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- [00:01]
A
Welcome to Real Talk Real Estate, the show where we cover how to build wealth in real estate with no fluff, no BS, and no sales pitches. I'm David Green, and I've been doing this for over 10 years. I've seen the ups, the downs, and everything in between. This is the show where we pull back the curtain and show it to you, too. So if you want to build wealth through real estate or you just love learning about it, you found your home. What's going on, everyone? Welcome to Real Talk Real Estate. This is the David Green show, and I have got another in the series of nightmare deals, deals gone wrong, and we're going to be sharing about a nightmare. I'm joined today by Chelsea Kopax. Am I saying that right? I didn't actually get verification before we started.
- [00:45]
B
Yeah, Copaz, Copaz.
- [00:47]
A
I was so close. The C is silent, not the Z. And Chelsea has been generous enough to come on here and share her nightmare so everybody else can learn from it. And hopefully she can get some advice from me that will make that nightmare a little more of a dream. Chelsea's got a pretty cool story and a pretty bad deal, and she's willing to share both of them. So, Chelsea, thank you for joining me today.
- [01:07]
B
Yeah, thank you so much for having me.
- [01:09]
A
It is my pleasure. All right, let's start at the beginning. Tell me about when you first saw this deal. What were you thinking? What was the impression that you were under, and how did you buy it?
- [01:19]
B
Yeah. So for starters, I'm a very, very new real estate investor, definitely in my newbie stages. So I was excited to look at any deal and practice my analyzing skills. I knew that I needed to make a decision because I tend to suffer from analysis paralysis where I'll just swim in data and not do anything. So I made it a point to just say, you know, the first one that comes around that feels right, numbers look good. Let's go for it. And if mistakes happen, they happen. We'll bounce back. And I'm fortunate to have a partner that supports it and encourages it. So when I first started talking with a local wholesaler in Indian Indianapolis, we would go back and forth on a lot of different deals. I would tell him, you know, I want something that's small. I don't want to go into a crazy giant deal. It's fine if it needs a full gut job remodel like, you seem like you've got a good team behind you. So I knew another thing, too, with the numbers is because I knew I could only afford so much in closing costs. So I kind of did the math backwards to say I can really only afford a property that's worth X amount, which means we can't go past a rehab budget of this and it needs to be in the ARV range around this. So I tried to like set clear parameters into what I was looking for. And so when this one came by, I said, you know, it's, it's right in that sweet spot and let's go for it.
- [02:47]
A
Okay. So was this wholesaler someone you were introduced to? How did you meet them?
- [02:50]
B
Yeah, I was introduced through a mutual friend. So I had a girlfriend of mine that had been doing it and her and I connect a lot and talk about these types of things. It's really nice to have someone to talk to about it and kind of ask their feedback. And so she had worked with him, she had good stories, she had some like good lessons for me to keep in mind. And so by knowing someone that had done business with them already, that kind of gave me peace of mind to know like he is a stranger off the street, but he's also doing deals with people that I know. So let's, let's jump in the pool as well and see how it goes.
- [03:22]
A
So you felt like there was a little bit of kind of like shared credibility because this person had worked with someone that you trusted? Yeah, yeah. Okay. And this was a flip, was it?
- [03:31]
B
No, I told him that I wanted to keep it for long term. That is mine and my partner's goal is to build that generational wealth. We really want to build something that we can teach our family and friends later on. And so as much as I wanted to do a quick fix and flip for the cash, I knew that I'm in this for the long run. And so I knew I wanted to stick with it and put tenants in there and keep it a long time.
- [03:54]
A
Okay, what was your expected arv? What did you purchase it for and what did you think the rehab would be?
- [04:00]
B
Yeah, so with that property, pull it up here, purchase price was 85,000 and the rehab was going to be 34,000. So it was an all in loan of 119. And so the wholesaler had introduced me to a private money lender and so I had gone to them to say, you know, price, rehab total. And then he was telling me that it would most likely ARV around 156 at a minimum and was saying, you know, adding more bells and whistles could increase that. And so it, you know, was kind of coincidental. That the 75% of that ARV number just happened to be the purchase and the rehab. But I just figured the math made sense, you know, how. How convenient. And so that. That's where it was at.
- [04:48]
A
Okay, so you were looking at a ARV of 156, and I. What was it you said that the total loan was for?
- [04:55]
B
119. So I think I brought like 2k to the table.
- [04:58]
A
Okay. So it looks like low money out of your own pocket, and it's right at that 75%. You want to get all the money out of a burr. It seems like it makes sense. And this was in the Indianapolis area?
- [05:07]
B
Yep.
- [05:08]
A
Okay, so where did things start to go wrong?
- [05:10]
B
To be honest, with that first property, there wasn't really a whole lot of things that went wrong. That actually might have been my first red flag. The rehab was, like, really smooth. He was giving me updates. You know, the private money lender would send out an inspector who would then send me photos, and then he would send me photos, and he always stuck to his budget. And, you know, he had said a lot of the times of, you know, oh, this came up, but I'm not going to charge you. I'll take care of it. You're such a good partner and client. You know, he was kind of like taking me under his wing is what it felt like. And so it really went really smoothly. So then by the time it was finished, it finished quickly, more quicker than I had imagined. I mean, it was a short, you know, maybe five months rehab. And then conveniently, another red flag. He also has his own property management company. So he then, once the property was done and it had appraised high, I was able to refinance it. So that's when he'd said, and I can screen tenants and put tenants in there. So that worked out great for me. I thought, all my eggs are in one basket. Nothing could go wrong. Right. So he had put tenants in there. And, you know, long story short, there was the. You know, the tenants weren't as high quality as I had wanted and expected. So I think that was another hiccup down the road that we ran into.
- [06:35]
A
So this contractor was referred to you by the wholesaler.
- [06:39]
B
The contractor and the wholesaler are the same person.
- [06:42]
A
Okay, so the contractor and the wholesaler, the same person. They. He referred you to a lender, and then he's also a property manager. Okay, no judgment here, because this was your first deal, right? Yeah. So from this standpoint, we can see it's very likely someone's going to be good at wholesaling, property management and being a contractor. But at that time, you're like, hey, that's just probably how this market works. And this is what's going on. So I can understand why that would have. Not necessarily.
- [07:08]
B
Yeah. Another thing too is he would kind of make it sound like the PM was a whole separate team. So he'd say, I have a team of people that will take the pm. You know, I'm just. I'm, you know, co owner or whatever it was in this thing, but I'll pass you over to our PM team. And so he had passed me to. To another person at that point. So I was like, oh, this guy's got it going on. He wholesales and he's got a team of people that do contracting and a team of people that do project property management.
- [07:32]
A
Okay. So the rehab went well. You put tenants in there with his team that does property manage, by the way. I can see why that would make sense, because I do that, right? I do loans, I do real estate. Like, I will have a property management company. I could see a world where someone comes to me to buy a cabin in the Smoky Mountains, and we help them with the purchase, we help them with the financing, and then we manage the property. And I may refer people to them to do work if that happens. So it's not like inherently that's bad. It just ends up being bad when you're in the market. Which I have a feeling where we're going here is that this deal went badly because of where it was purchased. But everything was fine until the tenants went in, right?
- [08:06]
B
Yep.
- [08:07]
A
Okay, so the tenants go in there and what happens? They stop paying rent.
- [08:10]
B
Yeah. So kind of where things had started to go wrong. So the tenants were paying consistently and things were going really smoothly. So smoothly that I decided to go back to the wholesaler for a second deal. And then while that one was going on, we decided to get a third deal going on in the mix as well. Like, I really wanted to scale, right. I'm reading these books about how one isn't enough. You gotta scale, you gotta move it up, Quicken the pace if you can, if you can afford it. And so that's what I was doing. We were scraping together our funds and just purchasing as quick as we could because we wanted to hold them. So I think it was a combination of, you know, the wholesaler and his team juggling a lot of different things at once. And so things were starting to slip. The cracks, you know, rent would get missed. Emails would get missed, things would be delayed, hard to get ahold of. So that was the first indication that something was going wrong. I think that his company had also suffered through some things. And so it did get to a point where I just had to say, you've been great and I've learned a lot from you and I appreciate you, but I think this is the end of the road for us. And I think that at this point, I need to take my properties and do a property management with someone else. And he was gracious and kind, but he was still really hard to get ahold of. It was impossible to get like keys and down deposits and like, that kind of stuff is like pulling teeth. And so, you know, once all of that was no longer within his control, and then we flew down there and saw everything in person, that's when it all kind of fell apart for. For me personally, because now I'm seeing it in person and I'm like getting the real facts from neighbors and seeing it. And so I had realized that things were not adding up the whole time.
- [09:52]
A
What did you see specifically that caused you to realize that?
- [09:54]
B
Well, for starters, that first house that we were talking about, the one that went smoothly, the tenant did not stop paying, according to the neighbor. And I can see by the outside of the house that the property was shot multiple times. And I was told by the neighbor that the tenant had actually been shot inside the house and passed away. And so I was never notified. You know, at the time the property management team was telling me, oh, he stopped paying and he was evicted. He left. He's no longer. So, like, that was a clear indication of what else was I not being told about. I'm also looking at properties and I'm seeing that there's a lot of corners that were cut, like business, like, literally and figuratively, you know, using things. I'm not an expert contractor, but by looking at things, I can tell that we did not always get what we paid for. Things were missing and things were not done correctly. And so I think that was another thing that I learned was even though the private money lender was sending out a quote, unquote inspector to look at the tasks that were completed and sending me photos that it was done, that does not always mean that it was done correctly or to quality or permitted or anything like that. So that was like a big lesson of never take one person's word for something, always double check it.
- [11:14]
A
Have you by chance read Long Distance? Real Estate Investing was the first book I wrote.
- [11:18]
B
Do you mean this One.
- [11:20]
A
Yes.
- [11:21]
B
I'm in the middle of reading it.
- [11:22]
A
Wonderful. I was wondering if that's what it was when I saw that little blue strip there. It's too bad you didn't read it beforehand, because that's one of the main things I talk about, is that you want to get several intersecting pieces all checking on the same thing. So you ideally want your property manager, your contract, and your real estate agent all looking at each other's information that they're giving you to see if anything stands out, which obviously you've learned now. But I had the same issues when I started investing out of state is you get a number from someone and someone else disagrees with it, and if you've already bought the property, you're kind of committed at that point. All right, so you are in the situation where you're realizing the neighborhood's worse than what you thought. You haven't said that, but that's obvious at this point. The person managing your property, who also gave you the numbers for it, is not being forthright with all the information that's going on. And you believe that tenants are still paying rent, but the property manager is not paying you the rent that they're receiving, Is that right?
- [12:14]
B
Yeah, it could be that or they. Maybe the tenant wasn't paying, and for whatever reason, the PM was paying me, so I wouldn't ask questions. Questions. I think some of that could have also gone down, but yeah.
- [12:24]
A
Oh, okay. So you don't think it was that maybe that they were keeping the money that you were being paid? You think they might have been paying money out of their own pocket so that they wouldn't get caught? That they sold you a lemon?
- [12:32]
B
Yeah, could. I think it's probably a combination of the two. You know, people aren't going to ask questions if they're getting paid every month. They're like, when I was getting those rental incomes, I was like, don't look the other way. But now, not anymore.
- [12:43]
A
But you wanted to know that there was shootings going on at the property, that someone had actually been shot and killed because now you need to have a new lease go out, right?
- [12:51]
B
Yeah, it'd be nice.
- [12:52]
A
Okay, so what, did you confront them? And that's when they said, hey, okay, fine, take your properties and go your own way.
- [12:58]
B
Um, you mean when I confronted, like, the. The wholesaler and team? Yeah, I mean, at that point, because there was so many things and the balls being dropped, I just quietly kind of ended the contract and wanted to be free of that and just start fresh with Someone new. So I didn't really bother going back to say, hey, you know, because I'd already had a lot of this confrontational calls and phone calls, and I think I said plenty that I needed to say. So at this point, there really was no reason to go back and be like. And now I'm seeing this because at.
- [13:31]
A
This point, yeah, but they let you out of the contract? They didn't fight with you about it?
- [13:34]
B
No, no. I mean, we had a good relationship up until that point. I mean, he was respectful and, you know, he understood that I'm just taking the business in a different direction, want to work with someone new and expand my network. And he honored that.
- [13:45]
A
Okay, so where did things go bad?
- [13:47]
B
I mean, it all bad. It was the fact that, you know, going to Indiana and seeing the properties in person, you know, seeing how much work needs to be put back into the property to get it to a spot where I thought it already was. In addition to, we did have squatters, like, he had put these tenants into this house. They did stop paying. And just having to deal with that was really rough to, like, be there in person and see how people treated a home and just, like, experiencing it, seeing it in real life, on top of just the financial stress, the emotional stress, like, feeling like I wasn't adequate to run something like this because I don't have anyone in my life that is, like, holding my hand or guiding me through any of this. And so it started to be a moment of, am I just not smart enough to do it? Do I not, you know, am I not so, like, just a mental game, financial game, like, all of it just kind of combined into one.
- [14:44]
A
You know, there were massively stressful.
- [14:45]
B
There were things too where, like, the city was trying to sue me because he had placed tenants into a property without my permission. The property wasn't done yet. So now the city is trying to give me a lawsuit for having tenants in a property that I didn't know that they were in. I've been gotten. I've had received countless fines from the city about, you know, overgrown this and that, where the property manager said he would take care of it and he didn't. So it's just all of this stuff combining into one.
- [15:12]
A
Okay, so when you got the new property manager, did the thing get better or. Or did things get worse?
- [15:17]
B
I mean, they got better in terms of I got a lot more accurate information. He was able to go and get answers and just get all these things clarified for me that I should have been knowing the entire Time. And the only thing was that, you know, he wasn't an expert in fixing up properties. That's not his forte. His forte is putting tenants in. So it was kind of a matter of all of your properties need a ton of work. Not a ton, but they need a good amount of work before we can even put tenants in there. So he's kind of sitting, waiting for us to get to that point where it's ready for tenants, because until then, he can't do much. And so that's why we fight down there. We do the work ourselves. We've partnered with a few people locally now that we trust that can knock out small projects whenever we can afford them. So that's kind of where we're stuck now is the all three of these properties need a good five, $10,000 each in order to put tenants in there. And we've just completely run out of reserves.
- [16:08]
A
And that's a problem because the property keeps needing more money. Is that like. So are the tenants complaining about it or the property managers telling you that we can't find a person to rent it?
- [16:17]
B
Now, at this point, I have one tenant, I have six doors, and I have one solid paying tenant. We took care of her issues. She's happy. She's my. My angel in Indianapolis. But all the other five units are completely vacant until we can afford to fix it up.
- [16:31]
A
And what is it that you need to fix up before a tenant will occupy it?
- [16:35]
B
Yeah, I mean, like one property, you know, like, just going in and kind of fixing up the heating. Electricity needs to be done, and then that's pretty much ready. I would redo the floorings if it were me. So I think I want to get that done. Another property, you know, it doesn't have any appliances, so putting that in, for whatever reason, we got one water heater instead of two. The bathroom flooring needs to be done. The other property that had squatters in it that needs to be, like, completely. They had ripped out drywall. And so replacing that, we just got done with a major plumbing problem, fixed that issue. So it's kind of just a handful of things depending on which property you're looking at.
- [17:21]
A
And you just ran out of money to be able to fix these. So you feel like you're not going to be able to put tenants in there and generate revenue. And then you also have to refinance it, right?
- [17:29]
B
I have to refinance one of them. Two of them are already refinanced, so those are fine. But, yeah, the third needs to be refinanced and that's another issue I'm running into, is that my debt to income ratio is now too high. So I'm working on increasing the income to help with that ratio.
- [17:45]
A
All right. This is the dilemma that I can see that we're in. I'm looking at a calculator as we're talking about this thing, and, like, there isn't really an easy answer that you're just missing. It's kind of like you're getting slowly sinking deeper and deeper into this. So if we sum it up, it was bought through a wholesaler who did the work, but he didn't do all the work. He left a lot of stuff undone, which is why you're not getting tenants. Right. Okay. Then you took it back from that property manager, gave it to a different one, and they're saying, look, I can rent out the units that are rentable, but if the water's not working, if there's plumbing issues, can you share some of the specifics of what's going on in the other ones?
- [18:20]
B
Yeah. So in the one that's with the private money lender, it's a duplex. And so, you know, it's like 90% finished. It really just needs appliances, for sure. For whatever reason, the old construction team drywalled off the furnace or, sorry, the water heater. So knocking down that drywall to create access to it. I don't know why they closed it off with drywall, but they did. The other side also needs a water heater. And then it's just the bathroom tiling. That's really gross. Like, we paid for all new tiling and none of that got done. So if. If I for up to me for a tenant, I would want to redo that flooring and that shower tiling. So just those items, you know, are the functional things that need to be done. It's also super tiny. So I've had folks say if you can turn it into a single family home, it would be worth more. But at this point, those are the things needed for that. You know, the other, the first property, besides little things like patching up the bullet holes and. But like, the heating needs to be redone for whatever reason. There is baseboard heating and, like, those box unit heating both installed, and neither of them work, so those have to get ripped up and redone. That one was also completely cockroach infested. I spent the whole week bug bombing and sweeping, so, like, ripped out all the carpets. So I just need to pay someone to put in new carpets, new flooring that kind of stuff. And then the second or the third last one, the one that does have a tenant on one side, that one's like this close to having a tenant. So I'm putting all my last dollars into that one. I think at this, it just needs some drywall, maybe a fresh coat of paint, and I think that it'll be ready for a tenant. Maybe some appliances. That one's close, but you feel like.
- [20:04]
A
You'Re just running out of capital to be able to do that, or do you have enough capital to get a couple of them operational?
- [20:09]
B
I don't. I'm putting everything on credit cards.
- [20:12]
A
Okay. And then the other element here is they don't have a ton of equity either. So to take a loan to make all these improvements doesn't necessarily help you because you probably wouldn't be able to sell it for as much as you owe on it if you do that.
- [20:24]
B
Yeah, yeah. To be honest, I would love to just sell the one that's with the private money lender just to get that one off. You know, it's a. It's a loss. I'm not going to get my money back, take it off my hands. I'm willing to sell it for the amount that I owe for it if that's what it takes. Just because I really do want to put the rest of my money into the two refinanced loans and try and hang on to those if I can.
- [20:45]
A
Is the reason you want to hang on to them because you're emotionally invested in these properties because you built them up, or is it a financial thing where you're like, it makes more sense to keep them?
- [20:52]
B
I mean, at this point, I think that's the biggest question on my mind is am I keeping it for emotional reasons? Am I just taking it to heart? And I just want this to be a win, and maybe I need to recognize a loss when it's a loss. And so that's kind of why I'm. I'm realizing now is maybe it is time to consider selling all of them and using that to start again somehow.
- [21:14]
A
Yeah, I wouldn't think that's a loss if you do that, because you basically, especially if you got away losing minimal money, that's a really good education that you just got for a little bit of money. The. The bigger danger would be if you can't sell it for what you owe on it. So what's that situation look like?
- [21:30]
B
Yeah, with that one, with the private money lender, that's exactly what's happening, is every Single buyer that I talk to really wants to lowball it because they know a little bit of work needs to go into it. And so that number just drops dramatically when you say, oh, it needs appliances, you know, so everyone that offers me a deal, it's not even enough to cover the loan. And so that's kind of what I'm running into is like I can't afford to go out and take out a separate loan to pay off the balance and then sell it to you for 100k when I. Oh, 150, you know.
- [22:04]
A
Yeah, that's. That's like the bigger issue that I see you running into. Now your private money lender, I'm assuming there's like a balloon payment on this and they're saying, hey, we're owed the full amount at a certain point, to.
- [22:14]
B
Be honest, they are happy to extend my loan every few months and for a hefty fee and that. So the balance just keeps going up and of course their interest only payments. And so they work with me every few months to extend the life of the loan and add a fee.
- [22:30]
A
But you're not able to cash flow because that's a higher rate than what it would be if you could get it cash flowing and you could refinance it. Like commercial financing, right?
- [22:37]
B
Yeah.
- [22:37]
A
Okay. So that's your position, is you're like, well, I'm avoiding foreclosure, but I'm just dumping money into this thing. And I'm also having to take on more debt through credit cards just to try to get it to a point where it's operational. And you're wondering if you actually are ever going to get there, Is that right?
- [22:52]
B
Yeah. Yep.
- [22:53]
A
So if you, if we start with a couple units to try to put your money into this thing most efficiently, are there a handful of them that need less work done to get them to the point you could get a tenant in there at all?
- [23:05]
B
Yeah, the, the one that has a tenant on one side. So it's super duper close to being ready for another tenant. So it'll be a beautiful day when we're like this close. So once we do have that ready, we have a PM on site ready to put a tenant in there. So then that property will at least be paying for itself. So I'll feel less stressed at that point. I can just focus on the other two.
- [23:24]
A
Okay, so you got one property that's close. You don't need to put a whole bunch more money into that one.
- [23:28]
B
Yep.
- [23:29]
A
All right. And then you have six units total. So Then there's another four units. And are those a four plex or how do they work?
- [23:34]
B
So all three of them are duplexes.
- [23:36]
A
Okay.
- [23:38]
B
Yeah. So I have two fully vacant duplexes and then the one that has one tenant.
- [23:42]
A
So the two fully vacant duplexes. Are any of the units in either of those close to being at a point you could put a tenant in.
- [23:48]
B
There, they're probably about 10k away from being ready for a tenant. So to some folks, they say 10k, that's easy. I could easily put that on a credit card or pull that from someone or get it lended to me and get it done. That's just not the case for me. I've maxed out all the credit cards and debt that I can, and I don't have any way of borrowing money from anyone. So I just kind of am picking up extra side hustles, extra jobs, extra projects, extra hours to. To save up as much as possible.
- [24:20]
A
But it's 10,000 per unit, you think, to be able to get those going.
- [24:23]
B
So when I say 10,000, that's me hiring someone locally to do it. I also know because my fiance is a contractor, he's able to do a lot of the work for a lot cheaper. So if we could just fly down there and do the work ourselves, we can save a lot of money. But then with busy schedules and everything and working full time, it's just hard to find a week to fly down there. Knock it out.
- [24:44]
A
But there's hope. That's why you haven't given up on it yet, because you're like, well, as long as that option is available, you don't want to just give up on the whole thing.
- [24:50]
B
Right? I really don't want to give up. I have realtors tell me, hey, these houses are kind of in up and coming areas. If you can't hang on to it for a little while, they will be. So like, again, I'm in this for the long run and I don't want this to be a total loss. And so a part of me is like, the balance on the loan is relatively low. Last time I appraised it, that was a good amount of equity that was gained. Imagine where it could be in a few more years.
- [25:12]
A
Okay, I didn't realize that. So you do have equity in the property? If it was in good shape. Shape.
- [25:17]
B
In two of them, we have some decent equity.
- [25:20]
A
And those are the two that are not rented out.
- [25:23]
B
One is half rented, the other one is vacant.
- [25:25]
A
I just thought of something I haven't thought of before. Do you have an option where you go to your lender and you say, look, I need you to give me a break for say four months, six months of not making payments. If you want, you can add it to in arrears to what I'm going to owe you on the loan balance, but I can't make the money. I'm going to take that money. I'm going to hire someone to get these things operational. At the point they're operational, I can either refinance them and pay off your loan in full or I can sell them and pay off your loan in full. But if you don't do this, we are at risk of you having to take them over and you gotta go through the process. You could just let me do it and partner with me on it. It's one option. Okay, Option B, if they say no to that on a hard no is you could say, all right, what if I give you some equity in the properties in exchange for better loan terms? So what if we take your, I don't know what your rate is. Like, do you mind sharing it?
- [26:19]
B
Like 13%.
- [26:21]
A
All right, what if we take your 13% loan and I give you equity and we finance out of this into a commercial loan at say 7% or 6.5%. That's going to save you a ton if the properties are cash flowing because you need a DSCR ratio to support that loan, as you're aware. And you say, I'll give you X amount of equity in this deal. They on the refi get their loan balance paid off and they walked into equity on a deal that they didn't necessarily have to put a ton of money in. Maybe you could work it out where I'll give you the X amount of money at a big discount. You bring me some cash, I'm going to use that cash to pay for the repairs. And then you guys get this percentage of it. You win because you get yourself out of this mess of 13% debt, they get their money back and they walk into equity on a property. In essence, they're kind of becoming a lender twice, which is in their wheelhouse.
- [27:12]
B
It's not a terrible idea. I just, I not a hundred percent sure if I want them to continue the loan. You know, I'd kind of feel more comfortable if it was with a more conventional lender. I think these folks really.
- [27:28]
A
Sorry, I should clarify. You would be refinancing into another lender.
- [27:32]
B
Okay.
- [27:33]
A
To get, to get out of theirs. But they would be lending you the money to make the repairs so you could refinance into a conventional loan and pay them off. So maybe I can clarify this. You would have two options. You say, hey, I don't want to go to foreclosure. I need a six month forbearance here so I can save the money to then get the repairs made. Refinance it, pay you back, that's your best option. If they say no, your backup option would be, okay, what if I give you X percentage of equity in the property and I give that to you in exchange for the money that I need to make the repairs. So that's 20 grand or whatever the case would be. So they buy, you know, it's like a good return on their money. You make the repairs, still refinance into somebody else's loan, they get paid back. So they avoided their foreclosure and they were able to buy equity into this thing that instead of having to take foreclosure and take the equity that way.
- [28:27]
B
Okay, yeah, it's not a terrible idea. I did try to go back to them and I attempted to negotiate somehow because I was trying to ask for help and it didn't seem like they were really budging much. Their only solution was doing a deed in lieu of foreclosure. So I've pushed back on that a little bit to say, would you consider a short sell? They said maybe if you brought us the right, you know, contract and deal, then we would maybe consider it. So I kind of feel like they're a little bit closed off to some of these more creative negotiations. But maybe if I found it in a way that, you know, speaks their language and is enticing to them, maybe it would work better.
- [29:05]
A
Are they worried about a foreclosure?
- [29:08]
B
I mean, would they be like, do.
- [29:11]
A
They know that it, that that's a possibility?
- [29:12]
B
Oh, yeah. I mean, I've told them I can't, I can't afford this anymore and I can't finish it and I can't rent it out.
- [29:19]
A
And do they seem like they're okay with that because they're experience with construction and fixing the property up to then sell it themselves?
- [29:26]
B
Yeah, I think so.
- [29:27]
A
So that's, I mean, that hurts you because you don't have as much leverage in that situation. If they have to take the property back, they feel good about doing it. Okay, so that's another reason you're hanging on because they don't really have incentive to help you with this. What if you look at refinancing into cheaper bridge debt?
- [29:43]
B
Have you Looked into that, explain it a little more with a bridge loan.
- [29:48]
A
So like the one brokerage, we do loans that are 12 month periods where you would take out a loan where you borrow the purchase price and the rehab. So it's typically you put 10% down on the purchase price, 10% down on the rehab. We could look into if we have a situation where we would do that for a property that they already own, that'd be like a refinance. So instead of needing to bring 10% of the purchase price, there's already equity there. If it appraises well, so you get in at a cheaper rate, say like 8 or 9%, even 10 would be significantly better than the 13. You get a little bit of money back and you borrow money on that. For a rehab that you don't have right now, which you use to repair the property and then sell it or refinance it into an even cheaper rate. On a commercial loan, if you had enough equity, if it appraised high enough, you could conceivably do that and borrow the money that way to make the repairs.
- [30:41]
B
Yeah, I do like that strategy. And that might work on one of our other properties. I am just a little bit nervous about how this, this one with the private lender, how it would appraise, just because in talking with realtors, the number I thought is pretty far from what they're saying. So I was told, oh, it'll appraise for 180, 190. But when I'm talking to realtors, they're like, not for such a tiny studio duplex. Not, not right now, at least.
- [31:09]
A
Well, there's the. The realtor is looking at what it would sell for. It might appraise for more than it would sell for. I know that sounds weird, but if it's in an area where prices have dropped, the comps will support the 180. Unless a lot of properties have sold recently for lower prices. Okay, so there's a chance that it could appraise more. Usually it's the opposite. When prices are going up, usually properties sell for more than they appraise for.
- [31:32]
B
Okay.
- [31:32]
A
And if prices are dropping, you sometimes get a situation that goes the other way. The longer you wait, the more likely you are to get more sales at lower prices, which then pulls down the comps. But what I'm noticing is that people that are not flippers are holding on to properties right now rather than selling them at a loss. So even though, like the properties that are selling or selling for less, sometimes there's less of Them doing that because most people, unless they're in a bad financial situation, they just hang on to them. So, like, I see that in the Smoky Mountains a lot right now, cabins that sell are selling for less. Because when rates went up and the economy went bad, that market took a hit. But a lot of people are like, yeah, it took a hit. I don't have to sell. I just. I'll break even. Or I was going to make X amount of money, now I'll make Y, but I'm not going to sell for less than what I have to. So even though the cabins that are selling are selling for less, there's hardly any of that happening. They're just not really selling at all. So the appraised values are actually holding their ground, even though the sales prices are less interesting. Okay, that's another angle to look at. There any questions for me? Now that you've laid this all out and we've kind of talked through a.
- [32:38]
B
Couple options, I mean, is there, like, a good way of deciding when something is worth keeping and when it's worth selling? You know, at what point do you let your emotional side, you know, step away and just look at it logically or sometimes is it worth it to say, yes, it's hard right now? Don't let this just scare you out of it.
- [32:59]
A
You know, here's the best advice I can give when you're in that position. When you look at it like, I don't want to sell the property because that means I'm no longer a real estate investor or I've accepted defeat, you'll hang on for too long. If you look at it like I'm going to trade this property for another property, that becomes way different. Because the truth is, if you're able to sell it, you are not going to stop being an investor. You're going to move the capital from one to another. And someone might say, well, there is no capital. Yes, you're going to move the energy and the stress, the anxiety that's on this property to another one that will probably have a better ROI on your time and your emotional state. This property is bringing you down. That property might make you excited. You're going to put the same effort into the property. This one's losing not only money, but it's losing your emotional state. It sucks, right? If you get rid of it and you get another one, you might make more money and you might have a better experience. And so you didn't admit defeat, you just exchanged it. And when I started seeing that equity is Just a word that we use for energy that's stored in a property. And I can move energy from one property to another. I can move it from a property to a bank, I can move it from a bank to a property. It's just energy. And wherever I put the energy will require energy from me. I have to like, David has to invest his energy into wherever that financial energy was stored. So if I put it in a short term rental, I have to pay attention to it more, but it will usually pay me more money. If I put that energy into a long term rental, I don't have to pay as much attention. Takes less of my energy, but it provides me with less financial energy. It's really just energy management and you having to decide how much you have to put towards your job, your investment, your relationship, like whatever the case would be right now, this property is draining you of energy and it's draining you of financial energy. It's like it's not helping you in any way. So my thought would be, how do you stabilize the bleeding, get it to where it could be sold? Sell it. Take all the good that came from it, everything you learned, then get rid of all the bad that it brought by the next one. Get more good and less bad and it's still not going to be perfect. So then on the next one you're going to get even more good and less bad. And after you do this a couple times, you start to get almost all good and very little bad. And then the decisions become, where's the most good? Instead of how do I get rid of the most bad? Which is kind of where we start. Does that make sense?
- [35:19]
B
Yeah, actually. It's really refreshing to look at it that way. And exchanging of energy.
- [35:23]
A
Different people have different interpretation of what I'm about to say. And I can't prove any of it. It's just how I look at it, or how you look at or a theory. But there is something diabolical that hits us as humans when we do something that's less than ideal, or what we would call making a mistake. Where very few people interpret as, oh, I'm glad I tried snowboarding, it was harder than I thought it would be. Or I'm glad I went to yoga. It was a good experience, but of course I wasn't good at it. No one's good at something the first time. It's like 2% of people think that way. 98% of us think you sucked at yoga. You suck as a person. You couldn't snowboard. Why are you Even alive, you tried investing and you couldn't make it happen. You don't deserve to be that. You should just stick with your boring W2 and suck at life. And I know a lot of people who are listening to me. They have these, for lack of a better phrase, intrusive thoughts, right? I, as a spiritual person, believe those thoughts are not us. They are not actually Chelsea or David. They are coming from a spiritual realm, from a bad place, and they are meant to condemn us because they don't want us to continue to thrive. Because if you stick with snowboarding, if you stick with yoga, if you stick with investing, you get better at it, and it actually becomes something that builds confidence and brings joy into your life, and then you want to share that joy with others. And in the spiritual realm, you're now bringing light into other people's lives, and you're overcoming things. You're not likely to stay a drug addict if you don't have a crappy life you're trying to escape from. So if you're a drug dealer, it makes a lot of sense to keep people thinking that they suck at life. They're going to keep coming to you, right? Some people call these demons. You could call them energies. I don't know. Like, people have different words for it. But the idea here is there's absolutely something that will always jump in and tell you, you suck. You should quit. You never should have tried this. That doesn't make objective sense. Because nobody should expect to be good at snowboarding when they first do it. Nobody should expect to crush it on a deal when they first do it. The people that do crush it on deals, when they start, usually started when the market was crazy good and you could be a moron. It was like the bunny hill. And you weren't on a snowboard. You were on an inner tube. Pretty hard to fall. You just let gravity do its thing, and then you get to the bottom and you tell everyone you high five, and you say, I crushed it. You see how good I am? I'm a natural at this. Let me get on a podcast and talk about it. Well, now, the market isn't a downhill easy road. It's just kind of like a straight even one. And no one should expect to do good, even if in a neutral market when they haven't done it before. Just getting off the ski lift when you're new at snowboarding sucks. You fall over. It's super hard to do right? That's a normal thing to experience. So what I'm saying here is Those thoughts will never leave you. They don't go away on their own. They don't stop coming. Everybody's going to have them. You have to start by recognizing that they're not. Chelsea, you didn't suck. You did exactly what you should have expected to do on your first ever deal at a state. Trusting people that ripped you off. That guy sucks. That guy deserves to have thoughts telling him that he's a bozo. That person should be suffering right now for ripping you off. Unfortunately, that's not happening on this side of. Of earth because he made money and you didn't. Right. I believe the day is coming where that guy's going to get his just desserts right where he felt good ripping you off. It's going to be bad for him later. You, in this case, paid the price up front. Your future should be better later because of it. So if you can silence those thoughts that are telling you that if you sell, that means that you failed. You actually free yourself up to start making decisions that will lead to much better thoughts.
- [38:53]
B
Yeah, I really appreciate you saying all of that. And I think that's one of the reasons why I love listening to your show, is because it was refreshing to start hearing about people and deals that have gone. Gone wrong. Because in the beginning, you know, I'm going to these meetups and I'm listening to these podcasts, and I'm watching YouTube videos of people my age or younger or older just succeeding and hitting these home runs, or even if it's not a home run, you know, they still came out with. With a profit and a gain. And so it was starting to feel very isolating to think, am I. Is it just me? Because I don't have people surrounding, like, what do they have that I don't have? And so, so, you know, keeping that mindset again, I'm fortunate that my partner says a lot of those same things about, we can't let these things hold us back. Because, you know, at the end of the day, shady people are always going to exist. Shady things are always going to happen. But you can't let them define you. You can't let them stop you from pursuing. And so that's what I think I try to drive through my mind the most is, yeah, things are going to suck, but what would suck the most is not doing anything.
- [39:55]
A
So I'll give you an analogy outside of real estate, that proves a point you just made. And I do this all the time, because sometimes you don't know if the voices actually are wrong. You're like, well, what if I just become an egomaniac and I tell myself I don't suck at anything? That can be bad too, right? The worst thing ever is to do nothing. You're exactly right. So I haven't worked out much in the last couple months. Just been super busy and not feeling great about life. It's harder to go to the gym when I don't feel good. If I go to the gym tonight or tomorrow, I can guarantee you my workout's gonna suck. I'm not in shape. I haven't been doing it. I haven't been taking creatine. I haven't been working out hardly at all. 20 minutes, 30 minutes of working out a muscle, it's gonna be screaming at me, and I'm gonna be out of energy. The voices are gonna say, you never should have came. You suck. You're miserable. I know they're happening right when I'm doing really good and working out all the time, those same voices come in. But you know what they say then? You're amazing. You're incredible. Look how strong you are. All these other puny weaklings are surrounding you, and you're better than. Then I become pride. Prideful. So it's always, if you're listening to them, a bounce between negativity and despair and pride. It's rarely ever just solidly humble. They don't ever want you actually thinking. That's where the voice of what I would call God, other people might call light is going to come and remind me, hey, you're not a loser, but you're also not better than anybody else. Like, you shouldn't be thinking in those terms at all. But the best thing I could do is to go to the gym and work out. If I go, and it's for 20 minutes, that is a million times better than if I didn't go because I was afraid of what those voices would say. That's their purpose, is to get you to not go to the gym at all. Because if you go to the gym that one time, the next time starts to get easier. The next time starts to get easier. Now it's a pattern. Now it's a habit. Now you feel good about it. Now your confidence is growing. Now you're on a spiral where you're actually feeling so good about yourself that you want to share that with other people and inspire them, right? The same thing is true with real estate. The worst thing you could do is to get out of it and not do it at all. Because you believe that this means there's something bad about you as opposed to the first time you work out. It sucks no matter what you do. The first time you get a deal, it sucks no matter what you do. I use snowboarding as an example because I remember the first time I went at, like, 18, I was so bad at it, and I thought that everybody else was good. And then, like, three years went by before people like, oh, yeah, dude, nobody knows how to snowboard. It's hard as hell. It's miserable. And I realize I spent three years beating myself up for something that was silly. I think you and a lot of other people have heard the success stories on the big podcast or the YouTube channels. Not only are they carefully chosen to only reflect the best deals, they're not vetted. So people lie all the time. And the people who lose money don't go out there and scream from the rooftops about the money. It's only the people that do.
- [42:36]
B
Well, that part. Yep. Absolutely. That's why it is refreshing to hear about these stories. Remind myself it can happen to the most experienced people and the most newbie people. So I really just appreciate, like, the raw stories and raw, you know, energy that comes from this podcast and folks like you that are talking about the things that aren't so glamorous because that's part of the journey. It's gonna happen. Expect it.
- [42:59]
A
Yeah. And would you judge me if I told you that my workout sucked?
- [43:03]
B
Nope.
- [43:03]
A
If I went to yoga and I'd never been and I was horrible at it, would you judge me? You'd probably expect that at. Right. That's the same way that I look at the people that get into real estate investing. You can avoid making mistakes that you know are coming. You can't avoid making mistakes you don't even know are coming.
- [43:17]
B
Yeah.
- [43:17]
A
And that's one of the reasons that I write books, is just the pain that I went through, I want to help other people avoid. And that's why we do a podcast like this, because people will listen to this. And even though that may not necessarily take away your pain in your situation, it can help them. And I do believe that that will come back your way.
- [43:32]
B
Yeah. Another thing, too, that I'm grateful for in all of this is like, you know, you are learning a lot on the go as you're doing it actively. But now I can go back and read these books, and I have applied experience and knowledge to put towards it. I think the first time I picked up the first book, and, you know, it's easy to just read the words and be like, okay, when I come across this, I'm going to come back to this page and tell myself what to do. But like, I think rereading some of these books is a big educational moment as well.
- [44:02]
A
Yeah, well, I hope that you keep doing it. Yes, speaking of books, I got a new one coming out which I'm going to shamelessly promote. It's called Better Than Cash Flow and It details the 10 ways that you make money in real estate. And you can find it on Amazon right now for pre order. It's got a Kindle and a paperback version. Chelsea, thank you so much. I am sure that my amazing community of people is going to want to reach out and shower you with love and support. Where can they find you to do that?
- [44:25]
B
Yeah, I mean I am on the Instagram. I, you know, again, I'm nobody famous or big or anything like that. But if you want to give love, my handle is, is Chelse. Yeah, again my name is Chelsea Copaz and so I'm just out here, I'm self teaching myself as much as I can about how to be a real estate investor along with a small business owner, along with just a human and a full time worker. We do a lot and we give back to a lot of communities. We want to build something that not only generates that generational wealth, but we want to teach our friends and our family and our community members how to do this and do it better and continue to do it and grow from it. And I just really appreciate all of the knowledge that you and the team and people like you put out there. It's really life changing and I couldn't be more grateful for it.
- [45:20]
A
Well, thank you Chelsea. If you folks would also like to know more about getting a loan or financing real estate, check out the1brokerage.com or email us intake@the1brokerage.com and if you're shy, there's nothing wrong with that. Send me a DM on Instagram or Facebook messenger and I will connect you with somebody personally. Chelsea, thanks again for being on here and sharing your story. I will keep my fingers crossed for you. And if we have a change and we get some relief or the story takes a turn in either direction, let me know and we'll come back and do an update.
- [45:48]
B
Cool, Will do. Thank you.
- [45:50]
A
Yep, take care.
- [45:50]
B
You too.
- [45:51]
A
Thanks for listening to Real Talk Real Estate. If you would like to be featured on the podcast, I'd love to have you visit davidgreen24.com Ask and submit your question there. Also please do me a huge favor and share the show with someone that you love that you think would benefit from his message, and make sure you're subscribed to get notified for future episodes. If you want to reach out directly, you can also DM me on Instagram or social media and check out davidgreen24.com.