Rookie Reply: How to Fund Real Estate Deals (and Scale Bigger!)

Tony Robinson:
Hey, before we get into the show, I wanted to mention Bigger Pockets is hiring a full-time supervising producer for our podcast network. This is a remote position and a chance to work with an amazing team, if we do say so ourselves. We’re looking for someone with at least a couple of years experience managing production teams and someone who will feel confident taking the lead when launching new podcasts. So, would you or someone you know be a great fit? You can find the full job description at biggerpockets.com/jobs. Again, that’s biggerpockets.com/jobs to apply for our open podcast producer job. Now, enjoy the show.

Ashley Kehr:
This is Real Estate Rookie, episode 152. My name is Ashley Kehr and I am here with my co-host, Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie podcast. If this is your first time joining us, every week, twice a week we give you the inspiration, the motivation, the stories from real investors who are making a living doing the thing, just getting started. Maybe they’re pros, maybe they’re not, but either way, we’re giving you everything you need to start your journey as a real estate investor. So, Ashley, what do we got going on today? What’s new with you?

Ashley Kehr:
Well, I’m off the couch with my bum leg.

Tony Robinson:
I noticed that. I noticed that. This is an improvement.

Ashley Kehr:
I’m still not back in my closet. I still haven’t set up my whole studio back up just because I’ve been traveling all around and having pieces out of the couch and it’s all just shoved in the closet. And I didn’t think about it until right before recording, but I think for our recording next week, I’ll be back in my closet all set up.

Tony Robinson:
Yeah, you’ll get back to the closet. Well, what I’m loving is I love the gingerbread house that’s in the background right now. I don’t usually get this view when you’re in your closet. So I’m appreciate of that.

Ashley Kehr:
What’s actually funny is that there was two and I threw one out, and this was probably a week ago. I’m like, “These need to go.” I went and threw one out and then I got distracted and I never went back to grab the other.

Tony Robinson:
To throw away the other one? Wow. I hope one wasn’t one kid’s gingerbread house, now it’s like other kid’s-

Ashley Kehr:
Oh, it was. It was, yeah, and they’ve noticed. They noticed. And then I still forgot. Like, oh, we’ll go throw your out. Yeah, it did happen.

Tony Robinson:
So, that’s going to come up in therapy for that kid like 30 years from now. They’ll be like, “My mom threw away my gingerbread house, but she left my brother’s and I don’t understand why.”

Ashley Kehr:
Yeah, one of them got to, they actually made them at my mom’s house. So one of them was there by himself and made one and then the other two went a separate time and they had to share one and make it together.

Tony Robinson:
Perfect.

Ashley Kehr:
So it’s already a big deal-

Tony Robinson:
It’s already a thing.

Ashley Kehr:
… which involved the other two [crosstalk 00:02:44]. So, what’s new with you, Tony?

Tony Robinson:
No, we’re keeping busy, as usual. We just got another flip under contract and this one’s going to be a little bit different for us because we’re using a new crew. Our current crew, they’re kind of operating at their max capacity right now, so they told us that they could take the job if we really needed them to, but they would prefer if we passed it off to someone else.
So, I’m learning from my last experience. We did a rehab a couple months ago where we used a new guy and it was absolutely terrible. I recorded a video about it. So, if you guys want to check it out, just like on our Real Estate Robbins YouTube channel. I think title’s like a contractor almost ruined our rehab or something like that.
But I’m kind of taking the lessons that I learned from that rehab and trying to apply them to this new rehab with this new person. So, first is that I found that old contractor on Yelp. Actually, no. He was a recommendation from another real estate investor that I knew, but that investor had never actually used him before. So, he just kind of heard of him. He was like, “Hey, I’ve heard of this guy.” So no one could really vouch for his work.

Ashley Kehr:
Yeah, because no investors are giving out their contracts.

Tony Robinson:
Yeah, no one’s given out the contractors they’re using. [Crosstalk 00:03:55] Right. So he had never used him. So it was just like, “Hey, I’ve heard of this guy.” But the new crew that we’re using, he came as a recommendation from our countertop guy and we like our countertop guy. We used him multiple times on all of our flips so far and we think really highly of him. So, he’s like, “Hey, this is the other contractor that I work with a lot.” He spoke really high of him, so there’s already a really good relationship there.
And then the second thing that I’m doing very, very differently is making sure that there’s a very, very clear, clearly defined scope of work and that we both understand who’s responsible for buying which materials and how we’re going to get those materials delivered to the house. So actually the last thing I have to do is send him the scope of work. I need him to read it, agree to it, make sure we’re on the same page. And then we’ll kind of get started from there. So fingers crossed this guy works out well. Got a good vibe from him the jump, so hopefully his work is as good as he says it is.

Ashley Kehr:
And Sarah manages your projects now, correct?

Tony Robinson:
Yeah, she does like 99% of what we do, so-

Ashley Kehr:
I think we need to have her on a Rookie Reply and like go through.

Tony Robinson:
That would be so cool, how she’s doing it, right?

Ashley Kehr:
The process how she does that. Because handling contractors is a super, super hard job, and I feel like that’s where a lot of people get stuck at or don’t want to even deal with. So I think if she came on and kind of went through that process. Another Rookie Reply idea I was just thinking of, too, is going through a scope of work and doing a budget because I’m doing my split flip now as a joint venture with somebody, and I’m literally scribbling down as many notes as possible as I’m learning their process. So I think us to kind of showing everyone what we know, what we’re learning, what we have learned, and doing an episode on that, too.

Tony Robinson:
That would be so cool. You know what even might be cool is if your partner, James, if he and Sarah talk together, because Sarah and I, we’re really new at this and if we can kind of show him what we’re doing and he’s like, “That’s a terrible idea, that’s a terrible idea,” maybe we can have him just break everything down. So yeah, we’ve got to find a way to kind of get those onto a show, for sure.

Ashley Kehr:
He’s the type of person to, we’re talking about James Dainard at @jdainflips on Instagram, but he’s the type of person that just tells you how it is, too.

Tony Robinson:
Yeah, that’s what we need. We need someone just to just cut through the fat and give it to us straight.

Ashley Kehr:
He’s like, “I don’t have time to waste. Do this, do this, do this. Don’t do that. That’s a waste of time.”

Tony Robinson:
Right, yeah, but that’s we’re we’re at with the flip, so we’re hoping to get started this Monday. It’ll probably be another eightish weeks before the property’s all wrapped up and then we’ll get it listed after that. But the flips have been really fun for us to do so I’m excited to keep doing that in the new year.

Ashley Kehr:
Yeah, so you guys check out Tony’s Instagram to follow his flip @TonyJRobinson and also his wife, Sarah, @SarahRad on Instagram. And then you can see my joint venture agreement, my first flip at WealthFromRentals.
So Tony, we’ve got another question from your DMs today. Who slid into your DMs, Tony?

Tony Robinson:
So, the user handle, the Instagram handle is Swaterzzz. So, that’s S-W-A-T-E-R with three Z’s. And Swaterzzz asked, “How are you scaling your real estate portfolio so quickly? Specifically, how are you financing all of these purchases?” So, just really quick background. So, we scaled from zero to now 12 listings in about, around a year and a half, so about 18 months. So we got our first one in August of 2020. We’re actually 14 months, we’re at 12 units right now, which is admittedly kind of fast. But we’ve leveraged partnerships to really help explode our growth or kind of maintain that growth path that we’ve been on. We bought our first four short-term rentals on our own using all of our own capital, getting all the loans ourselves, and then from listings five through 12, we’ve got partners on all of those deals. And we structured our partnership in a way where the partners are typically carrying the mortgage because it’s a little bit more favorable if they can do it because they get access to better finance because it’s their first short-term rental.
And then there’s either some kind of splitting of the down payment or maybe we’re not bringing any of the capital, but we’re finding the deal, we’re managing it. So honestly for us, it’s been our own capital, our own bankroll at first, then bringing in partners to kind of help expedite the growth from there.

Ashley Kehr:
When I first started out, I took on a partner and it was all his cash and I was just the experience. Then I started to learn a little bit about how other people bought properties. I hadn’t found Bigger Pockets at that point, but I was like, “Hey, you have a lot of equity in your house. Let’s put a home equity loan on your house,” and so we did.

Tony Robinson:
I know I’ve never done this before, but if you wouldn’t mind risking your home for me to give this a shot, I’d appreciate it.

Ashley Kehr:
Yeah, that was how we paid for the first two properties and then started talking to banks and, like, “Well, you can go and put a loan on both of these properties, a portfolio loan, and pull your cash back out.” So we did that and then we bought our next property. So it was really having that partner that had cash, had access to cash, and then really going from there.
Then after that I took on another partner and we split the funds 50/50 for any money we had to put in. But even that way can kind of keep your hands tied as to growing and scaling, because that was still buying small multi-family at that point. But definitely having a partnership was really key to helping me scale and be open to taking on new partners. So I only had two partners for a very long time and now I have three partners and even four now doing a joint venture agreement with someone.
So, I think partnerships would be my number one way to help you scale, but also getting creative with your financing and not just leaning on that 20% down as to looking at different ways that you can find money per se as to a line of credit on your primary residence. Or, do you have another investment property you can refinance? Do you have money in the stock market? So, not a rich retirement account, but if you have a brokerage account that’s non-retirement, you could actually take a line of credit against that and that would be your collateral, and it’s a very low interest rate. And there’s rules, like you have to have at least $100,000 balance in there are something like that. But there’s so many different options, even borrowing against your 401k to find that little seed money to at least start. Then once you get the ball rolling, you can propel yourself by using partners and those other. And definitely seller financing is a huge, huge way to grow and scale, too.

Tony Robinson:
I’m glad you said that, Ash, because there are so many ways that you can fund a real estate transaction. I think for a lot of new investors, they’ve only been exposed to a 20% down, 25% down loan. It’s so funny because we interview so many different people on the show and we’ll ask them like, “Oh, well, why did you… ” For example, there’s couples who we’ve interviewed who, for their first deal on a single family residence, they went with a commercial five one arm. And when we asked, “Why did you do that,” they’re like, “That’s all I knew how to do.” Then there’s other people that do seller financing. We had Heather Blankenship and she seller financed a huge RV park. We were like, “Well, why did you do it that way?” She’s like, “That’s all I could do.” You only know what you’ve been exposed to.
So Swaterzzz, I’m not sure what you real name is, but if you want to get more exposure, things like this podcast, things like the OG Show that has almost 600 episodes, if you listen to enough of the stories of different investors, you’re going to see so many unique and creative ways that people are successfully funding and financing their deals, and there are so many that don’t require the traditional bank financing route.

Ashley Kehr:
There’s also the ways that real estate can help you build capital, too, such as wholesaling or flipping. So, if you’re just starting out, maybe start out in one of those ways that can actually help you build capital and then dump that capital into long-term rentals or short-term rentals, different things that you want to hold onto. But finding different ways to build capital or even working part-time as a property manager in the real estate industry to build that extra cash can definitely help, too.

Tony Robinson:
Yeah, we need to do an episode on real estate investing side hustles. There’s so many different ways to build the capital for your real estate adventures. If you follow Ryan Pineda on Instagram, he talks about how he was a couch flipper and that’s how he built up some capital when he was getting started in his career. I’ve talked to people. I met at one guy that had a trash hauling business as a side hustle and he was using that to fund his real estate purchases. So there’s so many different ways to fund the deal, to get the lending. I think you just have to have a wide enough exposure to different people and different experiences.

Ashley Kehr:
Yeah, and even just asking banks what they have to offer, too. We just interviewed someone last week, Grace. Her episode won’t air for probably a month and a half now, I think, but she had mentioned how she found this great deal and went to a small local bank and said, “Hey, this is a great deal. Can I put only 10% down instead of 20?” And they looked at the deal and they said, “Yeah, okay. We’ll do it.”

Tony Robinson:
That easy, right?

Ashley Kehr:
Yeah, that easy.

Tony Robinson:
That’s easy.

Ashley Kehr:
Even I had the one deal where I wasn’t even really looking for bank financing on the deal, because we were going to borrow from a private lender and I was there signing for a line of credit and telling the loan officer about it. And he’s like, “Well, I think I can beat their terms.” And so he offered us a 90 day loan, unsecured, no collateral, and enough cash to purchase this house. Then we immediately went and refinanced with the bank for a 20 year long-term fixed loan.
So, there’s so many different options, especially with those small local banks, you just have to go in and not even tell them what you want, but look for or tell them what you want to do and see what they had to offer, and there may be multiple options that can benefit you.

Tony Robinson:
Ashley, we’ve got to repeat what you just said, because that was a super profound statement. You said you should walk into a bank and tell them what you want to do and not necessarily what you want. Let me say that again so it sticks. You should walk into a bank and tell them what you want to do and not necessarily what you want.
So, the difference that if I walk into a bank and say, “I want a 20% down investor loan,” they’re going to say, “Okay, cool, here it is.” Or you could walk into a bank and say, “Hey, I found a property for $50,000. It needs another $30,000 to get fixed up, but it’s going to be worth almost $200,000 once it’s done. Do you have anything for that?” Now you’ve opened up their whole perspective on the different options that they have for that specific situation that you’re in, because what you want to do is buy this property, rehab it for the least amount of money out of pocket as possible. What you want or what you think you want is a 20% down investor only loan, but there might be other options and the only way that you can get to that point is if you share what it is that you want to do. So man, Ash, that was… I don’t know how long you’ve been holding onto that little phrase in your back pocket, but that was a good one.

Ashley Kehr:
I feel like I say it all the time, honestly, I feel like there’s maybe four or five things that I harp on, I preach on, and that’s one of them just because of that time I got the unsecured load from the bank because I didn’t even know that was something they could offer. But yeah, definitely, because you don’t know what options they have and I think just being open and honest, too, about what you want to actually do, too, with the property and what your current situation is. So, if you have bad credit, just tell them upfront because they’re going to find out anyways. And especially if you’re going the residential route. They will ask you for your mom’s bank statement. They go through so much information. They’re going to find out if you are trying to hide something. So, just say it upfront and maybe they will have something available to you that they can offer you.

Tony Robinson:
Cool. Well, I think we hit everything, yeah?

Ashley Kehr:
Yeah. I think so, too. Well, if you guys have more questions for us, you can send me a DM at wealthfromrentals or to Tony at TonyJRobinson on Instagram, or you can ask a message in the Real Estate Rookie Facebook group. How many members do we have in there, Tony? Over 40,000 now, correct? Yeah.

Tony Robinson:
Really, way over 40,000 people in that group, and not only are there a lot of people, but it’s a very active group. I say this all the time, but it’s I feel like I can’t even provide value in there because every time a question is asked, before I can get to it, there’s 10, 20, 30 answers on there. So it’s super active, super encouraging group there.

Ashley Kehr:
If you need motivation, go and read some of the success stories and the wins that people are having and you may find even a story that’s relatable to you and kind of give you that push to get over that analysis paralysis or take action on that first deal.
Well, thank you guys so much for listening. We’ll be back on Wednesday with a guest. My name is Ashley at WealthFromRentals and he’s Tony at TonyJRobinson on Instagram. Let’s find out what’s something that’s going on at biggerpockets.com.