David: Alright guys welcome back. Discount Property Investors episode three.

Mike: Welcome back guys, hey Dave, how you doing, buddy?

David: I'm doing good, bud.

Mike: Good, good. Recording another podcast, I love it.

David: Yes, good to be back.

Mike: We are talking rentals again today.

David: We are, first couple of episodes are going to be rentals.

Mike: Yeah, so let's talk a little bit about the way that we purchased our rentals, or the way we are finding funding for this. This is something I think we have done pretty good about in the past, is talking to the news investor, how to get started in real estate with little to no money. So I would like to apply that, or at least try to apply that to a rental strategy.

David: Let's do it.

Mike: There is no reason for someone who is a new investor, they are dabbling in wholesaling, and say you know what? My personality, I am not a wholesaler. I don't like it, it feels wrong to me.

David: You fit this real good this rehab rental model, man.

Mike: Yeah?

David: Yeah, absolutely.

Mike: I do okay.

David: You do great.

Mike: The other reason I think I’m good at it is because I am pretty detail orientated. So finding the numbers, or looking at the numbers, keeping on track, keeping the projects on track.

David: Keeping the budget low.

Mike: Right, again there is a lot of tracking all that B.S.

David: You got to be a really organized individual.

Mike: Right, so again let's talk about -- so the guy who is just starting out, well how do you buy a rental with no money?

David: That's a great question. How do you buy a rental with no money, Mike?

Mike: I have no idea.

David: That's not true; you are doing it right now.

Mike: So what you would do, again there is plenty of different ways. I believe in the past we talked about private money. But we were not really using at much, at least not in our company. Personally I think we have done a couple of deals in the past. Again, in the company we weren’t using it as much. So our motto, what we're doing is we have people with money out there that we know, that we're friends with, that are real estate investors. You have money; it's not a big deal. That's another thing that it's just a big block in people's mind is that-- how do I get money? Money is out there. There is so much money there; it's just a matter of finding someone to let you use it. Again, people with money it's not a big-- well, again it depends on the person, but it's not a big deal. They have got money sitting in bank account, and you want to earn interest on it.

David: They are going to be making more money by lending it to you, or us.

Mike: Than letting it sit in a bank, putting it in CD's.

David: You got to also think that if they were just lending you money to just gamble, or go invest into a stock, or any other type of asset class let’s call it; there is more risk than them lending it to you on a property that, A: You bought at a discount, B: That you are going to increase the value in, C: That's backed by that asset.

Mike: Absolutely, so the worst burn they can get; if they loan you-- let's talk about the property we're going to jump into. So let's talk about this one specifically. I think we bought it at about 60-- let me pull up my spread sheet here. We bought it at about 60,000.

David: 58?

Mike: So we bought it at 58. This property we estimated the after repair value at 99,000. So again, we bought something at 60,000; we believe it to be worth about 100.  So again, if someone lends you money you say, hey listen mom/dad/aunt/uncle. Someone you know who has money, you can approach them, ask them for money. Again that is a private money lending, something we have touched on before. There are rules, you can’t approach strangers and ask to borrow money.

David: Well you shouldn't.

Mike: Right, well I guess you can. It's when you're pooling the money you can't right? So again, if you know anyone, if you know another real estate investor, even a hard money lender would probably lend on a project like this.

David: That is basically what we have is hard money lenders. They are just not in the hard money lending business. We just approach them and say, hey we can get you a higher interest on you money, and this is what we're doing.

Mike: That's a great way to look at it, because hard money just means backed by--

David: Paying less of a percent as if that's their business. We are not paying points down and all that sort of stuff that hard money lenders charge. But that is exactly what they are is hard money lenders.

Mike: That's a really good point. Hard money lender, just means they are lending on a hard asset, the real estate. That's what a hard money loan is, it's backed by a hard asset of real estate. So yeah we are, we call them private lenders, it's the exact same thing though. You are lending on the property and again, their risk is secured by the first lean. So it is recorded against the property. So when you go to closing, you are signing a promissory note, agreeing to pay them, and it's whatever terms you want.

David: In the event that we were not able to pay them back, they can foreclose because they have that first lean, just like the bank would foreclose on you or anyone else out there that didn't pay their mortgage. We essentially have a mortgage with our private lender.

Mike: Exactly.

David: The terms we determine from the get go, which can vary.

Mike: Which you negotiate with your lender. That's the thing, if it's a family member or a friend, whoever; you just say listen, I am doing these rental projects.

David: Doesn't have to be monthly payments. You could say I will pay you at the end; I will give you 5% or 10% or whatever. That is the great thing about these. You can negotiate how you want to pay them back, how you're going to pay them back, and how much interest or points you want to pay; it's all negotiable.
So moving forward though--

Mike: Really great point.

David: We have private money in this one, we bought it for 60, we had an estimated ARV, which stands for after repair value of 99,000. So basically we bought a property that we figured would be worth 100 when we were done for 60. Then we had estimated at repairs at what, Mike? 12 on this one give or take?

Mike: Yeah we estimated 12 on this one. It was a little bit light. We did a lot to this property.

David: We were hoping to be done-- 60 plus 12 is 72, we were hoping to be with this one at about 72. We went ahead and rehabbed it which you will see in the next video here, we did a walk through. But we actually spent what, Mike?

Mike: We ended up spending about $20,000 on this one.

David: So we went over our budget a little bit. But that's okay; we were in it for about 20.

Mike: So this one again, it's an interesting story, a long story. We actually didn't really want to buy this one. But it kind of fell into our laps and we closed on it.

David: I remember this deal.

Mike: -- with another person. It's a long story and not important. So we bought it and there was some other things that rehab wise we needed to do to make it work. There was a deck, and then the basement we had to do, a lot of flooring, just a bunch of stuff.

David: The inspector came in and give us a hard time on this one at all?

Mike: Not a lot, there was a few inspection items we had to repair as well.

David: Right.

Mike: But nothing major.

David: Adds to the initial estimate though. You estimate 12 and you spend 20; a lot of times that happens, because inspectors come in after you have spent your 12, you hope you're going to be done. They may say this deck has got to go, or you need to finish it.

Mike: The deck is one of the things on here that ended up-- I think we left it undone because we knew there was going to be some things we needed to fix, the deck being one of them. So we just let him say, hey that deck is not good. We say we are going to fix it, what do you want us to do with it? Do you want us to tear it down? Or can we replace a couple of boards?

David: That's a good pro tip right there. Sometimes you don't necessarily need to spend the money preparing for the inspector, maybe just leave it undone. Having a re-inspection done is cheap, it's like 50 bucks.

Mike: You pay for the inspection and they know they are coming out a second time.

David: So it's included?

Mike: Yeah it's included.

David: Instead of spending more money in the beginning trying to please an inspector; often times it's best to leave a couple of things that you are kind of iffy about. Let the inspector tell you what you need to do. If you go ahead and replace the deck boards for example on this deck, and then he tells you need to rip the deck down, then you have spent money replacing something that is worthless, it's trash. That's a really good point, something I wanted to add on there. Well that's good, this property has now been rehabbed, we spent $20,000 roughly, we estimated 12, so we were a little over on that. However our ARV we estimated at 99, so about 100,000. We got this now rehabbed, tenanted, appraised, and we are in the process of refinancing, or have we already done that?

Mike: I think we are still in the process.

David: The good thing though is our final appraisal came back at what, Mike?

Mike: $115,000.

David: We only estimated 99?

Mike: But yet again, when you check out the video, I think we did a real nice job on the rehab, that is part of the reason why. We over spent a little bit, but I think it really did come back to us in equity and the appraised value of it. Much higher than we really anticipated.

David: We wanted to be in it for --

Mike: Again, it's an interesting property, you got three bedrooms upstairs, one bath upstairs, and we kind of finished out a bonus bedroom down in the basement. Again, it is not a legal bedroom so it would be like an office space or something.

David: Yeah but it's a bonus though. We were all into this property for about 80,000, with an 80% loan on 115, we were able to pull out 80,000. So we basically broke even on this property, just like the last one.

Mike: This one is a great example where if you were really aggressive, and trying to get money back out of it we probably could have. 115 times 0.8 is 88,000.

David: That's true, yeah.

Mike: We probably could have-- but I think we used another lender that is at 75%.

David: That's okay, because again, we are not necessarily trying to limit our equity, we want equity. We are just trying to get our money back, that's the name of the game. So if we don't have to borrow the 80% we can borrow 75, 77%, whatever it is.

Mike: Even 70, again it's two games you're playing with the rentals, which is cash flow and that equity pick up.

David: Both are important.

Mike: Playing both of those games now, and again, we want you guys to learn how to do that as well. So again, the kind of moral of the story on this one is you don't have to have money to buy the rentals, get connected with other investors, ask them how they are doing it, go to your real estate meet ups, ask around for-- again, become friends with people.

David: Find out who has money sitting around, if they have an IRA, a 41k, and their money might not even be invested. I have some money sitting right now that's not even invested. A lot of people out there do. I would much rather earn 7-8% over a three to six month term, than zero. Why not?

Mike: You are going to earn more than that.

David: That's only over three to six months.

Mike: Because again, a pretty standard, our going rate would be a point a month, so 1% a month. It's pretty good money.

David: Right.

Mike: To loan it out.

David: Absolutely.

Mike: Let's jump in.

David: Let's jump into the video, here it is guys, check it out.

*** walk through***

Mike: Welcome back, we are doing a rental property tour today. We are over at 974 Lindsay Lane. So this one we got for a really good price, and we are trying to max out the ARV with a rehab. Our strategy is to purchase the property, rehab it, then refinance it with the bank so we get most of our money back, then hold it as a rental. So again, our goal with this one was to maximize our ARV, our after repair value so we get the most money back. We bought this property for 58 thousand, and you can see it still got [00:12:30.19 - inaudible]. Other than that we did, or we think we did a pretty good job on the kitchen.

David: I think it looks really good, Mike.

Mike: Most of these cabinets were here already. This piece was kind of in here sticking into the kitchen.

David: Oh I remember that.

Mike: So we moved it over and had to buy an upper cabinet set, then we were able to create this additional workspace.

David: Okay.

Mike: As well as opening up into the kitchen or dining area.

David: There were white, right?

Mike: These were all painted. So most of these were existing cabinets like I said. They were all wood. They are not the greatest, but again that clean look, the white and some new handles, just gives it a nice fresh look. With our stainless appliances, again this is going to make it an easy one to rent, top of the market rent. We are probably going to get at least 1200 for this, 1200, 1295 is what we are going to be asking.

David: Awesome man.

Mike: The floor, this is something we really like. This is a rubber backed vinyl that is basically clipped together. So kind of like the old Pergo style flooring that just clicking together, they are easy to cut. This was $1.99 per square foot at our local hardware store. This is one of our bigger expenses in the house. So we paint everything in agreeable grey, use white trim, very similar to many of our other rental properties. We used the ceiling fans, $59. So again we have got on ceiling fan in the dining area, and a track light in the kitchen. Come through here, [00:14:07.01 - inaudible] in it, so this is something we pulled the cord around off the property or off of the base. [00:14:18.10 - inaudible] that needs to go back.

David: Okay

Mike: So they pulled the cord around and refinished the hardwood floors, and they put the cord back down to finish it up. So again, refinished the hardwood floors throughout the whole upstairs. A decent cost to it, but it's worth it. If you come back through, and Dave let's walk into the bathroom here. So our bathroom, a couple of things we did in here. On the floor we did our peal and stick tile, that’s about two bucks per square foot as well. So it's easier to install for the guys than additional tile. On this one we opted for a double sink because of the plumbing, but we did put a much larger vanity because there is room for it.

David: This is a good sized bathroom.

Mike: Again, you get a nice vanity. Trying to get the most we can out of the ARV on this one. Nice light fixture, didn't go cheap on our mirror.

David: The mirror looks great.

Mike: Got this plug here, you don't want to cover that up.

David: This tile doesn't look new.

Mike: This tile is not new.

David: Was it like pink or green?

Mike: Old 50's style green. We have a guy that we use to glaze it is what they call it. So he comes in and scrubs it all clean, makes sure everything is patched up, then puts a nice paint on there that isn't going to chip off. That is one way --

David: It looks new from where I’m standing. Only reason I’m asking is because I knew it wasn't.

Mike: So there's another option-- we are going to start doing more of this on our rentals is oil based paint on the tiles. So painting it using oil based paint is going to stick real good. Then put a coat of polyethene on top of it. The poly helps to protect it so it doesn't chip.

David: Okay.

Mike: Our doors, again this one we had to replace all the doors, we go with six panel doors everywhere. Check out some of the bedrooms here. So bedroom is pretty basic, again white trim, agreeable grey, refinished the hardwood floors, nice ceiling fan, just gives you a nice clean fresh look.  So there was bedroom one, bedroom two back here, and one of the reasons we really liked this property was what they did to this house. They built a deck off the back, so both of the back bedrooms it is real bright. They built a deck off the back of the house. The deck we haven't redone yet. So why have we not redone it yet? Because we have to get a occupancy inspection, we [00:16:56.01 - inaudible] for something. So again, we are going to ask him what he wants us to do with the deck. We are planning on just replacing a few boards and paint it.

David: And that's hopefully what we only have to do.

Mike: Exactly, that’s hopefully what we have to do. But again, we would rather not replace a couple of boards, have it painted, and have him walk out there and tell us we need to re-brace it or rebuild the deck.

David: If that's the case we're wasting time.

Mike: Right so we are going to take our time with that. This bedroom, we got the photos, we will put that up for you guys. A huge section of hardwood that was just destroyed. So our flooring guy did a really good job of replacing the boards, then when they refinish it you can't even tell anything has been done.

David: Both of these back bedrooms have doors that go out on the deck. This is a lot better to see the deck because there are no blinds.

Mike: Just makes it feel so big.

David: It does make it feel bigger.

Mike: Pretty nice feature of this house.

David: Awesome.

Mike: The basement is --

David: So we got three bedrooms up? And one bath. A kitchen and a family room, going down.

Mike: Kitchen, nice big kitchen, nice big family room. The basement is what I’m proud of down here, I think they did a real nice job.

David: I like the flooring, same as upstairs?

Mike: Again, we like to keep it the same everywhere, when you replace parts of it or when you go onto the next project. So this project we have got this reversed flooring. So next project, the guys have a couple of extra boxes, they just bring it to the next project, we buy more and it gets used. Here is what I’m proud of. You used to walk into this back room and there was a door here and this was a wall. So that this backspace was all back storage area; it was unfinished--

David: Just here and this here was all unfinished?

Mike: Was all unfinished storage area. So what we did was we just put a wall up, right there and added a door to create a nice office.

David: Okay this is a good size room.

Mike: So again, it doesn't qualify for a bedroom because we don't have an [00:19:01.17 - inaudible] up here. But, we do consider it an officer.

David: A bonus sleeping room. Someone could essentially turn it into a bedroom. Just can't legally call it that.

Mike: So it's not legally that, and when you go for your occupancy inspection, they come in and measure the bedrooms, and they tell you how many people are allowed to live on the property.

David: Right.

Mike: Upstairs three, typically two individuals per bedroom. So you can call this a six person, again six people on the occupancy permit. But again, they could use this area as you say as an additional bedroom. It just doesn't qualify because there is no [00:19:41.27 - inaudible] on it. So that is one of the things I am most proud of. You got an unfinished back storage area, that we didn't do much other than paint the walls. So again we just use [00:19:53.02 - inaudible] to paint the walls. This furnace is older but it's probably going to get us by. Again, this was a really inexpensive purchase for us.

David: Water heaters back here, you can't really see because there is no light, but it looks good.

Mike: It's in decent shape, again nothing we are too worried about.

David: Sure.

Mike: This one does have a walkout basement which is nice. You got the walkout there, and you got a fun little bathroom back here. So there is a full bathroom in here. You got the sink, toilet and a shower. I guess that's a three quarter bath. But it is back here, useable, and it really makes that bonus room, that bonus space more attractive, more likely to be used as a bedroom, adds a lot more value.

David: Sure.

Mike: Then we walk in again; this is just the storage room, nothing too fancy.

David: So you have two good storage rooms down here?

Mike: Right, in this one we just painted the floor in this one. We didn't paint the floor back there because of the utilities. It just makes it look nice and clean.

David: This is awesome. What is the address here?

Mike: 974 Lindsay.

David: 974 Lindsay. Alright guys, we will see you at the next one.