Real Estate Investing: Episode 6

Jason Bramblett Real Estate Show Podcast 

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Jason:  Good morning, Triad.  I hope everyone is doing good. It is one of those wonderful, ridiculously humid August days. It is going to be, what, 200% humidity pretty much.  Hot, 90 plus, but if we did not have the weather to talk about, some days we would not have anything to talk about. Right?

Mikell:  To complain about.

Jason:  There you go.  Complain.  It is always too something. 

Mikell:  Yes.

Jason:  It is never too perfect.  That is for sure. I have been in some very perfect climates before though.  For me. Now everybody has got their own temperature.  Right? So me and my wife we are about five degrees variance.  It is not too bad. It is better than 20 for sure. We can deal with five degrees.  We are digging into the real estate investment series that we have kind of been going through the past, well actually, this is show six of the real estate investing. Today, we are diving into really the nuts and bolts of the how-to. Not so much in the how to get the house ready and all that, but the money side of it. How does this math work?  How does this thing come together? If I have some money, what should I do? I am thinking about being a real estate investor. I am a real estate investor. I am out of cash. I need more cash. Where do you get cash? All those types of things. You have heard the acronym OEM, other people’s money.  Well, we are going to talk a little bit about that.  The risk, the rewards, and all those things in between. If you have a pen and paper, grab it.  You want to make some notes.  If you do not, do not worry about it. We will podcast this show up to our website. You go to Jason Bramblett dot com, click on the blog, and you can listen and read all at the same time.

Mikell: Awesome.

Jason:  So it is there for you. The only thing we do not have is my smiling picture, but you can probably google that and find it. So if you need somebody in front of you while you are reading it, hey, there you go.  You can find me out there. Just recapping over last week and kind of where we are so we have some context. So last week we ended with talking about dead money. Dead money is money that you have sitting in your account that is doing nothing for you. You basically are earning than 2% on this money. Okay? So it is just sitting there.  More than likely it is .00025. You know what I am talking about if you get that check for six bucks in your interest account.  It is not exciting. It hardly will get you a, what is the biggest drink they have at Starbucks?  Grande? Venti? Something like that.  Whatever. Extra large. How about that?

Mikell: I just say large when I go.

Jason:  There you go. There you go. Just a large drink over there. But what we want to do is figure out ways to get that money moving so it is not sitting in that dead account and it is just sitting in there staring at you. The downside with dead money is that sometimes it disappears.  Dave Ramsey talks about this.  If you do not tell money what to do, it will figure out where to go on its own. Sometimes you end up with some cash and then well, 90 days you look back and it is like where did that go? There is no Bentley sitting in the driveway. Right?

Mikell: Not likely.

Jason:  And it just sneaks away. So you have got to purposely tell this money where to go, what to do. And just to be clear, we are not talking about equity.  We are talking about cash. So this is not money you can get your hands on through a HELOC. Okay. That is other people’s money, all right, just to be clear. That is borrowed money. That is not what we are talking about. We are talking about dead money, actually cash.  And for some of you, we probably are talking about cash in your little safe, or under your mattress, or in a coffee can in the backyard. Do not put a survey flag by it. But you get the idea. So what are we going to do with it? We want to get this money moving. We find that there are people that just do not want to be in the market because, depending on the type of account you put it in, it can tie it up for a long time.

Mikell: It can. And actually, to get that 2%, you are going to need to tie it up.

Jason:  Oh yeah, absolutely. You are not getting that sitting in a savings account.

Mikell: No.

Jason: At least none that I am aware of. I will not ever say never. There may be one person out there that is doing that, but it is probably in a CD which has got a time commitment to it. Let’s dig into the example. So let’s just for easy radio numbers, let’s just say you have got $100,000 sitting in the bank. Okay. Just to make the math easy.

Mikell:  That you do not need.

Jason:  That you do not need.  It is extra.  It is I have tapped out everything I can do. I am still investing in my SEP or my Roth or whatever it is, but now, maybe I sold something.  Maybe I inherited $100,000.  Whatever it is. You have got $100,000 sitting in your account, and you do not want to put it into a market, or you do not want to tie it up, but you are ready to start investing.  You want to get that money moving because that .00025 interest rate is not exciting.

Mikell:  Not at all.

Jason:  So the target is we need to find a property that we can buy, and at the end of the day, it needs to end up being somewhere in that $130,000 range or more, but let’s take in radio numbers, and we will the math easy. Let’s just say I can buy it, fix it, and at the end of day, it is worth $130,000 when it is rented.  And that is what I am looking to do.  I am looking at buying and holding this property, and so really where you need to be on the price is somewhere in that $75,000-$80,000 range.

Mikell:  Okay.

Jason:  Now, some people will say, Jason, it is a seller’s market. It is ridiculously hot. Houses are selling in hours.  There is no way you are going to find a $130 or $140,000 house for $75,000. Well, you are not going to find 100 of them.  But you do not need 100 of them.  You need one.  That is all that we are looking for. I can assure you there is one out there.  Somewhere in America. It may not be right here in your backyard, on your street, or in your city, but I would imagine somewhere in the Triad there is a house that you can pick up this way. I can assure you there is one in North Carolina somewhere.  I will promise you there is one somewhere east of the Mississippi.  Okay?

Mikell:  Okay.

Jason:  There is a property out there in which you can do that. You cannot do it with all of them.  And we are going to talk about this in the show and why people sell and why people sell the way that they do.  You are thinking like a retailer.  You are thinking of the person down the street that lists their home, puts it on the market, and they got the most money. That is not what we are talking about here.  We are talking about folks that are selling for lots of different reasons and different ways in which to find these properties.  And we are also talking about buying a home that is not in good condition.  Okay? So we are going to buy the home at a discount because it is in not great condition. It is not retail, if you will. And for our radio example, let’s just assume it needs $25-$30,000 worth of work. So we have a purchase price of 75 and just to make it easy, you are going to put 25 grand it, so all in 100% is hey, magically, $100,000. Which is exactly what we have.

Mikell:  Okay.

Jason: All right. Let’s say we get that house rehabbed and even with the $25,000 worth of work we got that done. It looks great. It is beautiful. It is ready to go. It is in the right place, the right location, and we get it rented for $1300 or $1400 a month, which is very doable to do on a $130-$140,000 home. You can typically rent it pretty easily in our area for 1% of whatever that value of the house is.  Now, what I want to do is to go find a bank partner that can cash me out of the property. You can do that through what we call a cash-out refinance. Most banks will do it somewhere 75-80%. So if they did it at 80% and the house actually appraised for $130 or more, you would get 100% of your money back. You would get all of your $100,000 back. You would have a tenant in the property paying $1400 a month, which would more than pay for the mortgage at $100,000 with today’s interest rate.  You would actually be making money and actually have some cashflow, and then you would have your money back, and you could go do it again.  All right? And because now I have my $100,000 back, I am ready to go find another property and do the same thing over. There are some banks that may not do it at 80%.  Maybe you do not have a proven path.  You do not have any experience, and they are going to be a little bit apprehensive maybe. Most of them will do 75, so at the worst-case scenario, if you had $100,000 in it, and you were only able to get, let’s just say it was worth the 130, you can only do the 75% of the value. Well, you have got $5,000 of your dead money invested in a property that is worth $130 or $140,000 with a renter in there that is probably cashflowing somewhere between $3-400 a month.  So in a very, very short time, like in the first year, you will have your $5000 back.

Mikell:  So Jason, let me ask you this question. Your tenant pays you.  Do you give some of those proceeds to the bank now?

Jason:  Oh yeah, you are making a payment.

Mikell:  Okay.

Jason:  In essence, your tenant is paying for your house.

Mikell:  Okay.  Gotcha.

Jason:  So we are using the tenant’s money, and we are paying the mortgage, the interest, the taxes, and hopefully, if we did everything just right, there is a little bit left over for us, for Pampers.  Right?

Mikell:  Right. Right.

Jason: For whatever it is we have. Now, that formula works no matter what the price point. I just did $100,000 because it was simple, easy radio math. But it works if it is a $200,000 house, a $150,000 house, or a $7 million apartment building. It makes no difference.  The math works. You can force appreciation in certain products by buying them in not so perfect condition. You cannot do this if you are paying retail, but we are not talking about paying retail. So you could buy a $7 million apartment community. You could put $3 million in it. Now you have got $10 million invested in this property, but because you fixed it up, you are able to charge more in rent.  And now you are thinking your $10 million apartment community is now worth probably maybe 13, 14, 15 million. Whatever the case may be, and you can refinance it out and get all your money back and go do it again.  Now, some of you will say that is just great. I am just short I do not know $7 million. Well, right. Exactly. You have got to crawl first, and then walk, and then run, and then sprint. You can exponentially build on these numbers. You may never be able to do the apartments, but it does not matter.  You could do it with a duplex. You can do it with single-family homes. You can do it with a six-plex. You can do it with a ten-unit apartment building. You can do it with anything really that is basically you can buy right, rehab it right, and rent it.  And then refinance it out. That formula works all the time in every single city, in every single town in the United States.  I do not know if it works outside the country based off what I know about investing outside the country. I would not necessarily say you should do that with all your money or the money that you have. I have heard some stories where certain governments of certain countries liked your idea, so they just took your stuff.

Mikell:  Oh wow. 

Jason: Well, they do not have the same rules we do like private property rights.  America is unique in that you actually own the property and you have a deed.  In certain countries, you may have the illusion that you own the property before the government takes it back because it is theirs. This formula is not mine. It has been around for decades and decades and decades and decades and forever.  Probably ever since there was something built. This is a very tried and true formula. This is not Jason Bramblett Real Estate formula.  This is just a formula that works in the industry. It worked in 1910 when the Rockefellers and all these folks were in business. It worked in 1980. It worked in 1970, and it still works in 2019. As long as there are people renting property, this formula will always work. So whether it is residential, actually it works in commercial, and as we talked about multifamily or apartments, it works in that really, really well. The key is it has to be rentable.  Does it work on land?  Probably not because most people will not pay that much to rent land.  It could potentially in certain locations, bigger cities. If you go into the Chicagos and New Yorks and some of the bigger cities, you will find that some of the buildings, although you may think that one person may own it, but typically not.  One person owns the dirt, who rents the dirt to the person that owns the building. The person that owns the building rents the building to many, many different companies, and sometimes even those companies within those rentals sublease to other companies like Regents would be a perfect example.

Mikell:  Okay.

Jason:  They rent 5000 square feet. They break it up, and then they do little office rentals to multiple people.  Perfect example of subleasing. So there are lots of ways you can slice up real estate to create value.  It is not a one-size fits all type of business. There is lots of creativity within real estate.  The great thing I love about real estate is it is tangible.  You can touch it and feel it.  You can burn it to the ground if you want to. You can rebuild it. You can bulldoze it. You can do whatever you want with it because it is a tangible product. We have folks sometimes that will call and tell us hey, we want to sell this land, and to justify their ridiculously high price they want, they will say, hey, you do know, Jason, they are making anymore land.  In theory, that kind of sounds right.

Mikell:  It makes sense.

Jason:  Yeah, but then you call DH Griffin and then he just removes whatever is on it, and then all of a sudden, guess what? I just recreated some new land.

Mikell:  Okay.

Jason: So you can get rid of stuff. Mother Nature sometimes does that. Right?

Mikell:  Right.

Jason:  She will come through and just wipe out a whole block.

Mikell:  Yeah, unfortunately.

Jason:  So you cannot necessarily make the dirt, but you can sure remove what is there and start over again. So you can kind of make new land. So the numbers simply really do not matter.  Whether it is $100,000 or $50 million you have sitting, if it is dead money, it is dead money, and you want to get that moving.  There are ways you can do that within the real estate world that does not tie up your money for a long period of time. Then you can cash out, start over, and redo that. We are going to do this. Let’s take a quick timeout because I am going to dig into some more numbers, and I want to make sure I have plenty of time to run through that without a commercial break. So grab a pen, grab that paper, come back.  You are listening to the Jason Bramblett Real Estate Show. We will be back in just a minute.

And we are back.  You are listening to the Jason Bramblett Real Estate Show. So before the break we were talking about the numbers, the math, and how to do this, and how do I take my dead money that I have in my account, put it into a property, and then how do I get it back so I can do it again. Because a lot of people think well, if I paid cash, I am stuck. Well, no you are not stuck.  There are instruments out there in the lending world that can help you get your money back. So you can do a cash-out refinance, which is what we were talking about, which would allow you to get your $100,000 back so you can go do it again. It will allow you to get your million dollars back so you can go do it again. It will allow you to get your $10 million back so you can go do it again.  Again, the zeroes do not matter. It is the formula that works.  Now, of course, you cannot do this with a 219 credit score.  Right?

Mikell: Right.

Jason:  You have to have some income.  Right?

Mikell: Right.

Jason: Because the bank, just because the math works on the deal, if you have got a 580 credit score and it is some shady income, probably not going to work out so good for you. Right?

Mikell: Right. And if you have repossessions or anything else like that, it is not going to be good.

Jason:  Right.  There are still some qualifications. It is not a magic pill here. It is just the formula works, but you also still have to have other responsible things within your credit.  Right?  So you cannot just do this, and do not get mad at me if you go over there and you have a 522 credit score and no job and they will not give you your money back.  Right? Well, they will not even do the loan. So you need to know that going into it. Right?

Mikell:  Absolutely.

Jason:  They may give you a $5000 loan on your $140,000 house maybe.

Mikell:  Maybe.

Jason: But you are not going to benefit from this program. So you do need to have some income and some credit to be able to do the refi. Here is the great thing. You can know all that before you do anything. Go to the bank and talk to them. Say hey, I heard this crazy guy on the radio who said I could do this.  Can I do this? They will pull your credit.  They will look at your financials, and they will tell you yeah or no. No way. No, we would not even loan you $10, or you may go there and find out that they would do this as many times as you want.

Mikell: Right.

Jason: So everybody is going to be a little bit different. But you do not have to go out and do it and then find out. Go find out first, and then come up with your plan. Here is what I wanted to get into. Some of you own rental property and you are just not cut out for this.  Some people are like hey, I do not like confrontation, and I do not like dealing with people. I do not even like people. I would rather own a cactus. Right?

Mikell:  I know people like that.

Jason: Absolutely. So this may not be for you. Being a landlord may not be for you. Now, if you buy the property right, you could hire someone. It is going to cut into your cashflow, but if you follow our system and formula, you probably could actually do that and still be okay and still have that covered and have somebody there. But there are some owners that we talk to or some investors that have this money sitting in this account, this dead money, and it is really in this category called no headaches, meaning yes, I am earning nothing. My money is dead, but it does not bother me. It does not talk to me.  It does not give me any kind of conflict. It does not tear up my house. It does not do anything.  It just sits there. I look at it. It looks at me, and nothing happens.

Mikell:  That is a fearful mindset though.

Jason: It is, but sometimes it is through bad experiences that they have had.

Mikell: Absolutely.

Jason:  They are paying the price for that.

Mikell: Absolutely.

Jason:  As long as you are okay with that, leave your money where it is. And this probably is not for you. If you do not want to deal with people or tenants or all those type of things, it is not going to work. But what we have come up with and what we have been doing for 15 years or longer, we have clients, we have sold their home, and they are like hey, Jason, I really do not need this $300,000. What should I do with it?  I really do not want to put it in the market because I do not want to tie it up. I need to keep a little bit in case of an emergency, or I need to put it in something short term.  Most of the time what they would do is they would go put it in a CD, and they would probably earn whatever the rate what was.

Mikell:  The 2%.

Jason: Yeah, the 2%.  Whatever it may be.  You tie it up for a year for 2% or something like that. They wanted to get a little bit better than .00025, but 2%, which is not really exciting because 2% basically is zero.  Especially when you look at the inflation rate. So it just makes you feel better.

Mikell: And then you have to pay taxes on the one that you gained.

Jason:  So the 2% just makes you feel like you are actually doing something, but realistically it is zero because inflation is definitely at least 2% if not more. So you could actually be going backwards. What you want to do is get that money moving. We have partnered with a lot of our past clients and real estate folks around the Triad and actually all around everywhere that have dead money that they want moving.  They want to be in real estate. They just do not want to do it. So we have a system within our holding company where we actually buy properties and do just this.  We have partners that come alongside of us. They provide the capital. We provide the knowledge and the purchase and the headaches and deal with the tenants and all that, and we buy the deal, and then we cash them right back out very quickly.

Mikell:  Okay.

Jason: So they are in and out of the deal. They are earning somewhere between 7-15% on their money, and we keep the terms very, very, short. It kind of looks like this.  You have got dead money sitting in this account, and you want to do something with it. So we take the money, we go buy a property, we rehab it. Upon completion or in 8 months, whichever it is, typically what we find is it is a little faster than 8 months depending on the disarray of the home.

Mikell:  Yes.

Jason:  I had somebody call me the other day and gave me some really interesting adjectives about the home that they own.  I think that one might take a little longer than 8 months.  I had to look up some of those words to see what they were talking about.  So they have some problems over there. It is everything from we have had some that are $30,000 in structural issues. We have actually had to pick the house up, yank the foundation out, repour new footings, put a foundation back under, set back the house back down and start over.

Mikell:  Do you stay away from those type of houses?

Jason:  No, we love those type of houses. So if you have one that is really bad, if your house is leaning just a little bit to the right, we would talk to you.  Absolutely. There is really nothing that we will not look at. We do buy some that are just simple paint and carpet. That is just not that big of a deal. But most of what we look at are houses that have been neglected or not maintained or sat vacant for years or whatever the case may be. Our investors are tied into the property with us for about 8 months, and then we cash them out, and then they can keep going.  They can go to another property with us. They can just sit on the sidelines for a while. We have owners that do all kinds of different things.  I have one particular owner, every time they do a house, they go on vacation. They do not need the money.  It is dead money. The money moves. They earn say $15,000 in interest, and they go on a really sweet trip every single year. That is awesome.

Mikell: That is nice.

Jason:  It is great.  Works great for us. It works really, really good for them. I think they are actually getting the better end of that deal because I have look at some of the places they have gone, and they are really nice. But this is money that is moving for them that they are not having to do anything, but they are earning interest, and they are earning some experiences, some really cool things they are doing with their life.  Instead of this money sitting there dead, they are taking interest and living life and enjoying themselves.

Mikell:  So for the people who do not want to go to that bank route, they can just call your office and talk about that partnership?

Jason:  Absolutely.

Mikell:  Awesome.

Jason:  Yes, you can go to Jason Bramblett dot com. Shoot us an email. We will get in touch with you. We will walk you through all this. It is very secure. It is very safe. We do everything with attorneys. We do everything with a deed of trust, so you have a very, very secured position. We have been doing it for a very long time, so it is something we can walk you through many different options and many things we have done. But maybe you own a house that qualifies for this. It is kind of rough. It needs some love. Maybe the tenants were not so nice to you. We would love to talk to you about that as well. So next week, we are going to dig further into this. Everybody have a phenomenal weekend.  Stay cool out there and stay out of that humidity. You are listening to the Jason Bramblett Real Estate Show, and you can visit us at Jason Bramblett dot com.