brokerage & Doubling Her Real Estate Volume This Year with Kellie Revoir

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Kellie has partnered with her mom, Linda, and together they are the #1 agent in their brokerage. Over 112 transactions last year, and on track for 250 transactions this year. Along with the sales volume and realtor income, they also own 58 units that they self manage. How is she able to do so much? Listen to this episode to find out! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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, Kellie Revoir. How are you doing, Kelly?

Kellie Revoir: I am fantastic, how are you today?

Joe Fairless: I am fantastic, nice to have you on the show. A little bit about Kelly – she has been a realtor since 2013. She grew her business to over $500,000 gross commission income in four years. She’s based in Springfield, Missouri. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Kellie Revoir: Sure. Like Joe said, my name is Kelly Revoir and I’m from Springfield, Missouri. I got my license in 2013; I decided to join real estate with my mother, who got her license in 2006. We are the number one agent at our brokerage company, in the top 1% of the realtors. Last year we closed 112 homes transactions, and we are on set right now to close 250 this year. In the first quarter we closed 47, and I think we’ve got 29 under contract right now.

Joe Fairless: Wow! You’re on fire.

Kellie Revoir: Yeah, we’re busy.

Joe Fairless: I want to make sure I heard you correctly – you are the top 1%, and then what did you say?

Kellie Revoir: We are in the top 1% of our local board of realtors, but we are the top agent at our brokerage company.

Joe Fairless: Awesome. 112 transactions last year, on track to close 250 this year. You’re on track to more than double what you did last year – what would you attribute that to?

Kellie Revoir: A couple of different things. Linda, who is my mother and my partner (I will probably reference her a lot), the two of us have grown the team. One manager right now, and currently we have seven buyers’ agents, and we have three more buyers’ agents coming on probably within the next 2-3 weeks… So a lot of training, a lot of team probe… I want to have 15 buyers’ agents by the end of the year, and we wanna add another operations manager as well, or an assistant for our operations manager.

But we really focus a lot on our sphere and our referrals in our past clients. We do pay for a lot of lead generation, we do pay for a lot of buyer leads, but we also spend a lot of time and effort and energy into client appreciation events, just taking care of our best clients in our sphere of influence. That way, when they know somebody that’s looking for a realtor, they automatically think of us.

Joe Fairless: Will you elaborate with some examples on focusing on your sphere of influence and referrals and past clients?

Kellie Revoir: Sure. Every month we send out a newsletter, and in that newsletter are quizzes that they can take to earn some free ice cream, we do a lot of client appreciation in a couple of weeks, and we are going to go to a Springfield Cardinals baseball game. We have reserved 100 seats for that, and we have — our past clients in our sphere have to reserve the tickets, obviously. We have done pumpkin pie giveaways over Thanksgiving week, we have done fall events… We just have a lot of client appreciation events. We try to have three to four every year.

Over St. Patrick’s Day we’ll mail out everybody a lottery ticket that says “We hit the lotto when we got you as a client, and hope you can be as lucky as we are.” We just do a lot of little things like that. We send out anniversary cards and call it a “Houseaversary” to all of our clients that have sold or purchased with us over the last five years. They all get an annual anniversary card to congratulate them on another year in their home.

Joe Fairless: I like that. What system do you use to keep track of that stuff?

Kellie Revoir: RealtyJuggler is who we use for our database in terms of mailing these letters. We use FastNewsletters.com, and it’s just $10/month; it’s really cheap. They create our newsletters for us, we just have to plug and play a few little items. That was hands down one of our best investments. Then we send all of that out through a bulk mailing rate through the Post Office, so it’s cheaper to send it out that way.

And with our anniversary cards, we just use a 3×5 index card in a box, that we just pull it out every month and look through it to make sure those people are still living in those homes, and send them out. Nothing too elaborate or expensive.

Joe Fairless: Very economical, and also (it sounds like) effective. FastNewsletters.com – and I wasn’t picking up that it was actually mailed out until you just said that; so it’s a physical newsletter that you mail out every month.

Kellie Revoir: Correct. We do a lot of mailings. I’m sure everybody that’s listening right now gets so many e-mails every day… They just go through and delete them. I know I do. That’s the first thing I do. I just delete probably like 15-20 e-mails every day of just junk. So instead of doing that, I actually want something to show up in their mailbox. The newsletters are 11×17 sheets of paper that you fold in half, and it actually shows up in their mailbox.

It’s not even real estate-related. It might be “The best haunted houses”, or… Fast Newsletters creates the entire thing, and it’s pretty interesting to read. Then they’ll have little snippets of real estate in there, but the bulk of the newsletter has nothing to do with real estate.

Joe Fairless: That’s really interesting. And then you’ve got the database, RealtyJuggler – is that correct?

Kellie Revoir: That is who we use for our newsletter mailing database, but for our CRM, our client relationship database, we use Follow Up Boss. All of my buyers’ agents, when we get leads, we use Follow Up Boss. But just for the newsletters, we use RealtyJuggler. It’s $120/year. That’s kind of what we started with 5 years ago, and  just haven’t taken the leap to switch everything over.

Joe Fairless: Fair enough. Let’s go back to the team – you mentioned different team members. Will you recap the roles? You said you have buyers’ agents, you’re hiring for another operations manager later… What are the other types of roles you have on your team?

Kellie Revoir: So Linda and I are both team managers or team leaders, and listing agents. We have seven buyers’ agents; they solely work on buyers, they don’t do any listings. And then our operations manager does all of our transaction to close, she does all of our social media, all of our advertising, and she’s at the point now where she’s busting at the seams. So our next hire is going to be a part-time person to help her with a lot of the transactional paperwork.

Joe Fairless: Where are all of these homes that you’re selling?

Kellie Revoir: Springfield Metro Area, so [unintelligible [00:07:36].14] Basically, our area – Springfield, Missouri and the metro-rural area has about 350,000 people living in it, so that’s where we sell most of them. I will put a sign in the yard anywhere, so… We’ve been as far as two hours out, but pretty much all within a 45-minute drive from us.

Joe Fairless: What’s something that you two have done to evolve your business over the years, to make it more efficient or effective?

Kellie Revoir: Definitely growing the team I would say is what’s made it more effective for us and more efficient. Really hiring our operations manager. She was our first hire, and that really exploded the team, because that gave Linda and I enough time to actually work on our business, instead of working with getting initials and signatures here and there.

And then we started hiring two buyers’ agents, and then two buyers’ agents led to four buyers’ agents, and literally we’ve just exploded. I would say our first two buyers’ agents hired — it’s all a process, so they’re not with us anymore. We learned a lot, we learned how to be more accountable. If we’re spending all of the money on these leads, I want my buyers’ agents to actually reach out to them… So as the years have progressed, we’ve made them more accountable, and making us more successful, as well.

Linda and I [unintelligible [00:08:51].16] anymore, unless they are referred to us individually or unless they are friends of ours (friends or family). So we do not work with buyer leads at all. We give all of those to our buyers’ agents, which has really freed us up to focus more on listings and to be home with our families at night.

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

Kellie Revoir: For investors – well, the 10% rules. So with the market that it is right now – and I’m assuming that across the board there’s not a lot of inventory… So buy and hold is absolutely where I would be right now, rather than a flip, because it seems like a lot of investors are getting into the market and they all think that they can flip a home and make a ton of money on it.

I would recommend buy and hold until the market starts to slow down, and then if you want to sell it, you can… But buy and hold, by far, is the best thing that I would do. We own 58 rental units, and buy and hold is pretty much — we can make a lot more money holding them than flipping them.

Joe Fairless: Well, I didn’t know that. I didn’t see that in your bio. [laughs] Let’s dive into that. You own 58 rental units… What’s the largest property in terms of units that you have?

Kellie Revoir: A lot of single-family, a lot of duplexes. We do not own any apartment complexes. We find that for us personally those are revolving doors. We do not hire a property management company. It literally is just the two of us that manage it, so we don’t want high turnover. We’ve had fourplexes before, we’ve had apartment complexes before, and the ROI wasn’t there for us. We make the most amount of money on single-family and duplexes. We make the most money on duplexes, but single-family and duplexes is where we are.

Joe Fairless: You got really excited when you talked about the duplexes.

Kellie Revoir: Yeah. [laughs] I like duplexes!

Joe Fairless: How come?

Kellie Revoir: I like duplexes because one side typically makes the mortgage payment, and the other side is just gravy.

Joe Fairless: Will you give us an example of the last investment property that you purchased?

Kellie Revoir: Sure. I bought one probably a month ago. It was a bank-owned; one of the nice things about being a realtor that is so successful in my area – I get a lot of banks coming at me with properties that they need to sell… So it was bank-owned, and I went and gave them a price, and they took it.

Of course, I had to do some work on it. There was some mold in it, which we get a lot in Missouri, so I had to do all of that, but I bought it for — do you want me to give you numbers?

Joe Fairless: Yeah, please.

Kellie Revoir: Okay, so I bought it for 33k. I could probably turn around and sell it for about 80k, but it’ll rent out for about $795. I’m still working on getting it fixed up.

Joe Fairless: How much did you need to put into it in order to get it to be rent-ready?

Kellie Revoir: I think I’m at about $5,000 right now.

Joe Fairless: And what do you think the total will be?

Kellie Revoir: Probably about $5,500-$6,000. Not much, I’m pretty much done.

Joe Fairless: So all-in around $39,000, renting for about $800.

Kellie Revoir: Yup.

Joe Fairless: Is that about a typical case study for you?

Kellie Revoir: That’s what I like, yeah. A lot of people in our brokerage company know that we’re investors, so when people are in dire straits, they will come at us and ask us if we want it; we don’t buy it at retail, I don’t buy anything at retail. We just sit and wait for the right property, and we’ve been very fortunate… I would say that we buy 2-3 every year.

Joe Fairless: With the mold – that would scare some people off. Why doesn’t that scare you off?

Kellie Revoir: Because it’s everywhere in Missouri. I’ve been in real estate long enough to know mold is not going to scare us off. As long as you have the right person in there doing it… I did not clean up the mold myself, I hired a company to do it for me. It doesn’t scare me at all. I know it’ll take care of itself.

Joe Fairless: With 58 units, you and your mom do management of those units… How many hours a week do you two spend on it in total?

Kellie Revoir: Five, maybe.

Joe Fairless: And what does that time consist of?

Kellie Revoir: Dealing with the phone calls on why they’re gonna be late on their rent… [laughter] Or toilets flooding up… [laughs] But really, we’ve been so fortunate… Again, this is why I like single-family and duplexes – most of our tenants are long-term tenants. We do not have a lot of turnover. We have, but it tends to be family; when you rent to your family, that tends to get you in the most trouble. So the biggest issues that we’ve had is typically from family.

Joe Fairless: What’s the approach you take when someone calls and says “I’m gonna be late”?

Kellie Revoir: If they’re late one or two times, it’s not that big of a deal. They all get late fees, but if they’re consistently late, then we get to the point where we start sending them letters.

Joe Fairless: With maintenance requests, how do you handle those?

Kellie Revoir: Those are pretty simple… We don’t have a big software company that we use, and I know that a lot of investors do. We don’t have a lot of them. We’ve been fortunate — my father is a builder as well, so a lot of the duplexes he built. So it’s simple for us just to call up my dad or my brother and have them go up there and fix whatever it is. We’re kind of like one big happy investment family.

Joe Fairless: Yeah, it truly is a family operation, I’m picking up on that.

Kellie Revoir: Yeah.

Joe Fairless: When you invest with your family, what are the pros and what are the cons?

Kellie Revoir: There’s not been a lot of cons. We’ve been so fortunate for us… My family is probably the untraditional family; we are just such a tight-knit family, we really hardly ever argue over business at all… The people that we’ve struggled with that are the renters that are family – they’re usually just cousins or people, friends that are in a hard place.

I will say though that because we’re also realtors, it’s been pretty easy when you have a seller that sells a house and they don’t have a place to live, we can put them in a short-term rental for 3-4 months until we find them the perfect place, and that’s worked well for us, too.

Joe Fairless: What’s a project that hasn’t gone according to plan?

Kellie Revoir: We got into a flip – because we do a few flips a year – and we try not to let emotions drive us, but this flip was actually across the street from the house that all of us grew up in, so we really wanted it, we wanted to flip it… And it needed a new roof, there were termite problems with it, and it just took a lot more to fix it up than what we thought. We didn’t lose money on it, but we certainly didn’t make any money.

Joe Fairless: If presented a similar circumstance in the future, how would you approach it differently?

Kellie Revoir: We wouldn’t buy it.

Joe Fairless: What would you look at, in particular?

Kellie Revoir: Well, we crawled under the crawl space, but we just crawled within the first three feet of it and glanced… And the roof – we’d definitely pay more attention to the roof, because that’s for our market $6,000 or $7,000 right there, and in Springfield, Missouri the average price point is 150k. So it’s nothing like it is on the East Coast or West Coast, where the average price points are in the 500k, 600k, 700k. So there’s not a lot of room for margin.

One of the things that we definitely do is we make sure that we are making money. We can’t just throw money at a new project. We’ve really gotta be diligent and treat it like a business, and have a spreadsheet, and know our P&L, know our balance sheet, know the expenses… So we would have put a little bit more thought into what was gonna be required on that particular home, because $6,000 can eat up your ROI pretty darn quickly.

Joe Fairless: You said for the crawl space you got for the first three feet and glanced… What would be the ideal scenario?

Kellie Revoir: Crawling through the whole thing first, to see if there’s any sub-flooring that might be damaged, or foundational issues under there. In this instance, we didn’t have foundational issues, but there was some sub-floor damage, termite damage that upon the first glance we didn’t notice.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Kellie Revoir: Let’s do it!

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

Break: [[00:16:36].13] to [[00:17:24].23]

Joe Fairless: Best ever book you’ve read?

Kellie Revoir: The Compound Effect by Darren Hardy.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Kellie Revoir: Oh, there are so many… The worst mistake I’ve ever made on a transaction – not communicating well and letting septic tank issues overcome the entire transaction.

Joe Fairless: Can you tell us that story?

Kellie Revoir: [laughs] Oh, the septic tank… I forgot to actually get the septic tank inspected; completely my fault, and it was a mess. A new septic tank – $5,000.

Joe Fairless: When you think of a deal that is the best one you’ve done, what would you say that one is?

Kellie Revoir: I currently right now have a home that has 25 acres hunting backstop to a lake. I thought it would be about $415,000. We got into a multiple offer situation, and I’m under contract for $465,000. So $50,000 above asking price in day one on the market.

Joe Fairless: Oh, you’re selling it. I thought you were buying… I was like, “Oh, okay…” [laughter]

Kellie Revoir: The best deal I’ve ever done when buying – we bought a duplex for rental; the seller lived in one side and had the tenant on the other side, and she was just in a desperate need… Needed out real bad. The duplex was probably worth about 220k, and we ended up buying it for about 108k, and fixed it up a little bit and rented it out.

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

Kellie Revoir: Oh, multiple ways. Definitely through mentoring and through my time. I volunteer a lot for our community, so absolutely that would be it… And trying to be available for all of my agents when they need me, whether they be agents on my team or agents in the brokerage company, or other brokerage companies. I get a lot of calls from people asking for help.

Joe Fairless: What’s been a challenge you’ve had in your business? Not deal-specific, but just something that you all have had to overcome?

Kellie Revoir: Creating boundaries, not working so many nights and weekends. I’m a single mother, so I have the tendency sometimes to drop my kids off at places and go work… So the biggest challenge that I’ve had to overcome is definitely creating boundaries and respecting my time and my family enough to know that they’re worth the boundaries. To realize that I don’t wanna work with clients that don’t respect my boundaries either.

Joe Fairless: Have you had to fire a client?

Kellie Revoir: Oh, absolutely. I fire buyers and sellers.

Joe Fairless: How does that conversation go?

Kellie Revoir: A few different ways. There’s a couple I can think of, but one of them was — he was out of his mind, and threatened to sue me over something pretty dumb, and I said “You know what, I like my job too much, I’m not gonna deal with the threat of a lawsuit. If that’s the type of client you’re gonna be one week in, that’s not the type of client that I want.” [laughter]

But buyers, after working with them so long, I just flat out said “You know what, I don’t think I’m the right realtor for you, and I think that you might have better luck using somebody else.”

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

Kellie Revoir: You can go to my website, KellieRevoir.com. You can find me on Facebook, also Kellie Revoir. Or e-mail me, KellieRevoir@gmail.com.

Joe Fairless: Excellent. Kelly, thank you for being on the show, thanks for talking about how you and your mom have grown the brokerage company, on track to double your transactions from 112 transactions the last year to 250 this year, as well as those 58 units that we talked about, and how you’ve approached managing that portfolio, and why a house with mold doesn’t scare you off, and the typical deal that you would do. I loved the septic tank example, the cautionary tale there.

Thank you for that mistake, by the way, because now we have something entertaining to talk about on the show, so I appreciate that. Subconsciously, maybe that’s why you did it in the first place.

Thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Kellie Revoir: Thanks, Joe. I appreciate you.

JF1323: Real Estate Financing For Out-Of-Country Investors with Rob Blum

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Ron and his company help solve a big issue they noticed in the US, lending to foreigners. The only products they could find for foreign lending had incredibly high interest rates. They are seeing a lot of Canadian and Australian investors use their real estate financing programs. Along with their lending, Atlas is also a turnkey company that finds properties, provides lending, and manages the property for their investors. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Ron Blum Real Estate Background:

  • Principal at Atlas Capital and Asset Management
  • Involved in large scale home construction with the largest residential developer of custom (1mm+) homes in Western Canada
  • Spent 8 years in constructing residential real estate during the 80s boom years of large scale production
  • Consistently purchased and resold better than 1800 properties per calendar year in 2006, 2007, and 2008
  • Had 50+ active purchase offers in the 14 state rust belt region of the US on a daily basis
  • Background in economics and finance as well as real estate and foreign lending
  • Based in Sedalia, Missouri
  • Say hi to him at www.atlascamgroup.com
  • Best Ever Book: War and Remembrance

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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, Ron Blum. How are you doing, Ron?

Ron Blum: I’m doing real good. Thanks, Joe.

Joe Fairless: Well, nice to hear that. A little bit about Ron – he is the principal at Atlas Capital and Asset Management. He’s been involved in large-scale home construction with the largest residential developer of custom, and it’s one million plus homes in Western Canada. His company is based in Sedalia, Missouri. He spent eight years constructing residential real estate during the ’80s boom years, and then had larger-scale production since then. He’s had 50+ active purchase offers in 14 states throughout the rust belt and the U.S. With that being said, Ron, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ron Blum: Sure. Our focus is very unique; I don’t know how many people are actually doing this… One of the biggest problems that I’ve heard people talk about here over the years – we try to be responsive to feedback that we’re getting from people that contact us, and for any foreign investors to purchase real estate in the U.S. it just hasn’t ever really been a non-predatory loan setup. Some of these people on here will finance for nationals, and they want 50% down into the hard money… And my background is actually not just in the development real estate, but actually in loan servicing, on the loan servicing platform.

I used to do all the whole loan and acquisitions for Continental Capital Corporation for a number of years, and that enabled us to be able to even further establish a lot of the proprietary contacts that we have, and that we have available for real estate investors.

We are able to go again and provide 30 year fixed rate loans for foreign nationals; however, I do have a lot of domestic buyers that use our services just because it’s a lot less tedious than a typical loan process would be, Joe. People are there on day number 29 trying to fax stuff in the middle of the night so they can get their loans to close…

And for us it’s just pretty standard. The only thing we require is two years of tax returns. I wanna see whatever cash reserves you have, and you run your own credit report, and based upon that information right there, that is all we require to move forward to do a loan.

The other people here in the U.S. that really like our program is that most banks, despite what kind of cash reserves you have, they’re gonna usually top you out at ten properties and not let you buy anymore, and that’s not the case here. We’ll still underwrite the loans, the loans are all underwritten internally right here on my desk, so we’re not really subject to strict underwriting guidelines. The loans will be 30-year fixed rate, 35% down payment; we go ahead and underwrite the rest on a 7,25% fixed rate loan. The only thing that we do ask, the only little hidden surprise in our loans – it’s not a balloon payment, but what we like is we ask that you not refinance out of the loan for the first year.

So we can help you to get in there, and then after the first year if you can find a better rate, a better term, a better loan, you have our blessing, because we want our investors to make money. If getting a better rate and terms enables their cashflow, then we’re happy to go ahead and assist, and give them our blessing.

Joe Fairless: Is there a pre-payment penalty after year one?

Ron Blum: No.

Joe Fairless: Okay, so you can get out scot-free, no fees involved?

Ron Blum: Yeah, day number 366 you’re welcome to go ahead and refinance wherever you wanna go.

Joe Fairless: I was born in the US, so I don’t have the perspective of being a foreign investor, so I will approach this question as though I am not born in the US. I’m living in Australia, I hear this podcast, and I hear you just need two years of tax returns; I run my own credit… And I think the third thing you said – you wanna make sure I have money in the bank; did I write that down?

Ron Blum: Yeah.

Joe Fairless: How much?

Ron Blum: We do wanna see a little bit of cash reserves. There’s a lot of people out in the world that are kind of — in my opinion may be a little bit misled that they’re not really generating a lot of revenue, and then [unintelligible [00:05:11].06] kicks the bucket and leaves them $10,000 and think they’re gonna be able to parlay it out and become the next real estate millionaire, and that’s not realistic.

Joe Fairless: Okay, how much specifically needs to be in cash reserves?

Ron Blum: We’d like to see 40k-50k.

Joe Fairless: Regardless of the loan size?

Ron Blum: Well, there’s lots of different ways that we can massage this, but primarily what we don’t want is we do not want to hold people’s feet to the fire. We wanna see it in an IRA or a 401k program, along those lines. So it doesn’t have to be money sitting in a brown paper bag right underneath their workstation.

Joe Fairless: Okay. So it’s not as liquid. Is that a benefit to you because they probably won’t be moving that any time soon? Or is that a disadvantage because if they need it, then they can’t really liquidate easily.

Ron Blum: No, it’s definitely an advantage for the investor. What we wanna make sure is — we are not brokers, number one – I’m not a loan broker… But the other thing that we don’t do is we don’t broker properties. We carry all of our own inventory, it’s all in very stable, low-risk kind of bedroom communities. We try to focus on big school districts, and that brings the kinds of tenants that we want. So we carry our own inventory, we have our own construction crews, we even do our own property management.

Joe Fairless: Okay, so this loan program is one rung in the ladder of your overall business, and it’s a way that you can help each aspect of your business, because if they get a loan from you, then maybe they’ll buy more properties, and you’ve got properties, and then you also manage it, so it’s a full-service thing, right?

Ron Blum: Correct. And I’ll tell you, Joe, probably our least-favorite aspect of this is property management, because it is an art, and there’s a skill to it… But again, listening and hearing what’s being related to me from other investors about property management [unintelligible [00:07:09].24] just typically seems to be the biggest hurdle for people. We started on the property management aspect about three years ago; we’re familiar with the properties, we did the original rehabs on the properties, we’re familiar with the communities, and the other thing that we’re very familiar with is the caliber of tenants that we want going in.

I know for a lot of investors Section 8 seems like a great model for people that are willing to assume that kind of inherent risk that goes with inner city investing in higher risk neighborhoods. So it’s just been a pretty much cookie-cutter program where we’re using our own capital to purchase, we’re using all of our own capital to do renovations and to fix them up… And prior to closing we’re gonna be providing an appraisal, a property inspection report and a finished walkthrough video so you can see what you’re getting prior to actually going into the close.

Joe Fairless: Got it. So it’s a turnkey company, from finding the deal, buying it with your own money, doing the renovations with your own money, then you sell it to an investor (domestic or foreign) and then you help them with a loan, and then you manage it… Turnkey stuff, right?

Ron Blum: Yeah, absolutely, and we’ve had very good success in the model. We first started the loan program here a few years back, so it wasn’t nearly as favorable as it can be right now. The typical lenders – they’re charging hard money rates, like 9%, 10%, 11%, 12%, and being in the servicing background, I caught the whole wave of subprime loans that went south here in 2006-2009, so I’m very familiar with what a predatory loan is. The only product that was really available out there for investors that was easy were ridiculously huge down payments. We respond to that need, and we have a lot of referral business… And I would say probably the bulk of our clients right now are coming out of Canada and Australia.

Joe Fairless: Okay. Is that because there’s just a lot of Australians and Canadians, or do you have a particular focus in those markets, or are there certain aspects about those countries that lend itself more towards buying here?

Ron Blum: Well, number one, there’s no language barriers, so…

Joe Fairless: Right, yeah. It’s easier.

Ron Blum: That’s a good thing, but we used to actually work with referral services that we’ve kind of eliminated from our business model now. I would say that probably 75%-80% everything that we’re doing now is repeat and/or referral business. So we’re not a very aggressive marketing company, and to be honest with you Joe, I don’t wanna sell 500 houses a year.

Joe Fairless: How many do you sell on average?

Ron Blum: We’re probably turning anywhere from five to ten a month, and we have the ability to scale up, but I also like to have a life.

Joe Fairless: Yeah, me too.

Ron Blum: So we’re able to scale up, and my kids are through college, and doing very well, and it’s another thing that kind of prompted our move just out of the big city itself, and out about an hour outside.

Joe Fairless: Is that the big city of Kansas City?

Ron Blum: Yeah, Kansas City.

Joe Fairless: Okay, the big city of Kansas City, alright.

Ron Blum: It’s a big city for us; now we’re in a little community of about 19,000 people, and we have our three-story turn of the century home right across from the park, and stock fishing lake, so… We’re able to handle more and we’re able to scale more, but we’ve got all the skin in the game.

Then there always seems to be this fine line of having either not enough buyers, or too much inventory, or too much inventory, or too many investors coming at us at one time… It’s a constant juggling program, but after being born and raised in California during that housing boom out there in the ’80s – not to date myself, but we just liked a little bit slower pace…

The one other thing that I always stress to people, Joe, is that we don’t wanna get so big so fast that we’re inaccessible to our clients or our customers. Usually, our customers can pick up the telephone and get us on the phone. It seems like I spend half my evening just texting people in Canada, people in Australia… When you get too big, then all of a sudden it always seems to be the first thing that suffers is client support services, and we don’t ever want that to happen. If somebody needs to talk to me, I wanna them to be able to pick up the phone and get me on the phone.

Joe Fairless: High-level let’s go over the categories of your business, or the departments of your business. One is finding the deals, two is the renovation of those deals, three is finding an investor for those deals, four is getting a loan for them if they go through you, and then five is managing them. Are those the main areas of your business?

Ron Blum: That is exactly my business model, all the way.

Joe Fairless: Okay. Within those areas, how many team members do you have? Because it sounds like you focus more on the quality of life aspect, because you moved outside of the big city, you [unintelligible [00:12:11].04] stock pond, hanging out by a park, but you’ve got these 5-10 houses a month… You said a year or a month? A month, right?

Ron Blum: 5-10 a month.

Joe Fairless: Yeah, that’s what I thought. I wrote down a year in my notes; I knew that was wrong.

Ron Blum: Right.

Joe Fairless: 5-10 a month… So how many people do you have?

Ron Blum: Well, that’s kind of an interesting question. I’ve had the same person doing acquisitions for me now for probably 8 or 10 years, so he knows what my quality controls are, what my procedures are… So I tell him how many houses I need and he goes out and finds them in the cities that I want them in.

Then I have three different construction managers, three active crews at all times, and then there’s me and my wife Debbie – we basically handle all the interaction with all the clients; I do all the underwriting for the loans, I stack files, and then Debbie is kind of your go-to [unintelligible [00:13:01].01] for contracts and property management within lease agreements, and things of that nature. So we run pretty lean, but I’ve been doing this in Kansas City now since I moved back from Canada and took the job over at Continental. We’ve just got a very strong team, and I don’t always have to [unintelligible [00:13:18].01] because they know what we expect.

Joe Fairless: You do have a very lean team… How many properties do you have under management right now?

Ron Blum: I don’t know… A few hundred.

Joe Fairless: A few hundred. So your wife Debbie is the point person for management of those?

Ron Blum: Correct.

Joe Fairless: How does she do that? A couple hundred properties.

Ron Blum: She had a stellar resume, I’ll say that, long before… She was very active and kind of a major player in corporate America for many years, and then she decided to follow me off into this crazy real estate thing, and we’ve been banging away at it for 17 years here I’m of Kansas City based alone.

Joe Fairless: 200 properties, one person… She’s not fishing with you, is she? She’s working while you’re fishing, huh?

Ron Blum: [laughs] Yeah, that’s probably a pretty good way to put it. And then she’s an artist, she has an arts degree, so she paints on the weekends. I’ll tell you, when you have reliable crews out there, and if there is a maintenance concern, the people that are going over there to fix that are the people that originally rehabbed the property… It’s a lot easier for the guy that went over there and put in the plumbing just to go over there and figure out when something’s going wrong.

The other thing too, as long as we’re turning over quality properties, with a complete inspection report and appraisal, then we can attract the kind of tenants we want. A lot of my tenants now, Joe, come from referrals from other tenants that I have.

Joe Fairless: When she’s spending time on, let’s just say, 200 properties, since you said a couple hundred… When she’s spending time on the 200 properties, managing it, what is the percent breakdown of her time where she’s spending it? Just if you had to guess…

Ron Blum: Oh, 75% of her day is property management… But again, we have good, responsible tenants, we screen them thoroughly…

Joe Fairless: But when you say 75% is property management, that’s a fairly broad term. What specifically — is it leasing, renewals, is it maintenance requests? How is she able to do this?

Ron Blum: Well, it’s usually maintenance requests, with all of the same personnel that we’ve been working with… One of my construction managers I’ve been with since 2001. That’s when I was just kind of tinkering around it, and not really making it into a business per se… And the property management aspect, I’ve gotta give it to Debbie – she is a champion, thoroughly screening these people… If you ever had an eviction on your record, you’re not going in. You’re debt-to-income ratio is not acceptable to us, you can’t go in.

And in a lot of these neighborhoods [unintelligible [00:15:46].07] These are not high-density rental areas. These are owner-occupant neighborhoods… So we want that owner-occupant type of mentality, and really the only thing that — ideal relationship is the [unintelligible [00:15:57].22] before the third, and we can leave the people alone, and that’s what people want.

Joe Fairless: Cool. Let’s see… The different aspects of your business that we talked about – where do you make the most money and where do you make the least money?

Ron Blum: We make the least amount of money on property management.

Joe Fairless: Is that all Debbie’s fault?

Ron Blum: No, no, no…

Joe Fairless: I’m kidding. [laughs]

Ron Blum: Debbie’s quite a trooper, but… No, the thing is, Joe, is that here in the Midwest region, or at least here in Kansas City, the standard property management fee is 10% of the rents that you’re collecting now. I would say that our average is somewhere between $900 and $1,200/month, and we have just a flat fee of $75… So that’s not even really a money-making apparatus for us. We just do that as a service for our clients, so that if they ever do have any maintenance issues, that we can use our own crews and kind of keep it minimal.

I’ll give you a little for instance… A few years back – this is kind of what really kind of prompted us to reassume the property management role, instead of having it farmed out to a third-party contractor or a company… Is we wouldn’t hear a whole lot once we finished up with the property and they had a tenant, but then as some months rolled by – and this has happened with two or three different companies; it’s so frustrating… One person – apparently the base in their toilet cracked, and they’re sending me a bill asking me if I can assist with this $345 repair. Well, I can go down to Home Depot right now and buy a toilet for $60, and my guys will have that in in 15-20 minutes. So the property management for property management companies – that’s a revenue stream for them. It’s not really a revenue stream for us, it’s a courtesy that we provide.

Joe Fairless: Yup. It’s almost a necessary evil that you have in your business.

Ron Blum: Yeah, it kind of is, with the fact that we’re underwriting a 30-year loan, the fact that we have all the skin in the game at the front side, and the fact that we’re managing it… We’re not here to sell a property and wash our hands and walk away and wish you the best of luck; we’re here as a support system for you, which when you’re an out of state, or particularly an out of country investor, you’d better be sure that whoever you’re working with has their act together and can provide all the services, because what you don’t want is you don’t want three or four different hands in the same pie from somebody over in Australia.

They have their own lender, they have their own property management company, they have a realtor looking for them, they’re trying to coordinate rehab crews… It’s too much.

Joe Fairless: Yeah. It’s a smart way of controlling the process as much as it can be controlled, and when you’re working with – I imagine – investors who are looking for a turnkey operation, if you can provide everything in one system, then it’s a much smoother conversation and so much easier than if you’ve got a lot of different vendors and groups.

Ron Blum: I mean, I do this for a living; I sometimes have probably 50-60 work weeks, and on weekends we’ll take emergency calls, but for the most part, I’ve been doing this a long time and I’ve got a cookie-cutter system, and sometimes I’m surprised that I don’t have more frustrations than some poor guy sitting over in New Zealand who’s trying to navigate the U.S. real estate market. [unintelligible [00:19:21].17] You’ve got too many people that are involved in the thing, you know?

So we do want that peace of mind for our clients, but the other thing too is we rarely have a client that buys one house from us and then they’re not back in another month or two or three, or referring moms and dads and co-workers… So that’s why I don’t have to really be aggressive with our marketing strategy; the clients find us.

Joe Fairless: Where do you make the most amount of money.

Ron Blum: Oh, when we turn the house.

Joe Fairless: Renovation to sale?

Ron Blum: Yeah. That is the revenue stream right there. Like I said, a lot of this other stuff – it’s more of a courtesy that we’re trying to provide help to people to keep expenses down and not go out there and get ripped off by property management companies or shady contractors.

Joe Fairless: The acquisitions person who’s been with you 8-10 years, how does he/she find the quality deals?

Ron Blum: Well, you’ve gotta kind of poke around. There’s still some good availability on MLS. We’re on Craigslist, we’re going to — what’s the new one? Facebook Marketplace. Just wherever we can find them.

Again, there’s certain cities that we like, there’s certain zip codes that we like, there’s a certain demographic of the renter that we want… Our ideal and/or typical renter is dad’s a cop and mom drives a school bus. That’s our target right there.

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

Ron Blum: Don’t get greedy and don’t play with the money.

Joe Fairless: Don’t get greedy and don’t play with the money? Did I hear that correctly?

Ron Blum: You heard exactly right.

Joe Fairless: What does that mean, don’t play with the money?

Ron Blum: Well, real estate is not really a complicated thing. I think a lot of people complicate it too much themselves, and they don’t realize where they’re going before they really embark upon it… And the next thing you know, they think they’re going into a deal, and the costs have increased 15%, 20%, 30% more than when you’ve originally started. We provide a good property with a certain return, and we don’t play with the numbers and we don’t try to geek out every dime of profit that we can get.

In fact, a lot of inventory right now — when people are looking at or considering our inventory, I don’t just send them a financial analysis of the property or proforma; we include recent MLS realtor comps, so people can say “Okay, listen, I’m buying a house for 100k, but look, the neighborhood is selling for 120k. So do I really wanna change pricing around?”

Our typical benchmark for cash on cash return is anywhere from 10% to 13%. And if you’re in a stable neighborhood, in a stable property that’s appreciating in value, then you’re in great shape. But too many people embark on a course of real estate and all the players that are involved are greedy, and they’re playing with the numbers. That’s the kiss of death for us. If I go down to a car lot and I ask “How much is this car gonna cost?” and they tell me “20k”, and I go back three days later and now it’s a $35,000 car – well, that’s playing with the numbers and playing with the money, and we just don’t do any of that.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Ron Blum: Fire away!

Joe Fairless: Alright, I will. First, a quick word from our Best Ever partners.

Break: [[00:22:32].18] to [[00:23:36].25]

Joe Fairless: Best ever book you’ve read?

Ron Blum: I’ve spent a lot of time looking on your website, and I know you’re knowledgeable, but I really do like the fact that you cover a broad range of topics.

Joe Fairless: What’s a favorite book of yours?

Ron Blum: Oh, a financial book?

Joe Fairless: Yeah, any particular book.

Ron Blum: War and Remembrance, and The Winds of War. World War II fiction on a military guy; I come from a military family, and it’s probably some of the finest literature I’ve ever read.

Joe Fairless: Alright, noted. I got that written down. What’s the best ever deal you’ve done that wasn’t your first and wasn’t your last?

Ron Blum: Oh, probably the best ever deal I did – maybe three year ago we did financing for a mortgage investment corporation; we bought two streets of beautiful three and four-bedroom duplexes. That was a complicated and challenging deal. However, during the mortgage meltdown when all this inventory was becoming available, we came up with proprietary software that any house [unintelligible [00:24:31].08] rust belt region that was listed for $21,000 or below, our computers automatically generated the bid [unintelligible [00:24:37].03]

We averaged somewhere from 1,500 to 1,800 houses. They were not high-quality, they were all (in my opinion) junk properties in junk neighborhoods, but there was [unintelligible [00:24:46].09] That was pretty challenging, too.

Joe Fairless: When you get what you ask for and you buy those properties at $5,000 and you’ve got thousands of $5,000 property purchases – what do you do with that?

Ron Blum: Well, I’m finding an institutional guy – hence the background in loan servicing; I used to do all the loan acquisitions for Continental Capital Corporation, I ran the whole servicing division for it. That is not a product for the meek of heart. That’s the type of product that institutional investors will be buying, and they buy 20, 30, 40, 50, 60 of them at a time, but they also understand that it’s all very high risk and half that portfolio is gonna end up being throw away inventory anyway.

So if you have asset managers and you know what you’re doing from the institutional investment point of view, I would never advise anybody buy any high-risk cheap property. They always look good on paper, Joe, but they don’t always turn out that way.

Joe Fairless: What was the financial result of that acquisition process?

Ron Blum: Well, we bought them at 5 and we sold them at 7, and back when this huge tsunami of properties was being dumped back on the market, there was a product out there called the quitclaim deed that a lot of people used to like to buy. The banks used to like to sell them by quitclaim deed, because all they were really doing is they were saying “I can’t ensure it, there’s probably still a loan against it…, you might owe $1,000 in water bills…”, but you can buy it for $5,000. So what we did is we incorporated this program where we were automatically submitting bids, and what would end up happening is we would buy them for five and we would sell them for seven.

I had probably a drastic cost in between there, so we weren’t making a million dollars on a deal, but if you make $1,000 for your company 1,800 times a year, it’s not a bad day at the office.

Joe Fairless: Yeah, because the closing costs and things on that $2,000 profit probably get eaten up with a thousand maybe, so you’re making maybe about a thousand.

Ron Blum: Yeah, probably. We figured anywhere from $800 to $1,200 typically. But [unintelligible [00:26:51].27] we were able to specifically find and meet a demand that was out there at that point in time, but be able to [unintelligible [00:27:05].08] and a warranty deed, and it was a gangbuster. It was nuts for three years. Just crazy.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Ron Blum: Ugh…

Joe Fairless: I loved that sound from you after I asked that question…

Ron Blum: Underwriting. Underwriting can be [unintelligible [00:27:23].00] the Calyx mortgage files, and a lot of times I think that I’ll have everything that I need, all my ducks in a row, and I’ll have to call back a client or send an e-mail to a customer, like “Oops, guess what? You’re gonna have to refine it and resend it. I forgot this, I forgot that…” So it’s the attention to detail in underwriting.

We don’t service our own loans. This is just like a conventional loan when you go and you buy a house for your wife and your kids, you prepay one year in taxes and you prepay one year of insurance, and every month you’re [unintelligible [00:27:52].07] you’re paying principal interest taxes and insurance, [unintelligible [00:27:57].06] handles all of our loans, and they board all of our loans there… But for me to get in to board the loans, my underwriting, Joe, has to match theirs identically if they were the loan originator. So yeah, the hardest part of every deal is just all the details that go in all the mortgage software.

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

Ron Blum: I think that we’re providing good service, and a lot of people who find me tell me – and this happened a number of times, where I’ll be talking to somebody in Canada or I’ll be talking to somebody in Australia and they’ll say “Well, I just don’t like your rate terms. 7% is a lot.” And I say, “Well, you’re welcome to shop around”, but typically my phone ends up ringing again.

The other people that like our service is people that are very well off investors and have a good amount of real estate, and they own ten homes, or they own ten duplexes, whatever the case may be, and nobody’s willing to extend any additional credit to them if they’ve hit that magic cap of ten. So we just try to identify the challenges and push through them. If I’m your real estate guy and you’re looking to me to manage property, to loan on the property, to provide a good appraisal, to be able to give you plenty of due diligence, to know if you’re making an informed decision or not, then you’d better have a lot of confidence in that guy.

With the amount of repeat and referral business that we’ve got – it tells me that we’ve gotta be doing something right over all these years.

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

Ron Blum: A couple different ways. The easiest way is to go to our website, which is AtlasCamGroup.com, or just go ahead and google us at “atlas capital and asset management” and you’ll find us.

Joe Fairless: Ron, thank you for being on the show and talking about your business, the 360 approach that you take, certainly lessons for any investor/entrepreneur. One of them is there is benefit in controlling the entire customer experience, from start to finish. A lot of businesses in real estate are one particular aspect of the process, and not as many are 360, like yours is, and you’ve found success doing it this way. That’s the large takeaway I got from our conversation.

Then also some tactical things that you had mentioned, about not manipulating numbers when you’re running them to make them look better, so that you can go buy it, but in reality you’re gonna get burned in the end anyway, so you might as well not do that… As well as some tactical ways that you all are finding deals.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Ron Blum: You too. Thanks, Joe. Have a good day. Bye-bye.

Best Real Estate Investing Advice Ever Show Podcast

JF1007: How This Kid Used GOOGLE to Fund 11 Properties in a Year and a Half!

Listen to the Episode Below (30:45)
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Portfolio loans from small banks found using Google! That’s right, he searched for small credit unions and banks in his local market and kept calling until somebody said yes. It wasn’t all Google, there was perspiration involved and that’s what it takes to become successful in real estate.

Best Ever Tweet:

David Zheng Real Estate Background:

– Analytics Consultant at Wells Fargo & Real estate investor
– Currently owns 10 properties and rent out 9, with having been investing since December 2015
– Goals are to reach close to 50k in passive income and own a management company
– Based in St. Louis, Missouri
– Say hi to him at djzheng6 AT gmail.com
– Best Ever Book: Redwall Book Series

Made Possible Because of Our Best Ever Sponsors:

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Find real estate funding on Google

 

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 don’t get into any of the fluffy stuff, we only talk about the best advice that moves your business forward.

With us today, David Zheng. How are you doing, David?

David Zheng: Good, thank you.

Joe Fairless: Nice to have you on the show. A little bit about David – he is an analytics consultant with Wells Fargo and he’s also a real estate investor. He currently owns ten property and rents out nine of them, having been a real estate investor since December 2015 — wow, that was quick out of the gate! Based in St. Louis, Missouri, and his goals are to reach close to $50,000 in passive income and own a management company… Good luck to you on that one, my friend! I don’t want any part of that second goal.

With that being said, David, do you want to give the Best Ever listeners a little bit more about your background and your focus?

David Zheng: Sure. Funny you mentioned that, I’m actually closing tomorrow on another apartment building, so I’ll be up to 11 properties now. But yeah, a little bit about myself – I’m actually pretty (I guess) young at this. I’ve started investing in December 2015, that’s when I picked up my first condo actually. Funny enough, it was a pretty hard kind of a deal – it was an unwarranted condo and there was a whole bunch of lending loopholes I have to jump through to get that actually financed.

Essentially, I started December 2015 and since then I’ve picked up those ten properties as you’ve already mentioned. I started off with a condo, and the first four that I picked up were all condos, and I moved into single-families. I picked up three throughout the summer of 2016, and then after that I got into multifamilies, so that’s kind of where I am right now – self-managing all my properties by myself, all the rehab… I’m kind of being the GC for it as well, it’s a whole other experience I could go on and on with.

It’s been an exciting adventure, things have been moving really fast for me, so I could talk days about this, but I’ll get to the important points.

Joe Fairless: Well, I’m sure “adventure” is a great way to describe it if you’ve grown this quickly in this short amount of time that you’ve been investing. December 2015, so what is that – two and a half years or so? You started out with condos, you had four of those, three single-family homes… When you say apartments and multi-family, I wanna make sure I know what you’re talking about…

David Zheng: When I talk to my friends sometimes I say apartment buildings because it sounds better, but all the multifamilies that I currently have are 3-4 units, so they’re just kind of multifamilies more so than commercial great 5+ units. I will get there at some point.

Joe Fairless: Okay, so you’ve got four condos, three single-families, and then what do you have on the multifamily front?

David Zheng: So multifamily I have a three-unit – that will be a part of my story later for one of my biggest purchases. I’m closing tomorrow on a four-unit, and then in about a week and a half I’ll be closing on a duplex.

Joe Fairless: Wow, okay. We have to get to the bottom of how the heck are you able to close on all these properties in such a short amount of time – how are you financing them?

David Zheng: I’ve gone through a couple different ways… When I first started, I actually — because of the condo that I was in… The condo that I first bought was in a complex that essentially had like 80% rentals, so obviously lending on that, Freddie and Fannie didn’t like it, so I had to go through a portfolio loan on that one… That kind of already drove me into the deep end on the lending spectrum.

I have a whole bunch of portfolios – about 30% of them are portfolios, a couple just regular convenationals, throwing down 30%, and then the rest of them are all commercial loans, essentially.

Joe Fairless: Okay. When you say portfolios – will you elaborate?

David Zheng: Portfolio meaning I go through small local banks, and these are loans that the banks basically hold in their books, they don’t sell it on the secondary market or anything like that. It’s a little more lax in terms of what you need to qualify for them, and then the different kinds of properties — you have a broader range of properties that you’re allowed to buy. So again, usually those come with higher rates, balloon loans and higher down payments, but it gets the job done.

Joe Fairless: What portfolio lenders do you use?

David Zheng: One of them is actually the first community credit union; there’s another local bank here called the Central Bank of St. Louis. They’ve been really good to me, they’ve done three of my loans; all of them are the condos, so they’ve been good to me there. But yeah, most of them are just through local banks that I find googling it.

Joe Fairless: Wow. When you’re googling for the local banks, what are you searching for?

David Zheng: Google has been my best friend throughout this whole thing. I never grew up with a mentor or anything like that. Honestly, I googled “mortgage loan St. Louis” or “bank St. Louis.” I can’t really recall exactly what I put in, but you put in some very generic words and you just start searching. One of my biggest things that I did was sometimes on a deal I would have to call 30-40 people, even local banks outside of my area to lend on something. Again, it’s an umbrella search, and then after that I start digging down. Like I said, I just call a lot of people.

Joe Fairless: [laughter] I’m so glad that we have gotten to this part of the questioning in your story, because this is something that would likely get glossed over in the story, but it’s an important component, that you’re making 30-40 calls to lenders for one particular property. What were you seeking that you weren’t getting from the lenders?

David Zheng: Honestly, you can imagine the roadblocks I’m gonna hit, being a young guy who’s trying to invest in real estate.

Joe Fairless: How old are you?

David Zheng: I’m 26 right now.

Joe Fairless: Okay.

David Zheng: So you can imagine, a guy comes in calling your office, saying “Hey, I found a property I wanna buy. I’ve only been doing this for two months and I’ve already bought three more. My DTI looks absolutely horrible on paper because all they see are all these mortgages, they don’t see the rental income, because I haven’t filed my taxes for them. So you’re gonna hit all these lenders who say “We can’t do it. Our underwriting is not gonna approve this. Your DTI is too high. You don’t have a track record.”

The only reason why I kept calling people was because I was getting so many no’s, and the one thing I hate the most is being told no to.” So I was always on this track of just “I need to get this funded somehow; I will get a yes.” Thankfully, to this day, any property that I have put a contract on, I have not lost.

Joe Fairless: So you were just looking for a yes, it wasn’t necessarily that you were looking for specific terms… You were just looking for a lender to do a loan on the property. What were the terms and who was the lender after the 30-40 calls that you ended up going with?

David Zheng: I’ll speak to one specific deal – this was the hardest one that I had to get. First the condos, the single-families – again, they were pretty generic, kind of just calling around for conventional portfolio loans. It was this multifamily, the three-bedroom that I was talking about, I actually offered on it September, closed in October. That one was really hard, because 1) it was the first property that I was trying to go through just the listing agent. I was representing myself basically as a buyer and that was difficult enough. It was also a rundown place, it needed a lot of work, so I had to find funding for that. Someone I had to find the lender who would actually just purchase the property itself, minus the rehab costs. That was pretty difficult.

I called the banks that I’ve worked with previously, they didn’t help me. I called my portfolio banks, they never helped me out. I remember I called a local bank in Kansas City and even New York; I was like, “Hey, I’m in desperate need of lending for this, because this is a killer project for me. Can you help me out?” and they all rejected me.

Joe Fairless: And what was the reason…? For all those reasons you stated earlier, debt-to-income, no track record, distressed property?

David Zheng: All that and more because, again, this property needed so much work before I could even rent it out, so it wasn’t just like a turnkey where I could just flip it and then rent it out. All the other properties I had, I rented them out within a week, which is great, but this one, I needed to do a lot of work and the banks were hesitant. It was my first multifamily purchase as well, so that was hard.

In the end, I just fell back on what everyone else does – I went to a hard money lender, and even then I had to go through like five or six of them before I found one that had decent terms for me.

Joe Fairless: Yes, and you probably used in quotation marks for decent terms. What were the terms?

David Zheng: The terms on that – it was a 12-month interest-only loan. They basically funded — I think it was 80% LTV for the purchase price, plus up to 100% of the rehab costs as long as it was 65% of the ARV. So I’ll just speak on the numbers… I got this building for 230k, and then I actually fell extremely short on my rehab. My budget was actually around 110k, but I had to somehow smoosh it down into $86,000, because that was about how much they would be able to lend to me. I said, “You know what? I’m gonna make this happen, I don’t care if I have to do everything that doesn’t need a license-bonded contractor, I will do it myself”, and I basically told them that. And in the end I did a lot of that.

But 12-month interest-only payments, 10.75% was the interest rate, so that came out to be around $2,250/month in just pure interest, and then of course the lump sum, the loan was due at the end of the 12 months. Of course, refinancing as quick as possible was important. My down payment was — I don’t remember the upfront points, but it ended up being around $80,000 to fund the whole thing, upfront.

Joe Fairless: So how has the project turned out?

David Zheng: It was great. I was really worried about this thing originally, and it turned out to be my biggest success story. Like I said, it was in for $230,000, and then I spent another $110,000 to rehab it. At that point I’m $330,000 of value into this property, where I’ve put down $80,000 cash. That was in October when I closed. I finished in January because I pushed my contractors really hard; I pushed myself really hard to finish this as quick as possible.

I rented it out in January… $8,100 for the whole building, so essentially $2,700/unit. After that, I went straight into my little calling phase again. I was calling commercial lenders all over the place, most of them local, and finally one of them said, “Hey, we’ll do a cash-out refi without the six-month seasoning for you. It seems like you did a really good job.” I gave them the leases, I showed proof of all the work I’ve done. They brought an appraiser out there, they came back and they said “This thing appraised for $680,000.”

Joe Fairless: Bravo!

David Zheng: I’m not gonna lie, I basically sat an hour, I just looked at the appraisal… [laughter] And just like, “No, no…” And of course, at that moment I was like, “What if I get 80% of that in the cash-out refi? I’d be pulling near $300,000 out.” Of course, not everything turns out as good as it is, but they ended up giving me a loan, 66% LTV, so I was still able to pull $200,000 out of it after I paid the $250,000 I already owed to the hard money lender.

With that $200,000 I ended up buying the four-family, the duplex, and I’m also — since I’ve rented out my current condo that I’m living in next June, I’m using part of that down payment for another single-family for my house, essentially. So this deal was definitely a killer. Not only did I get a crazy cash-out refi, I got all my cash back, I’m also renting it out for a great cashflow.

Joe Fairless: So that one deal helped you buy one other deal, right?

David Zheng: Two and a half other deals.

Joe Fairless: Two and a half other deals, because the money that you used from it allowed you to put in the down payment for two and a half other deals… That is three and a half deals, and you’ve done how many total deals?

David Zheng: I would have ten rentals at this point.

Joe Fairless: At this point, yeah. I know you’ve got some — you’re closing on a duplex a week from now, but let’s just do this point. So at this point that’s three and a half deals, and the money that you put into that deal originally came from working as an analytic consultant?

David Zheng: Yeah, so I was fortunate enough that when I was a kid — I’m not [unintelligible [00:14:11].16] I was kind of a loser… [laughs] I worked a lot, I was a busboy at a high-end restaurants. I worked 3-4 nights a week. I didn’t really do anything with my friends, because I was such a money hoarder, so I would just sock it away in a mutual fund since I was like 16 years old.

Then my parents had saved up a pretty hefty university fund for myself. I went and I did really well in school, I studied hard, I got a full ride to the university where I wanted to go, and essentially they said, “Well, you’re not using any of your money because you’ve got a full ride, so it’s yours.” Then I still didn’t do anything with it. I didn’t use it for vacations or anything, I just kept it in that account that they had set up for me.
Once I got into real estate investing I was like, “Huh…” You know, I started reading up on returns and things like that, on the stock market, in real estate, and I was like “I might as well give it a shot.”

So funding – a lot of it came from that university fund that I didn’t use because of that. A lot of it came from me saving up over years and years and years worth of internships or busboying or other side-jobs — which I also actually do have a nightlife company on the side as well that I own. I rent out a lot of audio and lighting production to local night clubs and venues and things like that. And then also, of course, analytics consultant… I don’t live too lavishly right now, so I socked away a lot of my earnings since I started working. My checking account – I just kind of left it there. Now I’m putting all of it to work, essentially.

Joe Fairless: Okay. So that was the money for that property. Then what about the other six and a half properties? Where did the money come from for those?

David Zheng: That was a combination…

Joe Fairless: …of everything you’ve just said?

David Zheng: I would say 80% of what I’ve invested was from myself, and then about 20% I’ve gained from friends and family. I’ll be honest – the way I did it, I kind of used their money to pay for my food, my personal living expenses, so I could sock my living expenses into the real estate. It’s kind of unconventional, but essentially in that regards… There’s a lot of lenders who are like “Well, you can’t use your family or friend’s money for it”, and I was like “Yeah, I get it.” So I was like “Well, in that case my parents could just help me pay my car insurance etc. out of their account”, and essentially all my earnings are still mine, so I’m free to use that.

I kind of played around with how I used my money, but like I said, 80% of it was my own that I’ve had forever, so I used it pretty heavily.

Joe Fairless: And you said as far as the financing goes – because that really is the key… Well, there’s a couple keys here, and I’ll summarize later, but the financing is a big part. Clearly, your fiscally-responsible approach is also a big part, and then finding these deals is another component to it. But the reason why I believe most people don’t go as quickly as you go is they don’t have the money or they haven’t exercised their resourcefulness to get the money. In your case it’s both – you were living fiscally responsible and also you were resourceful in a way that got more money to bring the deal.

What type of arrangement did you have with the 20% of the income that you did get from relatives? What arrangement did you have with them?

David Zheng: I actually used a rather unconventional method… It was relatives and friends. Believe it or not, it kind of stems from me being very outspoken about myself. I’m pretty active on social media, and when I do these deals I don’t post the exact everything, but I’ll say “Hey, I closed on another house and I’m getting great rents. I’m doing great, this is awesome, this is fun”, and I keep on doing this. Like I said, the first couple of deals all came from myself, my own money etc. Once I started posting success stories — I’m not like one of those gurus out there who are just like “Oh, you need to pay for my thing” or “You need to go to this free seminar”, I’m just posting my stories on Facebook as a status and I’m saying “Hey, I’m doing well.”

After my fourth and fifth deal one of my friends actually came and messaged me. He was like, “Hey, I was wondering if we could do a deal together, or something like that” and that’s when it hit me… I was like, “Wow, this is gaining attention.” I reached out to my family and friends who were interested, who constantly liked my posts, commented on it or said something or asked me questions. I’m like, “Hey, if you want to, you can be a loan shark with me for my deals.” Especially my parents, they trusted me; I told them all the numbers, so they know I’m doing well, but with my friends, especially when I was showing how well I was doing, they trusted me with their money and they said “Hey, let’s do it.”

So we worked out something like a hard money lender, essentially. It’d just be like “You loan me a certain amount, I’ll give you a percentage back. At the end of the 12 months or any time before that I will give you your lump sum back and you get to keep whatever interest you’ve accrued over these months. I’d actually just stick it to them at a 10%, because my rents generate a lot of cashflow. It’s not that I’m worried about not getting the money the later and returning, it’s like I just don’t have that money right then. I know that the rents are gonna come in, they’re gonna cover that interest and then I’ll be able to pay that lump sum within a couple months, so that was never a concern with me.

So these were the kinds of deals that I worked with, and the biggest thing is I tell them, “Hey, you know, your money is sitting in your checking account right now, or in a .01% or whatever it is in interest. You’re not doing anything. If you’re not gonna buy a house or a car or have a kid anytime soon, you might as well stick it with me and then get something back over the next couple months”, and 10% is still better than a lot of people are making in other investments.

Joe Fairless: Are you securing it with something?

David Zheng: A lot of it is trust. I’m not gonna lie, a lot of it is trust. Another thing is I tell my friends, I would rather work at some fast-food place 24/7 to pay you back than not pay you back. And lastly, of course, [unintelligible [00:19:59].23] I’m like “Well, if something ends up going wrong, I’ll sell one of my properties, grab the equity out of that or whatever I have down into it and I will pay you guys back. I will sell the properties that I first bought.” That already accrues into over $100,000 worth of equity, so… They felt very safe. Again, they very much trusted me and what I did. I had a couple things going for me to show that I was trustworthy, and I did write contracts with all of them that basically amortized the loan and showed them month-by-month what they would be getting. So I spelled it out pretty clearly to them.

Joe Fairless: How much across the board in rent is coming in?

David Zheng: A lot of my rentals are actually students. There’s high turnover, but it’s higher rents. Starting 1st August 2017, my maxed rents will be at $34,000/month. Right now I’m only hitting like $27,000, but of course, I still have three other properties I need to account for in terms of rents, and then another couple that I’m rehabbing to get higher ones. But yeah, $34,000 is what should be coming in 1st August. Those have the leases in, deposits and everything.

Joe Fairless: Do you still have some hard money loans out that you have to pay back?

David Zheng: I do not. The only hard money loan was the one I did back in October. The two multifamilies that I’m closing on tomorrow and then a couple weeks later it’s actually another local business bank; they’re doing commercial loans, only 20% down. It’s nice getting to a point where banks are like, “Hey, we trust you. You have a great track record… We’ll do 20% down. We won’t make you do 25% or 30%” and whatever. So it’s nice that lenders are willing to work with me now. But yeah, I have no other hard money loans outstanding right now.

Joe Fairless: What is your best real estate investing advice ever for someone who wants to replicate this model?

David Zheng: I would say “Sell, sell, sell.” What I mean by that is you need to be constantly on your game in terms of networking. For my example, I’m selling to tenants. The reason I can get higher-paying tenants is because I sell myself as a landlord. They love a young guy who’s flexible, who’s understanding, who can communicate at a second’s notice – which I do. It is tougher on me, but again, you’re there to serve your tenants, essentially.

So I’m selling myself to my tenants, I’m selling myself to the lenders… Like I said, I’m calling 40-50 people sometimes on a deal, saying “Hey, look at me. I might be young, I might be starting out, but I’m getting a track record, I’m doing well. Here are my leases, here are my expenses. Look at the spreadsheets I put together” and I’m throwing it at them and selling myself as a borrower, as someone who’s trustworthy. I’m selling myself to the agents. When I’m even offering on a property — there will be other investors who are in there who want a piece of that action, and I’m sitting there like “My offer may not be always the highest, but I can assure you I’m gonna close on it”, or “I can assure you I’m gonna take care of this place” to those who are more emotionally attached.” So I’m selling myself to them… To my investors as well – I’m selling myself as a person who’s gonna manage their money well and who’s gonna take care of it and give them the return that they deserve.

A lot of this is networking, a lot of this is talking. Some people say it’s having a silver tongue, essentially. So you’re always just trying to make people feel comfortable with you, make people trust you – which they should; I’m not saying I make them do it and screw them over, but you always want to bring up your own reputation and then sell yourself to whoever it is you’re talking to. In those regards, you’re going to get the best deals, the best tenants, the best investors.

So that’s a part of it, and then the other thing is don’t take no for an answer. You’re gonna get it, but you’re gonna find someone else who’s gonna say yes eventually. As long as you sell yourself, show that your reputation is good, show that you have a track record and you can do it. Of course, that comes with working hard all the time, especially doing the rehab project of the last building. I still have a full-time that I’m doing 40-45 hours a week on top of self-managing over 50 tenants and trying to do a rehab project while picking up other deals, and doing a nightlife business on the weekends at night.
Like I said, you’re doing 100-hour-weeks all the time, back to back to back. I don’t have a wife and kids, no pets or anything like that. You’re not gonna be seeing many vacation days… It’s funny, because for many months, actually, my vacation days were — because I would use my vacation hours to go to a closing, or because my contractor would be like “Something’s wrong” and I’d have to run over there.

I’m kind of going all over the place, speaking about all the kinds of things you should kind of take away from my experiences, but hard work is the generic answer. It really is that if you don’t put in the time and the work, you’re not gonna succeed in this business. Number two, you don’t give up. Perseverance is so important. Don’t take no for an answer and keep searching for that yes. Then finally, being able to sell yourself, know what you can do and what you can offer.

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

David Zheng: Yes, let’s go.

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

Break: [[00:24:50].00] to [[00:25:43].26]

Joe Fairless: Best ever book you’ve read?

David Zheng: Don’t laugh, Redwall series. I’m gonna give a little background. This is basically a children’s book; it’s not The 4-hour Workweek or Rich Dad, Poor Dad, it’s actually a children’s book. I grew up reading it. I love them so much because a lot of the characters inside, they persevere through a lot of hard times. They’re always striving for something and it inspired me. I took that all through my elementary, middle school, high school, college years, and I was like “If they can do it, I can do it.”

Joe Fairless: Best ever deal you’ve done?

David Zheng: It was that big cash-out refinance that we were talking about on that three-unit. Again, that thing really catapulted me into the multifamily business, so it was definitely the best deal.

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

David Zheng: Setting example. Like I said, I’m very active on social media and I like to post up inspirational things, whether it’s a deal I did or just a quote I found, or some kind of meme. And people come and ask me questions, or they come to me and say “Hey, you know what? That status just really picked me up one day.” I’m like, “I’m gonna keep doing it”, and hopefully I’ll inspire more people.

Joe Fairless: How about a mistake you’ve made on a particular deal that you can think of?

David Zheng: All roads lead back to that three-family, but essentially, with the rehab project, the most mistakes I’ve ever made was not looking up local laws, permits, occupancy, things like that. I almost got condemned on, I was almost sued… It was all over the place. I finally got it straightened up, but I had no idea about any of these things until push came to shove.

Joe Fairless: Who was gonna sue you?

David Zheng: The local government. They were saying I had tenants in there when they weren’t allowed in there, I had outstanding [unintelligible [00:27:16].25] my contractors were supposed to take care of, but they didn’t. Again, another story for another day, but the local government – they were trying to put all these things on me, essentially.

Joe Fairless: And how did you not get sued and navigate around it?

David Zheng: Basically saying, “Hey, I’m in the wrong, I’m sorry. I’m gonna pay a couple fees to you guys to get these things taken care of.” I called my contractors to clear it up… Essentially, anything that I could shove on to them because it was their fault, I did. Things that were my fault – again, I basically just ponied up, said “Hey, I’m sorry. I’ll pay the fees that I need to. I’m not gonna argue, and I’m gonna get these things taken care of right away.” Selling myself as a young real estate investor trying to make the area better – which I was, so they respected that. But it was still a lot of headache that I had to deal with, but we did get a result.

Joe Fairless: What’s the best place the Best Ever listeners can get in touch with you?

David Zheng: Most likely just e-mail. If you guys can end up finding me on Facebook, feel free to follow or add me as a friend. My e-mail is djzheng6@gmail.com. I’m very active, so I usually respond to the e-mails promptly.

Joe Fairless: And will you repeat that e-mail again?

David Zheng: Yeah, it’s djzheng6@gmail.com.

Joe Fairless: Alright, well this has been a power talk on how to scale quickly. Two and a half years, over ten properties, and you did a phenomenal job summarizing earlier… I’ll take a crack at it as well for your keys, and I’ve written down five of them that come to mind. One is your resourcefulness and persistence – you don’t take no and you find a way to get the job done. Two is being fiscally-responsible; you’re making money and you’re working hard at making the money and then you’re keeping the money, and then you’ve reinvested the money. Three is finding deals – we didn’t even touch on that, we didn’t have time, but you’ve been finding these deals that work. Four is you’re someone who people trust; that is something that might be talked about a lot – people do business with those who they know, like and trust, but it really isn’t something (I don’t think) that can be taught, it’s just something that if you’re either a good person with genuine interest to help others and grow your business or you’re not, and if you are a good person and you’re true to your word, then people trust you and they do more deals with you. And then five is what you mentioned – you said “Sell, sell, sell”, and I thought you were talking about selling properties, but then you didn’t talk about that at all, you talked about selling yourself. You’re always networking, you’re selling yourself, to the tenants, to the agents etc. Those are the five keys that I wrote down for your success, and thanks for going into the case study on how you got the loan, how you had to do 30-40 calls with lenders etc.

I hope you have a best ever day, David. This has been an inspirational conversation. We’ll talk to you soon.

David Zheng: I appreciate it, thank you for having me on.

 

 

 

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Joe Fairless's real estate podcast

JF923: How He STARTED with a Condo AND a 20-Unit Apartment Complex

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Not many investors start how ours did. He began with a condo and 20-unit apartment acquisition and the rest is history! He even owns the majority of a street around one of his investment properties, turn up the volume and grab a pen!

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Himanshu Jain Real Estate Background:

– Founder & CEO of Invest with Himanshu & Om Haven Properties, LLC
– Specializing in single and multifamily properties, REO’s, Rehab and Flips
– He owns almost the whole street as part of his one of the multi Family Deals
– Goal is to own and manage around 200 units in next five years
– Based in Saint Louis, Missouri
– Say hi to him at http://www.investwithhimanshu.com
– Best Ever Book: Millionaire Real Estate Investor by Gary Keller

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Joe Fairless's real estate podcast

JF911: Wholesaling HIGH VOLUME and How He Bought a $160,000 Home in 4 Days!

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He makes big cash yet doesn’t need to close on these properties… How is that possible? Wholesaling! He matches the buyer with the seller very well and does so with some partners who have been in the game for a while. Yes, he even closed a deal at $160,000 in four days… Very impressive! Hear how he did it!

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David Dodge Real Estate Background:

– Owner at House Sold Easy Properties & ‎Discount Property Investor
– Over 8 years of real estate expertise
– Works with investors looking for Flip, Rehab, Renovation, or Buy and hold Rental properties
– Based in St. Louis, Missouri
– Say hi to him at https://www.housesoldeasy.com
– Best Ever Book: Rich Dad, Poor Dad by Robert Kiyosaki

Click here for a summary of David’s Best Ever advice: http://bit.ly/2ldUEol

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JF877: He Started with LITTLE and Now Creates >12% CR MONEY MAKERS!

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He started in an office and then later began to buy properties! He looks for the C class value add edifices and does just that, adds value! Hear how he gets it done and what he’s up to now.

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Sean Tarpenning Real Estate Background:

– Owner at US Real Estate Equity Builder (USREEB), a turnkey company
– Owns over 125 single family and multifamily units
– In 2016, his company sold over 250 properties and went from $5M in sales in 2015 to $13M in 2016
– His company provides over 300 jobs to Kansas City between the office staff to the construction crew
– Based in Kansas City, Missouri
– Say hi to him at http://www.usreeb.com
– Best Ever Book: Real Estate Developers Handbook

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real estate pro advice

JF872: How to SCALE a Private Money Raising Empire #situationsaturday

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Can you real estate business, what is your reach? How are you producing content to grow a community of eventual customers, clients, and partners? Podcasts, YouTube, events, and other networking tools and content delivery methods will do just that!

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Other will want to learn more about you and your mission if you stay consistent.

Jimmy Vreeland & Bob Scott Real Estate Background:

– Principals at Joint Ops Properties LLC
– Currently has over 100 properties in portfolio under lease option
– Focuses on single-family homes and tenants seeking a lease to own option
– Graduates of United States Military Academy at West Point and Air Force Academy
– Based in St. Louis, Missouri
– Say hi to him at http://www.jointopsproperties.com/
– Visit their YouTube page to watch the videos we talked about: https://www.youtube.com/channel/UCJqt28JgVQmlhtlmMDQ93Ug

https://joefairless.com/podcast/jf786-over-100-properties-acquired-in-12-months-from-lease-option-masters/

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JF812: 25 WHOLESALE DEALS a Month is Possible Using this Trick

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25 deals a month is not impossible, in fact our guest simply does one thing and does it very well. He create partnerships all over his market and strategically places himself in first position on each deal. Hear what he does to market for these leads and how he closes each transaction.

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Phillip Vincent Real Estate Background:

– CEO of Rematch, a real estate solutions company and has done over 500 transactions
– Specialize in helping Seniors who want a stress free sale of their home
– Marketing and acquisitions for serious real estate investors
– Based in St. Louis, Missouri
– Say hi to him at phillip@rematch.com
– Best Ever Book: The Big Rich by Bryan Burrough

Click here for a summary of Phillip’s best ever advice: https://joefairless.com/wholesale-25-deals-month-spending-0-pocket-marketing/

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JF786: Over 100 Properties Acquired in 12 MONTHS from LEASE OPTION Masters!

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They hustled in the last 12 months to acquire over 100 lease-option properties, and now they are reaping the benefits! With a crew of private money lenders, assistants, and team huddles these to manage over 100 lease-option properties creatively acquired through the lease-option strategy. Hear how they did it and what it really takes to get it done!

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Jimmy Vreeland & Bob Scott Real Estate Background:

– Principals at Joint Ops Properties LLC
– Currently has over 100 properties in portfolio under lease option
– Focuses on single-family homes and tenants seeking a lease to own option
– Graduates of United States Military Academy at West Point and Air Force Academy
– Based in St. Louis, Missouri
– Say hi to him at http://www.jointopsproperties.com/
– Visit their YouTube page to watch the videos we talked about: https://www.youtube.com/channel/UCJqt28JgVQmlhtlmMDQ93Ug
– Best Ever Book: Atlas Shrugged by Ayn Rand

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JF756: Making QUICK Decisions, Prioritizing Activities, Company Building and Real Estate

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It’s hard to pick one thing that our guest is good at, but if you’re looking for someone who is dynamic, creative, and can build multiple brands and companies this is the show for you! Oh, by the way, he has also done real estate. This is an intriguing episode with insights as to how to prioritize time and make quick decisions. This is a must listen!

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Eddie Wilson Real Estate Background:

– President at Affinity Enterprise Group
– Pepsi was his client
– Based in Kansas City, Missouri
– Say hi at www.affinityenterprisegroup.com
– Best Ever Book: Outliers by Malcolm Gladwell

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JF715: MYTHS of Portfolio Property Insurance

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You probably think you are covered if your tenant trips and falls, think again! You will need to check your insurance policy, but our guest is here to share that not all are created equal. He is a national speaker and consultant for insurance on portfolios and all property types. Be sure to reach out to him to get a free consultation!

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Shawn Woedl Real Estate Background:

–   Senior VP National Real Estate Insurance Group
–   Speaker and Consultant
–   Based in Kansas City, Missouri
–   Say hi at Shawn@reiguard.com or www.nreinsurance.com
–   Get a FREE insurance consultation
–   Best Ever Book How The Mighty Fall by Jim Collins

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You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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Best Ever Show Real Estate Advice

JF644: Ex Financial Planner Creates LONG TERM Retirement Program Backed by His Portfolio

Listen to the Episode Below (24:44)
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Best Real Estate Investing Crash Course Ever!

It’s complicated, but ingenious! He is currently working on a long term fund that allows others to invest in where dividends are paid and the whole thing is backed by real estate. Turn up the volume!

Best Ever Tweet:

Peter Mackercher Real Estate Background:

– Realtor and broker
– Investor with his own construction company
– Based in St Louis, Missouri
– You can reach him at stlmogul.com
– Read about his worst mistake here http://www.stlmogul.com/blog/my-biggest-mistake-in-real-estate/

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!