From Bankruptcy to 1,000 Units (Part 2 - Rising from the Ruins)
If you have not read Part 1, here it is:
How I Survived
So I got my real estate license...so now I had to put it to good use.
Through the MLS I found some properties that needed a lot of work and no one seemed to have the guts to buy them. They were in rough areas. I thought hard as to what I could do with all these problem properties. The Chinese word for "problem" is the same as "opportunity". One problem, I mean one opportunity was that I didn't have any money. So how could I buy these deals when I didn't have any money? I figured someone else has the money.
So I made phone calls. Lots of them. I called everyone on my cellphone address book. Everyone it seemed turned me down. But I didn’t let the “NO’s” discouraged me.
I spoke with one of my college friends. I convinced him to invest in real estate, he would keep all the profits and I would take fees in exchange. I would choose a good deal (get paid RE commission), I would manage the renovation (take a fee there) and I would manage it for him (PM fee). So I found a single family home for him and he was all in for $30,000 (purchase and renovation). I got it rented and after all the expenses including my management fee, it cashflowed $500/month. He was quite happy with it and he started telling others about it.
Then another guy I spoke with agreed to invest...with me doing all the work in exchange for fees. I got another house and he is all in for $32,000. I got him a renter who did a lease option and I sold it for $65,000.
After the 2nd deal, I started teaching people what I know. I didn’t want any of them to buy that “No money down guru” crap that was on TV that caused investors to become overleveraged.
Of course Biggerpockets was not around at that time yet so I did it the old fashioned way. Meeting people. One-on-one in coffee shops. Meeting people in networking groups like in our Cincinnati Real Estate Investors Association. I was on a mission to help others. And of course, I benefited financially too. How? Through teaching others and doing all the networking, I found buyers and sellers of real estate and this helped me find listings and sell houses.
I Found My First Private Lender
My long term goal was to start investing again so I used my real estate license to generate income I needed to survive and to be in the game. I wanted to know what was happening in my local real estate market and what better way to do it than by having access to the MLS and being able to talk to buyers, sellers, title companies, real estate investors and other real estate agents.
From one of my listings I found my very first private lender. He called me as he was interested in buying a house as he just moved back to Cincinnati. After meeting him in person and eventually closing on the house, I told him what I do in addition to being a real estate agent. I guess I was able to generate enough trust that he agreed to give me a $200,000 “line of credit” as a private lender and he would charge me 10% interest and 2 points. In exchange, I gave him a first mortgage lien on every property I would buy with his money and to protect him, I would only buy properties at a discount.
So I went to work.
I looked at a lot of houses and I found one. It was near the corner of McHenry and Westwood. It was a slamdunk of a deal as I got it all-in (purchase and rehab) for only $13,000. I got it fixed it up quickly and rented it out $675/mo.
When I was in church, I listened to a pastor’s sermon and he said that nothing is impossible with God. He said that if we believe it, we could even have a house free and clear. I told myself “Yeah right. That won’t happen to me.” In fact, I was thinking that maybe that $13,000 house I bought was just “luck”.
Then, a landlord approached me about the house I bought, renovated and rented (the $13,000 deal) and he wanted to buy it from me. He really wanted it with the tenant in place and I guess I did such a good job renovating it that he was willing to pay $28,000 for it - $15,000 more than what I spent. Wow!
So, I paid off my private lender and then I allocated $13,000 to buy another house ($2,000 I reserved for my expenses). As it happened, I found another deal and I was “all-in” for $13,000 again! I couldn’t believe it. I could move into this house and have a house that is free and clear as that pastor said but I’ve decided to rent it out and continued living in my parent’s house until I get more cash saved up.
Then I Bought My First Multi-Unit (The Right Way)
My private lender was quite happy with our first deal and he wanted me to utilize more of his capital. Through all the networking I did, I found this group of investors who owned this 8-unit apartment building. They bought it, renovated it and rented it and it was quite profitable for them as the city gave them a tax credit. However, their tax credit already ended and they wanted to move their money to another deal.
So with my private lender’s money, I bought the property for $96,000. Coincidentally, I met a lady who worked for an agency for the homeless. So I talked to her about this building. The agency decided to do a master lease - they would lease the entire building for $2,500/month from me and pay all the expenses (utilities, management, repairs and maintenance).The only expenses I was responsible for was taxes and property insurance. Even after paying my private lender, I made about $1,000/month cashflow and I didn’t have to do any work at all!
Oh and four years later, I sold this building for $200,000 - about 2 times my purchase price!
It is at this point in my investing career that I told myself “Now I know what I am doing” and I was able to rise up from the ruins.
So...what did I learn through all these? Here are three things:
- When there’s a real estate problem and specially if very few people want to take it on, it’s an opportunity to make a ton of money. You got to come up with a plan to turn that real estate problem into money, get the right people in place and work that plan to completion.
- Your number 1 asset in real estate investing is NOT knowledge or know-how. It’s actually know-who (or people you know and people you should know) and learning the ability to talk to people. Master the art of communication, influence and persuasion. It will make you millions.
- Hustle. You can’t make money sitting on your behind. Go out, see people, see properties, take action, make mistakes, learn and do it all over again. Day in. Day out. Consistent hustle gives you consistent results.
You might be asking, “Mike, how did you go from 8 units and a house to over 1,000 apartment units?” That’s what I will share in Part 3 - From Bankruptcy to Over 1,000 Apartment Units (How to Build an Empire!)