Financial Freedom Through a Mix of Rental Properties and Note Investments

0:00So you're you're in the San Antonio Market you've been there for for quite some time and what I guess what did that first deal look like then in terms of your numbers and then how have has your investing strategy evolved over time as you learn things and as the markets Chang so the first one as far as numbers I bought it for right around 60,000 you know I had my my major $5,000 rehab but it was a pretty good deal it was probably worth about you know 95 at the time as a little tiny three-bedroom two bath and I was able to you know Finance it rented out and so I had about $300 a month in cash flow which you know really excited about it and so that's when I started thinking okay let me do a few more and

0:49I began building a portfolio of rentals just one house at a time you know one at a time and then as that portfolio grew learned more about the notes which I'm also I'm a huge believer in rental property but I'm also a huge believer in investing in notes and so the business model has has changed some where we we still own our rentals and they're still a great piece of the portfolio but also we focus on a lot of seller finance notes which have their own advantages as far as cash flow so now the model is probably I guess 90% of what we do is on the the note side and still manage the other part vers when we started it was you know I guess when I started it was 100% just trying to

1:37Accumulate more rentals wow so I want to get into kind of the difference between because I think some people are hearing this like I don't even know what you're talking about investing in notes perfect so I want to I want to get into the difference of those two but first I guess how were you scaling at the time were you working a full-time W2 job because that's I think people hear this and like how does that even work like how do you keep buying rental properties so what did that look like for you so that's exactly what it looked like I would there's there's advantages to having the W2 job as far as getting financing and being bankable and being able to show this income and so I would I would basically purchase the property you know I used hard money a lot or wherever I could get

2:25The money and then I would refinance into these longer term loans in the first ones were 30-year 30-year notes you know at the first nine properties and so the rates were you know they we were in that five and a half six and a half range which was really which was great at the time and so I would use those to scale and then I realized well if I Source my own properties so I started marketing and and sourcing my own properties which it does take more of a time commitment to do that but you could get the deals much better deals and so if I could get I quickly learned the better deal I could get the more money I could get because not just you know it wasn't as focused on banks then it would be more private lenders but a private lender is only going to put their money where they feel it's safe and

3:14So if you can get it at a much lower price they're much more willing to loan money and so after I got those first few rentals then the the scaling happened when I started using other people's money but really just private lenders to help me fund more deals and some of that I mean I would wholesale some of those Flip we' Flip some of those but then I probably the biggest game changer on the scaling as far as money was some of the local banks which I thought I was pretty smart and pretty cool at the time and I met an investor here in San Antonio who's way better than me and he was like yeah why aren't you doing this and i' never even heard it but we have some local banks here and they really allowed us to basically refinance out

4:02Of any rental property at the time and that's how we were able to stack multiple so we knew we had the refinance money set we just had to purchase it a discount rehab get it rented and then they would refinance it right away so that really really helped and it is a it it you get a few more when you have the first three or four you can completely run that with a full-time job no problem at all but as you get up you're going to need some people to help you and you're going to the first thing I learned was to quickly stop doing certain things like I'm a handy guy so I would want to go over and fix some stuff like what am I doing it take me three times as long just pay the plumber have him go over there and fix this pay the AC guy let him go fix it because and I

4:50Stopped leasing right away actually showing them and leasing the I was trying to do everything because I thought I was saving money I was costing myself an incredible amount of time and not really saving that much money yeah yeah absolutely I think that what you just said that list of things you're not going to do anymore I think is more important than the list of things to do Y which is a different mindset but it's there's always stuff you can do in your business but you know you can't graduate to that next level until you figure out the things you're you're intentionally going to not do and it's a great point so in terms of the the the types of Deal or the types of financing you were getting from that bank then so basically you would do the bur model when you you'd fix them up and

5:39Then they would refinance basically all your private money out that you used to purchase and Rehab exactly we were able to get what's called a guidance line of credit which very simply is we could go in and apply and they'd say okay we'll let you buy a million dollars worth of rentals you get a million dollar but it's not like they give you the million do to go buy them we would use private money to purchase them rehab them once we had them leased we could then take the lease and they said well we'll we'll Finance as many as you can fit in that million dollars we have a lower price point here in San Antonio than a lot of places so we could you know fit several several properties in there and it we did hit it at a good time because the bank wanted more rentals in their portfolio and this is local banks here and so after

6:27We did the first one that they're like hey you guys wanted another one I was like yeah yeah we'll do that sure I was just about to bring I wasn't about to bring it up I you know but and but we knew we had the money so if we could buy them and Rehab them and get them rented at they would they would Finance back 75% of the appraisal so if we knew that we were in 72. 73 cents on the dollar that we'd be able to pull out all of our money and most of the time we could do that because we were sourcing the deals ourselves yeah that's amazing so so if you're listening to this I mean basically you need money for one deal I mean obviously if you're going to do multiple deals at the same time you need more than that but you could essentially just recycle the same money so you go to a private lender you get $100,000 buy a deal that's

7:1575 fix it up for 25 it appraises for 150 and you get all your money back and do it over again you know and just keep repeating this so if people are sitting there you know listening to this going oh I don't have any money to do deals and you have haven't talked to all your local Bankers then you know you shouldn't be making excuses because these local banks are out there they're out there and I think you make a great point a lot of people think well I need to go raise a million2 million doar and we have one private lender that stands out now he's lent us 300,000 but he's lent Us in the same 300,000 Time After Time After Time he's happy we always pay him we always take care of him it's not that we raised $3 million with him we just used his 300,000 10

8:04Times you know and when you can cash back out you don't need that many lenders to really really start to grow yeah such a great point so what motivated you to start looking at notes then and start doing more owner finance if you had this Bank relationship there what was the impetus for that so the the the thing was the cash flow and I think for every person how they build it is needs to be built around their lifestyle and what their goals are but for the when we create the note so for for folks that don't have a or not super familiar right we would buy the property we would repair the property and then instead of renting it

8:52Or just selling it on the market we would sell it to an owner they would give us a down payment and we would Finance it to them so they would make a monthly you know principal interest payment well then basically just like you pay your mortgage at the bank they were paying us the advantage there is that cash flow if that mortgage payment is $1,500 is we keep that it's scalable we're not we don't own the home it's not our taxes it's not our insurance the water heater brakes is not our repair we don't have a vacancy so we could get more cash flow it's very predictable and once you had it and if you set up these notes really well from the beginning and you want to screen your potential borrowers just like people always talk about screening their tenants you know really

9:41Set people up for Success you can have a long-term cash flow payment very predictable and it doesn't go it doesn't have that up and down you know it just so if we could stack a few of these notes you could see how quickly you can reach your cash flow goal that was the biggest game changer wow yeah everyone always says it's it's better to be the bank so you're basically turning yourself into the bank so can you walk through an example deal of what the numbers might look like on a on a typical deal like what are you buying it for what do you have to put into it what do you sell it for yeah so typically we would be looking to buy an off-market property at wholesale price that that needs some repairs and we we

10:29We have a market here that does lend a lot to owner financing but so we try we want to sell the property under 200,000 if we can right what that allows us to do and one there's a big market for owner finance in that price point but also because the interest rate is a little higher than a than a bank it allows us to keep that payment down where people can can afford it whereas if you had a higher interest rate on a half million dollar house obviously that's going to price a lot of people out so we'll purchase the property for say $125,000 you know we're bringing this up to rent ready or a little better so maybe 20 to 25 in there so if we're in at 150 we would probably sell it at $1 1999 or whatever the market value is sometimes that's a that's a pretty

11:17Decent spread for us we're shooting for that we don't always make it but we'll sell it at market value our typical borrower will bring 25,000 to closing that will include their escros so won't all go to down payment and then we'll Finance them typically on a 30-year note but we have people that qualify for 15 we have some guys that do a 10 there are people who are not bankable they're never going to get a 12 Fargo but they make a lot of money and very they just can't get a mortgage and so we we found that to be a win-win but if if you finance that note you're probably looking at a principal insance payment of on a 30-year of

12:06Right around 15600 and so the idea being is let's do all the steps right let's do it right one time I I like longer notes me personally and so we'll set it up and if we've got $1,600 a month for 30 years if they pay us every month for 30 years I have no problems if they pay off us off early well great we just you know we came out a little bit ahead just because of the amortization because they'll be amortized just just like if you did the table on your own mortgage where that interest is paid up front so really put you in a good position of course you have the house is collateral should be a problem but if you set the note up right and we use a third party servicer to manage collection hold escros because we're not I

12:54Think anybody that does that is a little bit crazy we're not going to go collect all the payments we're not going to grow for everybody so they'll do that for us and when you set them up right these people are happy they love the fact that they got a chance to buy a home it served a group that is by by all from anyway from the outside looking in completely qualified to buy this home they just don't have the set established credit that that our system that we have to play by and they make the payment and they make the payment and they make the payment and everybody's happy and once you've done that you really can step back there's no other work for me to do yeah so that was the big benefit is getting back the time and creating a little more cash flow per property

13:44Yeah yeah that it makes so much sense when you describe it like that because you think about that group that's out there I mean just me personally as an entrepreneur it's a struggle like going into a bank like they're like where's the W2 and like well I make you know enough money to to pay for this like we don't care so you know entrepreneurs people who maybe had a bankruptcy a couple years ago and the bank won't touch them for like seven years or whatever it is or immigrants who don't have credit built up or what you know there's a huge population that just you know if you're you can really like kind of corner that market because there's just not enough people who are are willing to do loans to those people so so in terms of your finan what you need it sounds like you need a lot more Capital

14:32Then to to do this as opposed to recycling the same Capital you got to leave money in this deal because you're using private money right to for the to to finance it you know so so you're right but our model has grown over time just like everybody does when you start there are we don't wrap we don't wrap our notes and carry a you know have a underlying payment and a second one but you can do that and there were times there's nothing wrong with it you just have to disclose it properly and I did that some as as we were growing now we do have some those banking relationships can sometimes they just shift over time and so now we do have banks that will allow us to take the note and we're going to refy that as our collateral

15:21Just like you would the property right so once we've sold it we can take this paper over there and say hey we have this promissary note and this stream of income we'd like to use that as collateral to finance back out those relationships do typically take a little longer so I wouldn't maybe if it was day one I wouldn't build my business model around that but there's a so that allows us to take cash out you can purchase them with a private lender and as you establish a relationship with a private lender like we've told them hey we're going to sell this on a WRA note before you know again we don't do this anymore but I used to and they'd be like yeah sure I don't care you always pay me they're not really concerned they have the first position lean so that does where we we hold ours

16:10Because we can refinance them we wouldn't want to leave that much cash in but we have a lot of people who see the advantage and owning notes who will purchase them from us so that allows us to recapitalize so we'll keep some and we'll sell some for the a lot of people aren't going to do the work that we do that's okay if they have $50,000 and they just want to buy the note no problem we'll set it up just the way we with ours and you can purchase the note directly from us that's another way that we recapitalize and so I really think it just becomes a balance if you you know if you were building the best situation for you and your family what fits in there that is the best business for you and if you should at least know about notes and the options that are there and maybe it is or isn't the best fit

16:58For everybody but it is has been very helpful for us