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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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The 6 Ways You Can Make Money in Real Estate

So you may be asking yourself… “I want to get make money in real estate but don’t know where to start?”

Well, today is your lucky day!

There are 6 different ways that you can make money in real estate. Some require no money and some require money so there is an opportunity for one. You just have to hustle and be willing to work to make it happen. #noExcuses

Here are the 6:

  1. Realtor
  2. Property Manager
  3. Wholesaler
  4. Flipper
  5. Investor
  6. Lender

Let’s begin…

1. Realtor

working_with_a_realtorA realtor or real estate sales person is the professional one hires to walk them through the process of selling or buying a home. The realtor needs to take classes, pass an exam, and then join the board of realtors in their area. They also need to join a Brokerage such as Keller Williams, Remax, etc.

The realtor makes around 3% of the sale of the home. So if you sell a home for $200K, you will make $6,000. You may be thinking, “$6000 per sale? That is awesome!” Not so fast… before you get that check… you have to pay taxes, yes Uncle Sam takes a piece. Then your broker takes another piece. This can range from 10%-30% of the commission. So whatever is left, is your to keep. Give me the money! 😃

Being a realtor does take a lot of work, especially when you are beginner. You need to be in front of as many people as possible and network everyday. You need to give them value so that they can trust you.

As a realtor, you only get paid when a home closes so it’s all commission-based. Be ready to track your expenses and be ready for good months and not-so-good months as your closings will fluctuate. I highly recommend having some cushion in the bank.

The good news is that you can start by becoming a realtor part-time. You can still have your full-time job and works nights and weekend. I was a part-time agent for about about year and half. It did require a lot of work as there were days were I would go into work at 8 am, meet with clients or show homes during my lunch time, go back to work and continue showing homes after 5pm. I remember one day I worked around 16 hours between real estate and my full time job. But it was worth it!

Later, I quit my job and became a full time realtor. I love it and everyday I am excited to help the families I serve.

If you want to become a realtor, let’s chat!

2. Property Management

property-managerAnother opportunity to make money in real estate is becoming a property manager or opening up your own property management company. A property manager usually charges between 7-11% of the rent of the home to manage it every month. This means that if you charge 10% to manage a property that rents for $1,000 a month, you will get $100 a month. That may not sound as much, but what happens when an investor tells you he has 20 properties and each of them rents for $1,000. That is $2000 a month to you!

Now there are a lot of tasks that you must do as a property manager. You will be taking calls of tenants, scheduling contractors to go and fix whatever just broke on the home.

You are also responsible of finding a tenant when a property goes vacant. Property managers usually charge 50% – 100% of the first month rent of the lease when a new tenant moves in, so this gives you some extra income.

I have 2 properties in Jacksonville, Florida and I use a property management company. This is great if you are an out-of-state investor. For example, the company charges me 9% of the monthly rent. At the end of the month, I get a report and a check of the earnings. The report shows any debits of the month, including the $63 that they charge me for managing the home (rent is $700).

Not a bad deal, huh. You just have to network a lot with investors and make sure you give better value to them than other property management companies.

3. Wholesale

wholesaleWholesaling is a great way to get your feet wet in real estate because it requires minimal money, it just requires your time.

To make money as a wholesaler, you need to find a seller who needs to sell their home for a lower price because you can close FAST and with CASH. The sellers can be people who inherit a home, a couple going through divorce, a family member is sick and needs the money ASAP or they may declare bankruptcy and want to sell it quick.

The wholesaler finds the seller but usually he doesn’t need to have the cash to close. He can ‘assign’ the contract or sell the contract to a third-party, usually a flipper or investor.

For example, you go door-knocking one day and someone opens the door. You ask them if they are interested in selling because you a list of investors who may want to buy their home. They say, “Actually, yes I do, I just inherit this property from my grandmother who past away and I don’t even live in this state. I want to sell it quick!” This is the perfect opportunity.

That house can sell for $100K in todays market. You offer $70K for it and guarantee them they will get the cash in 2 weeks. The sellers agree. You then find a buyer and wholesale the house to them for $75K. At the day of closing, $70K goes to the seller, and $5K goes to you, the wholesaler, for finding the deal.

Not bad huh… $5,000 for finding a deal… that is awesome!

In a wholesale deal, everyone is happy. The seller has their money quick, the investor bought a property 25% cheaper than buying it on the regular market, and the wholesaler is happy with their $5K without having to spend any money.

This a great way to get started. I would recommend meeting as many investors as possible and asking what their criteria is and what their ROI needs to be. This way you can find properties for the investors and you get a piece for finding the deal.

4. Flipping Homes

flipYou can also make money by flipping homes. This basically means that you buy a home that needs work, you renovated and then you sell it for a profit.

For example you buy a home for $70K, put $20K to update and sell it for $110K. This gives you $20K profit when you sell the home.

The key here is knowing how much the After Repair Value (ARV) will be after you renovate the home. Flipping homes does require more work that just investing in property with a buy-and-hold strategy.

Once you sell the home, you collect your check and move to the next one. This strategy is not residual, but you can make some great profits on the backend once you sell the property.

On a personal note, I have no experience flipping properties yet. I may do one next year. Right now I am studying what market and team I want to do it with. Keep you posted if I do one in 2017!

5. Investor

mailboxmoneyThis is when the passive income begins! As an investor, you can buy a home cash or get a mortgage and borrow money from the bank. You will most likely need $$$ to be an investor unless you partner up with other investors and they give you equity for the work you do.

As an investor, investing for buy-and-hold or investing for the long term, your profit will be called your ROI or Return on Investment. For example, if you buy a home cash for $100K and at the end of the year your profit is $10K. Then your Return on Investment is 10%.

Investors have different criteria and may invest in different markets depending on the ROI. For example, I know investors who are happy with an 8% return, while I know other investors who won’t even look at a deal if its not over 15% return.

It is very important to determine what your ideal ROI is. Your job as an investor is to look as many deals as possible with your ideal ROI. You can get these deals from realtors, house flippers, or wholesalers.

As an investor you can invest in Single Family Homes, Duplex or even Apartment Complexes. When you do it right… you will have checks in your mailbox every month! #passiveIncomeRocks

6. Lender

lenderThis one may be the most passive of them all! You can act as the bank and lend money to people who want to do flips or even want to buy and hold. Right now the banks are giving mortgages to buyers of Single Family Homes for around 3.5-4% (the lowest ever!), however, there are families or investors that can’t qualify for a bank loan so you may lend money long-term for 8%.

If you want to lend to a flipper that needs money to buy the home or do the renovation, then you can give them a hard money loan for 3 months, 6 months or when the project finishes. Right now hard money loans are going for 10-12%, not a bad return, huh. Just make sure that you trust the house flipper and look at their portfolio / previous projects.

As you can see their are various ways to make money in real estate. Some require more time than others and some require more money than others. The great thing is that you can get started NOW!

Which one are you, or which one is your favorite? Let me know below and see how I can connect you with others doing the same thing!

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