\n<\/p>\n
Real estate favors those who value risk. An investor\u2019s willingness to take a calculated risk separates the good from the great.<\/strong> And today\u2019s guest, Grace Gudenkauf,<\/strong> is definitely on her way to greatness. This ambitious 24-year-old has managed to get seventeen doors between eight properties under her belt in less than a year,<\/strong> and she shows no signs of slowing down.<\/p>\n She was first introduced to real estate when her boyfriend decided to flip a house<\/a>. It didn\u2019t pique her interest until she reviewed the numbers and saw the potential.<\/strong> Since then, hard work and <\/strong>calculated risk<\/strong><\/a> have allowed her to have the accelerated success<\/strong> any new investor dreams of. A substantial amount of this success is due to her and her boyfriend making it a point to \u201cnever let the money stop them<\/strong>\u201d, they \u201cget the deal first and then find the money<\/strong>.\u201d\u00a0Most would be reluctant to take this approach, but it has worked phenomenally for Grace.<\/p>\n From talking directly to a VP at a local bank to deciding to leave her W-2<\/strong>, Grace keeps taking risks in the name of real estate, and it keeps paying off. When it came to deciding if she would leave her W-2 or not, Grace looked at the worst-case scenario to weigh her options. After it was all laid out\u2014her worst-case financially, emotionally, and socially<\/strong>\u2014she decided the risk was well worth it.<\/strong> This is an episode you don\u2019t want to miss.<\/p>\n Ashley: Grace: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Grace: Ashley: Grace: Ashley: Grace: Tony: Grace: Tony: Grace: Tony: Grace: Tony: Grace: Ashley: Grace: Ashley: Grace: Tony: Grace: Tony: Grace: Ashley: Tony: Grace: Ashley: Grace: Tony: Grace: Ashley: Grace: Ashley: Grace: Ashley: Grace: Ashley: Grace: Tony: Grace: Tony: Ashley: Tony: Ashley: Grace: Ashley: Grace: Ashley: Grace: Ashley: Grace: Ashley: Grace: Ashley: Grace: Ashley: Tony: Grace: Tony: Grace: Tony: Grace: Ashley: Grace: Ashley: Grace: Ashley: Tony: Ashley: Grace: Tony: Grace: Tony: Grace: Tony: Grace: Tony: Ashley: Grace: Ashley: Tony: Grace: Ashley: Grace: Ashley: Joe Gatlin: Grace: Ashley: Grace: Ashley: Tony: Grace: Tony: Grace: Ashley: Grace: Ashley: Grace: Tony: Grace: Tony: Grace: Ashley: Grace: Tony: Ashley: Grace: Ashley: Grace: Ashley: Grace: Ashley: \u00a0<\/p>\n<\/div>\n
This is Real Estate Rookie, episode 161.<\/p>\n
Well, how are you going to get loans if you don\u2019t have a W2? You\u2019re never going to be able to buy anything. And I feel like that\u2019s a huge myth and just not true. Yes, you have to sacrifice a little bit, maybe some points, maybe higher interest rate, but am I going to let that completely stop me? No.<\/p>\n
My name is Ashley Kehr and I have a story. Today, I am actually in Seattle at the Heaton Dainard office. So if anybody is looking to invest in Seattle, I highly recommend checking them out. No, this is not a paid advertisement, I\u2019m just using their office for free to record a podcast and playing with the cool things they have in the office. So if you guys aren\u2019t watching the sun, you-<\/p>\n
And apparently they have medieval\u2026 Yeah. Ashley\u2019s holding the story that looks like it\u2019s from Game of Thrones or something right now. I\u2019m very nervous for all the people in that office with you.<\/p>\n
I know. So I am here with my cohost, Tony Robinson. Tony, you have any weapons in your office?<\/p>\n
The only weapon I\u2019ve got is, I don\u2019t know, I\u2019ve got a gallon sized water bottle next to me and a fork that I use to eat my lunch, so I could maybe do some damage with that.<\/p>\n
But you can waterboard somebody.<\/p>\n
Yeah. So for those who are joining us for the first time, we\u2019re actually not a podcast about medieval warfare and weapons of times past, we\u2019re real estate focused podcast that shows new investors how to get started. We give you the inspiration, the information, the education you need to get started in real estate investing. So Ashley, I\u2019m excited, you\u2019re like a globetrotter right now. You were in Tennessee with me last week. Now three days later, you\u2019re in Seattle. What\u2019s next on the agenda? Where are you going to next?<\/p>\n
Next, I think I\u2019m actually coming back to Seattle at the end of the month, but that is super exciting moment for me today. I am investing in my first out-of-state property. So here in Seattle, I\u2019m going to be doing a house flip and partnering with James Dainard from Heaton Dainard. So that\u2019s why I\u2019m out here doing my first look at the property, going over the rehab for it and writing a check.<\/p>\n
Awesome. Are you going to share on your Story what the property looks like? Yeah? I\u2019m excited to see what-<\/p>\n
Oh yeah, yeah, definitely. And it\u2019s actually not that bad. I\u2019ve toured a couple of properties here in Seattle before that\u2019ve been like hoarder houses and different things like that. Actually, James was just showing us a video of a house he bought that had actually been on an episode of Hoarders. So if you guys Google Seattle hoarder house, you guys might be able to watch that episode on A&E.<\/p>\n
Yeah. Well, that\u2019s exciting. Actually, I\u2019m excited to see your first out-of-state flip. How often do you think you\u2019ll have to go back to Seattle to manage this project?<\/p>\n
So I\u2019m coming back during the middle of rehab, and then I\u2019m coming back towards the end of it when it gets listed for sale to see the finished product.<\/p>\n
You make it sound so easy. You make it sound so easy.<\/p>\n
That\u2019s our duty, right? We\u2019ll see. We\u2019ll see how it goes. I\u2019ll keep everyone updated. You can follow me on Instagram, @wealthfromrentals and check out James at JDainFlips on Instagram too, to see this journey of our first joint venture together.<\/p>\n
Yeah. I\u2019m excited for you guys.<\/p>\n
So Tony, what\u2019s new with you?<\/p>\n
Yeah. I feel like I don\u2019t have an update as cool as yours. I definitely don\u2019t have any medieval weapons in my office with me right now. Well, what\u2019s new with me? We\u2019re actually closing on another flip tomorrow, so that\u2019s exciting. We\u2019re trying to ramp up that part of our business. And again, we\u2019re still selling these short-term rental turnkey flips. So that way, whoever buys them can take them live on day one. So excited to grow that part of our business. And we\u2019ve actually just added two new folks to our team as well, to the Alpha Geek Capital team. So shout out to Warren and Brian. They\u2019re coming on to help us with acquisitions. So as we ramp up our need for deal flow, they\u2019re going to run point on that. So exciting week for us at the Alpha Geek Capital team.<\/p>\n
Yeah, definitely. Definitely adding more team members, taking some work off your shoulders and hopefully providing you a ton of value and exciting for them to get to work with you and learn from you too.<\/p>\n
Yeah. I hope it\u2019s a mutually beneficial relationship. But yeah, I think things are good. The best part is, I got to hang out with Ashley Kehr for two days, three days in Tennessee, so that\u2019s always a good time.<\/p>\n
Yeah, that was so fun. And it was awesome to finally get to see one of your properties in person and get to stay there in the cabin, so thank you very much for having me.<\/p>\n
Yeah, of course. So your bill for the lodging, it\u2019ll be coming to you soon. So just keep an eye on your inbox.<\/p>\n
I\u2019ll make sure to leave a review too.<\/p>\n
All right. So should we get into today\u2019s guest? Today, we had a Grace Gudenkauf on the podcast. Grace is an investor base out of Cedar Falls, Iowa. I really in enjoyed this episode, she\u2019s a younger investor, 24 years old, just recently graduated from college, I think she said like a year and a half ago, and she\u2019s scaled to almost 20 units in less than a year, which is super, super cool, super amazing. And so she breaks down what that journey looks like. One of my favorite parts of this episode was when she talks about her decision to leave her job and what her thought process was behind that. So I really enjoyed that part of the conversation.<\/p>\n
That was my favorite part too. And just how she gives some actionable steps, if you are thinking of doing the same thing, putting your job and jumping into real estate full time, here\u2019s some things you should think about before you actually do that. So a great episode. Let\u2019s get into it.
Grace, welcome to the show. Thank you so much for joining us. Can you start off with telling everyone a little bit about yourself and how you got started in real estate?<\/p>\n
Yes. Thank you for having me. I\u2019m super excited. I am Grace Gudenkauf. I\u2019m a 24-year-old investor from Cedar Rapids, Iowa, where I was born and raised. And I got started in real estate last fall because my boyfriend had flipped a house while I was still in college, and I had just started my full-time job and I was really looking for ways to maximize my new salary, and it fell into my lap.<\/p>\n
So Grace, what did you think when he flipped a house? Was real estate investing anything you even knew about? And how did that conversation happen?<\/p>\n
I just remember doing like purchase price plus rehab, and then the different with the sale price and being like, \u201cOoh, that\u2019s good.\u201d I had no clue all the things that went into it. And I went and I painted some. I remember thinking like, this is a good idea and I\u2019ll do it eventually, but it wasn\u2019t like alarm bells going off yet.<\/p>\n
Before we dig into too much of your story, can you just give us real quick an overview of your portfolio, what it looks like today and what kind of investing you have done?<\/p>\n
Yeah. So all of my units are in Cedar Rapids, Iowa. We have 17 doors between I think, eight properties, some single families, some duplexes and a couple fourplexes. And we\u2019ve done all over the place huge rehabs, cosmetic, rent to own, creative, pretty much everything we\u2019ve done except for flipping and short-term rentals.<\/p>\n
So you said that you\u2019re at 17 doors across several different properties, but you said you started last fall, so like a little over a year into this. Is that timeline correct?<\/p>\n
Yes. We bought our first single family rental February of 2021.<\/p>\n
Wow. That\u2019s awesome. What a great growth. And not even a year. It hasn\u2019t even been a whole year yet. So you keep saying we, Grace, so who is this we that you\u2019re speaking of?<\/p>\n
Yes. So we is my, I say my business partner slash life partner, Brant, and that\u2019s my boyfriend. And we\u2019ve partnered together on everything.<\/p>\n
Got you. So let\u2019s talk a little bit more about this journey, because to go from falling into this first flip that your boyfriend did to now having a pretty sizable portfolio, there\u2019s got to be a lot that happens in 11 months to be able to make that work. So after this first flip, what happens after that? Are you guys just like you\u2019re on fire? I guess just walk us through that journey of what happens after that first flip.<\/p>\n
Yeah. So he got the money from that first flip, and I think he was looking for the next thing to do. And I was like, \u201cWell, it\u2019s going to be winter in Iowa, so let\u2019s do a flip together. I\u2019ve got nothing else to do, literally.\u201d And we ended up actually buying something together. We put 20% down and we were going to BRRRR a full gut property. And so we started that first one in February and then took us six months, and we had to DIY the whole thing because we didn\u2019t have\u2026 We had some money, but not like a crazy amount of money. And then from there, I was just like, \u201cThis is such a good idea. I have to keep doing this.\u201d And we just decided that we\u2019ll never let the money stop us, we will always get the deal and then find the money. And it\u2019s turned into where we\u2019re at now.<\/p>\n
I want to pause in that one point, Grace, because what you said, I think was very profound, I want to make sure we don\u2019t pass over that. But you said that you\u2019ll never let the money stop you. And if you find a good deal, you\u2019re going to get it under contract and you\u2019ll figure it out afterwards. I think there\u2019s a lot of people who are afraid to go down that same path because they might see a good deal, but there\u2019s too afraid to lock it up because they haven\u2019t figured out the financing.
So just walk us through your thought process on, A, how you haven\u2019t let that fear stop you. And then B, how are you funding all of these deals? Because I think when someone hears you go from zero to almost 20 units in less than a year, people can\u2019t comprehend how you\u2019re able to finance that. So start with how you broke past that fear, and then give us some tactical knowledge on how you actually made it happen.<\/p>\n
Of course. If somebody scales that quickly in that short amount of time, it\u2019s really important to understand that there are other partners, private money lenders, whatever equity partners out there that are making that happen more than likely. And for us, that\u2019s absolutely true. I remember I probably heard it from a BiggerPockets podcast, someone saying, \u201cI\u2019m not going to let the money stop me. I\u2019m going to find it.\u201d And I just like regurgitated that. And it started just with the very next deal we did, was two duplexes.
And they were 255,000, so that would\u2019ve been like 50,000 and of down payment and we didn\u2019t have that. So I called my small local bank that probably had like 30 employees, and I went straight to the VP and I was like, \u201cHey, this is a really good deal, I\u2019ve banked here forever. Let me put 10% down.\u201d And he basically got the underwriter on the phone and they decided right then and there that they\u2019d let us put 10% down. I was like, \u201cThe tenants have been here forever. They\u2019ve never missed rent payment. These are really worth more like 300. So you have no risk.\u201d
And then I went and I partnered with Brant and my sister to split that 10% down payment three ways. And then each one moving forward was just all different, and I feel like I figured it out as I went.<\/p>\n
That is so awesome that you went to the VP of the bank, and that\u2019s the power of these small local banks. And that you asked\u2026 What\u2019s the worst they can say? Is no. But putting yourself out there and asking those questions. And not even asking, you knew exactly what you needed, what you wanted, but even going to these banks and asking, \u201cWhat can you offer me?\u201d It obviously was a very powerful tool for you and kept you moving forward. So when you set up this new partnership with your boyfriend and your sister, what did that look like? Did you guys put together an LLC? Did you keep it in your personal name? How did you structure that?<\/p>\n
So we should have put it in an LLC, but we actually took title as tenants in common with two thirds being Brant and I\u2019s LLC and the other third being her personal name. I think we might have done that because we needed her W2 to help qualify for that. I can\u2019t quite remember, or maybe it was timing and we just didn\u2019t get our stuff together to create a new LLC. That was the last one that went into any personal names, and from then on out, we\u2019ve always put everything into an LLC.<\/p>\n
Can you explain for anyone that doesn\u2019t know the difference between putting in your personal name or putting it in LLC, what are the risks and what are the reasons that you have transitioned from personal name to LLC?<\/p>\n
Yeah, so we really wanted to get our commercial lending, I guess, relationship started, so we just skipped the whole residential loans, which are going to give you 30-year terms and depend on your W2 and your credit score and be just super favorable. You probably also are going to have to put 20 to 30% down, whereas like I said, we didn\u2019t have a ton of money, so we knew that we needed to stretch basically every give that we could get. So we went to lower down payment commercial loans where we could do 10 or 20%.
Granted, they\u2019re going to be a little higher interest rate and they\u2019re going to be less favorable in terms of how long the loan is. So residential loans are going to be a lot more favorable in terms of interest rate and amortization and they\u2019re going to depend on your credit score, your W2 and all of the personal information about you. whereas a commercial loan is going to be more focused on the property itself and it\u2019s probably going to be higher interest and less favorable in terms of amortization, but they\u2019re more flexible in terms of down payment.<\/p>\n
Can we just drill down a little bit on the commercial lending process? I think just one comment to make is that it\u2019s definitely not necessary as a first time investor to set up an LLC and go the commercial route. But depending on your unique situation, sometimes it may make more sense. So I just want to caution folks that are listening, that, don\u2019t feel like you can\u2019t go out and get that first deal until you get an LLC and have the commercial lending set up. You can go out and still do it in your personal name. The vast majority of the deals that I\u2019m in, it\u2019s in my personal name and one of my partner\u2019s personal name, and we still have been able to scale our portfolio.
But Grace, I want to talk a little bit about what that commercial lending process looks like, because I think a lot of folks might have some interest in that. So when you say that it doesn\u2019t depend on your W2 or it doesn\u2019t depend on some other things, what exactly is it that they\u2019re using to qualify a commercial loan versus like a loan in someone\u2019s personal name? What documentation do you need to provide? What\u2019s the proof they look for to say, \u201cOkay, this is a good loan\u201d?<\/p>\n
When I tell my lender I want a new loan, she wants to know the purchase price, how long it\u2019s going to take, the rehab. And then most importantly, what it\u2019s going to appraise for and what it\u2019s going to rent for if I\u2019m keeping it. Because the bank that I work with particularly is also a small local bank, they\u2019re very investor friendly, they\u2019re known for being investor friendly. And they always want to know what is the debt service coverage ratio. I can never remember, the DSCR, whatever.
Basically, what\u2019s the ratio of your rent to your debt payment? And if it looks good, the loan\u2019s good. They don\u2019t care if I have my W2 or if I have an 800 credit score or 600 credit score. They want to know, \u201cCan this deal stand on its own legs?\u201d<\/p>\n
Can we also talk about the terms that are offered to you with a commercial loan? With primary residents, you can go out, get a really low interest rate, 30-year fixed term. What kind of terms and rates are you seeing on the commercial side?<\/p>\n
Yeah. Again, not as favorable, but we\u2019re seeing four to 5% with a 5\/1 ARM, which I think is pretty standard. Also, that could be good or bad depending on what your end game is. If your end game with the property is only a few years, it doesn\u2019t really matter that it\u2019s an adjustable rate mortgage or if it\u2019s a 30-year loan, because you know you\u2019re either going to 1031 it, sell it or whatever.<\/p>\n
Tony, just real quick, what are you seeing on the residential side right now?<\/p>\n
On our most recent short-term rental purchase, we closed that at think at 3.4% or something like that. And that\u2019s a 30-year fix. Honestly, not a whole heck of a lot lower than four or even 5%. So we\u2019re talking about few hundred dollars per month difference in mortgage payments, so not a huge deal breaker.<\/p>\n
The other important thing though is since neither Brant, nor I have a W2, a huge thing was, \u201cOh, how are you going to get loans if you don\u2019t have a W2? You\u2019re never going to be able to buy anything.\u201d And I feel like that\u2019s a huge myth and just not true. Yes, you have to sacrifice a little bit on your 30 year fix versus 5\/1 ARM and maybe some points, maybe higher interest rate. But am I going to let that completely stop me? No.<\/p>\n
And if the numbers still work, it can still be a good deal even though you\u2019re not paying a lower interest rate, like another investor, that barrier of entry, at least like getting yourself into the deal and making money off of it. Even if it\u2019s a huge amount, you\u2019re still getting your foot in the door and making money instead of having nothing, because you never took advantage of that opportunity and even invested at all. So having some of that opportunity to invest in the property\u2026 And that\u2019s almost like the same as taking on a partner, owning 50% of the property than owning 0% of the property is still better.<\/p>\n
And that was like a huge thing that I initially struggled with as well, is, \u201cI don\u2019t want partners.\u201d Well, okay then, exactly. Like you said, Ashley, 100% of nothing is still nothing.<\/p>\n
One follow up for me, Grace, you mentioned the 5\/1 ARM. Can you define what that means for folks that aren\u2019t familiar with it and how that differs from a traditional mortgage?<\/p>\n
Yes. So the 5\/1 ARM means that for five years, you have your fixed rate, like I said, we\u2019re seeing between four and 5%. And then after that, every year, it can be adjusted, hence adjustable rate mortgage. And I heard, I think one time on a BiggerPockets Podcast, that you can look in the fine print and see if there\u2019s a maximum interest rate that it can hit and just use that number, if your nervous about that, to see if your deal still works. Unfortunately, I could not find that in my deals, but if you can, that\u2019s just another tool to use to not be scared of those types of mortgages.<\/p>\n
And if you do really have a good deal, you shouldn\u2019t have a problem being able to refinance your property too once that those five years up and go into another five year fixed rate loan too. So Grace, what\u2019s next for you guys? Your boyfriend did the flip and then you guys did the BRRRR property. What happens from there? How do you gain that traction to keep buying more and more?<\/p>\n
Yeah, I remember we just had a conversation where like, \u201cShould we just keep buying? Should we just see if we can do it?\u201d And we\u2019re like, \u201cYeah, okay. Let\u2019s do it.\u201d And that was so scary and so ludicrous, but we\u2019re like, \u201cWhatever, let\u2019s do it.\u201d<\/p>\n
Did you have a job at this point? Were you working when you were done with school?<\/p>\n
Yes. So after I graduated college, I was working as an engineer for an aerospace company, and I was working remotely out of Iowa. I bought my personal residence and the BRRRR and the two duplexes. And right around this time, like spring 2021, I started to realize, if I go back into the office, which is California, San Diego, I will never be able to do real estate. If I move to San Diego, I will be able to maybe buy a garage. Iowa is so low cost of entry, it\u2019s just so easy to make a dent in this market. So I decided since I couldn\u2019t continue to work remotely forever, that I was just going to make the jump and just try real estate and just see where the heck it went.<\/p>\n
So how many properties did you have at that point where you decided to just quit?<\/p>\n
I think five units, but with four of those units being shared between my boyfriend and my sister. So I really did not have that much experience, but I thought, \u201cIf I\u2019m going to try this, it should be now I don\u2019t have kids, I don\u2019t have pets, I don\u2019t have student loans and all these other obligations. If I\u2019m going to fail, now\u2019s the time to fail, not down the road when I have way more people, depending on me.\u201d And right now, if I really needed to, I could move into my parents\u2019 basement and would that be worth the risk for me to possibly succeed working for myself? Absolutely. So that\u2019s how I decided to go for it, which seemed so crazy, and it probably was<\/p>\n
For someone listening now, that\u2019s maybe is in that same dilemma that you were like, you don\u2019t want to go into the office, you don\u2019t want to be stuck at your you W2 job anymore and they\u2019re thinking of quitting and going full time into real estate, what are a couple action items or things they should do before they decide to actually quit their job? Did you have some money in savings? Did you write out some goals, have a game plan before you actually decided to quit?<\/p>\n
Yeah. What I did was I sat down and I literally have it right here. I wrote out, what is the absolute worst thing that could happen? And I broke it up into bullet points of, okay, what happens if I can\u2019t afford my mortgage? Okay, I move out to my parents and now I have a cash flowing property. Cool. What have happens if I fail publicly? Okay. I have to admit to like my family and friends that I failed. Okay. That\u2019s not that huge of a deal, I\u2019ll take that risk. And I just went down the line of everything that could go wrong and I looked at it and I was like, \u201cI can handle that. That\u2019s not that crazy. I can handle that. That\u2019s worth the risk of it possibly all working out.\u201d So that\u2019s how I decided to do it.<\/p>\n
And Ashley, it reminds me of a conversation we had, I think it was with Nick Cooley, who was a guest on one of the previous episodes. And we were talking about the same thing about how there\u2019s so much fear around trying to work for yourself and trying to become an entrepreneur and doing this thing on your own. But a lot of times the worst case scenario is that you end up like the vast majority of people in America today. If you failed, if I failed, if Ashley failed, what would we do? We\u2019d probably just go back and get a job, Get a nine-to-five and just grind it out like everybody else.
And if that\u2019s the worst case scenario, why not take the risk? Why I not see if you can actually make it happen? So kudos to you, Grace, for having that courage in yourself and in your abilities to take that leap. And I guess just really quickly before we move on, how has it been? You\u2019re almost a year removed from having to get up and go to a job every day, what does that feel like?<\/p>\n
That\u2019s so funny because the other day, Brent and I were at Home Depot, it was in the middle of the day and we\u2019re like, \u201cIt\u2019s so crazy that we\u2019re not in an office right now.\u201d Just running around, moving fridges from properties and all that stuff, but it\u2019s been awesome. I love problem solving, and real estate is just like a giant problem to solve with each deal and figuring out how to get it done and make money. And I\u2019ve been able to do so many more things that I wouldn\u2019t have been able to do if I stayed at my job. So it\u2019s been awesome. A lot more stress, a lot more work, but it\u2019s been great.<\/p>\n
And Nick Cooley was episode 109 if one of you guys that wondering where that came from. Nick\u2019s an awesome guy, had a lot of good times with Nick. So check out that episode if you haven\u2019t yet.<\/p>\n
Tony, I have Darrel here, sitting here listening, doing some work and he wanted to correct you and say it was episode 109-ner<\/p>\n
Well, excuse me. Yes, 109-ner<\/p>\n
Okay. Grace, do you have a deal for us today that we could go in and do a rookie review on and just give us the numbers on it, what exactly everything about the property, but strategy, things like that?<\/p>\n
Yes. And I think I\u2019m going to do my very first deal that we did.<\/p>\n
Okay, awesome. So we\u2019re just going to ask you some rapid fire questions first and then you can go into the story of the deal. What strategy was this deal?<\/p>\n
BRRRR strategy.<\/p>\n
Okay. And was it a single family, two family, three family?<\/p>\n
It was a single family home in Cedar Rapids, Iowa.<\/p>\n
Okay. And what was the purchase price?<\/p>\n
82,500.<\/p>\n
And how was the rehab?<\/p>\n
36,000.<\/p>\n
Okay. And then you ended up refinancing this property. Well first, how did you pay for it? How did you fund the deal, and then did you refinance it?<\/p>\n
Yep. We put 20% down. Everyone says you need to do BRRRR with cash, but like I said, \u201cWe didn\u2019t have the full cash. So we started with the bank loan and we refinanced it, cash out refinanced, six months later and it appraised for 185,000. So we were able to keep 30% equity in the deal. We refined 130,000, which paid off the purchase price, the rehab, and I think put seven or eight grand in our pockets as well. And then the rent, it ended up renting for 1,549, and I believe we cash flow around $350 on this.<\/p>\n
Awesome. Congratulations. And on your first deal too.<\/p>\n
Right. Can we celebrate that because how long did this deal take you really quickly? Just ballpark.<\/p>\n
It did take six months because we DIYed the entire gut, full gut.<\/p>\n
It\u2019s six months of your life and you get back all of your capital plus $7,000. So you got paid almost 1,000 bucks a month for doing the work, and now you have this property that\u2019s going to give you, you said $300 a month in cash flow?<\/p>\n
About 350.<\/p>\n
350 month in cash flow and perpetuity forever with zero money left in the deal. And that\u2019s the beauty of real estate investing is that you can get creative, you can put in the hard work, and if you do those things, you get rewarded. And 350 might not sound like a lot, but if you can replicate that five, 10, 20, 30 times, that adds up, and especially if you\u2019re recycling that same capital over and over, and over again. So what an amazing job.<\/p>\n
Thanks. And it\u2019s so easy to look back on it and be like, \u201cYeah, that was easy. Those numbers were awesome.\u201d But man, it was hard work. Like I said, we DIYed literally everything. And I always remember the story, Brent came home one day and he must have had a bad day, and I\u2019ll never forget that he goes, \u201cWe should just sell the property and cut our losses,\u201d because of some unexpected rehab that he found. And I just remember thinking like, \u201cOkay, he\u2019s probably being dramatic, it\u2019s not that bad.\u201d And then look how it ended up. There were so many highs and lows, but yeah, it was worth in the end.<\/p>\n
I really want to go into the rehab portion, but first before we do that, how did you find this deal?<\/p>\n
Yes. We went driving for dollars and I saw for rent sign. So I called it and I quickly realized that it was an investor because he didn\u2019t know the house he was talking about and I could tell he probably has multiple. So then I pretended to be an investor, granted I have never invested in my life. And I got him to send me a list of like 30 houses and we just said, \u201cWe want to walk through your grossest one.\u201d And we did. And I guess Brent saw the potential at this point, I still really had no clue what I was doing and we negotiated a little bit. I was horrible at negotiating and we bought it.<\/p>\n
So driving for dollars is when you drive around, you look for vacant or distressed properties, write down the address, but how did you find this guy\u2019s phone number or even his name or who to call?<\/p>\n
Well, it was a for rent sign, so it had his phone number on it.<\/p>\n
That\u2019s a great idea is looking for properties that have the for-rent sign out there that maybe the landlord doesn\u2019t want to deal with renting out the units or anything like that.<\/p>\n
Just really quick though, I also like the strategy of asking, can I look at your worst, grosses property? What a genius way to get that investor to let down their guard or their defenses. If you can say, \u201cHey, I want your worst property. Whatever the one is that you hate the most, let me look at that one.\u201d So really, really good strategy to break them down there.<\/p>\n
And even just asking in general, do you have other properties too?<\/p>\n
Yep. I remember feeling like I hit the jackpot when he was like, \u201cOh yeah, I\u2019ll send you a list.\u201d And then speaking of the gross property, I have to say, it was bad, but it ended up being a great deal.<\/p>\n
Can you tell us what you saw, what made this property so bad and what did you see in it that made you confident that it would still turn out to be a good deal?<\/p>\n
What made us excited about the location was it was the only residential strip and a big long road of commercial. So we thought eventually this will probably get bought out. So that\u2019s a great exit strategy. And then it was gross because, I think, there was like 15 people living in it according to the neighbors and it was just absolutely trashed. The backyard was like a giant trash hole, and the basement, I think, animals had been living in it for many, many years and probably unfortunately never let out. So it just smelled horrible. People say it smells like money, it sure did.<\/p>\n
So you guys see this and this is like your first time doing a big rehab on your own, I think a lot of folks will go out and say, \u201cHey, let me get a professional who\u2019s done this dozens, hundreds of times to take care of this big, big, hefty job.\u201d But you guys made the decision to do it on your own. So first what prompted you guys to do the DIY work? And then second, did you have the skill set already to do that work or were you guys learning as you went? Just walk us through those two things.<\/p>\n
Yeah. We decided to DIY again, we did not have the money to hire it out, so there was no choice there. We had to DIY it, and my partner definitely had the skillset, I did not, I didn\u2019t know anything, but I learned and for him as well, anything that we didn\u2019t know how to do, it was just YouTube, ask, figure it out because there are no other solution. We figure it out or this property doesn\u2019t get fixed.<\/p>\n
So with that process of teaching yourself and learning everything, do you guys still self-perform your work now that you have that knowledge or have you started to farm some of those tasks out now in your current deals?<\/p>\n
Yeah. That is our biggest hurdle right now in our business is moving it away from us so we can do multiple deals. We\u2019re about maybe like a quarter of the way there, we\u2019ve started to hire out some things, but it\u2019s just really hard, especially when you know that you can do it better and cheaper, but it\u2019s not a business when you\u2019re the one that\u2019s showing up, swinging the hammer every day. So that\u2019s what we\u2019re working on. And I\u2019d say we\u2019re like 25% of the way there.<\/p>\n
Well, kudos again, Grace on an amazing first BRRRR. It sounds like you guys knocked it out of the park. Ashley, anything you want to add before we move on to mindset?<\/p>\n
Just when you were finished with the property, how did renting it out go and are you self-managing? Do you guys use property management company?<\/p>\n
I self-manage and renting it out went well. We tried to rehab it to, this may sound counterintuitive, but to the highest, not highest, but a really nice rental so that we knew we could get the highest rent for it because in Cedar Rapids all the housing is like outdated and old. So we knew we would get high quality tenants with the really nice rehab. So that went really well and yeah, I still property manage everything.<\/p>\n
Well, Tony, do you want to take us to our mindset segment?<\/p>\n
Yes. Grace, we want to get into your psyche, get into understand a little bit more how you\u2019ve grown and matured as a real estate investor. So if we go back to Grace before that very first BRRRR what were some misconceptions you had about becoming a real estate investor? Some things that you thought were true that turned out to be false, some fears you had that turned out to be unfounded, just any misconceptions you had about real estate investing in general?<\/p>\n
Probably that I would never be able to do it full time, that it would take forever to just get any of our projects done. And I think just scaling in general, I didn\u2019t realize how easy it would be if you just put your mind to it. I don\u2019t want to say easy, but how I could make it happen. And then of course, like we talked about earlier, I was very wary of partnerships until I realized that those were definitely key to scaling as well.<\/p>\n
Okay, Grace, are you ready for our Rookie Request Line?<\/p>\n
Yes.<\/p>\n
This is where you guys can call in at 1-885-ROOKIE and leave us a voicemail and we may play your question on our show for a guest to answer. So today\u2019s question-<\/p>\n
Hey Ashley. Hey Tony. My name\u2019s Joe Gatlin. I\u2019m just up to the Austin, Texas, and my fianc\u00e9 and I are trying to get into our first real estate field. We have a good lump, some of money saved up, but we\u2019re both self-employed so we don\u2019t have the money to show for it. I recently got a W2 job to prove of income, but I have no credit. I don\u2019t have bad credit, I just never built my credit. My fianc\u00e9 does have credit. Is there any way we can use his credit and my income source to get into our first deal? Or what\u2019s the best way to start building my credit the quickest amount? Thanks guys. Love your podcast.<\/p>\n
The first thing that my mind goes to is not even the credit question, but finding an investor who has a ton of properties and is willing to sell or finance them. If you\u2019ve got a big chunk of money and you can put up a good down payment, that\u2019s a pretty good argument to have towards a real estate investor who wants to sell easily and make even more money off some interest to another investor. So that\u2019s the route that I would take.<\/p>\n
Grace, what would be your advice to approach somebody even with a seller financing option?<\/p>\n
I would definitely look for investors that have most multiple properties because maybe they\u2019re a little more experienced and have dealt with seller financing. Again, you could look for pulling lists, calling for rent signs, calling for sale signs until you find the person. And then maybe even shooting the first offer for seller financing and just really figuring out what they\u2019re looking for out of the sale of their house. If it\u2019s a certain purchase price, then work around that. If it\u2019s super easy sale, pitch to them how you can make the sale super easy, super short inspection as is or whatever, and just really figuring out the emotions of the seller and creating your pitch around that.<\/p>\n
Awesome. Another piece of it, advice for Joe too, is Grace, how you had mentioned too, going on the commercial side of lending when going there and partnering with your fianc\u00e9 and using both of your resources and getting the commercial loan. So if it\u2019s a good enough real estate deal and the numbers work, the bank is going to look more at the deal than your actual personal finances as we went over earlier. So I think that\u2019s a great example there. Also a quick way to build your credit is to open a credit card and just charge things onto it monthly, but pay it off in full every single month, but using that credit card to build that credit.<\/p>\n
Just one thing to add into that too here is that there\u2019s always the option of hard money as well. If you can find a hard money lender, they\u2019re not going to look at your W2 income. Just like the bank that you used Grace for your deal, they\u2019re going to underwrite the deal to make sure that the numbers make sense on the property, not so much you as the individual investor. So cool. Awesome Grace, wonderful advice. We\u2019re going to move on to our Rookie Exam. We need to get like some cool like sound effects or something when this comes on to, I don\u2019t know, maybe like a school bell or something. But Grace, are you ready for the exam?<\/p>\n
Yes.<\/p>\n
All right. So just you know, this has a past rate of zero, everybody has failed. No, I\u2019m totally kidding. There\u2019s no right or wrong answer here. But question number one is, what is one actionable things rookie should do after listening to your episode?<\/p>\n
I think writing down worst case scenarios to whatever it is they\u2019re contemplating doing and spelling out what could happen, how would I deal with it? And is it worth it?<\/p>\n
Okay, Grace, the second question is what is one tool, software, app or system in your business that you use?<\/p>\n
Actually two come to mind, Google Voice and creating a Google Suite account to get a customized email address, which I have found goes a long way in showing that you\u2019re maybe a serious investor that you have your together. And just also a Google Voice is great for when people are calling at screens, who they are, and you can choose to let it go to voicemail, to answer it. It\u2019s awesome. And then you don\u2019t have to give your personal number out.<\/p>\n
Yeah. I love Google Voice because you can connect it to multiple phones too. So if you\u2019re not available, your business partner will still get the same voicemail or the message too, and so that everybody stays in the loop.<\/p>\n
Wow. I actually didn\u2019t know that part, but I also love to use it on my computer and go online so I can message on my computer because I hate texting on my phone and you can call on your computer as well.<\/p>\n
All right. Question number three, Grace, where do you plan on being in five years?<\/p>\n
Within five years, we would like to have 20K a month passive income and be living on a sailboat. That has been a dream to eventually go and do that and live on a sailboat for part of the year. So we\u2019ll see if that happens. We\u2019re definitely on track.<\/p>\n
Are you guys already boaters or is that like a new skill you\u2019ll have to develop now?<\/p>\n
We\u2019ve never been sailing ever.<\/p>\n
Don\u2019t you go [crosstalk 00:38:02] sailing in Iowa, Tony?<\/p>\n
So this year we\u2019re going to go and hopefully this spring take a sailing course and figure out if we like it.<\/p>\n
Well, that is the beautiful dream I love. This is one of my questions just hearing the different ways people plan their life out, but sailboat, I think that might be the coolest one we\u2019ve heard so far. All right. Last thing before we wrap up here, Grace, I just want to highlight our Rookie Rockstar. So if you guys would like to be featured as a Rookie Rockstar, get active in the BiggerPockets forums, get active in the BiggerPockets Real Estate Rookie Facebook group, you can always slide into Ashley\u2019s DMs because that\u2019s where a lot of these come from as well. But today\u2019s Rookie Rockstar is Ryan L.
And Ryan says, \u201cFinally got my first property, bought it with two partners. After the rehab, we\u2019ll be able to pull out all of our funds and put into the next deal. So they bought this property for $60,000 cash, spent another $20,000 in the rehab, the ARV\u2019s about $125,000, and then plan to cash flow about $130 per month per partner. So each person\u2019s going to bring down a little over 100 bucks. So Ryan, big congratulations to you for knocking it out the park on your first property there.<\/p>\n
Grace, can you tell everyone where they can reach out to you or find out some more information about you?<\/p>\n
Yeah. I think the best place is my Instagram, which is grace.investing. You can reach out and find out more about me on there.<\/p>\n
And Grace, you also have videos on the BiggerPockets Rookie YouTube channel, correct?<\/p>\n
Yes. Amelia McGee and I have been working on a short miniseries that\u2019s been super fun and we\u2019re only about halfway through it. So stay tuned, watch what\u2019s out there and know that there\u2019s more coming.<\/p>\n
Awesome. So if you guys haven\u2019t checked them out already, you can subscribe to the Real Estate Rookie YouTube channel and see the videos that they\u2019ve already put out and then continue to watch their miniseries and learn a lot more about real estate. Well, Grace, thank you so much for joining us today, it was awesome to get to know more about you, and we\u2019ve had a great time. We provided lots of value to everyone. So thank you.<\/p>\n
Yeah. Thanks for having me.<\/p>\n
I\u2019m Ashley @wealthfromrentals and he\u2019s Tony @tonyjrobinson on Instagram. But before we close out, here\u2019s something from BiggerPockets that will help you become an even better rookie investor.<\/p>\n