With all the help and workshops on real estate going around, we need to be vigilant and aware of the things that can truly help us and those that we should ignore. Being practical with our investments in real estate is a good and safe way to start. Through their mastermind, Jason Bible and co-host Robert Orfino offers their help on how you can break into the commercial financing space. In this episode, they discuss strategies that will help you get a foothold in real estate investing. They also give a heads up on how loans and syndicates work in real estate so that you aren’t caught off guard.
Listen to the podcast here:
The Best Of: Practical Real Estate Investing With Co-Host Robert Orfino
What do we have going on the radio? Are we on at night?
Our radio show will take place at a normal time at 7:00 AM or 8:00 AM. It will also occur on another station, which is owned by the Salem Radio Network.
It’s in time for Vesto because we’ll be in New York.
That is true. From 9:00 PM to 10:00 PM, as you’re filling out another real estate-RIA that was probably awful, you can turn us on Facebook Live, iHeart and all the other places where we’re normally at. You can watch us from 9:00 PM to 10:00 PM where you can learn something about real estate instead of hearing the same speaker that flew in and talk about horses, flipping houses and lease options. We’ll be on from 7:00 AM to 8:00 AM.
That’s excellent. 50% of the stage.
Real estate education and real estate investing are two completely different things. It gets you all worked up, “Come on and run in the back of the room. What color is your Lambo?”
50% of another lease option $997 program is not worth my soul. You need to pay me a lot more if I’m going to give up that integrity.
You know and you’re like, “This doesn’t work.”
This is not a strategy, it’s a tool. I can agree. We just did one, that’s great. It’s hard to grow a huge business on this stuff. Coming to Houston and talking about flipping and not addressing the fact that there are many people that can’t find a decent flip and running that same old, “Here’s the math from our big giant corporation Fortune Weavers Academy guys.” They’re like, “Here’s how you do it. You do this and you will find people. Find wholesalers who want to give you 65% deals.” It doesn’t work. It’s a tough market for flippers.Real estate is a business with a margin of error that is very tight. Click To Tweet
We got four flips. If you’re a brand-new investor and you’re paying four points and 16% for your money and you’re hiring the general contractor, the numbers are not going to work for you. Whenever we have that conversation with brand-new investors like, “I want to flip house. I’m going to make a couple of hundred thousand dollars a year flipping houses.” I’m like, “What’s your cost of the money?” They go, “I’m not sure,” and they figure out what their cost of money is. I go, “How are you going to do the rehab?” They’re like, “I’m going to hire this big GC Company.” I’m like, “What did you find out?” They’re like, “It seems like they’re a little bit more expensive like everybody else.” I’m like, “Okay.” The construction is more expensive. They’re not good at negotiating. They’re like, “We can’t find any deals” I’m like, “I know because all the professional flippers and wholesalers are running circles around you.”
They’re dropping $8,000 to $10,000 a month on marketing. That’s become difficult. It is like, “I want to do some more flips.” I’m like, “Be prepared to spend about $7,500 a month of marketing.” He was like, “Wait.” I was like, “You’ve got to go to the kitchen table and you’ve got to close mee-maw.” He’s like, “I have a full-time job.” It’s hard.
I’ve thought about this if I had to start all over again, you had to put me in a city where I knew no people, I had no network connections, I had nothing. I’ve got the knowledge about how this whole business works. I go into a handful of neighborhoods and I get my real estate license and I would start looking for listings while I was also searching for those houses from people that have been living there for at least twenty plus years.
There’s a big secret. You got to make sure they lived there for twenty-plus years?
I wouldn’t look at anything less than that.
I get postcards on my rentals that I bought in the last few years. I was like, “What are you doing?”
I know, I do too. Sarah is getting skip trace. If it’s the first time you’re reading this, the new thing in real estate wholesaling is they skip trace the owners for properties. If you’re buying properties with the Fannie Mae loan, unfortunately, they have to be in your name until you can move them over to a trust. Your personal name will show up on the county tax rolls. My wife gets calls from people all the time, “I see you’ve got this house here at 123 Main Street, are you interested in selling it?” She’s like, “Do you know who I am? Where are you calling from?” They’re like, “California.” She’s like, “You know nothing about this market, do you? You have no idea.” They’ll say, “Why do you ask?” She will say, “My husband owns a large real estate operation here in town. Let me give you his contact information and you could sign him up for your wholesaling email list and if there’s a deal in there, he’ll buy it.” Some of these properties, she’s owned long enough for the ink to dry on the closing documents before we’re getting phone calls from people.
This is what’s being taught as like, “This is the next wave of real estate wholesaling.” There’s a group that I signed up for their mastermind. It was $4,000 or $5,000. I signed up to see what they were teaching. I’m still in the group and what’s amazing is that they’ve got one of these Robo Dialers and it dials four to five numbers at a time. They’re like, “I called 1,000 homes and I talked to twenty people and about one appointment.” I’m like, “Okay.” The next day, they’ll go out in that appointment. They’re like, “The house was beautiful and they’re not interested in selling. It was an older person that was a little lonely.” It’s like all of that stuff. The margin of error for real estate as a business is tight.
There was a marketing guru out there that was teaching and this guy ended up joining our group and he was like, “I was doing all the pre-foreclosures in Harris County.” I looked at him and I said, “You do realize how big Harris County is? It’s in the top four counties of the United States.” He said, “Yes, I’d go to million-dollar homes. I go to stuff that’s a crack house. I don’t even know how they got a loan on it.” He worked full-time like a lot of you. He said, “There was so much drive time and I could never establish a skillset in any one neighborhood.” I said, “That’s the problem with a lot of these national real estate gurus.” They come into markets like Texas. They think that their marketing plan in Cincinnati, Dayton or Jacksonville is going to work in a market the size of the markets we have in Texas and in Southern California. They don’t work.
You get these people that show up to our events. I call it the lost puppy graveyard where we get the real estate investors who’ve been to every single club around town. They’ve signed up for all the national gurus and they come to us and go, “We’re your last stop before we’re out of this.” I can tell you that everybody’s got radio shows, podcasts and they’ve got big blogs and all that, we have their students in our group. They come to us they go, “I’m still not getting it. What is it that I’m missing?” I go, “Let me look at your business. This is what you’re marketing to. You need to market to this instead of that.” They start doing that and then all of a sudden, “It actually works,” I’m like, “Because the margin of error for the flippers and wholesalers is small.” Those of us who are buying whole, quite honestly, it’s hard to screw up. That’s the big secret.
I’m into all this mid-century modern stuff and I’m looking for two things. I’m looking for old school tube amps. This would be the late ‘70s solid-state amplifiers. I’m building this little system. It’s been fun kind of going down that reading about all the old technology and, it feels like you’re going back in time. What’s funny is I’m going on Facebook. I’m trying to find these old consoles because I want to put a couple of those in our Airbnbs. They sound fantastic and there’s something about that big wooden cabinet. It has such a big sound to it. I want to get one and convert it, so you can do Bluetooth and it’s like a little charging station, but it’s a beautiful piece of furniture. The problem is they haven’t increased in value enough for people to put them on the curve. I’m hitting all the Facebook marketplace up and I’m trying to find this stuff. It’s funny because I’ll then post in the Houston real estate investor group, “If anybody sees something that looks like this. Call me.” Inevitably six guys will say, “I did a flip two months ago. We totally threw it in the trash.”
I went and looked at a house that was already vacant and it was a wholesaler. They had what I’ve been looking for a long time, the butler. The Butler had a pants press in. I was like, “I don’t want this house, but I want that.” I didn’t get it, but I was like, “That’s such a great little device.”
One thing I’ve always loved it needs to come back and I’m thinking about grabbing one is the gentleman’s valet. It’s the chair where you hold your pants. You got your jacket.
That’s what I’m talking about. You have a little press where you put your pants on it. You shut it up and it presses your pants overnight.
The only ones I’ve ever seen is the wood.
I had one. I didn’t move it out here with me. I think everyone needs one. It’s so great. You got a little place for your keys, change, wallet, and your cellphone.
Getting dressed in the morning, put your shoes on and got the jacket.
We have to put them in our Airbnbs.It’s difficult to get someone to sell you their home versus selling you their house. Click To Tweet
That’s would be cool. Let’s talk about Airbnbs.
We’ll buy it from China and put it on the list. We haven’t even talked about that. We’ll get to that. We’ll modernize it, we’ll upgrade it with two USBS on there. That would be sweet. The Airbnb that we put out there in Dickinson is already got $6,000 in bookings.
I don’t know. $6,000 in eight days. Is it next to a water park or a big vacation spot?
No, it’s not. It’s on the crappiest street in all of Dickinson. It is on a horrible street.
They will not pave it.
They paved all the way up to the gated community on the other side of our block and then they stopped by us.
It does have the coolest pool of all the properties we bought. I don’t know if Airbnb works. We’re not getting that question anymore. Did you notice how these questions come and go as we start sharing more stuff on the radio? It’s like, “I don’t know about that Surfside thing. Is it by Freeport?”
No hubris for me, let’s get through the winter and see how it works because November, January, and February are killer months. A lot of Airbnb’s die in February. We’re happy and we’re going to go pick up another one down in that general area, that’s seven bedrooms.
$6,000 a month in eight days and it’s starting to get traction. That’s going to be a sweet little deal for us. Let’s talk about practical real estate investing and what that looks like and not picking out the color of our Lambo and when our freedom date is. Practical real estate investing, what does that look like? You’ve been chatting with the gals over in the Mr. Texas Real Estate team about working with new investors.
First of all, you’ve got to realize the house you live in does not cashflow because it’s probably worth a lot more than $150,000. You’re going to need to go out and find a property at $150,000 or less, put a little bit of money in. I should say a unit if it’s a single-family or if it’s a duplex. There are plenty of duplexes out there for $160,000, $170,000 that will make a ton of money for you. They’re not where you live. We’ve had people say, “I could never live in a duplex.” I’m like, “You’re not going to live there. You’re going to collect the cash.”
The other way I like to put it is that I’d like to go, “Where do you live?” They’re like, “I live in the Woodlands.” I will tell them, “I will never ever live in the Woodlands.” I don’t care if it is a $10 million house. I’m never going to live in the Woodlands. Does that mean I shouldn’t buy houses in the Woodlands?
What it looks like are numbers. We have some people in the Mastermind who have already taken off, already accelerated off and one of them said, “I’m going to pay for the inspection. I’m going to read the inspection report. I don’t need to go out and see it.” It’s just completely emotionally attached. We talked about that a lot. I talk about that with our home up in New Jersey. The first home my wife and I bought when we got married is in Middletown, New Jersey and its great. It is a four-bedroom, two-bath, multi-levels, split-level with big backyard, great little quiet street. My wife keeps calling it “our home.”
I can never let her go and walk our home because when we lived there, we put a lot of painting, did a lot of upgrading, new cabinets all this other stuff. We’re Italian and we’re in New Jersey, so we had to put marble tiles on our house. Over the last eight years that I’ve had it for rent, one family lived there and said, “The marble tile on the first floor is too hard on our feet. We would like to put down this little $0.79 a square foot laminate with some bubble wrap underneath there.” If she went in there, she’d freak out. She’d be like, “What happened?” You have to detach yourself if it’s not your home. It’s a house that you rent. That’s the big first step. You’re not going to live there. This is not your home. You don’t have Billy’s little at age six height requirements on the pantry door that type of thing. You got to have to be able to move into it. That’s the first step.
You’ve got to separate yourself that mentality, the home from the house. We talk about it all the time when you’re wholesaling. It’s going to be a difficult task to get someone to sell you their home versus selling you the house. The house has problems, homes have memories. The next step is to throw all that garbage away that you heard, “You can get the stuff for free.” It’s not what they’re talking about. When they say you can do real estate and buy properties for no money down, no bad credit. They’re talking about wholesaling. They’re just pushing paper. That’s not what you’re going to be doing. You’re going to have to work with a bank, whether it’s a local bank, a national fund or an FHA lender. That’s what we’re talking about mostly in our Mastermind, all the different matrix of lenders out there. You’re going to find what works best for you, hopefully. As a rule of thumb, anyone who sells any mortgage will tell you they do everything and they don’t.
The mortgage people are like the guys in the back alley selling Rolexes.
They’re like, “I got everything for you.” They’re like contractors, “We can do everything. We’ll buy through your hard money lender. I’ll do an FHA loan for you.” Vice versa, “I can do commercial loans for you. Do you want to buy that strip center? I’ll get you on with that.” It’s not. You got to start doing your due diligence on who you’re going to work with on the lending side. I would absolutely tell you not to put all your eggs in one basket. You’re going to have multiple people because there’s going to be multiple challenges when you come to certain of these properties, but you’re going to need about 28% of the cost of the property down. This is why we sit here and say, “If you make $100,000, $150,000. You have $40,000 to $50,000 capital deploy, and you’ve got a good FICO. You’re going to need all three to start buying properties. If you have a W2 job you are going to be in a better position than someone like Jason and I who don’t have W2 to jobs. It’ll be easier for you to get mortgages because of banks like repeatable and solid financial structures in people. When they look at us and they see, “How many LLCs you guys own? Jason, you sold one and start another one. Robert had one in California. You’ve got this.” It’s like, “We want to know.” It gets a little trickier.
Most people out there most people reading and when we say this in our Mastermind, “$100,000 $150,000 a couple. $40,000 to $50,000 to deploy in a 700 FICO score usually gets you to the point where you can sit down with almost any lender and work out the best deal.” When you have less than those things, then you become limited. We will go over it. We’ll show the whole the actual rate sheets for loan products. These loan officers make a lot more money on bad deals than they do on good deals. They’re motivated to get you into work with you because they’re going to make a 5% spread on it versus a 3% spread on it if you have stellar credit and a lot of money down. You have to beware of that. It’s like, “The person who’s writing this loan or getting us the applicant is making money on me.” You should be aware of that. It’s funny that people will negotiate with the flooring guy, beat him over the head but sign any loan document that’s put in front of them.
You have to be a little bit discerning about that. When you finally got all that together, you got to figure out who’s going to manage it. We’re going to recommend Jerry Ta If your property is good enough. We’ll take it and if it’s not you got to go to someone else. I can tell you straight up. We said it, you are not interviewing Jerry. He is interviewing you. Once you get in with his system, he hits all the CapEx stuff you got to worry about and then let’s get this thing rolling. You can feel good and say, “I can park there for the next 3, 4, 5 years.” In this market, we truly believe. That there are still some units out there that can be found for $100,000 or less a unit. If I have a three flex, I can buy it for $250,000. That puts me at around $80,000, $83,000 a unit. That should be good enough because at $83,000 a unit you should be able to rent them for $900 to $1,100 even $1,200 and that beats the 1% rule.Houses have problems. Homes have memories. Click To Tweet
The quick rule of thumb is that 1%. It means if I buy a house for $100,000, my rent should be 1% of that each month. You have to make $1,000 rent on the $100,000. We’ll get into deeper DSCR and all these other crazy stuff. The rule of thumb is, here’s a three-unit for $260,000. Will I make $2,600 a month in rent? If the answer is no, then don’t buy it or negotiate. If the answer is yes, then buy it and then do your due diligence. It’s all about due diligence. The last thing I’ll touch on is when you start working with these other lenders and how it affects you. That was a big thing when we said don’t do more than four FHA loans in your name. People are like, “That’s not what these other groups are telling me.” I’m like, “I know it’s not what the others are telling you, but I’m going to paint this picture why you shouldn’t.” You’re buying a house, an apartment or a unit, you’re not buying a home, that’s not what we’re doing here, we’re investing in a house.
You have to absolutely understand what lenders bring what to you. What are the advantages of working with one over the other? Interview and work with them. You’re going to have to figure out, “Once I’m pre-qualified, am I able to go out and buy a property that’s going to make 1% on the mortgage?” If that’s good, then you’re going to go and find a property manager. You don’t want to be spending a lot of your time doing the property manager because you want to be spending your time finding more money for more houses. After it’s all is said and done with that we want to make sure that your portfolios are such a structured in such a way that it’s an advantage to you.
Let’s paint a different picture, you do want 50, 60, 100 units. They’re not going to be all single-family. You’re going to get into small multifamily. Before you start taking the big step to start doing syndication, there’s plenty of 8, 12, 16 and 25’s out there that are family-owned have been sitting there. They’re free and clear that you can work some deals with that you’re going to have to go out there and pick up with a commercial loan. The problem is when you start managing 25, 30, 50 units, you want to have a line of credit. This is why we brought in Merrill and he talked about the line of credit. If I own 50 properties and I have a $250,000 line of credit, I feel like it’s a $250,000 insurance policy. If the roof goes on my twelve unit and the air conditioner falls through the roof, whatever it is. I can get out there get that fixed, write the check and we’re good to go. The problem is getting that line of credit with more than four mortgages in your own personal name has a negative impact.
Merrill went down the whole list and one of the big things is we scored ourselves. Those of us that had more than four mortgages in our personal names found it challenging to be able to qualify for some of these lines of credit. Four is optimum, three is better than five, two is better than six. We say, “Save that personal mortgage as an ace.” For sure, these personal mortgages are going to be less expensive overall than a non-QM loan.
Fannie Mae got a program for quote “the second home,” which is only 10% down. You could buy an Airbnb. There are some quirky qualifications. It’s got to be many miles from your primary residence. It has to look like a real vacation. It’s not like, “I live in Cypress and my second home is in Texas City.” That’s not how it works. It’s possible to buy essentially a beach house with 10% down, 30-year fixed-rate mortgage. They will finance that like they would anything else. You run into a real challenge in getting some of these unsecured lines of credit when you have all this stuff in your personal name.
The gold standard in any of these loans is a 30 years fixed rate product. Wall Street has gotten on board for the last couple of years to give you money for 30 years. I don’t know of a single other investment other than real estate where someone will lend you the money and you have to pay it back over 30 years. Outside of real estate, is there any asset class or any investment-grade asset class that someone will lend you the money and you pay it back over the course of 30 years? I don’t know a single one. That’s what makes the leverage so attractive. Be careful with the leverage. Not too much leverage, not too little. It’s like porridge, it’s too hot or too cold. You’ve got to have a strike that fine balance.
I made some loans when I was in college to some fraternity brothers that are coming up on 25 years, I still haven’t gotten paid back.
Can you foreclose?
I cannot foreclose on a $200 AC trip.
When you look at that side of the business and that’s what we’re working towards or that’s what we’re doing with our stuff. You can go to a local bank. Every local bank that does real estate in town will do a five years, seven years.
They will do that all-day 5 %, 5.5 %, 6%.
The problem is, here you are at a 25-year am, it’s a five-year balloon, and you are in year four and the market changes and none of the banks want to lend to rental grade real estate. What are you going to do? This happens in apartments all the time with people who are not sophisticated. There’s interest rate risk and there’s refinancing risk. If the interest rates change, they go up and you were planning on them to stay the same or go down and you refinance this property. You might lose a little cashflow every month. No big deal. It could be negative, but I don’t see that happening at least anytime soon. However, if you are refinancing this property because your loan is only good for five years and all of a sudden no one is lending then you’ve got to go raise a bunch of private money. I’ll tell you most of the gurus out there don’t know how to do that.
That’s another thing I found when I was doing the guru circuit. When one lending avenue that they’ve used for the vast majority of their career collapses, they’re out of business until it comes back. If all of a sudden you’re in the middle of this $10 million apartment deal, it’s making a lot of money, the market changes, the commercial credit market collapses, which is exactly what happened in 2008. No banks are lending on that product, they’re taking that bad boy back, no matter how much equity you have in it.
That’s why syndication becomes something that you want to do on these larger apartments because you don’t want to be at the whim.
The way we syndicate is different from the way most people syndicate. The syndications they’re putting together are for the 25% down and some reserves. They’re not taking the whole thing whole hog. They’ve got a bank back there with a 75% loan on it.
What’s the point?
I don’t know. I don’t like buying apartments that way. No one teaches apartments the way we do it in financing. This is how they all do it, we need a $10 million deal. We need $3 million. They go to all these families that raise $3 million and ask for 25% down plus some reserves and carry all that.
I will make it a caveat on that, they usually charge the people a $25,000 education package so that they can learn enough so they can lend to the guru.As a rule of thumb, anyone who sells any kind of mortgage will tell you that they do everything, but they don’t. Click To Tweet
You get all these families together and they put $3 million into the deal, the bank finances $7 million. The bank is in a first lien position and all those other people are at the whim of the head investor, whatever they call the guy. Usually, a head that runs this little investment team. When that deal goes south because that investor doesn’t know what they’re doing or they can’t get the rehab done or they can’t get the unit’s turn. The bank comes in forecloses and wipes out that $3 million and you get nothing. That is how syndications are typically done.
Our syndication is different. Let’s take it down a whole hog. I want 100% financing and then we’ll refinance everybody out when we establish the new value. That’s the dirty little secret. It’s funny, you go to these classes where day one is single-family and day two is multifamily. They’ll talk about in the single-family, “You’re getting this first lien even if you’re lending. It’s a first lien position loan and everybody’s secured. It’s cool.” In day two, you don’t notice because you don’t know enough about real estate at the time. They switch over to the equity side which is a lot higher risk.
This market still has those rental properties for you. You can still find some of them on the MLS. If you are so inclined, you might want to start a direct marketing program. Remember, you don’t necessarily need these things at $0.50 on the dollar. You’d be happy to pick something up at $0.65 on a dollar plus repairs, getting in under 80% or 75%, so you could do the refi. It’s close to no money out of pocket if you’re so inclined. If we’re looking for all those small apartments, we would definitely want to do some direct marketing to them because they’re all family-owned. Very few REITs are owning a twelve unit in Texas City.
Grant Cardone is not flying into Houston with a thirteen-unit Montrose. It’s not happening. Brad Sumrok’s group is not, “Look at this apartment. It’s a 22 unit.” Nobody’s doing that, which means there’s a huge opportunity for us to do that and we don’t have to pay through the nose for it.
Not at all. Our doors are affordable.
It’s $30,000, $40,000 a door. How do you screw that up? Who rents for $4,000 a door? That’s hard to mess it all up. If you guys want more information on joining our club or our mastermind, you can send us a text at 281-401-9008. If you absolutely must talk to Robert, he will not pick up that line, so send him a text. He’ll call you.
I will definitely ask for your contact.
Casey’s going to be in town. Getting him on the radio is going to be fascinating to watch.
Yes. It will be.
It’s going to be entertaining, to say the least.
Casey will be in town. There are already people and he’s got a little Houston following from our connections and stuff. He’s doing great. It should be an exciting time for us.
Thanks for reading guys.