We Bought Our First Rentals with Almost No Money (Here’s How We Did It)

Your first real estate dealToday we are talking about our very first deals. Tony and I are going to break down how we implemented action as rookie investors.That’s right now, both of our first deals happened a while ago, but there’s still lessons to be learned about how we found them, how we financed them, the lessons that we learned. And the goal is that you guys can take our first deals and use it as motivation to get your first go.This is the Real Estate Rookie podcast. I’m Ashley Kehr.And I’m Tony j Robinson. And with that, let’s take a trip down memory lane and get into the stories of how Ashley and I both got started. So there’s two things we’ll talk about here. We’ll talk about prior to close, and then we’ll talk about post-close, what happened after that. Okay. So the first thing we want to talk about is market selection. So drum roll ash. How did you choose your first market?I was a property manager in a market, and so I decided to invest in that market because I was already managing properties there. I knew what I could rent them out for. I also had gone to high school in that town, so I knew the streets, I knew the area, and that made me very comfortable. I have to be completely honest, I didn’t even know about out of state investing or even think about another market. This was the one that I knew, and I just thought, if I’m going to do this, this is the only place possible in the world.Yeah, me. It was a lot different, right? I mean, so you essentially invested in your backyard. I went into a market I really didn’t know much about, but I’m based in southern California outside of Los Angeles. And my mom, after she retired, she moved to Shreveport, Louisiana. My stepdad had family there. They ended up moving closer to be with his family for a short period of time. And when they moved there, they ended up buying a home and renovating it. And she kind of walked me through the numbers and I’m like, man, this seems like a really good place to buy real estate. And again, I’d never heard of it before, but because I had a connection to that market, that was my initial introduction was seeing what my mom and my stepdad did when they moved there, which made it a lot easier for me to build some confidence. So once we both chose our market, asked you in your backyard, me 3000 miles away, how did you go about building your team in that market? And who did you start adding to that team first?The first thing I did was I looked at listings and I found one listing. It was a smaller single family home. And I thought, this is little, it’s perfect. It’s I think a manageable amount of money. And I went ahead and I contacted the listing agent. And so I called the agent to set up a showing. And on the phone call, she told me that this property actually is in a flood zone and there’s issues with the foundation. Do I still want to see it? And I said yes. And I realized as I hung up, like, no, actually I’m scared of this project. I don’t want to do it. And I just never went to the showing. And I am so sorry that I wasted this prison’s time, but I was afraid of confrontation and calling back and saying that I did not okay. So that was my first chance of building a team member of my agent.
And then after that, I ended up contacting a friend of my mom’s who had been a family friend and reaching out to her. So my agent was my very first contact, my second contact I didn’t use for the first deal, but working as a property manager for another investor, I did a lot of the financing for him on his deals. So I had developed a relationship with a local lender doing his deals because I was the one sending all the information back and forth. So I had already built that rapport. So an agent and a lender were my first really big teammates. I guessFor me it was the lender first. And again, that came from the introduction from my mom because it was a lender that she had used. And the lender then introduced me to my agent. My agent and my lender both recommended me to the same contractor. And then I did a little bit of homework myself to find a property manager in that market. But the first domino to fall for me was the lender. And because they were local, they had a really good finger on the pulse of who else I should be talking to. And I think that’s also the benefit of working with small, local regional banks is that if I would’ve walked into the local Bank of America branch, maybe the guy or gal working in that office knows all the agents and stuff, but it’s like the local credit union or small bank, they tend to know because they’re truly a part of that community. And working with investors, they tend to know maybe a little bit more. So for me, it was lender first and then everyone else. Now, luckily for you guys, everyone that’s listening now, BP has the agent finder and the lender finder. So virtually most major markets across the country, you can just plug in your city and BP will connect you with tons of investor friendly agents and lenders to help shortcut this process for you.So next, let’s kind of move into our buy box. So Tony, you probably had a spreadsheet with the exact type of home you were looking for and the type of siding and everything like that. In me, I had no buy box. I had no idea what I wanted to go after. I just knew a small property, a small single family or a duplex or a triplex maybe. But that was really all my buy box is small, multifamily or single family. And in that area, that market.But even that Ashley, I mean, that’s a bit of a buy box to start with. How did you land on that as your first buy box?I just didn’t think that I could take down bigger than that. And I honestly didn’t know about any other kind of investment strategy. I didn’t think of self-storage or think of campgrounds or think of short-term rentals even. So really it was just that I was clueless and thought this is the only way to invest in real estate. Honestly,What’s the saying? Ignorance is bliss, right? It’s like, Hey, you know what? For me, honestly, I mean at the end, I definitely did have a pretty tight buy box, but when I first started, it was pretty open. But my lender did give me some very clear guidelines on what I needed to do in order to qualify for the loan. And what I needed was a property where the after repair value, or really I should look at it the other way, where the purchase price and the construction costs where no more than I believe it was like 72.5%. It was a very specific number, 72.5% of the after repair value. So that was my initial guard rail. It was like, I don’t know if it really matters what I buy. I just got to make sure that my purchase price and my rehab are no more than 72.5% of the rv.
And then in working with my agent, she was the one that started to give me more guidance on, okay, maybe don’t go in this area, because my plan was to bur this property, turn it into a rental, talking with my agent, talking with the property manager that I wanted to hire. They kind of guided me toward, Hey, here’s the type of property that maybe makes the most sense given the strategy that you’re trying to execute. And from that, I was able to start analyzing different deals and saying, no, I don’t really like this spot. Or Hey, maybe they’re a little bit harder pencil out here. And I landed on, I want a three bedroom 1950 ish build in the 7 11 0 5 or 7 11 0 4 zip code. So I had narrowed it down from the whole city down to two zip codes within that city, and I ended up finding a three bedroom. I believe it was built in maybe 1958 or something like that in the zip code that I was looking for. But it came from getting insights from my lender, from my agent, from my pm, and they kind of guided me toward what my buy box should actually look like in that market.Yeah, I think a big thing is to just show Tony and I weren’t perfect with our buy box. We just took action. If you’re somebody listening, that’s an analysis paralysis and feel like you don’t know everything, you probably don’t know everything. And neither did we. And we took action and we made it out. Okay, we survived that first deal. So I think as we go through our first deal stories, I may not have a lot of great advice or really cool or unique things I did because like Tony said, I just was ignorant and didn’t know any better. But I think the real motivation here should be that you can’t do this and you don’t need to know everything. So Tony, what’s our next thing after building up our team?How do we find the, so Ash back to you. How did you find this first deal?The good old MLS, and I sent it to my mom’s friend and I said, I’d like to go see this. And I went and walked to the property. It was a duplex, and I, after seeing it, I decided, okay, I’m going to put together an offer. I honestly can’t remember what it was listed at if I offered lower or higher right at, but it was pretty close to what their asking price was. It ended up being like 72,000 or 74,000.Same for me, right off the MLS. And I was working with an agent and she kind of had me on her drip, and I can’t remember if I found it or if she found it first, but I do remember, I believe it was listed at $150,000. And I was like, Hey, I like this one. Here’s my offer. And I remember her saying, Hey, we should start lower. I remember that specifically. I can’t remember how off I was, but she was like, Hey, just come in that 100. And they ended up accepting that offer at the lower number that she suggested to me. So same right off the MLS. There wasn’t really a whole heck of a lot of negotiation on the deal because it penciled for me. And yeah, we moved forward from there.Tony, what month and year was this?This would’ve been, we went under contract, I believe in September of 2018, because I remember closing, it was right before Halloween of 2018. So it was mid-October of 2018,And mine was September, 2013, I think 2013 or 2014 maybe. I can’t remember which year. But one of those, yeah, so definitely very different markets, very different times, but still the same principles apply. We didn’t know everything. We figured it out along the way as we went and there was things we researched, things we studied, things we did that made us come out of this alive and successful. We have to take a quick break here, but when we come back, we’re going to find out more about our first deals. Okay. Welcome back. So Tony and I are going through our first deals and we went and walked the property and made our offers. So now we’re going through the due diligence phase. Tony, I did an inspection on my first property. Did you do an inspection?Absolutely. 1000%. And I feel that every rookie should do the same thing. It’s like 200, 300 bucks,Especially now it’s days market. It was really hard to do a couple of years ago, but now you can add an inspection. I just put an offer in on a property yesterday, and usually when I am doing an offer, I’m taking out the inspection, especially if it’s a big rehab and I already know everything I need to do and it’s going to cost a lot. But I also usually say that I will clean out the house so you can leave whatever you want. And I took that out of the offer. I’m like, you know what? I don’t need to add that in anymore. Make them how they junk. Junk.And that’s the benefit of the market that we’re in right now. But obviously your offer is going to kind of flow with where we are in the market cycle, and sometimes we’re more competitive and other times are maybe not as, I did do a full inspection and we didn’t get to the financing part. We’ll touch on the financing in a little bit, but my financing did have this piece where they were funding the rehab as well. And as part of that, they wanted a full scope of work before they would actually fund the loan. So I had to get from a general contractor, a full scope of work the entire bid. And then that was part of my due diligence period as well, was having not only the inspection, but also I believe I had two general contractors go walk the property, give me their scopes of work along with their bids to give me a full sense of what needed to be doneWith my inspection, I got the inspector referred to me by my agent, and I stayed there the whole time to see what he was doing and learn. And then I just remember afterwards giving me this binder with pages and it was just like, here’s the roof. And literally it wrote out, here’s what we look for on the roof, on the sheet template. So he was literally going through and filling out templates and following it list by list. So after that, I actually didn’t use inspectors for a while because I literally would take that binder and I would go through the property with my handyman and be like, okay, let’s go through. And I was such a savvy investor trying to save so much money that I was like, I’m not paying $400 for an inspection. I’m going to do this myself. And it paid off in the long run.
I learned a lot and things like that. Yeah, there’s some things that definitely got missed, and I had an inspection on my lake house a couple of years ago, and just seeing the difference of even just technology and different things that they have to do an inspection, I’m like, okay, this is way worth the $500 now or whatever it costs. But we ended up getting a couple things that needed to be replaced, like the furnace was no longer working in the upstairs unit. So we actually got a quote to do one of the Mitsubishi split units in there so the tenant could have AC also. And there was a couple other little electric things and stuff like that. And I think it ended up being around $5,000 of repairs that needed to be made on the property.So on that note, Ash, let’s talk about financing. So what funds did you use to take this deal down?I got a partner, so I had no money. I had the $5,000 in savings that I used towards the updates to rehab that needed to be done after we close, but I found a partner. So I had planted the seed with him several times just talking about real estate investing. His father was a real estate investor, and I would just say, look at what your dad is doing. We should do this. And so when the time came and I found this property, he came and looked at it and he said, yeah, okay, let’s do it. And we set up an LLC and he deposited the funds to purchase the property, and we became partners on the deal. So I used about 5,000 of my own cash, which was literally my life savings to do the repairs and maintenance, and he covered the purchase of the property.My story was a little bit different because I didn’t use a partner, but again, it goes back to this local bank that I was using, but they funded 100% of the deal. So I think I paid for maybe my inspection and my appraisal. I closing costs, but I had no down payment. They funded everything, and that was part of that whole 72.5% that has to make sure that all those boxes checked out. But once they did that, they saw the property in its current condition, they looked at the scope of work that I provided to them. They said, Hey, we think that your property is going to be worth X once it’s done because of that, we’ll fund everything. So they funded the purchase price, they funded all of the construction costs, and the added benefit of having the bank fund, the construction was that before the contractor got paid, the bank would send out someone from their office, or maybe they hired someone, I don’t know, but they would send out their own inspector to go inspect the work that was being done on the property to make sure that it was actually being done correctly to protect their own investment.
So me being thousands of miles away had this bank who does this for a living, all they do is lend on real estate, who was validating the work that was being done. And it gave me a lot of confidence to say, Hey, I can do this remotely. I got multiple sets of eyes checking this work. So it was incredibly helpful for me as a new investor. So we chose our market, we found a team, found the deal, we have the financing in place. Deal finally closes. So let’s get into what happens after that. Ash, we get our keys in our hands. For me, I actually never saw the keys, but we get the keys. What happens from there? So you mentioned a little bit of rehab. How did you find your contractor? How’d you vet them?First of all, that used to be so exciting getting the keys at closing. And now I never see the keys either. It’s like, oh, they’re in the lockbox or something. Go get over. If the door’s unlocked, you’re going to change the locks anyways. It’s like closing. You see people posting on social media, they got the sold sign, they got their keys, they got the bottle shipped, paid. It’s likeI actually did get the keys to that deal because I was so excited that I flew out to Louisiana for the closing. There was no value in me being there, but I was like, I just want to go there in person. So I remember I actually have a video. I was at the closing table, I got the keys, and I just drove to the property and I recorded myself unlocking the door for the first time and walking around. I remember that feeling. So I think that was one of the only times I got the keys at closing. But anyway, back to you. How’d you find your contractor? How’d you vet them for the rehab portion?So as a property manager, I had a handyman that was working at the apartment complex. So my original plan was to use him to do a bunch of the work. And it was really just we wanted to put in, it was the upstairs unit only. There was someone living in the downstairs and it was in fine condition. So the upstairs unit needed vinyl plank flooring. We’re going to replace the cabinets, which is a really small job, super small kitchen, new countertops, and then paint throughout. And so my partner on this deal actually said, my roommate can do a lot of this stuff. I’m going to tell him he gets free rent living in my house and have him go and do the rehab. And I’m like, okay, this partnership is getting better and better. So we didn’t have to pay for labor at all. My partner, I guess, lost out on that rental income coming in.
I don’t know how long or honestly, I don’t know. Maybe they worked out another deal. I am not even sure. But that was the original deal that they had come out with and he went and he did it. But the actual cost of everything was like five to 6,000 to do that. And then we ended up finding out when we put the split unit in that we needed to update our electrical panel. So we didn’t realize that until they were there to install the split unit. They never told us that when they came and gave us an estimate. So we ended up spending even more than that. I think it was another thousand dollars all said and done with the split unit being hooked up in the new electrical panel to,I mean, you guys had a pretty good deal. That’s pretty solid, right? Free labor. So guys, there’s a lesson. Just offer free housing in exchange free labor, and that’s how you get the good deals. I mentioned for us, we found our GC through recommendations. So both our lender gave us a list, our contract or our agent gave us a list. And there was one guy that was on both of those lists. So he was the guy that I chose to actually do the work. And we funded our rehab again with the debt from the bank, and it was a super easy process for us. And what I would do, because I was remote, we would FaceTime. It was like every Friday we would get on FaceTime. Either him or someone from his crew would just walk me around the property. Obviously he’d call me during the week, ask me any questions on things as they popped up.
But that visual walkthrough allowed me to again, have some more confidence. So I was seeing it on FaceTime, the bank was sending an inspector, and then as we got closer to the rehab being done, I’d already selected my property management company and actually have them go out to do the final walkthrough to say, Hey guys, you’re going to be managing this. Is there anything you’re seeing that we still need them to blue tape here? Blue tape there to make sure they get dialed in. So for me, it was honestly the easiest rehab I’d ever done because I did nothing other than a few FaceTime calls. So we’re much more hands-on now, but that was probably the easiest. So that’s the rehab phase. Ash. Let’s talk a little bit about the management side. Once the rehab’s done, property’s not producing income until we get someone in it. So what did lease up and management look like for you on that first deal?Yeah, so that was part of my value. I was going to be the property manager on the property, and there was already a tenant downstairs. I think maybe they were paying $600 a month or maybe five 50, something like that. So once the renovation was done, I’d have to lease the other unit. So I used what I was doing at that time for the apartment complex, and that was posting on Craigslist. I don’t think there really was a Facebook marketplace then at all, but I think it mostly was. Maybe I don’t even think I was posting on Zillow then, but yeah, that’s interesting. I’ll have to go back and look. But I think it was literally putting sign out front. Even at the apartments, we would put a sign out that there’s a unit available, call this number. But yeah, we were posting apartments on Craigslist for a while, and that’s how we did that first unit. And then I would do the showings, and then I did a lease agreement and then tenant screening. And then we definitely didn’t do a thorough job of tenant screening. And that was big lesson learned as to now there’s so many tools and resources of things that you can actually find out about a person, but I hadn’t implemented any of that besides just running a credit check on somebody.But it worked out. I mean, you guys got someone placed and the deal worked out for you guys. And again, for me, super hands off, had a property manager. So as soon as the rehab was done, keys went from the GC to the pm, PM did all the work to find someone. And we actually found someone relatively quickly. I don’t remember if we had to do a price drop or not. I think whatever price we listed at, I think we got it rented pretty soon. And I never met the tenants, couldn’t tell you what they looked like, or if I bumped into ’em the street, they wouldn’t know me either. But they were a family that was military. There was a military base in Shreveport or the city right next door. They were military. And I was making a whopping, I think after everything, like 150 bucks a month in cashflow. But for me, it was the best $150 I had ever made because it was proof of concept that this whole real estate investing thing could actually work. And that one deal is what gave me the confidence to continue doing real estate and obviously led me to completely change my life in the last whatever, eight years or so that it’s been investing. So guys, one deal. It’s all it takes to change everything.We actually bought our second property in six months because of that proof of concept, like, wow, we did this. It’s rented, it is. Well, same, a little bit of cashflow, but it was like, okay, the mortgage payment is covered. My partner was like, wow. He was the one that put in the money. So we paid the mortgage payment to him to pay himself back. It was like, this is great. I’m getting this check every single month and I’m earning interest on my money that I invested. Like this is passive for me. Let’s do it again. And we did. Six months later, a house right down the street went up for sale and we ended up buying that one too. But I really think from this episode, the lessons learned are get out of analysis, paralysis, take action. You’re not going to know everything, and that is okay.
And third, if you’re listening to this episode and you’re annoyed that I kept saying, or Tony kept saying, well, we don’t really remember, it could have been this, could have been that, then you are a rookie investor that needs to come on right now because it is fresh in your mind exactly what you are going through to get that first deal, or you just got that first deal and we want to hear all about it. So go to biggerpockets.com/guest and fill out an application so you don’t get old like me and Tony and not remember every detail on the first deal.By the way, if you guys, actually, I think it was episode 10 of the Ricky Podcast where I was on as a guest actually before I became a host. So if you guys want the fresh story, I believe it’s episode 10, you guys can go back and listen toYeah. What’s going to be funny is people are going to go listen, and there’s going to be things that don’t match up whoIt was just straight up lying on this last episode. I’ve lost all faith in what he said, directionally correct. I believe everything I said on today’s episode was directionally correct. But yeah, episode 10, if you want the full details.Well, thank you guys so much for listening. I’m Ashley, he’s Tony, and if you’re watching this on YouTube, leave a comment and let us know if you did your first deal, what market it was in and how you made on it. Thank you guys so much for listening or watching. We’ll see you next time.