How I bought my first rental property at 21 years old

what's up you guys it's Graham here so one of the questions I get asked a lot is how was I able to buy my first rental property when it's twenty-one years old how did I buy it outright in cash so I'm going to be sharing with you guys exactly what I did how I save that money how I bought the property how I take the area I ended up buying in everything I'm sure all right now so if you guys don't already know I started working as a real estate agent when I turned eighteen years old so if you're not familiar with what a real estate agent does just google it but essentially I was licensed to represent buyers and sellers when they bought or sold a home and I was paid a commission on every deal I did so when I was 18 years old I was making all of my money working as a real estate agent it's not like I made like a ton of money my first year I think my first year as a real estate agent I made like 30-something grand and then like ten months in I've sold my first house and I saved everything religiously and it wasn't really saving for a purpose or anything like that but growing up my parents are really always just like paycheck to paycheck for the most part and I didn't want to live a life where I like my parents did just constantly worried about finances and where the next paycheck is going to come in and if they have enough money to for rent and all of this sort of stuff so all the money I make was kind of like a hoarder mentality where I'm like if I made a commission I would just be like I'm going to hoard it over here and a hoarder right so I just stockpiled money in my bank account and it got to a certain point I think I was about 20 years old I started making a little bit over $100,000 a year and at that point the same deal I was just stockpiling money every commission I did I just pretended like I didn't even have the money it's what straight into a savings account and I essentially I mean I don't recommend everyone do this but for me at least I lived like a hermit between the ages of 18 and 21 I barely went out pretty much has worked all the time and I was working between like 10 and 14 hours a day and I didn't really have any friends at the time I didn't really have anything else going on so all I was doing was just working saving working saving and I worked so much that didn't have time to spend any money so I was just like working saving working saving and the way started viewing things too was that all the money I'm saving I just saw that as additional income so for an example if I saw everyone going out and spending let's say $50 on a lunch if I didn't spend that $50 essentially I was just thinking well it's like I got paid in extra $50 because I didn't spend it and that sort of mentality is still with me to this day if I don't go and buy a Starbucks for $5.00 even though I want the Starbucks for five dollars if I don't go and do that I see that as myself is getting paid essentially another five dollars because that's money that I'm saving and money that I can invest instead and at that point I really just got way more enjoyment from investing and saving money that I did from spending it and I'm still a little bit like that today I mean I still get way more enjoyment for the most part by investing money and not spending it but I'm definitely on the frugal side of things and that's how I was able to save so much money so from eighteen to essentially like 21 ish so about three and a half years I was doing this basically not spending any money everything I made I would just save it save it save it and at the time I was thinking well I can always despite that Lamborghini Guyot establish Eris spider than like I've always really wanted maybe I could just go and do that and in the back of my mind I'm saying well I could just have like a moment where I was just going eBay it's like like you know buy it now but I never did that so I had saved all this money and part of my concern with working in real estate was it it was Commission only so if I didn't work I wasn't going to earn any more money so I knew that I was only going to earn money as long as I hustled as long as they put in like insane hours as long as I worked with everybody as long as it was like really busy I would earn money but even then being busy and hustling and meeting clients destroying houses is no guarantee you're actually going to make any income I mean in real estate it's so sporadic in with me to this day I mean there were some months I can make over $100,000 a month and other months I earn nothing for the most part or in like you know a few grand so I was a little bit concerned you know having all this money in the bank and not having any guaranteed income coming in so I knew I wanted to do something with that money and since I was in real estate real estate was you know my interest it was all I knew I spend you know twelve to fourteen hours a day in real estate so it was something I felt like I had you know leg up on by just being in real-estate all the time so now it's about 2011 and I started noticing real-estate prices just became really really really cheap and especially in San Bernadino which is like my prime focus for investing at the time with San Bernadino I was noticing these properties that were selling between fifty and a hundred thousand dollars that in their prime in 2005-2006 we're selling between two hundred and fifty thousand dollars and five hundred thousand dollars so you could buy these properties for twenty five percent of their value that they were selling for just like a few years earlier and the way I saw it back then is that these homes were selling for a fraction of the replacement value so if you guys don't already know the replacement cost is the cost to rebuild that same house and insurance companies uses a lot in case there's like a fire or in cases an earthquake or something that damages your property they always have a replacement cost now most properties in this area the replacement cost was somewhere between a hundred and twenty dollars a square foot and maybe two hundred dollars a square foot on the really high end but these properties that I was looking at in 2011 were like twenty five dollars a square foot thirty dollars a square foot forty dollars a square foot I mean just it's absurd so the way I saw it is that you couldn't even build a home for a profit at these prices and my thinking was this is that this should at least come back to replacement cost values because it doesn't make sense for a home to sell at less than replacement cost because you have to think it takes a long time to build a home someone's got to make a profit a lot of things have to go on for someone to actually build a house and sell it let's say for example a home that costs one hundred and fifty dollars per square foot to build chances are it's going to have to sell like a hundred and seventy five dollars per square foot for everyone to make a profit and come out ahead and to make that worth their time so I thought in my mind it doesn't make any sense for these homes to be selling at the values they're selling at at the very least even though this is the worst market we've ever seen it has to come to at least replacement value so at the time I think it was pretty much there's no way for it to stay at these levels for it ever makes sense to ever build again it needs to come back to at least replacement cost now in 2011 there were so many short sales and foreclosures and everyone was concerned about the real estate market nobody thought it was going to come back but I thought it doesn't make sense to have these prices so I knew whatever I bought if I bought it at $35 a square foot or $50 a square foot it has to at the very minimum be worth about $100 a square foot to 120 dollars a square foot for things to even make sense to ever build again now it wasn't just looking a hundred percent into a future appreciation of what it might be worth because I didn't think it was going to rebound as quickly as it did I knew it was going to rebound at some point but I didn't think it was going to happen in like a few years what I was really looking for was rental income now in San Bernardino a lot of people lost their home this is an area that just boomed in two thousand four five and six and got hit really really hard when people started losing your jobs in the stock market crash and everything in 2009 so this area got hit especially hard and I saw it it's just like a massive overcorrection I didn't think the market should have been as high as it was but I didn't think it should have dropped as low as it did so when it dropped that low I thought this is just a major correction this is just going to be temporary now is a good time to buy but at the same time people were renting because nobody was buying the people that lost their homes couldn't afford to buy another house and a lot of people that could buy homes just weren't buying because they were afraid of the market and everyone was calling for the shadow inventory and I can't tell you how many times they kept hearing about this shadow inventory when I was buying so many people told me I should not buy in 2011 2012 because there's a shadow inventory that's about to hit the market and prices are about to plummet even lower but I didn't even care I mean I just thought like even that if it did happen I was buying things so cheap it has to be at least be worth replacement cost at some point so I didn't really care at that point all I cared about were two things it's going to be worth replacement value and what I can get for rent a lot of people were renting when the real estate market tanked a lot of people became renters and that created a huge demand for rental properties so I began analyzing all of these deals with San Bernardino and I was able to find these like these houses that were $60,000 to about $120,000 that would rent between $1,100 a month and like $1600 a month but now since I just lived really frugally I've saved all my money I have all this Reserve and now I want to buy real estate but the problem was that San Bernardino was like an hour away and it didn't make sense for me to keep driving to and from San Bernardino seeing all these properties I needed just to do something really quick and the thing is this is that all of these properties that I were buying were short sales and foreclosures so let me describe really quick a short sale because all of these properties I bought or short sales a short sale is when a buyer owes more in a property than what the property is worth they can't make the payments and they let it go into foreclosure this is where the bank steps in forecloses on the property and they take it back but the bank is not a property owner a bank is a bank they just want their money they want their cash flows they don't want to be holding on to all this real estate so what they do instead is they allow for a short sale which is where the sell of the property owes way more money than the home is worth and they essentially just declare at listen I'm going to sell the house at its market value and we're going to walk away from this deal it's going to mess up my credit but that's okay I just want to get out of this property and the bank just absorbs the loss so all that money did the bank lent out essentially that's what a lot of these bailouts are forward for these banks just making really crappy loans and a lot of the people just walked away from massive amounts of debt I mean it screwed up the credit but at the same time they walked away from this property they may have owed 300 grand the bank was able to recoup like 80 grand of that and the seller just walks away scopz there with no other obligations on this loan so the way short sale works is that the seller first has to stop making payments on the house they have to fall behind the bank has to foreclose on them but at the same time they can put the house on the market and apply for a short sale short sales at that time were so backed up and to get approval on a short sale could take between four months sometimes as long as a year so what they do is they put the property on the market even though it's in foreclosure and they say they're going to be applying for a short sale so they collect all the offers if they have any offers submit that to the bank if the bank approves it if the bank approves the short sale they can sell the house and the new buyer can buy the house and that process like I said takes like four months to twelve months so what I do since I'm a realtor I have access to all these properties and I see them as soon as they come on the market is that I would make an offer sight unseen - for every property that came on the market that fit my certain criteria and this was my criteria it was anyhow newer than 1978 with more than three bedrooms more than two bathrooms more than 1200 square feet on a loft size of over 20,000 square feet this was my criteria this is what I found to be the best for renting out the properties at the maximum value so if any property came on the market it fit that criteria I just go ahead I submit an offer at a price that I felt it would cashflow really well for me and I submitted maybe like 50 or more offers no joke I mean I was probably writing an offer almost every single day on something some days I'd like write multiple offers on all these properties and of all those properties I maybe got like seven of those offers accepted then they get sent off to the bank and I had no intention by the way of closing on seven properties but I knew that the bank would take four months to twelve months if at all to ever approve the deal a lot of these didn't even get approved by the bank so it's like I wanted to get as many feelers out there as possible so I had a large range of properties to choose from so that way I can pick the creme de la creme whatever properties were the best at the time they actually come up so I was able to get all these properties accepted and then it was just like a waiting game but while I was waiting for the bank to approve the deals I just kept submitting offers kept submitting offers whatever came on the market to fit my criteria whatever price I wanted to offer I would offer it try to get it accepted and then the bank slowly started to come back saying okay we accept you on this deal we accept you on this deal we accept you on this deal but we want like a little bit more money on this and I wouldn't either agree or disagree now the first home I bought was listed somewhere on like seventy something thousand dollars it was listed online as twelve hundred square feet three bedrooms two and a half bathrooms 24,000 square foot lot built in like nineteen eighty-something so I submitted my offer like sixty thousand dollars which at the time was like really low and this is a home that sold in 2006 from of two hundred and fifty thousand dollars and I submit an offer at sixty grand it was sent to the bank to bank waited a few months the bank uh back to me they actually accepted the price of $60,000 now keep in mind too I had never seen this home before in person but at that price house was too cheap to ever pass up so with these homes even though I wasn't specifically viewing each house individually I still would go there every single weekend and check out different homes that came on the market just see what else is out there check out the area figure out which areas are good and bad and just overall decide which parts of town I really wanted to be in ideally and surprisingly the bank actually came back and had accepted that price which was so shocking to me I had no idea the bank would actually accept that price a lot of these offers I throw in are the total lowball offers that you've actually go for it I never actually expect them to go for it some of them do this one was just like a total shock to get that offer accepted so then once I got the offer accepted we opened escrow and that's when I do my investigation on the property to make sure everything is as it seems and to see if there's like no major defects of the property so I go in and I realized in this house it's owned by a drug-addicted hoarder I can't even make this up but they were like needles everywhere and like some people well maybe she's diabetic no you can tell she was not diabetic these are not you know any sort of medical use needles I mean she was a hoarder I mean she must have had like five years worth of trash just items of everything just piled up and it was hard to even see through a lot of the houses because they were like there were piles of stuff going up as tall as I am there was also like animal vomit and poop like throughout the house I think she had to act like a poor dog or something like that and the pet had just like peed and like pooped everywhere in the house but I'm like you know what at like 60 grand I can't lose even if it cost me like 20 grand to clean up this entire home I can't lose and this is a house by the way that would rent for like $1,300 a month so I ended up asking for like a few thousand dollars credit for certain things the bank actually gave me a $500 credit on top of my offer of $60,000 to buy the house so I ended up buying at this house all in all all in total fifty nine thousand five hundred dollars to buy my first rental property but it actually gets a lot better because the day I closed on the home I hired workers to go in there and clean everything out and begin prepping it for like painting floors remodeling like really light stuff and what we discovered was that on paper it looks like it's a 1200 square foot home but she had hoarded so much and somehow we had all missed this there was a room off to the side of the house with things piled all the way up to the top and like a bookshelf half covering it but it turned out when you remove that sort of stuff there was another full like 600 square feet behind it now this is just like me be getting totally lucky but it looks as though it was like an enclosed patio at one point that had been done really nicely and there was like an extra bonus living room with another bedroom off of it that it looks like this was all done really professionally now this is like a usable square footage that what for whatever tenant wants to live in there I could definitely use this as like an extra bonus room I had no idea and that adds a ton of value to the home having this additional add-on that none of us ever expected so what I bought this house I started doing some really light cosmetic remodeling all I did with this house is I took up all the carpet put in laminate flooring I changed out all the vinyl for the kitchen flooring and the bathroom flowing I changed its a tile I did some like minor countertops repainting some landscaping some really basic things and I think all in all I was into this home twelve to thirteen thousand dollars total for all the remodeling I did on the property including some like basic landscaping which is really inexpensive but once I did all this work and finished it I took pictures of it I put it on Craigslist for $1,250 per month and I found a tenant really quickly and if you've seen my video my top three mistakes in real estate part of my mistake was picking that tenant picking the first tenant that came through even though I had a ton of interest to 1200 a month I mean I just took the first 10 a big mistake I'm never going to do that again so all-in I bought the house for fifty nine thousand five hundred dollars I spent about twelve thousand dollars remodeling the property and I ended up getting about twelve hundred dollars per month and rent from that and from there I started buying other properties in the adjacent area so there were other properties within the same like block then end up getting and all of those were just cashflow positive from the very beginning and were bought out right in cash in the same way as I described about this house and overall the whole reason I did that was just to be able to create some income so I didn't have to worry about selling real estate all the time or making a commission or going through a dry spell in real estate or like something happening with my real estate career and then all of a sudden I'm out all this money so if you takeaways from this is that it was so important for me to save as much money as it could I think if I just blew all the money I had was like 18 19 and 20 by the time I was 21 I wouldn't have had anything left over to take advantage of these opportunities so saving money for me was like a total priority and even to this day I save as much money as I can so that when opportunities do come up you have the money to take advantage of them no I do want to mention by the way that luck had a lot to do with this as well not only was a saving money and making money good money too and one of the worst recessions we've seen but I was also saving money and happened to buy real estate at essentially the bottom of the market I was not expecting to market to rebound as much as it did so in that sense in terms of the value of the properties now a lot of that was luck I mean I did not predict it was going to go up that quickly but I mean again it's saving the money and paying close attention to what things are selling for and where there's value because I guarantee even now there is still value if you know where to look so that's pretty much it I mean that's exactly my story of how I made my money working as a real estate agent how I saved everything prob about these properties at the bottom of the market how I found the opportunities when they came up I mean that's everything so if you have any questions though feel free to comment down below I'm happy to answer any questions you guys have if you haven't already feel free to click Subscribe I'm going to be doing my best to upload as much 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Channel: Graham Stephan

Views: 1,017,402

Keywords: how to buy rental property, how to invest in real estate, how to buy an investment property, investment real estate, real estate investment, real estate cash flow, real estate passive income, how to buy a house, how i bought my first rental property, how to buy a rental property with no money down, how to buy a rental income property, how to invest in real estate for beginners, how to invest in real estate tai lopez, grant cardone, grant cardone investing, tai lopez real estate

Id: E-WipmObnUM

Length: 19min 28sec (1168 seconds)

Published: Fri May 26 2017