How to buy your first deal - (It doesn't have to be a home run)

Hello YouTube, we're back. It's Christian. This is Brandon Vukelic joining me again on the channel. Excited to have you all here. If you haven't yet, like, subscribe, get notifications if you want to know more about the real estate basics. Today we're talking about buying your first deal, what it looked like for us, and what it should look like for you. There's a lot of people who are pursuing the wrong targets, the wrong returns, only looking for home run deals, and it's slowing you down if you're trying to build wealth in multifamily. So Brandon, welcome back to the channel.

Thank you.

I wanna just open asking you a little bit more about your first deal. How did you get started in real estate? Was that deal a grand slam? Talk to us about how you got into the game.

It's a pretty funny story. So I was living in LA, had a business at the time, and my buddy and I, we loved Vegas. We were going there all the time. And he's like, man, we should maybe just buy something over there. I'm like, let's look it up. So he's on Zillow at the time, it was brand new. Found a condo for sale for like $40,000. We're like, geez, we could put that on our Amex for crying out loud. And it turns out it was a dump. But we go over there and meet an agent and she's like, well, why don't you look at these condos? They're twice as much, but they're a lot better location. And we ran the numbers at that time. We put very little down and it still cashflowed like $100 a month. And it was our first deal. We're like, well, this kind of works. This is cool. Yeah. So that was the first one we did with very little down.

Okay. Now not quite enough to be financially free.

No.

So $100 a month doesn't quite cut it.

First baby steps.

But yeah, it got you in the game. Where did you move from there? Where were the next few transactions after you got your feet wet?

New construction speculation, which was horrible. Wow. They were both failures, but lessons learned. They were great. And then we did— we bought a 6-unit in West Seattle and held that for a few years. And then we did 1031 with the property in Seattle and moved our capital to Boise. Awesome.

I like that market more.

Yes. So, oh, that's awesome.

Yeah, that's awesome. Well, a little bit about how I started. I know I've shared a few times on the channel, but I actually did a house hack in in a condo in Renton. First property I ever bought. The goal was to turn it into a rental property. I actually moved in there married with my wife. We had a 2-bed, 2-bath condo. We had a roommate in there who was awesome for about 6 months until 900 square feet got really, really small for me. But that property we lived in for a little bit over 2 years. It was a dump when we bought it. Flipped it myself just over 2 years slowly, you know, doing floors, doing paint. And you have a cool tax benefit where if it's been your primary residence for 2 of the last 5, You are actually allowed to negate a majority of the capital gains. Now it depends how much that is, whether you're single or married. However, without getting into all the details there, there are some tax advantages to living in your unit. After that, I rented it out for a year or two, and I hated being a property manager. Even for just one unit, I had a bunch of problems with my tenant. I had no idea how to screen them. They were in their 50s, but they'd never rented before. So I was like, well, there's no rental history. 'But you're a retired police officer, you should be able to handle this.' They couldn't. They had conflicts with everyone. They had someone throw a brick through the window in a nice neighborhood. It was a bummer. So I stopped doing real estate for a little while. Finally invested as a pure investment property in a duplex. Nice. And I'd call it a base hit. I put $30,000 in, it cash flowed about $500 a month. It was a good deal.

I like that term, base hit.

Yeah, exactly.

Unlikely your first one's going to be a home run, right? Or even your second or third potentially.

So exactly. My second one happened to be a home run. Um, I bought it for $0 out of pocket. We renovated it for $50,000 and it cash flowed about 50% of my investment back in the first year. However, you're not going to find most of those, and I haven't found a small property that did that again. That was the only time I've ever seen that happen for me. When you're moving forward, it's okay to get those base hits, especially when you're starting. A lot of people focus only on, hey, I'm gonna swing for a home run every time. And what you find is they're at this game like I was for 5 years trying to figure out how to do it, and I had 1 unit. And you end up with a really small portfolio that doesn't get you to your goal. If you keep doing deals that cash flow, you get to move forward, right? All you have to do is the 2 questions that we always ask: how do you own it, and And how do you never lose it? You do this by finding the opportunity, negotiating with the seller, so you build a relationship that allows you to buy the deal. That's the how do you own it. How do you never lose it is you have to make sure that deal cash flows in long-term fixed-rate debt. Now occasionally we'll use shorter-term debt with a strict game plan of this is exactly how we're bringing it into long-term fixed-rate debt. You need to have a game plan to buy that. If you hit those requirements, Every single deal you do will move you forward. We had, I'd love your opinion on this, but one of our early mentors, Gary, shared this with us, is hey, if we buy deals and every deal negatively cash flows a dollar, there's some limit to the amount of deals we can get. Like, you can only float, granted, that's a lot of real estate. Assuming you make $100, you can still get 100 units at negative 1, but if the market drops, you're hosed. If you find a deal that cash flows a dollar, how many deals can you afford? Right.

Infinite.

Yeah. Now granted, you're going to pursue deals that have a bigger margin than $1. Please do that. A metric that I personally used when I got started is I want something that the cash-on-cash return is 8% or greater. Doesn't have to be a home run. It's just for whatever money I put into the deal personally, the annual cash flow is at least 8% of that. That's the metric that I used for base hit. I just squeaked by on my first deal where that was the case. And we've had deals that have, you know, a few hundred percent return on investment.

That's great.

But you find those playing the game. The more rentals you have, the bigger your story is. Brandon, when you got a little bit further, did you have any deals that were truly a home run deal?

Actually, yeah, this, uh, this 18-unit in Boise has really turned out. I mean, I trusted the property manager. They said, hey, I can— we will guarantee you these rents will get to X within 2 years. Uh, we'll only charge a minimum property management fee because we're so convinced that we'll get you to that point. And they, they hit that mark in like 14 months. So it wasn't even 24, it was like 14 months by time before they got there. So that, that was way better than I ever expected. And what I tell new buyers or investors that I'm meeting with especially at BiggerPockets. Don't get analysis paralysis. I still work with clients that have not pulled the trigger in the last 5 years, and they've missed out on hundreds of thousands of dollars of equity or millions of dollars of equity growth. And the analysis process will kill you all the time. Just, you know, you're gonna get massive education just from taking action, and you gotta, you gotta just jump in. Evaluate it conservatively, Especially these days now.

Oh yes.

But yeah, and have reserves. That was another lesson learned way back that I learned. You know, putting every last dollar just to get into a deal and then have a sewer line break 2 weeks later after closing that cost you $11,000. Like, where am I gonna get $11,000? So come in with some reserves is also a good lesson.

Oh good, I still need to learn that one, but we're getting there. Make sure you have enough cash flow. If you are coming in low on reserves, everyone has to start somewhere, don't get aggressively in speculative deals when you don't know what you're doing. If you have a property that has a lot of repair needed, make sure you know where that money would come from if a disaster happens. Because as you guys know from this channel, Cody and I are often fairly illiquid. We put a lot into real estate, we need the cash flow to pay it off. We've had bad stuff happen. I've had a car drive through my 38-plex, and when I say through, I mean physically through the building. Um, we just had a second car hit the building.

Stuff happens.

Yeah, real estate. Exactly. You need to have a specific plan of what do I do in catastrophic failure, because stuff will happen. And the more real estate you have, the more you're rolling those dice. So make sure you have a plan. Reserves are really important. On that deal that you had in Idaho, that home run deal, could you have gotten there if you didn't get some base hits along the way?

No, of course not.

Okay.

And I had losses along the way too, like, but that helped me prepare for finding that deal, I think. You know, it's like, okay, I'm not going to make that same mistake. I'm going to evaluate a little differently here. And, uh, yeah, it just worked out.

How was that Seattle deal, by the way, the one that you 1031'd into? That was— that was that a home run deal, or is that just How did that one operate?

That one was— it was lagging, so it had a lot of deferred maintenance, and I didn't like the way that the landlord-tenant laws were changing, the politics were changing. So my brother and I, it was a hard decision to make because we loved the area it was in. If you know anything about Seattle, it was in Ballard, which is really hip, hot neighborhood. And yeah, it was kind of tough to make that decision, but we knew the writing was on the wall with the city that they were not for landlords there.

So Mm-hmm, and that is very true. Cody and I only have one property in Seattle. It's actually just right outside of the city of Seattle, but just the crazy laws are the most expensive thing we have on any of the properties. We have all these extra permits and extra inspections, and it just makes it really inconvenient and not fun to invest in that market. However, a base hit that allowed him to 1031, take those proceeds, and buy something that is a home run. So add pieces, you can You can do more in real estate if you have more pieces on the board.

Exactly.

So get your pieces out there, make sure they cash flow, and you're good to go.

If the cash flow don't flow, it's a no. It's kind of the same, right?

Yep, it's super easy to follow, and I promise you that a majority of people watching this video will violate that at some point.

Don't do it.

Don't do it. Cody and I have done that once, and we made it through, but it was really painful to the tune of about negative $15,000 a month for a little while. When you're broke is kind of hard. So that's a story for another time. Uh, in the meantime, this is Brandon Vuklich. You can follow his channel, Multifamily Momentum. Link is down below. If you want more on this series of the Multifamily Basics, hit the notification button. We'll see you guys next week.