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Real Estate Investing School Podcast
228. REAL DEAL: Duplex Dreams and Family Partnerships
00:17:43
Welcome back to the Real Estate Investing School! In today's episode, we dive into the fascinating journey of Tyler Miller and his real deal. Tyler had a dream of investing in a duplex, but faced the challenge of not having enough money to make it...
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- [00:00]
A
What's up, everybody? Welcome to the Real Estate Investing School podcast, the Real Deal episode. We've got our guest, Tyler Miller. Now, Tyler's been a longtime investor. He's a student of the school. We've known him for quite a while. Welcome to the show. Tyler, how you doing?
- [00:21]
B
Thanks for the invite.
- [00:22]
A
Yeah, man. Excited to have you on. Good to talk to you again. I believe you've been on the podcast before already, so you might be. Yeah, you might be one of our first return guests that you might hold the honor, man. So that's exciting. But, yeah, so you, you, you've recently done a deal. We want to kind of dive into that, how you found it, how you funded it, how you forced it and made it profitable. So let's, you know, let's dive into that, man.
- [00:51]
B
Sounds great. Yeah. So the deal we're talking about today, we just closed on July 7, 2023. So about a month or so ago.
- [01:01]
A
Yeah.
- [01:02]
B
And it was out in Kansas City.
- [01:04]
A
Okay.
- [01:05]
B
So it's a duplex and the goal or the plan is to do midterm rentals on both sides there. It's two, two bedroom, one bathroom units and it's in just a little suburb of Kansas City. So it's an Independence, Missouri. So, yeah, there's a lot that went into it. I actually partnered on the deal, so we can kind of talk a little bit about that as well. And yeah, there's a lot of details we can get into, but I'll let you kind of ask the questions and guide us from there.
- [01:37]
A
Cool. So. No, that's exciting. I love that it's so recent. Right. You know, it's always like, oh, I did this deal five years ago and now it's worth a hundred thousand more. It's like, oh, congratulations, you know, But a deal that was done last month, it's like, that's fresh. So that's exciting. So I like to hear that. So. So first of all, how did you, how did you find the duplex?
- [02:00]
B
Good question. Honestly, the ball or like the success or the traction started to come when I found the right team. After the cash flow conference, I realized. My wife and I sat down together and we realized, you know, we need to hone in on a specific strategy. We kind of felt a little scatterbrained, like we were chasing all these different. You know what I mean?
- [02:22]
A
So easy to do with real estate.
- [02:24]
B
Yeah, there's just so many. There's. That's one of the problems with real estate. There's so many ways to make money that it's hard to focus on, like, your way. So my wife and I kind of honed in on two strategies. We knew we wanted to do a midterm rental out of state, like, focus on midterm rentals out of state. And then the other one is, like, doing more, like, massive income strategies close to home in Utah. So anyways, make a long story short, when I knew I wanted that strategy, I started reaching out to certain people that were in the midterm rental space, like Sarah Weaver. I. I realized I didn't want to furnish this apartment myself. So I had to figure out, like, well, who's going to furnish this for me? And I just started making contacts, and it led me to a. A real estate agent in Kansas City who has this awesome team of. Of agents. Her name is Mindy Templeton. And she helped me find a property manager and a buyer's agent and all these different people that are. And a designer and people that furnish it and everything like that. So once I found this team, the agents kind of just went to work for me, and we just started looking at deals and analyzing them. And once I found that team, it was honestly, like two to three weeks. They found a for sale by owner deal, and that's how. That's how it was listed. It was for sale by owner, and they. They found it, brought it to me, and. And we went for it, made an offer, and. And the rest is history.
- [03:38]
A
Dude, that's super cool. Like, the power. You know, even before the team, right, it was getting specific on your buy criteria, like, what do I actually want to do? Which. Which is so key because, you know, and that never changes. Like, the deeper I get into real estate, it's still like, you know, you can start looking at all the different options. And sometimes the more, you know, now there's even more options, you know, but it's like, okay, back down. What is the one thing I'm trying to do right now? What. You know, and then you figure out your. The very. The more specifics you can get. Like, say you give that to your team and. And then they just can go find it, you know? Yeah, that's super cool.
- [04:19]
B
So, yeah, going deeper into the deal. So it's a duplex. The. The listing price was at, like, 230. And we. We offered full price cash. The. When I was doing my analysis, I didn't love the deal.
- [04:35]
A
Okay.
- [04:36]
B
It was. It was coming in at about, like, a 9% cash on cash return, which is decent. But I'm in a position where My, My. My cash fund is actually more like it's a home equity line of credit. Like, that's kind of what I have at my disposal at the moment. And I didn't want that amount of money on that kind of return to be stuck in a deal, especially with interest rates climbing. Like, my home equity line of credit, I think, is up to like 8% or something like that.
- [05:08]
A
So it just didn't make sense.
- [05:09]
B
Yeah, yeah. It just didn't make sense for me to use my money. So then I just kept thinking, well, how could I. How could I still make this work? These agents keep telling me this is a great deal and it's good, but how could I make this even better? And this is kind of going to like how you force it, right? I decided, well, maybe I could partner with someone and make the numbers look a little bit more lucrative for me. So, full disclosure, I actually went to my dad, and I know people are going to be like, oh, I wish I had a dad like that. But honestly, it could have been anyone, right? Like, I could have gone to anyone. It was actually harder for me to ask my dad than a stranger. So I went to my dad and I said, hey, I'm looking at this duplex. What do you think? Would you want to. Would you want to partner on it? And the way I pitched it to him was, would you be willing to bring the down payment and be like, the guy who gets the loan or have the loan be in your name, and I will buy the furnishings and then we'll split everything after that, 50, 50. And then the other thing I did for him to sweeten the deal is we're going to do a cost segregation, and I'm giving him that cost, that bonus depreciation from the cost segregation of year one.
- [06:20]
A
So he gets all that huge tax savings for him. He gets half the equity. And you found it. You're doing all the work as well. I mean, and you're furnishing it.
- [06:30]
B
So basically, I've done all of his. All the paperwork crap that he needs for the loan. Like, I've been the guy to handle all that. He's just had to write a check or transfer funds, really, and then get documents as I've asked him for and things like that. But, yeah, I'm managing the asset. I've got, like, Internet set up. I've got the utilities, and you know what I mean? Like, I've kind of done all the dirty.
- [06:50]
A
You've made it passive investment for him, which is so cool, because even if you're splitting a 9% cash on cash return. That means he's getting, you know, and I don't know if that's what it is when you, when you get down. But that's like four and a half percent for him. Totally passive with actual growth. And then the huge tax savings windfall, giving him an ROI, probably 15 or 20% or more. Maybe 100% of his money just in the tax savings.
- [07:16]
B
Yeah. We're hoping that he can write off his entire down payment after the cost segregation. But you bring up a good point, and this is actually a point that I wanted to bring up. There were, like, two really big lessons that I learned on this deal. And the first one is the partnerships that I was nervous or scared to ask my dad because a four and a half percent return is not very good in my eyes. And my highest value is cash on cash return right now. Like, that's kind of like the order of importance for me.
- [07:50]
A
And.
- [07:50]
B
And so I. Yeah, yeah, exactly. I was projecting that value onto potential partners. Like, I. I figured they. That was their values as well. That's not my dad's value right now. My dad's value. My dad values security. He values tax benefits. Like, there's more things to him that are important than a cash on cash return.
- [08:11]
A
So even though, like, probably passivity, too, because he's, you know, running a business and doing all the other things. So he's like, so if you can get those huge tax savings, get right. Save 100% of the money put into it. You know what I mean? It's like, that's 100% ROI just on the taxes.
- [08:27]
B
Yeah. So I guess that's like advice or like, something I hope people would gain from this story is that, like, don't project your criteria or your values, your money values onto other people. Let them have their own values, let them have their own criteria, and let them make the decision on what's important for them in a deal. When you try and structure it.
- [08:47]
A
That is probably one of the best pieces of partner advice I've ever heard. And when I used to be in sales, we'd have this phrase called don't sell out of your own pocket. Right. Because we'd be like these poor college students with zero money and we're selling anything. We're like, well, I couldn't afford it. Like, why would they buy it? And we're selling out of our own pockets. It's like, well, these are homeowners who are trying to protect their families that actually have jobs, you know, and they have careers. It's like, for them, it's not as big of a deal as it is for you. And everybody's situation is completely different. And. And I love that you point that. It's like, figure out what their situation is. Find where it's going to be a huge win for them and a win for you. And. And then it's like, that's the partnership you can have, you know, and the person who is trying to do the exact same thing as you has all the same resources you want, wants the same, you know, benefits as you. That's probably not the right partner for you. Find the person that needs the side that you don't need, and then it's like, cool, let's combine. So that's awesome, dude. Really, really good advice.
- [09:51]
B
Yeah. So diving a little bit deeper into the numbers. So like I said, we made an offer at 232, and that included. That included one side being furnished, like they were going to keep the furnishings in there, which was awesome. So. But when we got. We did a home inspection and found out there were some foundation issues.
- [10:09]
A
Okay.
- [10:10]
B
And so we were able to negotiate roughly $11,000 off of the purchase price, which covered the cost of the foundation work.
- [10:18]
A
Nice.
- [10:20]
B
So it ended up being a 222 purchase, roughly. And we bought that cash. And the reason why we did cash was to make our offer more compelling. But the idea is that we wanted to refinance out as soon as we can. Yeah. So this is kind of something that. This was, like, the number two lesson that I learned. So I know you and I would understand this, but I kind of want to break it down so that everybody understands it. When you refinance. If you buy something cash and you want to refinance, there's rules. Right. You can't just do it the next day. A lot of times there's a seasoning period. And you'll hear this with, like, the brrrr strategy is like, look out for the seasoning period, which is basically like, you have to hold the property for a certain amount of time before you refinance out.
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A
Right.
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B
So in the spring, Fannie Mae and Freddie Mac changed their rules to where on a conventional loan, no matter what, if it's a Fannie Mae Freddie Mac loan product, you have to hold it for 12 months. If you're doing a conventional loan before you can refinance. That's a long time to have that much cash out, Right?
- [11:23]
A
Sure.
- [11:23]
B
For a. For a DSCR loan or, you know, like an investor type loan, it's six months. The seasoning period is six months, which is still quite a bit of time. And then the third option is what's called delayed financing, which is you can get your money back out, but there's before six months. But there's criteria that you have to hit. And it's basically, you've got, you've got to show that all the funds came from you. It. It can only pay back. You. It can't pay back, you know, different things. And it will only pay back the purchase price. So like, if people are trying to do a brrrr. Where they're putting repairs in and stuff, you can't get repair money back. You can only, you can only refinance up to the purchase price. So what I wish I would have done is when we negotiated that $10,000 off, I wish I would have done.
- [12:17]
A
That as a seller credit.
- [12:18]
B
Exactly. I wish I would have said I would. I wish I would have kept the purchase price at the 232, but then made an addendum or something that said only 222 will go to the seller. The $10,000 will pay for repairs. That way the purchase price still says 232 and I could refinance out at that whole 232 as opposed to only being able to refinance at the 222. I know that's a lot of semantics and stuff, but it's a big deal. Like that's an extra six or seven thousand dollars that I could get back that I can't now because I didn't think about it till afterward. Right. So lesson number two on that deal that is really powerful is you can keep the purchase price the same or higher and then tell the title company how to disperse the funds after the closing.
- [13:06]
A
Yeah, no, I like that. I think that can be powerful for. And that can be used for closing costs and other stuff too. Even easier when it's like, hey, let's keep the sales price here, but give me a seller credit. Give me, you know, this, give me that back. And then I'm not having to fork out cash for it. It's all tied into the loan. It's a little more intricate with repairs and stuff. Right. From my understanding, because you have to like show proof the repair was done and it's held in this escrow account and it can be kind of involved. But if it's saving you that much cash, it could be totally worth it. But I think that's. That's a really good point to point out. And I Would just say one thing. With the, especially with the DSCR loans and those kind of investment loans, it's like it's still the wild west. Like there's no rules. It's. It's. You know, you might find one that will do. Will do the repairs. You know, you might find one that will do no seasoning at all. You know there might do one like especially if you have a relationship with them. You get a small local bank, you get a relationship with. You know those. Yeah. Do whatever you want. You know what I mean? But. But they all have their different rules. And so it's like find the one you're probably going to use, figure out what they expect and want before you are locked into the deal and then you can design it around your lender's preferences because every, every lender is a little different and then they're diff. They change their rules every month or year as well as the market shifts.
- [14:32]
B
So definitely.
- [14:34]
A
Dude, that's super cool. Really good advice, man. So. So you found it just through an agent. You just reached out to agents in the area. You told them exactly what you wanted, what your goals were. They put the team together. You found the project. You funded it through a partner using private money and given them a special deal for tax benefits and half the equity and cash flow and passivity and all that. So you funded it with a plan to, to finance out of it which I'm sure you guys haven't done yet since you just barely closed a month ago.
- [15:05]
B
So yeah, trying to. Should be wrapped up in the next week or two. So.
- [15:09]
A
Cool. Cool. And doing the delayed financing which, which is cool. It's different like. And you're not pulling cash out. Those are the. I want to mention like when it's not. There's no cash. Like if you. They're not going to give you more than the purchase price. Even if it's appraises at a million dollars. Like you're not getting any cash back on a delayed finance.
- [15:28]
B
Yeah. They will only give you up to the purchase price.
- [15:31]
A
Yep. And then, and then, yeah, you forced it by, by finding ways really that you forced your return by bringing in the partner and giving him benefits you didn't need. It's really how you force the deal to make more sense for you.
- [15:44]
B
Yeah. Because what's nice about my end is I'm buying the furniture. I'm. I'm doing it on 0% interest credit cards. So I really don't know how to calculate what my return is now.
- [15:53]
A
But yeah, yeah, that's awesome.
- [15:56]
B
Nice.
- [15:57]
A
When that's another way you're forcing it is you're doing the midterm rental thing, right. Which is something. Obviously we're not going to go into all that on this call, but. But that's another way to get more bang for your buck potentially, if you. If in that market it makes sense where you're like, oh, now I'm getting the return I need and now I'm having someone else bring the capital. So now I'm getting an infinite return virtually. You know, I'm furnishing it with zero interest cards. You know, you can just use the cash flow to pay yourself back. And the cool thing about what you designed, Tyler, is it sounds like by the end of the first year, you'll both have got a. All of your money back. Any money you put into furnishing it, you probably would have got back in your cash flow. And it sounds like your partner will get, you know, the tax savings, you know, will cover the down payment. And so he's back even, and then everything is straight profit after year one, which is like maybe after six months even. So, you know, and if that's, if that's the. The goal point, you know, even falling short of that is. Gives you a lot of wiggle room to still have an awesome deal.
- [17:04]
B
Sure.
- [17:05]
A
Well, sweet, man. Well, this is cool. Any other pieces you want to add to that. That deal that we should know about?
- [17:12]
B
I don't think so. Just. Yeah, like we said, get some clarity, find the right people and, and let them go to work for you and then be creative on ways that you can make. Make a deal better than just a decent deal.
- [17:23]
A
So, yeah, that's awesome. Great advice, Ty. This is super fun. Thanks for coming on the show and I'm sure we'll. We'll to see you again sometime.
- [17:31]
B
Thanks, Joe. Appreciate it.
- [17:33]
A
All right, take care, man.