Using Hard Money & BRRRR to Go From 2 to 80 Units with Kyle Mack

Ashley:
This is Real Estate Rookie show number 41. My name is Ashley Kehr, and I am here with Tony Robinson who by the time this airs is going to be a married man.

Tony:
So true, it’s so crazy. We’ve been engaged for two years, so it’s been this thing that’s been so far away. So now that we’re four or five days away, I’m freaking out a little bit, so it’s exciting.

Ashley:
Yeah, it’s like crunch time. Well, I hope everything goes well with the wedding and I’ll be excited to hear about it when he gets back and the honeymoon.

Tony:
I can’t believe, we’re going to be gone for two full weeks. I told all my friends at work that any email that comes to me during those two weeks to get an auto deleted, I’m not answering any phone calls, I’m not doing anything, so.

Ashley:
Okay, so how are your short-term rentals working? Because you guys self manage that, so fill us on how are you going to do that?

Tony:
We actually updated all of our automated messages, so they let people know, “Hey, we’re on our honeymoon, responses might be delayed and we’ll just kind of do our best to keep everyone going.” And then our third partner, he’s going to the wedding, but he’s not going to be there for the honeymoon, so he’ll kind of manage everything while we’re gone.

Ashley:
Oh, he’s not going to be there for the honeymoon, how rude. Yeah, and that’s what’s awesome about having a partner too, is you have someone you can trust and rely on to kind of take over some of your responsibilities when you’re gone-

Tony:
You get married.

Ashley:
So today on the show, we have Kyle on and Kyle started out in college going to school to be a biologist, I think, and decided he did not want to go to school for four more years, he did not want to take on debt and he started looking into real estate, started out as a house hacker and now has 80 units just over, what, three years.

Tony:
Totally unbelievable story. The amount of scale that he had in such a short time, he goes into really good detail about how he financed all these different properties, how he’s building relationships with hard money lenders and private money lenders, and some of the challenges he’s had with that. So just so much good information coming down in this episode.

Ashley:
Kyle, welcome to the show, we are so glad to have you on today. And as we discussed, it’s windy where you are and windy where I am. And Tony, how is it by you?

Tony:
It is beautiful, I think this is the best weather we’ve had all year.

Ashley:
Well, Kyle, why don’t you jump in and tell us a little bit about yourself and how you got started in real estate.

Kyle:
So I got started in the business about six years ago. I was a college senior and I had two classes I was taking. So I was taking those last two classes, I was also working full time. And I was at best buy, making about $12 an hour, so very humble beginnings. And my first step into real estate was buying a duplex, bought the duplex with an FHA loan, kind of house hacked, it was I think in our area of the country, they call them town homes. So it was like a side-by-side duplex, I lived in one side and then I rented out the other side. I was-

Ashley:
How did you even get into that? How did you even know that was a thing, house hacking, where you live in one and rent out the other?

Kyle:
So like I said, I was a senior in college and I was actually in the biology program, I wanted to be a doctor. And I was a senior, I’m paying for school, it’s private school, so it’s expensive, and also I’m just like, “You know what, I don’t think I’m having fun anymore.” And I enjoy studying science. It was always a fun thing in high school, but it was kind of daunting thinking about going to graduate school for four more years, probably doubling my debt load and I just couldn’t take it. I remember watching the news, it was probably some business news thing, and they were saying how interest rates were so low, they were never going to be this low again, and that if you ever wanted to buy a real estate, now is the time to do it.
So that was the kind of wake up call to be like, “Oh my God, I got to do this now or else I’m going to miss out.” As we all know, this was six years ago, interest rates kind of stayed about the same, there’s still historic lows, but that was the, I’m going to call it kick in the butt to study up on this. I made a couple of real estate Google searches, obviously BiggerPockets was one of the first things to come up, and that’s where I started to research, study and try to learn the craft. I mean, I was 22, 23 years old, so I didn’t know anything from anything, but BiggerPockets was real helpful in just kind of laying out some basics. And I took a step into the water and ended up buying my first duplex.

Tony:
So I want to ask Kyle, a lot of people hear about real estate is something they should do, they start educating themselves, they never actually take action. So from the time that you heard that little business blurb about now’s the time to buy, how much time passed between that day and when you actually got your first deal done, that duplex?

Kyle:
That was a tough one. I would say the actual timeframe was maybe six months. I think the biggest challenge was coming up with that down payment. When you’re making $12 an hour, my wife was also working, making about $12 an hour, things can be a little tight. But we did focus. Like I said, when I saw that something about the interest rates going up on the news, that was the kick in the butt. And when I focus on something, I really obsess over it. And I think we hear all the time, “Take action, take action, take action.” There’s a lot of easy things you can do, like maybe get a spreadsheet together. You can talk to people, you can look online at Zillow and look at real estate. It was those couple hard things that I had to sit down and just do.
I think a hard thing is just getting pre-approved, that’s kind of a first step, that’s a real step getting pre-approved because you can look at real estate all day long, but it doesn’t matter if you’re not really approved for it, you don’t know what you can buy or cannot buy. So once I got pre-approved, that’s when I was like, “Okay, I got it. I did one hard thing, let me go onto the next hard thing.” I didn’t look into real estate as fun, but then once you get something under contract, there’s some homework pieces along the financing path that you’ve got to complete. In that case, you’re under the gun, so you have to do it, but there’s a couple maybe pivotal moments, I think getting pre-approved is one of those first pivotal moments. Once I took that action step, I think things start to kind of fall in place and flow of a little bit better.

Tony:
Kyle, you just drop some major knowledge right now. And I felt like you said it so nonchalantly, you don’t even realize it. But what you said is once you’ve kind of got that bug to say, “Okay, I want to become a real estate investor,” find ways to break that process down into smaller steps. And you said the first step was getting the pre-approval. And then once you do that, you’re like, “Man, that actually wasn’t that bad.” And then you started doing some deal analysis and you kind of hone that skill. And then you get to the point where, “Okay, these numbers make sense, now I feel comfortable putting an offer” And then maybe the first offer gets rejected and then you get comfortable with that stage. So I love the idea of kind of building and progressing with these different baby steps to get you to the point where you’re finally comfortable to get started. Because my biggest fear for the folks that are listening is that, you get to episode 41 and you still haven’t taken that first step. So I just want to make sure that I highlighted that.

Kyle:
You can easily fall into this rut of feeling like you’re doing work and you’re doing business, but it’s kind of just busy work. There’s someone who I know, I’m related to them, I’ve been pushing them to get into this game and they say, “Well, Kyle, look, I did this.” And I say, “What’d you do?” “They got business cards.” I’m like, “Well, that’s not really moving your business forward, that’s not doing the work. It was kind of fun because you got to go to moo.com, and you got to design something, and it was a little bit of fun.”
But oftentimes I see people doing “work”, but it’s more things that aren’t important. Like I said, just to reiterate, there’s a couple of pivotal moments that really moves it forward and it’s like, “Okay, now you’re doing real estate.” And one of those, like I said, was getting pre-approved. So once I did that, like I said, things started to flow in place and it worked out okay.

Ashley:
So after you bought your primary, how did you get into investment property moving forward after that? And what does your portfolio look like now?

Kyle:
Like I mentioned, I was a senior in college, I graduated that spring. So two months after buying my first property, I graduated. And now, I got this degree and realizing that I really do want to be in real estate and I’m probably not going to go to the biology route. I had no experience other than a duplex, so I actually worked on the weekends as a part-time property leasing agent. I would show the apartments, that was a great foot in the door to just be around real estate, be around people who were doing it, learn some terms. That was educational because I learned, I didn’t want to be in property management.

Ashley:
And you were getting paid for that experience too.

Kyle:
And I was getting paid for it. But that was kind of a foot in the door, I learned a lot. I worked there for a good six to 12 months and realized I’d had enough and I actually went the commercial route pretty quick. And then I got a full-time job as a commercial real estate field researcher. So I was going to commercial properties for kind of like the commercial MLS and gathering data. On the residential side, the agents provide the data, on the commercial side, it’s these companies who are going out and really proactively gathering the data, so that’s what I was doing in my markets. And that was helpful because I was in the car 35, 36 hours a week, just driving around town, taking pictures of buildings, just really getting comfortable with the neighborhoods. That was kind of the next step that moved me along.
The next job after that, so I worked there for about a year and a half, after that I became a commercial real estate broker and I did commercial only. It was leasing and I did specifically office properties. So that was another big jump that got me forward in the real estate world. But on my investing side, my next purchase was an 18-unit, I bought it on a land contract. And the guy had owned it free and clear, I was kind of solving a problem for him cause he didn’t want to pay taxes and that was another way to kind of dip my foot in, and this was maybe a little more than a foot, but just learn more about real estate.
I financed that with credit cards, I had pretty good credit. I finance this with credit cards. I got about 35,000 in credit cards and that was my down payment that I gave to this guy and he financed the rest of it for me as a seller finance land contract. A lot happened in the course of two or three years.

Ashley:
I know, there’s a couple of things that I want to dive into there. First of all, explain a land contract. How does that work? How is it different than just regular seller financing or just purchasing a property? Can you break that down for us?

Kyle:
So typically, people, when they buy real estate, they go to a bank, they get a loan, they give their down payment and it’s that simple. In the case of a land contract, the seller is acting as the “bank” and you’re paying the seller directly. This has a couple of benefits in that there’s oftentimes more flexibility. I told the seller what my goals were, I showed him my credit report and I think he felt comfortable with that to say, “Kyle, I believe in you, I’ll let you buy my property, take some title to it and you can pay me monthly.” A bank typically has very strict guidelines that you’ve got to fit into this box and I’ll finance the property that way. But again, with a land contract, there are no real rules, you can just talk to the person and figure out how to structure a deal that’s win-win for both of you.

Ashley:
Did you approach him for this deal or did he offer the land contract to you?

Kyle:
Sure, this property was on the market. And sometimes there’s notes in the MLS and it said possible land contracts, so that kind of piqued my interests. These were the days when I was on the MLS just trying to find any and every opportunity. And I saw that in the notes, so I called the agent, again, shared with him with my goals were and he thought maybe I could be a good fit for this. So that worked out, I think, again, that was a huge learning lesson. If I were to do this over, not sure if I would go that route, because it was a lot, it was a lot to a big responsibility to go from two units to an 18-unit building. But it did teach me a lot.

Tony:
But you learnt a lot I’m sure, exactly. And maybe I missed it, but help me understand, what is the key difference between a land contract and seller financing? Because they sound very similar, maybe I missed it.

Kyle:
So with a land contract you’re not taking full title. You get what’s called an equitable title and that can allow you to then refinance it versus a purchase where you would still need 20% down no matter what. So that’s a nuance with a land contract, you’re not taking full title to the property. With seller financing, it’s usually for a much smaller portion of the sale. Usually in seller financing, you’re going out and getting a bank loan and the seller is more like assisting you maybe with a portion of the down payment, they’re usually in a second position. With a land contract, I’m paying the seller directly and that’s a first lien position. So slight nuance to the two different terms, but does that answer your question, Tony?

Tony:
No, it does, definitely, I just wanted to point that out because I know I’ve never dealt with the land contract before, so I’m assuming somebody was just helping you to it as well. But I guess the second question I want to ask, Kyle, is you had this duplex and then you bought an 18-unit next, that’s a big jump. For you as a relatively new investor, I mean, were you nervous? Were you scared? You said you wouldn’t do it again. I guess just walk us through some of the challenges that you faced going from two units to your second deal being 18 units.

Kyle:
Let me first say that I think it’s easy to feel like a certain level of maybe imposter syndrome where maybe I’ve done a little bit of real estate but I just don’t feel, I don’t know if the word is worthy, but I didn’t feel worthy of taking that next step and I was really doubting myself. So some days I’d be like, “I don’t think I can do this,” and some days I was like, “Get out of this, you can do this.” And I was just trying to talk myself up. I was trying to connect with a lot of people and I know that first deal maybe gave me a false sense of bravado, I don’t know, but I knew I’d done my homework. And the first deal did work out pretty good, so I was thinking I’m a young guy, if there’s a problem, I can go over there and just take the action step, take care of it and fix it.
I took that step and realized there’s no reason why I shouldn’t do this, I can do this, and then did it. I think it’s always about kind of pushing yourself, but then realizing that maybe you are worthy, I don’t know, maybe go kind of philosophical on you. Sometimes I feel like, “Oh, I’m not worthy of doing that, Kyle, you don’t know what you’re doing.” Maybe it’s like the devil on your shoulder and the angel on your shoulder, it’s like one part of me saying, “You’re not worthy,” the other one’s saying, “You are worthy.” But I think maybe the angel in this case kind of won and said, “Just take the next step just like you did with the duplex. You’ve done your homework and if you’ve thought about this properly, I mean, there’s no reason why you shouldn’t move forward.”

Tony:
And I love that-

Ashley:
Well Kyle, I am here to be the angel on you shoulder and I’m going to say you are worthy.

Tony:
And I was just going to add, real estate is such a mindset game to play. And so many people get caught up in, like you said, that imposter syndrome, I love you put that label on it, where they don’t feel that they have what it takes to do what needs to be done. But really, if you’ve done your homework, if you’ve read enough books, you talked to the right people, you built the team, there’s nothing stopping you from taking that step forward. So, man, I just love how you kind of walk listeners through that.

Kyle:
I think there’s a big internal struggle maybe for newbies, because, again, kind of going back to the busy work that’s not driving the business, they’re trying to tell themselves that, “I’m doing work, I’m moving it forward,” but you’re really not, it’s not until you get that pre-approval which is a harder part. So it’s this internal struggle kind of going back and forth but I would just encourage everyone to take that hard step, and that’s how you move this thing forward.

Ashley:
That’s great advice, Kyle, and I love that we’re getting deep here on stuff. But there was one thing that stood out to me that I wanted to ask you about first before we move on to the rest of your portfolio is, you mentioned credit cards, how have you used credit cards for your deals? I’m seeing this come up more and more often. On the rehab I’m doing, we did 0% credit cards to pay for some of the rehab materials. So how are you using them?

Kyle:
I’m going to be honest, I don’t use credit cards much anymore. In the beginning, when I was again making $12-$15 an hour, it felt daunting to come up with maybe five grand for a down payment, that took a lot of work, it was maybe a little frustrating, I used the credit card maybe as a “partner.” I could have gone out and try and gotten the partner, but in my case I thought, “Well, I don’t want to depend on someone else, I don’t want to be relying on someone else.”
So I had decent credit, I went out and got the credit card and it was about five of them, five business credit cards I got. I was able to get the cash back off of them, and like you said, Ashley, used the intro period, the 0%. I thought that’d be a good strategy to leverage that into something larger, make a decent amount of cash flow, and pay off those credit cards, and just use it as a tool. And if there’s a bid on the top, that was then called free money. So that’s why I leveraged that down.

Ashley:
That’s interesting to hear about. Yeah, very cool, I love hearing the different ways people are using leverage to further grow and scale their real estate business. So what happened next after the 18-unit property?

Kyle:
Sure, so I owned that 18-unit for about a year and a half, it was tough managing it, it was maybe in a class C area of town. I was there maybe once or twice a week and it’s always the same kind of issues, and I just felt bogged down at night, I didn’t want to get stuck in that one little thing, so I ended up selling it-

Tony:
You were self-managing those 18 units?

Kyle:
For about half the time I owned it, I was self-managing. For the first half that I owned it, the seller wanted me to keep his management company. So again, that just shows how flexible the land contract is because when he agreed to do the land contract, I had to promise to keep the manager for a certain amount of time. We talked about how flexible a land contract is, you can negotiate any type of term, that was something that he negotiated.
So for the second half, like I said, I was managing it myself and I was there all the time, it was the same kind of issues and I just felt like I wasn’t really moving this forward. So I decided to sell it and that’s when I started getting into BRRRR investing, most of what I’ve done is BRRRR. Today I have about a little over 80 units and I would say maybe-

Ashley:
A little over 80?

Kyle:
Yeah, well, it happened real quick but most of it was duplexes, I acquired through BRRRR investing. So we can dive into that a little bit.

Ashley:
Yeah, sure, explain to us.

Tony:
I just want to give an overview of the portfolio. So you’re at 80 units right now, you said mostly duplexes, what timeframe are we looking at now that you’ve acquired all of these 80?

Kyle:
This is 2017 till today, 2020.

Tony:
So we’re three and a half-ish maybe, coming up on four years of you putting this all together, three years?

Kyle:
For a while, I just had the duplex and stumbled into BRRRR a little bit, sold a couple of those off, and then realized the BRRRR thing wasn’t so bad. So in 2016, I bought four duplexes through the BRRRR strategy and I think what I’m about to say is I think it’s the most critical part of BRRRR investing and that’s the refinance, I didn’t know how to refinance them.
So I bought these under market duplexes, I fixed them up, I put tenants in it, that’s the first three Rs of BRRRR, and now, the key is refinancing that property. And at that point I was a little bit deer in the headlights and I didn’t know what to do. So I’m in this hard money and the expiration of the loans are starting to come up and I think, you know what, let me just sell these and that will solve my problem. So a key in BRRRR investing is buying below market, I was able to easily offload these and I made a couple of bucks. But then I thought, “Okay, now I’m no longer a real estate investor, all I have is my duplex.”
So I started buying duplexes again through BRRRR in 2017. And again, the key is the refinance. This time, I came armed, I did my due diligence and research, and I knew exactly who I was going to use my refinance before I even bought the property. And that’s my best advice for BRRRR investors is just know what your exit strategy is. Because the last thing you want to do is have two or three of these hard money loans, and the rent is barely enough to pay for them, and now you’re kind of stuck. So I mean, I was just saying that, figuring out who the refinance lender was key to really growing my portfolio. And like I said, today, I’ve got little over 80 units, I’ve got one 24 unit which I purchased with a partner, I’ve got about 15 commercial units and the rest of it is per duplexes.

Tony:
Yeah, there’s a lot to unpack there because you got so many different things cooking. I just kind of want to walk the listeners through how you were able to put all these pieces together. So I’m hearing about the hard money, it sounds like that’s how you’ve been able to finance these. Are all of your BRRRRs done with hard money or is it still a mix? And then I also want to get into the 15 commercial units and tell us what exactly those consist of. But we can start with the BRRRRs first. How did you finance those? At what kind of pace have you been moving on to get those knocked out as well?

Kyle:
Most of the BRRRRs were acquired with hard money, there’s a couple that were acquired with bank financing. Bank financing is great because it’s a low interest rate, and it’s really easy to work with a local lender, local credit union or bank. But my complaint is that they move very slowly and that is a disadvantage in this hotter markets where speed to close and knowing that you are going to close no matter what is oftentimes, what gets you the deal. And if you can explain to the seller that you’re going to use hard money, they can close in two weeks, there’s no questions asked, there’s no appraisal, that oftentimes it’s very attractive to a seller.
So I think my critique of BRRRR investing is that it’s inefficient because when you’re buying something with hard money, you’re obviously paying higher points, higher interest rate, and then you’re essentially doing it twice because then you’re refinancing it fairly quick. And again, in some cases, you’re paying points and it’s not an efficient way of acquiring real estate, but it’s an easier way if you don’t have a trillion dollars, if you’re not Bill Gates, whatever. So bank financing versus hard money, most of my stuff was hard money.

Tony:
Now, if I’m new and I haven’t bought with hard money before, what advice would you have for someone to kind of get in quickly and build their portfolio the way that you do using hard money?

Kyle:
I always say that there’s maybe two different types of hard money lenders. You’ve got maybe some of your private lenders and those are average Joes like me and you, maybe they’ve worked for 50 years, they have a huge IRA or huge savings, and they want to make a decent return, and they’re sometimes lending out money.
I met some of these people at my local RIAs, real estate meetups, and that’s where I met some of those folks. The other side to private financing hard money is what I call the national lenders. And there’s a couple of different groups, you can easily find them through a Google search. They work just like hard money lenders where it’s based off the asset itself, not necessarily based off you. So I’ve worked with both, I like the private local person more just because there’s more flexibility. It’s almost going back to that land contract where you can talk to them, explain what your goals are, and they can tailor a loan that fits your needs and, of course, fits their needs.
So my best advice is to go out to your meetup, go up to your RIA and just talk to people. They’re people just like us, the worst they can say is, “No, not at this time.” And I did get a lot of nos, but I got some yeses too.

Tony:
And walk us through that, Kyle, what did that conversation look like? So if I’m a new investor and I’m trying to build relationships with the folks that might be interested in funding my deals, what does that dialogue look like? Am I just walking up and saying, “Hey, my name is Tony, can you give me some money?” What does that conversation look like?

Kyle:
So for my first conversation with a hard money lender, I remember it vividly, I was scared to talk to them because I thought they would just laugh at me and say, “You can’t do that, you’re an idiot.” And that goes back to the imposter syndrome conversation we’re having. But I tried to just be organized, and I just went into a spreadsheet and I just I showed… Well, I found a property first and it had an acquisition price, it had a potential rehab and I outlined everything that I was going to do on this property, and then I pointed back a little bit to my experience with my duplex. And it was a little spreadsheet with a three or four-page document that just briefly outlined what my plan was, and I just gave that to my hard money lender. And they said, “This looks great, I think you’re organized, let us know when you’re ready to buy it.”
I let some time pass, the property was already gone, but I said, “I’m going to save this, I’ve had this conversation with the hard money lender, when I am ready, when the right deal comes along, I’ll just be able to pull the trigger and try and get the loan from them.” So that’s what happened in 2017, I found the right property and went right back to the hard money lender.

Tony:
And Ashley, I think this hits on a lot of what you talk about, it’s like creating that credibility packet to say, “Here’s who I am as an investor, here’s what I’ve done.” And you hand it to someone and say, “Hey, here’s my credibility,” right?

Ashley:
Yeah, I’ve done the color coded binders with my personal financial statement, my tax returns, the BiggerPockets calculator reports, everything in there for deals I’ve done or deals I want to do, and put that in there. Your credit card report, I think you had mentioned earlier when you were set up the land contract that you gave him your credit report because you want to have, I feel like I say this every single episode, you want to have a strong, personal finance foundation for when you go into real estate investing and build that business.

Kyle:
And that’s exactly what I did. And I wanted to make sure that there was stuff in there that he didn’t ask for, just so that he knew that I was really thinking about it. “Oh, Kyle thought about this, I feel better about doing this investment with Kyle.” So just making sure, trying to put myself in, “If I were in his shoes, here’s what I’d want see.”

Tony:
I want to ask also, you’ve got so many units kind of in your control right now, are you still balancing this with being a commercial broker? How are you balancing W2 and real estate?

Kyle:
So I was a commercial broker for about five years. I left in April to do real estate investing full time.

Tony:
Congratulations, man, that’s awesome.

Kyle:
Again, that was a scary thing. It went right back to this whole question I keep harping on, “Am I worthy? Should I be doing this?” And I told a couple people and everyone said, emphatically, “No, don’t do this, this is the wrong time, please keep your job.” And so, that kind of made me freeze up for a second and say, “Wait, what am I doing? Maybe I am an idiot. Maybe I should keep my job.” But it didn’t feel right, I didn’t feel like I could be me. And I knew that doing real estate was what I wanted to do, that that was the future. And it went right back to buying that first duplex where I had done my research, I knew that I could live off the duplexes I had. And I said, “Give me a reason why I shouldn’t do this.” And when I couldn’t find a reason, that’s why I said I have to do it. So yeah, I left my job in April.

Ashley:
I want to ask real quick, those people who told you not to do it, were they still working full-time or were they people that had retired because they were financially free?

Kyle:
Well, you asked the question, I think you know the answer. Of course, they were still working. These are people who don’t own investment properties, obviously, they own their home, some were relatives. But that kind of freaked me out because this is someone who I’ve known for decades, it was a relative, and they’re saying I’m making a bad decision. So I thought, “Well, I’m a millennial, maybe I am an idiot, should I be listening to someone who’s literally double my age?” And I think more often than not, you should listen to other people or at least take their advice and level it along the playing field. And when I couldn’t find a reason to stay, that’s when I knew I had to go. So it was a great decision that I made and not looking back in any kind of way.

Ashley:
Are you still managing the properties yourself or have you outsourced all of that? What does the property management look like for all your units?

Kyle:
I manage everything except for the 24-unit building. For the 24-unit, I had a partner. The bank required me to keep a professional third-party management company hired for that deal. It’s on a five-year term and they said, “Well, when the five-year term ends, we’re happy to look at this again. We assume that you will double your net worth, double your abilities over the next two or three years, so we’d be happy to look at allowing you to manage it, but for now, we’ve got to have a third party, we just don’t want you to get too overwhelmed.”
And the bank did require that, but I wouldn’t want to be managing that property on my own anyway. It’s a one man show, my wife and I, and I don’t have the infrastructure yet to manage that myself. So I stay busy with the balance of my portfolio, which is about 55, 57 units or something, however that math works out and that has worked well so far. So I feel I’m getting towards the max of my bandwidth and we’re going to figure out whether it’s hiring someone or just doing something that gives me time freedom. I don’t want to own or buy a job.

Tony:
Right, I want to switch gears and kind of deep dive one of these 80 deals that you’ve got. But before we do that, you mentioned your wife, is she working full-time in the business with you also, Kyle, or how does that relationship work on the real estate side?

Kyle:
She works full time with me, we have three children. We are homeschooling this year and that is a kind of a COVID thing. It is actual homeschool, I know a lot of people are homeschooling, but it’s still through the school. So we homeschool our daughter and then we have twins, they’re both two and they are running around the house. So that does keep us pretty busy, but-

Ashley:
Did you say running around the house or running the house? I wasn’t clear on that.

Tony:
A little bit of both. But Kyle, does your wife play a role in the actual real estate business as well and how do you guys split those responsibilities?

Kyle:
So with my wife being a now teacher for our daughter, she is home all day and she’s typically handling more that the tenant issues. So if there’s maybe a maintenance issue, she will have that touch point with the tenant and then let me know. I’m the one who is more out in the field. So if there is a closing, a showing, if there is a maintenance issue, I’m the one who is actually leaving the house, going out and taking care of it, and then she’s kind of here at the headquarters managing that process and talking to tenants. She’s doing all the screening with prospective tenants and we’ve done good at kind of sharing that responsibility, letting her get really good at something, letting me get good at what I enjoy. Because for example, I don’t enjoy screening, I think it’s boring and mundane, but it’s so important and she doesn’t really mind doing it. So I think finding what you’re good at and doing it, and then finding what someone else, in this case is my wife and partner, finding out what she’s good at, letting her take that and succeed with it.

Ashley:
Real quick, because I have to ask, because I see this question so many times in the Real Estate Rookie Facebook group, what property management software are you using, if any?

Kyle:
We didn’t get a property management software until we got to about 20 units. And then we were like, “This is adding up too quick. And god forbid, I’ve got a notebook somewhere with everyone’s rent and then I lose this notebook.” Which I’ve seen people with 20 plus units with a notebook tracking rent. I don’t know how people can get away with that.
So we use Buildium, we did a little bit of research on the different companies and right now with Buildium. And I like a lot because obviously tenants pay rent through the system, all the maintenance stuff is taken in through that system. And then it’s a great screening process that you pay for and I think is 100% worth it because it’s hard to do screening on your own if you don’t have some type of program that can kind of look into the background and do some of that due diligence for you.

Tony:
And I think it’s not odd, but I’m seeing a pattern, you said that your wife does a lot of the client tenant interface, you do a lot of the back of house stuff. We just interviewed another couple, their kind of format was the same. In my business, my fiance does all of the interacting with the guests in our short-term rental business, I do all the backend stuff. So it seems the guys just don’t like talking to people, that’s the pattern that we’re seeing, but it’s funny that we’re seeing that. Now, I want to pick a deal. Do you have a deal in mind, Kyle, that we can kind of deep dive in and sink our teeth into?

Kyle:
Sure, so I think we talked a little bit about the first deal, which was just an FHA loan, so getting pre-qualified through that, that whole process. But past that, that’s where I started doing some of the BRRRR investments, we can dive into one of those.

Tony:
Yeah, absolutely.

Kyle:
I bought this duplex in 2017. Let me think a little bit, the purchase price on it was 57,000, so very cheap duplex.

Ashley:
What market was this in? What market?

Kyle:
It was in Milwaukee, Wisconsin. I knew that it was kind of on a transition border area where if you went North four or five blocks, the values would go even lower. And that was an area I certainly didn’t want to be in, that was a certainly a class D neighborhood. But then, I also knew that if you went South three or four blocks, it became a BB plus neighborhood and the values literally doubled.
So over an eight block area, the values were all across the board. One neighborhood you wouldn’t really want to be in at night and the other you’d probably be okay. But in having that job where I drove around all day, I knew that there was this kind of dividing line going through there. So armed with that knowledge, I did buy this property, I put about $10,000 into it and we got it rented up, it was your classic BRRRR. And then, now it came to the hard part and it’s the refinance part. I reached out to about 20 banks, and I got about 18 nos, and it was just so disheartening. And that’s where I started to, again, feel that unworthiness, just freak out thing and-

Tony:
Sorry, Kyle, why were they saying no? What was their reasoning for not approving you?

Kyle:
So a lot of advice I’d gotten was to reach out to a local bank, and a lot of the local guys, they were seeing people buy stuff low, fixed it up and do this BRRRR thing, which is good. But then they were saying, “We don’t want to put a loan on this based on your appraisal, we’ll put a loan on it based on your equity, the actual acquisition costs.” So if I would have gone with that program, I would have had to actually bring more money into the table. And now, I’d used the credit card for the down payment, I’d use my credit card for the repairs, and now a bank is telling me I’ve got to bring in $5000, $10,000 more to make a down payment, just to fit into that box, that box of having 20%-25% down.
So that was not an option for me and I was trying to get it refinanced based on the appraisal. It appraised for 115,000 and I felt there was all this equity money here that I just couldn’t tap onto. So I was getting all these different nos. And then I talked to a local credit union, they said, “Well, if you owned it for five and a half months, we’ll put a loan in it. We want to see six months, but if it’s five and a half months, we can start that process.”
Now why that’s key is because the hard money lender, it’s a six month loan. Some hard money lenders are 12 months loans, but in my case, a lot of them are six months. So it’s this kind of breaking off points and you’re trying to start new at six, but a lot of banks don’t want to even look at you or talk to you until you reach that six month period. So anything before that, they were just going to look at the acquisition price. And I found this lender that was going to look at it a little bit early and give me some leeway.
So they were able to look at it early, they looked at it based on the appraisal and they refinanced me at 75% of the appraised value. Now I’m only into it for 65-70,000, it appraised for 115. I was able to get a loan, trying to do some quick math, it was around 77,000. I actually got a little bit of cash back, and that’s where the light bulb really turned on, and that’s where I said, “We got to do this again, and again and again.” Now, this bank only allowed me to do this twice. So I quickly had to find another lender, but it started to snowball a little bit and I was able to connect with a couple other lenders and get some of these deals done on a more regular basis, not limit me to say two loans.

Ashley:
What’s your cashflow on that property?

Kyle:
Most of the duplexes cashflow is between 350 and about 500, it’s not a ton of cash flow, but again, it’s kind of a building up a snowball, building up a nest egg. This one in particular, I believe, it’s right in the middle. It’s like 425 or something. And that’s including-

Ashley:
I think that’s great for not having hardly any money into these deals.

Kyle:
It is great. On a recent show on the BiggerPockets show, I remember someone saying they were doing BRRRR investing and then COVID happened, and they were into all these different loans and no one was lending. This is something that is personal to me this year, the exact same thing happened to me. And COVID happened, I just quit my job and I’m in for hard money loans and I don’t know how to get out of them. And then I started to feel feelings of freaking out that was very stressful. But finding a lender who could refinance me, that’s what really got me through. And there was one loan that was left, the bank said, “We’ll do this loan for you, but you need to bring $10,000 to the table.”
If this was 2017, I wouldn’t have been able to do it. But in this frame I was a little bit better capitalized. I bit the bullet a little bit, and I did that refinance. But kind of going back to what you said, Ashley, I got this cash flow and this is the worst BRRRR I’ve done, where I had to bring $10,000 to the table. But at the end of the day, I’m like, “You know what? Don’t get upset about it. It’s still a good deal because you still have a ton of equity and you put $10,000 into this. If this had been a regular deal, you would have had to put 35,000 into it.” But back to the kind of the angel, the devil on your shoulder, I was saying, “You did the good thing, we’ve got this huge pandemic happening that is beyond our control, but this is still a good deal and we should absolutely be doing this deal.” So I’m sorry to cut you off a little bit there. I just saw that it, it kind of made sense there.

Tony:
And Kyle, what I think is so cool about your story, and I hope the listeners are picking up on this is that you can’t always plan for the unknown, but what we can always plan is that some kind of unknown is going to happen. And as long as you can prepare yourself to deal with those things as they come, then you’re going to be okay. Every deal that I’ve had, there has been something that went wrong. Something’s gone wrong in almost single deal, but your choice is to either like give up and quit and I don’t know, walk away from the deal or you find a way to make it work. And I love that you found a way to make it work. Now, with this deal that you talked about, Kyle, you said that you put, what was it, 30K into the rehab. Were you managing this rehab yourself or did you have a GC, what’s your process for actually getting the work done?

Kyle:
Well, this particular one was as much smaller rehab. It was probably about $7,000, seven to $10,000. So as much smaller rehab, it was all cosmetic, this was one of my first BRRRR, the market was not quite as hot as it is now. The market is very different in Milwaukee, at least than it was three years ago. There were some of these cosmetic BRRRRs, great deals, they only need seven to 10-15,000 and they would appraise for much higher, and that’s a lot harder to find now.
But to go back to your question, again, I think it goes back to networking. Obviously. I don’t know everyone, but I know a lot of investors and every investor has got someone that they’re talking to. So I’ve got some really good electricians and plumbers, got a great roofer and flooring person. And then the rest of it is a lot of the handiwork, which I’m not good at, but I know people who are pretty good at it. So I do manage that process, I don’t do large rehabs, so I’m not the guy to go to for that but it’s been a lot of cosmetics, a lot of cosmetic type fixes.

Ashley:
Well, thank you, Kyle, for sharing your deal with us and congratulations on it, and your cashflow and your refinancing. I think there’s a lot of value to take away from that. But so let’s move on to the MVP. So this is where we want to find out who is the most valuable player on your team. And before we even started, you asked if you could say a specific person and we hinted hard, but I’m going to let you say this person, who is the person that has really helped you grow and scale your real estate business.

Kyle:
Sure, so I think we’ve been talking and obviously my wife has been a great partner and has really helped keep our business afloat and smooth out a lot of the roughness, she’s great with people and that’s not my forte. But when it comes to maybe a third-party professional, I would highly recommend that people get to know someone in Title. I originally hadn’t thought of Title, person being this pivotal impactful for a business, but I’ve got a great person in Title and she’s helped me on some of my wholesale deals, she’s helped me understand the process and she’s saved me a lot of money when, you know a lot of I’m going to say other Title people were messing it up, she’s really had my back.
She’s also great and able to look up the title history on a property, that’s helpful before you waste time on something, especially in the off-market arena. And I think it’s part of the due diligence team. And if you have someone who can really have your back and help you out, that can really pull your business forward. So shout out is for the Title person.

Tony:
And Kyle, now that you shared your wife’s name you got to be prepared for other rookies reaching out to her, trying to steal her from you. They’re going to try hire-

Kyle:
Yeah, [inaudible 00:46:26].

Ashley:
We weren’t link her phone number at biggerpockets.com/rookie41 in the show notes.

Kyle:
And the next day she says, “Well, I got hired somewhere else.”

Ashley:
Back to the Title person or even your wife. How does someone find someone like that to be available person on their team?

Kyle:
I think it’s all back to relationships, networking, talking to people. There’s a lot of investors who I talked to and just say, “Hey, so-and-so how did you do this? Or who did you talk to for that?” I think my wife is irreplaceable? So you good luck finding someone who’s just like her, but when it comes to Title person, there are a lot of very helpful Title. People like any business there’s people who do good work and there’s people who don’t do so great at work, there’s people would go the extra mile for you and other people who would just try to get it done. But I think talking with people doing deals and taking action, you’re going to run into people who are of the same mindset and wanting to do good work. There is no there’s no silver bullet or magic way to get it done otherwise.

Tony:
That’s great advice, Kyle, Ashley and I always talk about like the power of networking and how it’s played a role in all of our businesses. So I love that you’re echoing that same point. I want to take us now though to the next segment of the show, which is our rookie requests line. So we take calls on every show. And if you all want to leave us a message, just call us at 1885rookie to leave a voicemail and we might use it on the next show. So Kyle, here’s the question for you.

Luke:
Hi, my name is Luke, I’m from Wisconsin, I’m new to real estate investing. My wife and I are curious about how hard money lending works as far as flip goes. We’ve never done something like that and we’re intrigued by the process. So if you guys have any insights on that, that would be super helpful.

Kyle:
I think my best advice when jumping into hard money, whether for a buy and hold property or for a flip is to just talk to the hard money lender and then talk to two or three more and kind of compare terms. When I first got started, I had a spreadsheet and it had hard money lender, national hard money lender B and maybe private lender C and just trying to figure out how each person works, getting to know them. I think early in the show, we talked about relationships and talking to people like they’re people especially for the local hard money lenders and the private lenders. I mean, these are people just like us. So if you tell people what your vision is, what your goals are, maybe they can help you out, or maybe they ended up partnering with you or figuring out something that is a win-win for both sides.

Tony:
Now, I want to talk, Kyle, a little bit about what some of those terms are. So hard money obviously is very different than traditional bank financing for folks that are total news, like Luke from Wisconsin. What are some of those terms for hard money, like interest rate points, actual duration, what do those look like?

Kyle:
So every time I hear hard money, I see people cringe a little bit because it sounds kind of scary. Well, what makes it hard? Is it a loan shark? Does it mean that they hit you hard if you don’t make a payment? What does that mean? But a hard money means they call it that because they’re underwriting the loan, they’re basing the loan based off a hard asset, in this case, the hard asset is the real estate. So typically, a lender will look more at the person because it’s the person who’s going to be making the payment. But hard money, they may look at the potential cashflow, they may look at the potential profit from a flip. So they’re analyzing the actual hard asset, the real estate. That’s one type of financing, qualifying for it is oftentimes easier than bank loans, it’s oftentimes also faster.
So my record for a hard money loan from the first conversation to the close table was about 48 hours. I called them on a Wednesday at six o’clock and we closed that Friday afternoon, so that’s just how fast they can typically work. Now, this is someone I’ve done repeat business with, they knew who I was, they didn’t have to do any introductions or anything, but that’s how fast a hard money lender can typically move once they sent the wire and that deal was done. There’s often terms that are a little bit… there’s higher interest rates, they usually charge points, and you’re not going to find that as much with bank financing but I think there’s still a tool to get a deal done and I’ve won deals based on the fact that I was able to close quickly.
I could have either sucked my thumb and said, “Well, I can’t do the deal, I don’t want to use hard money because their interest rate is so high,” or I could have just said, “Well, this is a tool and I will be able to get this deal because I can move so quick.” And that happened in one case, I beat out 12 other offers and I wasn’t the highest price either, so it’s not always about the price. But hard money interest rates typically range between 10% and 15%, is typically interest only. Terms are typically six to 12 months, and then there’s usually a point scale in there and points is usually 3%-5% points that you also want to pay.

Ashley:
And as long as the numbers work, you’re still making the return you want, everything is still working, does it really matter what percentage you’re paying, what interest you’re paying as long as you’re meeting your criteria on that property? I mean, because I think a lot of people get hung up on, “Wow, I’m wasting all that money on interest where if I just go and do conventional financing, I’m only paying 3%, 4%.” But if that’s the only way you’re going to get that deal, that makes sense. And if your numbers still work, then it makes sense too. Is that what you’re saying, is that correct?

Kyle:
I think this is an opportunity to be analytical. And if the numbers make sense, like you said, Ashley, I’m trying to find a reason now not to do the deal. And I know people have said, “Well, it’s hard money, I’m not going to do the deal.” I’m of a different philosophy in saying, if you can get that return, like you mentioned, there’s no reason why we shouldn’t do this deal. And especially in the case of the BRRRR, the refinance where we get all our money back, any type of return is now technically an infinite return because I’ve got no money into the deal.
And that’s when it gets fun. I’ll still say using hard money is inefficient, but it’s a tool and without that tool, I would have no real estate deal, and I’d be sitting there with no deal. And so, I think it’s a tool that should be used appropriately. And when you’ve done your research, you’re getting a return, there is no reason why you shouldn’t do that deal. That’s my advice.

Ashley:
Yeah, I think that’s great advice, especially using it as a tool to grow and scale your real estate business. Let’s move on to our random questions. Tony and I are each going to ask you just a random question. It could be something off this random list we have or something we’ve thought of during the podcast episode. So my random-

Kyle:
Is there a time limit?

Ashley:
Yes, 30 seconds on the clock. Don’t let that buzzer beat you.

Kyle:
Where’s the buzzer?

Ashley:
Actually on my soundboard, I think they do make noises, I’ll hit one and see. Was there any noise or no?

Tony:
A little bit, it was very faint.

Ashley:
What was it? I don’t even know what they do. Okay so-

Kyle:
Tony it’s up to you to ding, you’ve got to ding, man.

Tony:
I’ll ding if that’s what you want, there you go.

Ashley:
Okay, Kyle, my question is, since you have retired from your job, how has your life changed? What does your day-to-day look like now that’s different from before?

Kyle:
When you “retire” and you run your own business, you obviously have that freedom to kind of modify your life how you want it. I obviously don’t have to go into an office anymore from nine to five and be there sitting all day.
So I think part of my answer is also we’ve got pandemic going on and that made me very reflective, and kind of introspective and just thinking about how I want to frame my life. So like I mentioned, I left in April and summertime school’s out, but we’ve still got this pandemic. We took a lot of vacations, we did a lot of traveling and these aren’t huge vacations to Disney world or whatnot, but we did a couple camping trips and that was fun just to get away. Most of it here in Wisconsin and just kind of breaking the mold of the same waking up, doing a little bit of work and just kind of breaking that mold. It was fun to get away and just look at something new.
I think the most fun point was two weeks ago, we were on vacation, we were camping on the Mississippi river and I did a wholesale deal. I never met the seller, I only called them up. I never walked the property but I did know a buyer who would be interested in this type of deal and I trusted this buyer. So I arranged a showing for the buyer to walk through the property and the buyer ended up saying, “Kyle, I want to do the deal.” So I got it under contract, and wholesale the property to this guy, and I’m two, 300 miles away on the Mississippi river.
So I think that’s where it kind of came full circle like the light bulb came on and I realized this is why I’m doing this, to have that time freedom to be with my family, but still be excited about getting a deal done and not dealing with tenant issues and seeing the property. Obviously, I met the seller when I came back to town and got to meet and put faces to names, but the deal was done and it was definitely done from a couple 100 miles away, so that was a lot of fun.

Ashley:
That’s a great vacation right there.

Kyle:
Long answer.

Tony:
I’m doing my vacations the wrong way. Every time I go on vacation I’m spending money, I got to spend more time with you Kyle. So my question for you, Kyle, is you talked about hard money and how your deals almost went south when COVID hit, and you even had to spend some money on some deals you typically don’t have to. So my question to you is, is a bad first deal better than no first deal?

Kyle:
Define bad.

Tony:
Say in your example, where maybe you ended up losing a few thousand dollars on that deal, is it better to not have done the deal, so you save that money loss or is it better to have that experience and do a bad deal?

Kyle:
Sure, and I joke a little bit about that, but I will always be the attitude, it’s better to get the deal done, get the education, every deal I’ve done, I’ve done maybe 30 or 40, every single one has been an educational learning lesson.
I think that worst case scenario is when I had to bring $10,000 to the deal, and I still thought, like I said earlier, “Hey, if this would have been a regular market rate deal, I would have had to bring 35,000 to the table which I certainly don’t have.” So 10,000 isn’t too bad when it’s put into perspective.
When you’re buying a property to live in for yourself, like a house hack, I can’t say it’s across the board because every market is different, but in most markets, I think it’s hard to mess that up because a bank is going to pre-qualify you, and then you’re going to get tenant in place. And it’s hard to do that severely wrong and have it be considered a bad deal. BRRRR investing’s a little bit more complicated, but once you understand the process, you can still be okay with a not so great deal. And I would recommend doing it because it’s going to teach you a lot of different lessons.

Tony:
So many good pieces of knowledge there. I always compare the money that people invest in their real estate journey to a school. It’s like people have no concerns spending tens of thousands of dollars going to school to get a bachelor’s degree, but if they lose a couple of 100 bucks or $1000 here on a real estate deal, they feel like, “Oh my God, it wasn’t worth it.” So I love your experience and I love the way you frame that. Kyle, you’ve given us so much value today and I feel like I got a lot to learn, to catch up to you and get to 80 doors for myself. If people want to get in touch with you, where’s the best place for them to go?

Kyle:
The best place to get a hold of me, I’m going to say is Facebook. I’m not active on Twitter, I’m not active on Instagram, or Snapchat or any of these things. And so, I turned 30 this year and I think I’m the middle age group for millennial, I was born in 1990. I think everyone younger than me has a Twitter and now I’m starting to feel like an old man. It’s like a Twitter, who wants to be on a Twitter? Especially Instagram, it’s like, “Who wants to be on Instagram all day?” And I’m like, “I’m already an old guy.”
But I know they’re people older than me who are on these platforms and it’s their life and whatnot, but Facebook’s the best place to get ahold of me, Kyle Lamar Mack, I’ve got my websites, I mean, you can check out the portfolio there.

Ashley:
What’s your website?

Kyle:
It’s www.mackximus.com. And that’s M-A-C-K-X-I-M-U-S.

Ashley:
Yeah, We’ll link that into the [email protected]/rookie 41, along with a link to a Kyle’s TikTok account that we know he has.

Kyle:
That’s another one, young people are TikToking and-

Ashley:
So that’s what you’re doing now, now that you’re a retired.

Kyle:
Yeah, something like that.

Tony:
I was like I thought you look familiar, I knew I saw you some where.

Ashley:
Well, Kyle, thank you so much for coming on the show today with us, and congratulations on all your success. Everybody, make sure you join the Rookie Facebook group. Just search Real Estate Rookie Facebook, I don’t even know what the link, how to get to it, but just search that on Facebook, you’ll find it. Make sure you answer all the questions or the moderators will not let you in, especially if you don’t agree to the terms. So I am Ashley Kehr at Wealth from Rentals and he’s Tony Robinson at Tony J Robinson. Thanks for listening and we’ll see you next week.