← Real Estate Investing School Podcast
Real Estate Investing School Podcast
89. REAL DEAL: How To Make Deals Without Using Any Of Your Own Money With Brody Fausett
Loading summary
Transcript1 lines
- [00:00]
A
What's up, everybody? Welcome back to another Real Deal episode of the Real Estate Investing School podcast. I'm your host, Brody Fossett. And today we have another solo episode where I'm going to just be here by my lonesome self. But I get to tell you about a deal that I've done in the past. And it's just been fun because I've been thinking about these different deals that I've done throughout the years, and this one stood out to me that I wanted to share with you guys. But it's been fun, kind of reminiscing and understanding, like, okay, these are all the things that have worked out really well in these deals, are the things that I would have done different, would have done better. I'm just really excited to share. So, as you guys know, in this episode or these, these Real Deal series, we take one deal and just kind of pick it apart. And the whole intent is so you can learn these things and go replicate them. I think back to, like, me, and when I was starting out in real estate and learning to invest, I kind of. It was almost like learning out of a fire hose, right? Like trying to drink out of a fire hose, where just so much coming at you and you're grasping little pieces of it, and some of it, you know, applies, some of it doesn't. You kind of have to discern what you like, what you don't like. But one of the biggest things that helped me get ahead was hearing deals that other people had done. And you start to understand the psychology of it, how they think, why they did that. And then you start to ask yourself, can I do that same thing? Will that work for me in the area that I invest in? Can I maybe build something like this in my neighborhood? Can I convert this house into a duplex in my neighborhood? Can I do rent by the room? Can I? All these different things, right? And really, the only way to kind of understand and to know is through learning what other people have done and what's worked well for them and what hasn't worked well for them can speed up the learning curve for you so much. Like, so, so, so much. And it inspires you to think things through and think about things a little bit differently and how it can benefit you. And it's just so powerful, man. It's so powerful. And so that's why we have these Real Deal series. And I hope you can kind of take something out of the deal that I'm going to talk about today. And that is a four plex that I bought. And, man, it's probably been. It's probably been four years now that I've owned it. Three or four years. And quick overview on it. It is. It's close to college campus. It's in southern Utah. And yeah, there's two units upstairs and two units downstairs. Kind of a basic. Almost looks like a. Like a house. I'll throw some pictures on here. I remodeled a little bit. And essential, you know, rent it out to mostly college students or newly married couples. And I have a partner on it. We split the cash flow 50, 50. We split the expenses. 50, 50. And I'm going to dive into how we split, you know, how we. We came up with the down payment, what that looks like. And it's actually a seller finance deal. So I'm excited to dive into that. And the current cash flow on it right now is over $2,000 a month. So I think it's over $2,500 a month, actually. So really, really kind of fun deal to do. As you guys know, that shouldn't mean anything unless you understand all the pieces of the puzzle. Even if I were up here saying, like, hey, I have a property that cash flows $20,000 a month, like, you shouldn't be, oh, that's so amazing. $20,000 a month, right. What should go through your mind is, okay, that's cool. But. But what did he have to pay to buy the property? What is the property worth is in over his head. Even though he's cash flowing that amount, that means nothing. If you had to spend $5 million in order to buy it, right then it's a terrible return. So just wanted to point that out, that you want to understand all the pieces to the puzzle before you just say, oh, that's good, or, oh, that's bad. So that's kind of a brief overview of the actual deal and what it's like. And now we can dive into the specific numbers and basically how I found it, how I funded it, and how I forced it. Now let's start off with how I found it. This is a unique thing, and I think you guys can pull a lot from this. But I initially found this because I was looking at a deal. It was actually an Aplex, and I had a realtor that said, hey, I have this, this Aplex. It's off market. This guy wants to sell it. And so I met up with him. We went down to go and look at this Aplex, and I met the seller there, which, ironically, I was on the phone with the Seller yesterday, which is a whole other crazy story how all this kind of comes full circle as well. But we looked at this aplex, and I was super interested in it. It was really close location, this other fourplex, which I had no idea about at the time. And I thought we were going to get it. I thought we were going to buy it. And turns out they ended up selling it to somebody else. And I was like, oh, man. I kind of felt like, you know, the rug got pulled out from. From under us. We didn't really have a chance to, you know, bid at it because it was off market and they committed to somebody else. And so what ended up happening was I asked him, I'm like, well, you know, do you have anything else that you would. That you would sell that you want to get rid of? Because this is an investor has a lot of stuff downtown. And he said, yeah, I have like a 4 Plex, but the only way I'd sell it is, is through seller finance. And I'm like, well, that's perfect, because I love doing seller finance deals. Let's. Let's make a deal. Let's work something out. So I went and looked at this property. I got even more excited about it. Kind of the backstory is he had owned it for a long, long time, 15, 20 years, hadn't done much to it. He had a property manager, slash, like, handyman that would fix up, you know, things as it needed it. But it was very low maintenance for him. He was renting each unit out on average for 600 bucks. So you do the math on that. 612. No, less than that. The top two were 600 bucks because he was collecting right around $1800 a month. So whatever that is, 600 for the top two units apiece, which is very, very inexpensive. This is southern Utah. St. George, Utah, is where this deal's at. And then the bottom two units were, you know, whatever that math is to add up to, I don't know, 450, whatever the math is to add up to $1800 in total that he was making off of this property. And for him, he had it paid off. Like 1800 bucks was great. I don't know how much he paid his maintenance guy, but it was just kind of low key and he hadn't done much at all to it. And so kind of like speaking on how do you find the deal or how I found this one, I think a few things. One, you know, networking with realtors from a standpoint of they understand your buy box, which is you know, the, the criteria that you like to invest in. And he knew that. I'm a real estate investor. You knew that I like to buy properties even if I don't have. Have all the cash to buy it. You know, I'm going to figure it out, right? Because that's what I do. And so I think having that mentality is really important. And having realtors understand that is also really important. And it makes them want to go find these deals for you because they know that if it's a good deal, you're going to close on it, they're going to make a commission, they're going to be happy. And so that's the first kind of like, takeaway from the how do you go find a deal like this is you get other people to find them for you. You know, other people, they get paid when they find it. Wholesalers get paid when they find deals. Realtors get paid when you go through and do a deal with them. They make a commission. And so understanding that's important. And then the other piece to it was that led me to the aplex, which, like I said, was off market. That's the other thing is Realtors, you know, they have different connections, or people might hit them up saying, like, hey, I'm thinking about selling this, or I know someone who's going to sell this, but it hasn't hit the market yet. And they might reach out to you because they understand really clearly what it is that. That you invest in and how you want to buy. And this could even be a single family house. It doesn't have to be, you know, multifamily or an apartment complex or anything like that either. From there, I think understanding the importance of asking questions like if I would have never asked them, hey, do you have anything else that you're willing to sell? And I think you kind of felt guilty, you know, at the time, because like I said, it felt like the rug kind of got pulled out from under us. And so he's like, yeah, I have something else that I'll willing to sell you. And I think that that right there was a huge pivotal moment. So you never know. Like, just ask, right? Ask people, especially investors selling stuff. Do you have anything else that you'd be willing to sell for the right price? And then the other thing, too. This, I didn't have to ask for this. He brought it up to me and it worked out because I would have asked for it. But seller finance, like, are you willing to sell or finance this? If the numbers worked and they, they made sense and it was the right number for you. That goes such a long ways. Understand that people are at least open to it, man. Like, then you can hash out the details. But first, just like, hey, if it was the right price, if it was the right down payment, the right interest rate, are you open to seller financing this? To me, and you'll be surprised how many people say yes. And so that's kind of like diving into the more of the finance side of things. But the purchase price of this property was $420,000, which is wild, which I'll get to in a second. But fast forward two years later, I got an appraisal on it because I leveraged the equity in it for a down payment on a new construction loan, which is kind of like higher level stuff that we'll dive into on another show more in depth. But ultimately, when it appraised, it appraised for just under $800,000. So that's one thing that made this deal so cool. And I knew I was getting a deal on it, maybe like 60 or $70,000 under market, I thought. But like I said, markets appreciate, it's kind of what happens. But I never bank on that. That's more of the cherry on the top. And so it makes this deal that much better. But had that not have happened or wouldn't happen, I would still invest in this deal. And I think that's a good kind of mindset to have going into this. So backing up $420,000, the purchase price 10% down, is what we negotiated for the seller finance deal. And this is what's so cool about seller finance is it's whatever you want to negotiate. Like however you want to structure a deal, you can structure. You don't have to go by what the bank requires. You can have it amortized over 30 years or 40 years or whatever you want. You can have interest only payments. You can have no interest at all. It's so cool to be able to structure it how you want. So this one was 10% down, which is $42,000. And the interest rate on it was 4% even. And it's still that way amortized over 30 years. So he's willing to carry the note for 30 years, which made basically our payments. And I say our because I have a partner. And I'll tell you how I got to that in a second. But the payments are about the same as what he was making up until this point, which was right around $1,800 is what we pay him. Every single month, it's a check that goes to his office. It automatically just comes out of our account and is sent to him. Now, the cool thing with this is it was a win win scenario because for him, he looked at it as, hey, I'm getting $42,000. I don't have to pay my, my handyman manager guy to worry about this anymore. I don't have to worry about anything that happens to the house if something happens, floods or breaks or whatever. And then on top of that, I'm collecting the exact same amount of money that I've been collecting on this thing for the last 20 years. So you can see all the upside for him. And I don't have to pay all this capital gains tax if I were to just sell it outright because I own it outright. And so lots of win there. And then for me, as the investor coming in, I saw this as a huge opportunity. I can sell or finance it. I don't have to go through a traditional bank. So. So that's really powerful for me. And then on top of that, I don't have to come up with, you know, 20 or 25% down. So I'm saving cash. I don't have to have my credit ran. I don't have to like so many different levels, which was nice on that end. And then the biggest thing is I looked at and I saw, hey, he hasn't raised rent in like 15 years. Like, I know I can go and easily get double the rent easily, right? And that's probably like the biggest value add because I wanted to be able to cash flow on this thing. And I knew that, like, if I can get this at good terms and then be able to cash flow on it. And he doesn't, he doesn't care what I'm renting it out for because I now own the house. He's just concerned to make sure he gets his money every single month. And so one of the other things we negotiated in there was he paid for a new roof. They put a brand new metal roof on it. And then what I actually did was put another probably close to $40,000 into the house just to fix it up. We painted the outside. I'll show you some before and after pictures. The insides. We did, you know, new flooring, new paint, new light fixtures. Just kind of like basic stuff, like cosmetic stuff. But it makes it pop that much more and makes that many, that many more people want to go and live there because it's a nicer, newer place right now. What I do the Actual rent roll is, I don't know the exact amount. It's between 4640, $800 a month. And tenants pay, you know, a lot of those utilities. I pay water and sewer, which, which isn't that much money. And so there's a lot of margin. There's a lot of meat on the bone. If you, if you look at it, you know, that minus my $1800, plus maybe, you know, $150 a month in utilities that I pay, that leaves a lot of money left over to cash flow every single month. I have my calculator right here. I'll just do the math so we can see really quick. $44,800 a month in rent, you know, minus the eighteen hundred dollar payment that I pay him, and then taxes, insurance, you know, everything all together, it's not more than 250 bucks a month. So minus 250, that leaves me at 2750amonth of cash flow. 2,750 bucks. Right. Like I said, I have a partner. We split it 50, 50. So divide that by two, and this deal alone, cash flows me 1, 375 bucks a month. Okay, now, how did I structure the partner deal? Because this is really important to understand and to dive into is I could have taken this down on my own. I actually had enough money in my bank account, I at the time to where I could have bought it and owned it 100%. And then I remember this thing, like half of a deal is better than 100% of no deal. And if I could take my money that I would have spent on this deal to own 100% of it. And if I could save that and go buy a different deal that I own 100% and I can bring someone in on this because I know the margins are that good. And it's really attractive to a partner because if you don't have to go get a loan from the bank, it doesn't show up on your credit. All these things, right? And so that stood out to me and going and finding investors. So I partnered up with someone I know like and trust, told him about the deal, and he put in 100% of the down payment, okay? So that full $42,000. And then we split the rehab. So we spent about 20,000 bucks on rehabbing it and making all the units nice new yada, yada, yada. And so from a cash on cash standpoint, which I don't want to get too heavy into this, to where it's confusing to a lot of you guys that are, that are newer, but if you're looking at it, I'm into this, this deal, $20,000 is my investment. Not only do I have all of the equity that's sitting in there, which is obviously really valuable because it appreciated and we got a good deal on it, but on top of that, I'm cash flowing on an annual basis. That $1,300 times 12 is $16,500 a year. So if we're looking at what's my return based on my $20,000 investment into this deal, aside from all the other benefits and the good rate and everything like that, I want to figure out my return by dividing that annual cash flow at 16,500. I think I said divided by my $20,000, that I'm into the property and that gives my cash on cash return, which is 82.5%. So crazy, crazy return, right. I'm almost making all of my money back year one. Not to mention, I leveraged that equity and got into another deal that's cash flowing and that's paying me back. Right. So a lot of cool things there, but just looking at that, it's awesome. Now a lot of you guys are thinking, okay, well, why would somebody want to come in and partner with you when they're putting in all of that money? Well, let's do the math just to see what their return is. Aside from not having to use credit, aside from all the equity they're walking into, which even if they weren't cash flowing at all and they knew they were walking into that much equity, someone would invest that money. It's not hard to find that partner. But let's look at it from the partner standpoint. $42,000, his down payment that he put in, plus the rehab half of it, which is $20,000. So he's into it. $62,000. He's cash flowing the same amount as me, which is that 16,500 a year. I divide that now by the money that he's into the property, $62,000, and he's getting a 26.6% cash on cash return for a deal that he didn't find, he didn't have to worry about, stress about it, put it together. And on top of that, like my, my in house property manager manages that. So that's not an expense to him. He doesn't have to worry about that. I take care of all the random little things that go, that go wrong with it, which always happens. Right. Things tend to happen with rental properties. That's the financing on it. So you might have to go back, listen to that one again. I know it makes sense in my head because I'm the one that did the deal. So hopefully that was in a clear, concise way. If not, go back, rewind, listen. Because I think there's a kind of pull out of that that might be valuable to you. And I think it's also important to understand that I would have got, you know, probably a 50 plus percent cash on cash return if I would have just used all my own money. But that would have held me back from doing other deals too. So sometimes that's something you weigh the pros and cons on and look at that way. And then how did I force the deal? I love this question at the end, which is basically like, how do you get creative on it? Hopefully you can pick out like 10 different ways that I forced the deal up until now. So many different things, you know, from, from how you asked if there's anything else they have available for sale, how we rehab the property to be able to charge more rent, how I took the equity and leveraged that into another project, how I strategically found a partner instead of putting all my own money down. Right. There's a lot of different ways that I, quote, unquote, force this deal to kind of make it happen. And I learned a lot from it. One thing being now I have a good track record and I've actually used that, and I've used this, this seller before as a reference for another seller finance deal that I've done. Said, hey, look at this guy, talk to him. How's it been so far with him? And even showing him like our track record, obviously haven't missed a payment. It's been seller finance. It's worked out awesome for him. That was really good leverage in getting me another seller finance deal that made the other seller feel even more comfortable about that deal, which I will do a deep dive on that and a real deal on that on another episode because that one only cost me 5% down and none of my own money. And I actually use the exact same partner. Because he loved how this deal worked out, we went and did another one. Very, very similar. And so I'll dive into that. But ultimately you just gotta, just gotta make it happen. There's so many strategies, so many different ways to do things, learn things. And so my biggest piece of advice, if you're gonna go and replicate something like this is there's always a way to get something done. And if somebody tells you no, you just ask, no why or no how. Okay, but how. Okay, but why? And I've learned so much from a lender tells you can't qualify for something, okay, but if I could, what would it look like? And how would that be? And there's so much power in just not taking that like, no for an answer and understanding, like, there's always a way to get something done. What other ways can we do this? What other ways can we do a deal and make something happen? And that goes a long ways, and people see that and feel that. So thanks for tuning in. A lot of info just jammed at you, and hopefully you took something with the intent of not just sitting back, taking the info and like, hey, I know more about real estate now, but ultimately, how can I go and apply this? Like, I want you guys to take what you're learning and go and apply it and go, go do these things. Go do a very similar deal would make me so happy. Because that's what changes your life. That's what builds passive income. That's what allows you to buy back your time, to quit your day job, and that's where the true kind of freedom is at. So appreciate you guys tuning in, in and out every single week, and we will catch you next time on the Real Estate Investing School podcast. This is a Real Deal series. See you guys later.