48: 4 Ways Newbies Can Finance Deals with Richard Kelly

This is real estate rookie show number 48.

This is what I wanted to do, and I think that's the biggest thing. Just have the why this is what you want to do. The how sometimes will work itself out, even if it's not exactly the way you plan it to be. You know, you eventually get to that point.

My name is Ashley Kerr, and today I am here with Tom Tony Robinson. And if you are watching on YouTube, you can see he has his nice honeymoon glow.

Yeah, I'm tanned, you know, I'm relaxed, you know, just everything feels great. It was so cool. We spent a week down in Playa del Carmen, and it was the most beautiful resort I'd ever been to in my life. And there was a huge river that flowed through the hotel and there was kayaking. And it was the best way to spend the first eight days of the year by far. So my wife and I said, every year moving forward, we're gonna vacation on January 1st, just to like start the year off the right way. So it was good.

That's a great idea. And he shared a little bit of his honeymoon on Instagram. New guys have to go watch his one post where it shows him driving a side by side, and then the next you slide over, there's another video of his wife driving the side by side and then a caption. So you guys have to go look at that, at Tony J. Robinson, and you will definitely laugh.

I got a lot of people reaching out to me about that when it was.

Well, what's new with you, actually? What's happened in the business world? I know last time we chatted, you guys were out shopping for stuff. I know you found a war zone bunker or something like that.

Yeah, I actually put my offer in on Saturday on that. So it's 17 acres. There's a pond, a field that a farmer rents. And then there's three storage buildings, 7,000 square foot. Each and every one is used for seasonal storage for RVs and boats. And then another one farmer stores equipment in there. So there's land that's leased. There's the farm storage equipment income, and then there's the storage income for the RVs and boats. And then there's a lot more room to actually build more storage barns or individual storage units. Then there's also these three bays that are like bunkers there. It's a huge concrete building with these huge heavy insulated doors on each side. And those just have nothing in it right now. But yeah, we joke that when the world goes even crazier, that's where we'll live. My partner will live in one, I'll live in one with my family and then we'll sell the other one to the highest.

There you go. Just carve a little space out for your co host. That way I know I'm coming to Buffalo.

We'll start a little commune.

That's awesome. Well, congratulations. Hopefully that deal gets closed for you guys.

Well, I'm waiting. The offer hasn't even been accepted, countered or anything yet.

So we're in the waiting phase. Cool. I'm actually closing another property in four hours. So this will be our second short term rental in Pigeon Forge. So we're super excited about this one, but we're actually going to try and take this one live without going out there to see the property. So when we bought our first one, we flew out there, we did the whole thing. But we've done three of these now, so we feel pretty good with what needs to be ordered and what needs to be done. So we're, we're gonna try and do this remotely and fingers crossed that we don't miss something or.

And you have a great person out there. You're cleaner.

Right.

She takes care of so much for you. And finding that has been key.

Right. And that's the only reason why we feel comfortable doing it remotely is because we've got her and we've got a really good handyman that we've kind of developed that relationship with. So they're both going out there tomorrow, the day after we close to kind of do a walkthrough and let us know what needs to be done. So we'll see how that one goes. And then we've got another property closing here in Joshua Tree in a few weeks. And that's our first one with a partner. So all of our other deals just been like me and my wife and her cousin. But this is our first one, someone else. So we're excited to see how that one goes to.

Awesome. We're going to have to do it.

There you go. Come on. We can do Buffalo, we can do Joshua Tree, wherever you want them on down.

Yeah.

Okay, sounds good. And today we can learn all about how to finance that deal with today's guest, Rich Kelly. So Rich just blew my mind. He's done four deals and each deal is just non conventional, just different ways of using financing, the different financing that is out there and available. So it's not even borrowing money from his dad or borrowing private money. It is all basically all going to the bank or an actual lender like a hard money lender.

Yeah. And he really talks about his experience with that first hard money lender and a lot of the lessons that he learned by really not vetting that company up front. And he learned those lessons the hard way. So really pay close attention as he's talking about that experience because he lists all the questions you should be asking asking a hard money lender before you get into a relationship with them. So you guys are going to love this one for sure.

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Good morning. Welcome to the show. Excited to have you on.

Thank you. So excited to be here. This is honestly a dream come true. Believe it or not, man, I've Been listening to bigger podcasts for so long and. And to be a guest is really amazing. So I appreciate the time.

No, absolutely, man. We're excited to share your story with the listeners and I'm sure they're going to get a lot of value out of hearing it. So before we dive in, Rich, just tell us a little bit about you, man. When you're not doing your real estate stuff, what are you doing? Who are you?

Yeah, sure. Well, I'm a full time banker. I work for one of the major banks and I've been in banking now close to 11 years, been through a few different banker positions, but I really, really love my job, love what I do, love interacting with people. It's almost like a good marriage. I feel like I'm a people person and then I love learning about money, how it works, how it flows. So it was really a great marriage when I actually started. So, yeah, that's pretty much what I do full time. I live in New Orleans, Louisiana, born and raised. I love this city. I tried to move away a few times, but actually have been brought back many times because of just the city, man. It's just something about it that it grabs you. And I've heard that from many, many clients. They've moved here maybe due to contracts ending in one city and then moving here, and then they never left. So that's pretty much it.

Beautiful, man. So you've got this W2 job that you're balancing with your real estate portfolio. Give us an overview, Rich, of where your portfolio is today. How many units do you have, what cities you're investing in?

Yeah. So solely investing in New Orleans right now? Well, I stay in New Orleans with the subsidies. Metairie Harvey, Louisiana. But I have two rental properties right now. One is a duplex and one is a single family unit. And I have completed two flips and actually signing a contract for another flip purchase today, actually later today.

That's awesome. Congratulations.

Thank you. Thank you.

Rich, what did you start out with? Did you start with the flips first? Did you start with the buy and holds?

Good question. So the first was actually a buy and hold property and it was actually through a short sale. So I started my real estate journey probably about 2004. I was going to school for veterinary medicine. I wanted to be a veterinarian. I love animals and I had the ability to actually shadow a vet and for about two weeks. And after that experience, I just realized that this wasn't for me. I don't know if you guys ever saw yes, man, with Jim Carrey. But there was a scene in there when he was in this chicken factory and it was kind of showing how they process it. And he was literally about to like pass out. That was me. That was me in the surgery room. I was able to witness a few surgeries. I was like, man, I almost passed out in the room. I was like, you know what? This just isn't for me. So anyway, that kind of like dimmed my hopes of what I wanted to do. I really didn't know that. My only plan A is what I was focusing on doing. And just through talking to my family, my stepdad told me, hey, my best friend is a real estate broker. Why don't you talk to him and maybe see if real estate is something of interest to you? And so through my conversation with him, that kind of intrigued me. And I said, yeah, I guess I'll do that. And simultaneously my stepdad gave me the book Kiyosaki.

Right?

And I'll tell any parent, listen, if your kid is on the verge of not wanting to go to school or finish this, do not give them that book.

It's definitely not going to want to make them finish college, believe me. But for me, it was perfect because I didn't really know what I was going to do. And so it kind of tied the two together. Me doing real estate and now actually having this mindset now of, yeah, this is what I'm going to do. So it was actually my first entry into it in 2005, I actually passed my licensing exam. First tried to everybody that knows me, if I'm into something, I'm going head first. I'm buying the books, I'm buying the audio, everything to learn and just understand and just go in. And so I did that, got my real estate license. And of course through that process, you have to kind of build your book. You'll kind of let people know that you are agent before you start generating any type of income. Unfortunately, In August of 2005, Hurricane Katrina hit and at that point everything just was out of whack. So I moved to Atlanta for a year and I actually let my real estate license lap. So I got it and never actually used it. But that was my introduction to the industry and I knew at that point I wanted to do something in real estate. Initially on sales, but then eventually into investing. Fast forward 2014, my friend introduced me to bigger pockets and I started listening and just grasping a lot of concepts from the podcast and the forums and just the write ups. And I realized that I needed to just kind of decrease my debt. Also being in bank, it just know I needed to be more bankable. So I actually got a second job in addition to working full time at the bank, part time at a gym, which was. That was a grind, man, because I was pretty much almost like 9 to 5 doing at work and then 10 to 4 in the morning at the gym and then just to redo it again. And so it was like five days at the bank and then about probably three to four days at the gym. But it allowed me to get debts down. And during that time also just talking about situations on how I'm going to get into the industry, what I'm going to do. And so after that point, I say, you know what, let me just start working with realtors and see if they could just find me a property. And that's exactly what I did. A realtor actually bought me the first deal, which was a short sale. And from there that's how I bought into my first buy and hold.

Congratulations and what a cool story. But I want to point out one thing, Rich, because I don't want the listeners to gloss over this. You said that you got a second job to help with your real estate investing career. And a lot of people reach out and they say, how do I afford that first deal? Or how can I make the finances work? Or I don't make enough money. But it's not a super complicated thing. If you don't make enough money, you got to find a way to make more money. And a second job, although it isn't pretty and it isn't exciting and it's hard, it's what you need to do. And people see real estate investors post that picture of their first deal or talk about how they got that first deal done, but they don't always see the work that goes on behind the scenes. So I love that you highlighted that because it's a good story for folks that haven't started yet on what sacrifices you need to make to be able to actually get that deal done.

So true. You know, it's only two things you can really do, you know, decrease your expenses or increase your income or both. Right. And that's pretty much what I was really trying to do. And I was just so focused. I didn't really even care about working at two jobs or maybe being tired. It was just. I just had that going in my mind that, listen, if I don't do this, what's the alternative? I know if I don't do this, then it's just Going to be working at the bank and yeah, eventually can I save enough to buy my first property. But I was just kind of ready to go at that point.

Were you renting at this time, living at home?

No. So actually I purchased my primary residence in 2007 actually. So the condo I'm in now and I've owned it since then, it's the small six unit. Also after kind of reading that book, I rich that poor dad, I realized also that I didn't want to rent anything. So I left my parents house at 23 and then I just ran straight into the condo, straight to own and I've never rented a day in my life.

So after you've lived in your condo, you've paid off debt and you decide you're going to buy this short sale property. What made you go with getting a duplex?

So that was much later on. I actually did a flip before the duplex.

Oh, okay.

Yeah, but it was just kind of, just came about because I knew that I wanted to do a flip to allow me to help me buy, actual buy and hold. Right. So I needed to get more income. At this point I had stopped the second job. So after I got the actual initial single family property, the buy and hold, I was like, okay. I worked maybe about another, maybe another year and a half at the gym because honestly, although it was a lot of not as much hours of sleep, it was actually a pretty cool laid back job. I met a lot of people, it wasn't really that bad. It was kind of like a fun gig. And again, I was just making additional income so I was okay with that. And again, it's just me, I'm single, so I didn't really have many responsibilities that it was taking me away from just my time. So it wasn't really too bad. So I continued to do that and I actually purchased the flip in between getting the duplex.

Okay, so let's talk about that transition, going from buying your first rental property and then purchasing a flip. So you talked about how you wanted more capital to buy your next property. Let's walk through that flip. Have you had any experience in construction doing a rehab before?

Never, not thoroughly. My dad is a pretty handy guy. He's not a licensed contractor, but my dad could literally build a house from ground up. I mean he has the knowledge to do pretty much everything. So for me, which may be different from a few other rookies, is that I did have that kind of shoulder to lean on with my father because I knew that if I ran into a Bind. I mean, he could kind of guide me through it and just really help me say, hey, Rich, no, we need to do this. And he was really with me throughout that entire first deal to kind of back up. What I did was I just kind of started getting a team together. So I found a real estate agent that was really investor friendly. I started off with one agent and I thank her so much because she did kind of start me on the process of looking. But when you're starting with a rookie investor first purchase, it can be a little tough to find a real estate agent because when I first started I was kind of, hey, I want to go see this property. Let's look at this one. Hey, I found this one. And she's like, okay, yeah, we can look at it, no problem, but we can't go to every property. And then I wanted to offered on the deal, maybe it fell through. So it was just a lot. And so the guy that I'm with now, John, I mean, I really, really thank him so much because, man, I can't think about or remember really how many deals we looked at and how many deals we put an offer on before we got one. It probably took me from the initial start about a year before I really found that one property that I actually wanted to put an offer on. I bought that single family buy and hold in 2016, and I didn't buy my first flip until 2018.

Did you find your flip on the MLS as well, or how did you find that property?

Yes, I did. So although I was on these automatic mail outs for my agent, and it was not just for my primary agent, but other agents as well, I just got on those lists saying, hey, this is my criteria. I'm really looking for mainly a 3, 2. I want to buy it at this price. I'm looking at this area and I got on those automatic feeds. But what I found is sometimes those automatic fees can have delays. I mean, literally at work every hour. Even before that, I'm on truly a Zillow, Redfin Realtor on those apps on my phone, just constantly looking at the feed to just see what came up. And I was doing this. As a matter of fact, everyone knows I'm a New Orleans Saints fan. So this was actually during the Saints game. I just started looking at the feed again and I saw this property had just come on the market. And I immediately texted my agent and said, look, John, let's put an offer on this property like now. Because at that time things were just kind of moving really fast, like a Property will be on the mls. I will wait because of being a rookie, I want to go and see it first before I make an offer. I don't want to get moved too fast and then I'm getting into a bad deal. Not really at that time. Really thinking, listen, you do have a contingency inspection period, so don't really worry about that too much. Just get the thing under contract. And so that's what I did on this one, and it worked out for me.

Let's pause on that really quickly because I think that's a really good point. A lot of new investors, they feel like they have to go see that property in person. They want to run the numbers a billion times before they submit the offer. But you saw it, you immediately reached out and you said, let's do it. What was it that gave you the confidence, looking at that listing, to say, okay, this one makes sense? Was it the purchase price? Was it the ability to add additional unit? What did you see that made you feel comfortable to do that?

Yeah, great question. Really. It was the price for sure. The area. I had been looking in the area for quite a while. And so I knew at that price point, I knew exactly what it could sell for. And then the square footage, it was listed as a 3, 2. And I knew that with the square footage, if I could potentially add a fourth bedroom, that I can get that higher list price. And that initially is what gave me the confidence to go ahead and call my agent and say, hey, look, let's actually get this thing under contract.

And you get that when you look at the same kind of area, your target market for a year, you really start to know what the prices are that make sense for you and how you can kind of make that deal make sense. So for those of you that are listening, pick a market, right? And just know that market intimately. And it's going to help you get that next deal done 100%.

Just like Rich said, he goes on Zillow almost every single day and checks that if you keep doing that, you'll get to know and look at what has sold. Pull up the comps in your area. You can do that on your own. I signed up for the free trial of Propstream. Do you use that, Tony?

Yeah.

So I just did it the other day and I was looking, you'd see the sales comps dumps on there. But yeah, there's so many different ways to get to know your market. I'll even go on Craigslist or Facebook Marketplace and look at what the rents are going for too. And then I'll look back and see, oh, well, this one's not listed anymore. It must have rented. And you can kind of track. I mean, I kind of go off memory, but you could actually start an Excel spreadsheet and track those as to. Okay, this went off in two days. It was already rented at this price price. So you can do the same for the sales and the rent prices. So let's talk about financing these deals. So with your short sale, how did you go about financing that one?

So that one to kind of go back on that for anyone listening, like rookies. What I did was I just started putting it out there that, listen, I'm looking for a deal, talking to everybody, and I'm a big believer in what you focus on expands and kind of like law of attraction, the secret type of stuff. So I actually just started doing it, had a vision board, had it written down like, I'm going to get this deal by this date. And it's so crazy. I know it sounds kind of hokey pokey, but I mean, literally, it was probably within a month of me actually deciding and being intentional on it that an ex coworker that worked at the bank that I currently work at, he actually left that institution and went to another. And he just came into the bank one day and I just happened to see him and I got to talking to him about what we were doing and kind of what he was up to, where he was working, and he actually told me that he became a commercial loan officer. So whenever, look, you do find a deal, just come and see me. I can help with financing. So I was like, man, of course, for sure, I definitely will be calling. So I actually did that. So when the agent brought me the short sale deal, he was a commercial agent. And I don't know why, I just wanted to buy this deal in an llc. There was no real reason for it. I don't know if it just sounded sexy.

That I had a property in the llc, but that's what I did. So I told him that, listen, I want to buy an llc. And he said, yeah, I'm a commercial lender, so I can potentially help you with it. But the problem was I hadn't created the LLC at that point. There was no revenue for it. So in my mind, I didn't really know the how. I just know this is what I wanted to do. And I think that's the biggest thing. Just have the why this is what you want to do. The how sometimes will work itself out even if it's not exactly the way you planned it to be, you eventually get to that point. So what ended up happening was, and I don't know if this is something that any bank can do, but I actually created the llc. Let's say it was a Monday. He did the loan for me on a Friday because the property was a short sale. They appraised it for 160 and actually got the property for 130. So actually got it with 30,000 of equity. I didn't have to put a down payment, I guess because of how much equity was there. Only had to come to the table with closing costs, which was about maybe $5,000. Those tenants that was in that property were in there probably at that point, maybe about eight years. I kept the same tenants. That bank was able to use the long term rental income and history of those current tenants to apply to my llc. So although the LLC was newly created, they were able to use the rents as income in addition to my W2 income to qualify me for the loan.

That's a really great point because the bank will actually go and look at the property and what the value of the property. So if there's rents coming in, if there's going to be rents, what the value of the property is actually doesn't matter. What if you don't have anything in your LLC because they're just putting the mortgage on that property and they want to make sure that that property is going to appraise well or generate revenue for you. I want to go into a short sale. I have never done one. I've kind of touched into that a little bit with a property I've had under contract for a year and still is going nowhere. But can you explain to everyone exactly what this is and what does that process look like?

Yeah, so they had a primary mortgage on the property, but they also had a home equity line of credit. And unfortunately, I guess they just didn't really understand the details of the home equity line of credit. Now to me, the bank was just. This was just really silly because through knowing the agent and talking through the situation with the actual homeowner at the time, it wasn't that they couldn't afford the mortgage or the mortgage and the secondary mortgage at this point was the home equity line of credit. It wasn't that they couldn't afford it, it was just that there was a balloon payment at the end. So too many years of withdrawal, payment on end, and this large sum sum. And I think at the time they probably had about 50,000 balance on the line of credit. Well, the bank was unwilling to refinance it. Knowing what I know now in real estate, I could have probably recommended something else for them, but at that point they just kind of like, well, we're stuck. We have to actually sell. The bank was going to foreclose on it. And so instead of going through the complete foreclosure, a bank can also do a short sale where they'll actually take less than what the actual debt is just to get it off of their books without it being a foreclosure showing on the actual homeowner's record. And that's what I was able to do. But the short sale, you have to be patient because it can take very long. So it probably took us close to 90 days to close on that property, which I wasn't in a rush at all. So if you're looking to maybe buy a short sale for a flip and you're trying to reach a goal to get it bought and then sold by a certain time, maybe it's not the best option. But if you're looking to just buy and hold an acquired property and you can kind of wait that time, it's great because you can come in with almost initial equity just right off the bat without even having to do any type of repairs if not necessary.

Who walked you through this process? How did you learn how to do the short sale process? Was it your realtor?

Yes, that was the first time I actually had any experience with it also. So I was kind of just going with the flow. Just kind of going with his lead pretty much.

Then once you purchase that property, you have your commercial loan on it and then you're going next to your first flip. How did you finance that deal?

The flip was financed through hard money. Oh, man, hard money.

Please expand.

So now I have experience with three different hard money lenders now, because going from that buy and hold, initially, I knew that I wanted to do more flips. One, to acquire more active income to buy more buy and holds. At the end of the day, for me, that's my game. I want to definitely have more rentals just to get that cash flow. And eventually if I wanted to leave the bank at some point, I could match my income there and be comfortable with leaving. But you know, I love my job. I'll keep doing it as long as I want to. But to have that option is really what I'm searching for. So the first hard money lender that I went with, I'm thankful because I got it. They actually helped Me finance the deal. But, man, I would never go back with that company. I should have done more research. The first thing I did was I went on Bigger Pockets and said, hard money lenders. Right, for this area for Louisiana, pretty much. And so they gave me a listing of hard money lenders, and I just chose one that after reading a few of the websites, that I thought would have been the best company to go with, and I did. But this company has so many upfront fees. Some people are going to cringe if you dealt with hard money before, although it can be expensive, this was kind of, to me, a little extreme. So My rate was 15%. Now, this is my first deal. The points was five and a half percent to get into the program. There was an initial. Outside of those rates and points, there was initial $3,000 program to get into this 100% financing program. And one of the things that I liked about it was initially, you didn't have any monthly payments. You just kind of paid it on the back end once you sold the property. So that was intriguing to me. But the process, they wanted to do a single entity LLC, so they charged me $1,600 to set that up. So I already had an LLC, but I couldn't use it. Right. They had to create one for me. They charged me sixteen hundred dollars to do that.

When you did yours yourself, how much did that cost compared to the 1,600?

105. $105.

Okay. Okay.

To do the LLC myself, at least through Louisiana. So everybody. Every state is different. But.

Right, right. Like in New York, everything's expensive here and that you can even do it for $225. So I figured it would be a big difference from 1600.

Yeah, man. So in hindsight, not the best deal. But I mean, look, it got me through it and it worked out. But there were some other things, like not really knowing, understanding, draw. Process was another thing for anyone listening. When you're doing hard money, one thing for sure is you want to make sure that you have reserves. So although the hard money lender will give you rehab costs, what I didn't know is that going in, I was going to have to actually front the initial rehab. You have to start to do certain work and you have to invoice it to say, hey, I did demolition, I filed for permits, I've done the sheetrock work or whatever needed to be done on the property, and you're actually fronting that money. So if you're putting your down payment down, which I think on that deal, had to come to the table with about $30,000 to make the deal work. In addition to that $30,000, you're going to need the initial rehab to at least get the first draw. So that's one of the things. Thankfully, I had some reserves and my sister went in on a deal with me. So we tapped into some of her capital. And then also, unfortunately, credit cards to start off. But that's definitely something I would say. Every newbie needs to really ask a ton of questions before going into a deal with a hard money lender. Just to understand the process from beginning to end and not so much when you close, but also after the fact. Like, what's the draw process? How much is it for each draw? How many draws can you do? How fast does it take for the money to get into your account after you actually make the draw submission? All those things can make a huge difference and be a big deal. Quick point on that is also knowing with the hard money lender, do they allow you to do the work yourself or do they require you to have a contractor? So on this deal, I didn't find that out until after I had closed on the deal that they actually required you to have a contractor. So me and my dad were actually doing the work ourselves. We had to get a friend of ours who was a licensed contractor to actually do the invoices, submit to the hard money lender as the actual contractor, in a sense, which I didn't really feel comfortable doing it, but it was the only way I could actually get the draw. But had I asked those questions up front, it would have definitely helped me decide if I wanted to go with them or how I was going to maybe work it.

After you've paid out all of this hard money, what was your profit on.

The split on that deal? It was about $16,000 net. After I paid everything back, which I was just happy, really, to get a profit, man, after, because this deal, oh, my gosh, this. It probably wouldn't have been the best first deal for a newbie because the property itself had mold damage, termite damage. I was adding a bedroom. It was raised so there was standing water under the property. I had changed kind of the floor plan, opened up the kitchen. So I did a ton on this property and I actually took it on because, again, my dad was with me. I was confident, say, rich, I can do anything to a house, so just get it. So he gave me confidence to actually buy the property. But if I was working with just a contractor man, the cost would have been through. The roof. I mean, I probably would have lost money on that deal.

How long did it take to do the whole rehab?

Rich man? Great question, because it ties into hard money. Again, like this hard money lender only gave me five months to complete the deal. It took me six months to actually complete the deal. And with the hard money lender, most of them now, after research, at least give you 12 months. I definitely wouldn't go with a hard money lender. That gives you such a short timeframe, especially if it's your first deal. It's very, very difficult because you're just learning on the fly, in a sense.

And you can always pay it off early. Correct. It's not like you have to keep the hard money for those 12 months.

That's correct. And again, unless that hard money lender says there's a prepayment penalty. So that's again another question to ask. I haven't come across one that had a prepayment penalty, but you just never know. You just have to ask those questions. So thankfully this one didn't and most of them don't. But yeah, you can pay it off anytime. I did not finish within that five months. Part of this program was that if you did finish, you purchased, you closed, and you pay them back before the five months. The initial $3,000 that I told you about, you get back. Well, needless to say, I lost it because I went over the month. And then in addition to that other month, I was awarded with another penalty because I went beyond the fifth month. It was maybe an additional 1% that I had to pay them.

I just want to make one more comment before we jump onto how you finance your other deals. But some people might look at this and say, man, six months worth of work, $16,000, it's not even worth it. But I can tell just from how you explained that deal that you learned so much about flipping a house, about dealing with hard money lenders, that even if you came out negative on that deal, even if you lost a little bit of money, it probably still would have been worth your time. Because I'm sure on your second flip you knew all the things not to do to make sure that it went smoothly and really set you up for success.

Absolutely. And honestly, my 8 mind broker had to kind of bring me back because at the end of the timeframe after work, I was going to the house. On weekends, I was going to the house. There was no free time for myself. Me and my dad was really grinding this thing out. We had some laborers and we did Stuff about some work like flooring and cabinetry. But a lot of the small stuff that we could do on our own and save money, we were doing it. So it was really just a real sweat equity we were putting into the property. And so at the end of it, I put my eighth in. Look, if I break even on this property, I'm fine. This is at the beginning of the project, right at the end, it's like, no, man, listen, I put so much work into this thing, man.

I got to make some money on this deal. And he was like, rich. Remember what you told me in the beginning, man, it's like your first one, you're just trying to get your feet wet. And one of the things too, before we move forward, was just kind of thinking through how you can save money. So one of the contractors I hired to do we were removing a popcorn ceiling and just going all flat. He actually wanted to purchase a house. And he was, man, once you're done, just let me see it, and I may be interested. And actually he was. So he bought the property. And because I actually bought the deal, two more, we kind of decided on it together. My agent also represented him, and he only took 1% commission, so I didn't have to pay an agent for him with 3%. So that also helped me kind of save a little bit on that. So just kind of be creative. When you're really kind of trying to maximize profit, there's many different ways you can kind of squeeze it out.

I've met other investors who have had similar situations where as the house was getting built, either someone that was working on the house or someone that was in the neighborhood kind of saw it and said, hey, when you're done, let me know. And that's a really good way to sell it. So beautiful, man. So you have your single family house, you have your flip, but then you do the duplex and another flip. How did you finance those two?

Yeah, so the duplex and the flip, I almost bought, in a sense, simultaneously. I put offers on them at the same time. The flip I bought in November 2019, and the Duplex I bought in December of 2019. And the Duplex was one that was on Hubzu. So it was actually an auction website that I found it on, and it definitely needed some work. So I actually bought that one using the 203k loan. My condo that I'm in now, it was a conventional loan at the time, so I didn't have a fha. And then a friend of mine, who, a really good friend of mine. We grew up together. He never bought his first home. And so I was kind of talking to him because we had conversations about him wanting to buy something. And so I was like, hey, man, listen, I'm looking to buy another property. Would you want to go into buying a home with me? If so I'm thinking we could buy a duplex, and then you can live on one side. We could rent out the other side. Either you'll be living rent fee or very, very low rent. And he was like, yeah, man, listen, I trust you. I'm with it. I'm ready to do it. And that's actually how we got into that duplex deal.

How did you guys structure that?

Yeah, so we actually just split all the costs. So we did the loan together. He was going to be living in a property. We bought it for 1 61. It needed about $15,000 of work to kind of just bring it up to speed. And we found a 2 or 3k construction lender that was kind of familiar with the process because it's so time sensitive that you had to get it done within a certain period of time. Also in conjunction with dealing with hubzu, because they have very strict rules of closing on a certain time or you lose your earnest money deposit. So it was kind of real intense Just to make sure we were working with someone who understood the process in regards to a contract just to get all the invoices in and documents in on time. And so once we closed on a deal, we really just. I think we had to come to the table with about $14,000 and we just split that 50 50. And so now he lives in a property. The other side is the section 8 tenant. We get 1350. The mortgage we actually just refinanced from a 4.7 to a 2.7. Wow.

Congratulations.

Thank you. So cash flow's there. We haven't done homestead exemption yet. So once we do that on the property, that's also going to increase the cash flow there because our taxes won't be as high. And for him, he probably will be paying about $200 a month to live. And once we did the rehab, it appraised for about 202,000. So we have a good bit of equity in that property already as well.

If you were to rent out his apartment, what would you say it would.

Rent for his dad? Probably could get about 950,000. Yeah.

So paying 200 bucks to live in a $950 apartment, that's great. So you said you're both on the Mortgage. Is that the same for when you refinance? And then are you guys both on the deed and is it just your personal names then?

Yes, it is for both of us on a mortgage and both of us are on the deed. Yes.

That's something similar my sister and I did when she bought her first duplex. She put the mortgage in her name, she got the FHA loan and then we're both on the deed for the property and I put up the down payment for the property, so. And then she pays, I think $50 a month towards her mortgage. So it's great.

Crazy.

And like for me there's real no benefit until she actually moves out. Then I'll get some cash flow. But just like the long term play. And she's in a great area where if I went to go buy this property, I'd have to put 20% down or pay cash for it. It didn't really need a ton of rehab, but it's already appreciating. And I got to get into this property, 50% owner and only had to put three and a half percent down. So I think that was great. And I'm sure with you too, financing, having your partner being a resident of.

The property too, I mean, to that point, you're right, I'm not getting any cash flow from the deal, but just having an equity there in that area, there's new construction going on. I mean that property isn't a great path of progression type of area. So down the line is going to be a great buy.

Can you talk a little bit more about the 203k loans for folks that aren't familiar with that? What is it and why did you guys use that type of financing?

Yeah, man, I love the 203k process because 2 or 3k loan, pretty much what it is is it's an FHA loan. So 3 1/2% down is all you have to come into the deal with. And what they do is they actually combine the purchase price of the property and also rehab costs into one loan. And then you're paying just one monthly payment. You have to go through a 203k loan lender and there's not many of them that we were trying to find people in the city. There weren't really too many, but there was one that my broker recommended to me that he's worked with before. And the process, it is like I mentioned earlier, a little bit time sensitive depending on what you're buying. And you have to make sure that at least I would recommend that you work with a contractor that has done 203k lending before because the criteria is so specific, they have to be on point with what they submit. Everything just has to be all T's crossed and I's dotted when you're submitting them. But I think they're a great option for someone who's going to live in the property because it has to be owner occupied. And yeah, you can literally, like Ashley said, live either rent free or very, very low. So I think in hindsight I would have done that. Had I really known about the 2 or 3k, I probably would have done that on my first property. In hindsight, I wouldn't have purchased this condo. I would have done that for sure.

What advice would you give a rookie investor who's maybe in your partner's position or my sister's position where they actually want to live in a house hack and they want to find a partner like you that will help them bring some of the money to the table. What should they look for in a partner? How should they approach a partner? Can you give some advice on that?

Absolutely. I would approach a partner who's kind of looking for one to get another property under their belt, to have another door, who maybe has additional money that they can put towards it and who's okay with maybe not having any cash flow coming in from their property. But they do understand the long term benefit of one getting tax because not only do I have the equity, but the tax deductions, we're writing off everything. We have a property manager for the property, so it's not like I have to actually manage it myself, just let them know that they'll be hands off. So I think just networking and finding anyone that really wants to buy another deal and who's okay with not getting any cash flow, but understands the whole equity.

One thing I just want to add to this too is because I don't have an LLC with my sister, you don't have an LLC with your partner. And I'm sure some people are thinking, well, where's the protection on that? And you can put an umbrella policy that lists you and your partner and that property to give you some protection if you don't have the LLC too. Hey, and then let's talk about your last property, the last flip. How did you finance that one?

That one was also through hard money. Obviously after what I said, I went through a different.

Hard money lender this time. But the process was definitely much smoother. Believe it or not, I used a broker to find this hard Money lender. So. And pretty much a broker is they'll just find lenders across the nation. You tell them what type of deal you're looking for and they find a deal. And so actually this broker found this hard money lender for me and it actually worked out. Would I go through a broker again now that I had experience? No, because I found the third one that I'm going to do the new deal that I mentioned with another hard money lender now because I can get more favorable terms. So, yeah, it's worth it and just kind of go back a little bit. I recommend everyone just kind of get started because the more deals you do, the better terms you're going to get. With these hard money lenders, even if you're dealing with a different one, they'll ask your experience and they'll ask you to kind of give a property rundown, even if it's rentals. They ask me what rentals you have or own. How many flips have you done? And actually allow me to get favorable terms on the third lender that I'm working with. So I did go to the second one on this property. This one I purchased in Gretna, Louisiana. It's not that far from New Orleans. It's probably about 15 minutes outside of New Orleans. But Gretna is a great area that's coming up. And I found this one on the mls. Again, I was just searching. It's funny because nothing came through my broker. I've always found everything online and it's just because I'm beating them to the punch and I'm just constantly looking. And so I just found this one and saw the pictures. And again, I didn't go look at the property. I just said immediately, oh, I knew the area. I knew what homes are going for. If I don't know the area as well that much, I'll just go in and kind of go to. I love Redfin, probably the best in Zillow because you can see what homes have sold for the. Sometimes the square footage, depending on if it's listed. And then you can kind of just get a ballpark idea at least to make you feel confident about making an offer site unseen and then just put the contingency in there. And that's what I did.

Yeah. So how was your experience with this hard money lender? I'm sure it was better than the first one. Did you take a lot of those lessons you learned and applied it to this new hard money lender?

100%. So this one I asked more Questions up front, for sure. So, because I had purchased this duplex and also I had done the flip, although I got money back, some of my cash reserves was used to actually close on the duplex property. So what I had to do there was actually tap into my 401k. So I did a 401k loan, and I learned about that just through the bigger pockets forms and things. And so I went into a 401k and I took about, I think about $20,000 out of my 401k as a loan.

And so, Rich, have you done every kind of financing?

There's every. He's got everything.

401K, 203k, hard money. You've seen it all, man. This is. This is the financing episode.

But listen, I credit that all to. Honestly, bigger pockets. Bigger pockets really gave me the confidence, honestly, to just move forward, even on that first deal. Because before, it was just really a fearful thing. You're buying this property, you're borrowing this money. I don't know if it's going to work, but just had to go for it. But I didn't get that confidence on my own. It was through listening to other people and hearing their experience and just saying, listen, you just got to take action. Got to take action. The chips are going to fall. If you just go in with calculated decisions, not just off the cusp, but just calculated decisions, you'll be fine.

Yeah, I love that approach because for a lot of folks that are listening that haven't done that first deal yet, and what's holding them back isn't so much that they haven't listened enough or they haven't read enough. It's just that they're afraid. They have this fear inside that's kind of holding them back. And I love your story about your first couple deals are maybe a little shaky. You have the experience with the short sale, and then the first flip went kind of haywire. But you learn so much through those processes that now you're more seasoned, a more confident or more capable investor. And that's the purpose of this show, is to get people to get that first deal done so they can feel like how you feel now, Rich, so. So really appreciate you sharing that part of your story with us.

Can you just explain real quick just what the 401k loan is? Just break that down as the process if someone was interested in doing that. Because, I mean, 401k, okay, that's a retirement you have through your work. How did you get a loan from it?

Yeah. So, I mean, if you have other means of financing, I would say maybe go through that. Because when you do a 401k loan, I mean you are actually taking assets that are invested in mutual funds or whatever you invested in your 401k. And if you don't know, you need to just really look into that side note, really, so just kind of know what you're investing in. But anyway, when you're in a 401, you are invested and you're taking that money out and the money's really just kind of sitting in cash in a sense, and your bank is actually giving you the loan, the brokerage is giving you the loan on it, but it's no longer invested where it's going to grow at whatever rate the investments were earning. So you got to be conscious of that. So pretty much on my end, I did an application through the website. I said how much I wanted to do you choose your term? I chose the 60 month term. I wanted the longest term to have the lower monthly payments because those monthly payments are going to start coming out of your paycheck. Right. So they'll do an automatic deduction out of your paycheck. And that money was then just wired into the bank account that I listed on the application. It probably took about maybe a week to close. The great thing about it is it doesn't show on your credit report. So it's not showing on debt to income. So if maybe you're looking for another deal in the midst of doing the flip or why you have that loan outstanding, it won't affect that. As far as debt to income ratio, which was good and the rates are really typically low. I think at the time it was probably about maybe 3.5% on the interest.

And you're paying that interest to yourself too. That's going to you in the sense.

Yeah, you're right. Yeah, it really is going back to you. So as you pay it down, it's going back into the 401k, reinvesting into it. So it was a great option for me at the time because I didn't want to go outside and get partners on my second deal. I just felt a little uneasy about bringing in someone that I didn't know. I wanted to maybe look if it's on me, if I lost my own money, I'm fine. I can kind of recoup and be okay with that. But on the second flip that I've done, kind of going into a partner, I wasn't as confident when I knew I had this asymptomatic sleeve. So I kind of went through that process and it worked out for me.

You shared a lot of different unique ways to get the financing portion done, Rich, I appreciate that. And just one other thing, I'll call out to you. And I've shared this on previous episodes, but even if you have stocks that are not in a 401k account, you can also use those as collateral to get a loan. So you can get a line of credit against stocks that you hold. And the kind of key differentiator is that like you said, if you get a 401k loan, that money is no longer active in the market, so it's not growing. But if you take a loan against your stocks, they're still in the market, they're still growing. So if the interest rate is really low, but the stocks you have are doing really well, you can still make a pretty good spread there. So thanks for sharing that. I want to take us to the MVP section, but really quickly before we do that, I want to talk just really briefly about how you're finding your deals as well. So have all of your deals come off of the mls?

All of them have, yeah. Again, it's just through rigorous searching and just constantly looking. But now it's gotten a little bit harder. So now I've been kind of looking into dealing with wholesalers a little bit more and off market deals. And I was listening to a previous podcast, I can't remember which one it was, but one of the guests was just stating that anytime they see we buy houses sign, they always just call that number. And so I've kind of picked up that technique. So whenever I see one I always just either call it or text it and say, hey, I'm a local buyer in the area. Please add me to your buyers list. I'm looking to find another deal and although I haven't purchased any properties from wholesalers, now I'm getting a lot of leads sent my way just doing that. Two other things that I do is actually I went into the Almost Real Estate Facebook forums that are for Louisiana or the area that I want to invest in. I went into all those forms, became a member of those pages and groups and actually just put my information there and just let them know, hey, I'm a buyer in the area. Add me to your buyers list. So the goal now has just been kind of getting on a ton of wholesalers buyers list and also just driving for dollars. This recent property that I'm going to sign a contract with later today, I was just driving by, well, a friend of mine actually. And again, just kind of talking it up and letting people know what you want to do. They were driving by, saw for sale by owner sent me the number. I called it. The guy actually purchased it from almost like a wholesale deal in a sense. He was going to rehab it. He unfortunately contracted Covid and just didn't want to go through the process, so he just wanted to offload it. So that's how I found that deal. So they come many different ways. You just kind of have to put it all out there. One other thing I would say is also definitely become a part of your local real. I am a member of my local real group and they also share property leads there as well. And there's a ton of resources on the local RIA group that you can take advantage of, from calculators to just forums and just again, weekly webinars that they do.

One piece of advice to kind of go along the lines with that is if you see a property for sale that you know is held by an investor, maybe it's a mixed use building or there's a duplex or something like that, or it says it has tenants in the property. Even if that's an not a property that's for you, call the seller, call the listing agent and ask if they have other properties for sale. This has happened to me a couple times where I've seen like one building and the seller is just trying to sell the one property in his portfolio before he sells any other ones. And just you asking, they might be interested in selling those other ones and it can open up a huge amount of opportunity. It just happened to me a couple weeks ago. I called on one property and they have three brand new duplexes. They had eight vacant lots, another older duplex. So I highly recommend doing that too. If you see a property that is owned by an investor, call and ask because it doesn't hurt anything and it doesn't cost anything if they have other properties they would be willing to sell. Because think about all of us. Once we buy that first property, we all become addicted and buy more and more and more.

So true.

So many good ninja tricks in this episode. I feel like we're dropping a lot of good knowledge. It's awesome. So, Rich, it's time for the part of the show where we learn about that key person on your team. And I feel like you've kind of alluded to this a little bit, but we're looking for that person that played a really critical role in your business and we call this segment the mvp.

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So tell us, who is the MVP on your team?

Rich I gotta say, my MVP has to be my dad because all the flips we've done We've done ourselves really. I haven't gone through a contractor, so I'll say my dad has to be my MVP because we're in there, man, grinding it out sweat equity or putting the work in long hours, listening to radio in the house. Just kind of staying late nights and doing everything. And he's there. Also helps me sometimes if I need someone to check out the property before I can and say, hey, does it look okay? Is this one that I may be interested in even after I've put an offer on it? He does that for me. So my father for sure, he's primarily. But also I definitely have to save my broker John with Face to Face Realty. He was a big help because if I didn't have him kind of like going with me along early on putting offers on all these properties when he wasn't making any money and really just doing time, he kind of believed in my vision and what the type of person I was to help me and submit those deals, but never complaining. So we got to start off both of those gentlemen for sure.

So for all the rookies that are listening, go grab your adoption papers. That way Rich's dad can adopt you and he can also be your your mvp.

But for we will add his information to the show notes@biggerpockets.com Rookie 4 so.

Rich, you're about to get a lot of new siblings after today's show. But before your broker John, I guess you mentioned that you had a different agent when you first started and you kind of cycled through some different people. How did you find John? Was this a referral? If I'm a rookie and I want to find another John, how do I do that?

So mine is a little unique because the timeframe of when I actually was initially introduced to being a real estate agent, to the years and years before I actually invested, I was in network marketing. And for network marketing, if you're not familiar with it, it's pretty much where you're marketing a property through networking, through people and things like that and online sales. But also one of the bigger things about that experience that I love is I was introduced to personal development. So I got introduced to a ton of books, mindset change. And that really also set me up for investing later in life and also even becoming a banker. But within networking in a certain company, I actually met John and his mom and actually met him. And then when I was looking for another agent, I just put it on Facebook. I said, listen, anyone know any real estate investment friendly agents and multiple people Recommended John. I was like, man, I didn't even realize John was in real estate now. And so we kind of connected again.

Beautiful. And I think that just goes to show that the more you kind of put out there what it is that you're working on, what you're working towards, and I feel like we talk about this a lot on the show is just talk about real estate investing, even if you haven't gotten that first deal done yet because you never know how the dots will start to connect for you. So beautiful, man. I love that. Cool. I guess. Ashley, want to take us to the last segment here?

Let's go to our rookie request line. You can reach us anytime at 1-888-5-ROOKIE. This is where we have rookies call in, leave us a voicemail with their question. And today we're going to have Rich answer a question. Let's hear today's question.

Hi, my name is John Castillo from.

Dallas Fort Worth area, and I'm buying my grandmother's house for 150, give or.

Take and probably appraises for maybe 200 to 250. Just trying to figure out the best case lending scenario for me. So that's all I have. Thank you. So great question, John. I think it really depends on what you want to do with the property. Right. One, I would say if your mom owns it outright, then maybe seller financing may be a great idea to actually acquire the property if you're going to flip it based on the ARV and what you think you can get it for. Given the experiences I had. Once you find the right one, hard money is a great option to actually purchase a property if you wanted to flip it. And even if you wanted to hold it, I think depending on your income and credit and things like that, you probably could even still go through traditional finances. So I think the true question is going to be kind of what's your end game for the property? Which would kind of determine which fraud, I would say you would go as far as financing.

Or he can use a 401k loan. Right. Or he can use a 203k loan. That's so true.

I mean, that's the statement. There's so many different ways to finance a property. It's always just choosing which is the best option because you want to kind of lay out everything and say, okay, this is my best course of action. If not, you know, you got plan.

B and C. There's so many different ways to kind of make it all happen 100%.

I think this whole episode answered his question, and he can kind of listen through and see which would actually fit him best.

I've never done seller financing before. I would hopefully maybe like to do a seller finance deal. But just from other podcasts I've listened to, it's definitely a viable way if the person you're purchasing for owns the property.

Outreach, we're gonna go next to our random questions, and this is where Tony and I either pick off a list or something comes up that we think of throughout the show that we want to ask you. So I'll go first today and I want to know what is your special X factor? What has made you a great real estate investor? What do you bring to the table?

I would say relentless. I am constantly looking for deals. I'm constantly listening. So I don't listen to music when I drive. I only list the podcast real estate money. I want to keep my mind in that space of where I'm attracting that stuff to me. And so on the weekends, I'll take a break, maybe I'll go back to music that I like. And even sometimes on weekends, I'm listening to just podcasts and just things that are kind of real estate intentional because I want my mind to always be working in that space. And again, I really do believe in what you focus on expand. So I just try to keep that mindset all the time so I can kind of have deals come to me, I guess telepathically, if you want to say that. And I think just always looking for deals, always just trying to find a way to get the next deal, letting people know what I do. I want to get more heavily on social media just using that a little bit more. Just saying, hey, this is the deal. So, like, when I do this next flip, I'll probably maybe diary that in a sense of kind of outline what I'm doing on my social media.

One thing I want to add to saying you listen to the podcast and reading books or going to meetups, it keeps you inspired and keeps you motivated. It keeps you going because there can be highs and lows in real estate investors investing, and you can get too comfortable and listening to how someone is doing something different. And I need to grind to do that. I think you're right. It does keep you focused and it keeps the wheel spinning as to how you can continue to grow and create the life that you want from real estate investing.

Absolutely. Just the last thing to piggyback off that. Just keep in mind, guys. It took me literally a year to find the first deal that I offered on and got so I mean, that's constantly looking. Go and look at problem. I'm not saying it would take you that long, but it took me quite a while to actually find my first deal. And part of that was because I still was a little bit fearful about just putting an offer on a property. I wanted to go and see every property before I actually put an offer on. And it just took me a while longer when I first started out. So don't be discouraged about time that it's taking to get your first deal, because it does kind of start to snowball from there.

So I guess one thing to add onto that too, I've called this out in the past, is that if you get to the point where you haven't done your first deal yet, but every podcast you listen to, every book you read, you're kind of hearing the same things over and over again. Then that's when you know you're at the point to start taking action. If you're not getting a lot of new information from all the different podcasts, you're like, oh, I know that. Oh, I know that too. Oh, I know that too. Then that's a sign that you're probably ready to move forward. We probably all know someone in our personal life that has four or five different degrees, but they still don't have a job. It's almost the same thing, right? School can only do so much. At some point you got to get out there. So I love that, man.

Great point, great point.

So my question for you, Rich, is what are some tools or software that you use that you feel have really helped your real estate investing career?

Well, for sure. All the apps, the Redfins, the Realtors, the Zillows, it just helps you move a little bit quicker in searching for a deal. Also, I use Genius Scan, which is for me, it scans documents and creates PDFs, which works well for me. When I'm sending like a proof of funds letter to my broker to submit a deal, or if I'm submitting a contract to someone, I can just do the PDF, scan it, send it. Even when I'm doing taxes, I'll scan all of my tax documents. I can just genius scan it and then email it directly to my tax person. So Genius Scan for me is huge because it keeps all my documents in one place securely. And again, they can convert them into PDF. If I'm taking most recently a picture of a escrow check, if I haven't deposited yet, I can genius scan that and then send it so that for sure Also stuff, man, love stuff. I use it for my rental properties. But also listen, guys, developers, if you're listening to this, please add a flipping aspect to it, please. But I still use it. I kind of just mimic it a little bit to work for my flips, to kind of keep all my expenses, what I'm spending money on and kind of keep that all in one space. But stuff that I love. Those two apps are probably my top two out there.

Also Sessa owners, developers, if you're listening, if you can add something for short term rentals, I'd appreciate that. So put me and Rich on the development team so we can give you guys some direction. But I love Sessa too and I think you were actually the person that introduced me to Sessa. You posted about it on your Instagram a while ago. So it's a great shout out to.

Ashley, man, because that's where I got it from too.

So they need to add me to.

Their promotion team, their marketing team when they go public. You should get some free shares.

There you go. Awesome. Well, Rich, man, you dropped so much knowledge today, man. I absolutely loved hearing your story and all the creative ways you're getting deals done. If folks want to get in touch with you, where's the best place for them to go?

Probably Instagram and Facebook. So Facebook is just Richard Kelly, my name, but Instagram is Rich Lauren L A R O N. You can find me there. And yeah, feel free to shoot me a message. DM more than happy to answer any questions or just connect.

Great. Thank you so much for coming on.

Thanks for having me. This is so surreal.

Yeah, it was really fun and I loved all of your financing, so that was really great. We haven't had anyone on that has done that much in depth and for four different deals too. So thank you.

Thank you so much.

I am Ashley Kerr at Wealth From Rentals and he's Tony Robinson at Tony J. Robinson. And we'll see you guys next week.

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