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Buying Property #2 – Trusting Friends

If you read my blog post on how I bought my first property, you read how I couldn’t qualify for a conventional loan, so I had to get creative and partner up with my dad to buy a rental property cash in Florida while I was living in Texas.

Time for property #2! Let the adventure begin!

Not having a green card wasn’t going stop me from achieving my goals and I was getting hungry to get property #2.

It was January 2014 when I began to strategize my next move to build another passive income stream. By this time I had already decided that I wanted to become a realtor and start selling real estate part-time (that’s right, work a regular 8-5 job and then sell real estate nights and weekends). My goal was to get my license by April 2014.

Finding Partners

While I was working at General Motors, I began talking to 2 friends, Garrett Petticrew and Erik Pinto, about the book Rich Dad, Poor Dad (highly recommend that book – get it now). Both of them were interested in applying the new mindset the book had given them and understood they needed to build other income streams to not be stuck in the rat race. We became great friends and even lived as roommates for over a year. We travelled across the country to leadership conferences together and became very familiar with each other’s moral character and trustworthiness & not to mention work ethic. I realized that our goals aligned and that we could work together to achieve our goals faster. Also each of us had a different skill that we could bring to the table. Bringing value to a partnership is key.

They both knew about my situation with immigration and I told them that one of the best ways to get started is by partnering up so that they can start ASAP rather than saving a lot of money to invest in a property. Action is better than inaction.

In talking with my Garrett and Erik, we concluded the ideal investment property would be to buy a rental property under $140K, 20% as a down payment and be 33% partners with each of us putting 33% of the down payment. This meant that we could buy a property with each of us around $12K. By the time April rolled around we had already started looking. Our goal was to buy the property ASAP.

Getting Creative

After talking with a loan officer, we found out that I couldn’t be on the Title of the home AND I couldn’t be on the loan/mortgage, due to my immigration status. At first I thought this was just going to be a problem with property #1 since I was buying by myself, but it wasn’t. I would have to be partner but not own the asset. This was all going to be based on trust and we created an LLC to protect ourselves from liability.

The rent payments would go to the LLC’s bank account every month, we would pay our expenses and then we would split whatever was left.

I promised my partners that I could find a rental property in the Austin area and follow the 1% Rule. The 1% is when the monthly rent of a property is 1% of the price of the home.

After looking at homes for a few months, we found the home that fit our criteria on the east side of Austin. We bought a single story, 3 bedroom, 2 baths, with a study on the second week of July 2014. 15 days later we found a tenant, signed the lease, and by August 8th, 2014 we had our first passive income stream as partners. My second property at the age of 23.

 

 

Check it out!

Here are the numbers:

Price of the home: $135,500
Investment per partner: $12K

Rent: $1,350

Monthly Expenses:

  • Mortgage payment: $880
  • Allotted for Expenses: $80

Net Income: ~$390
Net Income per partner: $130 a month, or $1,560 a year

Cash on Cash return: $1,560/$12,000 = 13%

Now, $130 a month is not much, but it started covering more than half my car payment. We didn’t hire a property manager for this home. We self-managed so it did help us get some more cashflow.

As of February 2017, the property has appreciated about $30K, the current tenants renewed their lease multiple times and we haven’t had any problems with the home.

Lesson’s learned:

  • Invest with people that have the growth mindset
  • Partner with people who you trust
  • Bringing value to a partnership is key
  • Create an entity such as an LLC when you partner up with others
  • Being resourceful and taking action will take you to a new level
  • Buying a house built in the 2000s will help you save more money in future expenses
  • When renewing a lease, ask yourself: “Is it worth it to raise the rent by $50 a month and have the tenant move out?” Noting that moving out will bring some expenses to get it rental ready for the next tenant and also have some vacancy while you find another tenant.

I am pretty happy with this property and I am excited that my 2 friends decided to invest with me. Erik now owns a total of 3 properties and Garrett has 2 properties. It is great to see the results after taking action and moving forward towards your goals.

So what are your thoughts? If you have any questions, please comment below!

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How I bought my first property at the age of 23

I wish I could tell you: “It was magical! Everything went as planned!” but it didn’t. I bought my first property in October 18th, 2013. I won’t forget that weekend because it was the same one I ran my first marathon.

I was 22, living in Austin, TX , and living in a rented room for $500 a month when I decided to buy a home. I had a strategy to buy a home and rent out the bedrooms while I lived in the master bedroom and have my roommates pay for the mortgage. I call this House Hacking- I will explain in detail in a future post. House Hacking works well is because you can buy a home with a 3.5%-5% down payment. This means that if you want to buy a home that is worth about $200K, you will need less than $10K in down payment. Pretty cool!

In August of 2013, I got pre-qualified to get a mortgage and I began looking at homes in Austin to start House Hacking. I submitted an offer, did an inspection, negotiated repairs and then… 2 weeks prior to closing, the lender told me that I couldn’t qualify for the loan because I was missing immigration documents to show my current status in the United States. This was heartbreaking; to put it lightly. I saw my dreams crashing and burning.
I remember speaking with my father, Jorge, and my mentor, Adam Carroll; The goal of buying 10 properties before I turned 35 seemed pointless. They encouraged me keep my chin up and look at other options.

I took their advice and thought of alternative ways to buy properties without a loan without needed tons of cash. One night, while talking with my dad on the phone, he asked me how much I had saved.
I thought; “$25K…,” I responded.
He suggested finding a home under $50K, partnering up, and splitting the cost.
My dad was onto something. This might work. I thought. Properties in Florida are a lot cheaper than they are in Austin, especially in Bradenton, the city where my parents live.
A few weeks later we found a home in Florida for $65K. It was a 3 bedroom, 1 bathroom home in a decent area. The rent would be around $950. This was a great return!

By this time, I had been listening to the Bigger Pockets podcast (this is a must-listen if you haven’t yet), where I learned about the 1% Rule. The 1% Rule is basically making sure that the rent is at least 1% of the price of the home. For example, if you buy a home for $100,000, you should rent out the home for at least $1,000.

In my case, we bought it for $60,000 and instead of getting $600, we were going to get $950 a month, which exceeded the 1% rule! The problem was that my dad and I barely had over $50K and we needed to buy this house cash. We went back to the drawing board to to think of different ways that we could get $10K. Fortunately one of my options was to borrow the money from my best friend, Pascal Wagner. I borrowed the $10K and told him we would pay him within 6 months. He agreed and we bought the home cash in 2013. My first investment property!

Check it out:


Here was the best part, the tenant that we got for $950 was living with her 2 adult children. The daughter asked my dad one day if he had another place for rent because she needed more privacy but still needed to be close to her mom for medical reasons. My dad asked her if she would be ok living in the garage if he converted it to an efficiency and added an extra bathroom. She agreed. So once again, we got creative!

My dad found contractors, built an extra bathroom and we closed off the garage. We turned it into an “Efficiency.” We had to invest about $5K to make this happened but now we had a 3/1 renting for $900 and the efficiency for $400, for a total of $1,300.

We still have this property and my dad currently manages the property.

Our numbers for the property right now are the following:

Monthly Income:

  • $1,300

Monthly Expenses

  • Taxes: $100
  • Insurance: $60
  • Repairs/Reserves: $100

Monthly Income – Monthly Expenses = Net Income = $1,040

Yearly Net Income: $12,480
Total investment: $65K
Cash on Cash return: ~19.2%

We were thrilled with the first property. I am 50 50 partner with my dad and we have a good return. It was a great learning experience and since I live in Austin, I haven’t seen it. My dad did all that work and I am very grateful for that. I didn’t get to house hack on this one, it was for the better. My return from the home was about $500 a month, and my rent for the room I was living in was $500, so now my passive income was paying for my living arrangement.

Opportunities are there. We have to look, create, and go for them. I could have made excuses to not invest and not put all my cash in the first property. I could have waited for the best property, but that could have taken months, I just wanted to TAKE ACTION! There are times where you have to partner up with others to pull the trigger. As one my mentors, Rock Thomas says: “Say YES, and figure it out later.”

Thank you to Adam Carroll for supporting me and helping me view my situation from a different perspective, to Pascal Wagner for his friendship and giving me the loan ( he would later become my business partner in buying 3 more properties) and to my dad, Jorge Corzo, who became my first real estate partner.

In the comments below, please write your questions or share the story of how you bought your first property or how you plan on buying your first property.

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Who is this Diego guy? – If I can do it, so can you!

quitting-gmIt’s August 15th, 2015. My legs were shaking, I could feel the butterflies in my stomach and my palms were getting sweatier with every step I took. I was about to do some something a lot of people would think is crazy and outside of the norm.

I turned on the lights of the conference room, I sit with my manager and I say: “ Bret, I want to let you know that I am very thankful for the time I have been here at General Motors. I love my team and the culture, but I now have a new passion and I want to pursue my dream. I am submitting my two weeks notice. I am going to pursue a career in real estate.”

Now as of October 2016, I am a full time real estate agent, own 8 properties, and have about $3500-$4000 coming in passive a month.

But things weren’t always this great…16 years prior to this, my parents made the sacrifice to leave their home country, Peru, to go in the search of the American Dream. A dream that would challenge me more than I ever thought was possible. I was 9 years old at the time, not knowing much of what was going on, my parents decided to over-stay our visa and we became illegal immigrants. I am what Congress calls “A Dreamer,” a person who was brought as a kid to the United States. Being a dreamer came with plenty of challenges.

I made it through high school and got into Florida State University in 2009… but ran into a small issue… I couldn’t qualify for any student loans to help me pay my way through college. I won scholarships but they were taken back because I didn’t have a green card.

I had to figure out a way to pay for college. So after volunteering at a non-profit working in the IT department for a few months, they decided to hire me. As I was going through the hiring process, they called and said that due to my immigration status, I couldn’t work. It was then that I realized I couldn’t get a job anywhere! But I didn’t let that stop me…. I created my own LLC and began work as contractor doing IT work.

Then one hot August afternoon in my senior year of college (2012), I hear a speech from Obama. And in that speech, Obama passes an executive action that will grant Dreamers the possibility to work and drive. I remember calling my mother to share my excitement. I was 22 years old at that time and I was finally gonna be able to do what all my friends were doing… that was driving and working.

That new executive order was a game changer and it came just in time! I began applying to various companies and one of them, General Motors, hired me right on the spot because of my experience and a recommendation of the Dean. I told them that according to what the lawyer said, I would be getting my immigration paperwork in 3 months. Being that GM interviewed me in September and I was graduating in December, there would be plenty of time and I would be able to start in January of 2013! That was one of the best calls that I ever did to my parents. I was going to be the first ones in my family graduating college and now working for a Fortune 5 Company in Austin, TX. I made them proud! I was finally gonna be living the American Dream!

Then I faced another obstacle. It was December of 2012 and I am still waiting for my paperwork from immigration. I am supposed to move to Austin and start working in a few weeks… And I have NOTHING! I am confused, frustrated and anxious. How the heck I am going to move to Austin where I know nobody, can’t drive, and don’t have a guaranteed job yet???

texasSo I took a leap of faith and I moved to Austin anyway. I figured… If I have overcome all of these obstacles it’s just gonna be a matter of time till I find a solution. In January, while talking with upper level management at General Motors, I convinced them to hire my LLC and hire me as a contractor for the time being. And they did! A few months later, I get my paperwork from immigration and I finally became a full time employee! I am very grateful for my managers at GM. They decided to help me, when they could have just hired another college kid.

While I was in college I read Rich Dad, Poor Dad, and I knew if I followed what this book said I was destined to be wealthy in all areas of my life. That is when I began to read about real estate in my spare time. In 2014, I met a mentor who helped me get my real estate license. While in my search on becoming the best agent I could be, I heard a podcast for real estate agents podcast where a really successful man named Pat Hiban talked about his mastermind group called Gobundance. Gobundance is a tribe for healthy, wealthy men who choose to lead epic lives.

I followed Pat on twitter and messaged him to introduce myself. Pat told me Gobundance was a mastermind group for millionaires. I told him I wasn’t one yet, but that I wanted IN. A few months later, I found myself at David Osborn’s ( a real estate mogul who is worth over $80 Million) house with 15 other millionaires masterminding for 5 days. I couldn’t believe it! There I was at 23 years old being worth $35,000 and in a room of millionaires. They accepted me in the tribe as the first apprentice (now there is a program for aspiring millionaires called: March to A Million) and they became my mentors in this journey of financial freedom.

gobundance-2I did whatever my new mentors told me to do. Whatever event they recommend, I attended. Saying YES, made all the difference. I have gotten to fly on the private plane with one of my mentor’s David Osborn, gotten to meet Robert Kiyosaki and Robert Hershevek. I have gone to 2 Tony Robbins events and I learned that I had to get out of my comfort zone so that I become the person I was meant to be. I went from being afraid of public speaking due to my stuttering to speaking in front of 275 people!

Personal development has been a hell of a ride and has opened a lot of opportunities. I stayed focused on what I wanted, I built the habits that I needed, and surrounded myself with people that held me accountable. I heard David Osborn say once: “The quality of your life, is in direct proportion with the quality of your peer group.”

So yes, I have had a lot of obstacles in my life. But I decided through all my obstacles that I have to be happy with what I have, as I build the life of my dreams.

I heard Hal Elrod, author of the Miracle Morning, say something that stuck with me because that is the exact way I was living my life. He said “Focus on your vision, not your current circumstance.” You see we all have obstacles and challenges that we must overcome. But these obstacles don’t define you.

The only thing we can control is our attitude and the meaning that we give those situations. Your philosophy in life is the most important thing.

So I challenge you, don’t settle for anything less than your best. You were given the gift of being born in a country where you can be and have anything you want. But!… there is a price, it doesn’t come for free. It takes perseverance, dedication, and self-discipline. A lot of people feel entitled and just want to coast in life. They conform because of what they see around them. And I will tell you this, nothing great comes out of being average.

You have to accept the responsibility from your past. You can’t change it, but what you can change is your future. And that is why we are here. If you didn’t care about your future you wouldn’t be reading this. Don’t blame society, your parents, the government or your boss because of your current situation.

If I can do it. An immigrant who came at the age of 9, not being able to drive till the age of 22, working for a Fortune 5 company to quitting corporate America and to now owning 8 properties.

Now that you know a bit more about me, I have some questions for you. What is stopping you from taking full responsibility, focusing on your vision and achieving financial freedom?!?!

Let me know in the comments below how I can help you achieve that freedom!

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What do you mean by Free By 26?

Hey! Welcome to the first blog post of many. I am excited you are here because it means you are hungry… I am not referring to the “I want a pizza” hungry, but the hunger to learn a bit more about personal finance and how you can achieve financial freedom.

So you are wondering why ‘Free by 26.’ Where did that number come from? Well, I am 26 years old and I am on the path to achieve financial freedom before I turn 27. Personal finance is not something we are taught in school, but you must master your finances in order to be financially free.

To me financial freedom occurs when my passive income streams pay for my monthly expenses.

Does this mean I won’t work? NO. What this means is that I have the freedom to choose what I want to work on and with whom. I am in control of my life, of my time. That is my goal and I have been on this journey since I graduated college in December 2012.

I started with 0 in the bank, and actually had to borrow money from my dad so that I could pay the first month of rent when I move to Austin. Through my journey so far, I have learned a lot about controlling my expenses, increasing my income, connecting with mentors and having goals that will get me to the next level of my life. Now I want to share that with you. I don’t care how old you are. You can be in high school, you can be in your 20s, 30s or 40s. I believe it’s never too late to change your mindset and start investing in your future.

This path is not easy, and you will need patience because this is not a ‘get rich quick scheme.’ This is a path of  ‘work your butt off, and reap the rewards later.’

I am sad when I talk to some of my friends who are around 25 years old and they have over $30,000 in student loan debt. It is now normal to graduate college and have thousands of dollars in student debt. That has to change!

Then, here comes the kicker. Those friends get a new job and then they decide to buy a brand new car. Adding an extra $25,000 to their debt. They think they deserve it because of all the hard work that they did, but don’t think that decision will mean having a payment of around $500 for the next 5 years! And hey as soon as you drive that brand new car off the lot, the value of the car goes down 30%.

Why do I say this? It’s because I think that millennials have become part of the consumer society and value their lifestyle rather than valuing their freedom. It takes a mindset shift in order to begin valuing your freedom, rather than getting the new 70 inch TV just because your neighbor got one.

In this blog I will be sharing tips I have learned along the journey in the hopes that it makes you more aware about what you are doing with your life, your money, and your time. It will make you think about what you truly want deep in your heart, because trust me, there is more to life than going to work just so that you can pay for your credit cards at the end of the month.

So I hope that you stick around because this is just the beginning and hope you join me on this journey.

Grab life big!

Diego

P.S.: If this resonates with you, please let me know your thoughts and post on the comments below.

Also, What would you like me to write about? Any topic in particular?

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