Jason has been investing in real estate for years, his specialty is finding off market deals. He built and sold REI Blackbook, now he helps individuals find off market deals by building them a specialized blueprint and giving them a leg up on the competition. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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“You’ll go from 3000 homes in Cleveland down to 30 in a matter of minutes” – Jason Palliser
Jason Palliser Real Estate Background:
Off market lead generation specialist
Has closed over 3,000 investment transactions
Built and sold a RE automation company & actively invests
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Divyesh and his partners were tired of spending so much time scheduling and showing rentals to potential tenants. If you’re in the same position, you should definitely tune in to hear his story. His product can help EVERY landlord create more time. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Divyesh Panchal Real Estate Background:
-Co-Founder & CEO at Key Please-,real estate investor for 10 years
-KEY BOT is a smart lock installed by landlords to automate marketing, showing and leasing rental properties
-Renters can self-qualify, tour on-demand & negotiate a lease from a smartphone
-Based in Saint Louis, Missouri
-Say hi to him at www.KeyPls.com
-Best Ever Book: What Got You Here Won’t Get You There
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluff. With us today we’ve got the founders from Key Please, one of them – Divyesh Panchal. How are you doing, my friend?
Divyesh Panchal: I’m doing great, Joe. How are you?
Joe Fairless: I’m doing really well. Who are the co-founders that you have with you?
Divyesh Panchal: Yeah, I have Adam Lorentzen, who is our chief product officer, and Daniel Dawson, who is our chief operating officer.
Joe Fairless: Sweet. Well, nice to have the whole crew here. Just for sanity’s sake, since we can’t see you all, we’ll let Divyesh – you take the lead on this, and then for anyone else who wants to chime in on certain responses, feel free to do so.
A little bit about Divyesh – he is the co-founder and CEO at Key Please. He’s also been a real estate investor for 10 years. Their product is called Key Bot, which is a smart lock installed by landlords to automate marketing and showings and leasing of rental properties. They’re based in St. Louis, Missouri. With that being said, Divyesh, do you wanna give the Best Ever listeners a little bit more about your background and perhaps your team’s background and your current focus?
Divyesh Panchal: Absolutely. I’ve been a real estate investor ten years and I have invested from single family to multifamily, and I own hundreds of rentals in the St. Louis area. I ran into this idea just randomly – my wife had to leave country for a couple of weeks to see her family back home, and now I changed my role from investor to actually operator; that was really a nightmare, as you already know how hard leasing is.
Then I ran across the little problems of leasing, and the endless texting and scheduling… I invited Adam to help me out. Him and I had worked together in the past, and we both saw that this is a huge problem not just for me, but the fellow landlords like me all over the U.S. So we talked to Daniel as well, who’d been running a full suite tenant placement company, and I used to be his customer, actually.
We asked Daniel, “Daniel, this leasing is killing me” and he’s like “Tell me about it, man. I see this every day. So many hours spent on just scheduling; half of the scheduled showings don’t show up…” So we got together and we said “You know what, how do we solve this problem?” That’s how Key Please was born, and one thing lead to the next and here we have a fully functional and ready to go product.
Joe Fairless: Looking at your website, Key Bot is basically a lock that your potential residents can gain access to the property, who are pre-approved or screened. So you know who’s gonna be at the property… I imagine the code will likely be unique to that person, and then it expires after a certain point in time. It allows you to be remote, while still showing the property to people who have been approved through some sort of filter. Is that about it?
Divyesh Panchal: That’s exactly what it is. When Adam got on board, one of the first things we started focusing on was “What can we do to off-load work from property owners?” Because most of the property owners like myself has a full-time job, they have a life to live, and the next thing you know is they are running around and chasing around all these prospective renters. So we came up with this idea about putting a lock and let the lock and they key do most of the hard work. Let the ventures come in, self-qualify them – they can upload their ID, they can upload the picture of their ID and a selfie. Our algorithms can make sure they’re a real human, not a fake person, and they can take a tour of their own.
We’ve found this was a huge deal for people who have a job and they have a life to live as well. We have had tours happen all the way from six in the morning on the New Year’s Eve and on Thanksgiving days, and we were like “Wow, people are really doing this!” and that’s when we actually decided to put the full product together.
Joe Fairless: That makes sense. So when did you all launch it?
Divyesh Panchal: Our product was launched in November 2016. That was version one, and we are launching a new version with our proprietary lock, which will have a unique code for each renter.
Joe Fairless: Cool, congratulations on that. How much business do you have and where is it concentrated?
Divyesh Panchal: It’s been really interesting, because we started off — we weren’t sure how well will it reside with people… We started from St. Louis and we’ve had several customers all over the U.S., East Coast as well as West Coast. We are already at 10+ customers, and we’ve just signed a couple of [unintelligible [00:06:32].13] property firms with 1,000+ doors, so we are really excited about it.
Joe Fairless: Yeah, that’s the holy grail for you all, the property management companies – working with them, going straight to the large distributions channels. As an entrepreneurial team, you’ve got three people. What’s been the biggest challenge from an organizational standpoint?
Divyesh Panchal: I would say the biggest challenge was “How can we be more efficient?”, because we bootstrapped this whole thing ourselves, so we wanted to make sure whatever work we do really provides some value. Many times we are putting things together and waiting for people to go try it out. That sometimes takes a little longer than you anticipate. I think that anticipation was the hardest part for our team. But I would say — each member on our team has been an entrepreneur, they had built a product, built companies before, so it wasn’t something that they are doing this for the first time. But every time you start a new venture, there’s always that anticipation and anxiety. That has been an interesting part on our side.
Joe Fairless: Yeah, I have a lot of respect for people who start something from scratch based on a need and hustle and launch the thing… You said you bootstrapped the whole thing yourselves – how much did it cost?
Divyesh Panchal: Oh man, we originally put in about $25,000 into the venture, but honestly, we found innovating ways to solve the problem, rather than putting money at it. That’s one thing about entrepreneurship that I have a lot of respect for my team on that.
For example, the way we tested our hardware prototype – we did not go out and build the hardware first. As a matter of fact, our first prototype took me 45 minutes to build in that form, and Adam said “What if people can just walk in the door without having to talk to anybody? Let’s not have anybody reach out to them? Let’s just let them walk in and see what happens.”
So our first prototype was just a web form. People put their information, and when they wanted to take a tour, instead of putting an expensive lock over there, I just let my maintenance guys know saying “Hey, somebody’s coming. Just unlock the door” and we pretended everything was automated. You should have seen the expression on their face. They were like “What?! This is so cool. This is super clean.” We were like, “That’s great! Do you see value in it?” and people were like “Yeah, totally. I do see value.”
We did hundreds of tours like this. [unintelligible [00:08:46].19] and I was like “If I cannot use it in my own property, how can I go out and sell this to other people?” So we started from doing things that were very, very inexpensive. Then we got to a point where we had serious investors that were interested. The first guy who wrote a check to us on this venture was real estate flipper who flips hundreds of properties in the St. Louis area. We had investors outside of St. Louis, like Memphis and Dallas, who were also putting money in our venture. So we bootstrapped initially, but we got a lot of good interest from investors.
Joe Fairless: How did you value your company with that first investor?
Divyesh Panchal: That’s a tricky question. We had a little bit of luxury on that piece, because what happened was we had one offer from an accelerator for us to participate in the acceleration program. They had already put a valuation at that point, so that was simple – we just took that, because it was an external validation, an external valuation put together on our company. But we also had some [unintelligible [00:09:48].08] we had the hardware, we had things… So it came together with a valuation that both we, as well as investors, were comfortable with.
Joe Fairless: For someone who is doing a startup and has a similar approach – not the same product, but just coming up with maybe a product that is a sister product or something similar to a venture that you all are doing, how would you recommend they quantify their intellectual property and what they have in order to come up with a valuation if they wanna bring in an outside investor?
Divyesh Panchal: I would say don’t put a lot of effort and energy on getting the valuation right, rather focus on the value you’re bringing to the table. I think many times entrepreneurs get fascinated with “Hey, my company is valued at one million dollars and I’m only gonna give you 10%.” I think entrepreneurs should be more focused on what value are they bringing and how big of [unintelligible [00:10:47].06] they are gonna make. So if we are at 5 customers, how can we go to 500 customers or 5,000 customers and continue to make those customers happy… Rather than get hung up on “My company is valued at… And that’s how much I’m willing to offer.”
Joe Fairless: What’s been the biggest challenge of getting Key Bot in more doors in markets across the US?
Divyesh Panchal: Our previous version that we used was using a [unintelligible [00:11:14].26] and that was relatively straightforward, but now that we are launching on our bigger scale, I think that is something that we need to look forward to, and we will find how to [unintelligible [00:11:25].22] because we have done zero marketing as of now. Actually, we’ve only spent three or four dollars on Facebook just to get initial orders.
So far, because some of the early orders that we had to fulfill — those were local, there was not a big challenge… But in the next round, the one we are launching with the proprietary lock, that’s the one we think the scalability would come into real test for us.
Joe Fairless: Segueing into investing now specifically – are you still buying properties?
Divyesh Panchal: Not actively, because my full-time focus is this, but my wife is… She’s still expanding her business, because I have transitioned full-time into building this [unintelligible [00:12:06].20] But the multifamily market is hot as you already know. I think right now the market — I would like to call it the top, especially multifamily investing… So at this point I would rather stay away than put any more money into multifamily.
Joe Fairless: But you and your wife – assuming you are a team – are buying more properties right now… So how do you reconcile the statement you just made…? Because you said you’d perhaps don’t buy, you’d rather hold, but then you are buying…
Divyesh Panchal: The reason we are buying now is because we have a 1031 exchange.
Joe Fairless: Okay.
Divyesh Panchal: That is why we ended up buying. We are buying 80 units now right here in St. Louis, and the reason we have to buy it is because we sold one property and we don’t wanna write a big check to uncle Sam, and I’m sure a lot of investors who are listening will appreciate that… So that’s the reason we are buying. But after that we are not actively looking for anything in multifamily.
Joe Fairless: Got it. And are the majority of your properties in St. Louis?
Divyesh Panchal: All of my properties are in St. Louis.
Joe Fairless: All of your properties are in St. Louis. And you have hundreds of them… What percentage of hundreds are single-families versus the multifamilies?
Divyesh Panchal: We have only very few that are single-family. Pretty much most of all of our properties are in multifamily, and that’s one of the reasons why our team created Key Bot… Because if you look into single-family to 2-4 unit market, that market is extremely scattered. And what happens is people start investing into two units and they’re trying to go to four units and eight units, and we’re going from that point to where we now have a more concentrated portfolio of 30 units plus. But what we saw is most of the people who are investing are investing into single-family or two-unit or four-unit complexes – how can we help them, how can we make their life easier and let them do a little bit of less work while they get more return on investment.
Joe Fairless: So staying with your real estate investing just for a little bit – what was your first property that you bought and what year was that?
Divyesh Panchal: Yeah, great question. My first property was 2007. I bought a single-family in North St. Louis. For people who are not familiar with the St. Louis market, that’s actually a little rough area, but I learned a lot… I bought it with cash, it was $11,000; I was like “You couldn’t even do the bathroom in that price.” So one thing lead to another, and from there we invested in 2-4 units, and from there we got to 16 and more. But each step of the way I feel that you learn something that helps you to get better at your next investment.
Joe Fairless: What are some specific things that you’ve learned from going either at the first property or from 2-4, to 16 units etc?
Divyesh Panchal: The first few properties – I spent a lot more time in rehabbing and just making the quality of the rehab better; I didn’t spend a lot of time finding the best deal in the banks, creating relationships with banks, creating my network with realtors and other investors… But as I went away from those single-families to two-units, four-units and eight-units, I learned that there’s a lot more money to be made if you can find better deals with the banks, or if you can restructure the deal, if you can change your financing a little differently.
Those are the things that I learned that I wish I had learned sooner than that, but every step of the way it helps me get better every day.
Joe Fairless: I heard the last part that you said, where you said there’s more money to be made if you change the financing a little bit… What did you say right before that? I was taking notes… As far as if you tweak something, then you can make more money. What are those other things?
Divyesh Panchal: For example, let’s say you are buying a 16-unit building; your typical financing will be five-year balloon at 20-year amortization. Well, if you can find a bank or if you can work with a bank to get you to 25-year amortization, your cash flow is gonna look a lot better… So things like that, especially if you’re not planning to keep that building really long-term. If you’re planning to keep it for 5 years or 10 years. So things like that. There are very specific things you can do.
Another thing in that same regard is make sure you have a really good team of handymen, of people who can get things done for you, because the more you grow, you have to be able to delegate and outsource a lot of tasks, and that’s something I found that has been extremely useful, because when we were rehabbing two units, four units, I was just getting some one-off handymen. But once I got to 30 units, where we were rehabbing the whole building, I had to get a lot bigger contractors involved. Those relationships I built over the course of years became really useful when we got into bigger deals.
Joe Fairless: Given you and your team’s background with Key Please and your product Key Bot, clearly your focus is trying to maximize the amount of time that you have to do your own stuff, not necessarily being focused on certain tasks that you don’t need to be focused on… So I imagine in your real estate investing you have software or certain efficiencies that you’ve used or that you currently use – what are some of those things, either software programs or certain ways that you use to help automate the process?
Divyesh Panchal: That is actually the specific reason why we came up with Key Bot… Because honestly the only software we use is a spreadsheet. [unintelligible [00:17:25].03]
Joe Fairless: To manage your portfolio of a hundred or so units you only use a spreadsheet?
Divyesh Panchal: We just use a spreadsheet. Trust me, I’ve spent 15 years as a tech executive in a tech company; most recently I was director of IT strategy and information… And you have to ask yourself the question – what value do you get out of the software that I’m using? And I’m not saying that the softwares are bad; there is a lot of value. But if you look at it the way we put together Key Please and Key Bot, there’s a lot of manual work that goes into it when I have to market my property.
Let’s say you’re marketing on apartments.com, Zillow… You’re getting a lot of leads from those places. Well, what do you do with those leads? Every single lead you have to qualify, you have to talk to them, you have to say “What’s your background? When are you planning to move?” All those things take real human work. Next you have to go and show your property. You have to then negotiate the lease; you have to go get the lease signed, and even after that, the work keeps on going and going. So that’s exactly what we had in mind, saying “How can we offer all those pieces to a piece of hardware or a piece of software so that I (or people like me) can focus more on getting more and more deals?”
If you’re a real estate investor like me, your goal is to go from two units to four units, to 500 units, to whatever that goal is… And the whole purpose of having Key Please and Key Bot is to make you more efficient, offload your work to a piece of software and hardware so you can drive your business growth.
Joe Fairless: So you don’t use software to track your profit & loss statement? You just input that manually?
Divyesh Panchal: If you use Bank of America, they offer a free service that can even export it into a spreadsheet. Actually, it’s a lot more simple than you think. You really don’t need sophisticated software. I’ve used QuickBooks… I’ve even used some of those sophisticated software, and I spend more time setting those up than actually getting value out of it. It’s not that I don’t recommend it to anybody, but… I used to write software, I know that business really well… The problem is most of the software is built for a lot of big, gianormous tasks, and as a real estate investors, you are pretty much saying “Okay, well I need to market my property, I need to lease my property, I need to manage my property. What tools…?” Now, we do use — for example, we use tools like Zillow, apartments.com and all those things; for payments we use Cozy… Those are things that I think are very useful for small to medium-sized landlords.
Joe Fairless: Based on your experience as a real estate investor and entrepreneur, what is your best real estate investing advice ever?
Divyesh Panchal: I think the best real estate advice is every market is local; stay focused on your local market and know what your goals are, and execute on that.
Joe Fairless: For someone who is not familiar with St. Louis and wants to begin investing there, and perhaps they just moved to St. Louis… So they are local now, but they haven’t been – what are some things that you would tell them based on your experience with St. Louis?
Divyesh Panchal: You know, St. Louis is a great market in my opinion. Affordability is great, especially if you’re coming from the East Coast or West Coast. One, if you’re a real estate investor and you’re planning to invest, I think investing especially in St. Louis is a great market. Two, it’s also a growing area; there is a lot more movement happening here. Sometimes things like Ferguson or some bad press get in the way of what a great opportunity here is. If you are coming from either coast, I would recommend exploring this market and look at it as a potential investment.
I found some of the margins and some of the return on investment that I’ve seen in St. Louis is way better than what you can see on [unintelligible [00:21:05].14] market. That’s one of the reasons I stay focused in this market. But if you are coming, I would say look past beyond just headlines of Ferguson and things like that, and see what opportunity here is.
Joe Fairless: What is a submarket that is up and coming in St. Louis?
Divyesh Panchal: The Central Corridor has been pretty hard for a while… I would say Grove area is a really up and coming market; that’s a submarket here. There are also pockets within the city area within South St. Louis that are also up and coming. These are very specific markets within St. Louis and I would highly recommend people to look into those markets if you are looking to invest. Some of the mature markets are like West County and [unintelligible [00:21:44].20] I think we are kind of in a [unintelligible [00:21:46].23].
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Divyesh Panchal: Alright, let’s go for it.
Joe Fairless: Alright, let’s go for it! First, a quick word from our Best Ever partners.
Break:[00:21:59].20] to [00:22:56].15]
Joe Fairless: Divyesh, what’s the best ever book?
Divyesh Panchal: What Got You Here Won’t Get You There.
Joe Fairless: Best ever deal you’ve done?
Divyesh Panchal: Flip the building in less than a year.
Joe Fairless: What were the numbers?
Divyesh Panchal: It was actually a 50-unit foreclosed subdivision. We bought it for 1.3, spent about half million on it and sold it for 2.4.
Joe Fairless: Excellent, nice work on that. What’s the key takeaway for that project in particular that you would attribute to getting that profit?
Divyesh Panchal: The key takeaway was you need to know what you’re getting yourself into. I knew it was a rehab work, I did not know what a stress it causes you.
Joe Fairless: Would you do it again if the opportunity was presented to you?
Divyesh Panchal: No, I would do it differently.
Joe Fairless: What would you do?
Divyesh Panchal: I would have built a better team. I would still take the project, but I would build a better team. I would have done a different financing deal… But that’s what I’m doing on my next project.
Joe Fairless: Best ever way you like to give back?
Divyesh Panchal: Well, through my own company… Actually, with Key Please we are partnering with Habitat For Humanity. To me, that’s a really neat way to give back to the community, especially when you’re in real estate. For those who don’t know, Habitat For Humanity – they build homes for people who cannot afford market price homes.
Joe Fairless: What’s a mistake you’ve made on a deal transaction?
Divyesh Panchal: Not doing the due diligence.
Joe Fairless: And where can the Best Ever listeners get in touch with you?
Divyesh Panchal: You can reach me at Divyesh@KeyPls.com. I’m also available on Twitter, @Divyesh_Panchal.
Joe Fairless: Well, Divyesh and team, thank you for being on the show and thanks for talking to us about your entrepreneurial venture Key Please and your product, Key Bot, what inspired it, how you all have bootstrapped this up until this point, then you’ve started bringing in investors… I love the innovative way of solving a problem in an inexpensive manner, for example the prototype that you all did; you just had a maintenance person go unlock the door once they booked it – I love that… Very resourceful.
Then also, Divyesh, you talked about your portfolio and how you choose to manage it, and the approach that you take and the lessons you’ve learned along the way as you’ve scaled up from the single-family for $11,000 to some of the deals that you’re doing now, like the 80-unit that you’re buying and the 50-unit that you referenced earlier… So thanks for being on the show. I hope you all have a best ever day, and we’ll talk to you soon.
Divyesh Panchal: Joe, thank you so much, it was a pleasure.
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
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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 email@example.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 firstname.lastname@example.org.
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.
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!
– 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
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.
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!
Best Ever Tweet:
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
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.
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.
– 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 email@example.com
– Best Ever Book: The Big Rich by Bryan Burrough
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!
Ever thought about how you could reach more buyers? We know, you tried collecting every email address you found at meet ups and REI events, but you are behind the times! Our Best Ever guest is using all social media and real estate media platforms including other forms of marketing. He didn’t take “no” for an answer, even when his grocery store receipt marketing didn’t work…he continued. Hear his ups and downs and ups!
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 athttp://www.fundthatflip.com/bestever.
Have you ever dreamt of being able to conduct your business from Sequoia National Park or the heart of Prague? Today’s Best Ever guest has been able to do that since applying the THREE most important keys to wholesaling. He shares with us what you need to know about lease-option wholesaling, building a business and how important that ugly direct mail postcard really is.
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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com