Wholesaling VS Flipping VS Section 8/AirBnBs | Day 11 Locked In

Yo yo yo! Oh damn, Meredith just got home. Hey! All right, she's going for Pilates and I am leaving to go to the gym. Um, I'm skipping all the, you know, the normal morning intro that I do because typically at that point it's like when I wake up and my energy just isn't really that high. And I was kind of re-watching some of the videos and I felt like that part was a little bit boring, so we're going straight right to the car after the vitamins, after the journaling. And today we are gonna talk about, I already talked about why wholesaling is the best way to get into real estate, but I'm gonna explain to you more in depth of why it's better than all the other strategies you guys are always hearing about, right? So I'm thinking about this, I'm, I'm basically gonna rank every single strategy for getting into real estate and I'm gonna base it off a few things. How much startup capital is required? How long does this strategy take to start making money? What is the potential profit from doing a deal in this strategy? What are the potential losses by doing this strategy? Um, and also, how much specialized knowledge do you need to know, right? Meaning like specialized knowledge, licenses, like what, like, like things that you can't just Google. Okay, so the strategies we're going to look at, or I'm going to think about, are number one, let's talk about fixing and flipping. Okay, as far Startup capital required. Dude, I got a bug. The problem, I've had my top down. Get the— get out of here. Get out of here. Scram. Scram. It's going to piss me off. Whatever. Fuck it. All right. Also, I've had the top down on my car. That's why there's like dust and stuff. I know. So the first strategy we're going to look at is fix and flipping. Startup capital required. Okay? The average, the median home price in the United States of America is $400-something thousand. $400,000. Now, the way that most people fix and flip houses, they don't just actually buy in cash. They go and get what's called a hard money loan. And hard money loans are how they buy the property and fund the rehab for the property. Now, typically, to get a hard money loan where they will pay for 100% of the purchase price of the property and 100% of the rehab, if you get really good terms, is going to be about 15% down. Okay? So 15% of $400,000 say you're flipping a median home price home, which is exactly what you want to do. Shoot, dude, so many distractions. So assuming you want to flip a median home price home, that's like— God, can't even get this out. There's some important stuff I'm saying here. My allergies are screwing with my— with my vibes. Anyway, so assuming you want to flip a median home price home, You're going to put 50% down, which means you need to have somewhere around $60,000 burning a hole in your pocket that you're ready to invest in a deal. Okay? So startup capital required is a lot. Okay? Fixing and flipping is not something that is easy just to get into. Now, as far as time horizon, how long it actually starts to make you profit, it's typically going to be about 6 months. Okay? I'm going to give you 2 months to— or I'm going to say, let's just It takes you 1 month to actually find the house you want to flip, okay? Find the house you want to flip and buy it. Then it's going to be another 3 months of actually doing work on the property, 2 to 3 months depending on, you know, how savvy you are, how much work needs to be done. But 2 to 3 months to actually do the work to the property to rehabilitate it so you're going to be able to sell it for more money. And then another 2 months of it sitting on the market and actually getting offers and waiting for close until it's sold and you're paid. Okay? So it's about a 6-month deal. It's pretty long. Now, but not as long as some of the other strategies we're about to talk about. As far as potential profit, I've flipped houses before and I'm friends with some of the biggest flippers in the industry. People who are doing, you know, 30 projects a month. And most of the time, they're shooting to make about 10 to 12% of ARV in any given market. Okay, now if in smaller markets where, you know, it's less than $150 grand, that will go up somewhere around 15 to maybe even as high as 20% of ARV. But basically we're talking about $40,000 profit per flip you're doing is, is kind of the, the norm. And that's after everything. That's actual profit, right? That's after paying all the realtor fees when you sell the house, after paying paying for the rehab, after paying all your interest payments on your hard money loan, after paying closing costs when you buy the property, everything, right? You're probably going to walk away with somewhere about $40,000. Now, of course, there are deals we're going to make more, there's deals we're going to make less, but I'm going to say on average $40,000, okay? So that's what you have to get. So startup capital, you need somewhere around $60,000 just to acquire these loans. It's It's gonna take you about 6 months and you should make around $40,000. Potential losses though. Here's the deal. When you're flipping a house, you incur a lot of risks. Number 1, what if the market where your house is goes down? Number 2, what if your contractors, the people who are actually doing the work in the property, go over budget? Number 3, what if it does not get done in time and there's there's more, uh, you know, like they, they take too long and, uh, right, because they are laying the tile down and they mess something up, they have to redo it. That not only does that cost you more money, but also is going to cost you more time, which means more time that you're paying your hard money loan, right? More months of interest, more things like that, right? Less time before it gets on the market, right? There's a lot of risk. What happens if you got your numbers wrong and all of a sudden somebody else flips a house in that neighborhood and they list it for super cheap, and now that's a comp bringing your house down, and now you sell for even less than when you Essentially, there are a lot of things that can go wrong. There's a lot of things that can go right too, but there are a lot of things that can go wrong. And it can get you, okay? It can get you. So there are potential losses. I myself, my biggest loss I've ever taken on a real estate deal was from a fix and flip I did where a lot of things went wrong. It was a flip in Texas and it was also one of my first flips I ever did. Side note, don't flip a property in a different state that you live in. Unless you're very experienced. A lot of things went wrong. The first contractor I hired did terrible work. It all looked terrible. We had to redo it. The water line burst and I had to pay a bunch of money for like flooding and just a water bill and to get it cleaned up. And basically I ended up losing about $40,000. I would have made $15,000 had I taken the first offer I got on the property. I just saw a Cybertruck. These things are pretty— I love them. I think they're sick. Side note. Um, but, uh, basically I could have made $15,000 if I had taken this first offer I got, but it was under my asking price and I thought I'd be able to get more, and so I declined it. And then I ended up selling it for way less than that other offer was. So you live and you learn. But yeah, that's the— by far also the most amount of money I've ever lost on in a real estate deal. Um, but it was a fix and flip. So that's strategy number 1. Is that— does that sound like a good strategy for beginners? No. All right, now let's talk about things like Airbnb, like buying, like being a, uh, a landlord, like, right? Buying a property for the intent of renting out, making monthly income, whether it's Section 8 or it's an Airbnb. Okay, as far as startup capital required, Um, you're going to need 20% for an investment loan, right? To buy an investment property, you need 20% down. So even more than a fix and flip. Now, can you buy these properties using creative finance? Yes. If you're savvy, you know how to negotiate seller carryback loans, seller financing, buying a house sub-2, things like that. Can you get into properties cheaper? Absolutely. However, most people don't know how to do that stuff unless they've wholesaled. Held for a bit. Okay. So, um, that's where things change. But, um, assuming you need 20% down, it's even more expensive. Oh wait. And also on flipping a property, I forgot to even talk about special knowledge required. You have to know like about houses. You have to know, oh, do I need to replace this roof? Do I need to replace this foundation? Do I need to replace the sewer? Do I need to replace the electrical, you know, stuff? Do I need to redo the ductwork? And knowing design, like you have to know how to have what to do in the house, what kind of tile to use, how to do the kitchen, do I need to knock down a wall, do I need to— what kind of appliances do I get, what kind of countertops do I do, what kind of, you know. And it's a constant juggling act of how nice do I make the stuff to get the most amount of money, but also needing to save money so that the thing doesn't cost me a lot of money, so my profit margins aren't eating up, right? There's a lot of specialized knowledge that comes into flipping. Anyway, back to being a long-term, you know, landlord. Um, startup costs, very high. Uh, potential profit also very high, but a very long time horizon. Because here's the deal, typically on a rental property that you're looking at getting, most landlords, whether it's Section 8 or anything else, a home run smoke show deal is if they are profiting $300 to $400 a month on it. Okay. And I'm being serious. So after— so if you rent the property out for $2,000, and you're basically, you have another 30% for 10% for maintenance, 10% for management, 10% for vacancies. So that's 30%. So that's $600. So we're at $1,400. And then let's say that your mortgage is $1,000, right? So that's $400 actual profit after all your expenses every single month. That's a smoke show deal, okay? To get a property that rents out for $2,000, that your mortgage is around $1,000, is basically you getting a very good deal. You typically have gotta be a wholesaler to find that kind of deal. But basically startup capital, very expensive, 20% down. Let's remember, median home price, $400 grand. So if you wanna buy an average house, we're talking about $80,000. Now, like I said, would I ever have to do that? No, I have ninja moves and I can, you know, negotiate seller finance deals and sub-to deals like most of my rental properties are. And also, you know, you can do things other ways to get into the properties, like buy them using a hard money loan if you can get it cheap enough, and then add value to it and then refinance out where all your equity is pulled out and you really never even had to come up with any equity because it's just built into your purchase price because you added so much and got the property for so cheap. So there are ninja moves, but unless you know those ninja moves. This is not beginner-friendly. As far as potential losses, here's the deal. God forbid, but let's say that you buy a rental property, you put 20% down, and you make sure that everything in the property is good, right? That, you know, it's livable and all this stuff, and it's good. And you put a renter in the property, and that renter turns out that they would like to start breeding pit bulls, and they start breeding pit bulls in your house, and these pit bulls start pissing and shitting everywhere and chewing up the walls and all of a sudden your tenant stops paying rent. What do you get to do? Can you sue them for all the damages? Maybe. Are they going to even be able to pay them? Are you going to be able to collect on that? Probably not. What will you be able to get? Their security deposit of what, a month and a half's rent? That's not going to pay for all those damages, okay? I've had so many— I've heard so many horror stories of people try to become a landlord and and they just get eaten alive because of bad tenants doing repairs or bad tenants, uh, sign a lease and then just stop paying rent. And then you have to pay for an eviction with an attorney, and then that's expensive depending on what state you're in, right? There's a lot of things that can go wrong, um, not to mention every little thing that happens, right? You're trying to make $400 a month. Every little repair that happens every single month that you have to pay for as a landlord is just eating into that money. Right? Toilet breaks, boom, $250, $300. Oh, the AC goes out, $7,000. Your entire year's cash flow wiped out, right? There are things like that that can happen. Am I telling you not to buy rental properties? Of course not. But you need to know that really the real money is made in the tax savings of owning rental properties and the appreciation, right? And that takes a very long time. Time, right? Because we're talking about basically we buy the house for $200,000 and we're hoping that 15 years down the road it's worth $400,000, right? But that takes 15 years. So the time horizon on making money with rental properties is very long. This is a very bad strategy for beginners, okay? Very bad. Is it a very amazing strategy for, for experts? Yes. But for beginners, it's not what you want to be looking to to do. You should not be looking to buy rental properties and things like that until you are making a good amount of money where you can afford to do these repairs and things like that, right? And it's not a big deal. But anyway, that's that. Um, I could talk about being a realtor, uh, but you guys already know how I feel about that. Either way, look, here's the deal. Let's talk about wholesaling. Barrier to entry, nothing. How much you to spend to get into these deals? $100 earnest money deposit, that's it. Yeah. What's the time horizon? You typically get paid in 30 days. How much can you risk? Like how much can you lose on a wholesale deal? Nothing, right? How much can you make? The average wholesale deal is $20,000. Like wholesaling, it's just, it's a no-brainer of why beginners should get into it. Because not only is it the easiest to get into, requires the least amount of specialized knowledge, has the potential, the least amount of risk, uh, fastest money. But also it's going to teach you things that are going to allow you to do all those other strategies, and it's going to make you the money you need to be able to do those other strategies. So it's, it's a no-brainer. It's what you got to get into. Anyway, I'm sitting here at the gym. My shoulders are still absolutely messed up, um, so it's really made the gym not so much fun for me, but we're still here anyway. Um, basically I'm just gonna do some biceps some triceps, do my cardio, sauna, and we're gonna get on with our day. Yesterday I was on a podcast and I closed a deal. The first lead I called, locked it up, bought it, house in Florida. So, um, later today, uh, if I can get pictures back on that property, you guys are gonna get to see me try and dispo that deal. So that should be fun because that's kind of something different that I've ever done, is dispoing rather than doing the acquisitions live. So Should be cool for you guys to see that. But yeah, we're gonna go get after this workout now. We'll see you guys in a little bit.

Might as well ask for my friends in Arizona. So tell me about— so what do you want to know about what we've got?

So I needed to get some information about each of the properties so that we can figure out and get you a price on all of them.

Okay, well, you know, they're older homes. You know, as I told, uh, is her name Ant? Ant? What is her name? No, I talked to her late. Well, maybe it's somebody else. Um, but anyway, I've got several people looking at this property. So, uh, but anyway, yeah, so what do you want to know? I mean, when you first come in, we probably looked at it on GPS, you know, you can look at it on you know, Google it. But it's got, you know, a duplex. You asked me the questions. I already told the gal all these questions. What do you want to know?

Okay, so first thing is I want to get and just make sure that we have all of the addresses correct. So for the first property, this is the one I have.

I'm looking at 4 And that is the 15 acres where everything is.

Okay. So everything is on this property?

Yes. And it's like 14.9 acres. Okay. To be exact.

So this property, there is a, or I'm sorry, at this address, there is a structure I'm seeing that's 2,400 square feet. And is this the duplex?

Um, is it as you first come in the road?

Well, let me see here.

Okay, you know, I'd have to go to—

no, so I see what you're talking about. So, okay, I'm looking now. So from what I can tell, looking at this on GPS, you turn off and immediately to your right there's gonna be a property, right?

That's the duplex.

Okay, so 4230 is the duplex.

Well, we just, you know, we don't do 4230. You know, it's not like that. It's like— how do I say it? It's not like that. It's like that's number, whatever the duplex number is.

Okay.

You know, each number, like, you know, the house to your left as you come in is number 15.

Oh, gotcha.

What I'm saying, they don't have individual addresses because out front is all the mailboxes. And so they just have the number of the houses, you know, on that property. It's not a separate address.

Okay. So is that— is because I just want to make sure, because there is a lot of foliage, I want to make sure I'm not missing one of the properties. Is that one, um, when you turn it— when you turn on to— when you turn off the one on the right, is that the first actual structure?

Yes, and it's kind of white. Yes.

So I can't see— I can't see a street view. However, I'm looking just sort of from the—

well, it's not— its name, it's Kernodle's Road is the road it's on. But of course We use all of the, uh, we use Martha Truman Road for all of the, the places that are there. Yeah, it's 4100 Martha Truman Road, number 15, number 7, number, you know, it's like that.

Okay, so is what I want to do is let me get— so that first one when you turn right, that duplex, what number is that?

Oh God, I don't know. What is the number of the duplex? Do you know? The duplex, what do we call it? We call it A and B, 4100 A and 4100 B.

Okay, perfect. So 4100 A and B, they're both rented out, correct?

Yes.

Okay. And are they on a, do they have a lease or is it month to month?

Well, they've been there so long it's now month to month.

Okay.

Everybody's been there so long it's now month to month.

Okay. So all of the leases are going to be month to month because we have super long-standing tenants. Correct. Okay, so first question is, are the tenants all— are they paying on time? Are they all good tenants?

Yes.

Okay, let me make note of that.

We have it set up where they have to pay by the 5th of the month, you know, to give them a little leeway.

But okay, so at 41A, What is— how much are they paying a month?

Okay. All right, hon. All right. $650 is for the B unit. $595 is for the A unit.

Okay. And you said that these tenants have been here for a long time?

Long time.

Okay. Perfect. And then do they, do they cover the utilities or is that something you pay for?

Uh, we pay, let's see, not on that unit. They pay their own utilities on the duplex.

Okay. And then, um, as far as the condition of the duplex, are there any repairs, anything that you might know of that would need to be done?

Uh, well, I mean, I would probably— I don't know what you're, you know, planning to do, kick them out and make it better. You know, I would probably— I mean, they've got like the furnaces and everything is great. The A unit has a new refrigerator we just put in. I mean, everything works, all the, you know, but I mean, as far as, you know, might be able to paint it, you know, I would probably paint it and do that. We haven't done anything with it only because we just want to sell it because we just sold, we just sold 120 acres and 80 acres just down the street where the lakes are. Oh yeah, we sold that in May. Oh, okay, last May, so a year ago. And so this is just that— see, what used to happen where that 15 acres is, there was a third lake. And so my husband's father built all this in 1920-something. He bought all of this property, and so the entrance used to be that 15 acres. That was the entrance to the first lake for all of the swim, fish, picnic was. Well, then that was divided. His bro— his brother took— Jim took that 15 acres and that one, um, the lake area, and then we built more. We just put the swim, fish, picnic in the large lakes down the road, the— on the 80 and 20. Okay, so, so that used to be the entrance. And so, you know, we haven't done much with that. That was, you know, nobody ever went up there. The people just loved it. And so I— it depends on, you know, if you're planning to get top dollar, you're gonna probably want to go in and maybe put a new carpet or, you know, whatever you normally do when you sell something that's for cash. Yeah, you know, I mean, you know, that's just the way it is.

So yeah, well, no, that makes exact, exact sense. This is exactly what I'm trying to get, get out here. And The reason why I'm asking, I mean, I'm already thinking about this. Your tenants have been here a long time. Of course you've kept them up to date, make sure everything's working.

Yes.

But are there any of the units where you have gone in and made sort of like cosmetic repairs, like we're talking about, like redoing the paint, maybe, you know, new—

Not really.

Okay.

Not really. In several years we have not.

Okay.

We have not.

But am I fair to assume here that throughout all the properties you're taking care of, you know, there's not going to be any broken toilets or electrical All right. So to make sure I have this right. So there's the duplex. We've got the A and B, both 2 bedrooms, 1 bath, $595,000 for one, $650,000 for the other.

Yep.

Then there's the other property on the left side, the single family. It's a 2-bedroom, 1-bath with a garage. And it's $765 plus utilities, but you're paying for the propane.

Yep.

Then there's the property that's a little bit of a mess.

Well, no, plus utilities. I mean, he pays utilities. We just pay the propane.

Gotcha. Yeah, got it.

Okay. Okay. All right. Go on, please.

So then there's the property that hasn't been rented. It's a little bit of a mess, right? It might be a 2/1, might be a 1/1.

Well, no. Yes.

Okay. And then there's the two other places at the end of the road where—

no, wait, yeah, you know, there was a one place that was— that we haven't rented for a long time that's next to Allen. Allen's the one that has the other small place before you go to the end of the road. So you would have the single-family dwelling, okay, you would have, uh, I think the place that's not rented that's You know, we haven't rented it in years. And then Alan's place is next to it. That's 2-bedroom, 1-bath, small, no garage. Now you go to the end of the road with the 2 houses.

Okay, okay. All right, well, Martha, I just want to tell you thank you so much for bearing with me here and taking the time to explain all this. To me.

No problem.

Okay. So I understand now we've got the duplex, uh, we have the 3 properties right there in the beginning, plus the duplex. You go down, there's the other 2 properties, and then there's the big house.

That's correct. Now there is one more thing.

Okay.

If you, if you didn't turn in, you know, let's say you're headed west on, then you would make a right into where these houses are. If you would go about 200 feet This is still on the, the 15 property. There is the 15 acres. There is a garage, and that garage is rented. The guy's been there for a long time. He works on cars. It's not in the area where the families are. It's actually right off of Martha Truman Road, but still a part of the 15 acres.

Okay, I think I see it here, and So the garage is— I mean, it's like a sort of just a commercial building. There's no—

yeah, it's just a garage. Yeah, it's just a garage that, you know, he works on cars and he pays— I don't know the rent on that because he's always— see, it's a long story, but he pays rent to Robert. I'll have to find out how much that rent is if you need to know. He pays that directly to Robert. I don't know why, but he does. Okay, um, on the garage, the rest of those go into what we call Kernodle's Investments. Okay, those rest of all those properties go into Kernodle's Investments. Uh, it used to be that John had some of those up there, Robert had some down on the 80 and 20 acres. There was rental property, John had some, Robert had some. So this garage has just stayed with Robert after we sold the others. So, you know, but it doesn't matter because it's still a part of 15 acres and would be sold with the 15 acres.

Okay. All right. I think I understand.

Okay.

Okay. So based on what you've told me, um, for these properties, um, including the garage, do you guys have an idea of how much you're looking to get for all of it? If we were to buy them, every single one of them, buy them entirely as is. So there wouldn't be, hey, yeah, we'll do that, but we need you to repair this, this, and that, right? Just buying them entirely as is. You guys don't have to pay to fix anything or anything like that. Do you kind of have an idea of how much you'd be looking to get for, for the—

you know, I just need you to make me an offer and I need to talk to Robert and John.

Understood.

Because remember, you know, there's a lot of land that you could build onto there. Okay. I mean, there's a lot of— I mean, it's not just, you know, houses right next to each other. There's a lot of property, woods, you know. That's why they love it, because it's so quiet. Yeah, you know, and private. So, um, but anyway, okay, so you, you think about it and you make me an offer, and I'll in the meantime talk to Robert, talk to Connie, his wife, and talk to John and tell them that you have an interest and that we're waiting to hear what your offer would be. Okay, now could you please give me your name again?

Yes, ma'am, my name is Tyson Smith.

Tyson Smith. Can you text me, Tyson, your name and just your company name? And, you know, I don't need your phone number because you've got mine. You can reach out to me, but I just want to keep, keep you associated with the people that are— that have that I'm talking to. I want to make sure I keep you straight.

Yes. All right, I'm gonna text you to this number.

Yes.

I just said, hey, it's Tyson with WBHC. That's just We Buy Homes Cash.

Okay, perfect.

All right, so what I'm gonna do now is I'm gonna take all of this information that you so kindly provided to me over to my underwriter. It's very likely that before we're actually able to get our preliminary, like, offer I'm probably gonna have some more questions.

Oh sure, whenever.

If I do, I'll just go ahead and give you a call back at this number.

Well, and if you— I'll tell you, if you could text me the questions, because as I said, I've only been in this a year, I could try to get the answers for you before we speak.

All right, well then I'll go ahead and do that then.

Okay, perfect. And then you can just say, is this time good for me? And it's good for me, is it good for you? You know, so that way we can not miss each other on phone calls.

Okay, we will do, we'll do.

Okay, all right, all right.

Well, thank you so much, Martha.

Okay, okay, thank you, thank you.

Bye-bye.

Bye-bye.

All right, so, um, for anybody who was late to all of that, basically my cold caller found— all right, let me start from the beginning here. I am very aggressively trying to buy rental properties in Kansas City, Missouri right now. My cold caller— so I pulled a gigantic list of properties in Kansas City, gave them to my cold callers, they call people and say, "Hey, would you be interested in selling your property?" And this person said, "Yes, I have 15 acres with a bunch of houses on it I want to sell." So I said, "Perfect, give me their information, let me call them." So that was me fact-finding to learn about the property. And it's definitely something that I'm going to be interested in. Because there's a lot of good things going on. Number 1, all the tenants are month-to-month. Number 2, they've been there forever. Number 3, they're all paying hugely under market rents. So there's a lot of value add to happen here, right? What this deal would look like is we're going to basically look at the, the current properties, incomes, expenses, things like that. And we're going to from there derive our offer price. And then we're going to look at what's it going to look like to get all these properties rented up to current market market rents, fully stabilized, and then sell them to somebody else who might possibly go and develop on the land or something like that. But basically we'll make a huge premium from doing so. So this isn't exactly what I'm looking for, where I'm looking to buy rental properties, because I'd probably end up selling this. But I mean, so this would be after a while, right? After I've stabilized and done all the value out I can without doing any development, because I'm not ready just to step into those shoes yet. But very interesting deal. The one thing we don't know though is how much they want for it. So that kind of sucks. Right? That's something I always want to find out because now I have no idea at all, right? Even if we're in the same ballgame or anything like that. And before I spend a bunch of time on something like this, I typically want to know that. So how is AI Auto Leads doing? Rodrigo, it's awesome. Yes, massive upside because of the undervalued rents for sure, right? Now the problem is, is a lot of sellers will look at it and be like, well, it could be way higher rents, right? And they're trying to get the value for the higher rents when it's not currently like that. So yeah, why'd you pick Kansas City? Variety of reasons. I believe it's an up-and-coming market. It's got the kind of price point I'm looking I'm looking for, uh, a lot of renters, um, growing place. I like it, right? I feel like not only can I get good cash flow in that market, plus the market's going to see a lot of appreciation.