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Real Estate Investing School Podcast
85. REAL DEAL: The Power Of Clarity In Real Estate Investing
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- [00:00]
A
What's up, everybody? Welcome to the Real Estate Investing School podcast Real deal episode. Today we got Lance Brown, and he's going to break down a recent deal he just picked up in Ohio, just barely. So I'm excited for this. I always love when it's like a recent deal, not one from 10 years ago, which, those are cool too, but. But this is a little more, I don't know, tangible, feels more accessible. So welcome to the show, Lance.
- [00:30]
B
Hey, thanks for having me.
- [00:31]
A
Yeah, man. So let's dive into it. So you've got this property in Ohio that you recently purchased. How did you find it?
- [00:40]
B
So I, I just reach out on bigger pockets to probably 5, 10 different agents in the area. They've got that find your agent. And I kind of interviewed them, went through the ones that I did like, because obviously you can mesh with agents and you can kind of bump heads and not necessarily be on the same page with other ones. So I narrowed it down to two or three and then just said, hey, like, this is what I'm doing. This is what I'm looking for. I've got my buy box. If you can find me a deal, I'll buy it. Basically, that simple. So worked with an agent for five months or whatever and found. Found this deal.
- [01:20]
A
That's awesome, man. So, so you, you told. I like how you said you knew exactly what you were looking for. It sounds like you. Like you said I gave. You gave them your buy box buy books. What were the criteria that you gave them so people can have an example of what they should even tell an agent.
- [01:34]
B
Yeah, so I got this from one of my old coaches, name was Tammy. She just said, you got to be crystal clear with what you're wanting to do. So basically I had. My criteria was multi family. I wanted a duplex and probably like a circle C C class, C plus class neighborhood. I wanted to cash flow a certain amount. I wanted there to be opportunity to grow it, whether that be more rooms to build or rent, can increase or whatever. Under rented, currently square footage, number of rooms, stuff like that.
- [02:20]
A
Yeah, because when you're giving to an agent, right, you want tangible stuff that they can put into a filter, right? Because saying, oh, I want it, I want it to be a good deal. You know, I want to make cash flow. Like, they can't filter that, but they can say duplex, this price range, this much square footage, which is a good way to kind of get that. Like, ooh, can I expand it? Or whatever. You know, maybe this mini bedroom count or whatever. If you can give them something they can run a filter on. Then they can get really specific with it. So many times you're like, I just want a good deal. I don't. I'm not picky. Give me anything. And. And it just doesn't work right. But it sounds like you're very specific. You gave it to them. How long did it take for them to kick something back that actually fit your criteria when you ran the numbers?
- [03:02]
B
So it was pretty quick. I kind of had to have a come to Jesus moment with them and said, hey, like, I don't want to see your junk. Like, let's filter it down. Like, I want to get crystal clear on this. And there's probably five to 10 deals that, that I could have picked up prior to this, but I was just dragging my feet, honestly. So it. It probably took five months, I'd say from start to finish.
- [03:26]
A
So when those other deals you see you're dragging your feet, so they got snagged up before you jumped on them, or you just didn't have the time to run the numbers and really see if they'd work or what. What could. Why could you have made those other five or ten, but not. But weren't able to?
- [03:40]
B
Yeah, a little bit of both. Where I. They got snagged up before I ran numbers or I was scared, honestly. This is my first deal, so I. I just was a little gun shy.
- [03:54]
A
Yeah. Congrats. That's exciting. Your very first deal, okay, you're buying out of state remotely. That's. That's exciting, dude. So that's cool. So you've been. So you. You gave them your criteria. Took five or six months to go through it and feel good about actually pulling the trigger on one. So that's how you found it. Just reaching out to biggerpockets agent. Once you. Once you. How did you decide that this was the one? And then how did you fund it? What was the financing and numbers like?
- [04:23]
B
Yeah, so great question. So it came across as a pocket listing from my agent. Another investor was wanting to get out. He had a couple other deals that he was working on and wanted to get out of it. The reason that I liked it is it came with instant equity. We picked it up for 98, 000, and based on the comps that he sent me, I think we could get it for 110 normally. So we came in with about 12, 000 equity.
- [04:56]
A
Nice.
- [04:57]
B
But if we fix it up, it should be worth 130, if not more. So we've got room to grow which was one of my buy boxes.
- [05:06]
A
That's smart. You know, they say the money is made when you buy with real estate. And that's a big part of what they're talking about, is if you have equity in it as you buy it. Like, that gives you a lot of flexibility, you know, because you can't do that with other investments. Right. You can't buy Apple stock for less than it's worth. You know, you can't buy Bitcoin for less than it's worth. Like, you buy it for whatever the going rate is, but with real estate, it's not like that. You can literally buy it for less than you could turn around and sell it for. Which is super cool. The pocket listing. Will you define for the listeners what a pocket listing is?
- [05:40]
B
So basically, a pocket listing is when your agent or someone in the agent's office has this deal, they know someone and it hits you before it hits the market. They just say, hey, like, I've got an investor. Like, there's no need to go find other people. Like, let's just get this done. So we just made it nice.
- [06:01]
A
Which are cool. Yeah. Because they haven't actually listed it and they haven't shown it to anyone. Soon as they show it to someone, then they have to, like, show it to everyone. Right. But when it's a pocket listing, I got one of my best deals like that. My agent was just like, hey, this deal popped up. I'm about to list it, like tomorrow or in two days or something. I was like, no, let's just buy it. And it was a really good deal. Like, other. I have other buddies that invest in that city. And they were like, dude, like, I can't believe you got that one that fast. And. And the good thing about, like you were doing, when you were looking at this market for months, you could tell what was a deal and what wasn't. Because it wasn't the first property you looked at. Like, you'd seen one, you'd seen one, and they got bought. And they got bought. They didn't sit there for nine months at that price. Like you knew what a good deal was just by looking at it. Because you looked at so many. Which makes it easier to act fast when you do have, like, an opportunity like a pocket listing come up.
- [06:59]
B
Exactly. Yeah.
- [07:00]
A
That's super cool. So you. You like that it had equity. That was a big part for you. You like that did have some room to grow. It sound like you could do some improvements and increase the value. What's the game plan? With it then how are you forcing it? Are you doing any sort of like rehab burst stuff or just turnkey throw renters in for while or what's kind of the strategy?
- [07:21]
B
Yeah, great question. So it started, it's cash flowing right now and the tenant, did it have.
- [07:27]
A
Current tenants when you bought it?
- [07:29]
B
Yep. So there's, there's tenants in it right now. It's fully occupied, they're under rented. So market rent should be about 1600 for the entire entire place. And it's at 1350 right now. So I'm going to stair step or gradually increase their rent as time goes on. We've got about six months left on one of the leases and another year on the other one. They just released right before I bought it unfortunately. But it, it is what it is. Luckily that was the higher paying 10 anyway, so.
- [08:02]
A
But it's still cash flowing even at the lower market rent.
- [08:05]
B
Exactly. Yep. So we, since I wanted to act quick on it, since it was a pocket listing, I said, hey, I'll buy it cash. I had room on my heloc, enough money to buy it cash and then after the seasoning period, I plan on doing a cash out refinance. And the cool thing about this is I should be no money into the deal by the end of it. If I can get it to appreciate with that sweat equity up to about that 130Mark will, will be cash flowing and have all my money back.
- [08:38]
A
That's cool. That's cool. So you used a HELOC to buy it in cash and then you're making enough from the rent payments to pay your HELOC payment. You plan on doing that for probably what, six to 12 months until you're out of the seasoning period and then you're going to refinance, pay the HELOC off and have the long term debt there. But at that point your payment will go up, but you'll also be able to increase rents. So it'll still be enough to cover your long term debt.
- [09:05]
B
It sounds like. Exactly.
- [09:08]
A
That's super cool, man. And any, anything unique or special about the deal that came along or those like made it obvious or was scary or was like a learning part or a, you know, a curveball or anything?
- [09:21]
B
Oh yeah, I mean it's, it's an older house, it was built back in the 20s, so there's a lot going on there. We got a full inspection going. There's nothing too crazy going on with it and it's sight unseen for me. So I just got videos from my Agent and. But based off what the inspection said, we're good. So the things that jumped out to me is there's a basement that's unfinished. I might end up finishing it, I might not. I guess the Midwest has a lot of moisture, so it's a little bit more expensive to weatherproof all that. But it also has an attic that I could add rooms into as well. I haven't run the exact numbers on that. I'm gonna kind of test this out and see how much money I want to put into it before then. But there's room to grow there.
- [10:14]
A
And then that's one thing I love with. With properties with options. Right. It's like, okay, you know, this. This works as is. That's always the key. It's like you're buying it as is, so better work as is. And like, oh, I'll buy it, because it could be worth more. So I know buy it where it works. Now it's already cash flowing. It be could it covers its own cost. You're really not out any money at this point, you know, and so if it works as is, but then has options, whether you take those options or not, you can decide and you can see and you can play it by ear as the. You know, how much money you're going to pull out. You know, you could look at that. Oh, towards the end, in 12 months from now, it's already gone up in value or, you know, whatever. It's like, well, if I put in, then you can just run your cash and cash return numbers and just simply be like, well, if I do a $40,000 remodel, how much value will be added? Is it enough to get more rents and actually get the cash and cash return I want off of that investment or not? And you can just decide at that time. But I love having options, like, say, attics, basements, growth, you know, moving. You could, you know, I know Tammy Richie. She does a lot with, like, midterm rentals in Ohio. And maybe you could pivot that way. You know, you can kind of like, let it play out and then pivot if you need to, which is super cool.
- [11:23]
B
Yeah. Yeah, for sure. And Emily, my. My new coach, she's. She's been awesome to work with. She's kind of held my hand through it since it's my first deal.
- [11:31]
A
Yeah.
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B
And, like, I didn't think it was a home run by any means. My first base hit or whatever, but she. She was kind of the one that was like, what are you doing? Like, just pull the trigger. Make it happen. It's a good deal. You'll get your money back. Like, even if it's cash flow, break even at this point, like that's a good thing. You know, you get all your money back, you've got an appreciating asset. Why wouldn't you do it?
- [11:55]
A
And you learn, right? Because it's like you can sit on the sideline for six months or a year and have no assets, or you could buy something that's a base hit. And now you have the base hit, you have a portfolio is that much bigger and you gain the experience, which, that's the key thing. I was just talking to a student right before our call and he was asking, should I put money into these syndication funds or in a partner deal or into my own deal or what should I do? Just so many options. And, and, and I was like, put the money wherever you're going to learn the most. Now for some people, you know what I mean? If you have tons of money and not a lot of time, yeah, throw it into a fund. Like there's a right place for everybody. But like, for him, I was like, dude, you sign up for the school for a reason. You want to learn how to do it. You're not trying to get fish here, you're trying to learn how to fish. And so put the money wherever you're going to learn the most. And even if that's a base hit deal that, you know, you come out the other end and even if you ended up selling it at the end of the year, what a headache. You know, you get all your money, you didn't spend anything, but you learned a ton. That'd be way better than getting an 8% return in some fun and learning jack crap, you know what I mean? Because of what your goals are right now as a student in the school. And how long have you been in the school?
- [13:11]
B
A little over a year.
- [13:12]
A
Little over a year. Awesome. Well, that's super exciting, man. I love to hear it. I love to see it happening. And you know, just, just hearing the details of how it's done is always like insightful for people. I mean, and it's that simple, right? You reached out to some agents, you used a HELOC to buy it, you made sure it had existing equity and some options for expansion, and you went for it. You know, it's not rocket science, but it can be scary when you've never done it for sure and you're going to run into roadblocks and headaches along the way. But again, you have options and ways to pivot and, and, and exit strategies if you need to. So.
- [13:51]
B
Yeah, exactly. That'd be my advice for anyone. Just take action every day. Like, I've been trying to get deals for the last six years, basically, but ever everyone is, you know, everyone wants to become a real estate investor, but unless you're doing the daily tasks or not even.
- [14:07]
A
What do you think, what do you think was different over this past year than the previous five? You know, if there's been on your radar for so long, but you haven't pulled the trigger, what, what do you think was different in your actions most recently?
- [14:19]
B
Oh, accountability through the school is good. That's one thing that I really liked, but also just saying, hey, enough is enough. Like, let's. We've looked at, we've looked at so many deals. Quit being scared. Let's make it happen. So just taking an action every day, whether that being call a different person in my network that I need in the area, whether that be property management, realtor, pest control, whatever, you know, but just building up that network and then running your deals every day.
- [14:55]
A
Love it. I know Emily's real. Emily's really big on that too. They're like the KPIs, like, what are your key performance indicators? It's like, like I said all those things. Are you making offers? Are you looking at offers? Are you running the numbers? Are you reaching out to people? Like, if you're not doing those things regularly, you're going to have a hard time making any progress. So I love it, man, I love to see it. I remember long time ago, I learned something and this is the phrase is perfect adherence to an imperfect goal is more effective than imperfect adherence to a perfect goal.
- [15:29]
B
Exactly.
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A
And so many times people are trying to find the perfect thing and they just can't stick to it. It's like, well, just stick to something perfect. Figure out your buy box. Even if it's not the perfect buy box, it doesn't matter. As long as it' specific enough that you can actually stick to it, then things will happen. So getting clarity, getting focused, and just sticking to whatever the game plan is, even if it's not the perfect game plan will get a lot more done than sitting around trying to define the perfect game plan and never taking action.
- [15:55]
B
Exactly. Yeah.
- [15:57]
A
Well, love it. Lance, thanks so much. Anything else you want to share with the listeners before we go?
- [16:01]
B
No, that's basically it. Just do something every day to get a little bit closer to each goal.
- [16:06]
A
All right, well, you guys heard it here first. Get out there and make something happen. Thanks for on the show, Lance. Good to see you.
- [16:12]
B
Thanks. Appreciate it.