49: Targeting New Builds to Get Around the W-2 Requirements for House Hacking with Andres Bustamante

This is real estate rookie show number 49.

I just put a $3,000 earnest deposit. This is the craziest thing ever. So the home, I got it for 326 and now I legit checked this yesterday. The same home is selling for 398,000.

Tony, I know what you're gonna say.

Get a niner. Is there a niner in there?

The reference there.

So I think episode 39 was one of Tony's first episodes that he joined me as co host and he had never seen Tommy Boy. So now every show that has a niner in it is, you know, going to be a nice little joke between us and the listeners who are with us for that episode. Tony has since watched Tommy Boy and now will become a household.

Absolutely. Every. It's, it's, it's mandatory watching in my house. All my future children will not have to watch Tommy Boy. My wife, I told her she's got 30 days or else I'm getting a divorce. So that's how serious we're. We're taking it to our house right now.

So besides Tommy Boy, our favorite show, we have Andres on today who awesome content about new builds. I had looked over the show notes and I saw house hacking a bunch of other stuff. But the way he goes in depth about actually using new builds and the strategy for that is really exciting and makes me want to go after that new shiny golden.

I, I think it just shows that there's so many different ways to get started. No one's really connected the dots, at least that I've met about consistently using new builds as a way to build your real estate portfolio and all the benefits that come along with that. So you guys definitely have to listen and pay close attention. He talks about tenant screening. He talks about how to effectively house hack and make sure you're not bringing the wrong folks into your homes. He talks a lot about mindset too, which I think is going to be hugely helpful for the listeners also.

Yeah, we could have done a whole nother episode just on mindset with him. And that's a new segment we have doing the mindset stuff. And we're, we do a nice little funeral for a segment that will be leading us. So make sure to listen to that and to why. And then we have a very special surprise for you guys coming up in the next couple days. So make sure you listen to the very end and we will tell you when that will be announced.

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Andres, what's up brother? Welcome to the Real Estate Ricky show, man. Excited to have you on.

Thank you so much for giving me this opportunity. I appreciate it.

Yeah man. Gonna dive into your story in a bit here, but before we do, share with us a little bit about you, man. What got you into real estate and what brought you here today to chat.

With us, of course. So right now I'm 24 years old. I'm from El Paso, Texas, and I started in Austin when I was 19. I got into the University of Texas at Austin, and tell you the truth, I was an undeclared business major, but I thought I wanted to do supply chain. I had heard one of my friends talking about supply chain, and I was like, dude, this sounds cool, so I'll just apply for that. Got into supply chain wasn't really what I wanted to do. At the same year, freshman year, I got my real estate license just out of luck. I initially wanted to be a lifeguard and I didn't have my certificate, so I said, you know what, let's just do real estate. Because a friend told me they thought I'd be good at it. So freshman year, sophomore year, I did a lot of leasing and I met a lot of people junior year and senior year. That's when leasing really picked up. And with leasing, I was able to become financially independent from my parents, was able to pay my housing expenses and my college tuition, which was amazing. So fast forward, I graduated with a degree in international business and real estate. And the summer of 2019 was really like a what am I going to be doing? Am I going to be doing full time real estate in which is commission based on. Or am I going to do commercial real estate, which was what I initially wanted to do, which is an 8 to 5 job. So I read a lot, I listened to Biggerpockets. That's when it very much started, summer of 2019. And I decided to trust my gut and do three months, four months of full time real estate. So I go back to Austin in November. I meet Diego Corso through Bigger Pockets. He had an episode. So at the end of the episode, Diego mentions he's in Austin. And I was like, wow, I should just reach out. So I give him a cold call, we meet up, and eventually I get on his team in January of 2020. And fast forward to now, first year of real estate sales. I've done 15 closings. I have 15 under contract that are going to close this year and one house hack that I currently live in, another house act under contract that closes in two months and an Airbnb that's going to close in four months.

That is an amazing story. And the part I love the most is that you started out as a leasing agent. Because I always push for people to get into real estate somehow to learn how to do it. They're nervous or they don't even know what exactly real estate can do for you as an investor. So what would be your advice to someone about getting into a position like that? Leasing agent, property management. How did you get that job with having no other real estate experience, of course.

So, I mean, with this, my friend, thankfully, he just told me, andres, I think you'd be good at it. You're people's person, and you get along with people easily. So I was like, you know what? I'll just do it. I applied for the job, and at first it was like, you know what? I'll just lease once in a while. But when I started doing it a lot, junior year, is when I noticed that real estate really gave me the time to do real estate whenever I wanted. So if I had finals, it's like, you know what? I'm not going to do real estate this week. I'm going to focus on finals. And when I didn't, I could do real estate. And also the fact that I didn't have my own boss, so I could decide if I wanted to kill it in real estate, I'd go all out. And if I didn't, I mean, I could see the results. So with this, that really lit a fire in me. And it was crazy. Just setting the systems through my freshman and sophomore year to get clients, referrals. The property managers, I just let them know, hey, I'm gonna send you two clients over. The property managers are like, all right, that's fine. And if they signed, It'd be like 500 per bed or a percentage of the monthly rent. So that was amazing. I really, really enjoyed that.

So how that was set up was you were a realtor working for a brokerage, and then you reached out to the property managers and leased them. You weren't hired by the property managers per se.

Correct. So as a leasing agent, you get to take clients. Say, for example, I have some clients, they give me their needs, I ask a lot of questions. And then from there I'm like, okay, three apartment complexes, Apartments, really, they offer incentives for realtors, the commission, because of the fact that they need people. So I'm the one bringing the people, and they give me a commission because I was the one that brought them. So, I mean, all of my friends group were my clients. Everyone needed a place to live. So with this, it was like the perfect job. In college, had my own time and I didn't have a boss. And I mean, junior and senior year, through the money I made, I was able to pay for college and housing. And then through a referral that I got through leasing I got to do a $1.1 million sale. That was my first ever sale. And I swear I did not know anything about sales, but I just dove into it. I dove into it with a partner, because when I got that sales referral, my friend was like, yeah, he wants to lease. So I got on the phone with him. It's like, what's up, dude? What's your criteria? And he's like, yeah, my budget's a million to 3 million. So I was like, I had no idea what to do. So I was like, okay, I'll get back to you. I partnered up with one of my friends, and long story short, I learned where an HOA was, which I didn't know what it was before. I learned a lot of other things through that experience. And, yeah, he closed on a $1.1 million condo.

So I want to go back to what you said, because there's a lot of nuggets there. But just really quickly, give us an overview of where your portfolio is today. I think you briefly mentioned it. I just want to lay that foundation quickly.

Yeah, for sure. So right now I'm living in a house hack, getting around 250 in cash flow. Four bedrooms by three and a half bathrooms. I have another house hack under contract, which I know we're going to touch on the new builds, which is what I focused on a lot. And I have actually an Airbnb that's going to close in around June of 2021.

And I wanted to bring that up because I know you're house hacking, and I would assume that some of the lessons you learned as a leasing agent have benefited you as someone who's doing a house act. So can you talk through what some of Those were?

Oh, 100%. It's been huge. And I know Ashley also started her route through getting into property management and whatnot. And I feel like it's definitely the best route because with this, I really knew how to talk to property managers. I knew how to price rent for any area in Austin. I also really knew kind of the due diligence and the security deposit, the app fee, what those go into, the admin fees. And I learned so much through my leasing experience that it could also go into the not only the real estate investor when I'm house hacking, but also real estate sales, because now I knew how to negotiate way better. I really knew how to get into the needs as opposed to a want. Because sometimes you tell yourself, okay, this is what I want, but what do you really need? Maybe you need to live in this area because a family member lives there, as opposed to, oh, I want to live here because I like this area. Those are two completely different things.

And that's the benefit, right, Like Ashley said, like we've said so many times before, of doing something real estate related before you become an investor. Because, like you said, a lot of what you learned is that leasing agent has now positively benefited you as an owner. So, yeah, let's get into the portfolio a little bit. Right. So you said you've got one house hack that you're currently living in, you've got another that's under contract, and then you've got an Airbnb that's about to close. That's a lot of activity for a rookie. So I could just kind of walk through your journey so far as an investor. Like, how'd you get to the house hacks and this growing portfolio that you've got?

Yeah. So, I mean, I feel like it really started when I started joining masterminds with Felipe and Diego. And when I joined Diego's team, this was January of 2020, and Diego's like the house hacking king. He does a lot of house hacks and talks a lot about that. So, I mean, being with an individual like Diego, Felipe, and other people in the masterminds, it just pushed myself subconsciously to, I need to get a house hack. The problems were that I had a 1099 job as a full time since January, and also the fact that I was renting an apartment. So I was renting an apartment, and this apartment, the lease didn't end until September of 2020. That's eight months out from January of 2020. So I really thought it's like, are these going to be barriers of entry? But I was like, you know what? Let's just jump in. And I remember perfectly. Super Bowl, I think, Chiefs against the 49ers. Diego came over to my place and we're going to watch the game. That it was like, diego, this is the first home that I have under contract in my sales, and I need to help my client. I need to do the contract and send it over tonight. So we didn't get to watch the super bowl game. We went to the conference room and we went over the contract. He taught me everything. I sent out to the listing agent. Long story short, we got that under contract. But that same day, Diego told me, it's like, dude, there's a builder that just told me that a home went off contract, so they're not going to put on the market until tomorrow at 1pm and this is the four bedrooms, three and a half bathrooms. You have to go see it. So I was like, okay. I had looked at three deals per day and I knew my numbers. So I was like, okay, this checks all of my boxes. And I went the next day because it was like 10pm when they all told me, I went the next day, 11am I saw the floor plan. It hadn't been built yet, but I saw the floor plan and I saw a similar house. I put the home under contract with a deposit of $1,000. And I was like, you know what, I'll figure my apartment situation out. And I'll also figure out the fact that I couldn't be a primary resident because of my 1099. I didn't qualify. I mean, that's how it started. And with that, long story short, the 1099, I was able to do a non occupant co borrower loan with my mother. I put the money in and I qualified as a primary residence through that. Because to take this back a little, as a 1099, you need two years of experience. The loan officers need to see that you have that income. With a W2, sometimes work experience, experience counts towards that. So say, for example, I work in finance. You have two years of school experience so you can be qualified as a primary resident. And then with my apartment complex, I was actually able to find a subleaser. So it was pretty great. And I mean, with a new build, there's so many advantages to having a new build.

When you say primary residence, you mean getting like an FHA loan and getting that low down payment.

Yes, a conventional loan. So whenever I say primary, it can either be a conventional or an fha. The huge benefits of a primary is that you get lower interest rates and you can get a lower down payment. Your intention has to be to live in it for a year in order to be a primary.

And with your 1099, you didn't have the two years to show that you had income coming in to qualify for that. So they took your school in.

I had been part time and as a 1099, you need really like a year and a half or two years of steady income. So with this I needed a co borrower and my mother was a co borrower. So I mean it was kind of thinking outside the box. And I mean, with a new build, I just put it under contract with an earnest deposit. That's the beauty about a new build. You just need an earnest deposit, which is like 500 to $3,000, what I've been seeing in Austin for house hackers that I've helped. And then with that there's benefits, like you get it under contract, you lock the price. My home closed in April, so I had instant equity of like 5,000 to 6,000 without doing anything because I locked the price. And then there's also lender incentives. So if you go with the builder's preferred lender, I got 2% of the purchase price towards closing costs. That was huge. And then there's also something known as a 1 to 10 warranty in which you get 1 year craftsmanship warranty, 2 years of electric H vac and plumbing, and 10 years of structural and foundation roof and stuff. So I mean, with the market as competitive as it was in Austin, just putting an earnest deposit was ideal. And I love that.

That's really interesting to hear how buying a new build can differ. I mean, I am buying houses that are 100 years old most of the time. So I love all of this. And definitely to ask if they have preferred lender that you can use and get discounts like that.

Oh, yeah.

One thing I wanted to touch on is what happened with your apartment. How did you overcome that obstacle? If some of our listeners are in the same boat, what did you do to overcome that?

Sorry, Ashley, really quick before you answer that question, because I just want to add one point before you answer. How if you can just tell us why that didn't stop you. Right? Because I think a lot of people who are looking at getting that first deal, there's going to be some kind of obstacle. But you didn't even have a solution, but you went for it anyway. So I just want to know why you weren't afraid.

In hindsight, I would say because I was with individuals, like people I really, really highly regard. And it's like, wow, these guys are killing it. And it was kind of like I didn't want to disappoint them, but at the same time, I really, really wanted to get into real estate asap. And I was just like, you know what, I'll figure this out. Worst case, I just lose $1,000 with my earnest deposit. I mean, that's really the worst case. And at the same time, like I said, being with like minded individuals, I mean, like you two right now, it's like you guys push me to be better and it's just amazing what that can do.

Yeah, that's awesome, man. And I think your point about thinking of the worst case scenario is critical. And we've talked about this before as well. Right. It's like if you can live with how things would be if everything went wrong, then you have no reason not to move forward. So, sorry, I just want to point that out because I felt like that was a big point.

No, that was awesome.

And I'd rather not live in regret because a lot of things we don't really know until we do it. I'm a huge mindset guy and I learned a lot about mindset this past year and a half, which I'm surprised nobody teaches in school. But yeah, it was a lot of the mindset stuff as well.

Honestly, that's what holds a lot of would be investors back. It's not that they don't know what to do, it's just that they're afraid or they're scared, they're uncertain. So I'm glad you pushed that. So go ahead, answer the how, partner? How did you get through or get out of that lease?

So with this, since this goes back to the leasing agent, I kind of know the ins and outs and I know a contract. It's a TAA Texas Apartment association contract. And I got along with the property managers, so she let me find a sub lesser and I put on Instagram. I contacted my leasing friends and I think I got it within the day or two days after I had gotten under contract, so it wasn't an issue. And my roommates, they all got along with that person because they knew him. So it was amazing. It was the perfect scenario.

Yeah. When you did that, was there any other options available? Because I know in New York State, some of the leases say that if you can move out and you're liable for rent until the property management moves somebody else in. Did you have that as an option too?

Yes. So that's a re letting and when you re let, it's almost always 85% of a month's rent. And with that, they're going to be like, okay, we're going to try our hardest to get someone in, but if we don't get someone in, you're liable for the rest.

Okay, awesome. So now that you have your first property, you moved out your apartment, you were renting, got your first house hack. How was it going from renting to actually now being the landlord and renting out your rooms?

Well, I feel like that transition definitely helped. I mean, with this, I really knew how to do my due diligence and thankfully I got great tenants. They're really good friends of mine and there hasn't been any problem with that. I mean, it's a four bedrooms by three and a half bathrooms. The PITI is 1,850. Principal, interest, taxes and insurance. And in rent, I'm getting 2,150. So taking vacancy into account and whatnot, that's around 250. So, I mean, it was great. And it's a pretty funny story. A lot of the people that I've lived with in the house hack, they have also ended up buying. So they're like, dude, this house hacking thing is insane.

You're starting to trend, man.

Yeah, it's been pretty crazy because I feel like a lot of us at this age have limiting beliefs, which I still have. And I feel like I've had more limiting beliefs until I was like, you know what, let me get into it. I worked on myself first and then just let things happen. Unwavering faith, which I truly believe in. You set the vibrations to meet people and you really attract once you set those right vibrations in your head and whatnot.

Lots of good things there. And I just want to point out again, Right. Your experience as a leasing agent helped you find the right tenants. Right. So I guess not everyone's going to have that background. But if I'm a new real estate investor and I need to go out and find some good tenants, what advice would you have for me?

Especially people that you're sharing your house with, sharing the common areas. I think that makes a big difference.

That's very important. Yeah. It can make or break your real estate career because your first house, I can be like, you know what? I didn't like it. And maybe it's because of a tenant, but you don't really notice that because you're like, oh, this is just a bad experience. So I'd really say just the due diligence. Right off the bat, having your criteria like, okay, this is going to be the minimum credit score, then make sure you don't violate any fair housing rules. Obviously then with a background check to do that, maybe through cozy and whatnot. And then once you get that background check, make sure to call three of the landlords that they've had previously. That's huge. Because with that you really get a different perspective. Obviously they're going to tell you that they're a great person and whatnot. But once you get the perspective of a landlord, the previous three, you're like, okay, maybe this is an ideal candidate. Then you call them or meet up with them. And from there you can really tell if this is someone that you want as a Roommate or not, it's way better to not get rent for a month than to get a bad tenant.

So you've got credit scores, background checks and reference checks. What about like, when you're actually talking with the person, are you interviewing them or are you asking them? I don't know what they like to watch, what kind of food they want to put in the fridge, Like, I guess, how detailed are you getting with some of the questions?

I feel like it's just naturally maybe go to Starbucks and get a coffee or something and just talk to them as if they were a friend. I mean, if we don't mesh, then we don't mesh and that's it. But I don't really like it being as an interview because I feel like if I go into it subconsciously as an interview, it's going to be way different because I might get along with this person. So I really want to see it on a friend level now.

Have you had to turn anyone away? Is there anyone that said, hey, I want to come move in with you? And you said, I don't think it's going to work out.

I have. So with my houses, thankfully I've just put them on Instagram. I have a big following and a lot of friends that are still in Austin. So a lot of people are like, hey, Andres, I want to move in. And I have a mini wait list. So I just told the first person that asked me it was really easy. And I mean, like I said with my leasing clients, they all follow me. So there are people that look at my Instagram as well.

I want to understand a little bit more about the structure. So you're renting out. You said it was a four bedroom. So you've got one bedroom renting out the other three. Do you have your tenants paying just for their room rent or are they also putting in for utilities? How does the actual structure work?

Yeah, so with my house hacks, I just provide the table for the common areas, the sofa and the TV stand and all of that. And then it's rent by the room. So they pay a base based rent. Then I get all the utilities in my name and I just Venmo between four. I divided by four and just Venmo everyone for utilities. Just makes it way easier. Honestly, the alternatives, I don't even know what they would be. But Venmoing makes it way easier.

Do you have anyone that's like, oh, I didn't even shower this week, but he showered eight times. Like I shouldn't be paying as much as Water bill as he is.

No, they're all super chill. It's really about setting the right expectations right off the bat and kind of making the lease the bad guy. They were to say something. It's like, dude, look at the lease. This is what you signed. And remember, we set these expectations right off the bat because it's important. When you don't set the expectations right off the bat, they're like, dude, but I wasn't here for two weeks, so why am I being charged utilities? I mean, it's like an apartment complex. You're going to be charged regardless.

That is such an important piece, is to follow your lease and to stick with it and use that as the bad guy. Because they had the opportunity to read the lease, they signed the lease, and going forward, if you were to say, oh, well, you know, okay, I know the lease says that, but fine, you can go ahead, get a dog or whatever, that leaves the lease open to a lot of problems because they can come in and try to change something else in the lease and say, well, you allowed me to do this. You didn't stick with the contract, I'm not going to stick with the contract. So follow your lease to a T, and you can make it as long as you want. Putting in as many specific things in there, like my property managers. I mean, it's like 60 pages that they use. And I mean, it tells you exactly what's going to happen. Someone plugs the toilet in there, what to do, and the whole process and who's responsible for it. So, yeah, as much as you can put in your lease, go for it. And when I was doing my own leasing, I would just every once in a while, usually every quarter, I would go through and I would look through it, see if there was things I needed to update, have my attorney comb through it. And then obviously, lots of instances come up. As you're a landlord, I'm sure, Andres, you have some stories of something that you thought, oh, you know what? I really should have put this in my lease. And then going forward, you did put it in your lease.

Yeah, no, I agree 100% with. That's so important to just have that right off the bat. If you change something, like you said, if you allow a dog, then it's like, okay, what else are you allowing after that?

Right? And with three roommates, you might end up with three dogs in the woods.

Oh, my gosh, it's a dog park in there.

Okay, so you said you're doing $250 in cash flow and you have your new house hack under contract. What is going to be your cash flow now that you're renting out that fourth room? And what does the next house hack look like?

The fourth room is going to be around 800 for the rent and rent by the room. So I'm going to be getting a thousand. One thing that I do want to say, when going into house hacking, it's important to know what you can rent per rooms. You look at that through Craigslist or Facebook Marketplace, but also know what you can rent for the unit. So that's what's going to be on Zillows, and you look at that by looking at comps, what's been renting in the area that's similar. So getting into house hacking, you can minimize that risk and just that inherent kind of like, oh, I don't want to have to rent by the room, because you already know what the unit's renting for. So that's one tip that has been huge with a lot of people that I've helped and just in general with myself. Then going into this next house hack, I love this story. So with this one, I really wanted to get another house hack right after I got my first house hack. And obviously I was like, okay, I can't be a primary resident until the end of the year to take advantage of a lower down payment and lower interest rates, because if I would have bought a home at that time without doing the full year, it's considered an investment property. So that's 20% down. And I was like, nope, I'm not going to do that. So with this, knowing the new build strategy, I was like, why don't I just contact the builders? Because I have a lot of builder relationships and like, why don't I contact the builders, this is June of 2020, and see what's available for April of 2021 so that I can lock that price in and take advantage of all that equity. And all the new builds have to offer. No competition, just an earnest deposit. So I spoke with the builder, I spoke with the lender, because I get along with her. Shout out to Debbie. She's awesome. Spoke with her and I got another home as a primary resident under contract in June of 2020. So she qualified me as a primary because it closed in April of 2021. So that was huge. I just put a $3,000 earnest deposit. This is the craziest thing ever. So the home, I got it for 326 and now I legit checked this yesterday. The same home is selling for 398,000.

I asked Diego, I was with you, and I was like, dude, can you see that number? Am I going crazy or something? So that's like 70,000 in equity just by putting 3,000 in deposit, which was insane.

Put that on his Instagram because I feel like I saw that on one of his posts.

Yeah, I was talking to him about that and I was like, dude, I think I'm going crazy. Or maybe it's actually happening.

Yeah. So you haven't even paid anything except for $3,000 for the house. You haven't even lived there. It's had no wear and tear and already it has appreciated that much. That is amazing.

A market like Austin, it's like, I see this every day. You put a home on the market, most likely going to get 5 offers, 10 offers over asking. You're waiving your contingencies. You really have to ask yourself, how bad do you want it? What are you willing to waive with a new build? Just put a deposit in. You're going to see it most likely appreciate and you take advantage of a lot of incentives. The lender is going to give me like 5,000 in closing costs. They're paying my title policy. So all in all, that's 6,000.

Let me ask you a question about that. So you had appreciation? It worked out. Did you have a fear at all that maybe the market would go the other way? That with coronavirus and, you know, the change in the White House, anything like that, that the housing market would crash and your value would actually depreciate? Was there any fear going the other way?

Yeah, and I love that question because before getting into house hacking, I always tell everyone, okay, what's your strategy? What is your goal? Is it appreciation or cash flow? Once you answer that question, you can answer the other questions. If it's cash flow, you're going to need most likely minimum four beds and you're going to have to be in this area and this and this. So once you answer that, you can answer a lot of the other questions. So with this, my goal is cash flow, at least 100, 150. So my worry wasn't really depreciation or anything because, I mean, with that, rent is typically recession proof. And in a market like Austin, there's about 100 people coming in. I was not worried at all. And I mean, the market has been going crazy. So I'm super happy. I took action and just took that risk, which is a low risk for a huge reward.

Yeah. And that's so Important. I'm so glad you said that, because look at what you want out of the strategy. And you plan on holding this long term, so the appreciation right now doesn't matter because you're not going to be trying to sell it in a year. So that is like a perfect answer. And I want everyone to really take.

That away with this, the crazy thing as well. A lot of people are like, oh, Andres, I'm a little scared when I close this and that. I was like, dude, if you're scared of that closing, I'll put the down payment and then just let me sell it and get the profit, because if I sell it, I can sell it for 380, 390. And they're like, oh, really? And then that's when they pull the trigger.

I still think it's a really cool point. Right. And I don't want us to gloss over this, but, Andres, you seem like a problem solver. You get presented with the problem, and instead of letting it stop you, you find a way around it. You were kind of restricted to living in that first house hack for at least a year. And instead of saying, hey, I'm not going to do anything, you went out and you found a solution to get around it by saying, okay, I'll get one under contract today, but I won't move in until after the year mark is up. And that allows you to capture all the good stuff that you're talking about. So speaking directly to the listeners right now, when you find a good deal, even if you don't have the resources today to make it happen, on your first deal, you had your apartment lease you had to get around. You had the issues with the loan. On the second deal, you had to wait that one year to finish that first primary residence. If you find a good deal, sometimes it makes sense to get it under contract anyway and figure everything else out afterwards. I think if there's one takeaway so far from your story, Andres, it's that that there's always a solution, there's always a way to make it work. So I appreciate you sharing that with the listeners.

100%. I appreciate that.

Awesome, man. So let's talk about your next property. So you've got the house hack that you're living in, the second one that's under contract. But you also mentioned you've got this third kind of Airbnb that you're going after. You know, I'm Mr. Airb, so I get excited whenever I hear that word. So let's talk about that one.

So with this one, it's also a new build. And so one thing I didn't mention about new builds is that they build in phases. So say, for example, phase one, they're going to build a hundred properties. Phase two, 300 this and that. So it's important if you can get yourself into the first phase. I mean, what are homes based off of the single family homes, the comparables. So first phase. Imagine in the six phase, if your home is still selling the same floor plan, increase your price by a lot. So with this, I knew about a new community that was coming up, and they're like, we're selling to investors. Because builders usually don't sell to investors. They cap it at 7 to 10% because of the fact that you don't want to have a lot of investors in a primary residence. And just each year they're moving out, no sense of community. So they're capping it at that. I was like, I need to take advantage. So I locked my price in for 297 of three beds, two bathrooms. And I didn't really know what I was going to do with it until I got under contract. Sounds like Airbnb. So got it under contract. I went to a design center, this and that. The home ended up being 320. And now that same home, if I got it right now under contract, I'd be looking at 363, 55. So I mean, that's instant equity of 35,000, 45,000. And this was only 1500 in earnest deposit. So going back to worst case, I just lose that, you know?

Yeah. So we've been talking about all of the benefits of the new bill, but I just kind of want to recap everything for the listener, so let me know if I'm missing something. So, one is that you've got a relatively low earnest money deposit. Right. You know, you set it between a thousand to three thousand dollars to builders would typically help with your closing costs.

Yes, they offer builder incentives.

Right. So like, if you use their preferred lender, they'll give you, you know, like X thousands of dollars back at closing.

Yeah. And if you go with their title, they offer title policy, which is usually in Texas, around a thousand to three thousand. So that's also huge. The thing with this, a lot of people are skeptical. They're like, oh, why should I go with them? It's just to have everything in house. The loan is falling. It makes it easier for them on the secondary market. Exactly. Yeah.

Right. It makes it easier for them. Right. So you get that you get incentives towards your closing. You get warranties. Right. I think you mentioned a 10 year, 10 warranty. Right. So you get additional warranties. I'm trying to think, did I miss anything or did we hit all the big. Because those are all really big things, right?

No competition. That's also huge. If you're in a market that's super competitive like Austin, you just put your earnest deposit. You're not asking yourself, what am I willing to go over asking? Yeah, appreciation as well as huge. You don't want to bank on that, but it's always a bonus.

Also, the home warranties too that you mentioned, and you're getting a new build, so you're hopefully not planning for any, you know, capex expenses.

Yeah.

And I think the biggest part too, right, is that you can get into it with such little, little money out of pocket. The cash on cash returns when you're doing this has to be insane, especially for you since you're doing it as a house hack. Gotta be insane. So again, what I love about real estate is that there's so many different ways to get started and everyone's situation is going to be unique to, you know, what's going on in their lives. But for the listeners, as you hear different stories on this podcast, your goal shouldn't be to replicate, but to understand what are some of the nuggets you can take out. And I just love the way you set it up. So I just wanted to kind of give an overall overview of all the benefits of buying from the new build because you've like maxed out this strategy all the way, man. And I love it.

Thank you.

Before we move on, I wanted to touch on one thing just to clarify, because we were throwing around earnest money deposit, then you have your down payment with bank. Can you explain the difference between those? I just don't want anyone to think that the earnest money is all you're putting down and you don't have to put down that three and a half percent. Can you explain the difference?

So the earnest deposit is essentially just a payment to get your home locked, get it under contract, and then when you close, which is when you get your keys, you sign all your awesome autographs and whatnot, you put that down payment. So if you decide 3%, 5%, that's when you pay that, and the earnest deposit is counted towards that.

Awesome. Thank you.

Yeah. One other benefit, because I'm glad you brought that up, Ashley, is that depending on what state you're in or what lender you're working with, A lot of times if you're a first time home buyer, you can get down payment assistance. So they'll give you a secondary loan for your down payment. So I know people who have bought new builds that only have to put the EMD and the rest of their down payment was covered.

I have a story actually with the house hacker of mine that I was helping. She was looking crazy. I remember it's like, Andres, I've been looking a long time and this and that. And I was like, look, I'll help you find something. So I remember it's a week after that a builder calls me, he's like, Andres, this home just came off the market. Is I built great builder relationships, thankfully. And he was like, who do you have that wants it? I'm going to put it on the market tomorrow. This is like 5pm I call two friends. The one that really wanted a house goes and she's like, I love it. I'm going to get under contract. So she got it under contract and it was just insane how the power of those relationships worked. I mean, on this she just had to put a thousand, no competition. So it's a crazy story. And that's what happened with me, happened to her. And I was really happy to have helped her.

That is really cool. And that's why it's awesome to tell anybody and everybody what you want to do so that people like Andres can bring you those deals.

So back to the Airbnb and how did you finance this since it's not going to be your primary residence, not a house hack, what kind of financing did you do for that? And then can you kind of break down what your cash flow will be from this Airbnb?

So with this, my financing is going to be an investment property. So 20%. Right now I'm still kind of debating if I'm going to partner or not. I'm looking into that. So right now, to tell you the truth, 100% the truth, I don't know what it's going to cash flow because I put it under contract, not even knowing if I was really going to keep it or not. I just wanted to take advantage of first phase and as an investor. So I don't really have an answer for that.

But you've got multiple exit strategies if you need it, right? You can rent it as an Airbnb or you can do the rent it out by the room like you've been doing. So there's different plays that you can go if you need to.

Yes, exactly.

Let me ask you this. Could you sell this contract to somebody else who wants to lock in that lower rate?

No, because this is not assignable. Yeah, it's not assignable. Builders are smart about that and they're like, yeah, we're not going to do that. The crazy thing is with builders, the contracts are like 70 to 80 pages. And with this, I mean, legit, people sometimes think when they see a builder, it's like, oh, the furniture is going to be included. So builders have been sued because of that. So it's like, dude, builders put everything that has happened to them in that contract. I mean, it's normal. If someone thinks furniture is going to be included, why not just put it on the contract that it's not included?

Yeah. This whole new build has been really interesting to me. Intriguing. I like it. So, yeah. Well, best of luck with the Airbnb and we'll be excited to see how that turns out.

I'm pretty excited for that.

Yeah. Thank you for all of the valuable information. Let's go to our next segment here. We're going to kind of do like a really deep dive into one of your properties that you want to really break down what your expenses are, your purchase price, and how it's working. So which one of those properties did you want to pick?

I'd say the first one because that's the one I'm actually living in.

Yeah, go ahead and tell us your purchase price. We want to get into the nitty gritty of the actual numbers.

Perfect. So with this 1000 in earnest deposit, I put 10% down because of the fact that the condo that I had sold senior year gave me like 30,000 in commission. It was a million dollar condo. So with that, I just kept the money. I really saved up a lot. So I had enough money to put 10% down because I saw the net sheets with the lenders and I saw that 10% made sense. So 3.5% interest rate. My PITI is 1850. So the principal interest, taxes, and insurance, then the rent is 2150. So renting out three other bedrooms and living for free, taking the piti and a little vacancy. As a leasing agent, I don't really take that much vacancy. But as a starter that hasn't done leasing, I would say to obviously take in vacancy. And the great thing about new builds, I don't really expect many cap expenditures or many expenses. So I'm very. Okay, you know what, $50 a month for that with a resale home, that's definitely different. So all in all, I'm making about 250 to 200 in cash flow and that's what I'm using to pay for my car insurance. So it's just amazing what a passive income offers, the means to pay for other things and which will lead to financial independence.

What was your purchase price on that?

286,000.

And what do you think it's valued at right now?

Right now I spoke with a builder a week ago and homes in this neighborhood are starting for 325 and these are three beds.

So going forward, do you have any intention of getting rid of pmi?

Yes. So the great thing about this is that, I mean, with natural appreciation, my home, I think it's already out 18% and I've only had it for seven or eight months. So once I reach 20% with a conventional loan, I can get rid of the pmi. So yeah, now I'm super excited for that. And I haven't really even had to pay off my principal ahead of time or any of that sort.

That's awesome. Yeah, and I love that because starting out, I mean, it really stinks to have to pay that insurance for putting only 5, 10% down. But especially in this market, there's so much opportunity to get that appreciation. Even if your goal is cash flow and it's not appreciation, getting rid of that PMI will give you more cash flow once your property has appreciated over the 20%.

Exactly. And I mean, sometimes people want to put 20% down, but what you really want to see is kind of like a breakdown of that. So you put 20% down. That difference between what you're putting 20% down. Let's say it's a $10,000 difference to get rid of a, let's say $10 of PMI. I'm just giving an example. So you divide the 10,000 by, let's say the PMI is actually $100. That's broken down into 100 months. So in 100 months you'd break even. So does it really make sense to be putting that 20% down? I really like doing that break even analysis to just get into perspective of, okay, maybe it makes sense putting 10% and just staying with that PMI.

So I just want to recap the numbers really quickly. So you said the purchase price was 285,6. 285, yes.

286.

You put 10% down. Your PITI is 1850. You've got gross rents of 2150, about 50 bucks per month in repairs and maintenance. So you're cash flowing about 250 bucks a month. That's a 10% cash on cash return, which is really, really good. Right. And you're living rent free. Right. I just want to add that in there. Right. Because not only are you getting a 10% cash on cash return on your investment, but when you factor in the rent that you're not paying. Right. Or the mortgage that you're not paying, that cash on cash return goes from 10% to like 30%, right?

Yeah, that's what I want to say. Because a lot of people think it's like I have to be cash flowing. But you really want to see a return on investment from the perspective of equity pay down. And also the cash you're saving up from rentals, I mean, also appreciation, which is a bonus. But a lot of people get caught up in. No, I just need cash flow and this and that. But I mean, with this, you're paying your loan down with other people with the renters. And you're also getting an appreciation and tax benefits, which are huge. A lot of tax benefits. There's a lot that goes into the return on investment.

I love your strategy, Andres, and for all of you that are listening, right. I think you've defied all the odds. You're young, you had a bunch of obstacles in your way, but you still found a way to make it work and you're making a killing, man. So I absolutely love it. Cool. So we're going to move on to our next segment here and this is kind of a somber moment for Ashley and I because we're going to do this for the last time, but we're going to move into the MVP segment and this will be the last mvp. MVP that we do and the reason why we're sun setting it. And Ashley, feel free to chime in as well. But we feel that a lot of the MVPs have been similar and I think people kind of know what to expect from this segment. And we want to make sure that we're giving folks a ton of value. So we'll give you, Andres, the honor of doing the very last mvp.

Last one.

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So, so you got to give us something good man. It's got to be mind blowingly.

Oh my God, I feel the pressure now.

So who's your MVP man? Like if you look at your portfolio, where it is today, who's been that really key critical person for you?

I mean I think you guys know who it's going to be. It's been, I feel Diego and Felipe. Diego, I mean I called, called him and I ended up being on his team three months later and he's really changed my mindset on a lot of things. I'm a huge mindset guy because of him and I'm just eternally grateful. Also Victor, Nino, shout out and yeah, I mean Diego's been huge. I'm so grateful to have him on my team as a mentor and as a great friend as well.

Yeah. And just to give both of them a little bit of A plug. They were both on the bigger pockets original OG real estate show. Diego was episode 352 and Felipe was episode 329. So, I mean, they've been on millions podcasts. Obviously, we had Felipe on here for every episode and those two episodes right there. To actually listen on the Bigger Pockets real estate podcast, really, you get their whole story and just a breakdown of what they have accomplished and where they're going. I highly recommend taking listen to episode 352 and 329. So next question is, how does somebody find a mentor like that?

Finding a mentor like that, I feel it really goes into narrowing down what you want to do, and then from there, you see what people are killing it in that industry. And don't be afraid to send messages to people. When I was getting into real estate, I would listen to podcasts every day and send a message to that person if I really like the podcast and be like, dude, your story is awesome. I love this and this. And I just really like to talk. If they're in Austin, I'd be offer value first and then be like, can we talk? But with this. I've met so much people on different podcasts just through reaching out, and surprisingly, they all answer most of them, which is amazing.

And Diego, so he lives in Austin also. Is that how you connected with him? You had messaged him on Instagram?

Yes.

Oh.

He said in the end of a Bigger Pockets podcast, I'm in Austin. I remember that vividly. And I reached out to him, then I cold called him, and the rest is history. Yeah, it was pretty funny.

I was just gonna say that's how I met my mentor too. Steve Rosenberg. I messaged him on Instagram.

Yeah. And at first I was like, oh, my gosh, this is a little sketchy. But in the end, if I wouldn't have done that, I don't know where I'd be.

Yeah. The one day I was on a zoom call with Steve, and my mom came over, and she just walks in the house, and she's behind me like, mom, come look. This is the guy that I met on the Internet. Come meet him.

That's like. That's like every mother's worst fear, right? Is to hear that.

Yeah.

And of course, this was right after I'd gone to Houston to actually meet Steve in person for the first time. And I was like, yeah, mom, this is who I met in Houston. And of course, Steve's like, yeah, we did a lot of filming there, you know. You know, completely inappropriate.

That's pretty funny. Oh, my gosh.

Again, I think that shows the initiative, I guess, that you. You take Andres and that's been the kind of theme throughout this, is that when you see something, you take a lot of action to make it happen. And if someone is looking for that mentor, looking for someone to kind of show them the path, it's always good to figure out how you can provide value. Someone reached out to me recently and said, I want to get in short term rentals. So we're trying to figure out the space. I can help you with interior design. Had someone else that said, hey, I can help you with marketing your short term rentals. So there's a lot of different ways on skill sets. If you have, you can provide value to other folks. Awesome, man. Let's move into the next segment here. I want to talk a little bit about mindset. We don't have a name for this. We got to come with the catchy name for this segment. So maybe you can help us out, Andres. But what we've realized is that what holds a lot of new investors back isn't that they don't know what to do. It's that they just don't have the mindset yet to actually take those actions. So I want to get into the psyche of Andres a little bit, man. So if you go back to Andres before your first deal and you maybe think about some of the assumptions that you made or maybe some of the misconceptions you had about real estate investing, what were they and how did you kind of get past those?

This is huge. I love talking about this one because in school, I was always in my head and I couldn't really get out of that subconsciously. And I didn't know it, but it really kind of halted some of the things that I could have done. I mean, everything happens for a reason. So it was kind of like, do I deserve to do real estate? Am I good enough to do this and that and just that initial thought of, oh my gosh, but something's going to go wrong. Because I've heard stories and this and that, but I mean, it was like faith over fear. I'm really big on that. And just kind of, you know what, going into it and not fearing the unknown. Because if you fear the unknown throughout your life, you're always going to live in regret and not really get out of your comfort zone. It feels great to be out of your comfort zone. It's hard initially, but then once you do it, you can feel the confidence and whatnot. And I really attribute that surprisingly to having a morning routine. I'm a huge miracle morning person. Hal Elrod's book really changed my life with that. I swear I do it every morning and it's changed my life insanely. Like I wake up at 4:55 in the morning. I do my bed. That's a small win that subconsciously just gets you in the mood. Drink a cup of water. I'm at the gym by 5:15am I get out like at 6:20, take a shower. I meditate for 10 minutes, do affirmations, which I love affirmations because we tell ourselves a lot of things in our head that we're not good enough and this and that. And you can change that just with a tweak of I am good enough and telling yourself that. I love my affirmations and one of my favorites is listen to others, talk to yourself. So a lot of people are in our heads and whatnot. You don't listen to others. It's important to listen to others. And when you're in your head, you're listening to your thoughts, talk to yourself, be like, I am good enough. I can't do this and that. That's a big affirmation. I love visualizations, visualizing things like this. I have to show you guys my visions board because I didn't know I was.

Do you have it right there?

No, I have a new one. No, that I have a picture. I'll show it to you guys later.

You send it to us and we'll put it in the show notes for everyone to see.

It was being a guest on the Rookie Podcast by December 2021 and being the rookie of the year, making the income that I made. And I've made all of that and I'm super grateful just to everyone that's helped me. Visualizations is huge. And then this one, I'm pretty surprised. I like it. It's journaling. So I have my notebook and this is my notebook that I always use. And today I was like, what am I grateful for? And it says, you killed it on the Bigger Pockets show. You did a great job. Just seeing myself here and the three things I'm grateful for, I write that down every time when I scribe. And then just what I'm thinking in my head to get it out of my head. And then I read for 30 to 45 minutes. So by that time it's like 7:30. And it's crazy how a tweak like that just changed my life. It's crazy.

I feel like we could do a whole nother episode.

You were the perfect person to do this new mindset segment with. Like, that was right.

I mean, I think you took all the answers from anybody else that's on here, but, yes, you guys are gonna.

Have to do something else now.

That was awesome. I don't even have anything to say. That was great. That was perfect. Yeah, I got my vision board too, man. And I know that there's so much good that comes from just kind of putting your goals in front of you on a regular, consistent basis and feeding yourself all of that positivity that you need because, man, it's so easy to get discouraged and it's so easy to get kind of knocked off of your path. And I love how you said it. Listen to others, but talk to yourself because that self talk is the most important conversation you'll ever have. So, man, I love it.

Yeah. I mean, if this was two years ago and I'd be saying this, I'm like, andres, you're crazy, dude. What's been going on with you? But it is is so true how mindset definitely changes everything. So, yeah, I'm just grateful for books that talk about that. And I'm still to this day surprised how nobody teaches this in school. Well, I didn't get the education at UT for that. And it should be something that everyone does their freshman year, maybe.

Well, thank you so much for that valuable insight. And we'll link your vision board and Hal Elrod's book too, in the show notes. So that's biggerpockets.com forward/rokee49. We're gonna move into our next segment called the rookie request line. This is where our listeners can call in at 1-888-5-ROOKIE. So if you guys call, leave Tony and I a voicemail. We will pick your voicemail and play it on here and have our guest answer it. So today's question is from.

Hey, guys, my name is Nicole Gilbert. I'm a realtor located in Atlanta, Georgia. I guess my point is question to you guys would be what would be the advice that you would give to a new agent in real estate? Myself, especially with getting new leads. You know, I don't want to join a team under my brokerage because they do end up taking the majority of the of your check. And my mom, who's been in real estate over 15 years, plans on being my mentor and I can go to her for help. So I guess my question is, what would you give me as advice for, you know, generating leads and building up my Clientele and my personal brand. Thank you so much. Love the show.

That's a great question. I feel like to expand on that with the commission split. If you're looking at it that way, that's not really the way you should see it. It's really more. So what value will I get from awesome mentors? So if you look at it right off the bat from the commission, that's not what I would recommend look at it from. Okay. What value would I get from these mentors? A commission split is worth it if these guys are rock stars. Like you said, your mom is a realtor, so maybe stick with her. What I'd say for leads generation, really narrow down your niche to the point where you have your avatar in mind and anything you do, you tailor it towards that avatar. So say for example, with me, I was doing cold calls and I don't like being confrontational and just this and that. So I did that for like two months. But then I really, really narrowed down. I found my avatar and my niche right now has been huge. I do a lot of Instagram stuff and I get a lot of referrals. Now I don't have to cold call whatsoever because I know that my avatar is Gen Z or millennials, first time home buyers, new builds, house hackers. That's my niche that I've narrowed down. And then from there I get more clients all over. So just because you narrow down your niche doesn't mean you won't get clients from all over. But really having your avatar is crucial so that you can tailor all your content towards that person.

I really like that. And just having your own niche and who are you going after and who can you really help and then just telling everybody that you're a real estate agent and talk about it, you know, put it on your social media and with your social media, be intentional about what you're posting to build your brand. Make sure that each post is thought out and you're not just trying to shove out as much content as possible. I hear a lot of people say that that works and maybe that does, but make it as intentional as possible. Instead of putting out content that has no quality just to get that quantity out there, really try and focus on the quality too of your post and it will definitely generate more attention and attraction to your social media and help you build your brand.

That's awesome. I 100% agree with that and with that as well. Just have your goals. What are your goals? Because if you can vividly see yourself doing that and you have A milestone. You'll do way better as opposed to just going all over the place.

I love you talk about goals because that kind of takes me to the next segment here. But we want to go to our random questions. And my random question for you, Andres, is I guess, what are your long term goals for real estate? Right. You kind of killed it with the house hack. Do you plan to continue to house hack, or are we going to try some different strategies? What's on the future roadmap for you?

My plan is definitely getting into syndications. I joined a mastermind for syndications, so I want to get a 10 to 50 apartment complex and that's definitely the plan to make 7,000 in passive income so that I can be financially free. It was by 27, but I want to set loftier goals that scare me. So it's by 25. And I'm pretty excited about that. We'll see how that goes.

That's awesome. And for folks that don't know what syndication is, can you just briefly explain it?

Yeah. So syndication essentially is when, say, for example, I'm a general partner and I get other people's money, limited partners, to invest in an apartment with a plan. Being that this apartment needs renovations, I'm going to up the rents, give limited partners their share of any of the cash flow and whatnot. And then once I up those rents and renovate everything, I sell it in five or seven years, give the investors their money back, and then get part of that money as well.

Apartment syndication is a little bit more of an advanced strategy. You don't typically see real estate rookies going down that path, but you do see a lot of folks kind of graduate from knocking out single family homes or duplexes and triplexes to then eventually going on to do syndication. Man, for me, I love the idea of syndication as well. And I really hope one day figure out how to combine short term rental investing with syndications, because I haven't seen anyone do that yet.

But I'll have to connect you with one of my friends. He has an Airbnb and he's doing a syndication. I'll have to connect you guys.

Yeah, because it's a really cool strategy. So we got to find a way to blend those two. So I appreciate it. All right, Ash, what do you got? What's yours?

Well, my question is about your college degree. So it's international business and real estate, correct?

Yes.

Okay. Do you think those helped you in your real estate journey at all, having those degrees, or do you wish you wouldn't have gone to college at all, or do you wish you would have gotten a degree in something else?

Yeah, that's awesome. International business. I got it because I went to France when I was 16. A Rotary youth exchange, they sponsored me to go a full year to France, and I think that's what really started my journey towards real estate. In hindsight, kind of a law of attraction. I lived in France for a full year. I did not know French whatsoever. So Google Translate was my best friend. And I lived with the host family, went to a school in French. I was like, what's going on? But with this, I became way more independent, didn't really have to depend on my parents in El Paso, and also just loved traveling and whatnot. So in hindsight, I'm like, okay, wow. Because I got my degree in international business, and because I went to France, I learned about financial independence and wanting to be able to travel whenever I wanted, and also being my own boss. So I feel like that kind of turned the switch when I was 16 that I didn't know until I was 20, 21 or 22 that it's like, wow, that actually did help me. And we got a little deep into that. But answering your question, I think it was definitely worth it. International business. In the real estate side, I met so many people, learned a lot, and, yeah, I'm eternally grateful for that experience.

Yeah. Thank you. I just always find it interesting if people find their degrees worth it. I mean, a lot of people have become successful real estate investors, and, you know, some didn't even graduate high school because it's such a. I don't want to say easy, but there's nobody looking to check if you have credentials or degrees when you get in to the real estate world.

My dad tells me, it's like, you're going to get your master's, right? And I'm like, dad, I don't need it. Like, with real estate, it's really about how you are and how you treat people and this. And that's not something you can learn. So my dad, it's so funny because that mindset is he's from Mexico, and it's like, you need to work and then get your degree and do this and that. W2. And it's a mindset shift that I had to have with a limiting belief that it's just funny. He's always like, andres, get your masters. And I'm like, no, dad, I'm not gonna get it.

Well, thank you so much for all of the valuable information today. I love the new build content. That's definitely something new we haven't had on the show before. And just the whole mindset segment that was really great. So thank you very much.

Thank you guys so much. I appreciate that.

So all of our listeners, make sure you guys go to the Real Estate Rookie Facebook page. Just search Real Estate Rookie and make sure you join and Andres will be in there to answer any questions when this episode airs.

Feel free to reach me on my Facebook. It's Andres Bustamante. I also have an Instagram Andres Busta T X A n D R E S B U S T A T X I can also be reached on my blog househackaustin.com and we also have.

A very, very special, special surprise for you guys coming out this Saturday, February 6th. So make sure you guys check wherever you listen to podcast on Saturday. So Nia and I have something special going on for you guys so make sure to check that out. I am Ashley Care at Wealth from Rentals and he's Tony Robinson at TonyJ. Robinson. Thank you guys for listening and make sure to listen Saturday.

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