Eighteen doors by 29 years old by never taking no for an answer! We realize there are a lot of inspirational investors out there, but on today’s show, you’re going to be blown away by one of the best.
You will be blown away by Diego’s story of how he rode a bike (with his suit in a backpack to avoid getting it sweaty) when he couldn’t get a driver’s license, how he got on the fast track to becoming a millionaire, and how he overcame a speech impediment, going on to give a TED talk!
You will love his fantastic advice on what to look for in a house hack property, which areas to look when investing, and how to target the perfect tenant market. You’ll also appreciate his thoughts on avoiding drama between roommates, vetting turnkey companies, and structuring partnerships. Diego goes on to share some solid info about why he prefers “B” neighborhoods over “C” and why doing your own math is so important when analyzing deals.
This guest is truly an incredible person with an incredible story—not to mention some pretty fantastic investing advice.
Don’t miss out! Download this episode today, and make sure you’re subscribed to the BiggerPockets Real Estate Podcast so you won’t miss the next one!
Brandon: Diego, after two years of me begging you we are finally sitting here doing this thing. It’s the Bigger Pockets Podcast. Thanks for joining us today, buddy.
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Diego: Very excited to be here.
Brandon: This should be a lot of fun today. So let’s go through your story. I know you got a long story, but I want to give people kind of an update on before you got into real estate. Where were you at, and how did you get into this world of real estate investing?
Diego: So I got into real estate… I read the book Rich Dad, Poor Dad when I was 21 years old. My friend… I was in college, and I had a friend, and he threw me this book, and it was Rich Dad, Poor Dad by Robert Kiyosaki. He says, “Dude, you have to read it.” So after I read that I understood that there were two ways that people make money, active income and passive income. That was the first time that I learned something that it was out of this world, and I got hungry to learn more. And in that aspect, that’s when I began to do a little bit of research on how I can build wealth, and it just happened that I stumbled through investing in real estate. That is what got me hungry to start doing it at a young age.
Brandon: Okay. Okay. So how young… you read it when you were 21 you said, right? So what were you when you actually ended up buying your first deal?
Diego: What happened was I read that at FSU. I graduated college. I moved to Austin, Texas, and I was working as a software developer. I wanted to buy my first property to house hack, but in a lot of my life the plans haven't always gone my way. We'll get into that later. I wanted to buy my first house hack, live there with some roommates, and live for free. In that process I found out that due to my status of immigration as a DACA recipient I found out that I couldn't qualify for a loan. I was under contract, and then they told me that without showing my green card, or my citizenship I couldn't qualify.
Diego: When I read Rich Dad, Poor Dad I set a goal that i wanted to own 10 properties by age 35. So I felt devastated from the perspective like, “Oh my gosh, this was the plan. This was my goals, and now I can’t accomplish them because I have no bank willing to lend me money.” So I was talking with my dad, and he told me, “Well, why don’t we buy one cash here in Florida?” so my first deal actually happened to be a home that we bought for 62,000. We went 50/50 with my dad, and it began renting for 1,200 or $1,300. That was my first step into getting into real estate.
Diego: Now, the crazy thing part was that I was renting a room at that time here in Austin for $500, so I managed to buy my first property while living with somebody else. I was making money, and that rent was actually also… that passive income was paying for my rent at that time.
Brandon: That’s cool. So you thought you were going to do it yourself, but because of the DACA thing they wouldn’t let you do it yourself. So you ended up partnering with your dad on your very first deal. I love that attitude of you know what… because here’s what most people in the world would do… and I want to go back to DACA, we’ll talk about that that is in a second, but I love the attitude of, “I can’t do that? That’s a wall in front of me? Okay. Well, I guess I’ll sit down and watch some more TV.” That’s what the majority of the world would do. [inaudible 00:04:41]they come against any kind of obstacle, the natural human instinct is just shut down and be like, “Well, I guess it didn’t work.” How many times have you guys heard people say, “I want to invest in real estate, I just don’t have any money,” or “I want to invest in real estate, but I live in San Francisco,” or whatever. It’s like, I want to do it, but there’s this thing. So I love that that…
Brandon: Now, this is your personality. As long as I’ve known you this has been your story. There’s something in front of you, and then you’re just like, “I’ll figure out another way around that.” I remember some story, and I could be confusing this for something else, but wasn’t there a bike riding story or something where you couldn’t get the license at the time or something like that?
Diego: Yeah. Yeah. I’ll tell you a little bit of where I am right now, just so that you have a picture.
Brandon: Yeah, please.
Diego: And then I’ll go back to that kind of aspect. R i ght now, I just turned 29, and I own 18 doors. I’ve been living for free since I was able to later buy my first house hack at the age of 24, and it has been a life changing experience since then. But my journey in all of the struggles is that I am an undocumented immigrant. I am a Dreamer. So if people have been following the news, and stuff, I came here from Peru when I was nine years old as a kid.
Diego: One of the obstacles that I had as a dreamer was that I couldn't get a driver's license. That's when I knew that my life was going to be different. In that aspect, I managed to get into college, found out I couldn't qualify for student loans, then I was trying to get a job so that I can pay for college, and I found out that I couldn't legally work in the United States. So in facing all of those obstacles, I still found out that I could open up my own LLC, and work as a contractor, and since my bike was my only mode of transportation I would do websites for small businesses, and I would meet with them riding my bike in the middle of the summer to those small businesses with a suit in my backpack, park my bike in the back of the building, and change into my suit and walk to the front of the building to meet my client. That was my life for a long time with all of these obstacles not knowing what was going to happen, not knowing what I was going to do.
Diego: But like you mentioned earlier, I believe that there’s no excuse for somebody to be able to achieve their own version of the American dream being in the United States just because there is a lot of opportunity, but people either quit too easily, they quit too early, or they don’t have a strong enough why. With all these obstacles, even getting into real estate I’ve been able to still take action despite those obstacles.
Brandon: Yeah. This is such a powerful reminder that we live in America. We have no excuse not to be successful, even if it requires riding your bike with a suit in the backpack across town, getting all sweaty and hot meeting… and you’re like, “But LLC, I can do that. And then I can go this way.” It’s asking that question, and this goes back to Rich Dad, Poor Dad, right? Don’t say I can’t afford it, ask how do I afford it. Don’t say I can’t do it, ask how do I do it. And you’ve definitely been one of those guys that’s constantly asking how do I do it.
Diego: And I feel just like in that book, they share about the power of questions, the power that you ask yourself. So no matter what kind of obstacles you’re going through, whether it’s something in real estate, or in life it’s just asking yourself why is this happening for me and what can I do about it?
Brandon: Say that again. Why is this happening for me?
Diego: Why is this happening for me.
Brandon: Yeah, I expected you to say why is this happening to me, but that’s different.
Diego: Exactly. See, because when you ask yourself why is this happening to me you begin to blame others for your current situation, but if you ask yourself why is life happening for me, then you begin to look for options and solutions for your circumstances. When that happened to me, instead of asking myself why is this happening to me? Why can't I invest in real estate through little money down with a conventional FHA loan? I was like, okay, what are my solutions? What are my options? And in doing that, in doing that research and just asking people around that's when my dad came up with the idea that we can buy a house cash, and partner up.
Diego: So by me telling people a little bit of some obstacles, if you’re surrounding yourself with the right people they will like to form solutions rather than say, “I’m sorry. Life sucks.” But it’s more like, okay. That’s where you are, how can I help you?
David: You know there’s something I’ve always wanted to ask you, Diego. People may not know, but Diego and I are actually really good friends, and Brandon as well. We’ve known him for several years now, and he’s probably, when it comes to a healthy mindset, one of the most amazing, spectacular people that I have ever met. I literally have never met a human being that doesn’t like Diego. And I often, when we hang out, I try to find what’s the skeleton in the closet? Where’s that thing about him that will make me feel better about myself because there’s something bad? And you just cannot didn’t it. He’s so awesome.
David: I wanted to ask you, and I’ve wanted to ask you this for a long time. You come from a different country, and like u mentioned, in America there’s nothing that can hold you back and people quick too easy. What is it like for you when you navigate your way though this country seeing how people quick so easily, make excuses so quickly? It’s right there in front of them, and they just don’t go take it. Is that frustrating for you? What would you share with others from your perspective of seeing how successful you can be if you just decide you want to be.
Diego: Sometimes people quit too easily because… the main reason is because they feel like they should… it should be there already, and they think that success just happens, and it’s a straight line up, but it’s actually a lot of ups and down, and ups and downs. And talking about just on the real estate perspective, I feel like people want to hit their first home run right in the beginning. I’m all about the mindset of just taking action and getting to first base. If you focus on getting to first base, or second base you’re going to be able to get over the analysis paralysis. And that’s what stops a lot of people from even starting to take action. And then, by not having the right mindset, by not educating themselves on asking their selves why they’re doing those things they are able to create excuses. And sometimes those excuses become more powerful than actually the hunger of achieving that goal.
Brandon: That’s good stuff. It’s more important to get on base then it is to try and hit that home run your first time, or to believe “I didn’t hit a home run like I heard David Greene hit a home run on his last project, so clearly I’m not doing anything right. I’m going to sit here, and just keep watching TV.” It’s like, just get on base. Get something. We’ve talked about that before here. Get something.
Diego: And not being afraid of actually if you make a mistake, if you may lose a little bit of money on a deal, but now you learned, and now you can continue taking action and not make the same mistake over and over again. Now, if you do commit it again, then you have to choose something else, or something like… you definitely have to learn and make sure that you don’t commit it again.
Brandon: Yeah. I did a video a while back, I think it was Instagram, maybe I put it on YouTube, anyway it was basically to be successful you have to have this triangle type thing where you have to take action and then you have to learn from that, and then tweak it, and then do it again. Take more action, learn from it, tweak that, do it again differently. And if you miss one of those three parts, you’re never going to get there. You’re going to fail unless you do all three, take action, learn, do something a little different, do it again.
Diego: Exactly. 100%.
David: Your brother is a really good example of what Brandon just mentioned. He moved to Florida as… how old was he? 19, 18 when he-
Diego: He was 19.
David: 19 years old, moves to Florida, moves in with a buddy of ours, learns how to wholesale from somebody else, and in a couple years builds himself into probably one of the biggest wholesalers in Florida. Would you agree?
Diego: Dude, it has been… his journey is freaking amazing. He’s 24, 23 and he’s wholesaling over 100 deals a year now.
Brandon: Yeah. That’s awesome.
David: That just speaks to the power of mindset, right? When you have that right mindset… Brandon and I always tell people you shouldn’t worry so much about getting paid or what you’re earning, you should worry about what you’re learning. An apprentice mindset is definitely not a bad thing. You’re a great example of that, your brother Gonzales is a great example of that. There’s another story I want you to share, which I think is awesome. It’s how you got affiliated with the GoBundance, it’s how I got to know you, is that you basically just walked into a meeting of millionaires that you weren’t invited to, and didn’t even know you were supposed to be invited. Let me make sure I get it right. The group of you all goes somewhere like a hotel or something like that to talk, and one of the people who drove had to leave early. So there weren’t enough car seats for everyone to go back, and you just volunteered to let them throw you in the trunk that you were just that humble. You didn’t care, is that right?
Diego: Yeah, exactly. Exactly. I was the smallest guy, so I was like, “I might as well just go in the trunk.” And they were alike, “All right. This Diego guy is cool.”
David: Tell us about what that led to. How did that eventually impact your life?
Diego: Yeah. So I found myself in that room. It was actually at David Osborne’s house, which I believe that you guys have had here in this episode. I heard about it through a podcast with Pat Hiban. I found myself in that room with 15 millionaires, and as they were sharing what their net worth was, some guy was worth 40 million, 30 million, 14 million, they come to me and I’m like, “My name is Diego. I own two properties. At this moment I’m 23 and my net worth is 35k.” And they were like, “Who the heck let this kid in? Why is he here?” But in me telling them my story of the obstacles that I’ve been through, but still being able to invest in real estate and finding myself in that room, they were like, “Diego, we want to help you out. We’re going to help you become a millionaire.” And even though I’m not a millionaire yet, I’ve taken the right actions that they’ve told me, and implemented them in my life.
Diego: The best part is that by surrounding myself with those people I’ve been able to take what will take 10, 20 years and chunk them down into just a couple of years. That has been one of the most amazing things because because they’ve been keeping me accountable to me being able to quit my job, to get into real estate full-time, and to invest wisely, and even into helping me become a better speaker, and me getting healthier, and all of this other stuff. So it has definitely changed my life on the perspective of life, and also on the business side.
Brandon: That’s cool. Yeah, we talk about this a lot about just getting around other people raises your internal thermostat, and it’s not just about money, it’s about everything. You’re going to be around a bunch of people who are in shape, and you’re naturally going to become more in shape, and get around people who are wealthy, you’re going to get more wealthy. You get around people who are… whatever. You naturally become like the people you surround yourself with, so you basically forced your way, nicely, into a setting where you can level up your life with other people around you. And I think that’s something that anybody can take out of this episode, is how can you get your way into, nicely, a setting where there’s people that are just far greater than you, who’s goals are way bigger than your goals? And when you hear their goals you’re almost scared because they’re so huge. How do you get yourself into that room?
Brandon: How do people do that?
Diego: Number one is understanding that nobody becomes successful just by yourself. When you look at Elon Musk, he wouldn’t be with Tesla and everything if he wouldn’t have partnered up with Peter Thiel to do a couple of companies in the past, or Steve Jobs with Steve Wozniak. So understanding that, that’s number one. Number two is you have to be putting yourself in uncomfortable situations like me putting myself into a place where I know I didn’t belong right in the beginning was definitely out of my comfort zone especially with me coming from a place where I was the youngest one, I’ve had a speech impediment since I was five years old, and now I knew that I have to give a five minute presentation in front of millionaires. So I was like, “What can I teach them?” But in doing that, and also in investing in myself… a lot of people don’t like investing in themselves, in personal development, I feel like the first step in becoming successful is definitely changing the type of conversations what you have because the way that you ask yourself the different questions, different conversations can elevate your life.
Diego: A lot of people go to happy hour and they complain about their life after work. When I surround myself with my mentors it’s more about, how much passive income do you have now? How many properties did you buy? And when those types of conversations I know that they’re coming, so I better take action when I’m at home. By the next time that I go see them I better have implemented something because if not they’re not going to want to help me out in the future. So I fee like that would be it.
David: So that's a great segue way into what you've actually done regarding real estate investing because you were able to, I believe that you referred to is as an undocumented immigrant, acquire 18 doors without being able to get aâ¦ financing the same way that somebody else would. You actually didn't mention it, but you're a top producing agent at Keller Williams. You left your job. I remember talking about that just a couple years ago. You had a really good job and you walked away to become an agent, and you crushed it right off the bat. For those people that say I can't find a deal, I can't make it work. There's no one percent rule properties in my area. Tell us how you overcame that and what you did to scale as fast as you have.
Diego: For sure. So I realized number oneâ¦ I'm a millennial, so one of the best strategies, for millennials specifically is by starting house hacking. I was able to buy a home by putting down five percent down, and I started living for free. What that gave me is, I looked at the highest expense that I had, and it happened to be my housing expenses. So I asked myself, how can I eliminate it, and in looking at the forums, and all this stuff that's when I found out about house hacking. I was like, I can totally do that. So I bought my first house in 2014, and by 2015 I was able to quit corporate America and become a full-time real estate agent. Through that time I also, in Austin, because I'm in Austin, Texas and the real estate market has gone really highâ¦ so right now there's not many properties that follow that one percent rule, so I had to get creative. And it just happened that my buddy [Pascal 00:20:36], he also wanted to invest in properties. So we started renting them by the room in areas that were close to GM, Dell, Samsung. There were all these companies that I knew that young people would be okay with living with roommates, and we started buying properties around there.
Diego: So it wasn’t 100% passive income because I was managing the properties, but instead of putting a family there, and the home was renting for 1,600 I was able to make 2,400 growth from a property. That definitely gave me the biggest advantage to then later be able to buy properties in other areas for more longterm investment, and just gave me that opportunity to just make money actively irrelevant.
Brandon: That’s so good. So many good things that [inaudible 00:21:30]a couple things I want to hit. So first of all, the renting by the room thing I think is a cool idea. What basically you did is you said there might not be cash flowing rentals very well in this market, which is true in a lot of markets. You can’t just go buy a typical single family house and have it produce more income… I mean, here in Maui, if I buy a house here the mortgage is going to be six grand a month. It’ll rent for four grant a month. It just doesn’t work, right? So you have a couple of options, you can sit down on the couch and watch more TV, or you can ask the question how do I do it?
Brandon: I always say in every area there's either a way to do it, or you can invest somewhere else. So you can take David Greene's book here, Long Distance Real Estate, and you couldve bought in Memphis, or in Oklahoma, or whatever, or you can say what does work in this market? What is going to work? What is going to provide cashflow? Can I do the Airbnb, or could I do renting by the room, or could I do this or that? There's other strategies that work, right? Could I flip houses? Could I become a real estate agent? Asking that questionâ¦ again, good questions lead to good answers. So you really have to find the question as to what works in this market, and you figured out the renting by the room thing would work. That's super cool. But also just the fact that you figured out the house hacking thing.
Brandon: For those who aren’t familiar with house hacking, we’re just talking about the idea where you live in a property, but it also serves as a rental of some kind, or maybe a duplex where you rent out the other unit, or maybe it’s a single family. So what was that first house hack like for you? What did you buy? What did you buy it for? Give us some examples of that.
Diego: Some of the numbers. Yeah. That was going to be my deal flip flow of… I was going to explain. So I can go over it now.
Brandon: [inaudible 00:23:11]
Diego: Yeah. So I bought a home in 2014. It was a 170k it was a four bedroom, two and a half full baths. So what I have found is that in renting by the room is better to buy a house with at least two and a half bathrooms, so that if a roommate is taking a shower somebody else can use the bathroom downstairs, the half bath at least. So bought that for 170, my mortgage was going to be around 1,350, and bought that putting five percent down. By that point I was a realtor, so I was able to use my commission as well. So my all in with closing cost, and stuff was 6,300. The best part was that I was able to rent out three bedrooms for 550 plus utilities, and that made my growth 1,350. So the extra $300 that I was making, a little bit went for repairs, or maintenance, whatever but it also covered my car payment. And because those were my only debts, my house and my car because I couldn’t get the “privilege” to get into student loans, because I couldn’t qualify for anything, that changed my whole life because I had other people paying for those expenses. And when that happens you get a level of freedom that is amazing.
Diego: But here’s one of the coolest part, because I was able to get room mates, finding them on Craigslist, but I was able to get them to sign the lease the day right after I bought the home, so that by day one of me owning the property I was making passive income. That was awesome.
Brandon: Yeah, that's so cool. I love that strategy ofâ¦ When I was in college I had something similar. I rented an apartment, rented out the bedrooms, lived for free. The ability to do that, not only did you get to live for free, you made more money that then covered your car payment, you're paying down now the mortgage, every single month that mortgage gets paid down a little bit. The property value is climbing in value as well. So you get the tax advantage of owning a property. You get just win, after win, after win, after win, after win, after win. And now because you no longer have the bigâ¦ Scott Trench talks about this a lot in Set For Life, [inaudible 00:25:38]and then of course Craig Curelop, who we just released the House Hacking Strategy. This idea, if you can eliminate your most expensive payment, which for everybody is housing, taxes or housing, but if you can eliminate housing expense you instantly free up so much opportunity in your life that now you can risk being a real estate agent, and maybe you don't make a massive commission the first month or two.
Brandon: But the guys who's got the 3,000 a month rent because he wants to live in a nice, posh apartment he can't even try to be a real estate agent because he just knows that he can't make the first month or two. He can't go try to start the T-shirt business. He can't go and try to start a flipping houses because his mortgage or his rent is just killing any chance of freedom in his life. And if people just understood that simple fact. Just imagine how much more freedom people would have, how much more opportunities for entrepreneurship they'd have. But yeah, I love that story.
Diego: Exactly, and especially when you look at from my angle. I’m a Dreamer, and if I can do this I believe that anybody can do it. The opportunities are there, it’s just… and it does take a little bit of sacrifice. I always tell people, in real estate investing, or just with anything big in general it will take a little bit of sacrifice. My friends were telling me, “Diego, we make $5,000 a month at GM, why are you living with roommates?” I could afford a condo in downtown Austin, as an apartment and live on Raine Street, have an amazing life or whatever, but I decided that instead of getting the brand new Cadillac I got a 2009 Honda Civic, and I was living with roommates. But that sacrifice right now allowed me to later… when people were asking me, “How were you able to quit corporate America?” And I’m like, “This is how I did it.”
Diego: And not that saying corporate America is bad because if people love their jobs then awesome, but it just gave me the options. It gave me the freedom to choose what I really wanted to do.
David: I think it’s important to point out that it is important to eliminate your biggest housing expense, or your biggest expense, which is usually housing. As a side note I’ve often thought about how people say it’s too expensive to live in a big city where I can make a lot of money because I can’t afford a house, but it’s not like cars cost more in San Francisco than they do somewhere else, maybe a little bit. Food may cost a little bit more, but it’s really just housing that’s the biggest expense. So if you can solve that one problem, you can work somewhere where you can earn more money, get a better job, but not have to spend it all on housing, so you win both.
David: The second thought that I wanted to point out is what you did that was brilliant was not just that you saved money because you could’ve saved it and just saved yourself 1,000 or $2,000 a month and just continue doing that with that small mindset, but what you did was you said, “I’ve eliminated my biggest anchor,” like what Brandon was saying, that prevents people from hitting freedom, “and I’ve used that opportunity to go take a risk. I started a new business. I got out of the corporate world, and then I got into sales. I was able to buy more houses, which were riskier, but I could afford that risk because my expenses were low.” So if I lost money on a month, I could cover it.” That’s really the secret. Yes, playing defense matters, but it only matters because it gives you the opportunity to go do something riskier where you learn, and you grow, and eventually you build [inaudible 00:28:57].
David: So good for you for doing that.
Diego: Thank you. Thank you.
Brandon: All right. So what came next? You bought the house at 24, what came next? How did you build a portfolio from there?
Diego: What came next is I had my… I began to buy homes the same way because my friend was like, “Diego, if you’re making this income with the roommates, why can’t we just put 20% down, and buy investment properties? So that’s what happened. We began buying multiple homes and this was while I was still working in corporate America, and I used… he had the money, at this point I was out of money from that perspective, but I was able to put my commission as part of my share of half of the 20%, and then I would pay him back. I did charge a couple of 100 bucks for managing the property, and then basically I was trying to buy myself in into a 50/50 partnership. We did that for about three or four homes, and what happened was he wanted to create a startup. So we sold those homes, and with the cash that I had I was able to invest in Florida with my brother who’s a wholesaler. So he found me those properties.
Diego: In the meantime, I was able to buy really cheap properties in C areas in Jacksonville, Florida, and they were sold for… as an example, I bought a property for 24,000, this was in 2016, and it was renting for around 600 bucks. So the cash on cash was really good. I was getting into a lot of obstacles again of me being able to qualify for loans because of my situation, so cash was one of my only ways to actually do it. So now I own two single family homes over there, two duplexes, and I quadruplex as well. I’ve been able to find them, and get more of the cashflow, and the cool part now is that those single family homes have now appreciated, and doubled in price.
Diego: So what I’m going to do next is I’m going to be selling those properties, and getting into syndication in the future just because I want to get rid of those properties. I learned that… in the beginning it was great, the cashflow was coming in, and then once the tenants moved out, they were… I had to evict the next set, and pay $2,000 for this, 1,000 for that. So it was a great learning experience, I made great money from it passively for a while, and then now I want to reinvest adding to another set of assets that will be multi-families indications, or something like that. I don’t know yet what I’m going to do, but that’s coming next for me.
Brandon: That’s cool. That’s cool. I like that you did it. You got on base, maybe you got the second base there. You’re playing the game. You figured out what works, and this is something that a lot of people, we should talk about it, misunderstand about owning rental properties, especially in lower priced areas. All three of us own properties in cheaper areas, but it’s one thing that I think a lot of people don’t account for is that there are… Yeah, you’re making $400… let’s say you’re making three or $400 a month in cash flow, wow look at me. I’m doing awesome, but then boom. You get hit with an eviction because those happen a lot more often in those areas. Now, you got three grand there. The tenant trashes your house, somebody steals the air conditioner unit. Those are real problems, which is why when you’re running the numbers on a property in an area like that, you can’t just assume five percent for repair and maintenance, and cutbacks. It can be a sizable chunk of your income just to cover for those big items.
Brandon: So numbers might seemâ¦ and this is what sort of drives me nuts sometimes about turnkey companies. Again, I don't have a problem with turnkey. I like turnkey companies, I think they can be great, but some companies are just notorious for buy this crap property in this crap area that you're mortgage is going to be $800 a month, and it'll rent for 900. You're making $100 a month in cashflow. And I'm like, "No. You're not." You're losing money every month for ever. You will never make money on those properties, ever because people are too lazy to do their own math, so they let the turnkey company do the math. They let their agent do the math. They let somebody else do the math.
Brandon: So what have you learned, Diego in buying these properties that would help people understand, maybe run the numbers easier, or decide I want to buy in these lower prices areas, or I don’t? Do you have any advice for people thinking the same, I want to go buy a 35, 30, $50,000 house in Jacksonville?
Diego: Yeah. I would say making sure that you’re working… This is three years later, but in the beginning those properties were making great money. So understanding that most likely these C level properties, I would recommend that people use them as their “okay. What do I do next?” It’s like, I’m going to commit to this for two years because I set up my team the right way. So what I did is I found the right wholesaler, or you can find the right realtor, from there find the right people or somebody that can manage the property the right way so that they have the right contractors, the right HVAC guy, plumber, whatever. So that you’re not the one that’s getting a call at 02:00 in the morning, and then just making sure that you have those systems in place in the future that whenever you do have some extra income, or whatever that you [inaudible 00:34:52]a lot for repairs, and then reinvest the same money for another property, and be able to build a portfolio that way.
Diego: But if I were to do it again, or knowing what I know now in the future I would invest in B kind of properties rather than C. One of my tenants for… or if it’s going to be a C property, we had this house where it was an older woman, and she was getting money from social security. That was great because we knew that she’s lived there for 10 years, she will continue to live there for a long time. So I would recommend, the turnkey properties making sure that you really look at the numbers, really look at the streets, and talk to other people that have invested with them in the past because you will hear that, “Hey, they will sell you on this, they will drive you through those areas, but then there are some people that they don’t tell you that it was actually a crappy house, that they painted over cracks, and they do have foundation issues, but you had no idea.” So putting somebody that you trust in place will make sure that you don’t commit some mistakes.
Brandon: Really good. Really good.
David: That’s awesome actually. Diego, how do you recognize is there are someone you can trust? What are some things you look for in somebody that make you feel comfortable trusting them?
Diego: I would say number one is if they’ve done what I’ve been doing in the past because if they’ve done it, and they have had some success then you know that they have the right resources. Number two is making sure that they are the ones that can help you out in the future, they’re not just going to pass you to another person, three people under them. I would say have a relationship when you know that the guy that you trust will be there to answer your phone calls. If you build a good relationship, you know that that can happen. So that would be number one.
Diego: I would say talking to people that may have used their resources, or hired them in the past, and sending them an email and just asking, “Hey, send me a deal that you have done for yourself in that specific area. Send me a deal, and find me a deal similar to that” because if they can do that for you then you know that, that’s somebody that they can trust.
David: Okay. Last question for me before the Deal Deep Dive. If I want to go find properties like what you found, you mentioned you look for four bedrooms, and two and a half bathrooms. I think that was a really good tip. What are some other tips that you would recommend somebody do? I think you have some really good perspective on this because you're both an agent who looks for these properties, and an investor who buys them. So what should somebody look for if they want to do what you're doing?
Diego: So I would recommend number one, knowing that you have to invest for cashflow not just appreciation because what I’m seeing a lot of people doing is just investing for appreciation, and hoping that in the next five, 10 years it can appreciate. Austin is super unique, but I still… a lot of the deals that I still do, or as a realtor that I help people buy here, it has to cashflow. So that’s number one.
Diego: Buying in growing areas. So if you don’t know if you’re going to be able to… if you don’t know if you want to live in a specific area, or buy in that area, and it’s the area that you might be 20 to 30 minutes away, if they have a Starbucks that’s getting built, or a McDonald’s, or some kind of franchise, then you know that they have done their research that that area is going to… either they’re going to be continuing to build, or that area is going to appreciate. So I always tell people, leverage on what the big franchises are doing because they’ve already done the research for you. They know what’s going to happen in the next three, five years. So you might as well use that to your advantage. So-
David: I like Chick-fil-as.
Diego: Chick-fil-as is another one.
David: You don’t see a ton of those, so if they put one there then you know that they really, really like that area.
Diego: Exactly. So it’s location, areas, and seeing what are the next… Depending on what’s your strategy, right? Is it closer to a university? Is it close to tech areas? Here in Austin, I say we have Oracle, Dell, Apple, and I would always say invest in areas where those people, those kinds of employees will be there in the future.
David: Because those are the tenant base that you’re looking for that are going to rent a room. That’s why you’re saying that?
Diego: Exactly. Exactly. And understanding the demographic. I feel like, if I’m investing more for longterm somewhere else, then I know I’m going to be looking at another set of demographic whether it’s blue collar, white collar workers, whatever.
Brandon: That’s great. Really, really good tips. Hey Diego, my last question before the Deal Deep Dive, what was your greatest day of your investing life? If you was thinking back to a certain day that just made you smile, you was like, “That was a good day” is there anything that comes to mind?
Diego: I would say, when I bought that property, my first house hack. Just getting that money, getting that check from that roommate, I'm like, "Wow. This is real." I had made money from the other two properties that I bought with my dad, or with other partners, but getting the house hack, then getting that check, for me was amazing because I had to speak with probably 10 or 15 lenders. I had to go through at least 15 nos before I got that yes, and when I got that, that I was going to be able to do it with an owner occupant loan, I was like, "That is amazing."
Diego: that, and I would say really quick, the other one was when I moved out of my first house hack. I was able to move to the next house hack when i realized that I was making $1,000 a month after expenses from my first house hack, and I saw that in my bank account, I was like, “This is awesome” because other investors were making $100 a house, I was making $1,000 through that first house hack.
Brandon: That’s so cool. Very cool. That feeling is unlike any other. Lately people have been sending me on Instagram pictures of their first check, their first rental check. And then I like to repost those on my Instagram story because it’s such a cool feeling. It’s not life changing money, you got 500 bucks, you got $1,000, but there’s a certain message that goes with that like, hey I’m on base. To go back to your analogy, I’m no longer swinging. I’m on base, and if I do this long enough I’m going to win this game.
Diego: Exactly. Exactly. And having the… I would say when you’re getting to the first bases I always tell people that especially millennials, they want everything right away, and I always tell people that life is a marathon. So it might be a couple of 100 bucks for your first base, but imagine what you can do in 10 years. Maybe those are going to be 1,000 and $10,000 a month on passive income. So you’re okay just making the first couple of 100 bucks. It will be okay.
Brandon: Yeah. So good. Last question. I know I said that was the last one. Does this advice about getting on first base, does this also apply to dating? Just kidding, don’t answer that. He’s like, wait. Do I really have to answer that? No. Moving on to the Deal Deep Dive. Deal Deep Dive.
Brandon: All right. This is the part of the show where we dive deep into one particular deal that you’ve done, Diego. I love it [inaudible 00:43:30]
David: We’re going back to the deal iteration. That was the funniest time.
Brandon: Diego, do you have a deal in mind? Something that we can kind of dig real deep into?
Diego: Yeah. For sure.
Brandon: All right.
David: You should’ve said definitely.
Brandon: Yeah. Definitely.
Diego: Well, the reason why I said… I gave a couple of details in my first house hack, and I was going to share-
Brandon: We can still go back to that one if you want, or if you want to do a new one you’re welcome to, but we only ask a couple questions, [inaudible 00:44:02]dig deeper. [crosstalk 00:44:04].
Diego: Cool. Then let me follow what David said, definitely.
Brandon: All right.
David: So real fast, for those who don’t understand what I’m talking about. Our producer Kevin just gave us some awesome notes. “Go listen to show 3-18 with Collin Schwartz and hear the Deal Deep Dive. I think I laughed my way into a six pack on that episode. That was so ridiculously funny. That’s what we’re referring to. Okay. Now, onto today’s Deal Deep Dive.
Brandon: All right. What deal are we talking about here? That’s your first house hack, right?
Diego: Yes, my first house hack.
Brandon: All right. So the question then becomes what kind of property was this? Single-family, multi-family?
Diego: It was a single family home.
Brandon: All right. And where? Austin, right?
Diego: It was a street right outside of Austin, but yeah Austin, Texas.
Brandon: All right.
David: And how did you find that deal?
Diego: I found the deal on the MLS because of the fact that I was a realtor I was looking at a bunch of different deals that hit a criteria, and the one thing that I have to say in finding that deal was that I had the mindset… So I am not handy, at all. I don’t want to do anything in homes, at least myself. So I found this house and it was remodeled. So I knew that when I was able to get a remodeled home the pictures looked great on the MLS, and I’m like okay, if it looks straight on the MLS for me as an owner it’s going to look great for the potential tenants.
Brandon: Yeah, that’s cool. And you paid, I believe you said, 170 for it, right?
Diego: 170. Yeah.
David: How did you negotiate that price?
Diego: I looked at the properties that have sold in the last six months, and it was… The property was on the market for 175, I believe. I negotiated it putting 170 with $2,000 in closing cost, and then during the inspection period, and stuff there were a couple of things that came up, and I was able to negotiate those as well.
Brandon: Okay. And then what about financing? What did you guys do for financing on this? What did you do?
Diego: Financing was five percent down, and that also included the PMI.
Brandon: Okay. So was that basically like an FHA loan?
Diego: No. FHA, three and a half percent down-
Brandon: Okay. Yeah.
Diego: [inaudible 00:46:44]a lot of people think that you need 20% down for a conventional loan, but really, if you have a good credit score conventional loan is actually cheaper, especially now since you don't have to pay the PMI for the entirety of the loan with an FHA loan.
Brandon: Very cool.
David: Very good point. There's conventional loans at three percent down, five percent down. I've even seen them with one percent down. To your point, the PMI, they call it MIP on a FHA loan, it never goes away. As long as you have that loan you have it. With the conventional loan it can drop off. Very good.
David: You also mentioned that you had to pay the PMI up front. That’s another thing people don’t realize. We often think about is as it’s a monthly expense, but really you front load that the first years PMI gets paid at closing, and then every month they collect to pay the next year. So sometimes you’re not realizing the six, seven, $8,000 is being collected as a closing cost to pay your PMI for that year. So thank you for pointing that out.
Diego: Yeah. And one last thing that I would like to say for anybody that's thinking about getting their first house hack with FHA or conventional loan. With an FHA it does cost a little bit more because you pay a finding fee of 1.75% of the loan, so just be aware of that. If the numbers make sense, then for sure do it, but just know that you're paying MIP for the entirety of the loan, and having that finding fee.
Brandon: Makes sense.
David: Okay. So for this property, what did you end up doing with it?
Diego: That was the one that I lived in the master bedroom. I rented out the rooms for 550 plus bills, and one of the things that I learned also was that I was able to buy some of the furniture through credit because it fit my numbers, too. I didn’t have to go all upfront and pay the furniture because I furnished everything in the common areas except for the bedrooms. So at Rooms To Go you could finance for three years, or whatever without any interest. I was able to finance all of the furniture, and the roommates were happy because it was a brand new house, brand new furniture. Boom. They were happy to pay.
Brandon: Very cool. The outcome you talked about earlier, you were basically living for free, makes your your car payment, all that, which is great, but what lessons did you learn in this? What did you learn from this that you can pass on to other people?
Diego: I learned that asking the right questions to get the quality roommates. I had spoken with a lot of people in the past while the property was on the market. I was trying to find roommates on Craigslist, so I learned that you had to learn the right questions. Basically asking what is your current living situation now? Can you pay the security deposit at once? Because if they cannot afford the security deposit at once then you know that they’re not going to be able to pay… if their tire beaks, or if they have a small problem they’re not going to be able to pay for-
Brandon: That’s so true.
Diego: … for the rent, even if it’s $500. So-
Brandon: Dude, I’ve been investing now for 12 years and I’ve always had that rule, you need to come up with that, but I’ve never thought about why that’s so important, and you just nailed it. Because everybody has unexpected things that come up. If they can’t afford right now $1,000 or whatever for a security deposit, or 500 they’re never going to be able to do it later either. That’s such a good point. Jees, I got to go back and amend the book on rental property investing now and just add that piece of advice in there. That’s so good.
Diego: And here’s the thing, I make it to the point that they cannot say no. If they say no then you know it’s going to be a no because I tell them, for the protection of the roommates, and for the quality of the roommates I do two things, I expect security deposit up front at once, with one payment, and I also do a background check that’s paid by you. It’s going to be 40 bucks. And I do this for the security of the roommates to make sure that all the roommates are safe here, but also for you so that you know that if I get another roommate in the future it’s going to be a good quality roommate. They’re not going to say no to that. They just can’t.
Brandon: Awesome. Very good advice. That was a great Deal Deep Dive. So thank you, Diego. Let’s head over to the next segment of the show, our world famous Fire Round.
David: Fire Round.
Brandon: All right. It’s time for the Fire Round. These questions come direct out of the Bigger Pockets forums, and we’re going to fire them right now at you, Diego. Number one, I like the idea of partnering with my friends to do deals. I’ve got money, and my friend… he’s got one friend apparently… [inaudible 00:51:51]. I’ve got money and my friend has the knowledge of managing rehabs, and placing tenants. What are some ways I can structure that kind of partnership? And I think they’re kind of asking you is that 50/50, is that always how it is? How do you structure a thing like that where I have the money and they are going to do the work?
Diego: Yeah. So number one, I would say definitely set up an LLC to make sure that all of the funds go to the LLC first that both of you guys manage, or if you have three business partners or whatever that is because I wouldn’t want the money to go directly into my business partner’s account, and then something happens, and then you don’t have access to that, right? So put yourself in a position where at least you know it’s there.
Diego: Number two, I would say definitely make sure that they’re a trustworthy friend, but when you’re partnering with people definitely I would ask myself can this person do something different that I can’t? In this case, as he was saying, I believe he said that he has the money and the other person has the experience of the rehab, whatever. So I always like making sure that other people have some more money, some skin on the game. So you can put 50/50… I would say u can front in 100% of the cash to buy the property, and let him put the money to do the rehab, or maybe 50% of the money to put in the rehab, so that at least he has some skin in the game. Then he can use his sweat equity to be able to buy himself into the 50/50. But definitely you do that, and with different… because I’ve learned through experience, have different clauses of what to expect if the house doesn’t sell.
Diego: As an example, if they're doing a flip and the house is taking for ever, you better have agreed upon, making sure that if the house sells, are we going to get a loan on it? Is it going to be a commercial loan? Would it be a conventional loan? And how would we split the profits? And because you don't want to just put that into somebody else, and be like, "You told me that you could flip it and sell it for me in six months, now you put it in your name, put on your loan, and all that stuff." So just make sure that you have everything already spoken about.
Brandon: Yeah, especially if you’re doing a flip at this time of the market where the market’s very [inaudible 00:54:29]. It could go down at some point in the future, we don’t know, it’s really good to have that thing defined as what happens if things don’t go perfectly. That why I’m like, I’m starting to flip out here, I got two properties under contract in Maui, but we are definitely saying, what happens if we have to rent these out? So we’re having already our backup plan, and our back up to our backup plan. Back up plan is Airbnb. We’re going to Airbnb these because they’re both in areas that are zones Airbnb. If that doesn’t work we’re going to rent them. Who’s going to manage them? My partner and I have already talked about that. Who’s going to do the work to manage, who hasn’t? So all that’s spelled out, which I think especially at this time of the market, especially or flipping, very, very good idea. All right. Number two.
David: Number two from Kyle in Indianapolis. I have a question about renting by the room. Do you find there is a lot of drama between roommates and what are some things that I should do to minimize this drama?
Diego: Yeah. I’ve only had one issue. But one of the things that I do, and it has just happened, just because of the way that I mention on my Craigslist post. I say I’m a male. Diego, male, and when I speak to the people on the phone I tell them, you’re probably going to be sharing a bathroom with two other guys, is that okay? So that actually gets me… if there’s a tenant that doesn’t want to share the rooms with guys, then she knows that she’s not going to be a good fit in the property. But usually, the best way that I have seen to minimize the drama, or the hassle is just making sure that the people are very similar. So if they’re millennials, give it up to millennials. If there’s more adults, then more adults will jive in the house.
Diego: But I’ve only had on issue, and it was we had a female in the master bedroom, and there was a guy, I don’t know how in detail you want me to get in this, but basically there was a guy in one of the other rooms, and he was with this girl being very, very loud. And the female tenant was telling me, “I do not want to hear them every night. What can I do?” So I spoke to the other roommate, and he said, “Hey, I think she’s jealous.” And I’m like, “No, dude. It’s not that.” It’s that you’re being too loud. So it happened that he was about to move out the next week, or in the next month. So he moved out and everything was fine. But I would say just making sure that you tell people up front the culture of the house, so that there’s no drama because at the end of the day if you’re upfront with them, if you tell them we’re expecting that you do the dishes at least within 24 hours or 36 hours, whatever that is, that you’re clean, whatever, that’s going to set expectations. So just make sure that they set the right expectations for the roommates.
Brandon: Very cool. All right. Next questions. We’ll probably make this our last one. Jermaine from Chandler, Arizona. I’ve got no experience in real estate, but I’ve got a burning desire to learn. I know corporate life is not for me. If you could boil down two or three things that I should do, what should I do to get started, Diego?
Diego: Yes. Number one, make sure that you are saving money for your down payment, and you do this by understanding your finances. A lot of people want to invest in real estate, but they forget that… they just want to get financial freedom, or try to get into investing, but I feel like the first step is managing your finances by knowing who much is coming in, and how much is coming out to make sure that you also have some money in resource because you don’t want to go and buy a deal, and you’re hoping that the AC doesn’t break, or you’re hoping that there’s no leak the next month. That is way too risky. So make sure that you do your due diligence on your finances to make sure that you’re ready to invest.
Diego: Number two is for somebody that’s looking to get started I would say find an investor friendly realtor, and ask them, “Hey, if you were in my shoes, what would be the best deal here in my area that I could buy?” And tell them, do you want to investing and a house hack or do you want to invest in a property that you might want to do the bird strategy, or straight up as an investment? So depending on that strategy that’s when you know how the conversation will go.
Brandon: That makes a lot of sense. All right. Very good. Let’s over to the next, and last segment of our show. It is our world famous, Famous Four.
David: Famous Four.
Brandon: All right, these are the same four questions we ask every guest, every week, but before we get to them let’s get over and hear from Jay Scott, and what’s going on this week over on the Bigger Pockets Business Podcast on Tuesday.
Brandon: All right. Big thanks to Jay Scott for being awesome, and Carol Scott of course. You guys, make sure you listen to the Bigger Pockets Business Podcast. It is lit. I’ve never used the word lit in my life, but I’m using it right now.
David: It sounds like you’ve never used it before.
Brandon: Yeah. It is literally… I don’t even know what lit is short for. What is lit short for?
David: It’s not short for anything. It’s like on fire.
Brandon: Like lit on fire? It’s not like [inaudible 01:00:19]
Diego: It’s legit.
Brandon: Legit? It’s too legit to lit? Lit or legit.
David: This is humorous and painful at the same time.
Brandon: All right. Number one, Diego what is your current favorite real estate related book?
Diego: It would have to be Rich Dad, Poor Dad.
Brandon: All right.
Diego: And the first one, and of course the second one, The Cashflow Quadrant.
Brandon: Yeah, the Cashflow Quadrant. Perfect.
David: Second question, would you agree that book is lit?
Diego: That book is definitely lit, and legit.
Brandon: It’s too lit for legit.
David: All right. I better save us before we go down that road any further. What is your favorite business book?
Diego: Favorite business book is the E-Myth.
Brandon: Nice. Yeah, I love that book. The E-Myth is great.
Diego: I can share a story about that, but if you want me to [crosstalk 01:01:10]
Brandon: No. Share it. I love stories.
Diego: Share it? [crosstalk 01:01:11]. Okay. Cool. I became a realtor, and when I was going full-time I partnered up with another agent who had 12 years experience. So this was great because I leveraged his experience, and at that point he leveraged my time. Now, what happened was I was doing everything. I was doing the showings, the transaction coordinating, everything, but after reading the book the E-Myth, what I did is I looked at all of the things that I was doing on the buying side, on the selling side, and I created checklists, and then I would say, is it me that needs to do those things, or can I hire somebody else to do them? So after following that checklist, and this was me, I created that checklist by seeing what I did throughout the day, what I did is then if anything that had to do on the computer I recorded it, and then I hired somebody in the Philippines for two dollars an hour to basically create a procedure manual of all of those tasks. So for $70 she actually created hundreds of pages of all of the tasks that we had to do as a team for every transaction.
Diego: From there, I was able to hire a full-time office manager, and then he just had to look at that procedure manual, and follow that to the tee. If there were any questions, or anything he would come back to me, and ask me because it’s always a learning process. But systemizing your business, that’s what that book teaches you, and that changed my whole life.
David: That’s great.
Brandon: That’s great. That’s E-Myth is all about, systematize your business, get out of working in it to work on it. That’s a great tip about taking… I make a lot of videos, but I’ve never taken my videos and then turned them into an actual manual, hiring a virtual assistant to do that. That’s a great tip. I’ve never even thought of that. That’s really good. And then resource recommendation. You might have one as well, but I’ll just throw out there, I use something called LOOM, L-O-O-M, and it’s easy to use. It’s a chrome plug it, it’s free, and you literally just press one button and it records your screen while you’re talking and then you hit the one button again to stop it, and it automatically uploads it to the cloud, and gives you a link that you can share. And it keeps it all in your thing. It’s really, really good. I use it constantly. They have a pro version as well, but just the free version I just use and I’m in love with it. Loom.com I think is the website, and hopefully I just didn’t get that wrong, but loom.com
David: That’s right. We use that, too.
Brandon: Yup. It’s fantastic. All right.
David: Next question, what are some of your hobbies?
Diego: What are some of my hobbies? Salsa dancing, and running.
Brandon: Really? Salsa dancing?
Diego: Yeah, I love salsa dancing.
David: Diego was also telling me he just did a five day juice cleanse with no sugar. How was that?
Diego: It was intense. The first day was horrible. It was no… I was hungry most of the time, but I had a lot of energy. So it’s really interesting how that works, but the first day I had chills, I had a little bit of a fever, which meant I was going through some kind of-
Brandon: Yeah, withdrawal.
Diego: Withdrawals of sugar, I guess, but you end up feeling great, and you become more conscious once you get back into the regular routine making sure that you take the right actions on the food that you’re eating.
Diego: Yeah. Yeah.
Brandon: Congrats. All right. Last question for me.
Diego: It was a tough one, but it was good.
Brandon: Yeah. That sounds intense, but I love stuff like that. I’m constantly doing little experiments to myself. Number four, what do you believe sets apart successful real estate investors from all those who give up, fail, or never get started?
Diego: Yeah. I was thinking about that one because at first I wanted to say a strong why, but then I realized this morning that even though that is really important, I feel like connecting with the right tribe with accountabilit is the thing that is going to push you to take action because you’re surrounding with people that are investing the same way you are. That for me is the easiest thing that you can do to be able to look at deals, too because those people can begin to send you deals, and you can share on their knowledge.
Brandon: Yeah. That’s so good. If anybody here was at the Bigger Pockets conference that we just held here a few weeks ago, we’re recording this before the conference, but during my keynote, that’s part of my plan to talk about how much… scientifically, how studies have shown how much just adding the degree of accountability in your life will change the outcome of whether or not you achieve your goals or not. So that’s one of the things I talked about, or am talking about… it’s always weird to talk about in the past about something that’s actually in the future. But that’s the Bigger Pockets conference. If you were not at the conference, you should definitely come to the next one. Tickets will be on sale soon for next year’s conference probably, so keep an eye out for that.
Brandon: All right, dude. Last question of the day from David Greene over here.
David: Tell us where can people find out more about you.
Diego: People can go to my website diegocorso.com, or househackingclub.com and more than happy to share my email [email protected] They can ask me any questions. I’m also on Instagram as realdiegocorso.
Brandon: That’s awesome, dude. You’re going to get bombarded. It’s great.
Diego: That’s fine. We’ll see what happens.
Brandon: Househackingclub.com, was that the website for house hacking?
Diego: Yeah. Househackingclub.com.
Brandon: Awesome. All right, dude. Thank you so much, and it’s been fantastic. I knew it would be, that’s why I’ve been telling you for a couple years, “Man, Diego we got to get you on the podcast.” So, I’m honored to have you.
Diego: Dude, I’ve been listening to this podcast since you guys had it in… I think it launched 2012 or 2013.
Brandon: Yeah, I think so.
Diego: And I was listening to it in one of my [inaudible 01:07:29], and I’m like, one day I’m going to be on that podcast. And this is when I had zero properties. Zero. One day I’m going to be in there. I don’t know how, I don’t know when. So thank you for this opportunity.
Brandon: Yeah, dude. This has been great. Thank you.
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