How I Bought my 3rd House this Year at 27 in SoCal

welcome back to another meet Capitol report this is the Q & a version where I answer probably the most common questions that I always get how do I get my money to buy my real estate especially if I'm buying multiple deals in a year well today I'm going to show you how I bought this particular a deal here with zero money out of pocket what's so amazing is I had bought two deals of this year with money that I had sort of worked to save up but then I ran out of money and I'm like ah this is such a good deal I want to buy it I want to buy it but I didn't have any money to actually buy it so what do you do well you follow and watch this entire video and take notes because this is gonna be pretty informative to you because after all on the meet Kevin report I like providing you videos that make you money okay you know I had to put that somewhere well this particular deal is closing escrow tomorrow that's October 4th which also happens to be the day the coupon code for the real estate investing course and real estate agent course and the in-person events expires so take a look at those in the link below now without further ado let me tell you a little bit about this deal why I bought the steal the money that's in the deal let's talk about how I financed it and let's cap it off with the cash flow and profit that I'm going to be making by buying this deal with nobody well alrighty then let's get started so the deal is actually selling for $465,000 and when a deal like this comes up the first thing that I like to do is I check to make sure there are no what I call ya BOTS and yeah bots are something we go crazy on in the real estate investing course but a quick example of a yabba would be something like being under a freeway or under those glow-in-the-dark high tension power lines there are tons of no no's when it comes to buying real estate so I always want to make sure there are no yeah BOTS once I've determined that we've got no yeah buts the next thing notice I don't even care what the value is if it's a total yeah bot I mean usually the discount is never near enough to compensate for buying a crappy property at any price property must be a quality property in an area where the population is increasing all right great so it's a $465,000 deal what's wonderful and special about this particular property is it was really really easy to compound one square foot property and I had similar sales when I say similar sales I mean properties anywhere between 13 probably 1350 to 1550 square feet that were selling in the same neighborhood and those deals sold for 615 6 10 and 605 these are the remodeled comps and they sort of establish what's known as that ARV or the after repair value now stay tuned obviously I'm gonna tell you how I financed this property and got it for zero dollars out of pocket especially since it's an investment property you know you ordinarily need 25% down to be able to buy an investment property especially when you're buying a bunch of investment properties like that's your career is buying investment properties but anyway so this is sort of my after repair value I'm buying the place for 465 the property itself needs work somewhere around $40,000 so this is a pretty basic remodel doesn't need a much at all that puts me somewhere being all into this deal if somewhere between 505 let's just round up and call it 510 so let's say I'm into the deal for $510,000 and I get this a lot I get people that ask me like well well Kevin which which number is it exactly I want to know exactly which number like what is the exact value of it it really doesn't matter because remember this isn't going to be a flip this is a rental property for me so I don't have to build in selling costs and little fluctuations in price they really don't matter this is a 30-year property that I'm buying this isn't like here today gone tomorrow kind of stuff okay so the fluctuations really don't matter things tend to go up in the long run and that's why it's so important to buy in areas where the populations are increasing that's a much much much much more important than the immediate cash flow you get in my opinion now the after a pair of value we let's just go ahead and say call it 6 10 whatever let's just pick the middle number here we'll say the after repair value is 6 10 I'm into the deal 4 5 10 which actually now creates this equity position for me of $100,000 in bonus net worth that is a hundred percent financed I go in and I borrow the entire five hundred ten thousand dollars my net worth goes up one hundred thousand dollars without touching a single bit of my own money you know what's so interesting about that is I always get people that are like oh oh Kevin what what is the rate of return of your individual deal what about this deal what about this deal I look at this I go I don't freaking care about sitting on my computer doing spreadsheets on my deals when I go into a deal like this where my net worth goes up instantly a hundred thousand dollars the ROI especially if I'm borrowing the money first of all is infinite and even if I'm not borrowing all the money it's really really high they think about that for a moment somebody with zero net worth that came across this property and had my knowledge and bought the property they their net worth would go from zero to one hundred thousand dollars if they wanted to sell the property and they paid some selling costs they'd probably be left with like 70 grand which is freaking awesome and like who cares if it's 70 or 90 or 120 whatever it shows you this immediate like boost and net worth it's like wow like how could you not do this this is how to get out of poverty right here but anyway let's keep moving on so I'm 27 years old I bought a couple properties already this year that were below market value and I bought this property below market value which you should already be thinking of this but there's something called buying a wedge deal there are actually three different kinds of wedge deals some apply to multifamily real estate those are totally different principles which we teach in the course as well but this particular type is what I call a sea wedge there's actually cor core wedge is what I call the method for finding under market real estate and this is the sea which is buying a condition deal and the way that works is pretty simple if the market value of the property is here at that $610,000 with a little bit of fix up in to it because I'm able to get it all in for $510,000 that actually puts me under the market value and that hundred thousand dollars is actually insulation it's kind of like wearing a thick jacket over your don't sue me brochure so it gives you this protection in case the market moves in case prices come down or whatever in the short term you're protected and you're not that worried about going into like foreclosure or whatever because also if you buy a place below market value all of your costs are less and the rent is generally significantly higher than if you bought the place at market value so your insurance is cheaper your taxes are cheaper a lot of good things that come out of buying cheap real estate but I think the big question now is how did I buy the place for $465,000 with no money so ordinarily when somebody buys a house for let's say four hundred sixty five thousand dollars and they want to live in it ordinarily they could get in with let's say 3.5% down loan maybe a five percent down low and 15 percent down load the problem though is if you're not going to move into the property and intend to live there for at least a year generally you have to put down at least 25% some people will tell you that you can put 20% down but when you do the math pretty much nobody ends up doing 20% down because the fees are through the roof on 20% down so most people will do 25% down just a lot of money and I wasn't going to move into this place I also found these particular sellers and they wanted to close the deal fast they didn't want to wait for a loan process so I thought okay great well this kind of changes the equation a little bit I got no money they don't want to give me 30 days so I could finance the deal I got to close the thing is a frickin P and I need four hundred sixty five thousand dollars and I ain't got it so what do we do well this is where a few awesome avenues come up the more you do this it always starts with you buying your own place but watch what evolves out of that over time and how you can then take advantage of these deals as well which remember just to be clear you could take advantage of these deals right away if you want to move into them but if you don't want to move into them this strategy for how you can come up with that money and buy this place for zero money out of pocket so over time I've met people who wanted to make money without doing anything like literally they just wanted mailbox money and the very first mailbox money person I ever met was this person named Bob and a Bob gave me a loan of twenty thousand dollars when I literally had no money the only reason he gave me the loan of twenty thousand dollars was because I gave him what's known as a second mortgage against a property that I was buying and he saw that the property I was buying had so much extra value in it it was such a good deal that he wasn't worried about losing his twenty thousand dollars because he could always foreclose on me if I didn't pay him back so he felt good about giving 20 grand to some 19 year old kid that has no assets other than a black Toyota Prius which given that he was much like the people I grew up with very into trucks and a boating the Prius wouldn't have done much for him but in the meantime he gave me this twenty thousand dollars and I was so grateful I made sure to pay him early every month I paid him like a week early every month when I paid him off early I gave him a gift when I paid off this alone and over time Bob and I developed this relationship where anytime I kind of needed money Bob was willing to slowly increase that number and I slowly turned that twenty into forty once I turned it into a one forty with Bob and this same thing I did with multiple other people so Bob's twenty fifty somewhere else seventy-five somewhere else and I started doing this over the last ten years and building people that I could trust then that trust me that would lend me money now what I did for this particular deal is I leveraged one of those relationships and I found somebody to give me a loan for $275,000 now that loan was at 8% interest only now that sounds really expensive but remember my goal isn't to pay that 8% interest for very long because I'm gonna fix this place I'm gonna rent it out and then I'm gonna do something special to get rid of this it's pretty simple we'll go right through it but anyway this 8% loan I know that sounds expensive but don't worry about it it's not that expensive $275,000 how to pay a couple points to make this happen which is totally fine to pay the people who are giving you money it's absolutely fine but that is still not for 65 and still doesn't give me money to fix up the place so what do we do that well that's where you can enter a something called a B L C that stands for business a line of credit because I operate a business I was able to get a forty thousand dollar line of credit with Chase for my business and this is money that my business can now lend to me as a person I could pay interest to my business and now I have an extra 40 grand now quick note here I know I'm talking about using a business alliance of credit but I just want to also quickly mention that there is another form of line of credit that you could use which I did not end up needing for this deal but I could have used I have about a hundred thousand dollars in a wealthfront account where they sort of invest in different Vanguard index funds and I'm pretty sure you could do this with Vanguard as well just do your research I don't pay any fees over a wealthfront I don't like paying fees but anyway what's cool about this is I have a hundred thousand dollars with them and they actually let me borrow on a portfolio line of credit twenty-seven a thousand dollars from my phone by clicking a few buttons and the interest rate on that was only late 5.75% which is incredible because that was the easiest line of credit I've ever established it was like automatically established so if you don't have a business know that you could use home equity lines of credit or you could use these sort of margin lines of credit you just have to be very very careful so I'm just gonna write kind of a little asterisk here the problem with a margin is if the stock market suddenly plummets a lot and this hundred thousand dollars goes down to let's say $50,000 wealthfront might decide to sell my index funds at the bottom-2 cover the debt because they don't want to lose any money and this happens automatically so this can be scary I personally much prefer the home equity lines of credit or business lines of credit mostly because those it doesn't matter what happens in the marketplace if the money is outstanding as long as I'm making the payments the value of my business the value of my properties when anything could have changed dramatically they can't pick up the phone and say hey Kevin you owe us all the money today it doesn't matter margin is a little bit more dangerous but I wanted to mention it because I did transfer that $27,000 I just realized that didn't actually need it so now I've got three hundred fifteen thousand dollars but obviously I still need more money so then because I bought my own house following the same principles I teach on this channel and in the course I had enough equity to where I was able to do something called a home equity line of credit the cool thing is that didn't cost me anything until I pulled some money out of it aka right now because I'm pulling some money out of it that home equity line of credit gave me access to another 125 a thousand dollars the cool thing about these things by the way is when I take money out of those as loans I don't have to pay taxes on that money so just because the value of my house goes up over time or I bought it really well below market value is great because I can use that value without having to pay taxes it's really cool and I don't pay any interest unless I actually borrow the money so I only start paying interest on this stuff when I pull the money out which is great anyway now we're at 440,000 I need an additional about sixty-five to maybe seventy thousand dollars for fix-up and the rest of the down payment and that's where I actually went to a second bank with my business and I ended up opening a second business line of credit number two and out of that one I have access to one hundred thousand dollars which is more than enough that I need I actually probably only need about 70 K out of that line of credit so now I know what you're thinking Wow Kevin that is a lot of debt like what happens if the market crashes and things go bad well let's go through exactly that and let me give you a little bit of extra detail on these loans first things first this $275,000 loan three-year note worst-case scenario I want to be in a position to where I could either sell this property or do a refinance to get rid of this 3-year loan within the next three years because I have that $100,000 buffer I feel really safe knowing that all right yeah we got a thick sweater on worst case I'll peel it off I'll sell and even like with like the worst case scenario it's like oh no you broke even right yeah and then like wow but like how could you lose money when you get a deal that's $100,000 under market value I mean real estate values would have to drop like 20 percent overnight and that usually doesn't happen see if values for example dropped 5% even over the next few months and I got any bit nervous or I thought I was gonna lose my job or something like that I can always just quickly sell it cut the price and I'd probably fly off the shelf or right away real estate is surprisingly a lot more liquid than people think if you just under price something surprise surprise it sells right away so there are easy ways out now as far as the lines of credit the cool thing about the lines of credit is those are actually 30-year loans and that is if I pull money out of them within the first 10 years I only pay interest only on them for the first 10 years then as soon as I hit the tenth year they turn into 20-year loans so I have 20 years to pay them off with principal and interest which is great so I can literally do nothing other than make the minimum interest-only payments for 10 years on these lines of credit and then they amortize off to nothing over time after that so I have a lot of protections of the here I feel I could sell it I could pay these loans off over time I've got some time to figure out what I want to do what you always keep an eye on the market but here's what I'm gonna do instead I'm gonna do something a called the burr method on this deal which is if you have I heard of it before it's you buy a deal you rehab the deal you fix it up because this place needs a little bit of love you rent the deal out you refinance the deal and then you repeat the deal so rehab and rent you'll have to subscribe to see more videos on that but let's talk about the refinance a portion if I go to a bank after I am done after I've refinanced and rented this property out I should be able to pull out about $450,000 on this deal and I should be able to get that money at roughly 3.75 percent fixed for 30 years which is insane because that means for 30 years I'm locking in alone at 3.75 percent that's like stupid proof why would I not do that that now pays off most of the debt I pulled out in fact it pays off that first 275 the next 40 the next 125 and it starts paying off a little bit of that business line of credit number two which my plan is just to over time kind of take some cash flow or extra money that I make and pay off the rest of that business line that way over time I have access to not only the person who lent me money before but all of these other lines of credit again for another deal now that new loan of about $450,000 is going to cost me and remember always remember this acronym here P i TI is going to cost me in principle and interest or right around a 2000 $84 the taxes are actually based at the smaller number that I bought the property for usually not always but usually so that's gonna be about 465 insurance will be about $50 so all in on this deal I should be at no more than a payment of about 20 is $600 now I could turn around and rent this property out likely for around $2,900 and a lot of the astute investors watching this are gonna say oh my gosh with a $300 cash flow and you have to cover vacancy management and repairs whatever else that's a ripoff that's terrible well let's just talk about that for just a moment because if that is the reaction you had you're probably missing a lot of massive value in real estate and your lack of knowledge will actually keep you poor so here's the way this works first things first I like to set aside two hundred dollars per month more repairs and issues that come up and we self manage so okay even if we didn't self manage fine call it a break-even whatever it doesn't matter what's important to know though is there are a few ways to make money in real estate number one there's cash flow which I actually don't like having too much cash flow I made a video on why cash flow keeps you poor I'm not in the place in life where it makes sense for me to have a bunch of cash flow it would actually be punitive for me to have cash flow so I'd rather have these other forms of making money the second form of money that people usually think of in real estate is they think of appreciation which generally occurs if there's gentrification or there's a population growth which those two things can go hand-in-hand this is why it's always important to buy where populations are going up but this tends to be a little bit more speculative so generally people call appreciation bonus which is fine but I don't like cash flow because my opinion cash flow keeps me poor I don't like speculating so instead I'm gonna focus on the third and fourth method for making money in real estate and the third method is what's called buying a wedge where I we talked about that buying below market value see on this deal like it or not I made $100,000 that now if I want to call a Bob and go yo Bob I got a hundred grand in equity on this place you want to lend me 50 you want to lend me 75 no problem in fact I actually have more equity in it because I'm leaving a little bit more money in the deal my net worth just happened to go up by a hundred but remember my new debts only gonna be 450 on a 6-10 property so that means I've got about $160,000 in equity in the actual deal so I might be able to borrow the full 100k from Bob so I made a hundred K on the wedge even if Mike Flo is nominal now every single year I'm going to bump the rent and that's gonna increase my cash flow if I bump the rent 50 bucks next year that's 600 more dollars of cash flow then next year if I bump the rent again $600 that's another $600 of additional cash flow which now means I'm getting $1,200 of cash flow so you can see how quickly you can actually start driving cash flow over time even if it's started as a break-even appreciation if and we'll call it speculative that's fine but if appreciation is just 1% I'm actually gonna get somewhere between 3 to 4% on my money because I'm only leaving about 30 percent of my money in the deal so that's called leverage depreciation so cash flows gonna come appreciation is gonna come but I'm not counting on it the only thing I'm banking on is the hundred thousand dollars that I just got which again talked about this so much in the course exactly how to do all of this but the other thing that's happening is every single month the tenants are probably paying off somewhere around $400 in principle which is close to 5 $1,000 per year that the tenants are actually paying off the loan for me so this is called principle pay down always spelled PA L at the end because principle is your friend it's your pal and now when you look at real estate in total you can see how it's actually somewhat ignorant for somebody to go off break even deal that's a terrible investment it's like wait a minute there's a lot more to real estate and it depends on the area you're in as far as which strategy is going to work best for you now I get a lot of people that say well Kevin a wedge deals and that's fine and dandy but I can't find any wedge deals in my area and I think it's extremely important to ask yourself 1 are people flipping in your area and that's it because if people are flipping in your area guess what you can find wedge deals because when you buy a place to rent it out you can always beat the flippers it's that simple if you're in an area that's primarily known for cash slow hey great milk it that's awesome but realize too that you can combine principle wedge deals and cash flow in your area if you're in an area that's more known for appreciation fine do the bottom three if you're in an area that's balanced fine do all four like there's no one-size rule for real estate and all of these things are going to be what makes you very very wealthy so folks there you have it that is exactly how I bought the steel for a $0 my plans and expectations for how this deal will evolve and some theories on how you can make a ton of money in real estate with essentially no money follow me on Instagram check out those courses below before that coupon code expires tomorrow and folks we'll see you next time

Channel: Meet Kevin

Views: 83,933

Rating: 4.8365345 out of 5

Keywords: real estate, investing, how to invest in real estate, how to invest in real estate with no money down, real estate investing, loan for real estate, starting in real estate, how to start, how to invest, how to invest with little money, real estate line of credit, heloc, bloc, wealthfront, business line of credit, home equity line of credit, private money, hard money, hardmoney

Id: He-VZxaZFBk

Length: 25min 28sec (1528 seconds)

Published: Thu Oct 03 2019