From $60K First Deal to 5 Deals Monthly: Here's How!

Welcome back to the channel, everyone. I want to talk to you today about doing deals in big major cities, big states where you'd probably be like, man, the competition is so heavy, so fierce. Today we're going to talk about how to do deals, how you can do deals in New York. Let's dive right in. Before we dive into the video, I want to explain to you guys that I have a Facebook group that is amazing. It's a great community, it's absolutely free, and I want to invite you to join. It's Painless Flipping. Just just go to Facebook, type in Payne, like my last name, P-A-Y-N-E, and join the Facebook group. We have a free masterclass we do every week. We have free materials. We have a community. It's all there to help you. And I promise if you're getting started or if you're experienced, this is a good community to be a part of. So go ahead and join and let's dive into this video. So what we're going to be talking about today is I interviewed an investor who does deals in New York, right? And his first deal he did was $60,000. And he talks about how he did the deal And you know, it wasn't exactly what he planned. It didn't turn out exactly how he wanted it to, but he ended up making money in the long run. And he talks about how he's doing deals consistently in New York. Now, a lot of people might be like, wow, New York, New York City, isn't it really hard to do deals there? Well, we want to find out how this investor is doing his deals, how he started and where he is right now. This, that's what we talked to him about in my interview. And I think it will help you with your mindset because a lot of the times you think if it's a big city, there's a lot of competition. If you're new, how are you going to be able to compete? Well, he explains exactly how he does and how he leverages other people to do deals and how he markets. So let's dive right into this interview and leave me a comment if you have any questions.

Michael, tell us a little bit about yourself and let's dive into that first deal you did.

Sure. So, um, I was in the mortgage business for this, working for the same company for 17 years from 1997 to 2013, and then I was dabbling a little bit in real estate investing while I was there. And then 2013, I left mortgage industry 5 years too late, and I decided to go full-time into real estate investing. And I had some experience in this city, city's called Elmont. I operate in Long Island, so Nassau and Suffolk County, New York City suburbs. And Elmont was my area. I bought another property there. I liked the area. I thought it was a misunderstood area where I could take advantage of some of that misunderstanding. And there was a property that I kept driving by that I really—

you're talking about your first deal right now?

First deal, yes.

Okay. Yeah, no, so just, just so I can understand, you were doing mortgages, is that what you said?

Yeah, I was in the mortgage business. I did everything in the mortgage company, secondary marketing. I ran an office. I did a lot of things. Things were great for about 11 years, and then Everything hit the fan in 2008, 2009. I sort of stuck it out an extra few years, which was a huge mistake. I should have left earlier. I really should have gone into real estate investing earlier, but I got out of it completely in 2013. In the beginning of 2013, I went into full-time real estate investing.

Nice. Okay.

Okay. Because I wanted to clarify when you said you got out too early, I didn't know what time, at what time point you did that. Okay, cool. So, so let's dive in this first deal. You said, hey, it took a while. And I think just from you telling me a little bit before we hopped on, it sounded Seemed a little complicated. It wasn't just a wholesale deal where you just get it and then you sign it.

So a couple things, really, for the first 4 years I was in business, from 2013 to 2017, I didn't even know what wholesaling was. I had heard of it. I thought wholesalers were like knuckle-dragging Neanderthals who try to make like $500 on a deal. I thought rehabbers were the guys who made the money. So I didn't really understand the whole concept. I didn't do any marketing direct to seller for those 4 years. I bought everything at live— I went to live auction in my county every single week. I bought at online auctions, and I bought from REOs. Agents, so real estate-owned agents, bank-owned property. And there was a lot of that then because a lot of the crap from 2008, 2009 in New York, everything takes a lot longer than every other place, and that was coming out at the time. And in general, we can get into this more if you want, but New York is dramatically different than all the other 49 states. Everything takes longer. There's attorneys involved in every transaction. There's even more. But I wasn't wholesaling, right? So this property I bought, I had a partner, we bought it, we borrowed money for it, and we took it down. It was a house that I kept driving by, and it just It was in the area that I really liked. It was an ugly looking house when we got inside. So what happened was I was always dreaming about buying this house, and then one day a for sale sign showed up and it was a bank-owned property. So we went inside, the roof in one section, it was caved in completely, and we bought it. I think we bought it for some, you know, high 2s, and it really did— crazily, it didn't need that much work. It needed that roof fixed and the flooring underneath the roof, but it didn't need that much. But it was a single— legally a single family that was taxed by the county as a 2-family, but it was set up as a 3-unit. So happens to be in this area of Elmont, there's of illegal units, a lot of basements being rented illegally, and as they would say, ADUs, right, accessory or additional dwelling units. But most of them are illegal and the township doesn't like it. But we bought this property, we fixed it up without spending a lot.

And then I ask a question, does that make it more valuable if it is 3 units, 2 units versus just 1?

So it's funny, for some people, yes, right? There are people who will look at that and say, this is a dream come true, right? I can live in one of the units and I can pretty much have my mortgage paid by the others. But for other people, they're scared. They're scared because somebody might complain to the town, they may have to get kicked somebody out, or their attorney might say, oh no, you have tremendous liability. The truth is, this is a game that's played all the time, but it depends on the buyer is really the answer.

Okay, makes sense.

So we bought the property and we tried to sell it. Shockingly, no one wanted to buy it because of the things that we just discussed— the extra unit, and we really didn't do a lot of work to it. It really wasn't in great shape, and we had a hard money loan on it. We got raped on our first hard money loan. I think we paid 16% with 6 points, some crazy number. We were so happy to get anybody to fund the deal that we just took it, and we used all of our own money money for the rest of it. And we didn't know what we were doing, so, uh, couldn't sell right away. So we immediately rented it. We got it rented in 3 seconds, and, uh, we were cash flow positive. So it was working out.

And we rented one unit, or did you do—

rented all 3? Rented all 3 to 3 separate people.

Congrats. Okay.

And then one of the tenants, uh, that we rented said that she was interested in a rent-to-own kind of situation. So we did a rent-to-own where we gave her a number. I think that number was like $425,000. We paid like $280,000.

Did you get a certain amount of money down from her?

We didn't. We just, we took, we raised her rent a little bit and then we let the additional rent go towards her down payment.

Okay.

We asked her for an extra $200,000 and in the lease it said $200 a month if they execute this option to buy it was going to go towards her down payment.

Got it.

And then after about a year, and again, we were cash flow positive the whole time, so it was great. She executed and we sold it.

She refinanced, I'm assuming She got a loan, uh, and she got a purchase loan on it.

She, she took money on it. We probably made more than $60,000 if I'm thinking about it. We probably made more. Yeah, it sounds like it might have been $80,000. Um, but it was hard to figure because we were so cash poor that we were taking all that additional cash flow and immediately spending on, on all of our operations because we, you know, we needed the money at that time.

So looking back at that deal, what would you have done differently, or would— do you feel like you executed on it just like you probably would now, uh, except for the hard money loan? You probably know somebody else would probably give you a better deal, but you feel like you what was right at that time.

And by the way, we refinanced that hard money loan. We got a regular Fannie Mae loan.

That helped a ton.

Yes, that helped a lot. But what would we— what would I have done? I don't know if I would have done much differently. I probably would have taken a nonrefundable, a bigger deposit when she moved in. I don't know if she had the money.

So when she did a rent-to-own, you mean?

Yeah.

Okay.

Like, I don't think she had a lot of cash at the time.

Was she a current tenant at the time? And then she was like, hey, no, no.

Before she moved in, she mentioned she was interested in rent-to-own, and we looked at it as this may be the only person that's ever going to buy this. And that's what we did. That's what we did.

That makes sense. I'm sorry, I thought she was already living there and then approached you guys. Hey, you thought about selling this? No, but you know, you had that option of— well, okay, right.

If we weren't cash flow positive, we probably wouldn't have, wouldn't have done it. But, you know, with 3 rental incomes coming in, probably would have been better. The only thing I can think of is that maybe, maybe we should have kept it because like every property, values have gone up so much and the rents have gone up so much that it would have been a tremendous cash cow. Short of that, I think, I think we did, I think we did most things right on that. I don't think we really screwed that up too bad.

Amazing. So let's talk— so we talked about your first deal, and it seems like you maybe you might have a little bit more experience, or I would say a lot more experience, than like the person that just dives in, doesn't know what they're doing. Sounds like you had experience on how to navigate this situation. So for someone that's listening that doesn't, what do you think? Like, if they're in a situation like that, would you recommend— like, they buy it, it's not— they can't resell it— you would— would you recommend renting it out?

I guess you'd have to see the situation, but I think any, any situation where you can't sell a property and you can be cash flow positive by renting it, and you can— if you have a hard money loan, you can refinance it, you know, the basically the BRRRR method, right? Um, then I think it's a good plan. In, in my area, single-family homes are almost never cash flow positive because my price points are much higher. I'm buying stuff for $300,000, $400,000, $500,000, and the taxes here are very high. But if you're in most parts of the country, if you, you become a— what's it called— an accidental landlord, right? If you can't sell the property for whatever reason, you could rent it and then figure things out. Hopefully it appreciates, or you figure out what to do with it later.

Yeah, unfortunately we, we were doing that because of the pandemic. When the interest rates rose, we weren't able to sell our flips, so we had to take them down, you know. Oh, crazy. Let's talk about where you're up to right now, because I think a lot of people that are that are watching the podcast or watching this live, they say, okay, he did his first deal. How did he get to the point where he's at right now? And I think you're telling me you're doing about 5 deals a month, right?

Right.

Tell us about that right now.

About 7 years ago in 2017, we had grown the business pretty well to the point where I think I was doing 17 rehabs at one time. And when I got to that point, I wanted to kill myself. I was ready to blow my brains out. I mean, materials were going to the wrong place, contractors were lying, contractors were disappearing, and I was starting to lose money on deals. And not good. And it was only— and it was almost always my fault. And I had a conversation with a guy named Brad Chandler. You know Brad?

I love Brad Chandler. He's awesome.

And Brad, he was trying to sell coaching then, but he basically told me, you gotta, you gotta move to wholesaling and you got to start marketing direct to sellers, right? And he really put me on the right path. And since then I've been marketing direct to seller. That's had a huge change in my focus in my business. The parts of the business that I hate, and I still do some of them, are construction dealing with contractors, dealing with building departments, very hard by me. There's a million different building departments. So my goal is really to get to zero construction. I'm never going to get there. But if I could wholesale every house, I would. Very often I can't, either because I'm at too high of a price point and investors won't buy it for me, or because it's occupied and I can't show it. So I do close on probably half the deals that I go into contract on now. I find half and I close on the others. I usually try to wholesale them, but sometimes I do end up bringing up rehab I'm doing a rehab now.

So that's interesting. Do you feel like if you had a more robust buyers list or a better different— I guess knew more other investors like you that would want to buy these, you could wholesale them all? Or what do you think stopping you from being able to wholesale?

No, I think, I think my buyers list is pretty good. I think it's just that if I want to continue to buy at the level I am, very often I'm faced with a seller who needs a certain price, and at that price I don't have room to wholesale it, but I can close on it and just wholesale it. So maybe just clean it out and sell. That also allows me sometimes pay more than my competitors because they're looking at it as this is a $100,000 rehab and I'm looking at it as this is a $4,000 cleanout. And I'm not looking to hit that top price in the market, I'm just looking to get— find the bargain hunters who are going to pay a lot less in that area than others.

Have you heard of the strategy of the retail buyer program or novations where they— have you tried that instead of wholesaling and closing on it so you don't have to?

I do, I do. I've novated a few deals. I think it's a brilliant strategy. There are certain additional challenges in New York to it because the seller is always represented by attorney, and attorneys don't understand what novations are. Novations are only like 8 years old, and my attorney didn't understand them. I had to sit down and teach everybody what they were. But there are huge advantages to doing them in New York also because closing costs here are so high. So a typical hotel deal like the one I'm doing now, I bought it for like almost $400,000, and I'm putting it out for $500,000. So in most parts of the country, that's a massive home run deal. I'm probably going to have to pay $50,000 to $60,000 in closing costs on the buy, on on the sale and my holding costs. It's just a crazy part.

Yeah, the cost is of listing it, right? Because you got to bring the buyer and—

yeah, I got to pay a buyer's agent, I got it, I got to pay a lender. I might pay $20,000 in closing costs on the buy. It's insane, but I'll still make $35,000, $40,000, so I'm happy to do it. But if I could novate that deal, in theory, this case it didn't work, then I can save myself all of that, everything except the buyer's agent's commission, and I can buy properties with a smaller spread. Another issue with New York— I wouldn't get into all the differences in New York, I could talk to you for an hour about Deals in New York, it takes forever. And there's no contingencies in New York. When I go into a contract, every time I have to either close or I have to assign it. That's it. So I don't have any way to get out of the contract. So even on an Ovation, I don't have any way to get out of the contract. So I have to pick a price point where if everything goes bad, if the buyer that I novate to flakes out on me at the last second, I have to be able to buy it. And I figure that I'm going to— I've never had— it's never happened to me yet, but I figure I'm going to probably lose a little money here and there on those deals. But overall, it's allowing me to buy deals I never would have bought before.

Yeah, the lump sum, right?

So, so I think, uh, I think novations are amazing. I really think they're, they're great.

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