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Real Estate Investing School Podcast
148. REAL DEAL: Creative Partnership Scores a Golf Course Gem with Blake Erickson
00:23:41
Welcome back to the Real Estate Investing School Podcast! In this episode, Brody sits down with his good friend Blake Erickson, who recently closed on a short term vacation rental in one of his favorite vacation spots. The conversation goes through...
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- [00:00]
A
It's a place that would fire me up if I go down for a weekend and hang out with my wife and kids. So just, it fits so well, and I've never been happier to partner.
- [00:13]
B
What's up, everybody? Welcome back to the Real Estate Investing School podcast. This is your host, Brody Fawcett. And this is a Real Deal series. You guys are just joining us for maybe the first time ever, ever. What this is is a series where we basically interview somebody and talk about one deal that they've done. We talk about how they found that deal, how they funded that deal, and how they forced that deal. And the whole entire objective of this is so you can learn from it and extract some good nuggets and then go and apply them to your life and go do the same thing. Take action on it. So today we have a good, good, good friend of mine, Blake Erickson, that we get a jam with for a little bit. So what's up, Blake? Thanks for being here, man.
- [01:00]
A
Pumped to be here, bro. It's an honor. Any time to jam with you is, is time well spent. So I'm excited for this.
- [01:06]
B
Hey, I, I agree. Except for on the flip side with you, man. So this is going to be fun. And these are cool because they're just kind of short, sweet. And we talk about one deal, and I think we're going to dive into with you is a deal that's actually really fresh that you just barely closed on, I think like a week or two ago. So excited for that. Give us kind of just an overview really quick on, on what it is. Then we'll dive into the nitty gritty.
- [01:32]
A
Cool. I love it, man. This might be more of a unique perspective, per se, because it's a partner deal and I'm on the capital side, so I'll dive into it. Alex Mashburn, whom most of you will probably know, he bought an Airbnb in Copper Rock. If anyone knows Copper Rock, it's an hurricane and it's backed up to this beautiful golf course and they only allow a certain number of short term rentals in the area. And of one of those, of one of those allotted slots was this Airbnb that this owner owned outright. And so Alex owned the property right next door and had been talking with this owner for months and months and months trying to get him to sell and finally got him to a point where he was just open to negotiate. And that was the deal that we closed on. So I can dive into how we found, how we funded it and all that.
- [02:30]
B
Yeah, yeah, it's going to be fun. And actually, as I'm thinking, I'm like, what we should do is get Alex on the next show. I'm going to take this out if we don't do this. So no one's ever going to know, but we'll get. We'll get him on the next show and tell his side of it. Because I love this dynamic. And this is what real estate's all about. It's creating a win win scenario. Like, you're on the capital side, but, like, you're winning on the deal or else you wouldn't have done it. Right. Alex is also winning in the deal or he wouldn't have done it. And so I think that there's two sides to look at with this just right off the bat. And it's so good because it relates to every single person. Like, maybe you are more on the capital side and you're like, hey, I don't have as much time right now, but I do have some. Some money coming in and I want a cool, awesome, fun, legit investment that I'm stoked on and I want to get a return. Or you're on the other side where you're like, I don't have a ton of capital, but, like, I'm learning real estate. I'm hustling. I'm listening to real estate investor school podcasts. I'm learning as much as I can. I'm. I'm in the school, whatever, and I want to go and use this knowledge to then go find somebody like a Blake. So, yeah, dude, with that being said, let's. Let's dive a little bit deeper. What was the purchase price of this property? And. And then how did you. I guess you talked about how you found it already through Alex, but yeah, give us the purchase price and kind of what. What some of the numbers looked like and how you financed it.
- [03:58]
A
Cool. I love it. So Originally listed for 1.5 million, it's a townhome, essentially, kind of set up with a pool, hot tub, backed up to the golf course.
- [04:09]
B
Once again, it's a townhome, but it does not look. We'll throw some pictures on here because it's sick. It's like. It's more of like a twin home almost. Right? Because isn't there. Are the garages connected and there's just two of them. Two units connected, and you almost can't even tell from. Look, it's. It's a sick house.
- [04:27]
A
And the cool part is because Alex owns the one next door. When you actually go through the sidey to go down the pool. There's a gate that actually connects to Alex's next door as well and so provides an opportunity to do a dual rental or if someone wants to 20, 30 people do a big party, they can put two houses next to each other. So, so one point we, we end up getting under contract for 1.4 million. Here are the terms. So the cool part was the guy owned it outright. Anytime that someone owns it outright, the ability to do creative finance goes up. Significant. And so what was negotiated was.
- [04:59]
B
Why is that, Blake?
- [05:01]
A
It's just because they don't, if they sell it, they're going to pay so much capital gains tax and depending upon the buyer. But if you can pay this guy over a period of time with interest on his money and getting a monthly payment that is attractive to a lot of people that, that own outright rather than just getting a big lump sum. So avoiding capital gains tax, we buy the property for 1.4. So $100,000 less at a five year bubble at a 3% interest rate. So our payment, if we went conventional would have been 11 grand. And I think, and I think it's, it's right about right under 6,000 bucks a month after everything. So that's, that's our seller finance payment too because we got after insurance and everything like that. Cool part about it is one of the creative thing that was negotiated is our first payment's not due until July. And So in Hurricane St. George area, short term rentals are going to explode. You know this more than anybody during the months of May, June, July, August, all those months. And so we then get to stack cash, put some in reverber reserves and just increase our cash on cash return for the next three and a half months. We close March 15 and we don't have to make a payment till July 1. So it gives us three and a half months of just pure profit. So those were the terms that were.
- [06:28]
B
Negotiated, which is also like this is. So I have a family member just bought an investment property seller financed and we were talking through the negotiation process with all of it and I'm like just, just go and ask him if he'll do, you know, interest only payments for the first year. Just ask him like they've already set on a price. They're like getting ready to say yes, pull the trigger on it. And I'm like, just like as a chair. If he says no, what's the worst that could happen? Like he says no and you move forward. Well, they ask him and guess what he says? He says yes, right? And we do the same thing with like our tiny home resort. Like the bank typically gives you, you know, 12 months of interest only payments. During the construction phase, we ended up with 24 months of interest only payments. So the cool thing is if you finish the project in eight months, guess what, you can stack some extra cash during that time. Guess what that does for your cash on cash return. Right? It's through the roof because you're getting all that money back so much faster earlier on in year one. So anyhow, love that, love that you guys did that. Did you talk about your down payment as far as percentage down? Did you say that?
- [07:38]
A
Yeah, so we did 10% down. I think it's gonna be 25 to 30 if you go conventional. So that's also a big one. So put a hundred, put 150 down. Just kind of after everything. Cool part is, and I want to say this, I, I like to think that I have a lot of real estate knowledge, so I could go find a deal, force deal, you know, negotiate good terms and things like that. And so if I would partner, I would typically want to be on the side of like, hey, I'm going to bring the knowledge, the hustle, I'll negotiate it. Because I think that I have that. But when Alex called me and he was like, dude, here's the deal. And the numbers just made so much sense that it was still a win for me. Fit my buy box. Like, I think we can go get a 20 to 22% cash on cash return our first year. And it's a place that just would fire me up if I go down for a weekend and bring people or hang out with my wife and kids. So it just, it fits so well. And I've never been happier to partner.
- [08:40]
B
It's a lifestyle box, dude. You got the, you got the lifestyle box check mark.
- [08:45]
A
Yeah, bro. Like, it's something that just I, I had this high for like two weeks afterwards. But it's important. It's just important because Alex is taking 50 of the deal, I'm taking 50% of the deal. And I did the full down payment and I couldn't be happier.
- [08:59]
B
Yeah, dude. So cool. Another thing on that too, like on Alex's end, right? It's been the same thing. Like anytime I've done a deal with partners, like one, either the return's so good that it's a no brainer, or the idea is so cool that it's a no brainer and people want to be involved in Cool ideas and emotional things. And I think more often than not. So if you're listening and you're like, oh, I want to go structure more deals or put more deals together, like, hit on those emotional buttons of your investors or your potential capital partners. Because it's like, hey, if you can touch on like, like the idea, like when we were doing our tiny home resort, so many people hit me up because they, they didn't care about the return as much as like, oh, I want to own a tiny home resort, I want to be part of a tiny home resort. And, and now we started this other one and it's, it was the same exact thing where it's like, oh, this cool, like vision. And so that's what's fun about, you know, both sides of it, honestly, is it's not always about the return. It can also be about the, the lifestyle piece of it too. So, you know, do people buy emotionally? You shouldn't, you should buy logically. But people buy emotionally and then they try and justify logically. So it's like you can sell them emotionally and then get them justifying it on the like, okay, I'm actually like, like Blake's doing here, like, and it's a 22% cash on cash return potentially. Okay, I'm in.
- [10:27]
A
Yeah. My emotions were very triggered I, the moment I started like conceptualizing the idea in my head, it's like, oh, St. George, the hours away. I could do this, I could do that. It's like, cool, where's the wire transfer?
- [10:41]
B
And you can host events there. You can get a return from that. And then I think, I think too, the other thing that's just so nice about, and I've had a handful of seller finance deals that I've brought a partner in on as well. And that makes it even more of a no brainer because you're like, okay, I'm fronting the money, but like, I don't have to run my credit. It's not technically going to show up my debt to income ratio. Like, it's very easy. There's not a bunch of hoops to jump through. So that's another little one that makes it good for you and you know, for people listening that want to go structure it, hey, how can I go, you know, find a seller finance deal that's going to give me that much more leverage to go find a really good capital partner for you. Okay, so next, next question. Diving into it. Well, speaking of the financing and the funding section, you mentioned how you structured the deal a little bit you brought in the full 10%, 100% of the down payment. You guys split it 50. 50. Yeah. There's another piece. And I only know this because I've talked to Alex about this. That goes in your favor. I usually don't do this on the. The Alex's end side, so I think it's legit the way you got it structured. But you. You also have a guaranteed return.
- [11:54]
A
Yeah, Yeah, I do. If anyone wants to partner with someone, there's no better partner than Alex. But essentially he came in and I think he wanted to partner on. On a deal that he was with someone that he's close with on this particular deal because we'll just be utilizing it. And I just told him, I'm like, look, dude, I. I need to make sure my. Now I'm trying to get to a point where my deals are giving me a 20% cash on cash return. And so worst case, I just need to be making sure that I can make a thousand bucks a month in cash flow every single month, even in the down months. And he said, I'll go ahead and guarantee that. I'm like, perfect, bro. Send me the info. We'll get wired over to you. So that was something that's probably not standard. It definitely sweetened the deal and put a cherry on top for me and is a massive benefit for sure.
- [12:45]
B
Yeah. Yeah. That's a huge nugget. So people are listening that are capital partners, like. Or potential capital partners to look at deals. Like, I think that that's. That's exactly what I would have done it. Blake, if I'm in your shoes because you want to. You want to protect your upside as much as you can, your downside as much as you can. And so I think that's honestly a smart move there. And it's not unusual as far as that's what you hear all the time. Like a pref. Right. An 8% pref. Or a preferred return that usually it's more in like, syndications as opposed to like, you know, just a. More of a partnership can kind of be the same thing technically, but it's. It's. It's basically just saying, hey, me as the, The. The person who's structuring the deal or the GP of the. The syndication. I am not making any money until you make at least 8% on your money, and then I'll make my money. And that's. That's a totally normal thing to do. But yeah, if you don't have to do it, then, then like you. Why would you right. Like you want to share in the downside but if you, if you have to, in Alex's situation, it's like he probably is like, oh, there's so much potential here. I'm not out anything like, like let's go, you know, so I can see both sides to it for sure.
- [14:02]
A
Massive win. Win.
- [14:03]
B
Absolutely. Okay. Anything else on the financing side of things? No, I think that's was amortization rate 30 years.
- [14:17]
A
The seller finance rate was a five year bubble.
- [14:19]
B
Five year bubble. But on a 30 year term as far as the payment breakdown and then your plan just so listeners can get an idea at that five year mark, what are you guys going to go do?
- [14:33]
A
Yeah, it's subjective.
- [14:36]
B
Right.
- [14:36]
A
So we'll approach it according to market, according to appreciation. We'll look at it a couple different ideas. Is cool. Five years from now it's gone up quite a bit. Let's go ahead and sell it and then roll into a bigger one, bigger property, more bedrooms, kind of similar deal or you know, if interest rates are down at that, at that rate to a rate that we really like, then we could go conventional and kind of refi out and pay off the seller finance guy. So those are the two, I guess options that I see.
- [15:17]
B
Cool. Awesome. Awesome. And obviously you guys have thought that through on that side of things which I think is, I think is great. And yeah, and especially too if it's at a. You guys have, you know, however you negotiated it and worked it out. But if Alex is on the line as well for that financing part and not just you, it's even, it's even better. Right. Because you got two people now and it's like you're splitting that, that debt and everything right off the bat with that. So cool. I think that's smart. I think too with that one. That's where people can get into trouble if they don't think about the, the long term or something's like, oh sweet, it's seller finance. But you know, it's like, okay, I didn't think past next year when it's no longer, you know, seller finance. And I got to figure it out and I overpaid for it and now I'm in trouble. Right. So that's where it gets scary. But I think you guys are doing it the right way for sure. We've talked about it a lot already. But how did you force this deal? How did you get creative on it? Anything, anything that people need to know from this to replicate it?
- [16:17]
A
One thing, that one thing that you mentioned Briefly, like the interest only payment, stuff like that. Those are some intricate details that can save you thousands of dollars or hundreds of dollars a month. And I'm learning this right now as far as like getting in the details of creative finance and how to do things like that. So those, those are massive. Anytime you can do seller finance is a great way to force the deal. Once again, I don't think if we would have gone conventional on this deal, I would have never done it for sure. I don't even know if we would cash flow. I don't think we'd have a positive return if we went conventional.
- [16:56]
B
Yeah.
- [16:57]
A
So it just wouldn't have worked. Additionally, something that just brought me so much closure is knowing that I have three and a half months to really boost the bank account. And if we go rip, I think on average we could do 9 to 10,000amonth, especially in those months, if not a little bit more. So for the next three and a half months, if we go do 35 grand, my cash on cash return just jumped up significantly which brought me a lot of closure. So I think those just seller finance, stretching out the first payment were the two ways that we really forced to be able to make it super attractive, fit our buy box cash flow and, and benefit us financially.
- [17:42]
B
Yeah. So good, dude. Yeah, I love that. I think that's awesome. And that's. This is how you learn the stuff. You know, this is just a plug for anybody listening that's not on like the real estate, my school broadcast channel. Just go to Instagram and, and click on like I don't know, join now or whatever. It's at the very top. I think it's called Passive Income Builders. It's free. Just click on it and you get notified. I think there's like 300 some people in the group right now. But the reason I bring that up is because I've been posting like a couple times a week just like random real estate tips. But a recent one was just this concept of in order to not get an average return in real estate, you got to think, yeah, outside the box, you know, know. And if you want an average result, if you want an average return, then you think as an average person thinks, you know. And so it's so important to know and to understand how to get creative and think outside the box and learn these little things. And so kind of the challenge that was posted in there was like pull out your notes in your iPhone, make a heading that's just like creative ways to do real estate. And then just number Them and first just go off and anything you can think of, just make a list of as many different ways. Like, We've talked about 10 different things already just on this, this quick podcast, right, Blake? And then the idea is to every single time you're, you know, at an event, you're networking with people, you're. You're listening to podcasts like this, reading a real estate book, whatever it is, like, an idea comes, like, oh, that'd be a creative way to do things, or, oh, I didn't know you could do that. Boom. Pull out your notes, you put it in there. And you should have, you know, over a hundred different creative ways of doing things that most investors aren't even thinking about. And so if you can do that and you start to understand it and you're writing them down again and again and again. Then to your point, Blake, like, that's how you go and implement that stuff. And, and exactly what you said. That's the difference maker, right? Those little things are what make the difference in an average deal versus a home run deal. It's not luck, it's not timing.
- [19:48]
A
It's those little things, dude, especially to piggyback on that. Majority of times, the buyer's just worried about the purchase price. So it's like you throw these intricate little things that, like, move the needle significantly for you, but doesn't change anything for them. They're gonna say yes more times than not. And, man, that's a nugget, dude, send me that list. I need that one.
- [20:13]
B
Yeah, yeah. Well, speaking of, like, what you said with the buyer, like, most buyers are average or the seller. Most sellers are average sellers. You know, being an average seller, what are you looking at? Like, what am I going to get out of it? What's the end, like, purchase? That's what you're thinking. That's where you make all your money. That's what you're thinking, right? When in reality, if you can understand that about them, then you can negotiate. Cool. I'll give you. Actually, I'll give you more than what you want, right? And so now they're like, oh, they're only looking at that. Whereas, like, you know, these other things are more important to you as an investor. So I love that. And, you know, sales, dude, you're the, you're the sales master. But, like, it's all about creating a win win. Like, what. What do you want? What is important to you?
- [20:56]
A
Cool.
- [20:56]
B
Purchase price. Cool. What else is important to you? You don't want to pay capital gains tax. Cool. What else is important to you. Now I understand all the things that are important to you, and I already know what's important to me. So now let's go figure out where those collide and what that middle ground is. That middle, that middle circle in the Venn diagram, right? What does that look like? And let's go. Go structure a deal and execute it.
- [21:18]
A
That's when real estate's the most fun, man.
- [21:21]
B
Love it, dude. Well, anything else you want to leave everybody with?
- [21:28]
A
Let me just put a plug in there for real estate investing school. If you guys want a PhD in real estate, you literally have free, like, you could not even be a part of the school. You could form Instagram, broadcast channel, be able to be on, just take advantage of all the free content and you get a degree in real estate, man. So I've learned so much through you guys and so much through you, and I'm. I'm just grateful. I'm. I've learned majority of my real estate knowledge just by having an Instagram. And it's all out there, man. We just got to utilize it. We got to be resourceful. All the resources are there to go out and be successful. So glad to do this, man. Glad to hopefully help people learn in some way, dude.
- [22:11]
B
Absolutely. Yeah. No, I appreciate that. And you know, you've like, been the prime golden example of someone who like comes in is like learning and going through like different curriculum that we have. And then you've probably referred, you know, between you and Alex, actually, which is ironic. You guys are on this deal together. You guys have referred more people to the school than anybody else, hands down. So we appreciate that and all the love there. And it's cool to see like, how that's working out for you and everybody else that, that you've, you've sent this way. So appreciate all that, dude. And appreciate you, obviously. But people are going to want to connect with you as they should. How do they do that? How do they find you out here to help?
- [22:57]
A
My Instagram's at the Blake Erickson. That's the best way to reach out to me. So happy.
- [23:03]
B
Follow him. Go follow him right now. Pull out your phone. This is the, this is the, the life hack right here. You gotta follow. You gotta follow people that inspire you. You want to be around, you can learn from and reach out to them. That's actually how you and I met, dude. You sent me a cold DM and, and yeah, and now we're like, we're homies.
- [23:22]
A
You're.
- [23:22]
B
You're in the DBF Mastermind and freaking love it. So I appreciate you, dude, and your friendship, but you too, brother.
- [23:30]
A
Much love. Thanks again for having me.
- [23:32]
B
Absolutely. Thank you guys for tuning in. And we'll catch you on the next one.
- [23:36]
A
Thanks, guys.