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Real Estate Investing School Podcast
120. REAL DEAL: Luxury Lifestyle Fueled by Real Estate
00:23:48
Welcome back to the Real Estate Investing School Podcast! In this Real Deal episode, Brody interviews Daniel Kong about a real estate deal that Daniel did that helped fuel his lifestyle. Join us as Brody and Daniel discuss the how to find the right...
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- [00:02]
A
What's up, guys? Welcome back to an episode of the Real Deal podcast with Real Estate Investing School. This is your host, Brody Fawcett, and today we have a special guest, Daniel Kong. Daniel is the man. He's also living in Hawaii right now, and we met just recently a couple. Couple weeks ago. Been super impressed by what he's doing. Actually, I followed you on Instagram way before that and it's just so fun, dude. Just, just watching all the cool stuff you're doing is super exciting and I feel lucky enough to be able to meet you in person and now to dive into a deal you've done in the next 20 minutes. So welcome to the show, dude. Thank you.
- [00:46]
B
I appreciate it. I mean, been. I'm a big fan of yours too now after just hearing what you got going on, the whole move to Maui, I mean, like the lifestyle by design, it's a. I just love that concept as real estate investors being able to like quit our W2s and then be. Live the, Live the life that you like that you designed for yourself, you know, which is so cool what you. We've been doing in Maui.
- [01:06]
A
Thanks, man. Yeah, it's fun. I think we both align there. Super passionate about that. And how long has it been now that you've been investing in real estate? Because I know, I know you, you're completely financially free and you quit your, your day job and went full time, but that was how long ago?
- [01:22]
B
So my first, like full year was 2019, so about four and a half years. Yeah. Four and a half years.
- [01:27]
A
Four and a half years, man. That's awesome. And you and your wife do a lot of stuff together here. Most of you.
- [01:33]
B
When we first started it, we. I tried to recruit my wife into it, but then it was like the. Whenever we got to argument, it was always like the, the wife always got her way. So then like, eventually I got divided from like the, the deal. I mean, the, the person in charge. And now I'm like her underling. So we, she's. She's doing her thing and I'm doing my thing and we're kind of like, we're both happy right now, so. Yeah.
- [01:52]
A
Yeah, dude, that's cool. That's the same, Same story with my wife and I. We used to. We used to have our thing, the flipping faucets, which is funny because we don't really flip a ton of houses anymore at least. But yeah, she's. She's transitioned more or less out of the day to day stuff, which is cool. She's happier, not doing it, and I'm happier doing it, so it's been great. But, dude. So this. This podcast is fun because I feel like there's so many shows out there where they're all great, but they get long and there's so many different angles. We like to kind of cut out a lot of the fluff on this so people can tune in and learn from one deal. Specifically, like diving into how you found the deal, how you funded it, and then ultimately how you forced it or got creative and turned it into a really good deal. And the whole purpose of us going over all this is so people can replicate the process. Like, I know you're big on that, on. On teaching and sharing, and so am I. And ultimately, we just want people to experience financial freedom like we've been able to experience through real estate, so.
- [02:54]
B
Love it.
- [02:54]
A
Love it.
- [02:55]
B
Yeah, let's. Let's get cracking.
- [02:56]
A
Let's do it, dude. So give us kind of like a 30, 000 foot overview of the deal really quick. Just kind of give us roughly what it is and maybe some numbers on it, and then we'll dive in.
- [03:06]
B
So this is. It was like. This is like a bur sub 2 hybrid house hack. It's like, it has like all the different parts of it that you want in one. So basically super rough numbers is we bought it for 660 subject to and seller finance. We put about 120,000 in the renovation. It appraised for 1.2 million. We refinanced out like 850 on a conventional loan that we. Our mortgage is like 3, 900amonth, and then we're renting it out for over 5,000 combined. And the. The two different sides. So like, I mean, so it's kind of like a fourplex, but it's a. So it's like a burr house hack sub 2, like hybrid. We can dive into like the. The real numbers and like the ins and outs as we. As we go along.
- [03:51]
A
So yeah, I like it. I like it. This is going to be a good one already. I can tell. So maybe talk about how you found it. Let's just start. Let's just start there.
- [04:03]
B
Yeah. So, I mean, when I was first starting investing in Hawaii, I built like a website. So like a, like a carrot website, just like trying to get leads, did some SEO on ppc. And so this was like a. A seller who was like in for pre foreclosure and he's reached out and said, hey, I want to like sell my house. And so we went out to him and had like a conversation and that's kind of like how it started. He was talking to a few other investors, some realtors, and kind of like going over his options. But we were just like, hey, we just wanted to be like one of your options and see if we might be like a good fit for you. So that's how we found it.
- [04:31]
A
That's awesome, dude. And I think it's so easy to almost glance over that, like, oh yeah, it was just this easy thing that I did and we just found this deal and it's like, no, there's a lot of intention, a lot of work that went into building that and like the foresight of doing that and setting it up that way, it goes a long ways. So it was an off market deal.
- [04:50]
B
Yeah, off market deal.
- [04:53]
A
Go for it.
- [04:55]
B
So he was in pre foreclosure. So like the big pain points were there was, there's a pre foreclosure and then he had like a, he had a lot of stuff in his house. So like it was, he was living in. There's a four, two on one side and there was like half built house on the other side, which is like a 6, 3, like a 32 upstairs and a 31 downstairs. But it was, it wasn't finished. But then he just collected a lot of things over the years, had like a lot of stuff there. And so his dilemma was that he needed help to either sell the house, but then he also wasn't ready to move anytime soon. So like we were like, how can we solve this problem where this guy was like, hey, like you want to sell the house but. And kind of get out of the trouble. But then also he wasn't ready to like move for the next six months to a year, you know, so like that was like kind of the, the problem that we were trying to solve.
- [05:37]
A
Cool. I love that. I love that you said like the problem we were trying to solve. Because 100%, that's all real estate investing is. It's solving problems and it's creating win win scenarios. Like how can I solve this problem that it, it solves it for you and it solves it for me and we kind of meet in the middle.
- [05:53]
B
Yeah. So I mean, kind of like looking at the different options that he had on the table. He was talking to a couple other investors, another realtor. And so like the house at the time. So this was kind of crazy because it was in the middle of the pandemic. So it was like 2020 right in the middle and it was like the world was kind of like, like turning upside down. So we were like, it was a big shaking time for like real estate and just like the world in general. And so yeah, given like the, the pandemic situation, we thought the house would be worth fixed up maybe like about a million dollars. But, but because it was like one side was unfinished, it was like only one side was finished, it wasn't in great shape and there's a lot of like different maintenance, etc. Things to be, to be completed. We think like if you're to sell it on the market, on the MLS, you probably would sell it for maybe let's say 700 to 750. Maybe like 720 as like you'll probably buy, you're gonna sell to another investor, right? So you're gonna come in listed on the market 720 to 750. The realtor is going to take the commission. He might walk away with like 6:70 to like 700 at the end of the day. So that was like option number one.
- [06:52]
A
Okay.
- [06:52]
B
Option number two that we presented with him was like, hey, we can come with a cash offer of 550 because we were looking like, let's say about 200,000 repairs to like to fix the house up. So 550 cash offer, 200 unit repairs, some holding costs, some realtor fees when we sell it at the million mark. So we could flip it, but we would come in with a 550 cash offer. So that was, that was the first, the first offer we presented to him. The second offer was this thing called sub 2 which was I was just like, I'm a big like YouTube guy. So I just like researching like YouTube, like the creative financing I was watching on some like bunny trails and we're just like sub tube financing. Oh, this is really interesting. So like I basically kind of self taught myself sub 2 from YouTube and just like reading.
- [07:31]
A
Okay.
- [07:32]
B
And so like hey, this thing would be another option where basically if we could buy for like a little bit more because it takes away all the holding costs and the risk. And so the reason why we have to buy these things so cheap on a cash offer is because let's say on a million dollar house, you hold it for a year, you're paying 100 grand in just holding costs. And then let's say like permitting takes longer, etc. This could, that 100 could easily turn into 150 or more depending on how long you have to hold the property. And so the holding costs on these fix and flips are like Very like big and real. But if you buy this property over subject to which basically means take away the mortgage, then like anytime you're paying that mortgage, you're actually paying equity into the house. And essentially your, your like holding cost is essentially zero at that point in time. So it takes away a big risk and like cost factor. So we can pay more for the house. We said, hey, cash offer is 550, but we can do a subject to at 650. This, if this is something that you're interested in. So that's kind of the options that we presented him, the Realtor is like 7 to 750. We've got a cash offer at 550. And then the third option is like we can do a subject to at 650.
- [08:33]
A
So when you say, you say you presented these, this was first offer, second offer. Is this all at the same time? You said, hey, I can do this or this or this. Or was it once you went under contract, then you gave him another offer?
- [08:47]
B
No, no, it was, it was like during like kind of like the negotiation process. We know, it's funny. It's a funny story actually. When I went there to, to talk to him, I was friends with this other investor and I was like, hey, what are you doing here? So I guess I'm. You're just lining them up, right? So you go on the website, you fill out like 10 farms, whatever. And then like this, all the realtors and the investors kind of come through, make their pitch or whatever thing for the deal. Right. So we're one of many guys. It's funny that I saw another buddy exiting as we were kind of coming into the house and having our apartment.
- [09:16]
A
That's awesome. Well, I mean, maybe you'll get into it. But why did he choose. If there are multiple offers, why did he choose yours over somebody else's?
- [09:26]
B
So I think one of the things is that we. I mean, I think building rapport and building trust and credibility is a big part. Just making sure that people can trust that you're going to be able to finish what you start. Right. But another thing is I think we uniquely solved his problem. So the way that we worked at the sub 2 is that we said, hey, we know you got a lot of stuff here. Maybe not made it to ready to move yet. We'll work out a deal where we will buy sub 2 for 650 and then. Sorry, is this. Sorry, my. Yeah, let me turn this.
- [10:01]
A
As a kid, it's probably my fault too.
- [10:04]
B
So the thought process was that we would buy it sub 2 for 650. But we would allow him to live there for 6 months. More like rent free. Right. So during that time we would catch him up with all his payments, make sure like the, the mortgage is, is all up to date etc and then we would allow him to stay there like during that, during the time while we were fixing looking at house. So you basically had like six months to live rent free, figure out where he can move to rent or to buy somewhere else and then also kind of like take his time moving. So it was kind of like the best of both worlds where he's going to get probably the same that he would get on the market. But then he also got basically like a free six months to a year worth of just living and taking his time to kind of move.
- [10:46]
A
Yeah, yeah, yeah. So good. And it's just like you were able to solve the problem and get creative and, and a lot of people aren't willing to get that creative to solve the problem. So. So maybe tell us ultimately how did you fund all this and what did it look like from there?
- [11:03]
B
So there was about, so there was about 500 left on the mortgage. So we sub to the 500 and there's about one maybe like 50 grand worth of arrears that we paid in cash. And then there was probably like 150 more of just to make up that, to get to the 6, 650 or we actually ended up going 660. But we, so instead of like giving him that lump sum up front, we said like hey, what if we paid you that lump sum at the back end when we actually sell the house? So he's like yeah, that's a good idea. I don't need the money right now. Let's, let's just do it where we'll write a second lien contract where we would just say like sub to the 500. We'll pay their rears immediately. That's a 50 grand. And then we'll do the sub two, I mean seller finance for the rest of it and then which would be paid when we actually end up on the exit. So that's how we, how we funded the property. We also need to raise some money for, on the, the, the rehab which we just have a small network of private lenders and so we just raise that with, with private money lenders.
- [11:59]
A
Okay, sweet. Awesome. And I think that, I mean this is, this is good because you can go so deep with all of this which is, I mean, and a lot of it depends on it because I Mean, you talk like, oh yeah, I just got private money or like yeah, I just got a hard money loan from lenders when a lot of people have never done that before. It's like what you did, what, how did you do that? What, like where do you even start? That's, that's crazy, right? Any, any, just like backing up a little bit. Any advice to anybody that needs to go and establish relationships with hard money lender or private money lender? Where would you say to start?
- [12:36]
B
Well, so the good thing about this deal is it took zero hard money, right? Because we did a sub two over the 500. So we didn't have to raise any hard money. We just had to raise the private money. And I just, the private money came from just a few deals that we did like before. We kind of built up a small track record of just like success and we just like pitched to our friends and family say hey, like this is what we got going on. Would you be interested in lending? It's like a 12% interest and it's a flat rate and it's secured by real estate. And so just like a practicing a little bit about your pitching like your, your potential lenders and just kind of educating them on the advantages of investing in real estate versus like let's say the stock market or whatever else that you're investing in. So it's, it's secure, steady, you get like monthly cash flow. So you invest let's say like 200,000 in this case. Then you get $2,000 a month to the project is finished and just like secured by real estate. So it's pretty secure and it's like a fixed rate on the, on your return.
- [13:31]
A
Yeah, yeah, that's awesome. No, I just love touching on that because it's, it's, it's easy for you now, right? But it's really hard for people in the beginning. And I don't even think it's. And I love the way you explain it because it's like it. A lot of times you view it as, oh, they're doing me this big favor by lending me money. And it's like, no, it's, this is very secure. It's backed by real estate. This is the return that you're getting. You make money before I make any money. Like it's very, very risk averse. Right.
- [13:58]
B
And so I tell my friends all the time that once I retire and I've got let's say like 3 or 4 million sitting in the bank, I'm just going to lend that money to all my friends and just live out the passive income. So let's say I've got 4 million in the bank and I lend it to all my fixer, my flipper friends. That's 40 grand a month for me. Doing nothing. Right. It just. And then I'm helping them to get their ideas or whatever. So just. It's a very like, secure, like, way to like, make passive income. As long as you trust the operator, I think.
- [14:23]
A
Yeah, I love that. No, I'm glad you touched on that. So maybe tell us kind of how all this, all this ended, what it looks like for you and I mean, ultimately how you force the deal, how you got creative. I think you touched on a lot of those pieces, but like just kind of wrapping all of it up. What does it look like now for you? Did you hold on to this? Do you have it right now? Or did you flip it and sell it?
- [14:48]
B
So actually like the we, we. Because it was one of our early deals. We. We budgeted for like, both sides of the thing to be renovated, but we actually only renovated one side. And then we partially renovated one side and we fully renovated the other or built it up because it was unfinished. And then me and my wife did a lot of the work. So like the flooring, cabinets, plumbing, a whole bunch of stuff. Like, we. And we subbed it. So we saved a lot of money at that end as far as. Just did like a lot of work ourselves. And then so like, the total renovation came out to be only like 120,000, even though we budgeted 200,000. So we made some savings over there. And then we left like during that time, during that year, like, the market started to go crazy, like upwards. And so like, it's. We kind of got lucky in that regard where we. Our original ARV was 1 million, but after we finished the project, then the new value was about 1.2 million. So that's where like, hey, like, maybe this is something that we can actually like, keep long term because there's enough equity to refinance and still like, have like and the be to like to keep it, you know. And so yeah, the time we are living, we're still like, kind of new in our, in our investing careers. I've never owned like my own primary house. I bought like a bunch of rentals and burrs, but I was still renting like in a basement for like a thousand dollars a month, like, like somewhere like, like in, in town. So like, we were like, hey, what if this be our primary? So we actually refinanced that out with an owner occupied loan at like a 3% rate or something. So we got, we put out 850 in cash. Part of it was to pay off the existing mortgage, part of it was to pay off like our private money lenders. And the rest of it we got to just keep and pocket it tax free.
- [16:21]
A
Right.
- [16:21]
B
Because when you take out a loan, it's tax free. So Our mortgage is 3, 900 with this like great interest rate. And then our downstairs is renting like 30. I mean it's 2600 and across. There's a 2:1 and a 2:1. The 2:1 up top is running for 2500 and the bottom is just, we're just leaving vacant because I just don't want to have too many people like in the, in the house basically. Yeah, so Basically it's a 3900 rent, I mean mortgage and then 5000 in just like in rent from between the two, kind of like on the other like part. So it's kind of like, it's kind of like built like a fourplex.
- [16:55]
A
Wow, that's legit. So you live in one unit, one's vacant and then you rent out the other two. That more than covers your mortgage.
- [17:02]
B
Yeah. And this, I mean this is, this, this is like, this is the 3:2 that we're living in right now. So it's.
- [17:08]
A
Yeah, that's great man. That's, that's so cool. Especially doing it in one of the most expensive markets in the nation. I love that. That's, that's kind of like my house right now. I have have like a separate studio and it's great for when family comes and I'm in it right now because I can use it as an office. So it accomplishes both. But dude, so cool. So was it hard finding so you, you actually pulled out cash and you refinanced it into primary residence loan? How much cash did you say you pulled out?
- [17:40]
B
Like 20, 30, something like that. Like after paying off all the private lenders and the rehab and all that, like everything.
- [17:47]
A
Yeah, yeah, not bad. Make money and then make money every single month. And then, and then what's crazy is when you move out, you can rent out your, your unit for how much?
- [17:58]
B
Probably about three grand, I'd say. So.
- [18:00]
A
Yeah. That's awesome. So then you'll be cash flowing a good, a good chunk of change even more above and beyond what you're at right now. So cool man. That's awesome. What a, what a unique deal that you had to get creative, dive into to figure out. And I think like the, a lot of people would be scared of that maybe because of the purchase price or just like I've never done subject to before. That's, there's a lot there like that's kind of scary but diving into it now and then, now the way you're set up, it's, it's very, very. You're in a way better situation than somebody else that's even renting. Right.
- [18:38]
B
I was super scared man, when I was doing it. I was like, I was like, it was like the whole process was scary. Like you know, going on seller appointments, trying to put the deal together, trying to understand the whole subject to process like all the different ins and outs. Like for me, I mean like it was, it was very, very scary. But just like going, taking one step at a time, trying to educate and learn as much as you can. And in retrospect, I wish that I, I kind of like asked for some help during this time from some more experienced investors because that would have saved me a lot of headache. But it also is something to be said about just figuring on your own because the lessons you learn is also like you keep them more too. Like, you know, so.
- [19:11]
A
Yeah, yeah, 100%. YouTube's a great teacher sometimes university, bro.
- [19:16]
B
That's where I got like mostly my, most of my resting education.
- [19:20]
A
That's so cool. So what would you say if you had to kind of summarize everything? What's the number one thing you learn from doing this deal? And then the follow up question to that is what advice would you give people that are going out to try and maybe do something similar?
- [19:35]
B
I think probably the number one thing I learned was just realizing that it's like you mentioned earlier, it's all about solving problems. And whenever you're looking at like a specific situation like that has like money to be made a profit, you're always trying to solve some kind of problem. And then the better you are at putting together the tools to kind of like solve the problem, the more that you can either maximize either the profit for like the, the seller and yourself or all the partners who are involved and just, just being able to be, be able to like creatively think about the different kind of things that are involved and then having having the right tools in place to kind of like to put, put the puzzle together. And the advice I'd say is just educate yourself as much as you can. I mean listening to things like this actually like listening to bigger pockets. When I was first starting, I listened to like 300 episodes. And every time somebody told a story about their deal, I learned or picked up a little small thing. Hopefully as somebody is listening to this story, they'll pick up like a little nugget here and there on their journey and help them to, to, to solve the problem that they're trying to solve in like their situation or, or specific situation, you know?
- [20:35]
A
Yeah, 100%, dude. No, that's, that's how I learned a lot too. Same exact thing. It's almost like learning by osmosis in a way. Just consume as much content as you can and, and it's not all going to stick, but a lot of it will. And then the next step is to actually implement it and act on it. But a lot of times, like fear, it's just the only thing fear is, is lack of education and lack of knowledge. And the more you start to know, like, the less, the less scary it is. You know, you think about like, like when the lights are off at night and you get scared. The reason you're scared is because you don't know what's in the dark. You know, all of a sudden, like if someone were to tell you or you turn the lights on, you're like, oh yeah, that's what's in the dark. It's just this, this, this like all of a sudden you're not scared anymore because you know and you understand and so, and then, and then that's the whole nother step of actually taking the action on it and jumping off the ledge.
- [21:29]
B
So yeah, I mean, this, I mean, just educate until you feel comfortable. Then like, then take the next step and then educate, taking it. It's kind of like incremental, right? And then as you take the steps, you're gonna have like different kinds of questions and it'll just kind of like open up you to like just even more opportunities that you didn't realize were available as you kind of take the steps that you're taking.
- [21:46]
A
So 100, dude. Yeah. So good. I love it. Any, any, anything else before we wrap this thing up? Any last minute advice or anything you leave the audience with?
- [21:57]
B
No, just, just follow this dude on Instagram and watch his podcast because he's fire.
- [22:04]
A
Dude. You're the man. Where's the best people? Best people that aren't already following you on here? Where's the best place for, for people to connect with you?
- [22:14]
B
Follow your Instagram. Daniel Kong808 on Instagram. I'm also like on Tik Tok and Facebook. Daniel Kong808 but my primary is just usually Instagram, so.
- [22:23]
A
Sweet, brother. Yeah, go, go follow Daniel. Something I always like, you always stick out for. And I don't know, it's just because one of your videos that went. Went viral. But tell everybody as we wrap this thing up, what you did with your. Some of your cash flow.
- [22:37]
B
Well, we bought a Lambo recently. Whatever, I mean, just. Yeah, we just have a good time with it. So, you know.
- [22:45]
A
Yeah, I love it. It's cool. It just a cool story where it's just like, hey, I bought a Lambo but I didn't pay for it. Real estate paid for it, so.
- [22:54]
B
Yeah, exactly.
- [22:54]
A
But you did it in the right order. Most people do it the wrong order. They buy the Lambo and then they're like, ah, I'm trying to get into real estate, but they're tied down with these payments or whatever it is. So it's all about the order and the right process. Sweet, brother. Well, thanks so much for jumping on. Thanks for taking time. You guys that are watching live. Thanks for watching, for taking the time to watch live and yeah, dude, appreciate you. And once again, go out, take some action, take some of these nuggets and go apply it in your real estate. You don't get anywhere just from sitting here learning. You gotta go take action on it. So much love. Thanks for tuning in and we'll see you guys next week.