On this episode, we walk step by step through how Derek Harris built his rental portfolio from the ground up. Derek has been buying rental properties for five years, and today he owns 10 doors.
He takes us through each acquisition, explaining how he found the properties, their condition, and the work he did to fix them up. Derek also breaks down how he financed every deal.
He talks about where he found the money for his down payments, how he structured his loans, and why he started using DSCR loans as he grew.
We also get into the details of his portfolio, including total rent, mortgage payments, operating expenses, and the cash flow he keeps every month.
Thanks To Our Sponsors:
Ridge Lending Group - Making investment Mortgage process simple and stress-free.
MidSouth HomeBuyers – Turnkey Rentals In Memphis & Little Rock. Instant Cash Flow On Day One. (Priced between $100,000 to low $200's)
Rental Accounting Software Made Easy. Free 30 Day Trial.
He takes us through each acquisition, explaining how he found the properties, their condition, and the work he did to fix them up. Derek also breaks down how he financed every deal.
He talks about where he found the money for his down payments, how he structured his loans, and why he started using DSCR loans as he grew.
We also get into the details of his portfolio, including total rent, mortgage payments, operating expenses, and the cash flow he keeps every month.
Thanks To Our Sponsors:
Ridge Lending Group - Making investment Mortgage process simple and stress-free.
MidSouth HomeBuyers – Turnkey Rentals In Memphis & Little Rock. Instant Cash Flow On Day One. (Priced between $100,000 to low $200's)
Rental Accounting Software Made Easy. Free 30 Day Trial.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Inspiring interviews with Today is Top.
Speaker 2 (00:03):
Landlord, This is the Rental Income Podcast, and now Damnly.
Speaker 1 (00:09):
Sometimes the hardest part of buying a rental property is
finding the down payment money. Derek, how did you do it?
Speaker 2 (00:17):
So we had some cash reserves to make our first purchase.
We made an initial down payment on a rental property
in Tyler, and we're able to get into a loan
with a local bank here for that project and then
refinance that cash back out at the end of it.
Speaker 1 (00:37):
On the podcast today, we're going to take a deep
dive into how Derek built his rental portfolio. We'll talk
about the different ways that he's financed his rental properties,
how he's found properties, what he's done to fix him up,
and take a look at his numbers. Joining us on
the podcast today from Tyler, Texas is Derek Harris. We'll
take a quick break to banker sponsors. We'll come right
(01:00):
back and we'll talk to Derek. Are you thinking about
investing in rental properties? But maybe you don't know where
to start. My friends at Mid South home Buyers make
it simple. For over twenty three years, they've been selling
fully renovated, turnkey rental properties in Memphis and Little Rock.
We're talking new roofs, plumbing, electric, kitchens, bathrooms. Everything is
(01:23):
brand new and done right. And here's the best part.
Every property comes with a well qualified tenant in place
before you close. That means you get cash flow from
day one. Plus mid South continues to professionally manage the
property for you after the sale, and they back it
up with two powerful guarantees. You get a one year
(01:45):
total maintenance warranty and a lifetime occupancy guarantee. Personally, I've
bought five properties from them and I couldn't be happier.
If you want to talk to someone that's been through
the process, feel free to reach out to me. I'm
happy to end as any questions or if you're ready
to get started, just go to midsouthhome Buyers dot com.
(02:06):
That's midsouthhome Buyers dot com. It's a lot of work
to find a really good rental property, and when you
actually find that property, you want to make sure you're
working with a lender that can get that loan closed.
The lender that I recommend is jay Ley Ridge from
Ridge Lending Group. She's a nationwide lender and her specialty
is helping investors finance rental properties. She has a ton
(02:28):
of loan programs and she can find something customized to
you for your situation. If you want to find out
more or you're ready to get started today, just go
to Ridge Lendinggroup dot com. That's our Idge Lendinggroup dot
com n MLS four two zero five six Derek, So,
where did the money come from? Let's get into trying
(02:49):
to figure this out. How did you get the money
to get started?
Speaker 2 (02:54):
Sure? So, in twenty twenty, after COVID hit, I was
furload from a job at a large beverage distributor and
I decided to with the benefits of pulling four oh
one K funds out. They waived the penalty at that
time during COVID, So I pulled eighty eight thousand dollars
(03:15):
out of my four oh one K, and I purchased
my first flip in May of twenty twenty. So took
those funds, purchased the property for sixty thousand dollars. We
put right at thirty thousand dollars into that property, and
then we sold it end of the summer of twenty
(03:37):
twenty for one hundred and thirty four So we made
a profit of a little over thirty thousand on that flip,
and that gave us the initial funds to purchase our
first long term rental.
Speaker 1 (03:51):
Now that COVID program where you could borrow money or
I guess take money out of your four one K,
did you have to pay that back? Or could you
withdraw that money and never pay it back?
Speaker 2 (04:03):
Sure, so you had options there. You could pay back
that money over I believe it was a three year period,
or you could count that as part of your income
and just pay your regular income tax on.
Speaker 1 (04:17):
Okay, what did you end up doing?
Speaker 2 (04:20):
So we actually paid back a portion of it and
then paid income tax on the remainder.
Speaker 1 (04:24):
Okay, all right, all right, So then you did that flip,
and so then you had the money that you got
out of your four one K, the profit from the flip.
And is that the money that you used then to
buy your first rental?
Speaker 2 (04:41):
Yes, we bought a three bedroom, two bath rental again
in Tyler, Texas. We purchased that for cash. We bought
it for one hundred and fifteen thousand, and then we
put about three thousand in it. We had a new
roof put on it, so we paid the deductible essentially
on the seller's Policy've got a new roof put on
(05:02):
it and kept the existing tenant, so they were inherited.
They'd been there ten plus years, and they stayed several
more years.
Speaker 1 (05:11):
It's interesting. Why do you think the seller didn't replace
the roof on their own, Like, why did they wait
for you to come around?
Speaker 2 (05:18):
Yeah, they were so that particular seller had a few properties.
I think they were just tired. That property did need
some attention. You know what, once we really got into it,
after those tenants left, there were some things that if
it had been my property at this point in my
investing career, I probably would have maintained it a little better.
(05:41):
But I think he was just tired right on the
cusp of retiring and you know, let a few things slide.
Speaker 1 (05:48):
Okay, So then you bought that property with cash, and
then you did a cash out refinance and got all
that money back.
Speaker 2 (05:57):
Yep, that's right. So later in twenty twenty one, we
refinanced the property with a loan balance of one hundred
and fifteen thousand, So like the original purchase price, we
left that three thousand for the roof in it, and
then we use those funds to purchase the duplex, or
for the down payment on the duplex that we purchased
(06:20):
later in twenty twenty one.
Speaker 1 (06:21):
Wow, okay, so you've been buying properties as rentals for
about five years now, that's right. Okay, awesome, Well let's
see what you've done. Let's take a look at your portfolio.
How many rentals do you have right now?
Speaker 2 (06:36):
So we have ten total doors right now, we have
the duplex that I mentioned earlier, and then we have
eight single family properties.
Speaker 1 (06:45):
And how let's take a look at your numbers. So
how much rent do you bring in between all your rentals?
Speaker 2 (06:52):
So just over thirteen thousand in total monthly rent?
Speaker 1 (06:56):
Okay? And how much are your mortgage payments?
Speaker 2 (07:00):
So our PITI is eighty five hundred monthly okay.
Speaker 1 (07:04):
So that's property taxes, insurance, mortgage interest, that's everything. That's
your total payment eighty five hundred a month. And then
what about budgeting for repairs, vacancy, just anything that might
come up on the properties.
Speaker 2 (07:21):
So we factor in, depending upon the property, we factor
in fifteen to twenty percent for capex, maintenance and vacancy.
That equates to about three thousand dollars a month is
what we expect.
Speaker 1 (07:33):
Okay. So then after everything, your mortgage, any expenses, So
it sounds like you're positive about fifteen hundred a month.
Speaker 2 (07:44):
Yes, that's right.
Speaker 1 (07:45):
I mean that's really good when you think that you
weren't saving up down payments, like you just have that
it correct me if I'm wrong here, but you just
have that initial money that you've just kept kind of
rolling over.
Speaker 2 (07:59):
Yes, that's right. So we've been able to cycle that
initial cash several times and that's definitely benefited us, especially
early on when really that was all we had.
Speaker 1 (08:11):
Yeah, all right, well, well let's kind of kind of
walk through how you build your portfolio. So the second
property you bought was a duplex, and so you said
that you, I guess used the down payment for this property.
You didn't buy it with cash.
Speaker 2 (08:28):
Yes, that's right. So the cash that we made from
our most of the cash that we got out of
that initial long term rental we put in as a
down payment on the duplex as a three bedroom, two bath,
one car garage on each side in Lyndale, Texas, so
just a suburb north of Tyler, and that one is
(08:48):
we of course, we still have that one today. Rents
are fifteen hundred per side and that's it's been a
great property. Of course, we purchased that prior to an
increase in rates, so we've got a four point three
seven five on a thirty year fixed on that property.
Speaker 1 (09:06):
Nice. So then when you put that down payment down,
did you refi it at some point and get that
money back or we.
Speaker 2 (09:14):
Did not for that one. That's really the only property
that we've left a significant sum. That's definitely our best
cash flow property because we have a low rate and
we left a lot of equity in it.
Speaker 1 (09:29):
So that first deal was a single family, the second
deal was a duplex. Well, what made you want to
buy a duplex? After that? It seemed like that first
property worked out for you pretty well, like why not
just keep doing the same thing that for the second property?
Speaker 2 (09:45):
Sure, so, you know, we definitely lean single family. Loved
the liquidity of that type property type. But this duplex community,
it's really around the corner from a house, honestly, and
it's a great neighborhood. Something that was just you know,
when it's in your backyard, I guess you have a
(10:07):
tendency to want to have something close. And this duplex
community was one of the newest in the area. So
I thought I would try my hand at a small
multi family and that property has been great. Again. I
really lean now more towards single family, but for sure,
glad we made that purchase, all right?
Speaker 1 (10:29):
Cool, So you get that up and running, and then
what did you buy next?
Speaker 2 (10:34):
So next we purchased two single family homes in Overton, Texas,
to southeast of Tyler. We like to purchase within about
thirty minutes drive time from us, just to keep the
geography tight. So these two properties were across the street
from one another. One of those actually the same purchase
(10:56):
price as well, so eighty five thousand per home, bedroom
to bath, brick on slab. One of those we did
as a flip, and the other one we held as
a single family rental.
Speaker 1 (11:09):
Okay, well why did you do that? Like, why did
you keep one of them and flip the other one?
Speaker 2 (11:14):
So really to give us a little more cash to
work with. At that point in time, I was considering
doing a few flips a year, and it would definitely
help to do that to have some more cash on hand.
So we decided to keep one and sell the other.
Speaker 1 (11:31):
So then when you bought the other, right, so did
the profit from the flip did that help you finance
the other property?
Speaker 2 (11:41):
So no, we used what was left of the initial
single family that we refinanced. We put the majority of
that into the duplex and we had a little left over.
So we were able to purchase both of those properties
as kind of our first DSCR with a local bank
that we've built a relationship with, So that was part
(12:04):
of that was our down payment was only fifteen percent
on those properties, so we were able to get into
both of those with that cash.
Speaker 1 (12:13):
Yeah, I think d s CR loans are great. They're
they're super easy for anyone that isn't familiar. Can you
explain what a DSc OUR loan is?
Speaker 2 (12:22):
Sure? So it's so the acronym is debt service coverage
ratio and it's essentially the bank looking at the property
and the potential profitability of it versus looking at just
your debt to income and your income. So it's it's
(12:44):
you know, benefits you in that it's not so much
about what you make personally, it's more about the numbers
regarding the property itself.
Speaker 1 (12:53):
So then you sell the flip, how much did you
make off the property you sold?
Speaker 2 (12:59):
So we about forty thousand dollars on the flip.
Speaker 1 (13:03):
Nice, okay, and then what do you use that money for? That?
Speaker 2 (13:08):
So we put that in initially to do another flip
that year, which we did not do, so we just
added that to our cash reserves for some of the
next rental properties. We eventually we've done a lot of
flips at this point, but it took us about a
probably year and a half to get back into one.
Speaker 1 (13:29):
Okay, and then what was your next rental?
Speaker 2 (13:33):
So the next rental was a two bedroom, one bath
in Taylor. We purchased that property. It was an old
farmhouse built in the forties, and we purchased that property
for thirty four thousand. We its the deepest renovation we've
ever done. So we spent seventy one k on that property.
And then when it was all said and done, of course,
(13:54):
we held that as a rental and we refinanced with
a cash out. The loan balance was one hundred and
four thousand.
Speaker 1 (14:02):
Okay, So then how much cash So it sounds like
between the purchase price and the rehab like, it doesn't
sound like you got much cash back.
Speaker 2 (14:15):
Yeah, So we actually put fifteen thousand in that one
refinanced the purchase and rehab so yeah, we essentially refinanced
it for what we had in it. The property. It
praised at one forty four, so we got our cash
back from the down and then had about forty thousand inequity.
Speaker 1 (14:38):
Now a seventy thousand dollars rehab. I mean that's pretty extensive.
Did that come in on what you had initially budgeted
or did you go over on that?
Speaker 2 (14:50):
No, that one was a learning experience, So our initial
budget on that one was more like fifty five and
once we got into it, and you know, like I said,
it was a total overall so new plumbing, electric, of course, roof, windows, HVAC, foundation,
there was a lot of work we did, and then
cosmetics on top of that. So we definitely went over
(15:14):
budget on that one, and I think I learned a
lesson for sure in terms of being hefty with my
budget moving forward on any rehabs that were going to
be anywhere near that level.
Speaker 1 (15:25):
Are you pretty handy or did you just hire contractors?
Speaker 2 (15:29):
I am anti handy. Yeah, I hire everything out. So's
if it's putting a door knob on, I could probably
figure that out. But that's about the depth of my expertise.
Speaker 1 (15:42):
All right, awesome all right, So you get that up
and running and get that rented out, and then what
did you buy next?
Speaker 2 (15:49):
So we purchased another two bedroom, one bath just south
of Tyler and White House, Texas. That property was actually
on the MLS and we perch just it. It was
an initially listed at won seventy five. It had been
on the market for quite a while and we purchased
that property for one hundred and twenty thousand, and again
(16:11):
we didn't refinance out of that one. We got a
really good deal on it, so we did leave a
little bit of cash in it. And what we really
loved about that property it was an older home two
to one, but it was an excellent condition. The sellers
had taken really good care of the property. But it
also had a thirty by thirty metal shop with electric
(16:33):
and plumbing on a slab, two roll up doors. It was,
you know, great for a potential tenant that needs something
to you know, working on cars or wants to run
some kind of business from home. There's not a lot
of inventory like that on the market, so we really
liked that property.
Speaker 1 (16:53):
Now I'm noticing that you've bought a few two ones.
Do you like two bedroom properties.
Speaker 2 (16:59):
We do so so you know this. Of course, the
smaller the property, the less the maintenance and rehab costs
for sure. But one thing that we like about these
two ones that we've purchased quite a few of is
the rent per foot is very high. So if you
compare what you could get for a say, eight hundred
(17:20):
square foot two bedroom, one bath to a twelve hundred
square foot three to one, the rents are very very close.
So we're getting at least twelve fifty to thirteen hundred
starting on our two ones. And that one I just
mentioned that has the shop, we actually get fifteen fifty
(17:40):
for that one because of the shop.
Speaker 1 (17:42):
Do they rent out pretty quickly?
Speaker 2 (17:44):
They do. We don't have any issues renting those baths.
Speaker 1 (17:47):
Yeah, awesome, all right, So then I think we're getting
close to the end here. So what was the next
property you bought?
Speaker 2 (17:56):
So we bought the two in Grand Saline were two
houses on one lot.
Speaker 1 (18:02):
Did they need any work?
Speaker 2 (18:04):
So? They needed some foundation work. These were older pier
and beam homes. One of them needed new windows, They
needed some exterior siding, would rot replacement, things like that,
and they needed to be sealed and painted outside. So
we did that work. I think we spent around twenty
five thousand on those total.
Speaker 1 (18:23):
Now, tell me about your contractor, So, have you used
the same contractor for all of your properties?
Speaker 2 (18:31):
For all of the properties that we've purchased since twenty
twenty end of twenty twenty two, we've used the same
subs and contractor.
Speaker 1 (18:43):
Yes. Was it hard to find them?
Speaker 2 (18:47):
Yes, So we've used a lot, of course since the beginning.
And you know what, you tend to find folks that
are reasonable and they do good work, and if that's
their you know, set up, then they naturally get bigger
and gain more business, and their prices tend to go up.
(19:08):
So initially I did have to I went through a
few folks. Most of them all did really good work.
But because of the amount of work that we, you know,
give to our current subs, they treat us pretty good
and have for a few years now.
Speaker 1 (19:24):
So do you always have a project going on or
have there been periods where there's you're not buying anything
and there's really no work for your contractors.
Speaker 2 (19:38):
For the last two and a half or three years,
we've had some kind of at least one project.
Speaker 1 (19:43):
Going okay, okay, all right, So then I think you
bought one more place.
Speaker 2 (19:48):
Then yes, So we bought a two better and one
bath in Mineola, Texas. And that property we purchased for
fifty five thousand, and we did a forty thousand dollar
reno on it, and that one was from the sheet
rock out plus a new roof, we did new windows.
(20:12):
It's outside of the city limit, so had a great
just a great location, and we are renting that out
for thirteen fifty.
Speaker 1 (20:23):
Now, let me ask you about Texas specifically. So you're
in Tyler, Texas and Texas is known for having higher
property taxes. Has that been a challenge at all to
make the numbers work with the higher property taxes.
Speaker 2 (20:42):
Yes, that's been a struggle for several years. So one
good thing that they've done recently in twenty three, there
is a twenty percent increase cap on any property. So
this doesn't apply to primary residents, but the county can't
(21:04):
increase the assessed values of taxable value by more than
twenty percent and a given calendar gear, so that's you know,
still over a few years that that can be a
substantial increase. But it has been a challenge property taxes
generally speaking, and I find that you know, there's a
protest process for every county and I definitely recommend folks
(21:29):
to use that process. Protest every year for every property,
and you may be surprised how easy and successful you
can be in that process.
Speaker 1 (21:41):
So you've had some luck protesting the taxes, yes.
Speaker 2 (21:44):
Of course. So we have several clients. My wife and
are both realtors here and we have a list of
clients that we protest for on their behalf every year,
and then of course all of our properties we've submit
a protest. For some of those you end up in
a hearing in front of the board, and some of
those you get a phone call and they negotiate with
you over the phone. But we've never been unsuccessful in
(22:08):
not getting the assessed value down on a property.
Speaker 1 (22:12):
The other thing I've always been curious about with Texas
is Texas is a non disclosure state, so when a
property is sold, the sale price isn't disclosed. So like,
how do you run comps and know that you're paying
a good price when that information isn't publicly available?
Speaker 2 (22:33):
So you want to have a realtor in your back pocket, really,
so they've got access to all of the MLS data
which will show those sold prices. Of course, you know,
being a realtor, that's kind of natural, easy for us,
but you definitely want to have somebody that you can
lean on because that data is obviously very valuable.
Speaker 1 (22:55):
Yeah, okay, so the information just isn't recorded in the
public records, but it is in the MLS.
Speaker 2 (23:01):
That's correct.
Speaker 1 (23:02):
Yess awesome. If anybody wants to connect with Derek, I've
got his contact information on the website. You can find
it at Rentalincomepodcast dot com slash episode five point fifty.
I'd like to thank jayey Ridge from Ridge Lending Group
for a sponsoring today's episode. If you're looking to buy
a rental property, definitely reach out to Chayley. She's a
(23:24):
nationwide lender. She has a ton of different loan programs
and she can find something that works for you. If
you want to track her down, just go to Ridgelendinggroup
dot com NMLS for two zero five six. Thank you
so much for checking out the podcast today. Make sure
you hit that follow button. I put out a new
(23:46):
episode every single Tuesday, and if you're following the show,
you'll get notified when the next episode comes out. My
name is Dan Lane and this has been the Rental
Income podcast.
Inspiring interviews with Today is Top.
Speaker 2 (00:03):
Landlord, This is the Rental Income Podcast, and now Damnly.
Speaker 1 (00:09):
Sometimes the hardest part of buying a rental property is
finding the down payment money. Derek, how did you do it?
Speaker 2 (00:17):
So we had some cash reserves to make our first purchase.
We made an initial down payment on a rental property
in Tyler, and we're able to get into a loan
with a local bank here for that project and then
refinance that cash back out at the end of it.
Speaker 1 (00:37):
On the podcast today, we're going to take a deep
dive into how Derek built his rental portfolio. We'll talk
about the different ways that he's financed his rental properties,
how he's found properties, what he's done to fix him up,
and take a look at his numbers. Joining us on
the podcast today from Tyler, Texas is Derek Harris. We'll
take a quick break to banker sponsors. We'll come right
(01:00):
back and we'll talk to Derek. Are you thinking about
investing in rental properties? But maybe you don't know where
to start. My friends at Mid South home Buyers make
it simple. For over twenty three years, they've been selling
fully renovated, turnkey rental properties in Memphis and Little Rock.
We're talking new roofs, plumbing, electric, kitchens, bathrooms. Everything is
(01:23):
brand new and done right. And here's the best part.
Every property comes with a well qualified tenant in place
before you close. That means you get cash flow from
day one. Plus mid South continues to professionally manage the
property for you after the sale, and they back it
up with two powerful guarantees. You get a one year
(01:45):
total maintenance warranty and a lifetime occupancy guarantee. Personally, I've
bought five properties from them and I couldn't be happier.
If you want to talk to someone that's been through
the process, feel free to reach out to me. I'm
happy to end as any questions or if you're ready
to get started, just go to midsouthhome Buyers dot com.
(02:06):
That's midsouthhome Buyers dot com. It's a lot of work
to find a really good rental property, and when you
actually find that property, you want to make sure you're
working with a lender that can get that loan closed.
The lender that I recommend is jay Ley Ridge from
Ridge Lending Group. She's a nationwide lender and her specialty
is helping investors finance rental properties. She has a ton
(02:28):
of loan programs and she can find something customized to
you for your situation. If you want to find out
more or you're ready to get started today, just go
to Ridge Lendinggroup dot com. That's our Idge Lendinggroup dot
com n MLS four two zero five six Derek, So,
where did the money come from? Let's get into trying
(02:49):
to figure this out. How did you get the money
to get started?
Speaker 2 (02:54):
Sure? So, in twenty twenty, after COVID hit, I was
furload from a job at a large beverage distributor and
I decided to with the benefits of pulling four oh
one K funds out. They waived the penalty at that
time during COVID, So I pulled eighty eight thousand dollars
(03:15):
out of my four oh one K, and I purchased
my first flip in May of twenty twenty. So took
those funds, purchased the property for sixty thousand dollars. We
put right at thirty thousand dollars into that property, and
then we sold it end of the summer of twenty
(03:37):
twenty for one hundred and thirty four So we made
a profit of a little over thirty thousand on that flip,
and that gave us the initial funds to purchase our
first long term rental.
Speaker 1 (03:51):
Now that COVID program where you could borrow money or
I guess take money out of your four one K,
did you have to pay that back? Or could you
withdraw that money and never pay it back?
Speaker 2 (04:03):
Sure, so you had options there. You could pay back
that money over I believe it was a three year period,
or you could count that as part of your income
and just pay your regular income tax on.
Speaker 1 (04:17):
Okay, what did you end up doing?
Speaker 2 (04:20):
So we actually paid back a portion of it and
then paid income tax on the remainder.
Speaker 1 (04:24):
Okay, all right, all right, So then you did that flip,
and so then you had the money that you got
out of your four one K, the profit from the flip.
And is that the money that you used then to
buy your first rental?
Speaker 2 (04:41):
Yes, we bought a three bedroom, two bath rental again
in Tyler, Texas. We purchased that for cash. We bought
it for one hundred and fifteen thousand, and then we
put about three thousand in it. We had a new
roof put on it, so we paid the deductible essentially
on the seller's Policy've got a new roof put on
(05:02):
it and kept the existing tenant, so they were inherited.
They'd been there ten plus years, and they stayed several
more years.
Speaker 1 (05:11):
It's interesting. Why do you think the seller didn't replace
the roof on their own, Like, why did they wait
for you to come around?
Speaker 2 (05:18):
Yeah, they were so that particular seller had a few properties.
I think they were just tired. That property did need
some attention. You know what, once we really got into it,
after those tenants left, there were some things that if
it had been my property at this point in my
investing career, I probably would have maintained it a little better.
(05:41):
But I think he was just tired right on the
cusp of retiring and you know, let a few things slide.
Speaker 1 (05:48):
Okay, So then you bought that property with cash, and
then you did a cash out refinance and got all
that money back.
Speaker 2 (05:57):
Yep, that's right. So later in twenty twenty one, we
refinanced the property with a loan balance of one hundred
and fifteen thousand, So like the original purchase price, we
left that three thousand for the roof in it, and
then we use those funds to purchase the duplex, or
for the down payment on the duplex that we purchased
(06:20):
later in twenty twenty one.
Speaker 1 (06:21):
Wow, okay, so you've been buying properties as rentals for
about five years now, that's right. Okay, awesome, Well let's
see what you've done. Let's take a look at your portfolio.
How many rentals do you have right now?
Speaker 2 (06:36):
So we have ten total doors right now, we have
the duplex that I mentioned earlier, and then we have
eight single family properties.
Speaker 1 (06:45):
And how let's take a look at your numbers. So
how much rent do you bring in between all your rentals?
Speaker 2 (06:52):
So just over thirteen thousand in total monthly rent?
Speaker 1 (06:56):
Okay? And how much are your mortgage payments?
Speaker 2 (07:00):
So our PITI is eighty five hundred monthly okay.
Speaker 1 (07:04):
So that's property taxes, insurance, mortgage interest, that's everything. That's
your total payment eighty five hundred a month. And then
what about budgeting for repairs, vacancy, just anything that might
come up on the properties.
Speaker 2 (07:21):
So we factor in, depending upon the property, we factor
in fifteen to twenty percent for capex, maintenance and vacancy.
That equates to about three thousand dollars a month is
what we expect.
Speaker 1 (07:33):
Okay. So then after everything, your mortgage, any expenses, So
it sounds like you're positive about fifteen hundred a month.
Speaker 2 (07:44):
Yes, that's right.
Speaker 1 (07:45):
I mean that's really good when you think that you
weren't saving up down payments, like you just have that
it correct me if I'm wrong here, but you just
have that initial money that you've just kept kind of
rolling over.
Speaker 2 (07:59):
Yes, that's right. So we've been able to cycle that
initial cash several times and that's definitely benefited us, especially
early on when really that was all we had.
Speaker 1 (08:11):
Yeah, all right, well, well let's kind of kind of
walk through how you build your portfolio. So the second
property you bought was a duplex, and so you said
that you, I guess used the down payment for this property.
You didn't buy it with cash.
Speaker 2 (08:28):
Yes, that's right. So the cash that we made from
our most of the cash that we got out of
that initial long term rental we put in as a
down payment on the duplex as a three bedroom, two bath,
one car garage on each side in Lyndale, Texas, so
just a suburb north of Tyler, and that one is
(08:48):
we of course, we still have that one today. Rents
are fifteen hundred per side and that's it's been a
great property. Of course, we purchased that prior to an
increase in rates, so we've got a four point three
seven five on a thirty year fixed on that property.
Speaker 1 (09:06):
Nice. So then when you put that down payment down,
did you refi it at some point and get that
money back or we.
Speaker 2 (09:14):
Did not for that one. That's really the only property
that we've left a significant sum. That's definitely our best
cash flow property because we have a low rate and
we left a lot of equity in it.
Speaker 1 (09:29):
So that first deal was a single family, the second
deal was a duplex. Well, what made you want to
buy a duplex? After that? It seemed like that first
property worked out for you pretty well, like why not
just keep doing the same thing that for the second property?
Speaker 2 (09:45):
Sure, so, you know, we definitely lean single family. Loved
the liquidity of that type property type. But this duplex community,
it's really around the corner from a house, honestly, and
it's a great neighborhood. Something that was just you know,
when it's in your backyard, I guess you have a
(10:07):
tendency to want to have something close. And this duplex
community was one of the newest in the area. So
I thought I would try my hand at a small
multi family and that property has been great. Again. I
really lean now more towards single family, but for sure,
glad we made that purchase, all right?
Speaker 1 (10:29):
Cool, So you get that up and running, and then
what did you buy next?
Speaker 2 (10:34):
So next we purchased two single family homes in Overton, Texas,
to southeast of Tyler. We like to purchase within about
thirty minutes drive time from us, just to keep the
geography tight. So these two properties were across the street
from one another. One of those actually the same purchase
(10:56):
price as well, so eighty five thousand per home, bedroom
to bath, brick on slab. One of those we did
as a flip, and the other one we held as
a single family rental.
Speaker 1 (11:09):
Okay, well why did you do that? Like, why did
you keep one of them and flip the other one?
Speaker 2 (11:14):
So really to give us a little more cash to
work with. At that point in time, I was considering
doing a few flips a year, and it would definitely
help to do that to have some more cash on hand.
So we decided to keep one and sell the other.
Speaker 1 (11:31):
So then when you bought the other, right, so did
the profit from the flip did that help you finance
the other property?
Speaker 2 (11:41):
So no, we used what was left of the initial
single family that we refinanced. We put the majority of
that into the duplex and we had a little left over.
So we were able to purchase both of those properties
as kind of our first DSCR with a local bank
that we've built a relationship with, So that was part
(12:04):
of that was our down payment was only fifteen percent
on those properties, so we were able to get into
both of those with that cash.
Speaker 1 (12:13):
Yeah, I think d s CR loans are great. They're
they're super easy for anyone that isn't familiar. Can you
explain what a DSc OUR loan is?
Speaker 2 (12:22):
Sure? So it's so the acronym is debt service coverage
ratio and it's essentially the bank looking at the property
and the potential profitability of it versus looking at just
your debt to income and your income. So it's it's
(12:44):
you know, benefits you in that it's not so much
about what you make personally, it's more about the numbers
regarding the property itself.
Speaker 1 (12:53):
So then you sell the flip, how much did you
make off the property you sold?
Speaker 2 (12:59):
So we about forty thousand dollars on the flip.
Speaker 1 (13:03):
Nice, okay, and then what do you use that money for? That?
Speaker 2 (13:08):
So we put that in initially to do another flip
that year, which we did not do, so we just
added that to our cash reserves for some of the
next rental properties. We eventually we've done a lot of
flips at this point, but it took us about a
probably year and a half to get back into one.
Speaker 1 (13:29):
Okay, and then what was your next rental?
Speaker 2 (13:33):
So the next rental was a two bedroom, one bath
in Taylor. We purchased that property. It was an old
farmhouse built in the forties, and we purchased that property
for thirty four thousand. We its the deepest renovation we've
ever done. So we spent seventy one k on that property.
And then when it was all said and done, of course,
(13:54):
we held that as a rental and we refinanced with
a cash out. The loan balance was one hundred and
four thousand.
Speaker 1 (14:02):
Okay, So then how much cash So it sounds like
between the purchase price and the rehab like, it doesn't
sound like you got much cash back.
Speaker 2 (14:15):
Yeah, So we actually put fifteen thousand in that one
refinanced the purchase and rehab so yeah, we essentially refinanced
it for what we had in it. The property. It
praised at one forty four, so we got our cash
back from the down and then had about forty thousand inequity.
Speaker 1 (14:38):
Now a seventy thousand dollars rehab. I mean that's pretty extensive.
Did that come in on what you had initially budgeted
or did you go over on that?
Speaker 2 (14:50):
No, that one was a learning experience, So our initial
budget on that one was more like fifty five and
once we got into it, and you know, like I said,
it was a total overall so new plumbing, electric, of course, roof, windows, HVAC, foundation,
there was a lot of work we did, and then
cosmetics on top of that. So we definitely went over
(15:14):
budget on that one, and I think I learned a
lesson for sure in terms of being hefty with my
budget moving forward on any rehabs that were going to
be anywhere near that level.
Speaker 1 (15:25):
Are you pretty handy or did you just hire contractors?
Speaker 2 (15:29):
I am anti handy. Yeah, I hire everything out. So's
if it's putting a door knob on, I could probably
figure that out. But that's about the depth of my expertise.
Speaker 1 (15:42):
All right, awesome all right, So you get that up
and running and get that rented out, and then what
did you buy next?
Speaker 2 (15:49):
So we purchased another two bedroom, one bath just south
of Tyler and White House, Texas. That property was actually
on the MLS and we perch just it. It was
an initially listed at won seventy five. It had been
on the market for quite a while and we purchased
that property for one hundred and twenty thousand, and again
(16:11):
we didn't refinance out of that one. We got a
really good deal on it, so we did leave a
little bit of cash in it. And what we really
loved about that property it was an older home two
to one, but it was an excellent condition. The sellers
had taken really good care of the property. But it
also had a thirty by thirty metal shop with electric
(16:33):
and plumbing on a slab, two roll up doors. It was,
you know, great for a potential tenant that needs something
to you know, working on cars or wants to run
some kind of business from home. There's not a lot
of inventory like that on the market, so we really
liked that property.
Speaker 1 (16:53):
Now I'm noticing that you've bought a few two ones.
Do you like two bedroom properties.
Speaker 2 (16:59):
We do so so you know this. Of course, the
smaller the property, the less the maintenance and rehab costs
for sure. But one thing that we like about these
two ones that we've purchased quite a few of is
the rent per foot is very high. So if you
compare what you could get for a say, eight hundred
(17:20):
square foot two bedroom, one bath to a twelve hundred
square foot three to one, the rents are very very close.
So we're getting at least twelve fifty to thirteen hundred
starting on our two ones. And that one I just
mentioned that has the shop, we actually get fifteen fifty
(17:40):
for that one because of the shop.
Speaker 1 (17:42):
Do they rent out pretty quickly?
Speaker 2 (17:44):
They do. We don't have any issues renting those baths.
Speaker 1 (17:47):
Yeah, awesome, all right, So then I think we're getting
close to the end here. So what was the next
property you bought?
Speaker 2 (17:56):
So we bought the two in Grand Saline were two
houses on one lot.
Speaker 1 (18:02):
Did they need any work?
Speaker 2 (18:04):
So? They needed some foundation work. These were older pier
and beam homes. One of them needed new windows, They
needed some exterior siding, would rot replacement, things like that,
and they needed to be sealed and painted outside. So
we did that work. I think we spent around twenty
five thousand on those total.
Speaker 1 (18:23):
Now, tell me about your contractor, So, have you used
the same contractor for all of your properties?
Speaker 2 (18:31):
For all of the properties that we've purchased since twenty
twenty end of twenty twenty two, we've used the same
subs and contractor.
Speaker 1 (18:43):
Yes. Was it hard to find them?
Speaker 2 (18:47):
Yes, So we've used a lot, of course since the beginning.
And you know what, you tend to find folks that
are reasonable and they do good work, and if that's
their you know, set up, then they naturally get bigger
and gain more business, and their prices tend to go up.
(19:08):
So initially I did have to I went through a
few folks. Most of them all did really good work.
But because of the amount of work that we, you know,
give to our current subs, they treat us pretty good
and have for a few years now.
Speaker 1 (19:24):
So do you always have a project going on or
have there been periods where there's you're not buying anything
and there's really no work for your contractors.
Speaker 2 (19:38):
For the last two and a half or three years,
we've had some kind of at least one project.
Speaker 1 (19:43):
Going okay, okay, all right, So then I think you
bought one more place.
Speaker 2 (19:48):
Then yes, So we bought a two better and one
bath in Mineola, Texas. And that property we purchased for
fifty five thousand, and we did a forty thousand dollar
reno on it, and that one was from the sheet
rock out plus a new roof, we did new windows.
(20:12):
It's outside of the city limit, so had a great
just a great location, and we are renting that out
for thirteen fifty.
Speaker 1 (20:23):
Now, let me ask you about Texas specifically. So you're
in Tyler, Texas and Texas is known for having higher
property taxes. Has that been a challenge at all to
make the numbers work with the higher property taxes.
Speaker 2 (20:42):
Yes, that's been a struggle for several years. So one
good thing that they've done recently in twenty three, there
is a twenty percent increase cap on any property. So
this doesn't apply to primary residents, but the county can't
(21:04):
increase the assessed values of taxable value by more than
twenty percent and a given calendar gear, so that's you know,
still over a few years that that can be a
substantial increase. But it has been a challenge property taxes
generally speaking, and I find that you know, there's a
protest process for every county and I definitely recommend folks
(21:29):
to use that process. Protest every year for every property,
and you may be surprised how easy and successful you
can be in that process.
Speaker 1 (21:41):
So you've had some luck protesting the taxes, yes.
Speaker 2 (21:44):
Of course. So we have several clients. My wife and
are both realtors here and we have a list of
clients that we protest for on their behalf every year,
and then of course all of our properties we've submit
a protest. For some of those you end up in
a hearing in front of the board, and some of
those you get a phone call and they negotiate with
you over the phone. But we've never been unsuccessful in
(22:08):
not getting the assessed value down on a property.
Speaker 1 (22:12):
The other thing I've always been curious about with Texas
is Texas is a non disclosure state, so when a
property is sold, the sale price isn't disclosed. So like,
how do you run comps and know that you're paying
a good price when that information isn't publicly available?
Speaker 2 (22:33):
So you want to have a realtor in your back pocket, really,
so they've got access to all of the MLS data
which will show those sold prices. Of course, you know,
being a realtor, that's kind of natural, easy for us,
but you definitely want to have somebody that you can
lean on because that data is obviously very valuable.
Speaker 1 (22:55):
Yeah, okay, so the information just isn't recorded in the
public records, but it is in the MLS.
Speaker 2 (23:01):
That's correct.
Speaker 1 (23:02):
Yess awesome. If anybody wants to connect with Derek, I've
got his contact information on the website. You can find
it at Rentalincomepodcast dot com slash episode five point fifty.
I'd like to thank jayey Ridge from Ridge Lending Group
for a sponsoring today's episode. If you're looking to buy
a rental property, definitely reach out to Chayley. She's a
(23:24):
nationwide lender. She has a ton of different loan programs
and she can find something that works for you. If
you want to track her down, just go to Ridgelendinggroup
dot com NMLS for two zero five six. Thank you
so much for checking out the podcast today. Make sure
you hit that follow button. I put out a new
(23:46):
episode every single Tuesday, and if you're following the show,
you'll get notified when the next episode comes out. My
name is Dan Lane and this has been the Rental
Income podcast.
Popular Podcasts
Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
The Brothers Ortiz
The Brothers Ortiz is the story of two brothers–both successful, but in very different ways. Gabe Ortiz becomes a third-highest ranking officer in all of Texas while his younger brother Larry climbs the ranks in Puro Tango Blast, a notorious Texas Prison gang. Gabe doesn’t know all the details of his brother’s nefarious dealings, and he’s made a point not to ask, to protect their relationship. But when Larry is murdered during a home invasion in a rented beach house, Gabe has no choice but to look into what happened that night. To solve Larry’s murder, Gabe, and the whole Ortiz family, must ask each other tough questions.