Clint Coons: Recent Episodes
Anderson Business Advisors
Today Clint Coons, Esq., speaks with Aaron Kancevicius, the Lead 1031 Advisor/Director of Lending at Plenti Financial. Aaron takes us through the ins and outs of navigating the IRS’ 1031 exchange guidelines for investment properties.
Today Clint Coons explores the evolving landscape of the self-storage industry with guest Ryan Gibson, CIO of Spartan Investment Group. Topics include shifts in customer demographics, such as millennials becoming the largest segment, and the impact of the 4 "D's" (death, divorce, dislocation, and downsizing) on demand.
Are you tired of struggling to open a bank account for your business or personal needs? In this podcast, Clint Coons addresses this common challenge and offers a better solution with Barry Sloane, Chairman and CEO of NewtekOne.
Have you ever been caught off guard by the fine print in an insurance policy? Clint Coons, Esq. and Shawn Woedl of National Real Estate Insurance Group uncover the often overlooked details of property insurance that could spell disaster or salvation for your investment portfolio.
Clint Coons, Esq. and Greg Helbeck from Velocity Home Buyers tear down the facade that wholesaling is a no-risk investment, exposing the legal snares and fiscal sinkholes that might just catch you off-guard. Hear about Greg's near-miss disaster when a contracted property burned to the ground, a story that underscores the need for bulletproof business strategies to safeguard your ventures against the unpredictable foibles of real estate.
Clint Coons, Esq. speaks with Kenji and Letizia Alto, who are both MDs and founders of Semi-Retired MD. The episode delves into the mindset shifts required to excel in the property market, overcoming common obstacles, and utilizing strategic tax benefits.
In this episode, Clint Coons, Esq. speaks with Seth Williams and Neil Clements, experienced real estate investors who are joining us to discuss land investment deals that may be a little off the beaten path.
In this episode, Clint Coons, Esq. speaks with Shannon Robnett, a 4th generation real estate professional who has built his deal network by being THE BEST resource for ‘connections.’
In this episode, Clint Coons, Esq. speaks with “Mojo Michael” Gefteas about real estate wholesaling. Clint has been working with Michael for many years in the wholesaling space. After 25 years in the ‘corporate world,’ Michael went out on his own, building a huge buyers list over most of the last decade, and fine-tuning the way buyers and sellers approach wholesale deals.
In this episode, Clint Coons, Esq., speaks with Richard Advani, VP of Mortgage Lending at Guaranteed Rate. You’ll hear about specific loan and mortgage products, tactics, and insider information to help real estate investors looking for advantageous methods to invest in or buy primary homes and investment properties.
In this episode, Clint Coons, Esq. speaks with Dr. Param Baladandapani, CEO of Generational Wealth MD. Dr. “Bala” went from a ‘burnt-out radiologist’ to a retired real-estate investor in one year, at the age of only 41.
In this episode, Clint Coons, Esq. and Aaron Adams, CEO of Alpine Capital, discuss how to shift focus in the real estate investment space to maintain double-digit growth.
Want to invest in real estate, but don’t know how to pick the best city to invest in? Mid-term rentals might be your option. Join Clint Coons, Esq. and Dr. Rachel Gainsbrugh as they discuss the secrets of maximizing mid-term rentals that can generate up to $60,000 a year. Dr. Rachel Gainsbrugh of Short Term Gems to help us explore the benefits of this strategy and its potential for a wide range of investors in the real estate market.
Did you know that you can generate great rental income from unusual short-term rentals like tiny homes, yurts, teepees, and Airstreams? In this episode, Clint Coons, Esq. welcomes Rob Abasolo, creator of the Robuilt YouTube channel, and professional short-term rental coach at Host Camp Coaching.
Have you thought about creating a TV commercial for your real estate business? TV commercials help you build an automated marketing channel, target the demographic you want, and they’re not as expensive as you might think!
What are funding options for different types of real estate investing? How do you finance deals, and what does it take to put these things together?
Today, Clint Coons of Anderson Business Advisors talks to Kurt Nederveld, CEO and founder of Rainstar Capital Group (RCG). Kurt is an expert when it comes to funding and helps clients gain access to funds that they didn't think they would have access to ordinarily.
RCG has more than 250 lenders on its debt advisory platform that fund against invoices, accounts receivables, commercial real estate, corporate finance, small business,
equipment and rental real estate. Highlights/Topics: * What is RCG’s lending platform? It functions on the four Cs: Cash, credit, collateral, and character via a blueprint of the entire process of accessing all product lines and placing a very high focus on education to grow and create generational wealth. * What does RCG teach clients? Understand their equity story. If RCG can bring in a higher leverage product, it saves clients/investors the equity. * What is RCG’s process for doing deals with clients/investors that have little to no cash? Based on cash, credit, and collateral, identify which product lines that they can qualify for from the highest leverage perspective, when you break down the capital stack. * Can RCG do a blanket loan, cross-collateralize assets to take some cash out to roll into a client’s next deal? The ability to grow is limited by your equity. RCG analyzes which properties have the most equity and whether to do individual cash out or refinance. * What if somebody wants to do traditional house hacking or they're going to be renting out rooms, how would that work with the lenders? Currently, the VRBO and Airbnb strategy is the greatest disruptor in the marketplace. Know your local market and drivers. * What about flipping? Does RCG have products/strategies for those who want to flip properties? There’s either build-to-sell or build-to-rehab-and-rent models. From a mission perspective, families need homes. * What is Kurt doing right now in the market? Where does he find most of the money? What type of deals is it chasing? Multifamily and single-family rentals are hot. People always need a place to live. The biggest battle is a lack of inventory.
Resources Kurt Nederveld on LinkedIn Rainstar Capital Group
Roster List of Top MSAs
Grant Cardone Clint Coons Clint Coons on YouTube
As always, take advantage of our free educational content and every other Tuesday we have Toby's Tax Tuesday, a great educational series. Our Structure Implementation Series answers your questions about how to structure your business entities to protect you and your assets.
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Full Episode Transcript: Clint: Hey, guys. It's Clint Coons and in this episode what I wanted to do is talk about funding options for different types of real estate investing. A lot of you that watch my channel, you're coming here because you have single-family homes, you're into short-term rentals, you're into flipping properties, and some of you are into new construction and land development.
A common question I keep getting is how do I finance these deals? What does it take to put these things together? What I thought I would do is bring on someone who we at Anderson, a person we work with, and refer our clients to that is part of our funding communities helping out hundreds of our clients gain access to funds and ordinarily they didn't think they would have access to because their local lender was telling them we can't do that deal.
I don't like to work with people who are saying no. I like to work with people who say yes. The person I have here is Kurt Nederveld of Rainstar Capital Group. He's the CEO, he's the founder, and he's an expert when it comes to funding. Kurt, thanks for coming on.
Kurt: Thank you, Clint. I appreciate the opportunity to speak with you and your audience and am excited to spend this time together.
Clint: Awesome. Let's just jump right into it. Before we do that, why don't you tell people how you even got started in the funding business? You've been doing it for a few years, but there's a story there that I think people want to hear so that they get a sense of who you are and your approach to helping out investors?
Kurt: Yeah, for sure. Thank you for this opportunity. I launched Rainstar Capital Group eight years ago in January of 2014. Prior to that, I had launched a marketing firm for Rainstar Marketing, about three years prior. The marketing firm went out to serve about a hundred clients that were primarily funded managers, direct lenders, and commercial real estate—corporate ads. While I love marketing, we did a ton of email and PR news releases. What we got really known for doing LinkedIn marketing.
I started to realize I was in the wrong business because I learned about the money that was being made on the direct lending side and then also on the capital advisor side. I always joke that the marketing firm gave us a huge advantage into the business that we have today, but it was like the internship. This was like playing on the football field.
Since launching Rainstar Capital Group, we've been blessed to transact in over a billion dollars worth of financing. We've grown as a company. We're in 12 different locations across the United States. We're just sort of 40 employees and we've built this all-encompassing lending platform.
We have 250 registered lenders on it that are all banks, hedge funds, private equity firms especially finance firms. We provide for our client's commercial real estate, corporate finance, small business and equipment financing solutions.
We, for the better part of eight years, have been at all of the capital marketing conferences. You can see my [...] we've had too many state dinners going out and hot diving with all our lenders. What we did was assemble all these lenders onto one easily used platform for areas, then we divided it into an A, B, C, and D lender model. Because of all of the lending, it doesn't matter if you’re doing a quick loan, it doesn't matter if you're financing a rental property or an office building, whatever the loan is being made for, it's all a function of the three Cs—cash flow, credit, and collateral. You can also add character to that as well.
What we've done at Rainstar that our clients just absolutely love is we blueprinted the entire process of accessing all these product lines. Along those lines, we've also placed a very high focus on education. Something as complimenting you before we started this video. For your firm, have placed a high focus on education. We've shot over a thousand videos that we have on the internet and these videos are very much focused on the strategies that either the business owner or the real estate investor can apply to go use these different products to be able to grow.
If you see a lot of our marketing plan, we're all about growth capital. If you're a real estate business, whether you're on the residential side or if you're on the commercial side, what you care about is growing your portfolio. Growing your portfolio creates stronger cash flow and at the end of the day, you're building that wealth for your family. You're creating that generational wealth that [...].
With our platform, it's great because we have all the solutions. If you go to our website, we launched our own magazine called Rainstar Capital Group Ultimate Lending Guide about six years ago. The magazine highlights, for all our clients all, of the different lending products based on the credit scores, the revenues, and the LTDs. It literally breaks into all of our categories and clients can check that out.
Over the years, they found that to be a huge tool. Let's be honest, sometimes going to get financing is like speaking a second language. If you're a new real estate investor out there, you don't know what you don't know and you don't know all the different solutions out there.
At Rainstar, not only do we have all solutions, but we've created an educational platform that shows the investors how to use those solutions. Then finally, our entire team plan is made up of exit bankers. We have former presidents of the banks, we have high-level mid-market CNI, commercial real estate SBA, bankers who then act as the guide to the client to help them achieve their goals.
They come to us on our first call or our first opportunity to meet them in person or at a conference in Zoom. We really understand their story. We understand what it is they're looking to accomplish. We do an analysis called our debt discovering process, understanding what those three Cs—their cash flow, credit, and collateral. Then we match those three Cs with the A, B, C, and D models.
Obviously, somebody with a 550 credit score, maybe they've been hit in the past, they went through a divorce, maybe they had a business go bad back in the way. We've all hardships. That's what life's about.
My point though is obviously, they're not going to qualify for A paper. They're not going to get the 3% or 4% long-term money. They might have to use a B or C lender right now, but what we don't know over the years, which our clients absolutely love and appreciate, is that in any event that we have to use a B or C lender because they got lower credit or they don't qualify for paper, what the biggest themes over the years are what we call bridge to bankable.
Bridge to bankable is a huge strategy that we teach our clients where they have to use these B or C paper products. It doesn't mean they're not going to be able to get into A paper. It just means a property doesn't qualify today. It means their credit does not qualify today. Typically, what we do—and I keep joking that we should start a consulting company—is because we give out this free advice and say hey, if your credit score is low, go get a credit card. Or, if the property is not at the stabilization rate and the occupancy level that it needs to be to qualify for the A paper, then here's what you need to do.
I'll help you with the B paper lender today, as a bridge financing, then once the property is ready, reach back to us and we'll get you refinanced into that long-term. Everything that we do is all about walking down the journey with our clients funds.
The beauty of Rainstar is that we could literally take somebody buying a raw piece of land, we can finance that. If they want to go vertical construction or they want to go build a rental property, great, we can finance that. Once it stabilizes, they have a rent [...] rate, great, we'll refinance it, get it into that great 20-year money.
I'm really excited to dive into these kinds of things with you today, but hopefully, that gives you just a little overview of who we are, our track record, and our approach. At the end of the day, what it is really about is that educational component because what I found is that real estate investors just solve problems. They're figuring out how to get deals done.
My message to all of them is if you have one lender—your local bank—you're only going to be able to get so much done. If you have a platform of 250 plus lenders, then you have a stronger ability to solve problems. That number one problem, I know we're going to talk a lot about, is that every real estate investor and developer out there is held back by equity.
You can always figure out how to get senior debt, but the trick is the downpayment money. A lot of what we teach our clients is we've gone out and figured out what the high leverage products are. High leverage is genius, it's the name of the game.
Obviously, there are certain situations where you have to be more conservative, and there's is nothing wrong with that. If you're truly focused on growth, you're held back by the balance sheet equity that you have at your entry-level disposal and second, your durability to raise that equity. Whether it's from family, friends, whether from high network individuals, whether it’s on a more institutional level or family office.
A lot of what we do when we first meet our clients is to really understand their equity story because equity is really what, at the end of the day, is holding back a lot of these investors from going to 100 units to 1000, 1000 units to 10,000. We actually don't help with equity, we don't raise equity for clients, but there are a lot of different very strong strategies that you can use to raise that equity then obviously we can bring [...].
[...] We can bring them a high leverage product that saves you the equity. For example, you're a builder or developer, and you're going to the [...] and have the ability to do projects. Well, we can shave down that equity and put that into a fifth project. That's a big deal for them. I'm excited to dive into some of these details and go through that. Really what we talk about versus strategy then we can dive into the details of the transaction.
Clint: What I want to know about this say you're a single-family investor. I'm going to go out and buy a single-family home and treat them as long-term rental. When I started investing in Memphis, Tennassee years ago, I would work with lenders who would come in and finance not only the acquisition, but also, many times, the rehabs as well.
All I had to come out of my pocket were a few thousand dollars, you’ll have some points. Sometimes you even roll the points into the deal, then I would have this property after it got completed—it was rehabbed—that had built-in equity of 20% or 30%. I can then move, as you stated, from that D level. They would refinance me to the A level product so I can pay off that D level that had higher interest rates, sometimes you don't even have to pay those interest. All of that would accumulate for certain periods of time then I would be in this lower interest rate product.
The question I want to know is do you guys do deals like that? Do you have that process set up? Is that a possibility for a real estate investor who doesn't have a lot of cash right now but can find a property if it's in criteria?
Kurt: For the investors that don't have a lot of cash, there's a bunch of different strategies. You just hit the nail on the head. You first have to identify—it's kind of like reverse engineering—what it is that you want to do. You can identify based on the three C's, the cash flow, credit and collateral, which are the product lines that they can qualify for from the highest leverage perspective. When you break down the capital stack, once you know what that piece covers, then you can figure out what it is that you got to come up with or what it is that amount is.
Over the years, it's been really neat, because again, as I told you, we don't provide equity but we've created over the years what we call replicable equity. That's where our other lending platforms are very powerful because, for example, if a client owns a business, we have all these other working capital products. We have lines of credit, we have term loans.
It's been really neat, because over the years, we've actually been able to help them get leverage that they then take that cash plant and plunk it down as their equity, then we bring in the senior debt as well, and so it essentially creates a 100% financing solution.
There's a ton of different strategies on how to do it, obviously, the first and foremost is identifying where they want to qualify from the three C's perspective. Obviously, somebody with a 550 credit score is not going to get qualified for the best programs out there.
When it comes to real estate investing, especially in the SFR space, it's all a function of your personal credit, it's a function of the property type, it's a function of the deal that you can buy it at—what you can get the purchase price at. Then it's about identifying what you were talking about, who are the lenders out there that have the ability to apply their senior debt to the purchase price.
Our best programs, I believe go up to 90% of purchase price and 100% of the rehab and that's a big deal. Obviously, rehab dollars are where you create that value in the property, that's where you create the lift. When you do the cosmetic work, when you blow out a wall and you expand, when you add a bedroom and so that's a trick.
What we've done over the years, Clint, is we've taught clients about other working capital products such as lines of credit and term loans. We have a very popular credit card program that's used by a lot of the smaller real estate investors. Obviously, if you have a credit card with a $50,000 limit, $30,000 limit, or $20,000 limit, you can run down the street to Home Depot to Menards or any of the building supply companies. You can purchase the tile, the paint, whatever it is you're using for the rehab, and you can float that money for 30 days.
Then if you can get that property cosmetically done, get the rehab done, and then get [...] then you can take the money that comes in from the senior debt, which is going to be your long-term money, your 10, 20, 30 year money. Then you can pay off that working capital line of credit, or the credit card, or whatever it is that you're using.
Again, for us, it's about educating the client on the strategies of what they're looking to accomplish, but then matching that with the programs and the product lines that are available to them to be able to help them get these transactions complete.
Clint: One of the strategies they tell people that they can set up their business and open credit cards under their business name, so it doesn't report back to their personal credit profile, run all their rehab work through the Home Depot's on those business cards. So when they go in for the senior debt there, their credit score isn't going to show up with all those balances they're carrying or the trade lines that they've set up.
Kurt: Right, which drives their credit score down, which then affects our job when we need to go refinance them. You're spot on. It's shifting that overhead or that amount of capital that's being used that doesn't adversely affect you. We see this all the time too on the business side of things where the owner floats the company with their personal credit cards.
Big mistake, big mistake, because you can set up, like you're saying, those business lines or those business credit cards to keep your personal credit intact. Keep it at that 750 or 800 level, and then it makes our job a whole lot easier when we go to refinance you into A paper debt, because you've got beautiful credit.
Clint: I hope that what people heard here is that you can get into properties where you only need 10% down in order to get that deal under to be able to buy that property. Then you have lenders that will not only give you the 90% but they're also going to fund all your rehab work. Of course the numbers have to work out, it has to go through the appraisals.
Then what you said is that once that's done and all the properties completely rehabbed, then you come in, reappraise a property and you go to an A lender—if you qualify—and you take out that C lender who is charging you a higher interest rate. You get into that more senior level product that you're going to carry for 20 or 30 years so it frees up cash flow for you.
Kurt: Yeah. You really have to look at the business as it's about creating a machine. Over the years Clint, we've worked with the guys that are just starting out doing one, two, or three properties all the way up to the clients who are doing 30, 40, 50 products. That's a real business. That's a business doing millions of dollars of revenue. They've got the teams, the infrastructure, and the systems.
If you're looking to do that, if you're looking to start out, but then get to that level, you have to understand the capital market space. You have to understand how it is you use these programs to, in a sense, rinse and repeat the process of the take down, the rehab, the fix up, get the renter in there, and get it stabilized. Some of the biggest companies that we serve in this space, that's what they figured out. They just figure out how they can start using this lender, get that process done, but then a lot of these bigger companies are doing at much higher levels.
To be honest with you, one of the greatest things that all lenders care about is good borrowers with good track records. If you can create that relationship, that's a huge difference. I want to take a minute to talk to the client about this.
One of the biggest battles that we see is that clients began to hit a ceiling with their local bank. The bank is the first place that a client always goes to for capital, it's great. They're A paper, which you're 3%, 4%, 5%, or 6% of money. It's the cheapest money. If you really dive into how banks operate, they have to be careful from what's called a credit limit exposure perspective.
Also some of these banks—it depends on the bank—love the SFR space, single-family rentals, and some banks don't. Many times, what happens is we'll get really good operators that have created their phenomenal track record and their story to us and say listen, we're maxing out our bank. Our local community bank, our local credit union, we're at $5 million with them. We need to get to $10 million. We need to get to that next level.
When I use the word B paper lenders, people think that that's more expensive money. You have to understand in the SFR space, we have what I call Alt-A lenders. An Alt-A lender is not a bank, but they still have A paper rates. One of the biggest advantages is that these Alt-A lenders, a lot of them have unlimited capital.
What I mean by that is they want to partner with great operators—great groups that have the ability to execute. Whereas the bank might limit you and give you a ceiling of $5 million, whatever the amount is for that bank, a lot of these other groups that's their whole business.
I have great relationships with a lot of the ownership groups of a lot of our lenders and they'll be the first to tell you that's what they're looking for. That they just want to rinse and repeat the borrower that they can keep lending to, the client understands their program, the lender understands their business, and then it's just a win-win. It's a marriage that gets everybody growing together.
Clint: Okay, let's assume that I'm an investor and I have eight properties. Each of those properties has about $60,000–$80,000 in equity and each of them are held in separate LLCs. Could I bring those six properties to you and say listen, can we do a blanket loan, cross collateralize all of these assets to take some cash out so I can roll that into my next deal? Does it work that way? Are you able to do that?
Kurt: You have a great point, which is one of the strategies that we talked about with our clients. The ability to grow again is limited by your equity. It's either the balance sheet equity you have today, it's your ability to raise it or it might be secretly trapped in your existing portfolio.
What you just hit on is something that we do an analysis of when we first meet a client, whether they have five properties or 50 properties. We go through it and we analyze which properties have the most equity and then you hit it again on the head. You either are looking at doing an individual cash out refinance per property, or for an LLC, or we also have the lenders that will do blanket loans, basically a loan against multiple LLCs. Those are the two big strategies that we also look at first because that's a simple easy way for you to boost up your balance sheet equity to then be able to grow and access other properties and keep the machine growing and going.
Clint: On a deal like that, what is the typical LTV? How much can I be looking to pull out? Is it going to be 80/20, 70/30, or 90/10?
Kurt: Again, it's a function of the three C's, and is a function of the A, B, C, D models. Our highest leverage on long-term debt pushes up to 85%, but that's obviously for the crème de la crème. That's where the best of the best borrowers are.
Typical leverage, bridge debts can be in your 65%, 70% range. Obviously, a B, a C, and a D paper bridge lender have to have enough spread or enough margin so that if they do put you into a one year or two year bridge facility, they have to know that the senior debt—the long-term debt which typically pushes the 70%, 75%, 80%, that higher leverage—have a spread there so that they can be refinance. Their bridge deck can be taken out once you're approved your credit score or once you've got the properties fully leased up and occupied.
Understand that the B, C, and D lenders obviously typically go lower leverage because they know that if they're short-term money, 1-5 years of money, that they have to have a spread in there to be able to get taken out by the long-term A paper lenders
Clint: Got it. If they don't understand what you mean by that, what he's saying is that when the A paper lender comes in, there has to be sufficient equity left in your property in order for you to get that deal done. If they took everything or gave you everything, and sucked it all the way up, no way A paper is ever going to take them out and they make their money, these other guys, on the turn.
They don't want to tie their money up for 30 years. What they want to do is get in, get out, and get paid. They're going to help you to a point and they expect you then to refinance them so they can start turning their money again.
Kurt: Yeah, which is where our guidance is huge. Let me tell you a story. As I shared with you, going into this year, we launched two new sister companies; Rainstar Capital Development and Rainstar Project Capital. Rainstar Project Capital finances super large transactions, $25 million all the way up to $10 billion. Rainstar Development Capital is specifically focused on the new construction housing sector. The product that we have is fantastic, because it pushes higher leverage, which is a big deal for a lot of these housing developers.
For the housing developers that were financing, we're doing multi-family. We're doing new construction, mixed use with a heavy housing component. We're doing condo towers, senior housing, but not assisted living, the 55 and older, apartments, student housing, and then we're very big right now into the BTR space—build to rent. That's where somebody's building subdivisions.
One of the deals that we did in my backyard in West Michigan was a $33 million deal. The nice thing about that whole process that we did with that developer is they're building 140 townhomes that they then are going to lease up, rent out, and then they're going to hold for long-term cash flow. In that process, we were able to bring in the larger senior debt product.
The beauty of the program that we have through rents or development capital is we can push all the way up to 90% loan to cost of these single-family homes or multi-family. Literally, I was on a call yesterday on this, they're currently at about 40% done of the project. They have been very busy building those townhomes. Our market in West Michigan is super hot so they're actually at 40% completed, a 100% lease of the 40%. Literally as they're finishing a home, they're getting a renter in there.
Then for that client, what we're going to do is we're going to refinance them into your long-term 20-year money. We'll probably either use agency debt and CMBS debts. The rates have gone up obviously because of some of what's going on in the market for the last 60 days. Before, they're in the low threes. Then a lot of our clients when they get to that level, they just get that long-term debt locked in and they just have cash flow for those things. That's an example, for obviously a larger residential product project.
The same thing holds true if you're just starting out, if you're doing just a one off deal, a one off single-family home. The trick is to learn how to manage your balance sheet equity so that you're free to not just do one house, but two houses, or three houses, or four houses.
That's where these higher leverage products have a huge advantage, especially if there's going to be some sort of build to sell model or build then rent model where you got a rehab component, where you're executing and creating value in the property. That higher leverage is a big deal because it allows you to do other projects and other other properties.
Clint: There's a lot of different investment strategies that are out there. Let's assume somebody wanted to do traditional house hacking or they're going to be renting out rooms and they find a property. How would that work with the lenders? Are there certain things—maybe you haven't dealt with this before—where if they came into Rainstar, they're looking to get a loan, they say they have this property. They're wanting $600,000 for it.
With my income, I can only qualify for $450,000 but because I'm going to be renting out three of the rooms, which based upon room rents in that area is going to generate an extra $2800 a month, I can qualify. Are there lenders that would look at and say, yeah, we can do that deal, because the traditional banks are probably not going to do it for them.
Kurt: The Vrbo and Airbnb strategy is the greatest disrupter in the marketplace currently, Clint It is the ability to take a single-family home that you would get $2000 a month, $3000 a month, for and juice up that revenue and juice up that cash flow. To answer your question, we have all the lenders that are beginning to finance the Airbnb strategy.
I highly recommend looking at it. I'll share with you, as of the shooting of this video, my wife and our kids, we're here in Scottsdale, Arizona. We're staying in a Vrbo. We're on a beautiful [...] golf course where they got the championship course, the stadium course.
Literally, I've had meetings with a property manager that manages this property that my family is staying in. I'm thinking about throwing a strategy together to start acquiring Vrbo and Airbnb properties. The pro formas that this property manager has shared with me, it's set. It's just incredible.
Obviously, you've got to be able to be strategic from a marketplace perspective. You have to know your local market, you have to know what the drivers are here. In Scottsdale, obviously, they've got world class golf, they've got minor league baseball. They just built a huge sports complex down in Mesa. You have to really analyze the local market drivers if you're going to be executing on Airbnb or Vrbo strategy, but it is genius.
You're basically taking a home and you're almost making it like a hotel. When you look at a lot of the marketplaces across the United States, there's a huge opportunity for this strategy and it's a disrupter. It's just like how Uber changed transportation. Airbnb and Vrbo are changing the game and putting a lot of money in a lot of these real estate investors' pockets.
Clint: What I'm hearing is that if I wanted to use that strategy and I wanted to get a loan based upon the projected income, I'm going to have to bring a lot more to the table as far as a pro forma is concerned. Lenders are concerned that they want to know what that market is about, what similar homes are renting for, how much is being generated so they can have a bigger loan against that. But if you don't have it, it's not going to work.
Kurt: The beauty of it, for example, some of the property managers, that I've met with here in Scottsdale, there are software's out there that clients can use. Literally, these property managers, the sophisticated ones, have these software's that can take a property and they can analyze the amount of rent you can get it for whether it's a three bed versus four bedroom.
Another big strategy, one of the CEOs—the CEO of the property management firm that rents this Vrbo I'm in—explained that they will strategically figure out how to add a couple of beds. Obviously, we can rent to families. That's a huge strategy versus just renting out one one bedroom type thing.
Then obviously, if you're in a Vrbo like we're in right now, we're overlooking the beautiful TPC golf course, it has a pool, it has a hot tub, it has all those additional amenities. Those are other ways.
There’s softwares out there that can help analyze that local market, analyze that property, and help figure out the pricing. I guess I knew this, but I didn't know this, but next year here in Arizona, they're hosting the Superbowl. A lot of property management groups are telling me the rental rates are going to skyrocket next spring because they've got the Super Bowl, which always brings them a huge boost to economic development.
It's really about understanding the marketplaces. I highly recommend building teams. I'm sure you've experienced that building your business. I highly recommend all real estate investors have to build a strong team, whether it's using a firm like Clint's, whether it's having a strong CPA, a strong property manager, or using a firm called Rainstar on the capital market side. It's about working with professionals. The better team you build, the better you're going to grow and the faster you're going to grow.
Clint: Alright. You can do the deals in, it sounds like for the people who want to do short-term rentals and other things that are alternative to the standard. What about flipping? If I want to flip properties, do you have products for those?
Kurt: Yeah, flipping is a huge strategy. Obviously, you're either running a build to sell model or built to rehab it and then rent a model. Another massive issue going on right now, which is why we started Rainstar Development Capital, is that America has a housing shortage. Good quality, affordable, market rate homes and multi-family are a big, big need that we see across many, many markets.
The ability to go in and purchase dilapidated homes, homes that need cosmetic, homes that need bedrooms and bathrooms added, is a huge need. Literally the reason that we raised the funds for Rainstart Development Capital is because we feel there's a tremendous opportunity to deploy significant capital. Obviously, that's our new construction, but the same holds true for old homes.
We see markets across the United States that investors are going in and buying up all the old homes and just pouring rehab dollars into those things. At the end of the day, I think it's fantastic. I think not only are there huge profits that these real estate investors can be creating, but I also think there's a huge mission behind it which is, at the end of day, families need homes. The home is the core foundational piece to family life. The ability for these real estate investors to fix up these homes, I think they should be very proud of themselves, just for what they're doing from a mission perspective.
Clint: What are you doing right now in the market? Where do you find most of the money? What type of deals is it chasing currently? I'm just trying to get a sense for if I'm a real estate investor, who the banks are lending to is probably telling me that's an area of the market that they feel comfortable with and maybe I should look at that.
Kurt: Obviously, we're living in a post-COVID environment. It's probably still around, but COVID was a big disrupter. When you look at the commercial real estate space, obviously, the office space game changed, retail changed. Again, some of what we're talking about here, multi-family and single-family rentals are hot, hot, hot. People always need a place to live. They might not go into an office anymore to work, but they need a home to have shelter and provide for their wife and their kids.
Anyway, money continues to pour into the SFR and to the multi-family space. Again, we do see some banks that pull out of that. It’s just not commercial right there. There's not a strong credit tenant like you would get with an office, or a triple net asset, or in any of the property types.
We saw on the commercial side, retail got hit, office got hit, some hospitality got hit pretty hard. When the COVID was first starting, travel dropped. People stopped traveling. We're seeing a huge bounce back on that. It's getting back to kind of pre-COVID levels, but that's kind of the analysis on the commercial side and then single-family and multi-family, it's hot.
We're putting our bet around it, but I think the biggest battle that we have is a lack of inventory. A lack of inventory is stemming from obviously the raise and pricing in a lot of these markets because there are shortages, which is where we're trying to help with regards to new construction.
Second, the rookie or the smaller investor is having to fight the Blackstone's, the BlackRock's, the big big hedge funds of the world. Again, why are the groups with institutional money jumping in and buying up whole neighborhoods at a time? It's because they understand the strength of the homeowner and they understand the strength of the rental market. People need a place to live, which is where that rental demand is through the roof.
My message is if you can play in that space, if you follow Grant Cardone, I don't know if you like him or not, but why is he going after a multi-family? He's raising all this money acquiring properties. Why is that? If you listen to what he says, it's because at the end of the day people need a place to live and they will always always need that, but they might not always need the office building.
I think it's a very strong strategy from an investment perspective to target the SFR space and the multi-family space. We obviously are focused heavily here at Rainstar on that space. I just think it'll continue to grow. We see a huge opportunity on the construction side. You see a huge opportunity, if you can get the inventory on the ownership side from a rental perspective as well.
Clint: Are there any states that you don't loan to or where properties are located?
Kurt: For Rainstar Development Capital, yeah, there's a couple states that we don't touch. We're not big in New York at all because there's the judicial laws. Most states are covered but we do have a couple that we just don't touch basically.
If anyone is interested, I'd be more than happy to share this with you. We have a roster list of the top grossing MSA marketplaces and I think that's a huge thing that most investors need to be really aware of. You need to be following trends.
Obviously, everybody knows that a lot of people are leaving California. Where are they going? Scottsdale, Arizona is huge. Boise, Idaho is huge. Salt Lake City is growing left and right. If you can strategically align your business to ride the wave of where the migration is going, there's only going to be huge profits that you'll generate. I'd be more than happy to share that list with you if you want to post it on this list as well.
Clint: That'd be great. We'll put that in the show notes. This has been fabulous to have you on here. If somebody wants to get in touch with you, what's the best way to do it?
Kurt: Just go to our website, rainstarcapitalgroup.com. We have a tremendous amount of content. One of the things that we have worked very hard on over the years is creating transparency in the capital markets. When you come to our website, you're going to see tons of videos, you're going to see webinars, you're going to see our magazine. Literally on the capital market section of our website, we list out all the different lender profiles and what they're looking for from the three C's perspective.
We, over the years, have really applauded for that focus on education, because again, once the client understands how the capital markets work, it allows them to reverse engineer the results that they want, which is obviously going from one property to 10 properties, 10 properties to 100, 100 properties to 1000. It's just about identifying how to use these different tools in your tool belt to get the end result.
Clint: Great. We'll have that link in there. For people that are watching, they want to go to your website, they can reach out to you. Anything you want to leave in passing?
Kurt: No reach out to Clint Coons and his firm, they do an awesome job. We also send clients his way and just proud of you, my friend, for the company built. You and I know how much work it is. I'm happy to do this with you and continue to grow.
Clint: Kurt, thanks for taking time out of your busy day to do this. The people that are watching or listening are going to get a ton of value. Again, thank you very much.
Kurt: Yeah. Blessings to you.
Clint: Alright, take care.
Do you dream about real estate investing replacing your active income? Make no longer having to report to an employer every day, being able to sit back, and collecting mailbox money on a monthly basis a reality.
Today, Clint Coons of Anderson Business Advisors talks to Dustin Heiner, founder of Master Passive Income and Successfully Unemployed.
Dustin is a real estate rental property investor who was able to make enough passive income from his business to quit his job when he was 37 years old. With his podcast, books, courses, and coaching, Dustin now helps other people quit their job by investing in real estate rental properties. He is passionate about his mission to help others become successfully unemployed and never need a job again. Highlights/Topics: * How did Dustin get started in real estate investing? He needed to find a job to make sure he could provide for his family and never have to worry about needing a job again. * What value does Dustin put on himself? Value does not come from your job. Your value is so much more than anybody could ever pay you. * What did Dustin decide to do? Rather than losing money working just over broke (JOB), start a business: * As an investor, what did Dustin focus on? Single-family? Commercial? Residential, it's not single-family homes only. It's four units and below because that's what the IRS classifies. Dustin buys more rental properties that make a minimum amount. * What are ways that Dustin got financing? Conventional mortgage, private money, and portfolio/commercial loans. * Where does Dustin buy homes for $10,000? There are places that have good homes that other people would want to live in—you may not—that are lower in price. * Who are the experts and what does Dustin do to vett them? People that live there on the ground. Seek property managers that you trust, can communicate, and have experience. * What areas is Dustin looking into beyond residential? Syndications, other people that find, buy, and manage multifamily homes, apartment complexes, and hotels.
Resources Successfully Unemployed Master Passive Income Master Passive Income Podcast on Spotify Dustin Heiner on Instagram Dustin Heiner on Facebook Dustin Heiner on YouTube Free Real Estate Investing Course Clint Coons Clint Coons on YouTube Anderson Advisors on YouTube Full Episode Transcript: Clint: What's up, guys? Hey, it's Clint Coons here. In this episode, I want to talk to an individual who has been investing for years. In fact, he's done so well with his investing that now he is successfully unemployed.
I know that's where many of you want to get in your lives, or real estate can replace your active income so you can drop the W-2. You no longer have to report to an employer every day, be able to sit back, and collect that mailbox money on a monthly basis.
Well, this individual that I have on here, I've been following him for some time. He's been doing this for years.
He's going to talk to you about how you can go out there and create your own rental real estate business income so you no longer have to work. With that, I want to invite Dustin Heiner.
Dustin, how are you doing?
Dustin: Hey, Clint. I'm blessed. Thank you very much for asking. Thank you so much for having me on the show.
I love real estate. It's more that I love what it affords me to do with my life—not having to work a job, [inaudible 00:00:59], hang out with the family, go to the gym, build businesses, travel the world, and do whatever I want.
Also, be on great shows like yours and talk to great people like you. I really appreciate you having me on.
Clint: Great. Well, thanks for coming on. I know that the people that come to my YouTube channel or listen to our podcasts, they're going to really want to get out of you—your life story—what it takes to get to that point where you can replace your W-2 income. Maybe we can start out, how did you get started in all this?
Dustin: Yeah. I'll fast forward to the end.
When I was 37 years old, I was able to quit my job. I call it successfully unemployed because I had enough rental properties making me money and passive income every single month that I didn't need to work. All my expenses were covered by my properties.
Now, I'll go back to the beginning. I've always been entrepreneurial in my life—starting businesses and that business mindset type of personality. I was taught and we are all taught this: we go to school, we get good grades.
Then we go to college, get good grades, get thousands and thousands of dollars into debt. From there, you get a degree. It's a piece of paper that you get. You go around to other businesses and say, hey, can I have a job?
Hopefully, you’ll get a job. They’ll call it a career. Hopefully, you’ll worked there a long time and you’ll retire when you're 65 years old, 70 years old.
I was following that journey. Even though I was entrepreneurial, I still was following that journey.
Now, being entrepreneurial, I started really, really young. I had a newspaper route. That's where you ride your bike and you have your newspaper. You throw them at 05:00 AM and bang them on garage doors, waking people up. I did that.
I had a graphic website design company, skateboard manufacturing business, a pizzeria, and a convenience store. Starting it all from the ground up, but at the same time still working my job.
It was a nine-to-five job working for the county in one of the counties in California, doing IT work—technology work.
I bought one or two properties at the time, and I knew that I needed to become an investor. I knew that life would change if I became an investor. Honestly, life, like for everybody, got in the way.
I paused and stopped investing in real estate because my wife started and I started having kids.
I got to tell you this quick story. By the time my wife had our fourth child, I went on paternity leave. My wife gave birth. I went on paternity leave—that's where the dad stays home with a mom—changes poopy diapers, bonds with a baby, and all that good stuff.
About two weeks, it goes by, and then I go back to work. In that same week that I go back to work after my fourth child was born on a Friday at 3:30 in the afternoon, I get a call from my boss's secretary, like the top dog, and she says, hey, Dustin, would you please come to the boss's office? I said, sure. Then, I hung up the phone.
I've seen plenty of movies. This isn't good. This is Friday at 3:30 PM. This is not normal. This is weird.
As I sat there for a second, I started thinking about two months prior to me going on paternity leave, there were some rumors or some ramblings going on in the county that there could potentially be layoffs. There was a shortage of money coming in.
I immediately shook that off. Like, no, I've been following what everybody told me to do. I'm secure. Nobody gets fired and laid off from the county, from the government. Nobody does. My boss’s think I do a great job. I have 12-13 year seniority here. Everything's going great. So, I shook it off.
Then I got up and I started walking down the hallway to my boss's office. Now, Clint, this hallway isn't very long. In fact, it's kind of short. But every single step that I take, it feels like the hallway gets longer and longer and longer. It feels like my feet have become lead bricks.
The reason why is because it's starting to dawn on me. This could potentially be the time that everything is all taken away from me. While I get it to the end of the hallway, I turned the corner and I saw my boss’s door. His doors’ closed. When I see his secretary there—she's a super sweet, really nice lady—and sheepishly, she kind of grins at me.
She's trying to console me with her eyes because she knows everything about what's going on. I know nothing about what's going on. She says, “Dustin, would you please have a seat?” I go and I take a seat.
I sit there and I start thinking about, oh, my goodness, all this time in my life, building up to have a “career,” if that's taken away from me, was that all a waste? Then I start questioning, well, if I can't provide for my family, does that make me a failure as a father? That makes me a failure as a husband, as a man trying to provide for his family?
Well, as I'm sitting there, my hands get all clammy and my forehead gets all sweaty because the nerves are just racking me. The weight of everything is starting to crush down on me.
Then the door to my boss's office opens up and out walks a lady, a co-worker of mine, with a piece of paper in her hands. She is noticeably distraught, noticeably upset, but not necessarily crying. You can tell her world has been rocked. She passes by me, and my boss says, “Dustin, would you please come into the office?”
I get up, I go into his office, and I get laid off. Remember, this is the government. Nobody gets fired or laid off from the government, but I did. It happened to me. It could happen to anybody.
I take that layoff notice. I went back to my desk, I sat down, and I realized two things sitting there. This is the reason why I'm telling you a story.
The first thing was I needed to get another job. I need to be able to provide for my family. I was really, really blessed. Praise the Lord to be able to find another job in the same county, hold another Sheriff's Department. Great, great job and everything. Same position, which was great. So, check.
As I'm sitting in that chair, I realize the second thing that I'm trying to encourage everybody else to realize.
The second thing was I need to make sure that this never, ever happens to me again. I need to make sure that nobody has the ability to take away my ability to feed my family. Right then and there, I realized whenever anybody would ask me the question—we all get this question—hey, what do you do? They're basically asking you, what value do you put on yourself?
I was just answering my job. I work for the county. I do IT work, projecting my value as being my job.
No, my value doesn't come from my job. My value comes from my God, myself, and from my family. Right in there, I realized my value is so much more than anybody could ever pay me.
Everybody, listen, you could realize this as well. Your boss is only paying you just enough to keep you working without quitting, but not so much money as taking money out of their pocket. I realized my value now that I knew I needed to be an investor.
Life got in the way. I said, no longer will I ever let life in the way. I started telling every single person I am an investor. It might so happen that 100% of my money comes from my job. That's now my part-time job. I'm a full-time investor.
Now, fast forward the story. I started buying property after property after property, each one making me $250 or more in passive income. After 30 plus properties, it took me about 5-6 years to actually get enough properties, where I realized even though I'm making $75,000 a year here at this job, it's a JOB. You're living Just Over Broke—I like that acronym.
You're living Just Over Broke. With that, I said, you know what? I'm losing money working here. I need to build my businesses.
I went to my new boss and [inaudible 07:50] went to my new boss. New boss is great and everything. I went to him and said, boss, I'm laying you off. Here’s your two weeks notice.
He said, “Dustin, what are you going to do?”
I said, I literally don't have to do anything. I have real estate that makes me money without working. I don't do a thing. I left.
I'll round up the story by sharing. If you remember that hallway, that short hallway that got longer and longer where my feet became lead bricks. While I walked to my car—I worked downtown, a mile and a half walk. I've done this a thousand times. I felt like I was walking on clouds because I knew I invested in real estate, I didn't let life get in the way ever again, I now would never, ever need a job again.
I'll pause the story. You probably got plenty of questions, but that's how it got me. I want everybody to realize that if it happened to me, it can happen to anybody.
Clint: Yeah. That's the thing why a lot of people invest so that they don't have that fear of loss any longer. I've seen real estate change lives. My daughter is an investor now. She's 23 years old, she has three rental properties.
Every day she sits there. Well, not every day, but she'll sit and talk to me about it and say, “Hey, dad, I just need 10 more and now I can completely replace all of my income that I'm currently earning.” That's encouraging when I see that.
As an investor, what did you focus on? Single-family? Commercial? What? Where'd you go?
Dustin: My bread and butter is residential. When I say residential, it's not single-family homes only. It's four units and below because that's what the IRS classifies. The banks are different when you get above. Loans are different when you get above five units. I love four units and below. Those are my bread and butter.
What I focused on was buying more and more rental properties that would make me a minimum of $250. I think your daughter is 100% brilliant in thinking, I just need this many more. That's how I got to be able to quit my job.
I realized if every property made me $250 or more in passive income—remember, that's the minimum, then it's just scaling or just multiplying it out. If I had one property making me $250 a month, that's $3,000 a year without working. Then, 10 properties is $2,500 a month, $30,000 a year without working. Then, 20 properties, $5,000 a month, $60,000 a year without working.
You'll hear me say this all the time, we build the business first. That's how we do this business, right? We don't just buy a property and hope it goes well. We build the business. If we do that, then we can scale the business so we can quit our jobs.
Client: Okay. The thing is, if I'm sitting back and I'm listening to this right now, that sounds great and all, but the number one impediment that a lot of people are going to have is how do you qualify for a purchase?
You need that income still coming in. Is your wife working? What do you tell people that want to get to where you want to be? They’ll say, well, if I buy and have three properties, I'll quit. But that's not going to be enough income for them so they can buy more, right?
Dustin: Totally not. Everybody has different risk tolerances. I have a wife and we have four kids. She wouldn't let me quit until we had enough properties that we were well above.
Other people have a little more risk tolerance. They can quit sooner than that. For me and to answer your question about the financing aspect, what's interesting about real estate investing is most people believe there's a couple of ways to buy properties.
One major one—everybody knows this because we buy houses for ourselves to live in—you find a realtor and a mortgage broker. You put them together and you buy a house. That's just one way.
In fact, I counted, I think there’s 15 different ways to get financing for a specific property. I will say if you have money, it's much easier. It is possible to buy properties with low and no money down, but it's just very hard.
Once you have experience, now, I buy properties with no low and no money down because people want to invest with me.
I'll jump right back to, if you're going to start, you want to start, and you realize how much money I have or all these sorts of things, what is really interesting is there are so many ways to get financing.
If you have a really good deal, you're going to find somebody that wants to invest with you. I'll give you a couple quick run through of ways that I've actually got financing.
Definitely a mortgage—regular conventional mortgage. We can definitely do that. I've got private money—friends, family members, other businesses, people that I know. I've got hard money as well. Not banks, but other institutions or other companies that are lending their money.
I've even done portfolio loans. That's where the bank loans you the money and they hold onto the asset instead of selling it. This is another one, a bundle loan. I've done a commercial bundle where you bundle a bunch of properties together, pull the equity out. Done that many times.
Commercial loans. I've even done a signature line of credit with a bank because I wanted to buy a property. This is an advanced strategy. Again, these are all advanced strategies, especially this one. I've used a credit card to buy a property because I knew—remember, that's an advanced strategy—I built the business first.
If I buy, let's say a box of something. Let's say Widgets. If I buy it for X dollar, but I can sell it for twice that, of course, you would figure out a way to buy it with whatever cash you have because you know you can sell it.
For me with my real estate investing business, I know that I build the business first. I could definitely walk you through how to build a business first the right way. But, I built the business first and then all I do is I make sure all my expenses are accounted for before I buy the property.
Then when I buy the property, I make sure I make money in passive income, which I suggest $250 or more in passive income.
Long-winded answer to share, you don't need a lot of money to get started. In fact, I also coach people and show people how to do this. I don't take on any students that have less than $10,000.
If you have $10,000, we can do a lot with $10,000. Less than that, it's just really hard. I'll quickly say that people might say, well, Dustin, where do you buy homes for $10,000?
There are a lot of places in the country that have really good homes that other people would want to live in—you may not—that are lower in price. The Midwest is fantastic. Get out of the Carolinas and into Florida. Really great properties.
I had a student. I'll say this last thing and I'll let you ask your question. I have had one student recently. He lived in Sacramento. He's a pastor. He has a house that's appreciated a lot. He didn't have any extra money, but he knew he wanted to have investments.
Working with me, we did a home equity line of credit on his property. He had $200,000 to invest. Well, we took that $200,000, and used that home like a line of credit to buy a house. What was it? Was it Tennessee? Ohio? I have numbers but I can't remember exactly.
He bought a house and he bought it for $47,000. It's appraised for $103,000. What's great is as an investor, we buy it for less than it's worth, capture that equity. Since he had that $47,000 of his own equity in his house, he's now refinancing that property, pulling 75%-80% of that money out.
Remember, it's appraised for $100,000, so he could pull out $70,000. He's up maybe $20,000. He'll pay off his own equity line of credit and he has $20,000 extra by the next property. Fast forward to say it's 100% possible if you have the idea or if you know where and how to do it.
Clint: I think a lot of that comes down to where you're going to invest. That's always been a challenge for many people who want to get started in real estate, but they live in a blue state where everything is really expensive and high taxes.
Between the property taxes or I got some mayor that's going to come in and tell me I can't collect rents or evict my tenants, where do you direct people to go find these deals?
Dustin: I direct people to landlord-friendly states, number one.
Let's say I do invest in Akron, Ohio. That's one city that I invest in among many. They say, hey, you invest in Akron, you're the expert. Tell me about it.
I said, no, no, no. Just because I invest there doesn't make me an expert. I'm not an expert. Who are the experts? It's the people that literally live there on the ground.
Zillow is not an expert. Trulia, Redfin—all those websites—they're not experts. They don't live there. They don't know what's going on.
I actually want to walk you through how to build a business first. When you do that, then you can invest anywhere, all over the country. It doesn't matter which state you live in. In fact, when I first got started, I lived in California. I started investing in Ohio, Texas, and Arizona.
Since then, my students and I have been investing all over the country. It doesn't matter where you live. It only matters where other people will live. This is what we do.
Actually, let me quickly give you the wrong way that the “gurus” will tell you, this is what I did. This is the wrong way. I did this. Within six months, my property manager started stealing from me because I did it the wrong way.
The gurus will tell you, you buy one property, that property is your business. They'll also tell you, okay, you find a property anywhere in the country, then you run the numbers. Run the numbers meaning calculate expenses, make sure you're making a little bit of money. They’ll suggest $50 a month in passive income because you'll get appreciation.
Pausing that, I don't invest for appreciation. This is generational wealth that I'm creating. I have four kids. I'm literally going to give these properties to my kids as well as teach them how to do it.
Getting back to it, they'll tell you, run the numbers. Anywhere in the country, run the numbers. Then spend thousands of dollars to buy the property. Then spend thousands of dollars to fix up the property. Then find a tenant to live in there. Then find a property manager to manage the property.
In my opinion, that's just about backwards. What I do with Master Passive Income, all my coaching and everything, is we build the business first. Remember, that was the wrong way. Here is the right way that you're going to do it. We build the business first. I'll give you an example of what that looks like.
Clint, if you're going to create a convenience store—candy bars, soda machines, and stuff like that—you're not going to sign a lease on a location, open the doors, and set a box of candy bars in there on the ground. No, you wouldn't do that. You’ll go out of business in two seconds.
What you would do, though, is you build a business. You’ll get the gondolas. Those are shelving units that all the candy bars are on. You get the countertops, cold storage, fountain machines, bank accounts, cash registers, insurance employees—literally everything in the business before you buy any inventory. Same thing with real estate investing.
Remember, my property manager started stealing for me because I did what everybody else was telling me. Then I approached it. I said, you know what? I love business. Maybe I should approach this as a business mindset.
In doing that, I made sure I had the experts who live there on the ground do the work for me. No matter. I don't want to visit these States that I invest in. It's not necessary, so I don't. I have the experts there.
What we do is we find the property managers, the contractors, the roofers, the plumbers, inspectors, mortgage brokers, realtors, and wholesalers. We find all these people who are experts who literally live there that are going to help us to make sure we're doing it right because they don't want to lose our business. They're going to make sure we're doing it right.
With that, what we do then is we buy inventory. We build the business and every property that we buy is a piece of inventory that we put into the business. That's how we're able to scale our business so quickly. Our property is not a business, our business owns inventory.
We can do this all over the country. In fact, I even have people that live out of America, like Canada, Switzerland, and Israel. I have students from there. They want to invest here and they do. I just show them the principles.
My goal is to show them how to fish, not just give them a fish. I want to teach them how to fish. That's how we can do it literally anywhere, all over the country.
Clint: Yeah. What you mentioned there about building the team, I have similar stories as well, where I got screwed over by a property manager.
Finding a great property manager, I found when you're coming into a new market, it can be essential to opening up deal flow for you. Those property managers, they know who the investors are, who the property owners are. When those property owners are looking to sell, they're communicating that back to the property manager. Those become those opportunities for you to step in.
Plus, you get an idea of the rental income that's coming in from those properties in that area so you can make better decisions, what I found, in investing outside of state.
When you talk about the experts, how are you vetting these experts?
Dustin: I love that question. It's a brilliant question. If you listen to the “gurus” who tell you to do everything the wrong way, like I shared, you're going to go and eventually try to find a property manager. You might not find one.
In fact, you might talk to the property managers and all of them are saying, well, I'm not going to rent there. Or, I'm not going to manage that property because I'll get shot there. I don't want to go there. Then you no longer have an asset. You now have a liability.
With that liability now, you're not going to be making money. You're worried completely about your property.
What we do is we vet the property manager just like you are going to find a manager for that convenience store that you hypothetically would build. You're not going to just grab somebody off the street and say, hey, you say you're a manager. Let me bring you in here, put you in there, and run the business. No, you got a business. They might steal from you. They might just run it wrong.
What you would do is you would interview the managers for your business. Same thing with real estate investing. That's the number.
Clint, you're 100% right. Our property manager, they are our quarterbacks. If you think of a football team, they're going to help us. They're basically the leaders of everything. They're going to make sure we make money. They're going to make sure we save money. They're going to protect us from anything going wrong, and make sure that since they're the experts, they're giving us the right advice. They're not going to want us to go wrong. With that, we've got the property managers.
My suggestion, this is what I teach all my students, is we don't just call, let's say two or three property managers. We literally call six or more property managers and we interview them multiple times.
Texting is not an interview. Email is not an interview. An interview is a Zoom call. If you can get them there, which they're probably busy with, that'd be hard to do. Just call them on the phone, talk to them on the phone, and interview them multiple times.
The big reason why, we're looking for property managers that we can trust, that can communicate to us, and that have experience.
In phone calls, most people, in talking to one person one time, can get a sense personally, if they feel like they can trust a person. Some people can kind of pull the wool over your eyes for one call, but over two or three calls, it's harder for them to continually pull the wool over your eyes. That's one.
If your property manager doesn't call you back before they have your business, meaning communication, trust, and the communications next, before they have your money, imagine how bad it is when they have your money.
Like, oh, this guy again, I don't want to talk to Clint. I'm going to hang up or not even answer. When they have your money, it's so much worse. I experienced that.
Also with their experience, we want to make sure that they have the experience in their background as well as in the interview. I give my students literally a list of 22 questions that they need to ask in interviewing every single property manager and the answers for what they should answer. With that, they'll see if this property manager has experience.
I've had countless students say, you know what, Dustin? I went through your questions and they couldn't answer them. They didn't have an answer for some of these questions. It just shows that they have a lack of experience. They might still be great, but it just helps us to formulate the right person to hire for our business.
Your 100% right. The property manager is literally the quarterback of our entire business.
Clint: Yeah. I've told people in the past or they've seen me talk about this before. We started in a certain market in Winston-Salem. We actually went out and went to the used appliance store. We started figuring out who the property owners were by asking the used appliance guys who are the big landlords in this area. Then we start canvassing them and seeing if they're willing to sell any of their properties.
A lot of times you'll find in more mature markets, you have older owners and they're looking to retire to get out of that. That's what we found in our own investing.
Now we're buying typically on average, 50-100 properties, in these pools from people who just want to get out of the business because they're tired of rental real estate. They don't see it as generational wealth as you're talking about. That, I think, is important, and I hope people understand that.
In this market today, though, it's a little different than it was five years ago or even just 2 ½ years ago. Things started to heat up.
Now, when you're out there trying to find deal flow, what has changed for you in that deal flow?
Dustin: Every single year, every single market cycle is going to look different. When I first got started investing, I didn't have very much money. It was in 2006. The crash was in 2008—when the real estate market crashed.
Here's the great thing about how I invest in real estate. Remember, I don't invest for appreciation. Appreciation is great. I love it. But, I'm going to give these properties to my kids, I'll refinance that appreciation—that equity out—and buy another property. That's what I do.
I did not, in 2006, invest for appreciation. I knew many investors that did invest for appreciation. They're the ones that went bankrupt because they weren't doing it right. What I did was I invested for passive income, and every single property made a minimum of $250. No matter if the market went up, if the market went down, or if the market went sideways, I still made money.
In 2008, when the properties crashed, I was like, oh, my goodness, the value is cut in half. Oh, well, I'm still making $250 a month in passive income. Now, those properties are now double or triple what they were back when it crashed. My rents are double and triple what it was back then. There was a minimum $250. Now some are making $500, $600, or $700.
To answer what's going on right now, the biggest thing that we need to do is watch out for passive income, how we're going to be making passive income from the property, and then also guarding against spending too much money for a property.
I'll give you an example of what that looks like. You don't want to buy a house that you're getting a $500,000 loan to make $250 a month in passive income. What if your tenants move out? You have a mortgage that's going to be costing you, what, I don't know, $2000-$2200 a month? Well, at $250 a month, that's only $3,000 a year that you're trying to feed your family on.
If you have one month where it's $2,200 hit, that only leaves you $800 if there's anything else that's basically feeding your family.
What we try to do is buy lower priced homes. Remember, we're buying inventory. Just because you might not want to live in a certain state, let alone that specific house, it's totally fine.
Just like in a convenience store, I'm going to buy so many different types of candy bars. I may hate every single one of them, but I'm not eating them. My customers love them, so I'm going to provide a service for you. Same thing with real estate investing.
You need to find the areas where people are renting and prices where I would suggest anywhere from, let's say $60,000-$70,000 to maybe $180,000-$200,000 to get reaching the top because there are places where you can buy them for much lower, capture a lot of equity, and get a lot of passive income.
Trust me, people will love to live in those properties. Just because you don't, doesn't mean that everybody else won't either.
That's the thing that we do. We look for passive income by the prices for the properties for much lower in price, and capture equity. On top of that, we make sure that we have a business that runs it.
People heard of the book The 4-Hour Work Week. I think working four hours a week is for suckers. I don't want to work four hours a week. I don't want to work four hours a month. I literally work maybe 30 minutes a month.
I have one right here, one property management statement from one of my property managers. I just pull up the statement and look at it, to make sure everything is good. Then set aside and go back to play with my kids.
When you're looking at today's market, there are deals. They're just harder to find. If it's hard to fish in a certain pond, then you go to somebody that actually has done it before and say, hey, this is where you fish.
That's what I love doing with my students—show them new areas where they can invest and all that sort of stuff.
Clint: Yeah. That's where a lot of people are looking for right now—finding those areas.
One of the things that you mentioned about 2006 and the crash, what I found with my own investments in that period of time is you're right.
If you buy too high, unfavorable terms, and you think you're going to get appreciation, you're going to screw yourself on the back end because those people are all going to lose those properties. Your income isn't going to support your debt.
If you buy right, that is going to ensure that I'm not investing for appreciation. It's always about cash flow. I always have enough to cover my debt. Many times when you go through a correction in the market and there's a compression in the availability because banks are taking properties back, what I experienced was that my rents went up.
There was a period of time between 2010 and 2013 that I was just pinching myself with how much I could make because people were displaced. They didn't have a home anymore. They had to rent.
As I saw more deal flows or more properties start coming back onto the market, I had to start lowering my rents again to stay competitive. When that fear comes into people's mind, how the media is talking about rates going up, potentially there's something going on with the mortgages, and might be a collapse. I tell people, like you said, as long as you buy right, you shouldn't have any fear there.
Dustin: You're totally right. I found that most people have a fear of investing, even if you're just getting started, they feel like it's too risky. What's really even more interesting than that, I can teach literally anyone how to invest in real estate. I've talked to hundreds and hundreds of students. But to get them over that hurdle in their minds of that fear, I can't do that. That's on them.
Now, what I had to realize, the reason why I told that story the very beginning, is that I now believe and know it's so much more risky to put my life, my family's life, our food, and being able to pay our bills, in somebody else's hands where they can literally take it away is more risky for me and my family to do that.
Fast forward now, I literally have five businesses including on top of my real estate investing businesses. Imagine 40 plus hours of your life back on top of the freedom that you have as well, that you can create even more businesses.
I love the term passive income streams or streams of income. I love that. Even though I have lots of streams of income, they all flow into my river of income, which is my real estate investing. That's where all my money goes back into.
That's where the wealthy lock in the value of their money in real estate. They make money in real estate. They get tax benefits in real estate. There's so many great things.
All my passive income or all my income streams go into my river of income and I just get more and more properties which is great. I can literally, just like I said, give them to my kids in generational wealth. Bye.
Clint: Yeah. So before we got started today, we were talking about your various investments. As you accumulate assets, you begin to diversify and find other opportunities. What areas are you looking into yourself beyond just residential right now?
Dustin: Yeah. I really appreciate the syndication. Basically, other people, what they do is they find multifamily homes, apartment complexes, 50,000 units, or whatever variation between. Multifamily, lots of people in one general apartment building type thing, as well as hotels. I love investing in hotels as well. Hotels, they're money makers.
With that, now that I'm blessed, I don't actually have to do the work to find the apartment complexes. It's just like Monopoly. You buy land, you put a house on there, you get more houses, and eventually move it to multifamily. That's where you start making money.
I don't have to because I have enough money, and there are good syndicators—people that find deals, manage them, and buy them. They need investors—people with money to go and invest with them. Now, I'm blessed to have enough money where I can actually just give them the money.
With the multifamily, what's great is I literally just invest my money, I lend it to them, and I get equity in it. It's not like literally a loan, but I get equity in the deal.
I got two hotels in a syndication deal. I make, I think, 9% a quarter on all the properties. Plus within 2-3 years, I think they're trying to sell to where I get twice my money back. It's looking really, really good. That's what happens with syndication.
My bread and butter is with residential, four units or below. If I'm going to do it myself, that's super simple. I have businesses built. I just buy more properties now, from multifamily, even land investing. I love land investing as well. I'm not a big fan of mobile homes, but I love storage units. Storage units are fantastic.
There are so many ways to invest in real estate. You just need to figure out what's the right one for you. Like I said, my bread and butter is the residential. I know that like the back of my hand. I could do that with my sleep. Now I'm able to branch out and do other investing.
Clint: Great. Well, now you have a number of resources available. I've been to your website, you got a book making money in real estate that you've put together. You have the Successfully Unemployed Podcast.
If somebody wanted to learn more and connect with you because of all those free resources, where would you direct them?
Dustin: Yeah, absolutely. Actually, I have a real estate investing course I love just to give away for free. Do you mind if I share it with everybody?
Clint: Oh, yeah, absolutely. I'll make sure it's in the show notes as well.
Dustin: Awesome. I'll give you my real estate investing course for free. I just want to help people. This is just fun for me. I’ll show you how to find an area of the country to invest in, how to build the business first, how to buy the right properties, make $250 a month, and scale your business to quit your job.
You can text the word “rental” to 33777 or you can go to masterpassiveincome.com/freecourse. I'll literally give it to you. I just want to help as many people.
In fact, my first goal was to quit my job in 10 years. When I was 27 years old, in 10 years, I'm going to quit no matter if I have the ability or not. I was blessed to be at 37 to be able to quit my job. Now, my new goal is to teach and show a million people how to invest in real estate.
I'm just going to try to give this away. Plus, like you said, the Successfully Unemployed Show, where I interview great people like you and other people who are successfully unemployed, My Master Passive Income Podcast, the YouTube channel—it's literally just me.
I don't really do interviews on that because it's just me teaching, just giving away all this information. Get it and take advantage of it. I want to see you invest in real estate.
Clint: Those of you who follow me on YouTube, you know that what I do is all about education. That's what I learned about Dustin as well.
When I started following him, I saw that he takes the same approach. That by giving, you're going to help so many more people be able to achieve their dreams. Some of that will come back to you as well because they'll want to maybe possibly use your services.
That's not what he's about. He's about showing you how to take it, get started, and how to take it to the next level. I've watched many of his videos. I definitely think you should check that out.
Dustin, anything you want to say in [inaudible 00:35:22]
Dustin: The biggest thing is when you're investing, go for passive income and build the business first. I'll show you how to do that.
I really appreciate you having me on, Clint. It's been a lot of fun.
Clint: Excellent. Thanks for coming.
How do you become a real estate millionaire without using your own credit or money? Learn to implement and use various real estate investing strategies to grow your own portfolio.
Today, Clint Coons of Anderson Business Advisors talks to Daniel Kwak about reaching 87 doors in a year and becoming a real estate millionaire by the time he turned 24 years old.
Over the past 7+ years, Daniel and his brother, Sam, have built successful real estate investment companies, educational courses, coaching programs, and software to help emerging real estate professionals grow their own real estate investing businesses. The Kwak Brothers are on a mission to help as many families as possible achieve financial peace of mind. Highlights/Topics: * Daniel’s Dream: To constantly learn, experiment, expand, and grow * Why Daniel got into real estate: Of top 1%, 76% earned money via real estate investing * Daniel’s Problem: He had no money, no credit, and minus $187.65 in his bank account * Four Currencies Concept: Time, money, knowledge, and relationships * Daniel’s Philosophy: Never look for properties but for people to solve their problems * Daniel’s BOLD Strategy: Build trust with older landlords/property managers to find deals * Seller Financing Benefits: Tax advantages, make money as bank, and passive income * Build a business by using FORCE: + Find the property + Owner-finance it + Raise the capital + Cashflow it + Expand your empire * Rent Bubble: Increasing rent has priced out tenants from entering housing market
Resources Daniel Kwak’s Email The Kwak Brothers’ Website The Kwak Brothers’ YouTube Channel PropStream Clint Coons Clint Coons on YouTube Anderson Advisors Anderson Advisors Tax and Asset Protection Event Anderson Advisors on YouTube Full Episode Transcript: Clint: Hey, what's up, guys? It's Clint Coons here. In this episode, what I want to do is introduce you to someone that I've been following. I was just really impressed with his life story. This individual had 87 doors—get this—by the time he was 24, and he didn't do it with his own credit or his own money.
This individual that we're going to be bringing on today is Daniel Kwak. He's got a great YouTube channel—a huge following—and he talks all about various real estate investing strategies that you can use to implement in growing your own portfolio or about the financial aspects of investing. It's a real treat to have him on basically to share with you some of the strategies that he's currently using and used in the past to put him where he is today.
Daniel, thanks for coming on.
Daniel: Thanks, man. I really appreciate this. It's an honor.
Clint: Excellent. Your story is so compelling—to be a 23-year-old, go out there as you were telling me, start investing, and realize this is a tough nut to crack if you don't have a great credit score and a big, thick wallet. How did it all work for you? How do you get this thing going?
Daniel: To your point, I'll just paint the picture of where I was. My family and I actually emigrated to the United States when I was five years old in 1999.
On a side note, I was a huge basketball fan in South Korea. When we flew to Chicago and O'Hare, literally, the first person I saw on TV was Michael Jordan. I was like, oh, this place is cool.
But nevertheless, I still remember we were at Domino's. We waited 45 minutes because I had won a reading competition that got me a free pizza that was probably the size of a Samsung Galaxy 20. I still remember our family waiting 45 minutes. My dad actually used a pair of scissors to cut the pizza into four different pieces. That was our dinner that night.
Many nights, we're sleeping in the car because we couldn't afford to pay the heating bill. I actually remember we were in the park one time. I saw my mom picking up different plants and weeds, and I saw that on the dinner table two hours later.
Life was definitely interesting, but when you're a kid, you don't really think that you're poor. You think everyone just lives this way.
I will say that's the genesis of why I do what I do today, why I get out of bed in the morning, and why I will still, to this day, read real estate books just looking to learn new things, looking to experiment, and looking to constantly expand and grow.
I remember when I was six years old. Ever since I was a kid, I always had a tough time sleeping. It was about 1:30 AM, and I looked out. We lived next to, let's call it, a gentleman's entertainment center. Let's call it that.
I saw this man who was probably about in his mid-40s who was stumbling out and was clearly intoxicated. He had a really nice, shiny watch on. I still remember the street lights bouncing light off of his really fancy watch. He wore a suit that was probably costing maybe between $3000–$4000. He got in the car. I don't remember the exact brand, but I remember it did have a big L in it. It was a super nice car. He's driving away, and of course, he's swerving.
I look over 90 degrees to my left and I see my parents sharing a twin bed in a room that doubled as our dining room table, kitchen, living room, and also as my parents' bedroom.
The question that I asked myself was, man, what would it look like if my parents had the ability to produce the resources that that guy who was stumbling out of the gentleman's entertainment center had, or vice versa? What would it look like if the guy who was stumbling out at 1:30 AM had the heart that my parents did? My dad was the type of man who would give the shirt off his back even if it was his last shirt.
That's what inspired me to want to do something big. I'm a faith-driven guy. I tell people all the time that you can't serve a God that's so big and dream so small at the same time.
At 17, I read an article by Forbes magazine saying that out of the top 1% of people in the world, about 76% of those people earn their money by investing in real estate. I said, man, that's what I got to get into, except the only problem was I had no money, as you said. I had no credit, no money, nothing.
Actually, a commercial lender at one point laughed at me when I was 22 years old. I told him I want to get into buying apartment buildings. This was after I told them my DTI, my credits, and all these things.
When I first started learning about real estate at 18, I had -$187.65 in my bank account. I still remember seeing two credit card max balances. Those maxed out. I still remember that night where I dug through the dumpster looking for my dinner. It was a really interesting time. You see that kid and you're like, okay, that kid is going to invest in real estate. Yeah, okay. Let's see about that.
Then, I learned this really interesting concept that there are actually four currencies in the world. There's time, money, knowledge, and relationships. Although I didn't have the money portion, what I did have was time. I had the ability to receive and gather knowledge and also gather relationships and network. I had this core belief, this conviction, that I could use time, knowledge, and relationships to create something for myself and to create something huge and fantastic. That's what sparked the information and the inspiration journey aspect of what I did of the blueprint.
Clint: When you went out and started finding properties—we're talking about this and we're comparing stories—tell everyone about how you approached the acquisition side. How did you start contacting sellers and finding deals that were available?
I think that really helps people that feel in this market. Particularly right now, we always talk about it. You don't go to the MLS, right? I've heard you talk about PropStream before. It's a great service that people can utilize, but even then, when you use PropStream, a lot of times, you call them up and you've already lost those deals. They've already been sold. Explain what you do.
Daniel: I tell people all the time that markets may change, but people never do. The great real estate investors I know—not the good ones, but the great ones—always view every single deal through the lens of, what problems can I solve? Whether it's 2008, 2009, 2022, or 2024, there will always be people with real estate-related problems.
For me, the harsh reality and the philosophy I developed very early on that eventually trajected and catapulted me towards having a set of strategies that I use to gather deals where nobody has access to—that philosophy, that catapult—was you never look for properties. You always look for people.
If you're always talking about problem-solving and that's the genesis and the mentality of how we actually build a real estate career and organization, we got to look for people. The properties just happened to be the asset that's exchanged, but really, the business is between two people. It's between a buyer and a seller. The buyer has a set of needs and desires to fulfill for his or her investors, and then the seller has the same obligation, but they just have a set of problems that need to be solved.
The question I started asking myself is, well, how do I find the best people? I looked at what my product was. I said, at the end of the day, real estate is just like a business. I have my marketing, which ultimately is supporting my sales, and then my sales eventually promote and close my offer. If I'm reverse engineering and I'm asking myself, man, how do I find good deals, well, I got to know what it means for me. What does it mean to have a good deal?
For me, my product at the time was multifamily buy and hold, still is. It's an apartment complex buy and hold. It was funny because when people ask me, Daniel, how do you raise capital and how are you such a good salesperson, the reality is I'm not. I'm not a good salesperson. I just am very good at creating a situation where people want to buy.
Even with my investors today and even back then, one of the things I used to do is I had an irresistible offer. I tell everybody, you need to have an irresistible offer. I used to give investors 100% of all the depreciation. There are a lot of other things that I did that really incentivized investors, but in regards to finding deals, I looked at my product. It was an apartment complex buy and hold. But another aspect of that product was selling the financing. For me, I couldn't get bank financing deals, not only because of my age and my lack of experience but also my finances. They just weren't in the best situation.
I started asking myself, okay, if I have to buy property seller financing, how can I create a win-win? Because remember, it's about people. How can I create a win-win for the other person on the other end of the table?
I spent about a week researching all the benefits that seller financing offers to the seller, and I got a list of about 6–10. I actually got it down to three. I compiled everything, made a list as big as possible, and I took the best three because psychologically speaking, I think the human brain actually averages out the top three as opposed to the whole list.
Those three were potential tax benefits, and number two was making money as the bank, which of course, the banks are currently the richest entities in the world. Between the potential tax to firms, you make money as a bank by making interest, of course, and all that interest is front-loaded. All that profit is front-loaded because of the amortization.
Then, last but not least is the ability to still be involved with the real estate industry but have passive income. For me, it's never about the geographics or the demographics. It's always about the psychographics of who I'm working with. Whether that's an investor or seller, I want to know how people think. I'm obsessed with that.
I want to know what helps them go to sleep at night. I want to know what makes them get up in the morning. Because at the end of the day, my personal vision is to provide people peace of mind. Even for all our companies that my brother and I own, at the end of the day, it's to provide people with financial peace of mind.
Those are the top three things, and then those are the benefits for the sellers. Then, the question I ask myself then was, well, who resonates with these benefits? Who are the sellers and the landlords that really resonate with the potential tax deference with having their money make money for them and then also continuing to receive passive income?
After a lot of great conversations with my mentors, with myself, and just a lot of research, I found out that—I'm going to be very careful—seasoned landlords were the best people to target because these were individuals who owned properties for more than 27 ½ years. They have so much depreciation recapture at closing. It's going to be quite interesting for them.
Clint: You wanted to be nice about it. I'll just say it. You say look for old people. That's what you're looking for, right? Old people like me or maybe a little older than me like my father. My father's 76.
Daniel: I don't think they're old guys.
Clint: Yeah, but my mom's always like, you need to get rid of these properties because you're always out there, you're working on them, and they're a hassle. [inaudible 00:11:52] my dad, don't worry about it. I'll take them over. I'll just give you the income, and I'll manage them and run them for you.
But you're right. That's the mindset. The older generation wants out.
Daniel: It's the psychographics because even to your point, Clint, 90% of all these older landlords—always, 90% of time—had a wife who was like, when are you going to sell those properties? When are you going to get out of the game? When are we going to be able to travel?
It just always made me chuckle because I used to always have great banter with those individuals. I made little jokes here like, don't worry, Mrs. Johnson. I'll make sure your husband sells me those properties.
Clint: You target the wife because she'll make the husband do what you want.
Daniel: That's right. I targeted older landlords. That is exactly what I did. The next question, of course, I asked was for me, what are the best ways to find those people? Because obviously, conventional mainstream wisdom in the world of real estate investing is for everyone to do direct mail campaigns, [inaudible 00:12:53], or use a wholesaler. For me, when I look at the individuals that I was targeting, I saw a different set of channels of being able to find properties.
One of the things I did—I know you and I were talking about this off the air—was building relationships with property managers who are 25 years in the industry because I knew that those guys had a group of their buddies who also owned properties for 25, 30, or 40 years.
I started reaching out to property managers, and I decided to create a little arrangement between myself and them. I went up to them and said, hey what's the minimum number of units you have to manage in order for your office to stay afloat?
I would target these property managers that had between 100 to about 600 units under management. They would always give me a different answer like, oh, I need at least 175. I need at least 187. I need at least 196.
I ask them how would you like to have a situation where you never go below the number you're at right now for management? They're like, go on. I'm listening.
I would say, well, next time you have a client that wants to sell, have them call me first because I've got investors I've raised capital with. I've got this. I'm looking for properties in your area. Have them call me, and I'll keep you as the property manager. Worst-case scenario, if you and I don't work out and if I don't think that you're that great of a manager, you can make your commission by being the broker.
They love that idea because for them, it was such a win-win scenario. I was creating situations where people want to buy, not situations where I had to completely sell them. That was one. I think I got 64 units off of that strategy of building relationships with property managers.
Then, the second one was actually calling for rent signs. Again, it goes back to the psychographics because I said, well, older landlords probably aren't going to utilize technology like apartments.com or Zillow. I'm sure a lot of them do, but for the most part, older landlords don't really utilize a lot of technology.
One of the things I used to do is for three hours on a Saturday morning, I would drive around neighborhoods that had a lot of multifamily apartments of what I was looking for in my avatar. Sure enough, either (a) they had a for-rent sign out, or (b) the landlord would actually be on the premises working on the property.
Because of my research, because of my setup that I've done, probably about every 3 out of 4 people that I either called or met while I was there were probably 65 and older. That was a great way that I found properties. I actually did a couple of deals through that.
Last but not least, I used to look at newspaper ads. If you go to the newspaper, I would see these for-rent ads that were there. Again, same thing. Sure enough, a lot of these guys would be 65, 70, or older.
I think my tactic of looking for people, not properties has really paid off for me because it allowed me to be efficient with my time and serve the people that I was looking to serve.
Clint: I got an acronym for you. Here's your strategy. It's called BOLD—Buying Older Landlord Deals.
Daniel: There you go, man. I love it.
Clint: What I like is not only finding the older landlord. Many times, I would look at them to see what properties they own. The older the properties are going to be, the better because they're having to put in more maintenance time which makes their life more difficult.
If you can find someone that's older that has maybe 15 properties, maybe it's not a multifamily deal—I hadn't thought about that, that's even better because they have several apartments that they're having to manage—you can get in there and talk to them like you did.
How did that conversation work when you approached them? Typically, what was it like?
Daniel: Clint, I'll be honest. There was a barrier because they saw a guy who's a third of their age. At the time, I was just 23 when I was buying an apartment at that point, and they just saw this kid. The sales aspect was fairly difficult. Especially with the seller financing conversation, one of my biggest obstacles was, hey, can I trust you?
It actually all started because the seller started asking for 40%-50% down, and I started to ask myself why they were so stuck on getting a bigger down payment. One day, I just got so frustrated. I think the landlord I was talking to, his name was Mark. I was like, Mark, if you don't mind me asking, are you asking for a larger down payment because you want me to have more skin in the game because you don't really trust my ability to run this property?
Mark was a very direct guy. He said, “Yeah, I'm worried that you're going to run this thing to the ground, I'm going to get the property back four or five years later, and I'm going to have to end up putting hundreds of thousands of dollars to fix it up.”
That was great because whenever you are negotiating with the seller and you identify the real reason why they're doing something, that's always a bonus. For me, at the end of day, again, I always care about the psychographics of what that person's thinking.
I said, well, Mark, would it be fair and would it help ease your mind if every two years, three years, or whatever you decide, I was subject to an inspection? You and I split the inspection costs. You can pick the inspectors, obviously, as long as it's not somebody who's extremely biased. I'm subject to an inspection every two years and there's a certain standard that I have to uphold. My strategy is actually to fix up the property a little bit and raise the rent because that was a very primary strategy and was obviously the value-add even back in 2017.
I'll be honest with you. I think this is a great transition of the conversation. Back in 2017, I thought the market was going to crash in 2020. That's what I thought. I thought the whole housing market and the stock market were going to completely crash in 2020 because I was telling myself and a couple of friends of mine that there's no way that these 10-year treasuries that were issued in 2010 are going to be [inaudible 00:19:15]. There's just no way. Something has to happen. Historically speaking, there's usually either a war, a big market correction, or a pandemic, which look at that.
When I had conversations with the sellers, that's one of the addendums that I used to offer in the contract for deed. It was, hey, every two years, I'm subject to an inspection.
I actually found out that these guys actually preferred a 5% down payment or 10% down payment because it meant that their money was going to accrue more interest which is more profit for them. Not only that, but their monthly payment was going to be bigger, meaning that they could go to Italy if they wanted to, move down to Texas, and do whatever they wanted
I've actually done a couple of deals where I put no money down whatsoever, which is pretty neat, I got to say.
Clint: Another way to do it too if you weren't looking for an apartment building—let's say you found someone that has 15 homes, you want to buy all 15, and they're unwilling to sell you all 15. What we've done before is we said, sell us this many properties, give us an option to buy the remaining, and we'll record that option against the properties. If this doesn't work out here—what we're telling you is going to work out—then you're not going to sell me these other deals.
There are different ways to put this together to give the seller some competence to try and buy. Is this person really going to be able to live up to what they're telling me? You got to be creative. That's smart.
Daniel: Yeah. I mentioned this before, but for me, it all went back to how can I provide better peace of mind for this individual? Because everyone's motivated and they feel safe. The risk is mitigated in different ways. I love that. I love buying a portion and then doing an option contract on that. I'm going to steal that if you don't mind.
Clint: We did that one. It was going to be on a 220-property portfolio. We ended up going through with it. We ended up buying down in Houston. This was a few years back in 2018. I look back on it. We would have a lot of cash flow, but the Houston properties of the package we bought down there have all tripled since then.
Daniel: That's awesome, man. Thank you for that. I'm here to learn too. I know I'm the guest, but I'm looking to learn every minute of the day.
Clint: Investing is so fun.
You got this FORCE Strategy. Tell me a little bit about that.
Daniel: For the way that we even came up with the name, the first movie my brother and I watched when we first came to the United States was Star Wars: Episode I–The Phantom Menace. We were always big Star Wars fans. Really, FORCE stands for you Find the property, you Own or finance it, you Raise the capital, you Cashflow it which is about management, and E is expanding your empire.
One of the things I noticed a lot with real estate investors is they're really good at doing deals. They don't know how to build a business. With my years of traveling, teaching, and training real estate entrepreneurs, and even for me as a real estate investing coach that helps people accumulate a rental property, that's one of the most, number-one, common obstacles or mistakes that I see a lot of people make.
I've got a friend of mine who's a pretty well-known real estate figure. I won't say his name, but I'll say he's got a great beard. How about that?
He and I were having a conversation about this the other day. I asked him, hey, if you had to start all over again, what type of books would you read? He's a very well-accomplished real estate investor.
He goes, “Honestly, I would start by reading books about general business because it's not enough for someone to do deals, but you got to be your own CEO. You have to be your own CFOs, CIO, HR, you name it.”
One of the things I noticed a lot of people struggle with is they know how to do deals, but they don't really know how to build a business on the back of that. That's what the FORCE Strategy is all about.
It's all about from A–Z. Let's find it, okay, great. Then buy it owner financing, raise capital, and then manage it because I think a lot of times, people over-romanticize the acquisition of a piece of real estate but never the execution of a business plan.
I'm a life-long martial artist. I love martial arts. I'm a huge UFC fan. One of the things my wrestling coaches have told me because he used to teach me using business because he always knew I was interested in entrepreneurship and business.
He goes, “Buying a business or buying a piece of real estate is like a takedown. You can have a great takedown, you could do a blast double flat on their back, you got great positioning, but what you do with it afterward is more important than even getting the takedown. If you can't record damage, then you can actually get submitted with the person being on their back.”
That's what cash flow is all about, the management portion, and then of course, how do you build off of that momentum and actually build a business around that piece of real estate? That's the FORCE Strategy, Clint.
Clint: Nice. Something that we teach as well in our events is that real estate investors need to treat their investing like a business and focus on the high-value work that's going to make you money and not so much on the low-value work.
You see a lot of investors get caught up in doing things that they shouldn't be doing on their own like their own books and tax returns and setting up their entities. To some extent, it's the rehab of the property themselves.
If you're out there finding deals, do you need to be out there holding a hammer, retexturing, and repainting the interior, or are you better off finding that next deal and hiring that out?
Sometimes, people get in their way because they don't see it as a business. They see themselves as an investor and they become trapped. They're unable to scale.
When they hear your story, 87 doors within a year, oh, that's impossible. Not if you have the right systems in place that will allow you to expand upon your talents like you were obviously able to do.
I think that's key. So many people don't teach that. Like you said, what you're doing is teaching that other side to understand it from that perspective. That's really, really important.
Daniel: Yeah, I'll agree.
Clint: What are your thoughts on the market now?
Daniel: I've been blessed with my mentor. He's pushing 75 now. He's seen four different market corrections in his life. I'm 27 years old, and I've never been an active entrepreneur or an active investor during a market crash. I wish I would have.
In 2008, I was 14 at the time. I think I was a freshman in high school. I'm really mad at my freshman high school self that I didn't buy properties at the time. Instead, I was busy playing basketball.
One of the things I think about the market now is I follow a lot of different channels. I like to read a lot of books and a lot of reports on what's happening. For me, I get very nervous.
I talked to a couple of friends of mine who are pretty high up in national mortgage companies. One of the things that they've been telling me is they get really nervous at the fact that a lot of the appraisal value is starting to be lower than the loan amount and the loan balance.
As much as I love media outlets, I'm not really big on following media like CNN or Fox. I don't really watch them. I'd much rather get my data from the actual source itself which is the people working in the industry day-to-day.
One of the things that I'm hearing all across the board is a lot of these mortgages are starting to be underwater. Loan-to-value ratios are starting to go above 100%.
I met a mortgage guy the other day where they're doing commercial loans for apartment buildings. For three years now, they've been doing them on stated income, so it makes me really, really scratch my head and nervous.
I think a lot of investors today are buying properties based on speculations of rents continuing to rise. Obviously, the rent bubble as I'll call it—the increase in rent—has really been built on the back of a housing market that's priced out a lot of tenants from entering the housing market.
I'm one of those guys who believe that we've had a very much of a false lack of inventory in the housing market. If you look at government intervention, if you look at programs because of the pandemic of stuff like the foreclosure moratorium, that's kept millions of homes from reentering inventory.
I'm also paying attention to a lot of these canceled contracts that are happening within the single-family industry in states like Texas and Arizona. I think inventory eventually in the next coming years—potentially in the next nine months—will continue to balance itself out. I think that rising rates are going to decrease strength in the home buying pool because really, that's my generation, the millennials.
We're the ones now. We are the primary homebuyers now. I think that the age range of the millennial now is 26–41 or something like that. We are the prime homebuyers. We are the ones that a lot of people are looking to sell their home to.
I don't think the liquidity and the financial strength of millennials are as strong as a lot of these home builders think it is. For that reason, I don't think rent is going to continue to skyrocket as it has. If anything, I think it's going to go down because a lot of the millennials have been waiting on the sidelines to enter the housing market who are going to start going into.
Obviously, when that happens, the first individuals in the tenant pool that tend to leave are classic tenants. They're typically the first ones that tend to enter the housing market, and then who knows what we'll see? All I know is we've seen a lot of Class A apartments being built in the last two, three years.
Clint: Yeah. They're throwing them up all over the place. I was just down in Austin last year, and I just couldn't believe how many apartment buildings were going up as we were driving around because my daughter was considering moving there with her boyfriend.
I was thinking the same thing. Once this starts to settle down, you have more supply out there. The rents that they think they're going to get off of these deals with their finance on is not going to materialize because once you have more supply in the market, it's going to drive that back down, especially homes or people moving in to buy in the properties as you say that shadow inventory that's been locked up there.
There are so many factors. You got the rent moratoriums that a lot of cities in the blue states have imposed upon landlords—how does that factor in once those kick in—and they can start charging the floor rents again like they intended to. You got to be careful.
That's why personally, I've always liked it over single-family homes even though your CapEx can be a little higher. You know your market, what your tenants expect, and go from there.
Daniel: Yeah. Even in my home state of Illinois, Illinois is not necessarily a number one destination for people wanting to move. I think we're actually number two in people moving out and yet if you were to draw where I live and you do the 10-minute drive radius, they're building about 3400 units and they're all a Class A. A lot of the feasibility studies that I know that these developers have made the decisions on is predicated on a continued rise of rent.
I have a buddy of mine who's now my business partner who's responsible for a 364-unit development. They're charging $3600 for a three-bedroom. Even at that price point, their margins are pretty slim. I don't know how much of it is sustainable. There's an interesting parallel because even looking at the stock market, what percentage of companies in the S&P 500 actually make money? I think the statistic that I saw was that 40% are actually currently losing money. They're just been propped up with a false value in my opinion.
It'll be really interesting to see because I know a lot of people are building Class A all across the country even in my home state where people are leaving. I just don't know if I'm very confident in that investment strategy right now.
What we're looking for in our partnership is we don't buy anything unless there's intrinsic value, unless there's earned depreciation, and the cash flow right now or the income as it is is sustainable to give us a pretty good rate of return for our investors. We don't even touch a deal unless we can have intrinsic value and the deal works as it stands right now even if the rents aren't able to be raised.
Clint: That's exactly right. That's when you get in trouble, when you think you're going to make it on the come side of that bet and it's going to pay off.
I wondered about this just the other day as I was talking to my daughter and her boyfriend. They ended up living in Denver in a Class A apartment building and moved in. It had only been up for about six months. I thought it was really high rent, what they're asking for a one-bedroom.
Five months ago when those initial tenants came in and they came up for renewal, they almost doubled their rent on them. Then, they saw this mass exodus out of the building, so my daughter assumed the same thing, that they were going to double her rent. When she went down to talk to them because they were coming up on their year, they said, oh, no, we're going to raise your rent $40. She said, but I thought... They go, oh, we're no longer doing that.
I know it's an isolated occurrence, but they're starting to see that you can't just demand that from people because there is more inventory out there and there are more options for them, so that's going to be hard to make their numbers work in this particular property if that's what they did when they financed it.
Daniel: My wife and I went from living in a four-bedroom house to renting. We actually moved from a four-bedroom house to renting in 2020 before everything happened. Right now, for a three-bedroom, two-bath—she and I actually enjoyed renting more—we're currently paying $2200 for our three-two, and we got a notice that they're raising it to $3400. That actually is what prompted us to move to a townhouse that we're moving to now.
They're losing really strong tenants because could we afford that? Sure, but at that point, it's just stupid to stay. Why would we do that? Our mortgage payment between taxes, insurance, and everything PITI is $2600 for the place that we're buying.
Again, to your point, I'm just seeing a lot of offering memorandums where people are making the assumption that the cap rate is actually going to be lower 5–7 years from now in their exit than it is today. I'm just going, I don't know if that's going to happen. I just don't see that data.
Clint: Buy your market, figure it out, and make those investments.
Hey, it's been a great interview. You've got a ton of resources. Is there a way for people who are watching, if they want to learn more on how you train and the way you look at evaluating properties, where they should go?
Daniel: We actually have a free real estate course. It's about 40–50 hours with the content. My brother and I recorded everything from a mini raising capital course. I have free meet-ups to talk about that.
If you just go to kwakbrothers.com/freestuff or even if you just go to the kwakbrothers.com, there's a tab in there that says free stuff all the way at the bottom. It's called Base Camp. That's the free course. I have a free book that they can get. We have a free meet-up every other Tuesday, the first and third Tuesday of the month.
I got in a lot of trouble for doing this, but I like to give off my personal email address. Even if people just want to say hi, say what's up, hey, hope everything is doing well, or share some really crazy real estate stories, then my email is just daniel@thekwakbrothers.com.
Clint: Perfect. We'll have that information in the show notes as well so they can just click on it and it'll bring them there. It's been great having you on. This time went so fast. You have such an interesting story on the inside that people glean from this. It's our bold strategy.
Daniel: That's right.
Clint: Anything else you want to say and pass on?
Daniel: No. I hope this is recorded and I hope people listen to this part, but I do a lot of these podcasts and this is probably one of the ones I enjoyed the most. This is really cool. Usually, in other podcasts I do, it's very structured. For me, I just like it to go with the flow because even as a real estate entrepreneur and an entrepreneur in general, you have to go with the flow. You have to adapt and make a pivot.
I really enjoyed this podcast. I hope more people subscribe and listen to this.
Clint: Great. Thanks, Daniel. Good talking to you.
Daniel: See you, Clint.
How do you get started in real estate? What is that process? What can you do to scale and grow your own portfolio or take it to the next level? Do you already have a few single-family properties, but want to get involved in multifamily investing?
Today, Clint Coons of Anderson Business Advisors talks to Abel Pacheco, President and Principal of 5 Talents Capital, who loves investing in and owning multifamily properties in Texas.
Abel is a real estate entrepreneur with a proven track record of repositioning properties and delivering quality renovated housing products to market and consistent returns to investment partners. He has experience in acquiring distressed properties, handling renovations, raising private capital, and managing single and multifamily investment properties. Highlights/Topics: * 5 Talents Capital: Abel buys apartment buildings and allows people that don’t have much time available to invest in commercial multifamily real estate via syndications. * Cash Flow Positive: Don't overlook the amount of time that you have available for side hustles and to make more money. * Education and Knowledge: Learn about wholesaling, seller financing, hard money loans, and finding motivated sellers for free from conferences, YouTube, and Google. * Knowledge: After educating yourself on different ways to invest, it takes mental and tactical shifting to find properties. * Networking: Unlock your mindset. You don't have to do everything yourself. You don't have to know everything. You just have to partner with people that are experts. * Create Luck: It's where planning meets opportunity. Then, when that opportunity is there and you plan for it, you better be ready to take action and be willing to move forward. * In multifamily, net worth equates to the size of the loan amount, equity enough to buy the deal, general partners need their own money for a deal.You have to have experience. * Where to Find Deals: Off- and on-market. In commercial real estate, almost all the deals actually trade through brokers.
Resources: Abel Pacheco on LinkedIn Abel Pacheco on Facebook Abel Pacheco on Instagram 5 Talents.Capital 5 Talents Podcast Meetup.com Rich Dad, Poor Dad by Robert Kiyosaki The ABCs of Real Estate Investing Clint Coons Clint Coons on YouTube Full Episode Transcript: Clint: What's up, guys? Hey, it's Clint Coons here. In this episode, what I wanted to do is bring on someone that I've known for many years. He's a client. He's a real estate investor.
I wanted to share with you his story because I see questions where people are wondering, how do I get started in real estate? What is that process like? I receive these questions from many of the people that come to my YouTube channel because they know I'm an avid real estate investor. But I also want you to hear from someone else who's been in the trenches.
Abel Pacheco is that person. Where he started out, he's built a portfolio now to over 1500 doors. There's a process there. To have someone like him spend the time to come in here and tell you what you can do to grow your own portfolio or maybe take it to the next level, maybe you got a few single families right now and you want to get involved in multifamily investing, he's the guy to do it. With that, Abel, thanks for coming on.
Abel: Hey. Thank you, Clint. Thanks for having me, man. I'm super excited. I've learned a ton from you. Over the years, really, your organization's helped me a ton to scale and grow. Just to come around full circle and give something back, man, that's awesome. Thanks for having me.
Clint: It's great because I'm about to tell your story here in a minute. You started out in investing. Now you have 5 Talents Capital, 5 Talents Podcast. You've actually branched out. You're doing more than just real estate investing.
From what I know and working with you over the last five years, your business, the real estate was that foundation. With that, why don't you share with people your story? How it all started working for you? Then we'll start talking about some details.
Abel: Sure. For those that don't know me or are new to our world, we appreciate you listening. My name is Abel Pacheco. I'm the president and principal of 5 Talents Capital. What we do today is we buy apartment buildings and we allow busy professionals, people that don't have a lot of time to do real estate, invest in commercial multifamily real estate via syndications.
We basically find deals, underwrite, analyze, put a ton of offers and a bunch of real estate. Then the moment we have a seller that's agreeing to take our price, we go do that deal. We buy it and we basically put a group of investors together. A syndicate, a number of us all put our money together and we go buy something bigger than what we would have been able to buy on our own. That's what I do today.
We also learn about 1500 doors. As Clint mentioned, we're active investors, general partners, principals, syndicators, co-sponsors as well, although the terms are kind of synonymous. But we actively do that and we buy heavily in San Antonio, Texas, South Texas, a lot of properties here.
That 1500 doors is about 15 multifamily properties. The smallest properties are 45–50 doors and the biggest are 268-unit properties. Somewhere in between there, the way we got started was definitely not like this. We were a single family investor.
To Cint’s point—now I've known him for a number of years—before I connected with him, I was one single family house at a time. Myself and my wife, we're in tech. We worked a W-2 normal job. I was a sales guy for many of my years just on the phone.
From 2006 to 2016, we worked at a company here locally in San Antonio. It went from a couple of hundred employees, 600 I think when I started to about 6000. It was a $100 million company a year. I exited when it was about a $2 billion corporation.
When I was working at tech, my goal was to save as much money as I could, save every penny and every dollar, live below my means, save up $15,000 or $20,000, and buy another house. That was really my game plan. It took me about 10 years. We bought eight single family houses.
For those that don't have any money, I'm with you. I was there. I think I bought my first house with an FHA loan, 3% down. I think we put $5000 on a Texas house. We lived in it.
We stayed in there and we went to the next one. Instead of selling the first one, we bought the second. We did another loan where we lived in it, put it 5% down, and then rented out the first one.
We proceeded to do deal number three and deal number four. It took me a long time to do that. Between my first house and my second house, it may have been like three or four years before I could save up enough money to go buy the second. But when that happened, we started getting cash flow.
It's basically cash flow positive. The mortgage was $600 or $700 at that time. I was renting it out for $900 or $1000, so a few hundred dollars extra cash flow. I would make it there. I always had side hustles. So don't overlook the amount of time that you have.
I was a single individual at first. When me and my wife were married, we had a lot of free time. There was no kids at the house. Monday through Friday afternoons, evenings, and weekends, I would find properties. I would look for deals. Then I would also make a lot of money on Craigslist. We must have hustled about 15–20 cars, somewhere in that 10–15 range.
We would look for a car, go buy it, then go sell it on Craigslist and make a few extra thousand. That's what helped us buy our third or fourth house. It didn't start with cars. We sold golf clubs, furniture, watches, and literally anything we could find on Craigslist that was worth some kind of value, call them, asked them to buy it, and then go sell it again for some more money.
That's what we did for the first four or five years. I was making $50,00, I think, in tech when I first started or $60,000. I worked out my way from 2016 to 2019-ish.
When we left in 2016, Rackspace, I was just crossing this $200,000 a year barrier. But that W-2 wasn't like that for six or seven of those years. I was making less than $100,000 for a good number of those years and finally broke through.
I finally made more. We had more money to invest. I invested in more real estate. But essentially, it was the grind of doing another deal, and another deal, and another deal before we got education. I'll pause after the education part to give Clint maybe some time and take a breath.
We bought those houses. All that time, I thought I was doing it the right way. I was the individual in my group that my network, my circle that had eight houses. No one else had that many houses. People would ask me for insight in education.
I would tell them what I knew, but I wasn't getting education from anywhere until I finally ponied up and got dragged to a real estate conference, a seminar, a free weekend real estate. My sister brought me with her. After that weekend, I was putting $20,000 down and buying real estate education.
From that moment, I was like, okay, I went from buying 8 houses in 10 years to we did 10 deals in 1 year, single family, applying that education before I entered into apartment investing or multifamily door. Anyway, let me pause here. That's kind of how we got started in this in a quick summary, Clint.
Clint: It sounds like then, what you were doing initially is you would buy a house and you're using the BRRRR method. After you've acquired that, you'd live in it and then you would move out, turn that into a rental, and you kept that rolling. I assume you're finding the properties maybe on the MLS, initially.
After you educate yourself on different ways of investing—because that's where we met, at an event years ago—you tapped into 10 properties in 1 year. I get the BRRRR method, but how are you going to find 10 properties in 1 year? What does that take, mental shifting, processes, and things like that to do that?
Abel: Let's write down those. I think those two things are great points: (1) mental, and (2) maybe tactical, for somebody that wants to employ some of this immediately. What I was doing was going through agency loans. I was buying off the MLS. I was searching like a dog from the real estate listings, going to open houses and all that stuff, and trying to find a good deal.
That was barely scratching the surface because I wasn't heavy in a lot of rehab. If you talk to my wife, she'll tell you I don't know how to do plumbing, I don't know how to fix floors. I just don't do that very well. Not well anyways. We would find houses that were already ready to rent. We would do that and make a little bit of cash flow. The education point for me, there were these terms.
If you're listening now, you can write down wholesaling. You can write down seller finance. You can write down hard money loans. You can write down motivated sellers. These are terms that you can go search on your own. They're free. There are tons of YouTube education on how to do it.
I started looking for motivated sellers that were willing to sell their house at a discount. I would lock those deals up under contract. Tactically, I had a contract, I would agree to a price, get them to sign the rights to sell it and I would be the buyer at a certain price. If I liked that deal, then I would go do that deal.
I would use a hard money lender, which I'd never used before. I thought the hard money lender, just by definition, I thought he was going to rough me up if I didn't pay him or something like that. Hard money, I was like, oh, man, that sounds aggressive. But I realized, oh, there are people that will lend the price of the value of the house, the appraisal value plus the rehab cost, and do like 90% of everything that's needed, as opposed to what I was doing. It was easier to qualify for more of those loans.
They wanted a little bit of experience, which I had some up into that point, but they wanted rehab experience, construction experience. I just put a partner, me and a partner, that had already construction experience.
We did a deal together and that's how we punched our card with many multiple times of construction experience. Then we used my W-2 liquidity, and my credit score, and that kind of thing to get a loan. We did a bunch of houses in one year.
It was because I paid for education, that I even found those terms. There's a $20,000 education right there. Go google those terms and find all these terms on YouTube. You'll figure out a lot of the information on how to do it if you've never heard those.
I invested for 10 years without knowing you could do that. That's how we did 10 deals. We did some seller finance. The other way where we got into a couple of properties with little to no money down, it was creative financing. We learned that.
They were willing to trade a deal to us, take over the payments, and pay them a higher price. Then we wrapped it up under a contract. We put together a note. I guess Clint knows more than I do and how to do it. I just talked to the pros. I'm like, how do I do this? They put it together for us.
We wrapped it and then this deal, we ended up selling it at a higher value than what we "bought" it for. We had it under contract. It was like, oh, this is unlocked, these potential different ways to buy houses where I needed less money, how to say yes more. That's tactically what we did.
Another thing that we did was, for anybody that really wants to get cooking, we put an ad on Craigslist because I love Craigslist. I was like, hey, I'm willing to buy your windshield space if you're a taker.
We had white vinyl signs or stickers put on the back of somebody's windshield that says, I buy houses with a phone number that came to my phone, not theirs. I told him if we do any deals, I'll pay them $1000 for riding around with a sticker. I didn't pay him to put the sticker on. I paid for the sticker, they did that.
We had about 400 cars rolling around with our site and our number. We did that for those 10 transactions. That's how we found so many. My best, we found a deal for $20,000. They were ready to sell a bad, ugly house. We put $30,000–$40,000 into it and we sold it for like $130,000. It was the very first deal I found off of that to kind of paid for my year in advance.
Actually, to get my first piece of paper contract was one of the hardest things ever, mentally. Ultimately, I realized how hard it was to kind of say, I'm going to go do this, and I'm going to pay this price for this particular house, and put it in writing, I was just fearful. I was scared. I was nervous.
There's the mindset thing. I realized, oh, other people do this like 50 times, 100 times in the year. What's the first one? Big deal. If something doesn't happen and I don't close, no big deal. You haven't put anything down. That was a big part of it. That's a little bit of how I got started.
Clint: Okay. What you just said about that, there are two points in there that I think is really important for the people that are watching this right now. Number one, you said that you teamed up with someone who knows more than you. That's really important when you get started. You don't have to know it all. There are a lot of people out there that have the knowledge and they're willing to help someone like yourself.
Of course, they're going to be in for part of the profit. You do the heavy lifting, but then when it comes time to getting the loans, you're bringing in their expertise that many of those lenders require. In that scenario, how do you find those people?
Abel: The biggest factor of success that I've had, for me, is networking. What I did then kind of unlock this mindset for me that said, oh, you don't have to do everything yourself. You don't have to know everything. You just have to partner with people that are experts.
The networking part, I had heard this term for years, your network is your net worth. I thought I understood it, but I really realize I didn't because I wasn't leveraging the way that I do today. You're shaking hands, getting over a little fear of saying hello. That's the first one.
For whatever reason, there are a lot of people that have this fear about talking to somebody because they've done something, they've done these great things. You just got to get over it. You got to get over yourself and humble yourself a little bit, even if you think you're a pro, which I thought I was a pro in my network.
I did eight houses. No one had done that. Just to go to somebody in a room that says, I've done 50 houses or I bought an apartment complex, to humble yourself and just say, you know what, I don't know everything. I'd love to learn more. Can I take you to lunch?
I don't like the term pick your brain anymore. I think everyone says that. It's just that I'd love to learn a little bit more. What you did was fascinating. It was inspiring. I'm motivated. I want to go do it. Tell your truth. Tell me your motivation.
For me, I have a four-year-old and a two-year-old. At the time, my wife was pregnant. I'm trying to get this thing on. I see you're doing it. I'd love to learn how you did it. Any advice, any insight, if they say no to that, okay, well, ask the next person. Ask the next person doing the things that you want to do yourself.
In truth, that little bit of spark to say, okay, we did 10 houses, well, I met somebody else through our networking, our education, conferences, meetups, and all the places that I would try to go to. I met another person that was doing apartment complexes and I said, wow, you bought a $20 million building. I wouldn't even fathom. It's going to be 20 more years before and they go, no, no, you don't need $20 million. You just need a partner with a team that can qualify and then we put the deals together.
I'm literally invested as a general partner principal in $100+ million worth of real estate. Had I not partnered with somebody, I would not have been able to do any of those. Our first deal was 124 units, so $7 million.
There's a little mystical part of it here. It's, I don't know how to buy this deal. The networking part was, I met someone else that was doing it. I knew them. I liked them enough. I trusted them. I asked them how they did it. They showed me how.
Just a few people to sign on the loan just like a cosigner, almost if you would, for a car. Cosigner for an apartment complex and this is how we put the deals together. That networking part of it was shaking hands, meeting people, going out of my way to say, I don't know how to do this. Humble yourself and just continue a relationship.
How can you serve another person? Provide them value. Give them some insight or nuggets, anything you can do to help somebody else. A lot of times, people want to help you as well, especially successful people.
For whatever reason, it's like, man, I've already achieved it. You're going to go apply this? Let me help you and give you some of that knowledge. It's amazing.
Clint: Yeah, and it's about building and processes as well. You said those connections. When you were talking about buying the property with a hard money loan, buying residential real estate with hard money, people would think that's just stupid. Why would you ever agree to pay someone 10%, three or five points depending to get into that deal?
As you've done, I did it. My first real estate that I got involved with, I was using hard money lenders. I was paying that. They were loaning 100% of the rehab value because they knew that the person that I was using to do the rehab, did quality work and that the value was going to be there after the work was done.
I would come in, get my properties. I'd be into it for maybe $1500 and then I would go to it. I already had a community lender set up that I had created a bank account with and created a relationship with. I explained to them what I was doing. I said, what are the terms under which you will loan me money?
They told me, listen, you got to have 30% equity in the property. As long as it appraises, you have 30% equity. We will give you 70% to take out the hard money lender. That's what I started doing, just like what you were doing.
For people who are investing in real estate, it's understanding that there are ways. You don't have to have a ton of money. You don't have to have money to do this. But if you find someone with experience, there are ways to get into it. You just have to build that group that can work with you.
You said that when you were building that out and you find these people through networking from going to different conferences, because you see conferences all over the place are virtual now, which you're going to virtual, then you're going to in-person, correct?
Abel: It's before Covid. We were doing a lot of traveling. We were taking advantage of everything local that we could in San Antonio. Tactically, go to meetup.com and search for single family, multifamily, whatever kind of investing you're interested in or whatever group, you can find some people that meet up at a certain time. So there's a tactical nugget for meetup.com. That's really good.
And then there are Facebook groups. They're virtual. I was not heavily into them then. I am a little bit more now. I'd asked, again, my network too, like, hey, which events are you going to? When I was at the event, I would ask which events are you headed to and which one do you think is most valuable?
You have to be willing to invest in yourself, time, and resources to get this right and then be ready to implement. One of the things my wife tells me, she's like, man, we did it right, because she was pregnant with our little one. I was worried about traveling that year. This is our first one and she goes, well, it's better to go now while I'm pregnant because when the kids are here, you're going to do less travel and I know it.
For a year, while I was working a W-2 Monday through Friday, I would take off early Friday or leave on Thursday and fly to the event on Friday, be there Saturday and Sunday, come back and be at work. We went to 10–12 different cities over a year to a bunch of different conferences. That is a big investment—time, effort, energy, and resources—but it just unlocked this new avenue of investing for us. It was amazing. Commercial real estate absolutely changed it out for us because we learned and because we went.
Clint: We always talk about our successes. What would you say was your biggest failure along the way or maybe there's more than one? And then how did you overcome it?
Abel: I would say for the 10 years, this is kind of funny because I think back on, what was it that held me back? What was it? And I was worried about the cost. I didn't think I could qualify. I didn't think I was good enough. I didn't think I was like the "wealthy." They made certain moves and I can't make those.
I came from a family or my parents are in their 70s and they're still working today. I'm like, man, this is where we came from. This is our family and I don't know if I could break out of that.
I read this book, Rich Dad, Poor Dad. I'm sure a lot of your listeners have read it. I read that in 2006-ish, whatever. A couple of years later, I read another book that was called The ABCs of Real Estate Investing. It was a Rich Dad, Poor Dad advisors book by Ken McElroy. He talks about buying apartment complexes.
While I bought this book and I was like, The ABCs of Real Estate Investing, I thought they were going to show me how to buy my first single family house. Ken McElroy ends up talking about buying apartment buildings.
In fact, he's explaining what I'm doing today in 2022. From then till 2018—10 years—I had this limiting belief about myself that I was actually good enough or I could do that, so that's why I played small. My biggest mistake over there was just a belief in myself that I could go do that.
Anybody that's listening, if you have a little bit of motivation, you have a little bit of spark, you have a little bit of mindset to go after it and go do it, go do it. You absolutely can make it happen.
Clint: What you hit on is the mindset that it's available and you can do it, but you have to break through that. So many people hold themselves back. They find reasons not to do something. They're always looking for excuses to say no rather than say yes.
When an opportunity comes along and it's presented to them, they ask, well, how much is that going to cost? Their mind automatically goes to preservation. We've got to figure this out rather than saying, what is that going to do for me? That's where I see a lot of investors and even business owners that I've run into. It’s making that switch to looking at opportunities and then seizing those opportunities.
I've talked about this before. You wonder, well, how do you create luck? It's where planning meets opportunity. Then when that opportunity is there and you plan for it, you better be ready to take action and be willing to move forward. That's where it is with real estate.
My father was an avid real estate investor. To this day, he talks about all the deals he messed up on or he could have had, should have had done this. The reason why is that he couldn't say yes right away when the opportunity was presented. That's a problem.
You started out, then you got these single family properties, and then you made this switch into multifamily. That's a huge leap to go from single family to multifamily. Did you do it with your own money or did you actually just go out there and syndicate right away?
Abel: The way we moved to it was the same principles that we took in a single family, which is to partner with somebody who had more experience and had more knowledge. The demystifying part that I talked about was just the line of sight to debt and equity. The moment you have line of sight to debt and equity, then you have the ability to go do that bigger deal.
In multifamily, it's really a matter of net worth equating to the size of the loan amount, equity enough to buy the deal, the general partners need to have a percentage invested of their own money into the deal, and then you have to have somebody with experience, somebody's done it before. It ends up being a bigger team than just maybe me and my single family house was me and a contractor.
Five of us are all putting our resources together, net worth, liquidity, ability to raise capital, and then our knowledge on actually finding the right deal, and going to implement and execute it. That's what we did.
We leveraged each other and our experiences, our knowledge, our resources, our network, to go say, how to bring together 30 or 40 investors in one group, and all marched down the fields in unison, and have a touchdown at the end, and buy the $10 million building? That's what we do and that's how we've done it in the past 14–15 times now in the last several years.
It was a big mindset. The same mindset shift to say, I don't know if I can do the hard money loan, was the same mindset shift for me to say, I don't know if I could sign on a $7 million loan. It was crazy for me the first time. Then the second one was $9 million, and the next one was $10 million, and the biggest one was like $26 million.
It starts to be okay after you've done it a number of times. Then you realize, oh, there are a lot of people that do this because the lenders give that money, non-recourse debt, a lot of times because these assets are so valuable.
They generate income, they provide a good stable cash flow, they're good at scale, and they give us all the tax benefits that we want as investors, and secure the asset over there for the banks and the lender. It's the same thing. Different, but the same. That's what we did and that's how we're doing it today.
Clint: That's a mistake that I think a lot of people make. They think that multifamily is different from single family. It's just real estate with more zeros. That's all it is. You're going to go through the same process. But in reality, when you're going through the multifamily process and you're borrowing money, you don't have to give a personal guarantee many times.
The term you use of people understand this, non-recourse means that if you had to walk away or something happened on the property and the bank comes in and forecloses, if they sell it for less than what is owed, you're not liable for the difference.
This is important to know when it comes to putting these deals together. You don't have a lot of risk. What you said, which I hope people understand here with that, is that when you're doing these deals, you got to have the right financing in place and you got to have someone who is experienced to begin with. That's the key to get these types of loans and putting the deals together.
Abel: Absolutely. I think you summarized it. You summarized it absolutely well. Experience, partnering, leveraging. The banks love the non-recourse debt and less risk.
Clint: Where do you find the deals? That's what everyone wants to know.
Abel: Hey, where do you find them? The 15 deals we've done, there's probably been about half of them that are "off market" and half of them that are on market. In commercial real estate, what happens is almost everything, it feels like 90% of all the deals actually trade through brokers.
When I was a single family investor, I wanted to say, oh, I'm going to find the deal myself, I'm going to go straight to the owner. We still do that. We still have some calls that are going out and letters that go out to apartment owners. We've closed probably three of them that have been direct to seller.
Those, though, are really the needle in the haystack. If you want a repeatable business, you actually work with the brokers and the brokers will turn them as off market. Even though they go through the brokerage, the seller calls JLL, calls [...], the big guys, CBRE or whatever, and they'll say, I want to sell my apartment complex. The broker then goes, okay.
They do the OM. They do the data. They make it all pretty nice and package, big firm. They'll send it out to their list of off market investors. Somebody like myself would say, hey, I buy deals and they'll send it to, I don't know, depends on every deal, 10, 20, 100. Who knows?
It goes through this off market, which really on market-ish in our relative terms. But before they distribute on their website, someone gets a first look. That first look is we want to be in that first look. In this space, it's really hard to break in because if you've never done a deal, they don't want to send you that off market property. They don't want to send you that first look.
They just want surety of close to make sure they can absolutely close the deal. They don't send them to newbies or, this is my first time. What we did was, again back to this network thing, we partnered with other people that had a great track record and been doing a lot of deals in our market, in our area. We leveraged and we played the we game.
We are buying a deal. We are looking for a property, me and my partners. They're like, who's your partner? Okay, I know those guys. I've sold them, and bought, and sold a couple deals. Yeah, well, let's work together. Now as a team, we get some of those off market looks, which is what we want to do for the commercial real estate broker.
Any brokers listening, call me. I'm right in San Antonio and South Texas. But then also, there are on market deals. Half of our deals have been on the market. From their website, go in. There are financials. There are T12, rent rolls. You sign an NDA, look at their website, and go do the analysis.
The analysis is what a lot of people don't do a lot of. People will say all the time, there are no good deals in my market. Oh, you're in Texas? Well, then you've got a great market. It's so easy to find deals. I'm over here in XYZ market and it's so competitive or whatever it is.
Sometimes we underwrite and analyze 50, 60, 70, 100 deals. We underwrite them all the way through, walk half of them, put offers on a third of them, get rejected on 29 of them until the one says yes. That is not an easy thing, but it is repeatable and it's systematic. We just go and underwrite a ton of deals on or off market, broker and not broker, direct to seller or whatever, and just go look at a bunch of them and then make offers.
That's the work part, the tactical action that a lot of people don't want to take, which is why some people when they close deals are like, oh, yeah, I understand it's hard to find a deal, but you just kind of keep pushing through until you find your deal because you're eventually going to find one. It's a numbers game. Then when you do, you've got all the resources lined up to go take it down. Unfortunately, there's no magic bullet in that, but that's how we're doing deals today.
Clint: You just can't be afraid of rejection. If you can't handle rejection, then you're not going to be able to buy real estate. You're going to get a lot of nos, they're not going to accept your offer. If you get a lot of yeses, you're making the wrong offers.
In finding deals too, one of the things that I discovered is that when we went into a certain market, we were working with the local, we found this used appliance store. A lot of investors that own properties, they'll go to the used appliance store when the refrigerator goes out or the stove.
We started talking to that individual and say, well, who are the players in the market? Can you introduce me to some of them? We started making connections that way. Then we started working with a property manager.
The property manager, because he really knows who's in the market, we let the property manager know, hey, if there are individual investors in this market that you know of, that you manage their property, typically they're out of state many times, we're interested in buying if they want to sell.
We had deal flow that started coming in from the used appliance store, from local investors who are looking to retire and sell their portfolios—as you say, at off market—and from our property manager. That really helped as well.
Finding places like that, you don't think about it. When you're driving down the street, you see that used appliance store, but that can be a goldmine for you, an opportunity to get those off market deals.
Abel: You triggered one of the reminders here. Some of our team members are members of the National Apartment Association. There are other apartment association groups. They end up meeting once a month and hanging out. It's a lot of property owners that were building relationships for the long term.
I kind of forget about the work that my team does because it's not just me, but them. They spend a lot of time in there and that's how they've done some of the property direct to seller, as well as the good old letter, hey, we're going to buy X amount of doors this year. Want to see if we wanted to buy yours? Anyways, that's awesome. Thanks, Clint.
Clint: With your business now, you market up. You're not coming up with all the cash for the down. You've actually started syndicating, which means you're raising money from people that you have a relationship with, but you've met over the years. That's why networking is so important.
In order for someone that is looking at that, that's watching this right now, and they've been through the single families, they've got their portfolio now, and they want to take that next level, what are some of the key takeaways that they should know of to do that?
Abel: The two biggest areas of impact that are going to drive the most success in what we do today, is finding the next deal and finding investors to go buy the deal. That's the 80/20. How do I go underwrite a bunch of deals that can lead me to one great investment? And how do I make sure I have enough money to go do that deal when I find it?
Finding new investors and finding new deals is a lot of the same group that we're looking for, like networking into the right areas, shaking hands, building really good, strong relationships with investors.
A lot of times, what happens is you have somebody that has some net worth, that has some liquidity, that has the means to go do this, but they don't want to do any of the work. They don't want to go underwrite a hundred deals and walk 60–70 properties. They'll leverage somebody like me that's willing to go do that work. If that's you, you're willing to go do that work, then you may be a deal finder.
On the flip side, some people are not real estate folks. They like to talk, they like to socialize, and they like to shake hands. You may end up networking a lot for raising capital. Those are the two biggest areas that I see.
There are a lot of things in between. If you're a good project manager, if you can handle a Gantt chart, and you can handle contractors, and you can do construction management, and you like asset management, there are a lot of in-between stuff that's very valuable that's needed. But in the end, can you find a deal or find some investors to get there?
When we raise capital today, you got to get some education also to do it the right way. You are following the SEC (Securities and Exchange Commission). We use exemptions called Regulation D 506(b) or 506(c) exemptions. Just learning about that stuff, it'll teach you about accredited and non accredited investors, and how to properly qualify somebody that can even come into the deal the right way, the legal way. Once you do that, you're really just shaking a lot of hands, and trying to meet the next person, and talk to people.
It's the biggest one. I talk to a lot of people. It's hard for me not to be excited about real estate investing. When I go somewhere, it just oozes out of me, oh, I'm a real estate investor, you should do the best thing since sliced bread. I tried to let someone else ask me, what do you do first before I mentioned anything about what I do. That's a disclaimer there for me.
I'm like, what do you do? How do you do it? I'm trying to hold it back. But as soon as they say, what do you do? Oh, man, I'm a real estate investor and it's what I do.
People ask a lot of questions the moment you start telling them that. You just end up in a conversation. Then funny as it seems, a lot of this, we are all over social. We are all over the internet. We are all over.
We have a podcast, 5 Talents Podcast. We drive a lot of education. We have 200 shows that we've done, specifically around commercial multifamily investing. When you give and give and give and give education, knowledge—probably Clint knows this—the law of reciprocity.
He gives and gives and gives and gives and goes all those Saturday events or six hours of his time and pushing out education for free. A lot comes back to you. I would say, whatever you learn, put it back out there.
The Internet scales well. The Internet, video, blogs, posts, whatever. You'll have people that naturally gravitate back to you that say, hey, I was interested in what you were talking about. How do I learn more? Those are a lot of our investors today from the Internet, frankly.
Clint: Wow. We've run out of time here and you mentioned that you have a podcast. If somebody wants to go to your podcasts or your website, how would they reach it?
Abel: Go to www.5talents.capital. It has links to our podcast. On our show, we're going to get Clint out there too, which we just recorded an amazing show. Then if you're on Apple, or FM radio, or Slack, or Google Play, all the places where the podcasts are, it's the 5 Talents Podcast. Build wealth like the 1%. We're excited. We'd love to have you come learn and get into our world as well.
Clint: Great. And I'll put that in the show links. Abel, hey, thanks for coming on. I know that there are a lot of nuggets in here that people are going to be able to take away. You're talking about the cars. I'm like, wow, I've never heard that one before. That's pretty cool.
I appreciate you taking the time. I know you're in the middle of a move. Your wife's probably really upset with you because you're like, oh, I got to go and hang out with Clint, and I can't help you pack. Been there, done that.
Abel: Yeah. Thank you very much. I'm humbled. I'm appreciative that I get to hang out with you for a little while. You've given me and my family a bunch of opportunities. Whether you know it or not, you've helped a bunch. I want to say thank you.
Anybody following Clint, you need to get into his community. You need to get into his system. Learn all the things he can. Join up. He's the man, so thank you very much.
Clint: Thanks, Abel. Take care.
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Many people talk about flipping and buying properties, but a niche area of real estate investing that most people are unaware of is called note buying.
Today, Clint Coons of Anderson Business Advisors talks to Bill Mencarow of Paper Source Online. The Paper Source, Inc., was founded in 1987 by Bill and his wife and business partner, Alison.
Bill and Alison have been note investors since the 1980s. Also, he is the editor and she is the publisher of The Paper Source Journal and they co-host the radio talk show, First Couple of Texas Radio. Highlights/Topics: * What is a real estate note? A promise to pay—mortgage secured by real estate. * What’s your role if you own a real estate note? You’re the banker, not the landlord. * Why not be a landlord? You have to deal with tenants, toilets, and termites. * What are the reasons to buy/own real estate notes? Cash flow, higher yields, lower risk. * How the process of buying notes work? Sell note for lump sum to investor at a discount. * What are the different types of notes? First, second, or third position against note. * How do you know what you are buying? Perform due diligence—paper, property, payer. * How do you verify payments, borrower’s credit, and value of note to know what to offer? * What do you need to get started buying notes? Cash investment or broker note. * How to find real estate notes? Network to establish context with people with notes.
Resources The Paper Source Online The Paper Source Facebook Group How To Get Started Profiting From Notes (Free E-Course) First Couple of Texas Radio Fair Credit Reporting Act Clint Coons Anderson Advisors Anderson Advisors on YouTube Full Episode Transcript: Clint: Hey, what's up, guys? It's Clint Coons here. In this episode, what I wanted to do is bring to you someone who's an expert in their field and talk about an area of investing that a lot of us just don't realize is out there. So many people talk about flipping property and buying property, and I teach you strategies on how to address those types of investments, but there's a wide range of opportunities when it comes to real estate investing.
In this episode, what you're going to learn about is something that's called note buying. What I thought I'd do is I would bring to you one of the foremost experts in this field. His name is Bill Mencarow and he is with Paper Source. He started this company. I've been following him for years. In fact, we actually spoke at his event.
He has a very interesting life story where he's been a radio talk show host. He's been working in Congress before. He's on a transitional committee for Ronald Reagan. So he has a lot of experience, but more so he's been investing in this niche area. What better way than to bring to you an expert in the field. Bill, thanks for joining.
Bill: Thank you, Clint. It's a pleasure. I appreciate the opportunity.
Clint: Great. Hey, so why don't we start off by telling everyone a little bit about yourself and how you got started in this business?
Bill: Well, you covered a little bit of range, my background a little bit. I still do a radio talk show, by the way, with my wife, Alison. We're called The First Couple of Texas Radio. That's our website, in fact, firstcoupleoftexasradio.com. We talk about all sorts of things, including real estate, by the way.
I have to credit our tenants for getting us into notes or buying real estate notes, we're obviously going to explain more of that in a moment. When I say my tenants got me into it, being a new landlord, not really knowing how to be a landlord. Now, I've been a landlord for about three decades, so I started getting it. But they call it tenants, toilets, and termites that you have to deal with.
When you own a real estate note, I discovered that if a tenant or homeowner causes a problem, they don't call you, you're the banker. If there's a problem in the house, somebody in the middle of the night does not call a banker, they call the owner of the property. But if you own the note, you're the banker. That's one reason we got into it.
Another is for cash flow. You can get higher yields or interest rates than you can with most other investments, certainly with a bank CD these days. That's combined with lower risk than almost any other investment I know of. For example, if you buy a mortgage on a half a million-dollar house and you put $80,000 into buying that first mortgage, you just hope it goes into foreclosure. That's what I mean by lower risk. Obviously, there's always a risk in any investment.
Another point is you can determine what interest rate you want on your money. Show me another investment where you can do that. So those are some of the reasons. We're still in the real estate. We have a number of properties locally in our town in Texas, but we certainly also buy notes.
Clint: I think sometimes people fall into something they don't intend to start off that way. Maybe they start seller financing and they realize, hey, property is no longer my concern. It's their concern. I just hold the paper on it. So maybe that's how you possibly got started because I know several investors that have done that themselves. For those people who are not familiar with it, what is a note?
Bill: A note is a promise, a promise to pay. I could give you an IOU and it would be paid over time. Usually, it's a mortgage secured by real estate. We call it a note for short. Technically, it's not a mortgage, but we won't go into that. It's a note secured by real estate. It's a promise to pay.
Let's say, I sold a house and instead of having the buyer go to a bank and get a bank loan, I say, I like your credit, you've got enough down payment, you just pay me the payments every month instead of paying the bank. So you sign this note, I owe you for (just make up a number) $100,000 to buy my house and you give me a nice hefty downpayment. Now I'm getting that money every month. I'm getting $1000 a month, $1200, or whatever it is from you that bought my house.
Then I decided I'd love to take a cruise or I have some other reason that I'd like to have a chunk of money rather than just $1200 a month coming in. I go to an investor and I say, are you interested in buying this note and you getting $1200 a month if you give me a lump sum of cash? That's what the investor does. Then the investor, I just tell the guy who bought the house from me, instead of spending the $1200 a month, you send it to this other person who has bought the note and he's now your banker if you will. That's how it works.
Notes are sold at a discount. So I would sell my $100,000 note for something less than $100,000 because of several things. Number one, I'm selling payments to be made in the future. There's no guarantee, something might go wrong. Also, just the time value of money. $1200 today is worth more than $1200 to be paid 10 years from now, so notes are sold at a discount.
That's what makes it very attractive for an investor because he's getting $1200 a month, but he didn't spend $100,000 to get it. He might have spent $80,000 to get it, which brings his interest rate higher than the face interest rate of the note. Does that make sense?
Clint: Yeah, so what I'm hearing you're saying is that I am buying a mortgage from a bank, essentially. Instead of the purchaser of that property, the borrower paying the bank, now they're going to start paying me that money on a monthly basis because I'm going to own the rights to receive those funds. I'll have the secured interest in the property.
Bill: Exactly.
Clint: Well, how do I ensure that that position is secured and that people know that I'm involved with it?
Bill: You mean, how does the payer know to pay you instead of the other person in the bank?
Clint: Yes, correct. If I bought a note from you, how are they going to know to pay me?
Bill: Okay. I let them know, they know me. They don't know you. You can't send them a letter and say, well, I'm Clint, so start paying me. They don't know you but they know me. I say, I have sold it to Clint and I've never had anybody question that.
Clint: For example, if I was going to buy a note and I'm interested in this, there are different types, as we say. There's first position, second position, third position. I was talking to an investor the other day or a couple of months ago and he said, oh yeah, I took a second position against this property. I have this note. I said, you do? He goes, yeah, I loaned the money, I’m now holding this notice.
I said, what did you loan? How much against the overall value? He goes, 100% against after rehab value because this was a rehab deal. I thought it was kind of risky because now he's holding this paper where he loaned this individual investor money against the rehab. Say he wanted to turn around and sell it to you, you would step in and buy a second then on that property. There are risks that come with that. What I'm asking is, do you buy seconds or do you stay with first?
Bill: I stay with firsts. I have bought seconds in the past. You can do that if you understand what happens, for example, in the case of a foreclosure, where if the holder of the first lien forecloses, you have to step in. Otherwise, you'll lose your investment. You have to step in and pay off that first lien to protect your investment.
I don't particularly want to fool with that, but other people do. I wouldn't touch anything beyond the second, that's for sure. That sounds a little scary to me. For one thing, it's 100% of—did you say after rehab it's 100% loan to value?
Clint: After rehab value, correct.
Bill: Yeah. I mean, number one, you never know if the rehab is going to happen or how it's going to be after its so-called rehab. That would kind of scare me.
Clint: When you're looking at the notes, you have to know what you're buying, be it the first or second note.
Bill: You have to do what's called due diligence, which I know you're familiar with. For notes, that's what I call the 3 P's. You have to look at the paper, you have to look at the property, and you have to look at the payer. First, you look at the paper. That means, what's the interest rate on the note? How's it written? What's it secured?
Then you look at the property. Well, the interest rate and the other terms of the note. Actually, believe it or not, I have a copy of it. I once saw somebody send me what they called a note and it was an IOU. A guy wrote on it, I promise to pay $100,000 on or after this date. You have to look at the paper. Obviously, that's a worthless note on or after not on or before.
Then you'd have to look at the property. My rule of thumb is, would I be happy owning the property that the note is secured by. That means I wouldn't buy a note on a nuclear waste dump, gas station, or a big industrial building. I don't know what to do with those properties. I would rather stick to properties that I would want to own, a nice single family house or an office building maybe. I might consider other things like that.
Then you look at the payer, what's their credit? Is the note brand new? That could be risky because then there's no track record of the payer paying. On the other hand, there's what we call a season note, which might have six months, a year, or five years of on-time payments. That's great. That makes the note worth that much more.
I look at the payer, the property, and the paper, and then you have to look at what state the collateral is located in. Are they creditor-friendly or debtor-friendly states? You might think twice about buying a note in a debtor-friendly state. It's going to take you a lot longer if there's a problem to foreclose or do whatever you have to do to cure that note.
Is it a judicial foreclosure state or a non-judicial foreclosure state? In a judicial foreclosure state, you go to court to foreclose, and that's usually going to take you longer and be more expensive than in a non-judicial foreclosure state where the property is sold and the courthouse steps in an auction to the highest bidder. So those are some of the major things to look for when you're buying a note.
Clint: Okay, so everything that you just brought up there, there's a lot to unpack, but one of the things I would be really interested in understanding is if somebody approached me and they said, here's a note that I have. It's a $200,000 note. They've been paying me for six months. I'm looking at that and they want to sell it.
First off, I’ll give you the questions in order. How do I verify the payments that they've been paid to this individual so I know that the borrower has been paying on time? How do I know the credit of the borrower? Then how do I determine the value of that note, what I would offer for it?
Bill: First of all, proving the payments that have been made. It's ideal if this note had been serviced by a servicing company. There are such things, of course, then you just have the records of that. If the person who owns the note has been collecting the payments themselves, ask for copies of the deposit slips or the bank statements showing that those payments were deposited. Those are different ways to prove that those payments have been made when they're due. What was the second question again?
Clint: How do you determine the credit of the borrower?
Bill: Legally, and I'm not here to give legal advice. Obviously, I'm not qualified to do that. But from what I understand and what I've read, under the Fair Credit Reporting Act, if you are in contemplation of loaning money and it's been interpreted as buying a note, you can pull the credit of the payer. That's the best way. Obviously, to do that is to pull credit if you're doing that.
I suggest that it's best to protect yourself, to ask the note holder to ask the payer to sign a paper giving you permission to pull credit. You can do it without that paper, but just to protect yourself, I suggest you do that.
Clint: How do we determine the value then? This note is $200,000, we're six months in, and then they want to sell it. They're going to make an offer, I'm going to make an offer, what do you do?
Bill: Well, after you've looked at the payer, the property, and the paper and you're satisfied, take a look at how much interest you want to make or yield (as we call it) do you want to make. I'd like to make 500%. Well, that’s obviously not going to happen. There's a range of yields that will make your offer possibly acceptable to the note owner.
Let's say, okay, the note is written at 6%. You say, well, I want 10% interest or yield, you have to learn how to operate a financial calculator or go online to a financial calculator site, and you just plug in the interest rate that you want, your 10%. You plug in how many payments will remain and it will give you what you should pay for that note at 10% yield.
I've known people who don't use a financial calculator, they just make up a number that's a discounted number. They say, whatever they get is really good. You can do that too. If it's a $200,000 note and you offer him $140,000 [...] and he takes it, I guarantee you that's going to be a good yield.
Clint: Yeah. All right, so that really answers one of my questions that to get started in note buying, you’ve got to have cash, right? Have you ever run into a situation where someone's going to sell it to you like on a [...] on an installment sale? Let's say, listen, as long as you can give me $50,000 upfront and then give me payments over time, I'll sell it to you. Then I keep collecting the payments and I'm paying someone else out, other than the cash option.
Bill: Absolutely. That's a good idea, that's a good suggestion. You can wrap it. You can go in with a partner on a note where you each share the payments or maybe your partner puts up most of the cash and they get most of the payment. That's another thing that’s great about notes, there are all sorts of creative ways to do it.
Let's say you and I go into a note together. I say, well, I can put in about 20% of the cash, but you want to put in 80%. But then you get 80% of the amount every month in the payment and I get 20%, or you get the next X number of years' payments and then they revert to me. If it's a 10-year note, you get the next 7 years of payments, for example, and I get the next 3 because of time value money.
There are all sorts of ways you can do things like that, or you can broker notes where you don't require any cash investment at all. That's simply finding a note, getting the information on the note, the payer, the property, the paper going to an investor and saying what would you offer for this note? The investor tells you, you go back and offer a different price to that, and the investor offers $50,000 for the note. You come back and tell the note owner, okay, I can get you $45,000. If they accept that, your commission is the $5000 difference. There are a lot of different ways to buy notes without actually using your own money.
Clint: When you're doing that though, would you recommend that someone who is interested as far as building out a team, should they have a title company involved and an attorney to help ensure that their note is perfected so that everyone knows that they're the owner of it vis-a-vis the borrower?
Bill: Absolutely. Yes to everything you just said. Use an attorney, especially if you're just getting started, but I always use an attorney just to make sure that particularly, if I'm buying a note out that's not in my state and I'm not familiar with the state laws, I definitely want to have an attorney who is looking over the deal, making sure that the note—particularly in the deed of trust, mortgage, or contract—is written in accordance with state law.
For example, I used to live in Virginia. I think there's some language in it. I don't remember now what it was, but there's a phrase that's used in all notes. But in Virginia, if that phrase is not in all capital letters, the note is void. How would you know that? You got to have an attorney? You got to have an attorney to know stuff like that.
Clint: If I'm going to buy a note, do you put together your own purchase and sale agreement between the parties? So if I was buying yours, I would have a note purchase and sale agreement that you would give me certain warranties in that. Is that typically the way it works?
Bill: That is absolutely typical. You have seller’s representations and warranties like you do in a lot of transactions, real estate transactions, for example. You have an agreement of sale. They're fairly simple. We have them available on our website. People can get it for $1 I think is what we charge for, but it's pretty simple. I have known people who have bought notes and just written out an agreement on a napkin. I don't recommend that, but it can be done. It can be a valid contract even written on a napkin.
Clint: Okay, so then it's going back to the properties themselves. Maybe you could explain to us, what are the things you should be looking for? You said one thing: a property that you would want to take over if you had to foreclose. But are there some other criteria there for someone who's trying to evaluate this as a potential revenue stream for them that they should be aware of and what they should look out for particularly?
Bill: Yes. As I mentioned, I wouldn't personally buy a property that I wouldn't want to own. Not everybody agrees with that, obviously. You'll say, well, you can always hire a realtor to sell it. That's true, in some cases. If it's not a property that you can visit easily or very often, you want to have somebody just driving by to make sure it's still there. You might want to have a friend, hire a realtor, or somebody to do that for you.
When you're considering buying a note, you want to have an appraisal done. It’s not going to be a formal, full-blown appraisal because remember, you're not buying the property. You're buying the note on the property. The appraiser can't get into the property most likely because the payer has nothing to do with you buying the note. So you probably won't have them get in the property, but you can have a drive-by appraisal.
They shoot pictures of the outside and all four sides of the house, for example. They shoot pictures of the neighborhood. They give you comparable sales so you know what that's worth. That's if you're buying a note and you're unfamiliar with the area. Other than that on properties, I can't think of any other advice.
Clint: How do I go about finding notes? Personally, I wouldn't know where to look, if I wanted to start investing notes. Where do you go?
Bill: There are a lot of different ways. Some are better than others. I prefer networking, establishing contacts with people who are in a position to see notes come across their desk, and you start thinking about well, who would that be? Well, attorneys, real estate attorneys, estate attorneys.
Quite often we get notes from people who passed away and the family says, well, I don't know what to do with this. I don't want it or I understand I can sell it for cash. That's what we want to do. Bank trusts officers see notes. Real estate agents and brokers see notes. Title company officials see and know about notes.
I know of someone who made arrangements with the title company and paid them to include when they sent out the statements to the note owners every month. You get a statement from a title company or servicing company every month. They were also a servicing company, I guess. When they sent out the monthly reports, yes, the note was paid this month, here's the balance, and here's how much interest and principal is paid, et cetera.
He paid them to put his business card in with that mailing saying, are you interested in selling this note? If so, please give me a call. So I thought that was a great way to do it. Another way would be real estate investment clubs. A lot of these people in real estate investment clubs are very active in selling property and carrying back a note, or they might know people who are.
There are companies that buy notes, that's their business, but they don't buy notes under a certain principal amount. Let's say, they won't buy a note under $50,000, for example. There are quite a few of them that have that requirement. Go to them and say, well, I'll pay you a referral fee if you would refer notes to me that don't meet your criteria. You pay the fee but after you buy the note, by the way.
We do have a Facebook forum where notes are advertised. You just go on Facebook and it's under Paper Source groups. You can find it on Facebook, and you can join the forum, ask and answer questions, ånd look for notes that people have posted there as well. So there are a number of ways to find notes.
Clint: I imagine there are other data feeds out there you could subscribe to that would let you know what type of transaction is in place. Whether or not it's a private party carrying back the paper you could approach them to see if they're willing to. What about distress note buying? I've seen that term used before. What does it mean? I mean distress notes, actually.
Bill: Yeah, in the last few years, distress note buying or non-performing note buying has become quite popular. When I first heard about it, I have to admit, I have had non-performing notes but I've never bought one. They just became non-performing. So I asked Gordon Moss, who is probably the expert on non-performing seconds, I said, why in the world would you buy a note that person isn't paying on? It's in default.
He said, the reason is, (1) they're cheap, (2) if you buy a $50,000 note for $5000, you can go to the defaulted payer and say look, I don't want to foreclose on you. It’s your house. We don't like to do that. How much are you paying right now? I'm paying whatever, (let's just throw a number out) $1000. That's what I'm supposed to pay, but I can't afford it.
How much can you afford? Well, I could afford $650. Okay, we'll do an amendment to the note, you pay $650 for the next few years, and then we'll see where we are on that, see if you can afford more. Well, why would you do that? Because you only paid $5000 for the note. You invest $5000 and it gets settled at $50 a month. I don't know what the yield is, but that's pretty darn good, so that's why people buy it.
Unfortunately, too many people have found out about it so you're not going to buy a $50,000 note for $5000 anymore. A lot of companies have come in and bought these up in bulk from banks. You can't usually walk into your local bank and say, I'd like to buy one of your mortgages. But if you're a company or you have deep pockets, walk in and say, I'd like to buy all your non-performing mortgages or notes. That's what a lot of these companies have done. They have gone through them, pulled out the best ones, and then offered the bottom of the barrel stuff to investors and raised the prices.
It's become a much tougher market these days. It can be done. There are people who do it. I know one guy who was speaking at our upcoming note convention who got started with us with Paper Source. I think it was about two years ago. He's now got something like a $10 million business going with it. So it can be done. He's going to be there and talk about how he put it all together too. It can be done. It's just harder than it used to be.
Clint: Yeah, so you bring that up. You have a convention coming up in May where my partner is speaking at. If you could just share with everyone a little bit about what they would learn if they wanted to come out to that convention in Vegas. There'll be a link to the convention in the show notes. But if you can explain it, that'd be great.
Bill: Sure. It's May 12–15, Thursday, Friday, and Saturday. We begin with a morning seminar on Thursday. That is about a four- or five-hour seminar. It covered a lot of the basics—for people who aren't familiar with it—just to get you up and running for the rest of the convention. We have a whole bunch of different speakers. We have it all in the same room so you don't have to choose among breakouts. Oh, I'm going to miss this one, and that kind of thing. It's all in the same room.
We have speakers on how to find notes. We have beginner speakers for beginner audiences, we have advanced speakers. We have probably the best-known names in the industry that are going to be speaking on it. They're all available for private consultations with you—no charge for those. We have an exhibit hall. As you said, Toby will be one of our main speakers and he's going to be offering free consultations on tax planning and asset protection.
The networking is tremendous. I hear that over and over again. We have this once a year. I just hear it over and over again. The networking is just absolutely fabulous. Some people come just for networking to buy and sell notes and to meet new people. You'll meet the national investors. I mentioned there are investment companies, servicers, self-directed IRA experts, software companies, law firms, including, of course, Anderson Advisors, a platinum sponsor of our event, insurers.
We have complimentary open bar receptions. We have a white tablecloth luncheon all included, refreshments of course. It's going to be May 12–14 in Las Vegas. For more information, go to the link that you're going to post on your site.
Clint: Great.
Bill: Yeah, I was just going to say, for people watching this get a discount at sign up.
Clint: Yeah, I mean, this is intriguing. If anybody's watching this video and thinking, yeah, I've heard about notes before and I just don't know how to get into them. I think that they realized from our conversation that there are certain things you need to do to evaluate it, how to protect yourself, and if you're checking all those boxes on the front end, there can be a good return for you on the back end, but it's knowing that process. Would you agree that it's not something you just want to go out there and try to learn on your own?
Bill: Absolutely. You've got to have some kind of training. I think one company told me they charge $50,000 for training and I've always thought stuff like that is crazy. We charge a fraction of that for our training. In fact, I offer a free e-course. It's an eight-part fairly lengthy e-course. I took my two-day course and distilled it down into eight long lessons, they're available at our website papersourceonline.com, and it's absolutely free. I wrote it so that you could see what note investing is like and note brokering—it talks a lot about note brokering—and just see if it's for you. If it isn't, you haven't spent a dime.
Clint: Perfect. I'll put that in the show notes as well. They'll have a direct link to the convention and a direct link to Paper Source so they can go there and watch that course if this is something that they're interested in.
Bill: Great. Thank you. Appreciate that, Clint
Clint: You bet. Is there anything you want to leave in passing?
Bill: Well, there's a lot we could have covered and hopefully I'll be back and maybe go into some of those. There's one thing I think I should tell you. There are note funds out there where we'll take your money and you're invested in the note. We’ll just send you the money every month, and if it goes into foreclosure, you will never know about it. We'll service and we'll keep paying whether it goes into foreclosure.
There are a lot of those that have gone down the tubes. I would not recommend that people invest in a note fund like that where money is pooled. Investors have lost money in those. What I would recommend is if there are note funds out there that say, okay, I'll sell you this individual note and then it's your responsibility. We could put all the papers on it and we walk away from it. There's nothing wrong with that. That's another way to find notes, by the way. I would do that.
I would also (in passing) say don't hook up with any seminar company that also tries to sell you notes. That's an inherent conflict of interest and it's unethical. Because the purpose of educating you is obviously negotiation and all the other things about it, but it's so you can learn how to buy notes. You're the buyer, you want to buy at the lowest possible price. The purpose of the seller is to get the highest possible price and it can't be the same person. So I would urge you to stay away from any kind of situation where you learn from a company that also tries to sell you notes. That's my spiel for the day.
Clint: Great advice. Again, thank you for coming on. I appreciate you taking the time with us and hope to get you back soon.
Bill: Thanks so much, Clint. I appreciate it. Very much.
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