November 25, 2024 • 37 mins
What if taking the leap into real estate investment was simpler than you ever imagined? Join us on the Buying Tampa Bay podcast as we unravel the mystery of purchasing your first investment property. Through our personal tales and experiences, you'll learn why starting small and embracing imperfections can be your greatest strategy. We reveal how owning your first home can provide an invaluable education in maintenance, from fixing plumbing issues to mastering air conditioning repairs. This foundational knowledge not only equips you for future investments but also strengthens your ability to manage properties successfully.
In this episode, we share the nitty-gritty of creative real estate strategies, like the savvy "subject to" mortgage purchases that can transform stagnant markets. Witness how sweat equity turned a modest property into a lucrative flip, setting the stage for exciting multifamily ventures. We also delve into flexible financing avenues beyond traditional loans—hard money, private lenders, and seller financing—and uncover the potential of the BRRRR strategy in distressed markets. By weaving in these strategies, we're here to inspire and guide you on your path to real estate success, demonstrating that calculated risks can lead to rewarding returns.
For all your Real Estate Investment and Property Management needs check out HomeProp!
https://www.homeprop.com
https://www.HomepropPM.com
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Hello and welcome to the Buying Tampa Bay podcast.
We're your hosts, peter Murphyand Chase Clark.
One of the most commonquestions we're asked by people
looking to get into real estateinvesting is how do I buy my
very first investment property?
Every real estate investor hasa story about their first
investment property and they runthe gambit from details that
(00:26):
just fell into their laps tohard-fought battles that almost
didn't happen.
So we're just two guys with ourown first deal story, and we've
heard lots of others, so we'regoing to share that with you
today in hopes that you'll beinspired to jump into real
estate investing yourself.
A journey of a thousand milesbegins with a single step, or at
least so they say, right, chase?
Speaker 2 (00:49):
Yeah, the battle's won by getting to the starting
line right.
So you can sit around and thinkabout it all you want.
You can speculate, but actuallyjumping in and getting a deal
underway is something that isvery hard to do for a lot of
people, but it's so rewarding inthe end.
Speaker 1 (01:05):
Yeah, and perfection is the enemy of good enough,
isn't it?
I mean, a lot of people, like,are looking to know everything
before they start, and thatcertainly wasn't our case.
I mean, I think there wasprobably a little bit of a
fool's vanity in our case.
You know where.
You're like, hey, we have anoverinflated perception, maybe,
of our own abilities and we'relike whatever we're going to do,
(01:26):
just fine, let's go ahead andget this done.
And so you jump in head first,only to discover very soon that
you have no idea what you'redoing.
But at least we started.
That was maybe.
Maybe that's our greateststrength we were actually able
to take the first step.
Speaker 2 (01:45):
Yeah, your strategy going into it and what you hope
to achieve really will dictatehow much risk you want to take
and how much money you'rewilling to invest.
And if you start small,sometimes that's to your
advantage.
But don't sit back and wait fora home run.
I think that's what so manypeople do today is they're
sitting back analyzing propertyafter property after property
and they never actually jump inbecause they're looking for a
(02:05):
home run.
And home runs are very hard tocome by and very hard to come by
on your first deal.
Speaker 1 (02:12):
Well, I remember a person, probably about 20 years
ago now, and she flew up toTampa from Miami right after the
crash of the housing market andshe was probably in her early
20s and she was dynamic andcharismatic and she was looking
to buy her first investmentproperty and she was there with
a team of mentors and advisors.
And I remember talking to herand we're like, so this is your
(02:32):
first investment property.
And they were like, yeah, it'sher first and she doesn't even
own a house yet.
And that set off some alarms inmy mind, because here was a
woman getting ready to jumpright into investment real
estate and she didn't even ownher own house and I thought that
maybe that was putting the cartbefore the horse a little bit.
Owning your own house alwaysseems to me to be the easiest
(02:53):
way to get into real estateinvesting.
Speaker 2 (02:56):
Yeah, you know that's the advice that we pitch to
everyone.
I think that starts out is makeyour first investment the house
that you live in.
Buy a house for yourself.
There are so many reasons forthat.
Again, by you living there, therisk is much lower, Financing
options are much better and youlearn a whole lot about what it
(03:17):
takes to operate a piece of realestate once you own it and live
in it and have to take care ofit.
Speaker 1 (03:24):
Right.
So, yes, the lessons you learnas a homeowner, I mean, are just
rich.
I remember the first time Ibought a house and, like within
a week or two, I was doingplumbing right.
I mean I was replacing the gutsof my own toilet, I was
figuring out what was going onwith my thermostat, which wasn't
working.
I mean you go through a processof buying a house and you get
inspections and you're kickingthe tires and you think
(03:44):
everything's going to be fine.
But the minute you move intothat house and start using it, I
mean no matter how manyinspections you've got,
something is going to go wrongand you have no extra money to
fix it, to get someone else tofix it for you.
You're figuring that outyourself.
And what tremendous school thatis right.
So you're learning plumbing,you're learning electrical,
(04:09):
you're learning air conditioning, you're learning all about how
to replace small things likedoors that are broken or windows
or closet doors that come offthe rails, and that sounds to me
like everything that goes wrongwith an investment property.
Speaker 2 (04:19):
Yeah, and sometimes there's some stuff that happens
that you can't fix right.
It's well over your head andyou've got to call a vendor, and
it's also a great opportunityduring that time that you live
in the house to develop aRolodex of vendors that can be
on your investment team when youactually need to get something
done for a tenant.
So, beyond all thatexperiential learning that
(04:40):
happens when you live in yourown home, there's the ability to
expand your sphere of influence, expand your vendor list and
learn all those kinds of thingsthat are necessary things to
know in great detail if you'regoing to know how a property
operates and therefore how tohandle tenants that are living
there when you're not livingthere yourself.
Speaker 1 (05:00):
Right.
I remember shortly after Ibought a home I had to make an
air conditioning call.
And so the vendor comes out tomy house and I know I'm getting
ready to pay some money for this.
So I say I'm going to pay themoney for it, I'm going to call
it my own education, right?
And so I sat beside that airconditioning vendor.
I stood beside him and watchedhim as he stuck a hose inside of
his drain line and drove thatair conditioning crud out of
(05:24):
that condensation drain line.
And you know that cloggedcondensation drain lines account
for probably 90% of our airconditioning calls every summer.
And the fact that I was able tosit and watch an air
conditioning vendor do that andlearn how that was done it
probably has added all kinds ofmoney to my bottom line.
(05:45):
Because I watched, because Itook that lesson seriously.
I paid for my own school, butI've never had to pay for that
again.
Speaker 2 (05:53):
Yeah, that's right.
There's so many opportunitieswith things like that.
The majority of people I runinto they never even contemplate
the idea that they will beengaged in their own maintenance
.
They've always thought this isa phone call that I make.
You know, I'm not going to takethe lid off my toilet and
investigate how to change thevalve Right.
I'm not going to change theflapper.
(06:15):
I'm not going to consider whymy toilet might even be clogged
and how to use a plungereffectively.
You know all those kinds ofthings that you learn, even
learning that every P-trap in aplumbing system clogs up with
something over time and requiresroutine maintenance.
So many different lessons canbe learned and they all save you
(06:36):
a ton of money and a ton oftime down the road, which is
only going to increase your ROIwhen you're in an investment
scenario.
Speaker 1 (06:45):
Yeah, and none of that sounds like glamorous stuff
to me.
But if you're looking to getinto real estate, the deal is
clean and heady and intellectualon paper and that feels really
good to do that.
But when push comes to shove,you must roll up your sleeves
and get your hands dirtysometimes, at the very least, so
you know what you're talkingabout.
When a renter calls you, whenanother investor calls you, and
(07:08):
you can uh, you can actuallywalk them through a process to
save you some money.
So all of that is very, veryimportant now.
So buying your own home iscritical and you do that right.
And because when you buy yourown home, financing is just
cheaper, so it's easier to getinto the investment game when
that first investment propertyis an owner-occupied house.
Speaker 2 (07:29):
Yeah, a lot of people don't understand the ins and
outs of financing, which is onething that you need to explore
pretty in-depth or get a trustedadvisor in that realm to help
you understand better before youstart buying properties.
But banks view owner occupantsas less risky than tenant
occupants in a home, and so theinterest rate is going to be
(07:51):
lower typically for you to buy ahome that you're going to live
in and interest being asignificant cost to you every
month that's affecting your ROI,is something that you need to
take into consideration whenlooking at the different options
for financing.
But being able to buy the homeinitially upfront and lock in a
30-year fixed rate at anowner-occupant rate will only
(08:14):
serve you better down the roadas you decide to vacate that
home in lieu of putting tenantsin Right.
Speaker 1 (08:21):
And this is a long game we're talking about here
Getting into real estate unlessyou have a ton of cash, you're
going to have to do this overthe course of time, and so you
think about it this way I'mbuying myself a home that I'm
going to live in, and I'm goingto live in it at least two years
right, Because I must in orderto forego certain tax
implications right, that mightbe involved in a future transfer
(08:44):
.
Tax implications right, thatmight be involved in a future
transfer.
And so you're going to live init for a while while you recoup
the sunk costs you put intoclosing costs, and then you're
going to buy, potentially, asecond home, but it's going to
be a few years before you dothat, right.
And while you're living in thathome and it's your own home and
you've got that great rate offinancing on there then you turn
that into a rental property.
You don't need to.
That great rate of financing onthere.
Then you turn that into arental property.
(09:04):
You don't need to.
That same rate of financing,which was so attractive at
purchase, is going to carryforward with that mortgage,
right.
And that's something you justcould not have gotten had you
bought this first and foremostas an investment property.
So the economics of that ifyou're going to make it into a
rental are just going to bedramatically better.
If you're talking about beingable to convert a home from
(09:26):
owner occupancy use intoinvestor use, it's definitely a
great way to buy your firstlong-term investment property,
even though you're going to beliving in it for a while.
First.
Speaker 2 (09:39):
Yeah, that's right, and if you're fortunate enough
to have this as your strategygoing in, you're going to want
to consider what home you buy tolive in with a view toward
renting it out one day.
You know, some homes aredesigned better for tenants than
others, and some things thatappeal to you personally won't
broadly appeal to the rentermarket, and so those are some
(10:00):
things that you want to considerif you are going to buy a home
to live in for several yearsmaybe even longer but then
eventually turn it into a rentalproperty, because you're going
to want something that's goingto have mass appeal to the
largest group of tenantspossible and thereby be able to
get you the highest market ratefor that property that you can
achieve on the open market.
Speaker 1 (10:21):
Great.
So just think about that firstpurchase.
You make the right way, thinkabout it like an investor right,
and not just an owner occupant,and you will be able to have
that flexibility to turn it intothe investment.
But for a lot of people, theywant to think about their future
investments, you know, beyondbuying their own home.
And so, well, that's where Isuppose we have our first real
investment property story, right, because, well, we own our own
(10:43):
homes, but shortly after owningour own home, we then wanted to
get more deeply and more broadlyinto investment real estate,
and so, in our case, we had acondo.
That actually was our veryfirst investment property.
Chase, tell them the details ofthe story, because it's a funny
one, an interesting one, onewhere we learned lots of lessons
, but it's also one thatprobably a lot of other, a lot
of people could do if theywanted a first investment
(11:05):
strategy.
Speaker 2 (11:07):
Yeah, you know, I think actually the seller on
this deal was one of yourpersonal connections in some way
, peter.
You know that you found out, Ithink, that they were looking to
sell their home and we'rehaving some issues doing it, and
they needed to get it done in arelatively short period of time
, and so we engaged that sellerand proposed to them that we do
(11:30):
a subject to deal.
And so, for those of youwondering, you know what a
subject to deal is, peter youwant to give us some details on
how do you even execute asubject to deal?
Speaker 1 (11:40):
Yeah, this was a deal , right, when the investor was
going to have had a mortgage onthis property and she needed to
move quickly from this propertyand so she was going to sell us.
We were going to buy thisproperty from her and keep her
existing financing in place, sowe are buying it subject to her
existing mortgage, right?
It's a very common way forpeople to get into a home where
(12:03):
they don't have to actuallyqualify for a new loan.
You're buying it subject tothat mortgage and you're usually
paying an additional amount ofmoney, so her mortgage is very
likely, or the mortgage ofsomeone who owns a home who's
willing to sell subject to, islikely considerably below what
the market value of that houseis.
So you're coming up either withyour own cash or with another
(12:25):
form of financing to pay thatadditional amount above the
mortgage, between the mortgagevalue and the actual market
value.
And if you're in a market wheremaybe this owner has bought very
recently and maybe that aproperty hasn't appreciated very
much since she last or he lastpurchased, well then you don't
have to come out of pocket withvery much money at all.
(12:46):
Or maybe there's some repairsthat need to be done on that
property in order to reallymaximize its value.
Well, if you buy it for alittle bit above or equal to
what that mortgage is worth andyou keep that mortgage in place,
then your sweat equity can helpincrease the actual value of
that asset.
That's really how we viewed it.
She had only bought this home ayear or so prior to when she
(13:08):
needed to sell it and it neededsome repairs in order to achieve
top market value.
So for just a small amount ofcash out of pocket, we were able
to acquire this home from her,go on title as the owners and
keep her mortgage in place.
It is an arrangement that manypeople can avail of.
Speaker 2 (13:28):
Yeah, you know, and so often sellers that are in
this position because they needto move quickly or because they
have a specific amount of moneyor cash that they need to be
able to throw down on anotherdeal they're trying to buy or
another house they're trying torelocate to, sometimes you're
able to come in and offer themnot the full amount of equity
(13:49):
but, you know, something shortof it, as you suggested, so that
when you buy the property,you've already got some built-in
equity there, and so not onlydo you have built-in equity, but
you're buying it subject to theexisting loan, so you don't
have all the closing costsinvolved with generating new
financing through a lender.
You don't have to qualify forthat financing if maybe you
can't qualify right now, but yousimply pick up the payments and
(14:11):
run while you either execute aflip strategy, like we did on
this condo, or you execute a buyand hold, if you've got some
more runway there on being ableto hold that seller's note for
longer than just a few months ormaybe a year, and so that's
what we ended up doing.
We ended up flipping this condoand so doing that with the
existing seller's mortgage inplace and providing her a few
(14:35):
thousand dollars to help heracquire what she needed on the
other side of her purchase thatshe was making as she vacated
this condo.
We went in, we did that sweatequity right.
We got in there, did therepairs, painted the place up,
cleaned the carpets, did all thestuff to put some lipstick on
the pig, as they say and it ledto a profitable flip for us, our
(14:59):
very first deal, and I think weprobably had around $10,000
invested in that deal.
I remember right by the timethat we sold it and we doubled
our money, and so it was areally good execution on a
strategy we had never donebefore.
We knew about it, right, we hadthe education, but we had to
(15:20):
pull the funds, jump in, bewilling to sweat a little bit
inside the property, take alittle bit of risk and have a
willing seller that wouldcooperate with a subject to type
deal.
But you can find those outthere and if you're lucky enough
to find one, you can end upmaking some money and having
your first split be profitable.
Speaker 1 (15:41):
Yeah, it was a great deal, it worked out well and we
profited, but it wasn't freefrom mistakes, right, and I
think that's something you'regoing to have to accept really
early on.
This seller ended up being awonderful seller and patient
with us, because this was ourfirst deal and as we went
through that, timelines gotstretched as they often do and
(16:02):
one of the things we were hopingto do is be able to flip the
property quicker than weactually did, and it took us a
few months to flip that propertyand to really unencumber this
seller's equity right, toactually pay off that mortgage
right, and so we tried to keepher well informed of what was
going on during that process andtell her that you know we're
unable to meet the initialdeadlines and fortunately she
(16:25):
was someone who knew us andtrusted us and was a friend of
us and was very patient with usthrough that process.
But that deal wasn't withoutits complications, right, and
certainly without some reallygreat lessons learned for making
sure you don't over promise,right, making sure you execute
your plan to renovate asflawlessly as you can, find a
(16:47):
seller who understand thatyou're young and this is your
first deal and you're human andthings might not go perfectly,
but you're going to do your bestto be honorable.
Through that process, we wereable to find someone who wanted
to see us succeed, right and soif you live in a small town,
you've got a lot of friends.
They're going to be cheeringyou on and cheering on your
(17:08):
success, right and so doing thisin a situation where there is a
safety net or a soft landingaround you because of people's
trust and relationship in you isall a good thing.
So on the other side of thatdeal, although we had some scars
from it and some lessonslearned, at the end of the day
we're happy.
It was our first major success.
And of course, then we wereable to roll that into more
(17:28):
deals and we rolled that intoour first duplex Right.
So really that's where we wentfrom there into some multifamily
, multifamily real estate.
But it was ugly stuff, right.
I mean it was really cheap, itwas really dirty.
I mean that was the way we weregoing to go for a while.
Speaker 2 (17:46):
Yeah, there's nothing like owning multifamily real
estate and low income areas,right?
No better way to cut your teeththan doing that.
And that's exactly what wejumped into.
We went from this nice prettysubject to flip to real sweat
equity and having to managelow-income housing in the form
(18:07):
of a duplex and multipleduplexes followed.
Right, and you know it's.
It's an area where you canoften find the best yield, and
some of the neighborhoods thatare a little less desirable to
be in, some of the lower pricedinvestment properties, may may
rear their heads in thoseneighborhoods, and boy did we
learn some real lessons there.
(18:28):
So many good things to belearned from flipping a property
, but nothing can teach you realestate lessons and investing,
like owning, buy and holdlong-term rental properties and
dealing with tenants every dayand some of the issues that come
up regarding that.
Speaker 1 (18:45):
Right.
So buying ugly houses is you'veprobably seen the billboards
around we buy ugly houses right.
When you buy something that'sugly, you can guarantee yourself
a little less competition,because a lot of people want
something sanitary and clean anda trophy property, something
they can be proud of, and manypeople are afraid of ugly homes
in bad areas.
They might be a place that youwouldn't personally live right,
(19:09):
but there is money to be madethere if you have the courage to
get in and the resourcefulnessand usually the price.
The entry level thresholds arelower right, because they're
cheap and ugly right and theyneed some serious work, and so
it might not take you as muchcash to break into this ugly
home category.
For us, that was a great placeto start because we really were
(19:31):
pretty broke.
I mean it was just us place tostart because we really were
pretty broke.
I mean it was just us Chase.
We don't come for money.
We didn't have investmentbackers.
We needed something we couldafford, and what we could afford
wasn't pretty, but it workedand we were able to once again
double our money, once againmake a little bit more on every
deal that we did and that movedus through types of product that
we were able to slowly watchthat improve.
(19:52):
But certainly one of the thingswe did was we invested a lot of
ourselves in these deals and Iremember our wives both came
over to one of our firstduplexes right and they brought
us like back in the day we werestill drinking Coke Chase.
I remember distinctly shebrought a bottle of Coke but I
was up to my elbows and I can'teven repeat what it was as we
were cleaning out this place.
Speaker 2 (20:17):
And you know, it was the last time, I think, our
wives ever volunteered to helpus rehab a house.
Oh man, there's several cleanout jobs.
I remember fondly, 10937 North23rd Street, I believe, or
10913114 North 23rd Street,right, I think that was that
first one that our wives were at, where, you know, we
encountered some things that wehadn't seen before in a living
environment.
Right, you know, it's true,about buying cheap, and I think
(20:40):
you know, back in our first lookwas 2004.
So in 2005, we're buyingduplexes and some of the, you
know, lower income neighborhoodsof Tampa still right around
$100,000 for a duplex.
I mean, can you imagine rightnow if you were 20 years removed
from that?
Right, but those prices are nowtriple or quadruple what they
(21:02):
were back then, and still thatwas a big investment in 2005 is
paying $100,000, $110,000 for aduplex.
$100,000, $110,000 for a duplex.
Now for context back then rentswere like $600 a month for a
two-bed, one-bath duplex.
And so, no matter what timeyou're in, no matter what the
prices are, you got to make thedeal work.
(21:23):
And so when you look at pricestoday versus what we're talking
about and some of this earlystuff we did back in 2005, the
numbers still had to work for usand even though we were buying
ugly houses and low incomeneighborhoods and maybe buying
them on the lower end of themarket, you know, we were still
having to make rents, yield anincome from those prices.
(21:45):
And one thing I think that wefound, or one lesson that we
learned in that, is that thestuff that we bought in the
public markets, like off MLS,right, the stuff that was
publicly listed, turned out tobe an okay deal.
But the best deals that we foundand I'm referencing, you know,
one of the properties we have isover on Annette Street, right.
That was found through an agentbut it was a distressed deal,
(22:08):
right.
We found an owner that had alife situation that predicated
him selling this property fairlyquickly and he really didn't
care about getting the mostmoney for it because he was
going to have to share it withnow, his ex-wife, right.
So that presented anopportunity for us to buy a
property below market valuewhich we turned around and sold
(22:31):
a couple of years later for areally nice profit.
I think that was our firstsix-figure profit we ever did on
one single property, and it'sbecause we bought it from a
distressed seller and we had anopportunity to do it in a way
that was a little unconventionalfrom the normal market dynamics
.
Speaker 1 (22:47):
Right.
That's a really importantlesson.
You know, almost every realopportunity will come from some
kind of distress, right?
Either the distress of theseller or the distress of the
house and the know-how to dothat.
And they don't have the time todo it and so all of a sudden
that purchase price comes waydown to allow for someone who's
(23:17):
got the ability to invest sweatequity and get it and build the
house up to the right pointagain.
Or the opportunity comes frommarketplace distress.
You have a corrective forcethat's coming down on the market
and prices are dropping and nowyou have the opportunity to buy
really low.
And in every one of thosescenarios you have people
well-meaning, risk but riskaverse people saying that is a
(23:40):
bad house or the market isreally low and this area is
never going to recover again.
And you've got that kind ofvoice not only in your head but
all around you.
And it sometimes seems thatwhen that's the case, when
everyone's saying you shouldn'tdo it, sometimes that's exactly
when you should do it.
You should buy that deal,because once you invest that
sweat equity, because the houseis worth more, once the market
(24:03):
has a chance to stabilize, itinevitably corrects and
appreciates again.
And your ability to be able tokind of stomach some of that
risk, stomach some of thatnaysaying and buy that
investment that is in adistressed state, can make all
the difference in the volume ofpayday that is ahead of you.
Speaker 2 (24:21):
Yeah.
So when we talk about startingout buying your very first
investment property, you may nothave a lot of cash.
We all know that the old adageis cash is king, because cash
enables you to buy propertiesthat are well beyond the realm
of financing.
So the super distressed stuff,right, the stuff that needs so
much repair that a bank won'tfinance it.
(24:43):
Cash also gives you the abilityto buy something quicker and
close quicker, and so somepeople that find themselves
personally in a distressedsituation, they need quick cash
and if you've got cash, you canexecute on that.
So, starting out notnecessarily maybe having enough
cash to take down an entireproperty with cash, you've got
(25:04):
to rely on that financing realm,and so your distress level on
the property side may not go asdeep as you might like like,
because you still have to getthat property approved for bank
financing, if that's the realmyou're going to go in.
But sometimes there are otheravenues that are available to
you to find funding for thesetypes of houses that are truly
(25:26):
the best deals, and those rangefrom owner financing to using
hard money, to borrowing fromfriends and family, private
money lenders that are out therethat aren't quite as hard as
the hard money guys and we'veexecuted on all of these
strategies.
We have used all kinds ofpeople's money at different
(25:47):
times to take down differentdeals, because that's what the
deal required or that's what wasin our best interest at the
time to use.
And so don't be closed off tousing some of these other
funding sources just becausethey're a little bit more
expensive, because paying a hardmoney lender three points and
12% is sometimes a really gooddeal if you're buying a property
(26:11):
for $100,000 under market value.
So just be open to usingdifferent sources of money and
know that they're out there.
And if you don't know thatthey're out there, you need to
talk to some people in networkand try and find some of those
alternative money sourcesinstead of just going to banks.
Speaker 1 (26:26):
Some of those alternative money sources
instead of just going to banks?
Right, if looking at each ofthese sources of financing and
evaluating the effects of thesesources into your deal is what
makes them good or bad.
Right, the fact that they mighthave higher interest rates and
higher costs on its own isneither good or bad, it's just a
(26:49):
fact of the deal.
So evaluate the reality thatyou're facing into the fact of
the deal, into the actual deal,and let's see if it's then good
or bad.
Right, every deal could lookreally bad with the wrong kind
of financing right, and so it'sabout just making sure you're
calculating it correctly.
Financing right, and so it'sabout just making sure you're
calculating it correctly.
(27:10):
So lots of good options.
And I really do like hard moneyas a source.
We bought many deals on hardmoney or on private equity where
we've paid a higher interestrate, but because of the fact
that it was available right away, with minimal underwriting
guidelines, it made that higherinterest rate worth it because
we were able to buy the property.
We were able to get our handson that property where we saw
(27:30):
that equity opportunity or thatincome opportunity, and had we
not access to cash right awaythrough those financing sources,
we couldn't have bought thedeal at all.
So it was really important.
Time is really an importantequation in all of that.
Speaker 2 (27:45):
Yeah, and a lot of you guys that are out there that
you know.
Follow these gurus, theseinvesting gurus, or look at
these real estate universitiesthat are out there or watch the
podcast from deeper pockets andpeople like that.
They promote this birth strategyall the time, and the birth
strategy really is a great oneto follow, where you utilize
(28:06):
multiple sources of financing.
You're going to use a little bitof your own cash, probably to
rehab the house or get it readyto rent out.
You're going to maybe use someprivate money or hard money or,
in a best case scenario, someseller financing to actually
acquire the property up frontand then, once you've got the
property stabilized, with rentalincome coming in, go to the
(28:29):
bank and then exchange thatprivate money, that hard money
rate that you have at 10, 12,even sometimes 15 percent.
Exchange it for right now, that7 percent rate that Bank of
America or First Horizon canoffer you as an investor and
therefore lower your interestcosts and lock in for the long
term.
If you've got a buy and holdstrategy, lower your interest
costs and lock in for the longterm.
If you've got a buy and holdstrategy where you've got good
(28:51):
runners in the property, yourcash flowing in and now you can
lock in some really attractivelong-term financing with a
traditional bank.
Speaker 1 (29:00):
Well, let's say you are not ready to buy your own
home just yet, entirely your owninvestment property.
There are a couple of otherthings I think are really good
options for someone getting intoinvestment real estate to give
a shot at, and one of them iswholesaling properties.
Maybe you've got the ability toresearch properties really well
and you've got your models downfor evaluation and you can
identify a good deal.
(29:20):
And if you're shrewd andresourceful and you've got the
knowledge in place, you can puta contract to purchase on a
property and let's say it's agreat deal.
You put a good contract on thatproperty and you get it at a
good purchase price.
There are lots of people whoare waiting in the wings, who
would love to buy that contractto purchase from you and who you
(29:42):
can charge an assignment fee toin order to take over your
interest in that purchaseagreement and actually close on
the house.
The role you will have playedwas you brought the deal
together.
You brought the seller of theproperty together with the
eventual end-use buyer and forthat function you get paid an
(30:02):
assignment fee.
You can negotiate that into thedeal with the buyer, with the
end-using buyer.
That is called assignment andthat's a wholesale process.
That's a function that's verycommon in the wholesale world
and anyone can do that as theyare looking to get started.
That's one great way.
Another one is a really good waythat we've used a lot starting
(30:22):
out Chase.
We partnered with some good,seasoned investors.
Find someone who you know, whoyou trust, who's doing it
already, and see if you can comealongside them and do one of
those key functions in the realestate investment life cycle.
Add some value that way, butwatch how the deal comes
together.
Let them be a type of mentorfrom you and partner for maybe a
(30:45):
little bit of equity or maybefor some sweat equity, and learn
some of what you don't know.
That way it's a great way toget into the industry.
That's one of two ways that Ilike a lot.
Speaker 2 (30:56):
Yeah, capital becomes a huge restrictor for most
people when it comes to realestate investing.
If you're starting out, maybeyou don't have a ton of capital,
but even after you buy yourfirst or second deal you may
have exhausted all of yourcapital.
And even if you're purchasingyour first home and you're going
to get an FHA loan, you're onlygoing to put 3.5% down.
(31:19):
Right now in Tampa Bay, buyingthe average price home at
$447,000 with an FHA loan, witha current rate today of 6.75%
With taxes and insurance, yourall-in payment is going to be
about $3,500 a month.
That's what that's going tocost you.
But you're also going to haveto bring the closing Between
(31:40):
your down payment and yourclosing costs almost $27,000.
$27,000 to get into a home thatway.
So that's a lot.
That's not chump change for alot of people.
That's something you've got towork towards and save so that
you can invest.
And just to throw this out thereas an aside real quick I run
into so many people that want tohave a career in real estate
(32:03):
investing that are right out ofcollege.
Real estate investing is not acareer for most people.
There's a very small segment ofpeople that can make a living
right away and have successbeing a real estate investor to
the point where they can supporttheir lifestyle.
It's called real estateinvesting because that's exactly
(32:24):
what it is.
It's an investment.
It wasn't always meant to beyour primary source of income.
It wasn't always meant to beyour primary source of income.
It wasn't always meant to bethe way that you make a living.
It was meant to use the savingsthat you want to invest from
making your living in a vehiclethat tends to outperform the
market on many levels, and soyou've got to think about real
estate investing the right wayto start.
(32:47):
To think about real estateinvesting the right way to start
.
But if you don't have all thatcash and all that capital even
to buy your own first home thatyou'll live in, there's some
other options out there thathave become very popular over
the last couple of years, andI'm not advocating for any of
them.
I don't currently participate inany of them, but they are
options and I do know peoplethat do like them and end up
achieving a decent return inthem, and there's a lot of
(33:09):
crowdsourcing and crowdfundingreal estate investment options
out there.
Some of the more reputable onesavailable to you are things
like Fundrise and Realty Mogul.
Those are two highly ratedcrowdsourced real estate
investment options out there foryou where you can get in for as
little as $100 sometimes, andso if you want more of a mutual
(33:30):
fund stock portfolio type realestate investment, maybe look
into that, because I don't knowexactly what all their fee
structures are, what kind of ROIyou can expect to get from them
, but they do come highlyreviewed and some of them
provide pretty attractivereturns on investment from what
you can see from current clientsthat they have.
(33:51):
So if you want that dripinvestment opportunity or
something that's going to be alot less cash in which you need
to actually close on an actualpiece of property, that's
definitely an option you mightwant to look into.
Speaker 1 (34:03):
Well, chase, this has been a really good practical
introduction into how to getinto your first investments.
I really like some of what wetalked about here.
If anyone who's listening tothis show wants to get into
their first real estateinvestment, it really is kind of
like an open opportunity.
Reach out to us, let us helpyou evaluate what best options
there are for you.
Your own circumstance willdictate to some degree which of
(34:26):
the strategies we've talkedabout today are going to be the
most ideal for you and, ofcourse, you'll have your own
natural inclination for one ofthese.
Let us help advise you alongthat way.
We're at Home Prop.
We're happy to be advisors toyou.
In that capacity, we're happyto help participate with you.
We're happy to come alongsideyou in a lot of the deal types
that we discussed today and openinvitation to reach out to us
(34:48):
and let us help you get intoreal estate, because we
certainly do think it's awonderful investment strategy.
Speaker 2 (34:54):
Yeah, don't forget, the single biggest creator of
wealth in the history of theUnited States is real estate.
So if you can afford to enterthe market, don't wait.
Get in now, because it will bethe single biggest builder of
wealth for you throughout yourlifetime more than likely.
Speaker 1 (35:11):
Great stuff.
Well, chase, thanks a lot.
It's been a lot of fun.
Until next time, it's Peter out.
Have a good one, guys, thankyou.
Thank you, we'll be right back.
(37:13):
Thank you you.
Hello and welcome to the Buying Tampa Bay podcast.
We're your hosts, peter Murphyand Chase Clark.
One of the most commonquestions we're asked by people
looking to get into real estateinvesting is how do I buy my
very first investment property?
Every real estate investor hasa story about their first
investment property and they runthe gambit from details that
(00:26):
just fell into their laps tohard-fought battles that almost
didn't happen.
So we're just two guys with ourown first deal story, and we've
heard lots of others, so we'regoing to share that with you
today in hopes that you'll beinspired to jump into real
estate investing yourself.
A journey of a thousand milesbegins with a single step, or at
least so they say, right, chase?
Speaker 2 (00:49):
Yeah, the battle's won by getting to the starting
line right.
So you can sit around and thinkabout it all you want.
You can speculate, but actuallyjumping in and getting a deal
underway is something that isvery hard to do for a lot of
people, but it's so rewarding inthe end.
Speaker 1 (01:05):
Yeah, and perfection is the enemy of good enough,
isn't it?
I mean, a lot of people, like,are looking to know everything
before they start, and thatcertainly wasn't our case.
I mean, I think there wasprobably a little bit of a
fool's vanity in our case.
You know where.
You're like, hey, we have anoverinflated perception, maybe,
of our own abilities and we'relike whatever we're going to do,
(01:26):
just fine, let's go ahead andget this done.
And so you jump in head first,only to discover very soon that
you have no idea what you'redoing.
But at least we started.
That was maybe.
Maybe that's our greateststrength we were actually able
to take the first step.
Speaker 2 (01:45):
Yeah, your strategy going into it and what you hope
to achieve really will dictatehow much risk you want to take
and how much money you'rewilling to invest.
And if you start small,sometimes that's to your
advantage.
But don't sit back and wait fora home run.
I think that's what so manypeople do today is they're
sitting back analyzing propertyafter property after property
and they never actually jump inbecause they're looking for a
(02:05):
home run.
And home runs are very hard tocome by and very hard to come by
on your first deal.
Speaker 1 (02:12):
Well, I remember a person, probably about 20 years
ago now, and she flew up toTampa from Miami right after the
crash of the housing market andshe was probably in her early
20s and she was dynamic andcharismatic and she was looking
to buy her first investmentproperty and she was there with
a team of mentors and advisors.
And I remember talking to herand we're like, so this is your
(02:32):
first investment property.
And they were like, yeah, it'sher first and she doesn't even
own a house yet.
And that set off some alarms inmy mind, because here was a
woman getting ready to jumpright into investment real
estate and she didn't even ownher own house and I thought that
maybe that was putting the cartbefore the horse a little bit.
Owning your own house alwaysseems to me to be the easiest
(02:53):
way to get into real estateinvesting.
Speaker 2 (02:56):
Yeah, you know that's the advice that we pitch to
everyone.
I think that starts out is makeyour first investment the house
that you live in.
Buy a house for yourself.
There are so many reasons forthat.
Again, by you living there, therisk is much lower, Financing
options are much better and youlearn a whole lot about what it
(03:17):
takes to operate a piece of realestate once you own it and live
in it and have to take care ofit.
Speaker 1 (03:24):
Right.
So, yes, the lessons you learnas a homeowner, I mean, are just
rich.
I remember the first time Ibought a house and, like within
a week or two, I was doingplumbing right.
I mean I was replacing the gutsof my own toilet, I was
figuring out what was going onwith my thermostat, which wasn't
working.
I mean you go through a processof buying a house and you get
inspections and you're kickingthe tires and you think
(03:44):
everything's going to be fine.
But the minute you move intothat house and start using it, I
mean no matter how manyinspections you've got,
something is going to go wrongand you have no extra money to
fix it, to get someone else tofix it for you.
You're figuring that outyourself.
And what tremendous school thatis right.
So you're learning plumbing,you're learning electrical,
(04:09):
you're learning air conditioning, you're learning all about how
to replace small things likedoors that are broken or windows
or closet doors that come offthe rails, and that sounds to me
like everything that goes wrongwith an investment property.
Speaker 2 (04:19):
Yeah, and sometimes there's some stuff that happens
that you can't fix right.
It's well over your head andyou've got to call a vendor, and
it's also a great opportunityduring that time that you live
in the house to develop aRolodex of vendors that can be
on your investment team when youactually need to get something
done for a tenant.
So, beyond all thatexperiential learning that
(04:40):
happens when you live in yourown home, there's the ability to
expand your sphere of influence, expand your vendor list and
learn all those kinds of thingsthat are necessary things to
know in great detail if you'regoing to know how a property
operates and therefore how tohandle tenants that are living
there when you're not livingthere yourself.
Speaker 1 (05:00):
Right.
I remember shortly after Ibought a home I had to make an
air conditioning call.
And so the vendor comes out tomy house and I know I'm getting
ready to pay some money for this.
So I say I'm going to pay themoney for it, I'm going to call
it my own education, right?
And so I sat beside that airconditioning vendor.
I stood beside him and watchedhim as he stuck a hose inside of
his drain line and drove thatair conditioning crud out of
(05:24):
that condensation drain line.
And you know that cloggedcondensation drain lines account
for probably 90% of our airconditioning calls every summer.
And the fact that I was able tosit and watch an air
conditioning vendor do that andlearn how that was done it
probably has added all kinds ofmoney to my bottom line.
(05:45):
Because I watched, because Itook that lesson seriously.
I paid for my own school, butI've never had to pay for that
again.
Speaker 2 (05:53):
Yeah, that's right.
There's so many opportunitieswith things like that.
The majority of people I runinto they never even contemplate
the idea that they will beengaged in their own maintenance
.
They've always thought this isa phone call that I make.
You know, I'm not going to takethe lid off my toilet and
investigate how to change thevalve Right.
I'm not going to change theflapper.
(06:15):
I'm not going to consider whymy toilet might even be clogged
and how to use a plungereffectively.
You know all those kinds ofthings that you learn, even
learning that every P-trap in aplumbing system clogs up with
something over time and requiresroutine maintenance.
So many different lessons canbe learned and they all save you
(06:36):
a ton of money and a ton oftime down the road, which is
only going to increase your ROIwhen you're in an investment
scenario.
Speaker 1 (06:45):
Yeah, and none of that sounds like glamorous stuff
to me.
But if you're looking to getinto real estate, the deal is
clean and heady and intellectualon paper and that feels really
good to do that.
But when push comes to shove,you must roll up your sleeves
and get your hands dirtysometimes, at the very least, so
you know what you're talkingabout.
When a renter calls you, whenanother investor calls you, and
(07:08):
you can uh, you can actuallywalk them through a process to
save you some money.
So all of that is very, veryimportant now.
So buying your own home iscritical and you do that right.
And because when you buy yourown home, financing is just
cheaper, so it's easier to getinto the investment game when
that first investment propertyis an owner-occupied house.
Speaker 2 (07:29):
Yeah, a lot of people don't understand the ins and
outs of financing, which is onething that you need to explore
pretty in-depth or get a trustedadvisor in that realm to help
you understand better before youstart buying properties.
But banks view owner occupantsas less risky than tenant
occupants in a home, and so theinterest rate is going to be
(07:51):
lower typically for you to buy ahome that you're going to live
in and interest being asignificant cost to you every
month that's affecting your ROI,is something that you need to
take into consideration whenlooking at the different options
for financing.
But being able to buy the homeinitially upfront and lock in a
30-year fixed rate at anowner-occupant rate will only
(08:14):
serve you better down the roadas you decide to vacate that
home in lieu of putting tenantsin Right.
Speaker 1 (08:21):
And this is a long game we're talking about here
Getting into real estate unlessyou have a ton of cash, you're
going to have to do this overthe course of time, and so you
think about it this way I'mbuying myself a home that I'm
going to live in, and I'm goingto live in it at least two years
right, Because I must in orderto forego certain tax
implications right, that mightbe involved in a future transfer
(08:44):
.
Tax implications right, thatmight be involved in a future
transfer.
And so you're going to live init for a while while you recoup
the sunk costs you put intoclosing costs, and then you're
going to buy, potentially, asecond home, but it's going to
be a few years before you dothat, right.
And while you're living in thathome and it's your own home and
you've got that great rate offinancing on there then you turn
that into a rental property.
You don't need to.
That great rate of financing onthere.
Then you turn that into arental property.
(09:04):
You don't need to.
That same rate of financing,which was so attractive at
purchase, is going to carryforward with that mortgage,
right.
And that's something you justcould not have gotten had you
bought this first and foremostas an investment property.
So the economics of that ifyou're going to make it into a
rental are just going to bedramatically better.
If you're talking about beingable to convert a home from
(09:26):
owner occupancy use intoinvestor use, it's definitely a
great way to buy your firstlong-term investment property,
even though you're going to beliving in it for a while.
First.
Speaker 2 (09:39):
Yeah, that's right, and if you're fortunate enough
to have this as your strategygoing in, you're going to want
to consider what home you buy tolive in with a view toward
renting it out one day.
You know, some homes aredesigned better for tenants than
others, and some things thatappeal to you personally won't
broadly appeal to the rentermarket, and so those are some
(10:00):
things that you want to considerif you are going to buy a home
to live in for several yearsmaybe even longer but then
eventually turn it into a rentalproperty, because you're going
to want something that's goingto have mass appeal to the
largest group of tenantspossible and thereby be able to
get you the highest market ratefor that property that you can
achieve on the open market.
Speaker 1 (10:21):
Great.
So just think about that firstpurchase.
You make the right way, thinkabout it like an investor right,
and not just an owner occupant,and you will be able to have
that flexibility to turn it intothe investment.
But for a lot of people, theywant to think about their future
investments, you know, beyondbuying their own home.
And so, well, that's where Isuppose we have our first real
investment property story, right, because, well, we own our own
(10:43):
homes, but shortly after owningour own home, we then wanted to
get more deeply and more broadlyinto investment real estate,
and so, in our case, we had acondo.
That actually was our veryfirst investment property.
Chase, tell them the details ofthe story, because it's a funny
one, an interesting one, onewhere we learned lots of lessons
, but it's also one thatprobably a lot of other, a lot
of people could do if theywanted a first investment
(11:05):
strategy.
Speaker 2 (11:07):
Yeah, you know, I think actually the seller on
this deal was one of yourpersonal connections in some way
, peter.
You know that you found out, Ithink, that they were looking to
sell their home and we'rehaving some issues doing it, and
they needed to get it done in arelatively short period of time
, and so we engaged that sellerand proposed to them that we do
(11:30):
a subject to deal.
And so, for those of youwondering, you know what a
subject to deal is, peter youwant to give us some details on
how do you even execute asubject to deal?
Speaker 1 (11:40):
Yeah, this was a deal , right, when the investor was
going to have had a mortgage onthis property and she needed to
move quickly from this propertyand so she was going to sell us.
We were going to buy thisproperty from her and keep her
existing financing in place, sowe are buying it subject to her
existing mortgage, right?
It's a very common way forpeople to get into a home where
(12:03):
they don't have to actuallyqualify for a new loan.
You're buying it subject tothat mortgage and you're usually
paying an additional amount ofmoney, so her mortgage is very
likely, or the mortgage ofsomeone who owns a home who's
willing to sell subject to, islikely considerably below what
the market value of that houseis.
So you're coming up either withyour own cash or with another
(12:25):
form of financing to pay thatadditional amount above the
mortgage, between the mortgagevalue and the actual market
value.
And if you're in a market wheremaybe this owner has bought very
recently and maybe that aproperty hasn't appreciated very
much since she last or he lastpurchased, well then you don't
have to come out of pocket withvery much money at all.
(12:46):
Or maybe there's some repairsthat need to be done on that
property in order to reallymaximize its value.
Well, if you buy it for alittle bit above or equal to
what that mortgage is worth andyou keep that mortgage in place,
then your sweat equity can helpincrease the actual value of
that asset.
That's really how we viewed it.
She had only bought this home ayear or so prior to when she
(13:08):
needed to sell it and it neededsome repairs in order to achieve
top market value.
So for just a small amount ofcash out of pocket, we were able
to acquire this home from her,go on title as the owners and
keep her mortgage in place.
It is an arrangement that manypeople can avail of.
Speaker 2 (13:28):
Yeah, you know, and so often sellers that are in
this position because they needto move quickly or because they
have a specific amount of moneyor cash that they need to be
able to throw down on anotherdeal they're trying to buy or
another house they're trying torelocate to, sometimes you're
able to come in and offer themnot the full amount of equity
(13:49):
but, you know, something shortof it, as you suggested, so that
when you buy the property,you've already got some built-in
equity there, and so not onlydo you have built-in equity, but
you're buying it subject to theexisting loan, so you don't
have all the closing costsinvolved with generating new
financing through a lender.
You don't have to qualify forthat financing if maybe you
can't qualify right now, but yousimply pick up the payments and
(14:11):
run while you either execute aflip strategy, like we did on
this condo, or you execute a buyand hold, if you've got some
more runway there on being ableto hold that seller's note for
longer than just a few months ormaybe a year, and so that's
what we ended up doing.
We ended up flipping this condoand so doing that with the
existing seller's mortgage inplace and providing her a few
(14:35):
thousand dollars to help heracquire what she needed on the
other side of her purchase thatshe was making as she vacated
this condo.
We went in, we did that sweatequity right.
We got in there, did therepairs, painted the place up,
cleaned the carpets, did all thestuff to put some lipstick on
the pig, as they say and it ledto a profitable flip for us, our
(14:59):
very first deal, and I think weprobably had around $10,000
invested in that deal.
I remember right by the timethat we sold it and we doubled
our money, and so it was areally good execution on a
strategy we had never donebefore.
We knew about it, right, we hadthe education, but we had to
(15:20):
pull the funds, jump in, bewilling to sweat a little bit
inside the property, take alittle bit of risk and have a
willing seller that wouldcooperate with a subject to type
deal.
But you can find those outthere and if you're lucky enough
to find one, you can end upmaking some money and having
your first split be profitable.
Speaker 1 (15:41):
Yeah, it was a great deal, it worked out well and we
profited, but it wasn't freefrom mistakes, right, and I
think that's something you'regoing to have to accept really
early on.
This seller ended up being awonderful seller and patient
with us, because this was ourfirst deal and as we went
through that, timelines gotstretched as they often do and
(16:02):
one of the things we were hopingto do is be able to flip the
property quicker than weactually did, and it took us a
few months to flip that propertyand to really unencumber this
seller's equity right, toactually pay off that mortgage
right, and so we tried to keepher well informed of what was
going on during that process andtell her that you know we're
unable to meet the initialdeadlines and fortunately she
(16:25):
was someone who knew us andtrusted us and was a friend of
us and was very patient with usthrough that process.
But that deal wasn't withoutits complications, right, and
certainly without some reallygreat lessons learned for making
sure you don't over promise,right, making sure you execute
your plan to renovate asflawlessly as you can, find a
(16:47):
seller who understand thatyou're young and this is your
first deal and you're human andthings might not go perfectly,
but you're going to do your bestto be honorable.
Through that process, we wereable to find someone who wanted
to see us succeed, right and soif you live in a small town,
you've got a lot of friends.
They're going to be cheeringyou on and cheering on your
(17:08):
success, right and so doing thisin a situation where there is a
safety net or a soft landingaround you because of people's
trust and relationship in you isall a good thing.
So on the other side of thatdeal, although we had some scars
from it and some lessonslearned, at the end of the day
we're happy.
It was our first major success.
And of course, then we wereable to roll that into more
(17:28):
deals and we rolled that intoour first duplex Right.
So really that's where we wentfrom there into some multifamily
, multifamily real estate.
But it was ugly stuff, right.
I mean it was really cheap, itwas really dirty.
I mean that was the way we weregoing to go for a while.
Speaker 2 (17:46):
Yeah, there's nothing like owning multifamily real
estate and low income areas,right?
No better way to cut your teeththan doing that.
And that's exactly what wejumped into.
We went from this nice prettysubject to flip to real sweat
equity and having to managelow-income housing in the form
(18:07):
of a duplex and multipleduplexes followed.
Right, and you know it's.
It's an area where you canoften find the best yield, and
some of the neighborhoods thatare a little less desirable to
be in, some of the lower pricedinvestment properties, may may
rear their heads in thoseneighborhoods, and boy did we
learn some real lessons there.
(18:28):
So many good things to belearned from flipping a property
, but nothing can teach you realestate lessons and investing,
like owning, buy and holdlong-term rental properties and
dealing with tenants every dayand some of the issues that come
up regarding that.
Speaker 1 (18:45):
Right.
So buying ugly houses is you'veprobably seen the billboards
around we buy ugly houses right.
When you buy something that'sugly, you can guarantee yourself
a little less competition,because a lot of people want
something sanitary and clean anda trophy property, something
they can be proud of, and manypeople are afraid of ugly homes
in bad areas.
They might be a place that youwouldn't personally live right,
(19:09):
but there is money to be madethere if you have the courage to
get in and the resourcefulnessand usually the price.
The entry level thresholds arelower right, because they're
cheap and ugly right and theyneed some serious work, and so
it might not take you as muchcash to break into this ugly
home category.
For us, that was a great placeto start because we really were
(19:31):
pretty broke.
I mean it was just us place tostart because we really were
pretty broke.
I mean it was just us Chase.
We don't come for money.
We didn't have investmentbackers.
We needed something we couldafford, and what we could afford
wasn't pretty, but it workedand we were able to once again
double our money, once againmake a little bit more on every
deal that we did and that movedus through types of product that
we were able to slowly watchthat improve.
(19:52):
But certainly one of the thingswe did was we invested a lot of
ourselves in these deals and Iremember our wives both came
over to one of our firstduplexes right and they brought
us like back in the day we werestill drinking Coke Chase.
I remember distinctly shebrought a bottle of Coke but I
was up to my elbows and I can'teven repeat what it was as we
were cleaning out this place.
Speaker 2 (20:17):
And you know, it was the last time, I think, our
wives ever volunteered to helpus rehab a house.
Oh man, there's several cleanout jobs.
I remember fondly, 10937 North23rd Street, I believe, or
10913114 North 23rd Street,right, I think that was that
first one that our wives were at, where, you know, we
encountered some things that wehadn't seen before in a living
environment.
Right, you know, it's true,about buying cheap, and I think
(20:40):
you know, back in our first lookwas 2004.
So in 2005, we're buyingduplexes and some of the, you
know, lower income neighborhoodsof Tampa still right around
$100,000 for a duplex.
I mean, can you imagine rightnow if you were 20 years removed
from that?
Right, but those prices are nowtriple or quadruple what they
(21:02):
were back then, and still thatwas a big investment in 2005 is
paying $100,000, $110,000 for aduplex.
$100,000, $110,000 for a duplex.
Now for context back then rentswere like $600 a month for a
two-bed, one-bath duplex.
And so, no matter what timeyou're in, no matter what the
prices are, you got to make thedeal work.
(21:23):
And so when you look at pricestoday versus what we're talking
about and some of this earlystuff we did back in 2005, the
numbers still had to work for usand even though we were buying
ugly houses and low incomeneighborhoods and maybe buying
them on the lower end of themarket, you know, we were still
having to make rents, yield anincome from those prices.
(21:45):
And one thing I think that wefound, or one lesson that we
learned in that, is that thestuff that we bought in the
public markets, like off MLS,right, the stuff that was
publicly listed, turned out tobe an okay deal.
But the best deals that we foundand I'm referencing, you know,
one of the properties we have isover on Annette Street, right.
That was found through an agentbut it was a distressed deal,
(22:08):
right.
We found an owner that had alife situation that predicated
him selling this property fairlyquickly and he really didn't
care about getting the mostmoney for it because he was
going to have to share it withnow, his ex-wife, right.
So that presented anopportunity for us to buy a
property below market valuewhich we turned around and sold
(22:31):
a couple of years later for areally nice profit.
I think that was our firstsix-figure profit we ever did on
one single property, and it'sbecause we bought it from a
distressed seller and we had anopportunity to do it in a way
that was a little unconventionalfrom the normal market dynamics
.
Speaker 1 (22:47):
Right.
That's a really importantlesson.
You know, almost every realopportunity will come from some
kind of distress, right?
Either the distress of theseller or the distress of the
house and the know-how to dothat.
And they don't have the time todo it and so all of a sudden
that purchase price comes waydown to allow for someone who's
(23:17):
got the ability to invest sweatequity and get it and build the
house up to the right pointagain.
Or the opportunity comes frommarketplace distress.
You have a corrective forcethat's coming down on the market
and prices are dropping and nowyou have the opportunity to buy
really low.
And in every one of thosescenarios you have people
well-meaning, risk but riskaverse people saying that is a
(23:40):
bad house or the market isreally low and this area is
never going to recover again.
And you've got that kind ofvoice not only in your head but
all around you.
And it sometimes seems thatwhen that's the case, when
everyone's saying you shouldn'tdo it, sometimes that's exactly
when you should do it.
You should buy that deal,because once you invest that
sweat equity, because the houseis worth more, once the market
(24:03):
has a chance to stabilize, itinevitably corrects and
appreciates again.
And your ability to be able tokind of stomach some of that
risk, stomach some of thatnaysaying and buy that
investment that is in adistressed state, can make all
the difference in the volume ofpayday that is ahead of you.
Speaker 2 (24:21):
Yeah.
So when we talk about startingout buying your very first
investment property, you may nothave a lot of cash.
We all know that the old adageis cash is king, because cash
enables you to buy propertiesthat are well beyond the realm
of financing.
So the super distressed stuff,right, the stuff that needs so
much repair that a bank won'tfinance it.
(24:43):
Cash also gives you the abilityto buy something quicker and
close quicker, and so somepeople that find themselves
personally in a distressedsituation, they need quick cash
and if you've got cash, you canexecute on that.
So, starting out notnecessarily maybe having enough
cash to take down an entireproperty with cash, you've got
(25:04):
to rely on that financing realm,and so your distress level on
the property side may not go asdeep as you might like like,
because you still have to getthat property approved for bank
financing, if that's the realmyou're going to go in.
But sometimes there are otheravenues that are available to
you to find funding for thesetypes of houses that are truly
(25:26):
the best deals, and those rangefrom owner financing to using
hard money, to borrowing fromfriends and family, private
money lenders that are out therethat aren't quite as hard as
the hard money guys and we'veexecuted on all of these
strategies.
We have used all kinds ofpeople's money at different
(25:47):
times to take down differentdeals, because that's what the
deal required or that's what wasin our best interest at the
time to use.
And so don't be closed off tousing some of these other
funding sources just becausethey're a little bit more
expensive, because paying a hardmoney lender three points and
12% is sometimes a really gooddeal if you're buying a property
(26:11):
for $100,000 under market value.
So just be open to usingdifferent sources of money and
know that they're out there.
And if you don't know thatthey're out there, you need to
talk to some people in networkand try and find some of those
alternative money sourcesinstead of just going to banks.
Speaker 1 (26:26):
Some of those alternative money sources
instead of just going to banks?
Right, if looking at each ofthese sources of financing and
evaluating the effects of thesesources into your deal is what
makes them good or bad.
Right, the fact that they mighthave higher interest rates and
higher costs on its own isneither good or bad, it's just a
(26:49):
fact of the deal.
So evaluate the reality thatyou're facing into the fact of
the deal, into the actual deal,and let's see if it's then good
or bad.
Right, every deal could lookreally bad with the wrong kind
of financing right, and so it'sabout just making sure you're
calculating it correctly.
Financing right, and so it'sabout just making sure you're
calculating it correctly.
(27:10):
So lots of good options.
And I really do like hard moneyas a source.
We bought many deals on hardmoney or on private equity where
we've paid a higher interestrate, but because of the fact
that it was available right away, with minimal underwriting
guidelines, it made that higherinterest rate worth it because
we were able to buy the property.
We were able to get our handson that property where we saw
(27:30):
that equity opportunity or thatincome opportunity, and had we
not access to cash right awaythrough those financing sources,
we couldn't have bought thedeal at all.
So it was really important.
Time is really an importantequation in all of that.
Speaker 2 (27:45):
Yeah, and a lot of you guys that are out there that
you know.
Follow these gurus, theseinvesting gurus, or look at
these real estate universitiesthat are out there or watch the
podcast from deeper pockets andpeople like that.
They promote this birth strategyall the time, and the birth
strategy really is a great oneto follow, where you utilize
(28:06):
multiple sources of financing.
You're going to use a little bitof your own cash, probably to
rehab the house or get it readyto rent out.
You're going to maybe use someprivate money or hard money or,
in a best case scenario, someseller financing to actually
acquire the property up frontand then, once you've got the
property stabilized, with rentalincome coming in, go to the
(28:29):
bank and then exchange thatprivate money, that hard money
rate that you have at 10, 12,even sometimes 15 percent.
Exchange it for right now, that7 percent rate that Bank of
America or First Horizon canoffer you as an investor and
therefore lower your interestcosts and lock in for the long
term.
If you've got a buy and holdstrategy, lower your interest
costs and lock in for the longterm.
If you've got a buy and holdstrategy where you've got good
(28:51):
runners in the property, yourcash flowing in and now you can
lock in some really attractivelong-term financing with a
traditional bank.
Speaker 1 (29:00):
Well, let's say you are not ready to buy your own
home just yet, entirely your owninvestment property.
There are a couple of otherthings I think are really good
options for someone getting intoinvestment real estate to give
a shot at, and one of them iswholesaling properties.
Maybe you've got the ability toresearch properties really well
and you've got your models downfor evaluation and you can
identify a good deal.
(29:20):
And if you're shrewd andresourceful and you've got the
knowledge in place, you can puta contract to purchase on a
property and let's say it's agreat deal.
You put a good contract on thatproperty and you get it at a
good purchase price.
There are lots of people whoare waiting in the wings, who
would love to buy that contractto purchase from you and who you
(29:42):
can charge an assignment fee toin order to take over your
interest in that purchaseagreement and actually close on
the house.
The role you will have playedwas you brought the deal
together.
You brought the seller of theproperty together with the
eventual end-use buyer and forthat function you get paid an
(30:02):
assignment fee.
You can negotiate that into thedeal with the buyer, with the
end-using buyer.
That is called assignment andthat's a wholesale process.
That's a function that's verycommon in the wholesale world
and anyone can do that as theyare looking to get started.
That's one great way.
Another one is a really good waythat we've used a lot starting
(30:22):
out Chase.
We partnered with some good,seasoned investors.
Find someone who you know, whoyou trust, who's doing it
already, and see if you can comealongside them and do one of
those key functions in the realestate investment life cycle.
Add some value that way, butwatch how the deal comes
together.
Let them be a type of mentorfrom you and partner for maybe a
(30:45):
little bit of equity or maybefor some sweat equity, and learn
some of what you don't know.
That way it's a great way toget into the industry.
That's one of two ways that Ilike a lot.
Speaker 2 (30:56):
Yeah, capital becomes a huge restrictor for most
people when it comes to realestate investing.
If you're starting out, maybeyou don't have a ton of capital,
but even after you buy yourfirst or second deal you may
have exhausted all of yourcapital.
And even if you're purchasingyour first home and you're going
to get an FHA loan, you're onlygoing to put 3.5% down.
(31:19):
Right now in Tampa Bay, buyingthe average price home at
$447,000 with an FHA loan, witha current rate today of 6.75%
With taxes and insurance, yourall-in payment is going to be
about $3,500 a month.
That's what that's going tocost you.
But you're also going to haveto bring the closing Between
(31:40):
your down payment and yourclosing costs almost $27,000.
$27,000 to get into a home thatway.
So that's a lot.
That's not chump change for alot of people.
That's something you've got towork towards and save so that
you can invest.
And just to throw this out thereas an aside real quick I run
into so many people that want tohave a career in real estate
(32:03):
investing that are right out ofcollege.
Real estate investing is not acareer for most people.
There's a very small segment ofpeople that can make a living
right away and have successbeing a real estate investor to
the point where they can supporttheir lifestyle.
It's called real estateinvesting because that's exactly
(32:24):
what it is.
It's an investment.
It wasn't always meant to beyour primary source of income.
It wasn't always meant to beyour primary source of income.
It wasn't always meant to bethe way that you make a living.
It was meant to use the savingsthat you want to invest from
making your living in a vehiclethat tends to outperform the
market on many levels, and soyou've got to think about real
estate investing the right wayto start.
(32:47):
To think about real estateinvesting the right way to start
.
But if you don't have all thatcash and all that capital even
to buy your own first home thatyou'll live in, there's some
other options out there thathave become very popular over
the last couple of years, andI'm not advocating for any of
them.
I don't currently participate inany of them, but they are
options and I do know peoplethat do like them and end up
achieving a decent return inthem, and there's a lot of
(33:09):
crowdsourcing and crowdfundingreal estate investment options
out there.
Some of the more reputable onesavailable to you are things
like Fundrise and Realty Mogul.
Those are two highly ratedcrowdsourced real estate
investment options out there foryou where you can get in for as
little as $100 sometimes, andso if you want more of a mutual
(33:30):
fund stock portfolio type realestate investment, maybe look
into that, because I don't knowexactly what all their fee
structures are, what kind of ROIyou can expect to get from them
, but they do come highlyreviewed and some of them
provide pretty attractivereturns on investment from what
you can see from current clientsthat they have.
(33:51):
So if you want that dripinvestment opportunity or
something that's going to be alot less cash in which you need
to actually close on an actualpiece of property, that's
definitely an option you mightwant to look into.
Speaker 1 (34:03):
Well, chase, this has been a really good practical
introduction into how to getinto your first investments.
I really like some of what wetalked about here.
If anyone who's listening tothis show wants to get into
their first real estateinvestment, it really is kind of
like an open opportunity.
Reach out to us, let us helpyou evaluate what best options
there are for you.
Your own circumstance willdictate to some degree which of
(34:26):
the strategies we've talkedabout today are going to be the
most ideal for you and, ofcourse, you'll have your own
natural inclination for one ofthese.
Let us help advise you alongthat way.
We're at Home Prop.
We're happy to be advisors toyou.
In that capacity, we're happyto help participate with you.
We're happy to come alongsideyou in a lot of the deal types
that we discussed today and openinvitation to reach out to us
(34:48):
and let us help you get intoreal estate, because we
certainly do think it's awonderful investment strategy.
Speaker 2 (34:54):
Yeah, don't forget, the single biggest creator of
wealth in the history of theUnited States is real estate.
So if you can afford to enterthe market, don't wait.
Get in now, because it will bethe single biggest builder of
wealth for you throughout yourlifetime more than likely.
Speaker 1 (35:11):
Great stuff.
Well, chase, thanks a lot.
It's been a lot of fun.
Until next time, it's Peter out.
Have a good one, guys, thankyou.
Thank you, we'll be right back.
(37:13):
Thank you you.
Popular Podcasts
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.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.