Rookie Podcast 98: Rookie Reply: Lessons Learned from Our First Real Estate Deals

Rookie Podcast 98: Rookie Reply: Lessons Learned from Our First Real Estate Deals

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This week is a special Rookie Reply, Ashley and Tony are in the same physical location! They both stopped by Denver, Colorado to record some future episodes of the Real Estate Rookie Podcast!

Ashley and Tony are both talking about the first deal they acquired, the mistakes they made as rookies, the lessons they learned, and why you should never be afraid to fail. They walk through things like finding the deal, financing the deal, misconceptions they had before they jumped into investing, and how BiggerPockets was a huge help to both of them in their early investing journey.

If you’re still waiting to close on your first deal, here are some key points discussed.

  • How to finance a property and rehab costs with $0 down
  • What to do if your first property ends up losing you money
  • The importance of partnerships when getting started
  • Why you DON’T need to buy your first rental in cash
  • And Much More!

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
This is Real Estate Rookie, episode number 98. My name is Ashley Kehr, and I am here in person with my cohost, Tony Robinson.

Tony:
It feels like we’re on the satellite TRL or like, I used to watch [inaudible 00:00:17] when I was growing up. So this is why I feel like the host from the afternoon TV shows, so.

Ashley:
Tony knows this is my dream to pretend that we’re on like a talk show and I get to hold the microphone, so.

Tony:
And we’re making it happen, we’re making it happen now. Well, what’s new with you, Ashley?

Ashley:
Not much. Super excited, this is our first day in Denver. We’re going to be here for a couple of days, making some content, working on some real estate stuff for you guys and bringing you guys as much of rookie content as we can.

Tony:
Yeah. Ashley’s also been traveling a lot lately. She’s been in I think like every time zone in the United States over the past like two weeks, so I’m happy that you made some time to hang out with me in Denver.

Ashley:
It’s funny you say that because I’ve had awful jet lag recently, I have not been able to sleep. So I was kind of thankful to make my way back to the West coast.

Tony:
And catch up a little bit.

Ashley:
Yeah, good schedule.

Tony:
What do you want to talk about today? What topics are we going to hit?

Ashley:
Okay. So I really want to talk about just our first deals and what we learned, what we experienced, maybe what we would do different and would work. I know that we’ve shared our first stories of the first deals and how they’ve happened before, but I thought we could really dig into it. And if anyone hasn’t heard how we’ve each got started, we can go from there.

Tony:
You want to go first?

Ashley:
No, you go first.

Tony:
I’ll go first. Okay, all right, I’m going first. So my first deal I got on October 28th of 2019. So not all that long ago, right? We’re recording this in July of 2021, so that’s like not even two whole years that I’ve been investing in real estate. And that by itself hopefully gives a lot of the listeners some encouragement that it doesn’t take an exceptionally long time to find some level of success as a real estate investor.
Now, obviously I’m still very much in the beginning of my career, and there are people who have portfolios that are way, way bigger than mine and people with way more success, but we’ve scaled at a decent pace since then. So my first deal, October 2019. I was living in California at the time. I still live there obviously, but I bought my first deal out of state. We bought a little single family house in the city of Shreveport, Louisiana. We paid a hundred grand for the house, spent about another 55 or so on the rehab.

Ashley:
Tony, when you say we, clarify.

Tony:
So actually that first one was just me and Sarah. So me and my wife, we didn’t have a partner on that deal at all, it was just the two of us, but yeah, we bought that house for 100k, 55 into the rehab, but I think the most unique part of that story of my first deal was that we spent $0 on the rehab and the purchase price, like out of pocket, we spent $0. We found a local credit union that said, Tony, if you find a good enough deal where your purchase price and your rehab are no more than I think, like 75% or something of the after repair value, we, as the bank will fund the entire transaction. And I said, “Okay, cool.” And I went out there and I started finding ways to kind of make that happen.
And I think we looked for about two months, under rode a lot of deals, made a lot of offers that got rejected. But after about two months we found a seller that was willing to negotiate and they accepted our price. And we’re kind of off to the races from there. Rehab, maybe two months. So we closed in October. We had the property rented by that January and yeah, it was a good first start for us.

Ashley:
Okay. So with that, I know a lot of people are going to say, where can we get that financing? Where can we do a loan like that? So I think, look at, and go and talk to those community banks that they know the area. My one question is, how did they find out the ARV? Did they rely on you for that? Did they pull their own comms? Clarify.

Tony:
Yeah, that’s a great question. So it was a really cool process because the bank actually handled a lot of the work for me as the investor, but in order for them to confirm the ARV, what they did was, is that they sent an appraiser out to the property and they also gave that appraiser a copy of the bid of the work that was to be completed. And the appraiser walked the property, saw its current conditions, saw the current layout.
They looked at the bid that listed all the work that we were planning to complete and they said, based on the bid that you’ve given me and what’s selling in the area of properties that are similar to what the property would be like once it’s completed, here’s what I think the property will be worth. I think the appraisal came back at 230, if I wasn’t mistaken. So really, really strong, kind of spread there in terms of what we paid for it and what the appraisal came back at.

Ashley:
Being your first deal, did you expect it to be 230? What did you guys think that it was going to come back at?

Tony:
Honestly, I can’t remember if we were spot on or not. I think mine, I think I was projecting to be a little bit lower because that’s pretty high. And so we actually sold that property and the property did not sell for 230, it sold for 205. So I can show you that even like appraisers can get it wrong sometime. But yeah, I think ours is probably a little bit close to what it actually sold for.

Ashley:
That is such a great point too, that what a property can sell for and what it appraises for can be a huge difference. I have a property now that I bought for 20,000 put 70,000 into it, appraised for 220, but it has environmental issues that if I were to sell it, they would have to have that taken care of. So I think that just because they say something would appraise and it can go vice versa, something could appraise for lower and just because the market is so hot, it can sell for a lot more.

Tony:
Appraisal, like being an appraiser is an art. It’s part science, but it’s a lot of art. Like you could send three different appraisers to the exact same property and get back three different ARV. So yeah, don’t get discouraged if it’s not the number you were hoping to see. But yeah, that’s how we did that first deal. And like you said, I get questions all the time. Like hey Tony, how do you find someone that’s willing to lend 100% of the purchase price and the rehab? Pick up the phone and start calling people.
I think focusing on those smaller kind of local regional banks, credit unions that have a little bit more flexibility, especially the ones who are going to kind of keep those loans on their own books, as opposed to selling, getting like the larger kind of marketplace for loans, that’s where you tend to find a little bit more flexibility in the type of loan products they can offer. So that’s my recommendation for folks looking for some creative financing.

Ashley:
And I think a takeaway too, is this was just less than two years ago, Tony was able to do this because we get a lot of people that say yeah, I got 100% financing, but that was five, six, seven, eight years ago and not anything current, so you can still make that happen.

Tony:
Yeah.

Ashley:
So great, thank you for sharing with us.

Tony:
Absolutely.

Ashley:
Thank you for being on my show.

Tony:
This is the Ashley Kehr show, I was your guest, Tony Robinson.

Ashley:
Okay, now we could switch and you could be the host now.

Tony:
What’s that? Tell us about Ashley Kehr’s first deal.

Ashley:
Okay. So I was working for an investor and I wanted to do what he was doing. So I approached his son to partner with me and I said, look at what your dad was doing, we should do this. And the first house I wanted to look at, I made a appointment with the agent and she said, just so you know there is flood issues, there’s foundation issues, so I never even went to look at the house.
So the next house was a duplex and we ended up buying that one. So it was really the first house we looked at. I had this limited belief that you could only buy investment property with cash, that you couldn’t go to a bank, you’re going to get money anywhere else. So I thought, well, I don’t have the cash-

Tony:
Why was that? Talk us through why you felt that way.

Ashley:
The investor that I was working for, anytime he purchased a property or a business, he was paying with cash and that cash usually came from other assets he had. So he had equity, he’d refinance them, pull that cash out and then purchase something, so that was just my whole understanding was that was the only way to do it and I didn’t have any equity. At that point we hadn’t even built our own house yet, we were living for free in my husband’s grandma’s house that we eventually bought, so we had nothing to pull equity out of.
And so we purchased that together. My partner was the money. We are 50/50 on it, and he actually had a loan receivable from the property. So he acted as the mortgage. So he also was 50% owner and got 50% of the cashflow, 50% of the equity in the property, but also got a mortgage payment every month. So he was getting his money paid back to him and interest on top of that.

Tony:
Let’s pause on that because that’s a really unique way to set up a partnership. And I actually did not know that you did it that way. And so I just want to like break that down one more time for the rookies that are listening. So what Ashley’s saying is that the partner put up the cash to purchase the property. So the purchase price was, what?

Ashley:
74,000.

Tony:
So the partner puts up $74,000. And when you go to close on a property, the title company, escrow company, whoever, they list who the lender is that is putting up the funds to purchase the property. Typically it’s Bank of America, US Bank, XYZ credit union, but in this situation, Ashley’s saying it was her partner, John Doe was listed as the lender in this situation. So what you’re saying is he was also getting a mortgage payment from the cashflow of the property. But in addition, any profits that were left over, you guys just splitted that 50/50 as well. That’s pretty cool.

Ashley:
We didn’t actually go as far as make it, like filing with the county that he was the mortgage holder. We just did a note payable, but it was the mortgage payment that was sent to him every month. But yeah, when I look back at it, he got a really great deal-

Tony:
Super great.

Ashley:
… because he’s passive, I did everything. I organized the rehab, I found the property, I managed it. But then I look at it, I never would have gotten started without him.

Tony:
Totally.

Ashley:
So taking that leap and being generous with what he was getting out of the deal, made him more comfortable and it became to my advantage because then I just propelled from there and could grow a portfolio.

Tony:
How long ago was that first deal? What year was that?

Ashley:
2013, I think.

Tony:
Was that eight years ago?

Ashley:
No, 2014.

Tony:
Okay.

Ashley:
I don’t know the exact date. When you said that, I was like, oh geez, I don’t know. September 2014.

Tony:
So we’re looking at about seven years ago. Right?

Ashley:
Yeah.

Tony:
And I love what you just said about the first deal. Even if you don’t make a ton of money with that first deal, it’s all about the experience, it’s all about the things that you learned from that first deal. And for me on my first deal, I learned how to underwrite and analyze deals because I analyzed so many deals for that first one. I learned how to build a team, because I was investing out of state. I felt comfortable investing out of state. I learned how to buy property, sight unseen, and how to rely on my team to help me with that due diligence process.
And all those things that I’ve learned, I’m still leveraging in my business today. And that’s what’s kind of giving me the foundation to kind of go where I’m at. And I’m assuming all of those skills you just said about being the property manager, doing all those things, like those are still things you’re doing today, but you’ve just like progressed. Right?

Ashley:
And I also sold my first property too. And I think that it’s kind of an example that your first deal may not be a home run and that’s okay, that you can have those exit strategies in place to get rid of it down the road if you choose to. So I think that’s important. Don’t get stuck in analysis paralysis, waiting for that perfect, that golden deal. Take action on something that still works and even if it ends up being a failure, you’re still going to learn a lot from it and you’re going to be able to move on to the next deal. But hopefully, listening to the show and being on BiggerPockets, you’re a lot more confident and you know how to run your numbers, so it won’t be a bad deal at all.

Tony:
And even like she said, even if it’s a bad deal, like the second house I bought, I talk about this on the show all the time. It’s still for sale, by the way, if you want to buy it in Shreveport, that house we’re actively losing money on right now, but it was the first deal that my partner and I did together. And now we’ve done, gosh, we just closed on a property last Friday. I think 10 short term rentals together now, and we wouldn’t have done that had we not done that first house together.
So it’s like, you never know what’s going to spring or come from that first deal, even if it doesn’t work out financially. Now, obviously we don’t want you guys to go out there and spend the last money that you got and get into financial ruin, but we’re saying you should be buying these properties with a little bit of cushion so you can absorb some of those kind of peaks and valleys. So don’t be afraid to get started.

Ashley:
And you guys have so many resources available to you to help you make sure that you’re not getting into bad deals. So take advantage of that, just on the Real Estate Rookie Facebook page, there’s so many people that answer questions for you, going on the BiggerPockets forums, listening to the podcast. So I started in 2014, September 2014. I didn’t find BiggerPockets until 2017. And in 2017, I tripled my portfolio within a year because of just learning from BiggerPockets, getting inspired by what other investors were doing, learning about creative financing, different things like that.

Tony:
Say that one more time. Can you say what happened to your portfolio in that one year?

Ashley:
So when I discovered BiggerPockets, I tripled my portfolio in a year.

Tony:
So like something that you see all the time is, it takes people a year and a half, two years to get that first deal done, right? Like they’re reading, they’re analyzing, but they’re afraid. But once they get that first deal done, it’s like this domino effect happens where the next one comes just kind of in rapid succession and you see them start to like build this momentum and pick up the steam. And it’s like a locomotive. It’s like a train where it takes a long time to get started, but once it’s rolling, it’s coming, so.

Ashley:
And then you have to be cautious that it doesn’t seem too easy. Then you start to overdo it, like okay, now I need to slow down.

Tony:
Yeah, you need to slow down a little bit. But so we’re hoping that all of you guys can get to the point where you no longer have to worry about the next deal. You’re worried more so about slowing down and not growing too fast. So, that was good.

Ashley:
Yeah. I’m excited to have this day. So, thank you guys for listening today, as we are live from the BiggerPockets headquarters, and make sure you guys listen to next Wednesday’s episode. Leave us a review on iTunes, Spotify, wherever you guys are listening, we’d love to hear what you like about the podcast, and please leave us a five star review. Thank you guys so much. I’m Ashley at Wealth from Rentals and he’s Tony, at Tony J. Robinson. And we’ll see you guys on Wednesday.

 

 

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