I Saved 100K Now What? Goal is to become a Millionaire in RE

[Chris Kornbrust]

Thank you in advance to all contributors. Here's the question: I finally in my late 20s put aside 100K with the goal of becoming a millionaire by 35, latest 40. Now what?

It's like reaching level 1 in a game and I have no mentor to teach me how to reach level 2, 3, and beyond. Have you felt this way before?

Appreciate everyone's comments below. Thank you. 

[Shiloh Lundahl]

@Chris Kornbrust Alright, I am going to answer the question that you asked: How to you become a millionaire in real estate starting out with $100,000 in 5 - 10 years?

This is what I would do if I had to start over with $100,000.  This would be a three-year plan.

Month 1 - Getting Familiar with my Market

1. Determine the amount of time I am able to spend on real estate.  Do I have a day job?  How active can I be?  The very best/lucrative deals are going to be direct to seller.  Do I have time to market and then answer the phone and talk with sellers? Am I able to go to their homes to get their homes under contract to sell?  If so, I would take some of that 100k and I would find someone who is doing really well at getting direct to seller leads and I would pay them to teach me that specific skill (how to market, how to write up the contract, how to talk with sellers, etc.).  
2. If my day job would not permit me the time to get direct to seller leads, I would get really familiar with the market in which I want to invest. Here's how: I would go to my Zillow app every morning and I would draw a circle around the area/areas where I want to buy a property.  Then I would look at homes in that market and I would determine average price per square foot for a 2 bed verses a 3 bed etc.  As I do this, I will start to recognize when houses are undervalued.
3. I would start to get myself on wholesaler lists.  I would find these wholesalers through going to meetups in my area, asking other investors, and Googling wholesalers and the area in which I am interested.
4. Then, as I am familiar with these areas, I would be better able to determine a deal that looked under market value.

Month 2 - Setting up Financing

1. In the same meetups where I meet other investors and wholesalers, I would likely also meet some hard money lenders.  Hard money lenders would become a very important part of my strategy if I wanted to scale quickly.  I would find 2-4 hard money lenders and I would get to know them and find out what they would need from me to lend to me on a deal.  I would then get them that information.  
2. I would also continue to cultivate the relationships that I am building with other investors and wholesalers, etc. and I would ask them if they knew of a specific banker who works well with investors. Then I would contact those specific bankers with the name of the individual who referred me (people are more attentive if they know that you have been referred to them by someone they want to keep a good relationship with).  I would find out the info they needed from me and I would get it to them and I would ask them to let me know what I needed to do to become a better borrower.  Do I need to increase my credit score?  Do I need to have more available credit?  How much reserves do they want to see in order to lend to me?  How much of a loan, or how many properties would they be willing to lend on for me? Etc. 

Month 3 - Getting a property under contract

1. Through the meetups, through inviting other investors and realtors out to lunch, etc. I can start working with realtors to make some offers. I can either work with a specific realtor, or I can find properties myself from my searches on Zillow and Realtor.com and I can reach out to the seller's realtor. I can start making offers that will make sense to me. I would probably only make offers on properties that didn't need a huge rehab at first. And I would stick to properties that would be just under the medium price point because there is a lot of demand for those properties. The offers I would make would be in order to follow the BRRRR method or the BRRRLO model. I would make offers to where I could get the property, and rehab the property, and ultimately only be at about 75% of the ARV when I was finished fixing up the property. How would I know what the ARV is? I would know because of how familiar I am with the market. I could also ask a realtor friend to double check my estimation to see if he or she thinks the value could come in where I am estimating it should come in at.
2. I would start going to the properties that I am sent by wholesalers.  I would walk the property and get familiar with the type of repairs that would need to be done.  I would then take pictures and start connecting with handymen and subcontractors to find out what they would charge to fix certain things.  I would find these handymen and subcontractors through the network of people I am creating through the meetup and investor lunches.  I wouldn't ask 1 personal to give me all of their contacts, but I would ask for maybe one contact from several different people such as, "do you know of a good electrician that isn't super expensive that works well with investors." etc.
3. Through this process of getting familiar with the market and making offers daily, the likelihood of me being able to get a property under contract within a month or 2 if very high. Something I forgot to mention earlier, I should have already opened up an LLC in order to buy the property because most hard money lenders only want to lend to an LLC. In fact I would likely open up 2 LLCs so that I could have one LLC help me with the financing. I'll explain later.
4. If I were starting out with only $100k I would be looking at properties in the 60k - 80k range that I could rehab for 10k - 20k and have appraise at 120k - 140k.  My goal would be to walk into at lease 30k in equity after the rehab and leave 10k or less into each property.  If this is not your market, you may need to explore other markets.  But the process would be the same, only you would need to rely on other people more.

Month 4 or 5 - Buying the property correctly

1. Now that you are really familiar with the market and the costs of repairs, paint, carpet, etc. and your making offers every day, you are likely going to get a property under contract really soon. So this is where the inexperienced investors and the experienced, rapidly growing investors start to separate. Here are some helpful tips to bypass seasoning periods with banks. Here is an example: Let's say I am going to buy a property for 60k. That property needs new flooring, paint, carpeting, a new kitchen, and a new bathroom vanity. Estimated rehab because it is a 2/1 under 1000 sq ft, is about 20k with subcontractors. All is is 85k with purchase, rehab, money costs, and holding fees. The hard money lender has lent you 80% of the purchase because you are new. So he gives you a loan for 48k. You need to come up with 37k to get the property ready to go. You don't buy the property for 60k. You buy the property for 115k (because that is what the value will be when it is finished) with a rehab credit of 55k. The title agency creates an addendum for the seller to sign explaining how repair credits work and the seller signs it. The sale of the property gets recorded at the recorders office a the 115k amount. When you buy the property, you get the first loan for 48k. Your second LLC gives you a loan for 37k in order to leverage the property to 85k. You then start working with the bank to get long term bank financing for the property. You give them the numbers including the recorded amount, and the cost of the rehab. They start working on the loan while you get the property rented. As soon as it gets rented out you finish the loan. The bank won't do a cash out, and they will only lend you 75% of the appraised value or purchase price. But luckily you purchased your property for 115k and your property is leveraged at 85k between the 2 loans. So they bank give you a loan for 85k to pay out the first loan to the hard money lender and the second loan to your other entity. You have effectively created 30k in increase an in net worth and you have gotten all of your money out of the property and you are ready to go do this again.

Each time you do this, it will get easier and you will get better.  You should be able to do this 3 times your first year.  Now your net worth is 190k after 12 months with $600 a month in cash flow.  Other people see what you are doing and they want you to teach them how to do it too.  You tell them that you can help them learn if they will lend to you on one of your deals.  You have also started increasing your credit limits and credit lines with banks and other lenders.  Your second year, with the team you have assembled, you are able to do the same thing with 6 more properties.  Now your net worth is about 400k with the increase in equity, debt pay down, appreciation, and cash flow.  By the time you are done with year 3 you should have 800k to 1 million in net worth, especially if you are able to scale up to some small multifamily or mobile home parks.

Hopefully this was helpful.  Good luck with your investing.