Making $1,200/Month from ONE Rental After Bouncing Back from a BAD Deal

Ashley:
This is Real Estate Rookie, episode 281.

Michael:
In the world of real estate, 10K here, 10K there, it doesn’t seem like all that much, but for a person just starting out on their first deal, I was just like, “How long does it take me to sell 10K worth of sneakers?” I got a phone call from my wholesale, it’s a house that has three units, so three units that could potentially rent out separately. I’m renting it for 3,100 because they’re going to take all three units. My cash flow on it is going to be about 1,200 a month.

Ashley:
My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we’ll bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And, man, we’ve had a string of amazing guests recently, Ashley, and Michael, our guest today, is no exception. He’s a pastor by trade and he read the little purple Bible and he said that made him angry. And that’s what motivated him to take action as a real estate investor. And we’re just going to hear his story of almost going down a really bad path with his first deal and having this awakening and then getting a home run of a deal under contract in its place.

Ashley:
If you ever wondered what would happen if you go and get a property under contract and then all of a sudden you get cold feet or something happens where it’s not going to work out anymore, what do you do and what are some of the consequences of that? And Michael talks through that scenario because it happened to him and he had to come down to a decision as to how much money he actually wanted to lose, and was there some opportunity cost there. What was the best way to approach that situation? Then he explains what helped him get back onto his feet and what made him angry and almost jealous that got him to take actions on that very first deal that he did end up getting.

Tony:
Yeah, you guys are going to love today’s episode, but before we kick it over to Michael, I got a review that I want to shout out from someone with the username of Casey KS. And Casey says, “Amazing podcast. I’ve learned so much. I listen to you guys every morning. Thank you for the information and the education. Keep up the good work and thank you for the recommendation about local meetups. In 2023, I decided to invest my money with one of the local investors, and we’re planning to go out of state next and buy more properties together.” So, Casey, congrats to you. And for all of our Rookies that are listening, if you haven’t yet, please do take the 73 seconds it takes to open up your phone, leave us an honest rating and review. The more views we get, the more folks we can reach. And the more folks we can reach, the more folks we can help.

Ashley:
And I also want to say thank you to everyone who’s loved my book, Real Estate Rookie: 90 Days to Your First Investment, has left a review for that, either on the BiggerPockets bookstore or on Amazon. I greatly appreciate it so much. We just finished our launch period and super excited with everyone that has purchased the book and I really appreciate it and the stories are starting to come out of people who are taking action. So thank you guys so much and if you have found that the book has given you value, please leave a review on Amazon or the BiggerPockets bookstore.

Tony:
Awesome, Michael. Well, brother, welcome to the podcast, man. We’re excited to have you on and kind of dive into your story. So why don’t you just give us the quick backstory on who you are and how you got started in the world of real estate investing?

Michael:
Sure. So I am I guess you can say a retired pastor now because my previous job before getting into real estate was I used to be a pastor in a church, specifically an emotional health pastor. And a lot of things happened, pandemic and all of that stuff. And what happened with the pandemic was, what most people don’t know, is that churches in general took a really, really big hit in terms of their congregations. Most churches lost anywhere between 30 to 100% of their congregations over the pandemic. So when my wife and I relocated here to Orlando, the job market was just nil. I just couldn’t find a job. I actually studied some Google online project management thing and tried to find a career that way and turns out I am too old in a young world.
Most of the project managers that are coming in entry levels are 21, 22 years old, things like that. And I just couldn’t find work. And it was right around that time I started reading Kiyosaki’s book, of course, and it was just mind-blowing for me. I came away from that book feeling angry, just really upset because I feel we’ve been fed this lie our entire life where we have to get our nine to five, go to school, do all of that stuff. And I took loans out for school and all of that stuff, and I came to the conclusion that I had been duped and I hated that.

Tony:
Michael, we’ve had so many people on the podcast talk about Rich Dad Poor Dad, but I don’t think any of them have ever phrased their interpretation of that book in the way that it made them upset. But I do think it’s such an interesting take on it because I think that anger is probably more fueling and can incite action in a way that being motivated or inspired from the book probably wouldn’t do by itself, but anger is a strong motivating factor in so many ways.

Michael:
Absolutely, it was. Ministry is not really a cash cow in terms of that, let’s just put it that way, right? But it was something that I loved doing. I love taking care of people, I love helping people with their problems, and all of that. And my wife, up to this point, has been the breadwinner of our family and supporting us and allowing me to work the job of my dreams, in a sense.

Ashley:
Tell me about that dynamic. So what were your personal finances like before you got into real estate? So were you really great at budgeting because you had lived off a low income? Did you live below your means or did you feel you were always struggling and you were actually bad with your finances? Give us that picture.

Michael:
Thankfully, we were not your prototypical pastoral family story. I know a lot of pastoral families live below standard and all of that stuff, but thankfully, my wife made enough to really support us to have a relatively comfortable lifestyle. So that really wasn’t an issue for us, per se. It wasn’t like we were going out and just blowing cash left and right. We still had to live within a certain budget and whatnot. We were okay in that regard, but I do know that I have lots of friends of mine who are that prototypical stereotypical pastoral story where they’re working 60 hours a week and making 45K a year and things like that.

Ashley:
If things were okay for you, things were going good, what made you want to get into real estate? So, you had mentioned not a lot of people were going to church. Did that impact your income and then it got to the point where you’re like, “Okay, I can’t afford to do this anymore”? What was that actual reasoning as to why you decided there’s got to be something else out there?

Michael:
So after we moved down here to Orlando, my wife, unfortunately, started developing some minor health complications. It wasn’t anything major. It wasn’t anything life-threatening or anything like that, but it was a little bit concerning because I know that she’s been working hard for us for the last 10, 12 years, and I really do think that it’s taken its toll. She’s been remote before it was cool. So she’s been remote for 12 years or so. And actually, what a lot of people don’t know is that actually takes a toll on your body just from sitting day in, day out, sitting at a computer screen day in and day out. It sounds really amazing from the surface, but there are some consequences to it.
And we were just starting to see some of those issues. So I talked about it with her and such and came to the conclusion that maybe not at this stage of our life where I think the job that I love doing has to take a backseat and I need to make some cash and I need to really take over the brunt of the breadwinning as quickly as I possibly can. So that coincided with Kiyosaki’s book and BiggerPockets and all of that stuff. So it was just like this one big perfect storm.

Ashley:
Well, Michael, thank you for being so open and honest in sharing that with us because I think there’s people that are going to be able to relate to that, but also people who don’t want to get into the situation where that does happen and they’re not prepared with some backup plan or whatever that may be. So thanks for sharing that. So now that you’ve had that moment, Michael, what’s next? So you’re ready to take action, what is that action? What are the first things you do to actually become a real estate investor?

Michael:
I think one of the first things that you need to do post-education and you’ve decided to take that action, is to take that scary first step. And one of the first steps that I took was… And this is actually another part of the story. So while I was doing pastoral work, I have this side hobby that turned into a business and I was flipping sneakers. It was something I started five, six years ago and started with 500 bucks, bought a couple of sneakers, resold them, resold them, resold them. And I made a pretty decent amount of money considering that I was doing it only part-time and putting very little effort into it.
So one of the first things that I did was I took all that money from sneakers and put it into an account and said, “I’m not touching this. This is just for real estate.” And probably the biggest step that I took with that money was spending an ungodly amount of money to sign up for a mastermind course from this woman on YouTube that I was following. I got so much content from her. She was local, she was great, and all of that stuff, but I actually made a very big mistake there because I paid a lot of money for the course and it turns out that she was a dud and I felt a little duped. It’s not like I didn’t learn anything, but I didn’t learn what I wanted to learn.

Tony:
I definitely want to talk a little bit more about your experience in getting duped, but before I go to that, you said something I want to go back to. You said there was the post-education and then you knew you were ready to take that first scary step. But I think that’s where a lot of new investors get stuck, Michael, is that they can’t determine when does that education stop and when should the action start. So what was the moment for you where you said, “Okay, my education is done, now it’s time for me to take action”?

Michael:
That’s a good question. I don’t think that there was a moment. I think after the initial reading of Kiyosaki’s book, I had already made the decision, “All right, I’m changing my life. And it’s not about what it’s going to cost me, but it’s about the potential gain.” In the church, we talk a lot about scarcity mindset versus abundance mindset, and 95% of us live in scarcity mindset, “What if I lose this? What if I spend this and I don’t get it back and whatnot?”
But the question we should really be asking is, “What if it works out? What am I going to do then?” So after I buzzed that by my wife and she was on board, I bought the course, but also, I took the step of putting a HELOC on our house, on our primary residence, which was scary, I’ll be honest with you. Even though no money was actually coming out, just taking the steps of filling it out and doing the HELOC was like, “Oh my god, this is real.”

Ashley:
So let’s talk a little bit about getting your wife on board. Was she always on board with this when you’re like, “I want to leverage our primary”? Was everything okay or were there some deep conversations? Just give us a little insight to that, please.

Michael:
Yeah. My wife is wonderful and she’s generally very supportive of my crazy ideas. She was supportive of my sneaker idea, she was supportive of the idea of me going into the church and doing ministry and whatnot. Now, I’ve never presented anything to her of this magnitude, so it took a few more days for her to get on board, but generally, she was very open to it. She had heard people being successful in the field, so she knows that it’s not a complete dud of an idea. And I’ll be honest with you, I inceptioned her a little bit. So whenever we were in the car, it would just so happen that BiggerPockets would be on.

Ashley:
A great idea, just planting those little tiny seeds.

Michael:
Yeah.

Tony:
How much convincing did it take, Michael, for her to be okay with the HELOC because, like you said, it’s a big step? Was she immediately on board? Because it’s okay to say, “Honey, go invest in real estate,” it’s another to say, “Hey, I want to use the equity from our home where we live or where we keep a roof over our heads to actually do this.” So what did that conversation look like?

Michael:
I think she was a lot more okay with the fact that we’re not actually taking money out of the equity. I know how a HELOC works. I know it’s a line of credit and all of that stuff, but there’s nothing physically being withdrawn out of the house itself. So conceptually, that made her feel a little bit more at ease. So that was helpful. I think it would’ve been different if I had proposed a cash-out refi. I think that would’ve gone very differently

Ashley:
With that line of credit, what made you decide to do that HELOC? Was that just you looked at everything and that was your only options? Instead of putting 20% down, why did you actually decide to do the line of credit? Was it from the coaching that you were receiving at the time?

Michael:
No, neither. Again, just going back to the concept of the HELOC where you’re not actually taking anything out was very attractive to me. Even though the interest rate is higher, all of that stuff, I just liked the idea of money not leaving home base.

Tony:
Yeah. I guess just really quickly, Michael, if you can explain the difference to our rookie audience between a cash-out refi and a HELOC, and if you can explain the terms of the HELOC, what interest you were given, how long you had to pay that HELOC back, and just kind of break it down for the listeners.

Michael:
Sure. So a cash-out refi versus a HELOC are two very different things. So a HELOC is home equity line of credit, which in a nutshell, in simplistic terms, it’s like a credit card that uses your house as collateral. All right, we are entrusting you with X amount of money, and as long as you continue to make your payments and pay it back and whatnot, every time you make a payment, you get back X amount of credit. So just in a credit card. So that’s in a nutshell what a HELOC is.
While in a cash-out refi, you’re going to the bank and saying, “All right, I paid 200K for my home and now it’s worth 400K. So, bank, I want you to give me $200,000 in cash and you give me a new loan at 400K.” So you get to do whatever you need to do with the 200K, but now your monthly payment is significantly higher, your interest rate is significantly higher, and your home no longer has the equity in it.

Tony:
I think in the last couple of years, excluding the last year or so, but 2020, 2021 where interest rates were still historically low, you actually saw a lot of people doing the cash-out refi versus the HELOC because they could cash out refi, access more capital, and a lot of people were actually able to keep their payments the same, maybe even bring them down because if they had their original noted at a 5% and their refi at a 2.75, they could actually pull all that capital out and be in a better position. But I think where we’re at today with interest rates, you’re probably going to see less cash-out refis because who wants to refi from a 3% up to a five and a half or a six or a seven. Ash, have you done any lines of credit recently on any of your properties?

Ashley:
No, but the lines of credits that I do have increased in interest rate since they’re variable. One was a 5% interest rate and it’s now at 8.75, and then the other one started out at a 6%, and that one’s now at 9.5, I think it last was. So the interest rates on my line of credits have greatly increased. One thing that I am working on right now is doing a cash-out refinance, a property I bought in cash that I’m doing a cash-out refinance. And I’m actually doing a seven-year fixed rate, and then it will go to variable after seven years, but it’s still amortized over 30 years. So I’m getting a better interest rate because it’s only fixed for seven years instead of the standard 30, 20, 15 years. And then my plan is that I just have to prepare myself what interest rates are going to be after that seventh year so that I can refinance, I can pay it off, but make sure I have some kind of action plan.
But right now, I’m getting 5.125% on this property for the interest rate for seven years. And if I would’ve done a 30-year fixed rate, it would’ve been, I think, 6.75 on the property. So a big difference there, but also risky. Who knows what interest rates will be in seven years too? My plan would be I have a backup plan to just pay it off if that does happen. So I wouldn’t do this on every property. So if I’m buying 10 properties this year, I’m not going to go and put these seven-year fixed mortgages on them because all of a sudden, I’m in year seven and now I have 10 properties that the interest rates are doubling or going up, or I have to refinance all of them. So that’s something very important to think about too if you are doing these shorter term fixed rates that you’re staggering them so you don’t have all of these loans due at the same time or need to refinance at the same time too.

Tony:
Michael, so once you go out and get this HELOC, how much capital do you have access to, and then what do you do to deploy that capital?

Michael:
Well, so the plan with the HELOC was I figured I wanted to flip a house. It’s my first foray into real estate. Outside of wholesaling, flipping a house seems the most straightforward. You put money into it and you sell it at a higher price. It’s very much like flipping a sneaker. So that was the plan, and hence the reason with the HELOC because the HELOC, I know that I was getting a much, much higher interest rate than your normal stuff. So I figured if I’m flipping a house within two to three months, it’s okay because I’m paying back the HELOC after three months. That was the original plan, didn’t work out that way.

Tony:
I was going to say, you said original plan, makes me think there was something else that went on.

Michael:
Yeah. So the original plan was to go and do the flip, but it turned out that I had bought a buy and hold instead. And instead of using the HELOC, I dipped into my sneaker money to make your down payment and to buy my first rental property.

Ashley:
Okay. So let’s go into that. You bought a flip, but it ends up being a buy and hold. What does that mean? How did that property transition?

Michael:
Well, actually, there are two different properties and maybe I’ll start with the success first and then I’ll tell you about the failure.

Ashley:
Which was the first property that you bought, or you bought them the same time?

Michael:
No, my very first contract that I went under, I was going to flip it, and it was an ideal situation. My realtor sent me this listing where the house was in a beautiful location, it was distressed, it had a hoarder in there, but there were very few pictures on the MLS, and the price was very, very low. So I went over to go take a look at it just to drive by and see, and there was this woman outside who was just walking around and she was asking me, “Are you here to see the property?” And I was like, “Yeah, how’d you know?” She’s like, “You just had that look about you.” And then she said, “Well, you can’t go in there.” I was like, “Why not?” She’s like, “Because the person in there is not leaving and part of the reason why it’s priced so low is because they’re not leaving and you’d be inheriting that problem.”
In the new mastermind that I got into, they were like, “Those are the situations you look for. Those are the situations you look for because you can get a really good deal on those kinds of things.” So I was like, “Oh, sweet.” And it also turned out that she lived in the house next door and her house was for sale as well, and turns out that she owned both the houses. So I was like, “Hey, can you give me a discount if I take them both?” And she’s like, “Yeah, absolutely.” And we built that beautiful rapport. I went inside her house and it turned out that she was just a giant Star Wars nerd, and I’m also a Star Wars nerd. And she had memorabilia from the original movie, so she put C-3PO’s finger on me and stuff, the original finger. We geeked out for about 45 minutes. So I went in there with my contractor and we both looked at it and stuff like that. And it looked like it needed about 50K worth of work. It was distressed, but it didn’t look like it needed that much work.

Ashley:
And, Michael, how did you get to know that? Going in there and eyeballing it, why did you feel comfortable that you could gauge what the rehab costs would be?

Michael:
I went in there and with my contractor.

Tony:
Yeah. Let’s pause nudge really quickly, Michael, how did you find that contractor because I think as a new investor, that’s one of the sticking points always is, “How do I find someone reliable to give me a bid?” And did you pay this person to walk the property with you? Just walk us through how you found them and why they agreed to give you that bid.

Michael:
Sure. When I first came here to Orlando, one of the first things I started looking for was a church job. So the first thing I did was I emailed every pastor at every church within a five to 10-mile radius. And I met this one guy who happened to be from Maryland, and we had a great conversation and stuff and it turned out that on the side, because ministry doesn’t pay well, he was a GC, he’s a general contractor. So fast-forward, I called him up and said, “Hey, I’ll be honest with you, I don’t know what the heck I’m doing, but you do. Do you mind if we start working together?” He was like, “Yeah, absolutely.”
So we have that bond of both of us being pastors and stuff. Shout out to you, Josh, I know you’re listening. If the listeners could learn anything about that, you just never know who’s a contractor. You just never know who does house stuff. Ask around. Networking is number one. If you want to find a good GC somewhere, touch all your friends, touch all your family members, you just never know who is going to be able to do good work for you. Because once you have an existing relationship, an existing time, the likelihood of them being able to do good work for you at a reasonable price goes up exponentially. You’re not shooting in the dark.

Tony:
Ashley and I talk about this all the time, even if you’re a new or aspiring investor, you should be talking about your aspirations and you should be talking about this journey that you’re going on, even if that’s as simple as taking a photo of the book that you’re reading and posting that to your Facebook or to your Instagram or a video of you at the local real estate meetup and posting that to your TikTok or to your YouTube channel. But as you share more about this journey that you’re going on, you start to identify all of the people who are in your network and your extended network that just, like you said, Michael, you never would’ve imagined had an interest in real estate, but they do, and they are, and they’re active, or they know someone else, and that’s how you start to build those connections. So you find this contractor through your pastoral connections and he walks a property with you, you land on 50K, so what happens from there?

Michael:
Now, I knew that there was a lot of competition for these two properties. There was the people who were walking through at the same time that I was walking through and stuff. There was probably eight or nine people and they were all obviously investors because they were dressed like investors, you know what I mean? So my realtor advised me like, “Hey, we need to go in pretty aggressive with this.” Everybody knows that last year, the year before, real estate was crazy and you had to do some crazy stuff to secure, right? Florida is still hot, so there’s still a lot of competition here. I felt pretty confident about my numbers, so I went in with an offer that was a little bit lower than everybody else’s offer, but I waived all my contingencies. And that turned out to be a hard lesson. I still feel I won because I got a really great education.

Ashley:
Look at you, so positive.

Michael:
I’m trying to be, man, because-

Ashley:
Yeah. No, that’s great. It was an opportunity cost to you. So explain what that cost ended up being as to what did you learn and what came out of the contingencies. So I’m saying by waving contingencies, you didn’t do the inspection. Was there any other contingency waived like no survey or anything like that?

Michael:
No, nothing like that. It was just no inspection.

Tony:
And, Michael, if I can just add before you go on, the reason why the no contingency for our listeners is such a big deal is because, typically, when you have a purchase agreement for a piece of real estate, you have what’s called the contingency in your contract, which means if you identify something during whatever time period, sometimes it’s 14 days, sometimes it’s 21 days, sometimes it’s 30 days, but if you identify something that is a material change from what you initially understood the property to be, so maybe there’s a major defect with the plumbing or the electrical, there’s just some big thing that you didn’t understand before, you now have the right as the buyer to take back any earnest money that you put down and you can walk away from that contract clean and scot-free. So what Michael did was, “Hey, I’m not going to do any of those inspections and I’m going to commit on day one to purchasing that property.” And obviously, there’s some risks in front of that. What are your thoughts on that, Ash?

Ashley:
Well, Tony, I was going to ask you, what are you doing right now when you’re making offers? Are you putting any contingencies in?

Tony:
Now I am because the market has shifted, right? I think last year was a little harder to do that. Even if there’s nothing wrong with the house, most offers that we’re putting in, we’re still asking for some kind of credit because that’s where the market is at right now. We know that there’s not a lot of competition for these properties. I shared on one of our other episodes, we were able to negotiate almost 100K off of an asking price for a property that we’re working on right now. Are you doing that right now too, Ash?

Ashley:
Well, yeah, I was doing no contingencies because a lot of the properties I was buying anyways were just so dilapidated that an inspection’s really not going to tell me anything more than I already don’t know.

Tony:
Hey, you need to fix everything.

Ashley:
And I don’t need the inspector’s note saying, “The outlet cover is cracked, it needs to be replaced,” the whole wall is falling down. But I actually just did an offer this morning where for the first time in a long time I put in an inspection contingency that I was going to have an inspection done on the property because I agree, the market has shifted and that there is more wiggle room to allow for contingency. So, Michael, when did you put this offer in where you ended up waiving contingencies? What time period is this?

Michael:
So this happened December of this last year. I put the earnest money down and after all of that had happened… There was some probate stuff that ended up delaying the closing a couple of months. And this wound is actually kind of very recent and still a little bit raw, I’ll be honest with you because we finally finished up with it actually in February. And what had happened was my contractor and I were doing some walkthroughs and we went in there to start planning out what the rehab was going to look like and stuff. And the rehab was not $50,000. There was a lot of stuff that the sellers were hiding. It’s not $50,000 per house anymore, it is $180,000 per house

Ashley:
Per a house? Oh, my gosh.

Michael:
So I went back to the sellar and I was just like, “We can’t buy your house. This is insane.” The things that were wrong with this house were just stuff that they hid. There were septic tank issues, there was animals living in the ceiling. Everything that you can think of that needed to be done, needed to be done.

Tony:
Michael, I just want to ask, you discovered those additional issues after you closed on the property, or was it still during the escrow period?

Michael:
It was still during the escrow period.

Tony:
So how much earnest money did you have to put down to secure that contract?

Michael:
10,000 per house.

Tony:
Got it. So $20,000 total in earnest money deposit. Did you at any point consider just walking away, leaving the 20K in there and not doing the rehab? How did you weigh those decisions, I guess?

Michael:
So when I tried to go back to the seller and at least try to negotiate that down a little bit, she was just like, “No, I have 15 other offers on the table and I accepted yours. We’re doing this.” And I was like, “I can’t. If I were to do this, I would be paying in more than the ARV is.” My realtor actually did a really great job. She and the other real estate agent just went back and forth and I didn’t lose 20K, I lost 10. So we decided to split it evenly, which, I’ll be honest with you, I feel fortunate to even come away with the 10.

Tony:
Got it. So you did walk away from the deal altogether. You said, “Hey, I’m not going to move forward with it.” Okay. And I think that’s a really important point because for a lot of our Rookies, sometimes it is cheaper to just lose your EMD than it is to move forward with the deal because if you’re talking 50K per house to 180 per house, that’s a massive, massive, massive difference. And you would’ve lost way more than 10,000 had you moved forward with the deal. So, even for our Rookies that are listening, I think the point I want to get across is sometimes losing your EMD is the smartest choice. And I think you represented that exceptionally well here, Michael.

Ashley:
I’ve actually done that before, it was $2,500 and we had to walk away for the deal. It would’ve been way too expensive and just didn’t work out. And we ended up walking away and leaving the 2,500. I felt so bad that we were walking away from the deal to the sellers that we had a contract and everything and that we were walking away from it that I didn’t feel bad about that 2,500. I actually felt bad that I wasn’t giving them more money for walking away from the deal. But I agree, it’s way better to lose that 10 grand now than to lose 100,000 later on.

Tony:
Yeah, we had a similar experience. We had a property actually in New York, Ash, that bed and breakfast we were looking at, and we lost 5K on that EMD because after walking the property and doing everything, we realized there was some issues that we didn’t anticipate up front. So it happens to the best of us, Michael, you just got yours a little bit earlier in the game, that’s all.

Ashley:
Michael, I have a question real quick. Did they have the houses sold and have you checked to see how much they actually sold for?

Michael:
So apparently they’re under contract so I don’t see what the final number is yet until it actually closes.

Ashley:
That’d be interesting to see and follow what happens with the properties if they sit as is or someone does fix them up. Okay. So then what goes on after that? So you ready to try again, take on the next deal. So what’s the next deal look like?

Michael:
Well, I’ll be honest with you, right after all of that, I took a really, really big blow to my confidence because in the world of real estate, 10K here, 10K there, it doesn’t seem like all that much, but for a person just starting out on their first deal, I was just like, “How long does it take me to sell 10K worth of sneakers?” And I spent a good week or so just contemplating, “Did I make the right decision, am in over my head and whatnot?”
So our mastermind group has this little BAND group. BAND is an app, it’s a Facebook group for just certain groups of people. And there were people that I knew that had joined later than me that were getting deals and they were less experienced than me. They didn’t know as much as me, but they were getting deals. And I don’t know, when I was going through that, I’m very competitive and my competitive spirit just flared up and I got mad at them because, “What? Why do I have to go through this crappy deal where I lose money and stuff like that. And here are these newbies who have been in the group for two months and they’re getting deals in my area.”
So that’s really what got me restarted making offers again and touching all my networks again and whatnot. Interestingly enough, the very next week I got a phone call from one of the wholesalers that I’ve been talking up and he was like, “Mike, you need to come see this property. It’s a unicorn. You need to come see it today.” So I was like, “All right, I’ll do it.” So I went over there and it really was a unicorn property. It’s a house that has three separate units on it. So there’s a main house, it’s a three bedroom, two bath, there’s a smaller shed thing that you can definitely renovate and rent out and turn it into a little studio. And then they also had a mother-in-law suite. So three units that could potentially rent out separately. The asking price, including the assignment fee, was only 240. The ARV on it was 400.
And I walked the property with my contractor according to it, just to get it up and running without all the beauty and cosmetics and stuff was only 15. So I had a moment of conflict inside me because I was still traumatized from the previous experience. It’s still raw, but against how I was feeling at the moment, all the numbers lined up in my head. So I went ahead and put down another 10K for the EMD. That was three weeks ago.

Ashley:
Did you have any competition or you were buying direct from the wholesaler then? Was this deal just brought to you or was it brought to other buyers that you were in competition or was it you just got first dibs if you could pay what they wanted, then you were good. How did that work out?

Michael:
So there were definitely other buyers, but my wholesaler brought it to me first and he basically said, “Hey, whoever puts the EMD in my hand first gets it.”

Tony:
Michael, just one follow-up question on that, how did you find that wholesaler?

Michael:
So one of the first things I did when I arrived in Orlando was I joined every Orlando, Central Florida area Facebook group. And then I crafted together this Facebook post that said, “Hey, I’m looking for a realtor who’s going to be investor-friendly. I need them to be able to do 5, 6, 7 comps for me every single day, blah, blah, blah, blah. Is anybody interested?” And I just blasted that out. And within an hour or so, I think I must have gotten 35 emails with people who were interested and most of them were wholesalers and whatnot. Especially at the beginning of a journey, you do have to sift through them and figure out who the good ones are and who are not. But that’s how I found my realtor and that’s how I found one of my three really great wholesalers who aren’t charging an enormous assignment fee. And that’s how I formed my network here.

Ashley:
Michael, let’s get back into the deal as far as the numbers. So you said this was three weeks ago. Have you closed on the property and have you begun the rehab?

Michael:
Yeah. So closing was three weeks ago.

Ashley:
And is the rehab done or is it still going on?

Michael:
Rehab should be done sometime next week. And here we go back to relationships. Turns out that my contractor knew another contractor who needed a place to live, so we locked up that contract, he rented out all three units. Him and his family and his newly-wed daughter and her new husband are moving in there, into the little mother-in-law suite and stuff. It was just like a dream scenario and I really feel I hit a home run with this one.

Ashley:
So what’s going to be your cash flow? Well, first of all, what are you going to be renting it out for?

Tony:
The market rental, if you consider all three units, about 3,300. I’m renting it for 3,100 because they’re going to take all three units. My cash flow on it is going to be about 1,200 a month. That’s gross.

Ashley:
Awesome. Congratulations. That’s really good. And that’s interesting that they’re renting all three units. We actually had a guest on, Ryan John, I don’t remember what episode it is, but someone local to me, and his first duplex that he got was somebody who had a larger family and they’re like, “It’s really hard to find rentals in the area that are three bedrooms.” And they needed four, I think it was. So they ended up renting the whole duplex from him. And he did the same thing, I think too, where he gave them a little bit of a discount because it was just one tenant he had to manage now instead of the two separate families living in there, which was more of a convenience for him.

Michael:
Yeah, absolutely.

Ashley:
Okay. Well, Michael, thank you so much for sharing that deal for us. I want to take us now to our Rookie Request Line. So if you guys would like to call in, you can call in at 1-888-5-ROOKIE. Leave Tony and I a voicemail and we may play it here on the show for our guests to answer.

Speaker 4:
Hello, my name is Sandra from Corona, California. My question to you is how much do you think I should have in the bank before I start investing when I am looking at houses within the 200 to 275,000 range? Thank you.

Michael:
My advice would be don’t worry about the money. My advice would be to go and find the deal first because in my very limited experience, I’ve come to the conclusion that if you find a good deal, money will fly into your email box. People will just throw in money at you. And there are ways to get into the property and to buy a property without putting any of your own money in. And it’s actually not as hard as you would think. So, I would say, don’t wait until you have money in your bank account, go and find the deal first.

Ashley:
Yeah, and I think the only thing I would add onto there is having three to six months’ reserves for yourself for the property, but you most likely won’t know what that amount is until you have the property as far as what your mortgage payment will be, what your insurance, your property taxes would be. You can guess it on, especially if you know the budget range you’re looking at and what property taxes are for properties around that range.
But if you take on a partner, they could maybe possibly have the reserves where you don’t have to have them. That was my first partner. I had little to no savings. I think maybe I had $5,000 and I ended up using that to put a new electric panel in and to put a new split unit in my first duplex. But other than that, all the reserves that was on the partner that I took on to have that security blanket.

Tony:
Just one last thing to add to that too, Ash, I think it also depends on what your strategy is. So say that, Sandra, you want to house hack and maybe you want to use the NACA loan. So we just had Nancy Rodriguez from Love Is Blind on and she got her first property using NACA. And NACA allows you to get into a primary residence, whether single family or multi-family with zero down or no closing costs. And I know some people that have closed with NACA where they actually get a refund because they got credits from the seller at closing. So imagine you go out, you get a four unit, you’re living in one unit, renting out the other three. I still think Ashley’s point about getting the reserves is super important if you don’t have a capital partner there. But, Sandra, I think it all depends on what your strategy is and how you plan to use that property.

Ashley:
Okay, Michael, are you ready for the rookie exam?

Michael:
Let’s do it.

Ashley:
Okay. The first question is, what is one actionable thing Rookies should do after listening to this episode?

Michael:
The one actionable thing is that you should go and attend your local real estate meetings. Just go attend every event that they have. I would go and meet as many people as you can, bring something that resembles a business card, just in a way to get in contact with you and go and have coffee with a bunch of people.

Tony:
I love that. All right, question number two, Michael, what’s one tool, software app, or system that you use in your business?

Michael:
I use Privy a lot. Privy is an excellent comp tool that I find to be very accurate. It’s an amazing app where not only do you get the comp numbers and stuff, if there’s pictures that are already attached to the comps, you can see the pictures so you can kind of figure out what’s the level of rehab you would have to do to get it up to that comp level.

Ashley:
Okay. And the last question is, where do you plan on being in five years?

Michael:
Well, in five years, I hope that my wife will be able to quit her job and that I’ll be just playing with my kids in the middle of the day. That’s where I’m planning on being.

Tony:
Yeah. I love that goal, Michael. All right, brother, before we close it out, I’m going to take it to the Rookie Rockstars. So this week’s rookie Rockstar is Tim Weston and Tim says, “Hey, fellow Rookies, excited to share, I just closed my first long-term rental and I’m about to put it on the market. With only a vision back in February to start this journey of rental property investing, I set a goal to have my first property by mid-year, and I did it. So I started in March, spending time learning and researching, found and joined bigger pockets, and then attended the Rookie Bootcamp. Shout out to you, Ash. From that, I gained the confidence to place offers on multiple properties and landed a two-bedroom townhouse in a gated community here in Orlando.” Here’s to door number one. To Tim, congrats to you on taking action. And Ashley, congrats to you on making some lives change in the Rookie Bootcamp,

Ashley:
We have amazing guest speakers that come on and just the people that join up for the bootcamp and take action. I love hearing those success stories. And we actually just decided the other day that we’re going to do one over the summer. Originally, we were only going to do two sessions this year, but we have a long waitlist, so we’re doing another summer session. So if you guys want to get involved, go to biggerpockets.com/bootcamps to sign up.
And, Michael, we will be seeing you in what, about nine months here, maybe a little less for the Bigger Pockets Conference in Orlando. So if you guys want to meet Michael in person, you guys are inspired by his story, want to find out more, you can attend the BiggerPockets Real Estate Conference that is happening October 15th to 17th. You can go to biggerpockets.com/events for more information. And, Michael, if they can’t wait until the conference, where can people reach out to you?

Michael:
They can reach out to me on Instagram at pastormike79. And I’m just starting to get into that social media game, so it’s a little sparse, but I do answer my DMs.

Ashley:
Okay, awesome. Well, Michael, thank you so much for joining us on this week’s Real Estate Rookie podcast. We really enjoyed having you.

Michael:
Thank you for having me. I was just so excited to be here.

Ashley:
What a great episode with Michael. I think he is very relatable as to that thought process of, “If other people are doing this, I should be doing it too.” When he talks about how people in his mastermind group that had just joined were getting deals and he hadn’t yet, and it gave him that competitive edge, like, “Okay, I need to get this done.” I think that can be very relatable and also motivate you. So maybe if you’re that type of person, don’t turn it into anger, or take that anger, turn it into motivation to push yourself to get that done. But overall, I think this was a really great episode

Tony:
And we’ve been talking about this for a while, but I love that he was flipping sneakers to help fund his real estate business. I feel as we’ve been interviewing a lot of these Rookies recently, we’ve heard so many different side hustles that folks have used to fund. So we had Ava who talked about there were couch flipping initially, and then she started her social media side hustle. We had the recent guests who was in the vending machine space, and now Michael with the sneakers. So there’s so many creative ways to fund your real estate business.
So, if you’re sitting here and you’re watching or listening and saying, “I don’t have the capital,” we have a recent string of guests who are all proof there’s so many ways to make it happen. And just one other thing that Michael mentioned that I loved was he talked about taking that scary first step, and I think that’s such an important thing for all of our Rookies, is to identify when it’s time to take that scary first step. And that’s how beat that analysis paralysis.

Ashley:
Today’s social media shout out that I want to highlight is our guest that we just had on Saturday for Rookie Reply is Pace Morby. So if you guys missed this past week’s Rookie Reply, go back and listen, episode 280. Pace’s Instagram is @pacemorby, his name, but you go through, and I couldn’t even pick one specific post to actually share on here because it’s all such great content. So one that he recently just posted were tips on ways to go direct to seller. Sometimes I think there’s a huge advantage in talking to a seller directly to be able to find out the reason why they’re selling and to be able to negotiate with them directly.
So go follow @pacemorby on Instagram. You can also find me at Wealth From Rentals, and you can find Tony at Tony J. Robinson. If you guys have a side hustle that you are doing, please send us a DM and let us know what that side hustle is. We really want to put together an episode that showcases all of these different side hustles. So that’s @wealthfromrentals or @tonyjrobinson. Just slide into whoever’s DM you like better so we can have a competition.

Tony:
Or slide into both DMs simultaneously. You can do a little group chat with all three of us.

Ashley:
Yeah. Okay, you guys, thanks so much for listening and we will be back with a Rookie Reply.