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Real Estate Investing School Podcast
176. REAL DEAL: The Most Underrated Aspect in Real Estate Investing
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Welcome to the Real Estate Investing School Podcast, today Brody is focusing on a solo deal that he took on years ago. Brody thrives on his skill of out-of-the-box thinking when it comes to finding real estate deals. In this episode, Brody puts that...
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What's up, everybody? Welcome back to the Real Estate Investing School podcast. This is a Real Deal series. I'm your host, Brody Fawcett, and excited for you guys that are tuning in today. Thanks for taking the time out of everything you have going on to come and listen to this, learn about one deal that's a very real deal and how it was funded, forced, and what's the other one? Funded, forced, and found. There we go. What turned it into a good deal? Today I have a solo episode for you guys. And this has been fun for me because these are. These are like. It's a chance for me to go back on some of the deals that I've done and for you guys to get a sneak peek inside of it as well as for me to kind of open up that. That memory bank and go back and relive some of this stuff and document a lot of it in hopes that you can learn from it. So without further ado, let's dive into this deal. All right, guys, so this one is. Is fun for me because I love finding deals, and this is maybe this is most the deals that I do, but other people look at them at face value and they. They think, okay, that's not a deal. I'm gonna pass on it. I'm not gonna buy it. And I would say at least half the deals that I do are. More than half the deals that I do are on the market. They're on the mls, The. They're on Zillow, they're on. You know, they're where everybody has access to them if they're looking for properties. And the reason I love that is because it shows us it's not so much about how you find the property. I know that's one of the Fs. That's one of the things we focus on here. But sometimes, and a lot of the times for me, it's not how I found it, it's not what finding it. And the deal, the price that I paid for it, that's not what made it ultimately a real deal and a really good deal to talk about. Instead, it's how I forced it, right? It's being able to put on these goggles or these glasses that allow you to see things that most people don't see. It allows you to look at something at a little bit different of an angle that most people don't see. And I'll let you know on a secret. Those of you that are listening to these podcasts and you're avid listeners, and please, we love the feedback, we love the reviews. It means so much to us. Um, because this is more of a passion project, and we love, like, just sharing these things. So you guys get value out of it. Please, please leave a comment. Share it with your friends. Give us a good review. But here's the cool thing, and here's how you're going to get rewarded. And you get rewarded is you start to learn more and more and more about how these deals are done. And it's almost like pulling out, like, a new pair of glasses, getting a new. A new prescription. Right now you can see things that you didn't used to be able to see because of this new prescription that you have. And the new prescription is understanding how certain things are done. And we don't know what we don't know. And that goes for me, that goes for you. That goes for, you know, everybody. We don't know what we don't know. It's very hard to make decisions and use, for example, like algebra, right? A plus B equals C or whatever the. Whatever the equations are, right? If you don't understand that equation, it makes zero sense how things worked out. Like, you just. You just don't know. You can guess all you want, but until you learn the equation now it makes sense. And it's like, oh, okay, you understand that, and you can go do the math again and again and again. So without me getting too much onto that math tangent, there is a special deal I'm gonna talk about today. And this deal, there's actually a house that. I was gonna say abandoned. It looked like it should be abandoned, but it wasn't abandoned. They actually had tenants in there, and they were renting it out. And it was on the market. And looking at the house and looking what it was listed for, I bought it for 209,000 bucks. People would say, what are you doing? The house is about to fall over. I would never pay $209,000 for that house. And a quick overview on what this deal is is the reason I bought the house. And I'll show you how I did it and how I funded it. And I already talked about how I found it, but how I forced it was because there was something about it that made it a good deal. There was something hidden about it that made it special. And the main thing for this was the zoning on it. Okay? So everybody had passed up this deal because they were looking at buying it as a. As a house, as a single family house, and it's close to college campus, and so they might have looked at it saying like, okay, I can, you know, rent it out, but there's only maybe there. I think there's two bedrooms. Does it say one bedroom? I think there's two bedrooms in there. I say that because I hadn't even been in the house when we, we closed on it. So yeah, I don't even, I don't even know. The point being it doesn't even matter, right? And I'll tell you why it doesn't matter is because I wasn't buying it to rent it out. And other people might have looked at it and said he, you know, one bedroom, two bedrooms, whatever. I can maybe break even on this. If I put 25% down and I fill it with students and I'm renting it by the room now, I can cover the payments on it. And they're like, ah, it just doesn't make sense because the house is about to fall over, yada, yada, yada. Well, because I knew how close it was to college campus and I did my homework and I dove into the zoning. What I found out was it's actually zone multifamily. And, and the cool thing with that is I knew that I could put as long as parking spaces would, would allow it, I could put multiple units, right? And for me, my idea was, okay, I can knock this house down. I can put, you know, a smaller apartment complex on here. And now I can go from having, you know, two bedrooms, which was all I could rent out, to now I can have eight different units and I can rent each of those out for the same price that I would this single family house. And so that's what was going on in my mind. Now the cool thing, and this is where you can, guys hopefully can pull out some, some nuggets. You can go replicate a deal. Like this is what I did is I looked at the master zoning. I don't even know if that's the name for it. But you can go on to the city website or the county website, wherever you invest, and they have, you know, your actual zoning map that shows what the zoning requirements are in certain areas. You know, it's all, it's the colorful map and it shows, you know, R1, which is like residential low density, right? It's your normal neighborhoods and they're going to have other, you know, commercial. And you look at the key on it and tells you all the colors. And this is really good just in general for you guys that are looking for deals and you're like, hey, I don't know who I should Talk to, or maybe you want to cold call and find a really good deal or good property. It's really cool to be able to go to this, this key and go to the zoning and understand, okay, if I get something over here, it's actually zoned commercial or it's zone multifamily. But there's only homes over here. So you just start to see hidden potential with certain things. And so for, for that, there's also another map they usually have on these, these city websites, or you can request it from, from the city or from the county. And it shows, like I said, there's a name for it. I don't know the exact name for it, but it shows the future plans where the zoning's going, right where they want it to be. And it's their master zoning plan or something like that. But ultimately you can go find that and it's going to be a little bit different. Right? So in this, in this circumstance for this property, it was zone multifamily. And I knew that. But according to the master plan, because it's so close to college campus, it was going to be zoned student housing development. Shd. Student housing. And so the benefits of that is it's different parking spaces per bedroom, and you can get away with having a lot more bedrooms and a lot more units with a lot less parking. So all that means is you're able to get a better use of the property that you have. And the land that you do have, you can get more units out of it, which also means you can get more, more money out of it. Right, because you can rent it for a lot more. So a really important thing. And on this property, what I ended up doing is I closed on it and then I applied for a zone change to this student housing zoning from multifamily. And because that was in the master plan where it shows, hey, this is the zoning that we're going to. This is what this kind of area, we would like it to be in the future. The city's already said that. I already know that. And so going into that, I knew there was a very, very low chance of them denying it and saying no. And ultimately they approved that zone change for that property. And just because of those few little things, the value of the property went up automatically had I not done anything with it, built the apartment complex, it doesn't matter. Just doing those little things, I was able to create this equity in this property, and now it's worth so much more money. So you guys that are listening and you're like, hey, what am I learning from this? Can I pull something out to go and replicate that? Right? There is a huge, like, tip that you can take. And it doesn't even have to be a project like this or even similar, but knowing, hey, I can go get this insider, not insider information. That's a, that sounds like super shady. This public information that I have to work hard for. We'll call it hustle information, meaning you have to go hustle to get this information, which we should totally trademark that. I love that. Go get the hustle. The hustle information. You get the lowdown on it because you're willing to put in that work. And you just created so much value, you just created so much equity in a potential, you know, property. And so a lot of times you can do that due diligence before you actually close on the property, which eliminates a lot of risk as well. And then the other thing important to point out with this is if that didn't get approved, this is where people get into trouble. They go buy this property and they're so confident with it and they're like, yes, I'm going to do this and I'm going to get it approved to this. And then all of a sudden that doesn't work out or somebody says no, well, then their entire deal and all the numbers are off. And because they were investing in buying it based on this best case scenario and everything working out all perfectly, all of a sudden when it doesn't, it doesn't pencil and they lose money and they get into trouble. And so please, please, please don't do that. Like, you have to have your, your backup plans. You have to have your best case scenario, your middle case scenario, your worst case scenario. I just got done analyzing and doing all my due diligence for this new project and I ran it on a best case scenario, on an average case scenario, on a below average case scenario, and on a below, below average case scenario, like, I went two tiers down, right? And my whole purpose in doing that is like, I want to be able to feel confident that, like, hey, in this below, below average case scenario, which the chances of it happening are so slim as it is. But if this deal can pencil or I have a plan, I have a backup plan when it comes to that, then that's so good. Because now if it works out the way it's supposed to or better than it's supposed to, it's just all the better. Like it's, it's a home run, right, Instead of a Base hit. So people get into trouble where their. Their home run is the best case scenario, and their average case scenario is a base hit, and then things don't work out the best way they're supposed to, and they strike out, right. And they lose a lot of money. So don't do that. Now back to this deal. So what was cool about it? Like I said, I had that backup plan. If it didn't work out, I knew what I was looking at. Another thing to keep in mind is doing that due diligence process. What I did was I went and I went to the drawing boards, right? And this cost me a couple thousand bucks to do it. You can usually do it between 1,000 and $2,000. You can have somebody get to work on drawing up, like, a conceptual plan. And part of this conceptual plan was, what are the units that are going to fit? You know, if I did get this approved for what I wanted it to in this student housing zoning, well, plan B, what if it doesn't get approved? I'm just using it as it is. What am I looking at as far as how many units I can do? Then? What are those units rep for? Right. So I could start to do my math. And the cool thing about having, you know, an engineer help you out with some of that, they know on the code. Okay, cool. We can fit this many parking spaces here, which allows you this many bedrooms, and you really dive into, like, is it better to. To have more bedrooms and less units that might not cost as much to build, or is it better to have more units and less bedrooms? It might cost more to build because there's more kitchens, more bathrooms, but I can rent those units out for way more than I can a bedroom inside a unit with multiple bedrooms. So you guys get the idea. And that's what's so fun. Like diving into stuff like this. You get to just run the numbers and do the math. And does the. Does the good outweigh the bad? Right? Does the higher increase in spending money, does that justify getting a higher return? And does that make sense? Does that pencil. So that's kind of for another podcast to dive into, how to actually analyze all of it. But with this deal, the way that I funded it is kind of unique. And we've touched on this, you know, multiple times just throughout the show. But I pulled out a HELOC or a home equity line of credit, and I did this. You can usually do it six months after you close on a. On a loan. The best terms you're going to get are on your primary residence versus an investment property. Because with a primary residence, you know, you're living there. The, there's less risk in that for the bank that you're going to leave because it's your, your primary house. And so you can get really good, really good rates and really good terms. And so typically what you're going to find through the bank and what a HELOC is or what a homemark line of credit is, is it's tapping into that equity that you have inside your home. You know, like if you say you have a hundred thousand dollars house and you bought it for $50,000, you paid $50,000 for it, right? You have $50,000 of equity in this example. And so instead of just sitting there and saying, like, okay, cool, I only owe 50 grand on my house and it's worth a hundred, you can actually go leverage that, that Equity, that other $50,000 and this company that, that I've used and, and reach out if you want, you know, specific contacts there. They, they service a handful of states, nation, nationwide, but they allowed me to take a hundred percent of the equity in my home and get a HELOC on that that I can tap into, that I can use. And you can do that up to $500,000 was their max. Now most banks are going to allow you to do 90%, sometimes 85% of the equity to let you tap into. So just good things to keep in mind that you can use. And once again, the purpose of a heloc, there's a dumb way to use it, right? Which is to take that money. Awesome. I'm tapping into the equity in my house and you use it to go buy a liability, use it to buy a boat, use it to do something that's not going to help get you ahead. So in this case, I wanted to do something that was going to get me ahead. And so I had tapped into that heloc. You can, it's like a credit card. You can use it whenever you want to. The term's really good. When you do spend money on it, on this one particularly, I had a total of 35 years to pay that back, right? You make payments on it and you pay that back just like you would if you're, you know, getting a mortgage on a home, which is typically up to 30 years. So this is even better for that case. Right? So, long story short, I used part of my HELOC to buy this property cash. And the cool thing with that is it acts just as cash. You transfer money just like you would cash to the seller. It shows up just like cash. And so you can use that to negotiate where you might not feel like, hey, I have $200,000 cash to go buy this property. But at the exact same time, you kind of do, because if you have a heloc, it's going to look like cash. You can transfer that over to your bank account and it is cash. And so you can use that to get a better deal on the property. Or if you've listened to previous episodes where you can submit an offer and one of those offers is an all cash offer, that's a lot less, a lot less money. And a lot of times they'll choose that because you don't have to jump through as many hoops. So that's ultimately how I, how I funded this. You guys understand how I forced it and got the deal done. If you're watching this on, on YouTube, I'll throw in some, you know, just some visuals and images of what we're building there. It is not done yet. It's not complete. And this deal is cool and exciting because I have equity in this house that I bought that's getting demoed. But these are the plans and this is what we're doing and we have the build costs on it and what it's going to turn into. Now here's the cool thing with all of that. Even though this deal is not completely finished and the apartments aren't built out on it and we're not renting them out, the cool thing is, is because I use my HELOC to buy this, it's paid for, right? I own this, this house, this land outright. So what I'm doing now is taking that because I own it and it's appreciated. It's actually worth more money, so I can borrow against it. $250,000 that I own, that it shows the bank I have equity in, they will use that as a down payment on the construction loan to build these apartment complexes. So kind of a lot of stuff going on there. Hopefully that, that broke it down enough to make sense. But they're allowing me to leverage the lot being paid off or the land being paid off with the house into that construction loan that's demoing the house and building this apartment complex, right? So, and because of that, you guys know, but taking a step further, right, let's say my payments are $7,000 a month on this construction loan that gets converted once it's built into a long term loan. So my mortgage is $7,000 a month. But Because I'm renting out all of these units. I'm actually making, you know, $15,000 a month, and half of that goes to expenses, and half of that, you know, expenses, including the mortgage and maybe some utilities that I pay for. So you guys kind of get the idea. And now all of a sudden, even though I used my heloc, this is a whole nother next level. Even though I use my heloc, which is considered cash, but was really equity of my home, I'm paying payments on that, right? Because I borrowed that from the equity of my home, you make payments on your HELOC until you sell your house, obviously, then you're able to pay it off. And that's what happened in this case, actually. But because you're making payments on that $200,000 that I, that I had borrowed from my HELOC that I used to buy this property, my payments were super low. Less than 500 bucks a month is what I was paying. Okay? So now if we look at all this stuff and back up, I spent $500 a month to go build this apartment complex that now you add that $500 a month to that seven grand that the mortgage is going to be, right? And I'm just throwing out numbers to kind of drive home the point, because it's not built. The apartment complex isn't built. Well, Now I'm in it, okay, $7,500 a month, but I'm cash flowing that 5,000 plus dollars a month after all those expenses, right? And so it's so important to understand, like, leverage. And a lot of people, they're like, oh, no, I don't have that cash sitting in my account. So I'm not gonna. There's no way I'm gonna borrow against my house. There's no way. That's not a smart thing to do. I'm not gonna borrow against my house to go, you know, buy this other house that's falling over. But when you can see like the vision of it and see the future of it, all of a sudden it's, it's dumb not to go and do that, right? Because you're like, I'm paying $500 a month to get access to $200,000 that turned into $250,000. That's the down payment on me, you know, getting a multimillion dollar loan that's cash flowing me so much money every single month and building more free. So I love over explaining this stuff and just diving deeper into it in hopes that even if you guys have heard this and you know this and you understand it. It's so good just to hear it again and again and again because it just drives home the point of like, cool, this is a deal. This is the ins and outs of it. This starts to make sense. And then hopefully you're asking yourself, like, how can I go do something similar? Is there something that I'm able to pull from this episode that's going to allow me to get this competitive edge on everybody else, allow me to go get these deals to build freedom for my family and I and to build, you know, more passive income, to allow you to live life more on your own terms. And that is obviously the, the ultimate goal here. So thanks so much for tuning in. Thanks for listening. This is another real deal episode. If you guys need help doing deals like this and you want to, you know, get the mentorship and maybe you're scared, you're nervous, you feel like you need to learn a lot more as well as getting someone to kind of hold your hand through the process. That's what we do at real estate investing school. Literally, like, it is the best one on one coaching program for brand new real estate investors, experienced real estate investors. There's power in having somebody hold you accountable and learning the things without all the fluff, like diving straight into it. And that's the cool thing about actually enrolling in the school is you get a personalized approach on these podcasts, on this stuff. We can give generalized information and what worked well for, for us in our situations, but it's very generalized because every single person is different. Every single person has a different strength, they have different weaknesses. You know, some people have a lot of money, some people don't have a lot of money. Some people have that knowledge and that hustle, some people don't. So we actually dive into what makes you tick. Why are you special? What do you have to work with or what don't you have to work with? And then we're going to build a plan and a strategy based on that and around you and then we're going to hold you accountable and walk you through every step of the way until we actually go out and crush it and, and you keep the deal. We don't take your equity. We don't, you know, partner with you to, to say, hey, you know, let's split the cash flow on this. No, we're just showing you how to do it. You can change your life. You. Now that being said, you can always book a call with us, a free strategy call where you can see if it's a good fit or not for you. That being said, we will see you guys next week. Thanks so much for tuning in. This is Brody Fawcett, your host and peace.