Real Estate Investing School Podcast
Episode 258: REAL DEAL: Building Wealth Through Smart Property Trades
Release Date: May 1, 2025
Introduction
In Episode 258 of the Real Estate Investing School Podcast, host A welcomes one of their seasoned coaches, Chase Johnson, to discuss a recent real estate deal. The conversation centers around Chase's journey with a property in San Antonio, detailing how he identified the opportunity, secured funding, navigated unexpected challenges, and ultimately adapted his strategy to ensure profitability.
Deal Overview
Chase begins by outlining the initial vision for the property:
Chase Johnson [00:57]: "Whenever I'm running numbers for, I guess, really any sort of exit strategy, I always assume the worst case scenario… What happened with this deal was we actually bought it, planning to just turn around and, you know, flip it after forcing the appreciation."
- Purchase Price: $120,000
- Rehab Budget: $30,000
- After Repair Value (ARV): $205,000
- Original Plan: Flip the property for a profit within a short timeframe.
Chase emphasizes the importance of building worst-case scenarios into his planning to safeguard against unforeseen delays or complications.
Financing Strategy
A significant portion of the discussion delves into Chase's financing approach:
Chase Johnson [04:57]: "Yeah, I used hard money. I found a really good lender… my down payment on that was probably like seven grand."
- Financing Type: Hard money loan
- Down Payment: Approximately $7,000
- Interest Rate: 12%
- Loan Term: 12 months
- Points: 1.5% carried to the backend (no upfront points)
- Rehab Funding: $30,000 allocated through rehab draws, allowing for phased fund releases.
Chase explains his method of prioritizing high-margin rehab phases to maximize returns early in the project:
Chase Johnson [07:48]: "I've already gotten that back. So for my initial investment, I'm still, as of current, I'm still 100% cash on cash return off of that initial investment."
This strategy ensures that his initial capital is recovered swiftly, enhancing overall profitability even if the project timeline extends.
Challenges Faced
Despite meticulous planning, Chase encountered several obstacles:
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Contractor Delays:
- His contractor, who was also a tenant in another property, caused significant delays by balancing rent collection with project work.
- After eight months—far exceeding the initial one-month timeline—Chase decided to replace the contractor.
Chase Johnson [08:09]: "But if I hadn't bought it, you know, as it made sense for a rental, then I would have been probably in over my head."
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Permit Issues:
- A stop work order was issued due to a data entry error by the city, incorrectly associating the permit with the wrong property address.
Chase Johnson [10:14]: "They placed the permit on the wrong house. So they drove by, they put a stop work order."
These challenges necessitated a reevaluation of the original flip strategy, pushing Chase to consider a long-term hold instead.
Adjusting Strategy
Faced with delays, Chase pivoted from flipping to holding the property as a rental:
Chase Johnson [11:15]: "It's kind of eaten up most of that. So yeah, I mean, if I go to actually flip it at this point, I mean, I don't know if it would make a lot of sense."
He outlines how his initial calculations still positioned the deal favorably:
- Original Investment: $153,000 (Purchase + Rehab)
- Adjusted Tenure: Extended to eight months, primarily covering interest payments.
- Refinancing Plan: Anticipates refinancing based on the ARV to pay off the hard money lender and transition to traditional financing, ensuring continued cash flow.
Chase Johnson [12:21]: "They're funding hard money is funding at 75% of the ARV. So if I refi into traditional, like let's say … it's still less than a 20%, you know, investment loan, down payment."
This strategic flexibility exemplifies Chase's commitment to preserving capital and maintaining profitability despite setbacks.
Current Status and Future Plans
As the renovation nears completion, Chase remains optimistic:
Chase Johnson [09:46]: "We're probably not even a month into this guy and he's doing really, really well. So we're actually almost done with it."
His focus now shifts to:
- Finalizing Renovations: Expected completion within the next week.
- Rental Operations: Transitioning to a cash-flow-positive rental with anticipated monthly returns.
- Long-Term Growth: Leveraging the property's appreciated value and stable rental income for sustained wealth building.
Chase also highlights the importance of contingency planning:
Chase Johnson [16:47]: "Your risk contingency holding, capital expenditures, all that, you build it into your deal before you actually buy."
Key Takeaways
- Plan for the Worst: Always incorporate worst-case scenarios into your investment strategy to mitigate risks.
- Flexible Financing: Utilize hard money loans with favorable terms to secure and renovate properties efficiently.
- Adaptability: Be prepared to pivot your investment strategy in response to unforeseen challenges to preserve capital and maintain profitability.
- Network and Relationships: Building strong connections with wholesalers and contractors can provide timely access to deals and resources.
- Cash Flow Focus: Prioritize strategies that ensure positive cash flow, even if the original investment plan changes.
Conclusion
Chase Johnson's experience serves as a testament to the resilience and strategic foresight required in real estate investing. By anticipating potential setbacks and maintaining flexibility in his approach, Chase successfully navigated delays and regulatory hurdles, ultimately steering the investment towards long-term profitability. His story underscores the importance of thorough planning, robust financing strategies, and the ability to adapt to changing circumstances—key elements for anyone looking to build wealth through smart property trades.
Follow Chase Johnson
Stay updated on Chase's ongoing projects and insights by following him on Instagram:
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