Hey everyone, it’s Mark Ferguson with InvestFourMore. Welcome to another episode of the InvestFourMore Real Estate Podcast. Today, we’re doing a little different style of podcast. In the past, I’ve talked about my own investing, different strategies and some solo sessions and I’ve also interviewed a lot of experienced investors, lenders, wholesalers, turnkey rental operation companies.
Today and going into the future, I’m going to mix in some of these podcast where I’m talking to investor who is either just starting out or maybe they’ve got a few properties but they’re not at that super experienced level and I thought this would be a cool concept to see what challenges that investors are running into, how we can help them, what their goals are and then maybe touch back in a few months or a year, who knows? And see how they’ve done.
Today, Dennys Passeto is on the show, he has a couple of rental properties, he’s flipped a house and he’s got another property under contract right now. So he’s definitely done some investing. He’s doing all this while he’s working full time and he’s also some of my coaching programs as well which is really cool. So I know Dennis well, we talk every week and it’s been really cool kind of seeing his progression, seeing him expand his investing and buy some properties.
So Dennys, thank you so much for being on the show, how are you?
I’m great Mark, thank you for having me on.
Yup, great. I really appreciate, I know you don’t do this often so I appreciate you being on the podcast. What I always like to start with my other guests and with this show as well is just, what first got you interested in real estate investing? What sparked your interest in the very beginning?
Gosh, this goes back a long ways. I was still a teenager and I was working at a gym as a lifeguard and in an indoor pool. A buddy of mine, a guy who I became friends with who was one of the personal trainers in the gym was going through a divorce, he was a little bit older guy, about 10 years older and he and I would always speak. He started telling me about real estate, about how powerful it was and how he was saving up money to buy a foreclosure and he told me he’d bought I think it was a Carlton Sheets infomercial VHS tape set.
This is around like 1998 and I got really stoked on it. He got me very excited about real estate, told me basically how you buy a house that’s in foreclosure, you would fix it up and you’d have instant equity and all that sounded really good to me because I was getting near that point of moving out of my parent’s house. I had a couple of thousand dollar saved up and he even told me about FHA and VA loans and I think I actually used a VA loan for my first property.
Fast forward a couple of months, one day I opened up the phone book, I had I think about $10,000 saved up., I think I was 20 years old. I just closed my eyes, I opened it to the real estate section, closed my eyes and pointed and I got a number and a name, I called him, the guy called me back the next day and said, “Yeah, I could definitely help you find a house of foreclosure.” We started looking and found this really disgusting house. Again, I’m 20 years old and my buddy is going with me, he is basically my mentor at that time.
People are walking out of the house because it smells so bad, there’s urine and I think one of the neighbors said they had 20 dogs, cats, birds, everything in that house and I think it all went to the bathroom on the carpet. Lo and behold, I got the house, I paid I think $60,000 for it. They were asking $65, I offered $60 and I got it for $60. I think market value at the time was like $97,000. I knew I was walking into equity.
I took like a week off a work, I put maybe somewhere between five and 10 grand into it just to make it livable, paint, carpet, appliances and left a few things with you later. I moved in — so I had a mortgage and I moved in two roommates because it was a back to back town house, so I had the whole top floor to myself with master suite and bathroom. I moved in two roommates underneath in the middle floor, one was paying me $400, another one was paying me $350. So my mortgage being only $650, I was house hacking and I didn’t even know it. I was living for free in my own house.
That was how the love of real estate began and it kind of snow balled form there. The plan was get one, get it to where it’s all fixed up, rent it out, move on to the next one, I was going to do the owner occupant thing and kind of keep moving from house to house. Some things happened in my life that kind of made me take a few years off of real estate but that’s where the love of it really began when I saw how powerful it was, here I was, 20, 21 years old living for free, owning my own property and I never lost the bug for it. I took some time off but I’ve always had the bug for it.
That’s awesome and yeah, you were house hacking before that term existed.
Yeah, I love that.
Fast forward, like you said, you kind of got out of the game for a while but then came back, how did you get back involved into it and you were working a full time job not related to real estate, how did you get back into the game?
Yeah, so in the past couple of years, I’ve noticed — I put my head down for probably the last 10 years working for a great company and worked for a really close friend of mine, one of my best friends. I began to kind of lose interest in the day job, to kind of lose my passion for it and I couldn’t figure out why. Actually took me a long time to pinpoint why.
I had been going through a little bit of a depression, figuring out, “What am I doing, what is this next stage of my life? What am I going to be doing?” And I started reading some books on the subject, I think I guess I could say I was going through a mini midlife crisis and I was asking myself, “What am I really passionate about? What do I want to do that I’ve always kind of put off doing for one reason or another?” And what kept coming up for me was real estate
I thought, “I don’t want to necessarily be a real estate agent,” and somehow I decided that I would just, instead of being an agent, go back to kind of looking more into, “How can I make money doing this, right?” I knew people were making money as investors. I decided to actually order some books on it. I went to Amazon and I got Gary Keller’s, The Millionaire Real Estate Investor
. That book just blew my mind, it just — I realized, “This is exactly what I need to be doing, this is exactly what the next phase of my life needs to be.”
So I read that book cover to cover and then I started ordering the next one. I think I ordered the next one in the series that was called Flip
and I started to look for properties and I had and agent, I have an agent who was helping me find deals but he’s really only looking on the MLS, he’s not looking for anything off market and I kind of had to take it upon myself to figure out, how do I, where do I find these deals?
Finally was able to dig up where the local courthouse auctions were. I decided, “All right, well let me go see what this is like.” I just went there not with the intent of bidding but with the intent of learning and watching the bids, watching how it takes place and I went there on my first one and I had the list of the houses that were going to be auctioned off and I’m basically just jotting down what the starting price was, what the deposit required was and what the final price was that was agreed to.
So I wrote all those down and I came home and I started looking at them up on Zillow and I saw that, “Wow, these guys are getting all this houses for about 30% of market value.” So I go, “Well I know not to trust Zillow 100%,” so I fired them off to my agent and I said, “Hey, can you confirm that these comps are correct on this properties?” He said, “They sure are,” it was like boom, light bulb went off my head like, “This is where I’m going to find a deal.” For the next several auctions, I went and I watched and then I saw some properties that I was interested in and I knew I was getting into risky territory. I didn’t even know everything that I know today about buying an auction but I just knew I had to start somewhere.
Sure enough, I go to a couple of auctions, the houses that I’m interested in, they get pulled off at the last minute so I go back home with my certified check in my hand still and but finally, one came up and I jumped on it, I knew the neighborhood, it’s the same neighborhood where I have a rental, which was my previous residence that I just turned into a rental. So I knew the neighborhood, I knew the association, I felt like I had a really good feel for that house. I just did it. I won the house and that was going to be my first flip
That’s awesome. I have a few question, I know you’re in Maryland, so what does a foreclosure process like for buying from the trustee there? Because it’s different everywhere, and you said you have to have a certified check for the full amount with you, correct?
No, so here what they do is they announce what the deposit is. A deposit tends to be like 10% of whatever the original balance was on the mortgage, that’s kind of what I can tell from it. You basically put down this 10% deposit, they tell you what the amount was so on that particular house for me, it was $15,000. So you show up with a check for that and then, you have to wait two to three months until the courts ratify the contract.
Basically, they’re holding on to your $15,000, or mine in that case, and I had to wait two or three months until they ratify it and then once it’s ratified, they say, you have 10 days to go to closing and you must bring all cash and you basically can’t get a loan so I had to pay cash for the property. So I just had to bring the remainder to closing on that day of closing on the house. So I did get it, I went to closing but it was completely different, I was walking through this by myself, I didn’t have my agent, I had started going to some local meetings so I had met a real estate lawyer who basically took care of the transaction for me and it was great. Now I actually owned it.
That’s awesome. It’s pretty much, every state has different laws on the trustee sale or foreclosure sale. In Colorado, you buy the houses on Wednesday morning at 10 if you’re the winning bidder, you’ve got two hours to bring your money in cash there to buy it and then basically there’s a 10 day redemption period for junior lean holders and after that, the house is yours. Completely different process.
Yeah, totally different, I wish it was like that here because one, they actually won’t even let you bid on the property. When you put your hand up to bid, they make you show your check to make sure you have the funds available if you win that house for the deposit. So everybody standing around with the whole, you know, and there’s guys who just pull out just wads of, like it’s monopoly money, of cashier’s checks.
Then we have to wait two or three months where yeah, if it was only 10 days, I would love that because here you might wait the two or three months for them to ratify the contract and if there’s a tenant in the house, you then can start the eviction process. It could be six months before you are actually in the house, which it ties up a lot of cash.
Right, having done this for your first time, what were some of the biggest surprises going through the process? I know there is some fees and different things that came up that you weren’t expecting in the beginning. Walk us through that.
Man, yeah, I read in all the books, you know, how to — your maximum offer calculator and I had this excel spreadsheet all worked up with exactly what my maximum bid could be and then I had figured in my buying costs, my holding cost, my selling cost, all those things. So I thought, “Oh okay cool, well I’m going to be buying a house and it’s like 3% in closing cost, well, when you buy at auction here, a couple of things I learned, one, you, the buyer pay all the closing costs.
That was something I did not know which I now know and also, from the date that you actually bought the house at auction until that three months later or so when you go to closing, you are paying interest which you play at closing, which the interest is whatever the interest was on their loan so let’s say if they had $100,000 loan for 5%, you’re on the hook for 5% of your winning bid. Tack on another grand at closing and my closing that I thought was going to be $4,000 ended up being closer to eight. Immediately they just ate into my profit right off the bat.
There were some surprise piece that I didn’t know but again I knew I still could be okay, I learned, I knew that’s probably a mistake I wouldn’t make the next time and at some point you just got to jump in and do it, I’m okay with it.
Nope, I think it worked out and you did end up selling this house for a profit. What was the price you paid for it and then what did you end up selling it for?
I paid $193 for it and I alternately sold it for $256,000 and that was after putting about $17,000 worth of renovations into it.
Right. So not bad for your first flip, at all. One thing I was surprised that you did really well on this was getting the work done and finding a contractor. How did that process works? Because if I remember right, you had one contractor you thought was going to be really good and then he kind of was a little high or didn’t want to do the job and you had to find someone else right?
Yeah, I have a guy that I always use here for any projects I have at home and when I called him to come out, his price was really high. He tends to work in an area closer to DC where people pay big money for contractors and he had a lot of work at the time. He turned out to be one of the more expensive ones and so I then had to shop around. I started asking people I knew, I think I asked my mom, I asked some friends who they use as contractors and I basically sat here at the house on a Sunday or Saturday and every two hours I had another contractor lined up coming to give me a price.
And I think I had four bids from four different ones and ultimately I chose one and I did have to choose the one that was the most affordable of all of them because there were so many unexpected cost coming up because of course, once I get into the house, and this is something I didn’t mention, you can’t get in to the house when you buy it at auction. So it’s not till you get in to it that you go, “Okay, where here’s so much work it really needs,” and I had under estimated how much work the house needed of course. I thought, “Oh paint, carpet, that will be $10 grand,” and meanwhile, I had to really work hard to get it done for $17 where one of the higher contractors wanted $25.
So I know that’s why I had to end up going with the most affordable guy for the job and again, it was 15 minutes from my house, so I was able to be there every day and stay on top of them and he did a great job. He worked super hard, he didn’t take a single day off for three weeks, he got the whole house done I think in, I want to say 20 days. So he worked 20 straight days, Saturday, Sundays and he got it done for me really quick.
That’s awesome. A lot of people don’t have that experience working with contractors. I know I don’t a lot of times, but I think that’s a really good lesson there is, contractors can be really far apart on bids. Some will be just astronomical because they’re used to working with maybe homeowners who want a finished basement, they’ve never dealt with a contractor, they have no idea what their costs are and contractors can kind of just name their price sometimes and get it.
Whereas a contractor working with an investor with a flipper, they’ve really got to be competitive, really have to keep the costs down for that flipper to make money. If the contractor wants work and continued repeat business, they’ve really got to stay in budget and keep things priced down but it really helps to trap around and take your time finding a contractor. That is for sure.
It does. I know this will get easier but I felt bad, after the other guys had given the estimates and say, “Hey, I’m going with someone else,” and I felt bad not giving them work but I had to go with what was best for the job and I know that I won’t always select the person who comes in with the lowest bid but yeah, I felt bad I know I’ll be giving those guys work in the future. I’ll be calling them for future flips or renovations of any sort whenever I need them. I’ll be sure to throw everybody a bone here and there when possible.
Yeah, I’ve talked to some other people, you know, there are some other people in our coaching group, it doesn’t hurt to even pay for a bit once in a while. If you’re getting a lot of bids and not giving anyone work, sometimes if they’re coming close or you think they might be decent to work with in the future, pay them a hundred bucks for a bid. In the long run, if they’re really good contractor, that’s going to be money well spent for the future.
I agree, and I totally plan on doing that in the future ones because there’s a couple of contractors, one in particular that comes to mind, I’ve looked at a lot of other houses since and I’ve had I think two or three that I’ve had them meet me at to give me estimates because there were really big renovations needed and didn’t feel comfortable deciding on the reno by myself.
This guy’s yet to get any work from me and at some point I’m like, he’s got to stop coming out to meet with me, I need to throw him something soon. So definitely if I don’t hire him for the next one I need to at least give this guy something for having taken the time and out of his day and writing up bids for me and everything.
Yep, it doesn’t hurt at all. Very cool. When you went to sell this house, you got it repaired. I know you ran into a few hiccups with on contract. How long did the whole process take from the time you put down your deposit to the time you sold it?
Oh man, a little over six months. So I put the deposit on the house at the auction on November 13th
, I closed on it February 4th
and then I sold it on May 27th
. So about six, seven months, something like that.
Right, that’s not too far off. A lot of people think you can do it in like two or three months and you’re done. That very rarely happens and tell us about what happened with, I know you had one contract accepted, it fell through, what happened with that situation?
Oh man. That was another learning lesson. I made the house very nice. We made one of the nicest houses to ever sell in that neighborhood, which I know you don’t want to do, you don’t want to have a pricing at the top of the market because now you’re trying to push the appraisal. My agent warned me and said, “Hey, let’s price this at $259,” even though I had seen some that were slightly bigger sell for $265.
He said, “You’re not likely to get the appraisal because of the square footage and everything.” I said, “All right, no problem.” We priced it at $259, first offer comes in, it’s an FHA offer, they’re going to put their 3% — no, sorry, it was conventional the first one. Conventional offer, a woman is put in 20% down, we’re thinking, “Okay, this is going to be great, we don’t have to deal with all the limitations of FHA.” And so everything’s looking great, appraiser comes out and appraises it at $250,000.
Now, my break even on this house was, I think $240 and I said, “I don’t want to walk just $10 grand here,” but I offered to meet with that first buyers halfway. I said, “Okay look, how about $255, I’ll meet you halfway, you come up five, I’ll come down five and we’ll meet there.” She wouldn’t do it, so sure enough we had to put the house back on the market. A decision like that suddenly, you’re not at six weeks more that you’re holding the house and I was paying the condo dues, the homeowners dues, utilities, all those things. It was costing me money every day that the house wasn’t selling.
Luckily, really quickly within a week or so, I had another offer, this time it was in FHA buyer and so we knew that one of the downsides of FHA was hey, if you get this appraisal and it comes in low, you’re stuck with it for six months with any other FHA buyers. So this time, thanks to some of your advice and some of the other people in our group, we went and prepared, we didn’t just let the appraiser go in and kind of do his own thing, our agent, my agent was there with his own comps explaining, justifying the reason for the way we priced it.
He had a list of all the repairs that I had made to the house that he presented also just really high level, not line by line, just to show like, “Hey, here’s why we think this house is worth this,” and sure enough that appraisal came in a little bit lower, it came in at $256, again a little bit lower than I was asking but it came in six grand higher than the one before. I went back and forth with the buyer a little bit and I said, “Hey, I would let you have it for $256 if you will waive any of this items from the home inspection that came up.” He agreed to it and we went to closing at $256 and I netted out about a 15, $16,000 profit on the deal.
That’s awesome and for all the work and risk you took, $15 or $16,000 may not seem like much but for a first flip, that is pretty good. I’m sure you learned so much doing that and going through the process and how to improve things and do things different in the future. But yeah, nice work.
Thank you, absolutely, it lit a fire under my ass I’ll tell you because I had a lot of money at stake, I paid for everything with my own cash. So my own cash was tied up for a long time, I since learned the reasons not to do that from our group but it was funny, you need a spark, right? For me, that spark was putting my money down on that house at auction and just not knowing everything I didn’t know.
So I went on this quest to just learn everything. I started looking up on Meetup.com, I started looking for local meet up groups. I start researching everything online, that’s how I came across your website, InvestFourMore, and just started devouring the content. I knew, I was like, “I am on the steep end of the learning curve and I need to just soak all this stuff up.” It was listening to podcasts in the car, reading just about every article that you’re putting out, I was reading, I’m reading stuff that you’d written years ago.
And just, I started finding — you go to one local REA event and next thing you know, somebody tells you, “Have you been to this other one?” I was like, “No, tell me about it.” Next thing you know I’d be at that one. Now I go to two or three REAs, actually tonight, there’s a Bigger Pockets meet up here in my area that I’m going to tonight and I met so many people, I learned so much from everyone in the community, it’s been great but it was putting my money down on that first house and going, “Okay, I’m in. I now need to learn everything I can learn,” and gosh, I learned so much from that property. So happy that I didn’t lose money, I made money, I learned a ton in the process and I’m just so much smarter going into my next couple of deals.
That’s great, and yeah, one of the best ways to learn how I say is just do it. You can go to all the REA’s and read all the articles in the world but nothing will take the place of actually doing it and going through the process, especially since every state is different and market is different. What you do there is completely different than how it’s handled in Colorado. No, great work.
I know, form those REA’s and all the networking you did, you just bought another house as well that I think you’re going to keep as a rental but you got that from a wholesaler, right?
Yeah, so you just keep on learning. So this very meet up that I’m going to tonight, it’s a monthly meet up that’s put on by like some local guys that are in Bigger Pockets and it was at this meeting last month, so you can almost say a month to the day, where I went to the meeting, didn’t know anybody there and introduced myself and everybody’s going around the table and cruising themselves and one guy, he says, “Hey, I’m a wholesaler,” and I just kind of made a mental note of that and later on when we kind of broke away I walked by and I said, “Hey, do you have any deals in the area?”
He said, “Well, you know I have something. Tell me what you’re looking for.” I told him, “I’m looking for single family homes that I could rent,” and kind of gave him my criteria and he said, “I think I have something coming up this weekend that you're going to be interested in,” and he’s like, “I’ll call you.” I said, “Okay, cool,” gave him my business card and sure enough he called me or sent me an email that Sunday and said, “Hey, here’s what I’ve got.” He said, “I’ve got a house, it’s in Frederick,” which is about 40 minutes north of me.
He said, “The house, I’m asking for $145,000 and it’s worth $230, it needs about $30,000 worth of work. So you could flip it or rent it,” because he said you could rent it for $1,500, there’s actually already a tenant in it. I said, “Okay, well let me come out and see it.” Again, I’m all full of butterflies because I’m used to buying a house with an agent, I bought one at auction but now here I am buying from a wholesaler, right? That is completely new territory. I go, I look at the house, I like the house, it’s great. Oh first I sent everything over to my agent and my agent has been awesome, he has been really helping make this possible for me.
I said, “:Hey, Charles, can you take a look at this and tell me, is this house really worth $230? Will it rent for $1,500?” I can’t stress that enough, doing your own due diligence is so key, especially when dealing with wholesalers. Especially at auctions, you have to know what things are really worth and what they will rent for, and not get caught up in the moment and the excitement and just believe something that let’s say their wholesaler, for example, might tell you. My agent confirmed, yeah. He said, “No, he’s right,” and I checked out the property, I liked the property, I like the tenant that was in it, I met him, he had to let us in to the house, and I liked the wholesaler.
I was asking them all the hard questions, I said, "Man, why are you selling this?” He told me all his reasons, I was basically really kind of pushing him, I was trying to figure out, what’s the catch here? This sounds too good to be true. There was nothing and I knew he had other investors coming to look at it after me, I said, “Okay, hey, give me until tonight, I will let you know by tonight.” So I came home, ran the numbers, just kind of paced around the house thinking about it and my gut told me, “This is a good deal.” There was no red flags, there were no red flags. I just knew that I liked the wholesaler, I liked the house, I liked the tenant, I like where the house was.
It was somewhere — and that’s part of my criteria, “Would I live here? How do I feel pulling up to it?” It just checked off every box that I have for another rental and so that night I pinged him, I said, “Hey, I’m in.” He said, “Okay, I’ll send over the contract.” So he sent it over and it was the first time I saw an assignment contract because that’s what a wholesaler does, they put it under contract and then reassign it and I saw on there that he had gotten it under contract for $135 but he was assigning it to me at $145, and so he was making a $10,000 assignment deal on the deal.
At first I thought about it and I said, “Man, that’s a lot of money but damn that’s great.” I said, “You know what? I’m working a full time job, this guy is going out there, he’s finding the properties, he’s doing all the leg work, I’m stoked.” I said, “It’s still a good deal at $145.” So I signed on the dotted line and two weeks later we were at closing and I didn’t even know how that was going to go, but I’m at closing and I’m there with the people who actually own the home, the wholesaler and the closing attorney.
When I walk in, the people who owned the house were like, “Who is this guy?” And they’re like, “Oh, he’s the one actually buying it.” It was kind of funny. I don’t know if he had explained to them, he was assigning it but then he just introduced me and said, “How do you guys know each other?” And we say, “Hey, we’re business partners,” and which was true, we are partnering on a deal, he was just taking a cut.
So that’s how that first purchase went down and the beautiful thing was, this was right before Memorial Day. I’m taking over a house, a rental that already has a tenant, I take the house on the 27th
and basically I go drive to the house and sign a lease with the tenant like in the next day or two and he gives me a check for June. So I got a $1,500 check for the month of June, two days after closing. There was like no downtime there whatsoever. It’s as turnkey as it could get.
Oh that’s awesome. I think you made a really good point about — you did your due diligence about knowing the comps, knowing the market and you kind of knew that beforehand going to meet someone and look at a deal and once you see it, your gut was telling you, “This is a good deal, go for it.” Of course having not bought 10 or 20 houses, you want to think about it a little bit, but doing your homework beforehand, really knowing the market, it gives you a real advantage to buy deals because you have to act quickly on good deals. That’s just how it works.
You do, I was certain that that deal wasn’t going to be there for long and it just felt right. I didn’t go purely on intuition but sometimes when you make a decision in your gut, you say, “You know what? I should have listened to my gut, my gut said not to do it.” So I’ve been trying to really listen to my gut and trust me, there has been plenty of properties that I’ve not jumped on because I go to the area and I say, “You know what? I don’t feel good here.”
I ask myself, “How do I really feel about this? Do I like this area?” The cash flow numbers are incredible, again, I’ve been to downtown Baltimore, that’s scary. I’ve been to some really sketchy areas where the cash flow numbers are incredible, but is that the kind of tenant that I want? Do I want a section eight tenant?
So I’ve been picky, the pickier you are, the harder it is to find the deals but yeah, I’ve got my criteria and that’s something I remember getting from that Gary Keller book, he said, “Write down your criteria, write like a criteria statement.” I wrote it down and I’ve kind of been sticking to it, I’ve almost broken out of it a couple of times just because I got all gaga over the cash flow numbers but I’ve stuck to the criteria.
That’s great, and yeah we’ve talked about Baltimore before and how it’s kind of look really good from the outside but once you get in there, it’s not quite so as pretty as you thought it would be. Cool, you have another house under contract too, which you found in a completely different way, tell us about that one?
Yeah, this was, it’s almost like I’m trying to buy a house in every way possible. This one happened to be an online auction and this actually happened to be again, thanks to being in your group, you introducing me to Mike Berdette who is a local REO agent here and Mike is also an investor himself and you kind of spots/bird-dogs deals if you will and he said — so he started sending me listings and he has this little pockets that he likes that are in the Baltimore county area. Again, about 40 minutes away from me but again where properties actually cash flow.
I think we’d not put an offer in yet on any house because I think they were either snagged up first or something else came up but we were saying, “Hey, we’re going to nail one down pretty soon,” and he found one and he goes, “Hey, this one’s on Hubzu, let’s go take a look at it. We went and took a look at it and he actually thought the house had a full basement and it didn’t. So we basically decided, “Shoot, we can’t bid on this, it’s probably only worth X.” We walked away because I think the auction was already at like I don’t know, $120,000 or something like that, which was more than we were going to be spending.
So nobody won the house and the house got re-listed and he and I were out there looking at other houses one day and he goes, “Hey, the other house came back on, you want to go look at it again and kind of get a game plan?” I said, “Sure, let’s go.” We look at it again, now knowing that this house only has this half basement, which is only like basically equipment room and laundry we kind of knew, “Okay, being this size is probably worth $175, $180,” and it had — the starting bid had started like $72 but we knew I wouldn’t go for that.
So I came home, ran the numbers and this time, again, I’m better equipped with running numbers and so I said, “Okay, there is a buyer’s premium on Hubzu so I even figured that in, I said okay, I can come in with a maximum offer of $105 and there’s going to be the four and a half percent buyer’s premium, that would put me at about $110, again if this thing is worth $175 and if after a little bit of work, it will rent for $14 - $1,500, this meets all my criteria again.” So I send Mike the offer, I said, “Mike, $105 it is.”
He’s, “Okay, I’ll bid on your behalf,” and he would do that because as an agent he can get a commission on Hubzu and sure enough, he pings me that night and he said, “What do you know? $105 was the reserve on the auction.” We got the house and we’re under contract right now. I think I just wired the earnest money deposit yesterday for it.
That’s awesome, what are your plans for this one?
This one I’m going to rent, I really don’t want to flip much, I really want to build that cash flow empire, that’s kind of my goal is to my BHAG, the big, hairy, audacious, goal is to have 40 rentals by the time I’m 40, which is only 2 and a half years away, so it’s a big goal but if I got to 20, that would be pretty awesome. But if I sat 20 as my goal, I might only get to 10, who knows? So I’m shooting big and I can see how, the our everything I’ve learned, it is possible, I could literally be buying a new rental every six weeks to two months. At that pace, I could get six houses a year basically that kind of fit that criteria.
So with this one, to go back to that, the plan is to rent it. I’m picking up for $105, I need to put into it probably about $20,000. So I’ll have about $125 into it, $130 if you consider the buyer’s premium which you have too, and the house will rent for $1,500. So again, Mike ran all those comps for me, Mike is the one who told me, “This house is worth about $180 — $175 to $180. Rents anywhere in the $14 to $1,600 range.” So yeah, it’s going to be my second rental, my second rental purchase here in the last two months but it’s my fourth rental property. So I’m stoked.
That’s awesome. I know one questions a lot of people might have and maybe you can help us with this too is, how are you financing this properties? How are you going to continue to get money to keep buying these rentals, what’s your plan on that side of it?
So this is an area that you’ve been super helpful when for me and kind of helping me understand all the options but what I’ve been doing is leveraging the properties that I own. The home that I live in here, my main residence, I took out a home equity line on it a couple of months ago. So I basically had this home equity line of credit for $110,000 just sitting there waiting for me to use it.
That’s how I did the other deal as well, I had an equity line on my other rental because it was originally an owner occupant one. So basically I’ve been leveraging one house to buy the other. That’s been how I had been acquiring them but again, I don’t have endless houses with equity in them. So my plan right now, this is the part I’m working on right now is, figuring out how to refinance these houses and pull the cash out right? The BRRRR strategy of buy, rehab, renovate, buy, rent — I can never remember it, yeah. Buy, renovate, rent, refinance, repeat. There we go.
So the beauty of that is, obviously once the house is fixed up and you get it reappraised, the house gets appraised that it’s market value or only slight below it. Now, because I bought the property for under market value at a deep discount, basically I get all my initial investment capital back and basically what’s left in the property is that equity. So I basically have nothing into the deal, this property is going to be generating $1,500 a month in cash flow, I’ve taken all my money back out. Sure, I’ll have a mortgage now because I refinanced it but it will still pull a 10 to 20% cash on cash return. It’s a beautiful way to kind of build your portfolio and that’s kind of what I’m doing.
That’s awesome. When you hear you talking about this, it’s not like you have an endless amount of cash or you inherited $2 million dollars to play with. There are ways to get into houses, especially using existing properties. The sooner you invest and the better deals you get, the better off you’re going to be in the future and it really has advantages where you’re at now, where you’ve had houses for a little while and they built equity. So that’s awesome.
Yeah, I wouldn’t have been able to do that if it hadn’t been for the purchases over the years. One thing that’s funny is, I’ve never purchased a home at market value, it’s always been that first deal that was a foreclosure and I was 20. The house I live in now was a short sale, now I bought a house at the court house auction, I bought one from a wholesaler, I bought one form an online auction so I had like — I’ve yet to pay full market value for a house in my life.
That’s awesome, I do things the same way. Although the first house I bought was pretty close to market value and I regretted it for a while, that did not work out well but I learned. One thing I find, and I know that you’ve kind of had some problems with too, you still have a full time job doing all this. How has it been managing your full time job, with finding deals, with managing contractors, has that been a struggle?
It has been a challenge and I’ve had to change and develop some systems to not go crazy with it. For example, I time block, I make plans for the next day and I say, “Okay, from nine to 10, I’m going to work on real estate tasks,” and then I’ll list out what those tasks are and it might be “call back this bank, call this contractor, follow up on this houses,” whatever it may be.
Because if I just go into my days with no plans and I let everybody else dictate what they need from me, when they need from me. I wouldn’t get anything done. That’s something I’ve gotten from my day job because that’s how I operate there is, “Okay, time blocks, what are the most important things I could be doing today? What projects do I need to move forward?” So I time block for those but then I’ve also been time blocking in sometimes for the real estate tasks.
So I’ve definitely been incredibly busy and there’s other times that — so for other things that are also real estate related like listening to podcast, reading articles, I would love to be able to just read the articles as soon as they hit my inbox but I can’t. So I kind of put those in a “read later” folder and then at night I’ll sit there on my iPad on the couch just reading the articles. The other thing is listening to podcasts.
I love going on long drives, to look at properties because I just listen to podcast like while I’m out looking at houses. So I love that 40 minute drive to Frederick or Baltimore because I’m like, “Cool, I get to get in like almost entire episode.” So you kind of squeeze it in, the learnings when you can and you time block so that you can be efficient because if you don’t, man, your day will run you.
That’s very true. I try to do the same thing myself. It’s tough because my schedule can be kind of whacky and yeah, I’m very big about time blocking, trying to plan as far ahead as I can, you get so much more done. So no, that’s awesome. We’re getting close to the end here, we’ve been on a while but there’s a couple more things I want to ask you, I know you said your goal was to have 40 rentals by the time you’re 40. What about your day job, do you want to keep that for a while? Are you hoping to eventually replace that? What is your goal there?
My goal is to eventually phase myself out and this is a conversation that I’ve had with my friend who owns the business. We’re on the same page about it and it’s going to be a very gradual thing, obviously I need a bigger foundation under me with real estate to be able to support myself from just income, from the rental properties and the flips. So I’ve got a little ways to go there but at some point, I will phase myself out of the day job and go into investing full time.
Do you have a time frame for when you think you might do that?
I think it’s going to be within the next one to two years.
Yeah, I think one year probably at the earliest and two years probably at the most.
No, that’s a huge change. That’s pretty exciting.
It’s super exciting.
I’m sure a little nerve racking at the same time, but exciting too.
Yeah, I’m going in to a completely new business and I really want it and so that’s why I enjoy it. See that’s the thing is, on the weekends, when I spend half my days, I already have my days Sunday looking at houses, I’m not dreading it. I’m going, “Wow, I really enjoy this, this is really cool.” There’s been a lot of kind of gut checks with me, trying to figure out, “Is this really what I want to be doing? Do you want to be walking in to disgusting houses?” Like I’ve walked into houses where someone has died. They just freshly remove the body and it’s like, “God, am I really trading my nice day job for this?”
I’ve had to really ask myself, “Are you sure you know what you’re doing?” I’m just trying to have my both feet on the ground and do it smart, not make any hasty decisions. Really letting myself invest slow, of course I would love it if it went faster, right? I would love it if I was just, you know, had five flips going at once and two, three rental properties on a crime track and I just had things flown. I can’t move that fast because I have the day job. So I need to be respectful of the day job, it’s still what brings in my income. Frankly, also, another reason that I plan on keeping it is for the ability to get loans.
One of the things I’ve realized recently is, “Wow, okay, I think I can still meet certain criteria to get conventional financing on some of this rentals.” But of course for that, you need to show that you have income, employment, you have to go through all those hoops. So that’s part of my one of my reasons for wanting to stay and really stick it out as long as possible so that I can continue to take advantage of that conventional financing up until I can’t anymore.
That’s a really good point because if you want to get conventional loans, even if you’re working with portfolio lenders, local banks, if you just switched to a new career and you don’t have a lot of income coming in, they don’t want to loan for you for some reason. You can take that career, keep getting as many loans as possible until you’re really setup good.
No, that’s a really good strategy because a lot of people retired even, they have so much income built up or savings, like, “Oh, I’m going to retire.” Then they try and refinance their house and it’s like, “Well, you don’t have enough income, you don’t have a job, we can’t refinance you,” and they’ll have a hundred thousand tied up and it’s like, “What do you mean?” It’s a very good point that many people don’t realize this, a job can be a good thing for loans.
Yes, absolutely. I don’t depend on the real estate income, right now it’s just kind of icing on the cake. Eventually I want it to be the cake but I’m going to do it one layer at a time and that is the plan and what’s really been exciting though is to make some money in real estate. I can actually say like, “Wow, I have made income this year from real estate investing.” So I know I’m on my way to being able to generate a significant income from it if I’ve been, as a novice investor, able to do fairly well thus far.
That’s awesome and yeah, you’ve done great for doing a flip, the rentals, I’m jealous of your numbers where you’re at because in Colorado, our numbers have gotten just horrible for rentals because our prices are so high but no, that is awesome.
Thank you. I have to thank you a lot for this because just being involved with you and the group of guys in our mastery program, I feel like you guys hold me accountable. I don’t want to come to the call to the following week and not have made some sort of progress. I can’t emphasize that enough, how important it is really to get a mentor, get with people that will keep you accountable.
I mean Garry Keller himself talked about it in his book, he had somebody who was his mentor and I know you’ve talked about your mentors and you start to see what the common denominator is when you look at successful people. They all have similar things in common, the humility and knowing that they don’t know everything and being willing to learn and have a mentor, take them under their wing. So I have to thank you and the guys in our group for that.
No, thank you, I appreciate that. I don’t talk about that group a lot but I’ll discuss it here just to let people know where it is. Like I said, there’s about five or six people in it, it’s a group of women are included but at the moment, it’s just guys and we talk for an hour every week on Thursdays and just talk about our investing, real estate, flipping, rentals and then I put together a little course for it too as well, it’s all online.
I learned a lot from you guys as well, it’s not just me trying to help you but I learn a lot and have thrown off ideas about my subdivision and refinancing and all kinds of things that I get help from you guys too. It’s been a huge benefit to me. It’s kind of nice to share those stories with other investors and people with the same mindsets. So thank you for being in the group too.
Thank you, yeah, love it.
We do have a couple of spots open, not a lot, but if you’re interested just shoot me an email, firstname.lastname@example.org
and I can let you know a little bit more about it. That’s enough self-promotion for now. You’ve done awesome, you got your rental is going, you did your first flip, you kind of implementing a way to go into full time real estate, which I know a lot of people have that goal of but it’s kind of hard to visualize how it will work. So thank you for talking about that, and kind of the way you’re looking at financing and using line of credits to leverage, buy more properties.
Some of the surprises you found buying from the trustee sale or the foreclosure auction, it was great to hear. Anything else you want to talk about before we head out of here? Are you looking for more properties right now or are you trying to just kind of get this couple taken care of and then you’ll look some more later on?
No. So I kind of got the bug for wholesaling after having bought that property from a wholesaler. Not that I want to wholesale the houses necessarily but how they acquire it, right? Through the mailings. So I’m going to start doing a little bit more active marketing myself in terms of mailing to tax delinquent lists and equity lists and so forth. So I’m looking forward to — again, I’m taking baby steps and that’s my next step is, “Okay, how do I score those great deals right?” That the wholesalers might generally cherry pick and keep for themselves. It’s exciting that there’s just so many ways of finding homes below market value, there really are. So I’m excited.
That’s awesome. Yeah, you're right, I made two offers on houses today for flips. So people keep telling me, “Oh the market’s too crazy, you can’t get any good deals,” and yes, the market is crazy but there’s always going to be good deals. No matter where you’re at, what market you’re in and if you know how to find them, they’ll be there. It’s just a matter of, like you, have learning the different ways to find deals and being able to jump on them when you do find them because that’s — a lot of people are scared to jump on them when they’re there too. Awesome.
Yeah, you want to have done your homework ahead of time but at some point, you’ve learned enough and it’s time for action. I recently heard this quote that’s really stuck with me from a guy Tom Crowl. I don’t know who told him but he said, “Imperfect action, not perfect planning.” Don’t worry about planning it to be perfect, just take action even though it might not be perfect but just do something. And I’m realizing, that’s exactly what I’ve done. At some point I’ve learned enough, it’s time to like, put myself out there. Because you will learn so much more once you actually are in the game than when you’re just reading about it.
Yup, exactly. No, and you’ve shown that too, the way you buy houses, you can have all this education and know what’s going to happen before you do it and then you buy it and it’s like, “Wait, this is totally different than what I thought it was going to be.” Very good.
Well Dennys, I think we’re heading out of time here, we’ve been on here quite a while so thank you so much for sharing your experiences, what you’ve learned, maybe we can talk about this more in a few months or a year, who knows and see how you’re doing from there. Love having you in the group as well. Thank you so much for being on the show and yeah, we’ll talk this week.
Awesome, thank you so much Mark, thanks for having me. I can’t believe I’m actually on a podcast, that’s wild. I’m the guy who listens to these things.
I’ve been doing it for a year, so hey.
Yeah, I’m the guy who listens to the podcast, not like sits on them, so that’s really cool.
Cool. Well thank you Dennys, again, thanks for being on, I know it’s not something you do all the time obviously, I appreciate it and have a great week.
All right, take care.