Real Estate: Partnerships and Rising Interest Rates with Steph Douglass
Episode Summary
Today, Julia is talking with Steph Douglass, real estate extraordinaire, co-founder of Open House, and Factora member. Steph shares how she got started with real estate investing, her journey growing her real estate portfolio, and advice on investing in real estate when interest rates are rising.
Episode Notes
Today, Julia is talking with Steph Douglass, real estate extraordinaire, co-founder of Open House, and Factora member. Steph shares how she got started with real estate investing, her journey growing her real estate portfolio, and advice on investing in real estate when interest rates are rising.
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Transcript
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Hey, it's Julia, I am taking over the podcast for a few weeks while Allegra goes out on maternity leave. And I have some crazy news before we get into the episode, the wealth circle is more than halfway full. If you're thinking about joining, and you want to learn more, your last chance is to join the wealth struggle info session, it's on August 17. It's at 6pm. The registration link will be in the show notes. This is the best thing that I've ever done for my finances, and especially with the way that the economy is right now. This is the perfect time to really dive into your personal finances. So if you're interested in joining, make sure you register for the info session on August 17 at 6pm Central. Let's get into the episode.
This is Allegra Moet Brantley and you're listening to the coffee and coin podcast where women talk wealth. I'm the founder and CEO of Factora, a company on a mission to lead 1 million women to 1 million in net worth. Because when women have more money, we'll have more power to be the change we want to see in the world. If you're ready to hear real women share their real numbers and investment journeys and have a sneaky feeling you should be doing a little more with your money, you are in the right place. Just sit back, relax and turn me up.
All opinions expressed by Team Factora and podcast guests are solely their own and do not necessarily reflect the opinions of Factora Incorporated. This podcast is for informational purposes only and should not be used as the basis for investment decisions. Team Factora. And podcast guests may maintain positions in the securities or investments discussed in this podcast. Steph Douglas, real estate extraordinaire and co founder of open house, welcome to the Factora podcast. Thank you. I want to just start by because I know you and Allegra normally do your accountability check in and I love that I'm going to save that for when she's back from maternity leave. But what I think I'd love to hear today about is like the beginning of your real estate journey, because now you have a real estate portfolio of what what is it worth?
Oh, what is it worth? Oh, we're we're we're around like $10 million. That's my whole portfolio, including the ones I'm partnering with. But and that's full value not net at any. That's gross. Yes,
yes. Yes. Gross value. And when you say we What do you mean by that?
Partnerships all over the place. So I only have one property fully by myself. Okay. Rest have been partnership. So that's a whole nother podcast. But I have utilized partnerships really heavily to allow myself to grow quicker. Yeah, because buying a house requires a lot of work. It requires a lot of money. And so doing that with other people means you have to have less of those things.
Yes, yes. I love that. So you're saying the 10 million is like all of the properties combined? Not necessarily your individual piece of it.
Exactly. Yes. So everything. I think my individual piece is like, around half of that. So good. Because I have different percentages of everything. So yeah, around 5 million is my own piece. That's
amazing. So obviously, there's been a lot of steps that you've had to take to get to this point. But I think like the beginning of your real estate journey is so interesting to me. And I love the story. So I just wanted to talk about it. Because I think there are a lot of people out there that are thinking about investing in real estate or feel like they should but they number one don't know how to start and number two are intimidated by the rising interest rates. So Oh, yes. Take us back to like, when you back to the first year that you invested in real estate, what was going on? Ah,
yes. So I started investing in real estate when I was an elementary school math teacher. I had been teaching for about a year actually. So I was pretty fresh. And I bought my first house in 2013 was 24 years old. I was kind of struggling to find rent in my area that was desirable. That was affordable, especially with my low salary. And I knew I had seen the trend. I had been living in my city for five years. And I saw how quickly it was growing. So I was like, I'm gonna be priced out of my neighborhood. Like I don't want to live in any other neighborhood. Very quickly, I will not be able to afford rent here. And so I approached my mom, and I was like, Hey, Mom, I think I want to buy a house and none of my friends all my friends were like what in the world like you're putting down roots were 24 I want to go travel. And I was like, you know, but I want to have a place to live. And I really care about that. So I was able to buy a house with 3% down first time homebuyer I borrowed money from my mom, which was technically A gift. Like, uh, you know, she had to say that it was a gift and
I paid it back. Yes, yes, like for like tax purposes or like for the exactly
for the down payment. So I had to send the bank my transcripts because I was so young and I hadn't been employed for two whole years. And so they I had to prove that I was in college for one of those years. Anyway, that was my very first, which is cool to know, for people who are really young and earlier just in school, you can use that time it doesn't count against you. Yeah, yeah, that was my very first home purchase. And I didn't think I was ever going to do it again. I was like, I've done it. I bought a house at 24. I felt very accomplished. And then I found myself again, in a position where I needed a place to live. And I don't know how in depth you want me to go there. But my first house in 2013. So we go there, go there. So I bought my first house, my bestie who you know, Nancy, moved into the other room. So it was a two bed one bath tiny little bungalow. And she paid half the mortgage mortgage was $1,100. So which is so good and unheard of right now. But you know, relatively, I spent $180,000 on my house.
How much did you borrow from your mom?
I had a couple of $1,000 Saved me insane.
Couple as in like,
yeah, like two to three. I was like fresh at it. Making 40k a year. Hold on, let me just do some math really fast lifetime math. I think I borrowed about $6,000 for my mom. Amazing. And like prioritize paying that back after I closed because I was like, you know, gotta get that off the books. But my roommate paid 550 I paid 550. So pretty affordable as around what my rent was at the time as well. And I lived there for two years. And then I started dating someone, we moved into a rental together. And I was like, I guess I'll just rent my house out. Like I never considered being a landlord. And I really don't that word is gross, weird property. Property owner, property owner but like the person that the tenant pays, I don't know. Yes, tenant manager, tenant as you can be. We need a new word for that. It's very, like patriarchal and awful. But I put my house on Craigslist. And like day one, I got like, 20 people asking me to live there. Oh, and that was with a $500 a month cash flow. Wow. And I was like, I couldn't believe I mean, $500 a month to me was so much. And so I just was like, this is cool. This is a cool feeling to get this like not having to trade my time for money. Like this is a an exciting, like feeling for me. Yeah. And so I moved into this rental with my, at the time partner that lasted like eight months. And you know, tragic breakup ensued. And I was again, without a place to live. I mean, you know, he moved out when I was living in the one bedroom, we ended our lease at the end of it, but it was like, Okay, now I have to either kick my tenants out, or find another place to live like a rental. And I was like, I was just here like, I don't want to rent a room and a house again. And bread had risen by that time anyway, all to say I convinced my mom to go 5050 this time. So instead of having her lend me money, I was like, listen, Austin is booming. Let's go in together 5050 on a house. And she was like, let's go. Amazing, which is really awesome. She was also a teacher. So we neither of us had much money she had just sold she had actually gone through a divorce as well. Not as well. Mine wasn't a divorce, but you know, the separation, and she had some money from a smart real estate investment that she had made. And, obviously, teacher salaries need to be more. They're just so minimal. So we were like, okay, like, let's let's do it. We had $30,000 that we put into a $300,000 house. And we did all of the work ourselves.
We know our whole summer. How much did you put down 5% Down? We put
5% down and so what is that? That's why why can I do it? 15 Can
you do it? 15k
Yeah, 15k Okay. 15k and the rest we used to renovate? Yes. Okay. And the house was fine, livable. stuff worked, but it was really old and outdated. So we spent our entire summer fixing it up and watching YouTube and figuring out how to do stuff. Luckily, we are really similar people we you know, I grew up single mom spent a lot of time with her. Both of us have a very frustrating work cadence but it's compatible because it's so similar. So we would we would go to sleep at night on an air mattress and one of the bedrooms that we were renovating and wake up in the morning like dirty and work from like 8am to 9pm. And then do it again.
Insane. What did you end up doing? What What were the tasks that you were? How are you renovating it?
Yes. So we scraped the popcorn ceilings up the whole house, my gosh, we, we did hire Jose, he took a wall down took a couple of walls down, because it was very like segmented off. And at the time, it was like all about open concept, which it's still there. But very, like rudimentary work from Jose, because we wanted to do we wanted to cut costs as much as we could. So we were like, okay, just take the wall down. Yeah, we'll deal with everything. Yeah. So we ended up, like painting everything, refinishing hardwood floors, tearing up linoleum, and refinishing floors. Again, you know, stuff like that, where it was like, not a huge lift. And now, I know how to do all of these things. So well. But at the time, it was like, how, how are we gonna do this? So we figured it out. We ended up finishing in like six weeks. Wow. Which is now looking back. It's like, that's amazing. Because we were we were just us like we didn't have any real skills. Yeah. So we just weren't I mean, it was just like pure brute force DIY.
Yeah. And you were working on a timeline, right? Because you had to go back to school at the end of the summer. Exactly. So you're like, I have to get this done, because I don't have any time during my normal life.
Exactly. And she did too. So she had to go back to school in Houston, I had to go back to school in Austin. And I needed to start we needed to start paying the payment, right? So if you know it, when you buy a house, you have like a month to two months of, of kind of like time before you have to pay your first mortgage payment. And I was like not in a position where I could just pay an extra mortgage payment, you know, like there was no extra right? No extra money. Was it just like, Yeah, I'll just pay rent and I'll pay my mortgage so that I can finish like No, we were living here and we needed to finish it. So again, brute force. And I ended up renting we finished in six weeks, rented one of the rooms to friends actually Craigslist roommate. Amazing. And then she I gave her a break in rent for her to manage the Airbnb in the third room.
So there's your living there. In one room I was living there was roomy. And then it was an Airbnb room.
Yes. And that worked out pretty well. Honestly, we had people coming through I mean, they like came inside our house and, you know, shared our kitchen and stuff.
But what made you what inspired you to do one room Airbnb versus filling both with long term renters.
So it was actually the women that I had, who filled the room longterm was like, I'll manage it, and like, you're gonna make more this way. And I don't have to have someone in there all the time. You know, it will be like, intermittent. So she so when I brought the idea up, she did it was really interesting, like, and I didn't make more money than I would have made for a long term tenant. So a couple $100 Extra and I didn't have to do anything. And it was like a fun experiment when I was 26. Yeah, to be like, oh, like people coming in and out. I in fact, I'm still in touch with a couple of people that stayed with me.
No way. I feel it was fun. I love hearing stories of like sort of the original spirit of Airbnb like that.
I know. I know exactly. Like, it's not like that anymore. But it was kind of like couchsurfing, if anyone ever did that. I was very heavy in the couchsurfing community. And for this, it was like they were paying but not much like very little, you know, 30 to $50 a night. But But yeah, really, it was like a good experience. I never had anyone creepy. Sometimes we like they would be using the kitchen too much. I'd be like, you're like visiting here and like go out. Yeah. But otherwise, really good experience. And I covered my whole mortgage. So I essentially from 2016. When I bought that house with my mom, I have not paid a single mortgage payment. It's no good. House hacked my way to $0. And that is so powerful.
Yes, it is so powerful. Because aside from taxes, usually living expenses are our biggest expense. And so when you have a taste of having that covered, I feel like there's no there's no way to go back.
There's just no way there's just like, the amount of savings I've saved just because I've done that the amount I've been able to accelerate my investing, right? I mean, it's just incredible. So it's addicting, but also at the same time trying to get away from having to share so much space. Yes, it really motivated me to start like growing my portfolio a little bit more. But when talking about like my my salary at the time was $43,000 a year. In 2016. When I bought that house, I had just gotten a different teaching job. And I was making a little bit more I think like 55 So I had bought two houses with around 40 to $55,000 salaries. Basically being creative with partnerships being creative with how stacking, then allowed me to accelerate my savings accelerate my investing rate. And that's why I've been able to invest. And to grow my portfolio, you know, is like that foundation of, I'm going to be a little bit uncomfortable, I'm going to do stuff outside of the norm, I'm going to break away from the traditional path of, I'm going to find a partner, and then we're going to buy a house, and
then we're going to have a kid and my partner you like romantic partner?
Exactly, sorry. Yeah. Like, like get married. And that is what we're sold. Right? Your first house is with a romantic partner with your boyfriend and your your husband, or we're engaged. And then from there, you just have a house that you live in, you split the mortgage payment, right. And, I mean, that's kind of even progressive, because he was like, used to, you know, whatever. Yeah, it was after you, you know, you have two incomes. And so buying a house on one income is so doable, especially if you're open to sharing space. Yeah. But you don't, you also don't have to share space, because I've figured out all these ways to do it in a more private way. And so have you.
Yes. And I think that was that was one of the cool things about for me, joining Factora was like getting access to all of these women, you primarily who are so creative with their spaces, that you can have that situation where you're renting out parts of your house to cover your mortgage, and it doesn't feel intrusive, like, because we became friends and you started to open my eyes, like all the things that were possible, I bought a house with a garage, and then we converted the garage. And so the left side of our house is the Airbnb. And then the right side is like our normal living and we cashflow in June we cash flowed like $800 over our mortgage. And it's it's private. It's not like we're not roughing it with like a stranger that's like sharing a room in our house.
The like biggest inconveniences that you share? Well, yes, exactly. Which is doable. So doable. And so many people will share walls and apartment nests. You know, it's like very common, exactly what I think when I think about that, and it's like, oh, we're sharing a wall. But it's like, no, that's very common.
So common, so okay, what would you say to someone that's like, if I'm putting myself in negative Nancy mode, and someone's listening to this podcast, and they're like, well, that's awesome for you stuff. But like, my mom is not trying to split anything with me. Yeah. Jay is somebody who wants to start investing but doesn't have like a partner like your mom? How would you Yeah, agenda like find a partner?
That is such a good question. Because very, very much aware of this privilege of like, we you know, we didn't have much money, but I had someone who was like very gung ho to help me. I mean, she lent me money in my first house. Yeah, very down. She's very creative, very scrappy. So if you don't have someone like that, which is probably the majority of people listening, it's all about community. So we've had people in Factora, meet each other and say, This is what I'm looking for in a partner. Let's do it. And I think the fear around partnering with a stranger, or even partnering with a friend is valid, right? Like that's, you know, there's a lot of things to be scared of. And if you let those things stop you, then you just won't do anything. Yeah. And so like, if you really want to invest in real estate and grow your portfolio, there are other people who want to do the same. And you can find someone whose values align, especially in a community like Factora. Yeah, you know, and we have open house has communities of people who are really into investing in real estate as well. And that is a hugely overlapping Venn Diagram of Factora. And open house of like, yeah, these people are educated around the options. And they're down, like Michelle was down.
Yes, yeah, it's true. Like being a part of a community where the prerequisite is that you're already interested in it is already kind of like a vetting. You're already dealing with a good group of people, you don't have to do due diligence, and 100%.
And then the other thing is surrounding yourself with people who are also doing this, which is another community based reason, but like, you do it, you're doing this because you saw me doing this, and I you know, I was like, kind of on this high of like, wait, I could just like, duplicate this or like, make this a little bit more private, or like, you know, put this on 11. Yeah. And I think that that helps. And then we have people doing this all over the place with Allegra has done it multiple times, turning garages into places that are livable, it's like, it's infectious.
Yes. I love that. I was just thinking that too, like when you get creative, it is infectious, because everyone starts to be like, Oh, I could totally do that, too. And that's happened with so many of your friends, like your friend, your original bestie. Nancy, she like, owns a house in my neighborhood. And she did a quick flip. And it's so cute, and she's renting it out. And I know that you're the inspiration behind that. And these kinds of shapes have happened so frequently. In fact, where I we invented a word for it, we call them investees. They're like besties, who invest and they met through the community. So what would you say to somebody? I think a big topic in the slack in the Factora slack right now in the real estate channel is interest. rates? And how about interest rates, rising interest rates and how to think about real estate investing in the face of those?
Yeah. So interest rates are a reaction to what the economy is doing. And that can scare people. So interest rates are essentially the feds, the government's way of harnessing the economy for it to do what they want it to do. And so over the pandemic, they lowered the interest rates drastically, because they were like, We cannot let this economy fail in the midst of this global pandemic, which then spurred this insane real estate boom, people were like, this money is basically free, this is going to spur me to buy and maybe multiple houses. And so we had this insane competitive market where buyers were getting outbid multiple times now. And since then, inflation has gone crazy. And in reaction to that the Fed has increased interest rates. And that has really scared people. And so the market has slowed down. But the way that I looked at look at it is, first of all, this is really good for us, in this community. whoever's listening to this, I'm pretty sure it's good for you, because it has decreased competition on houses like crazy. And when you're thinking about rates, there's always a refinance. So when interest rates drop, again, you can refinance to a lower rate, they do increase your payment, right? Like, when you're looking at a 2% interest rate, versus a 4% interest rate. It's pretty drastic. However, when you're thinking about a 2% interest rate, and you literally can't get anything. So like you're looking at all these houses that are being listed, you're looking at this cute house is like a maze, we're not even looking at it, it'll be gone in one day. 100k over asking, because that's the nature of a market where the interest rates are rock bottom. So for me, it feels like there's so much opportunity, yes, I'll pay a little bit more monthly payment. But when I think about like that, being offset by like potentially getting something under asking, or not having to waive all my contingencies I'm entering this deal in a really are much better position that I would have if interest rates were a lot lower. So my ideal interest rate is literally like this market is my favorite market.
Wow. Because you're saying basically, it's a given take like with yes, there may be a higher interest rate. And yes, that might come with a higher monthly payment. But at the same time, you're getting better loan terms and less competition, which means you're getting like better properties.
Yeah, exactly better properties and potentially, without having to go I mean, when you're looking at Zillow casually and you're like, oh, this house at 425. Zillow doesn't tell you, Oh, this house sold for 550. Actually, yeah, like you're seeing for 25. And you're like, Oh, my mortgage payment would be this. But actually their mortgage payment is 125k. More. Right? So it's, it's possible that for the same house, you're paying the same mortgage payment as what you would have paid. It's just you're paying more in interest. And that's okay. Yeah. Like people are so scared of interest. And yes, we don't want our community our fellow Factora ladies paying credit card interest. That is not okay. Yeah. But when you're thinking of this as an investment, and especially if your house hacking, especially if you're creating any income from your property, interest rates are not the end of the world. And when you're thinking about, historically, the average interest rate for the past 20 years is like seven and a quarter. Yeah. So overall, we're seeing four and a half, even five and a half up to six, we're still on the lower end. And then we just stay informed. And we stay in our community and we say, okay, the rates are at three and a half. Now, let's say in a year, let's refinance, yes. And then refinancing then lowers your mortgage payment, you've had to bite the bullet and pay a couple $100 more a month. But it's worth it because you got into that property that was otherwise unavailable for the past two years, you know, you so many more opportunities.
So you're basically saying that the interest rates are definitely like a factor but should not be something to hold anybody back from like getting into real estate investing because of the long exactly long term benefits outweigh
so Yeah, exactly. That's a great concise way to put it and especially especially if you're creating income, any kind of any kind of income, even if it's one month on in October, you're renting your house during a festival. Yeah, you know, yeah, that makes it worth it. And when you're thinking about that, I encourage people to think about the or not just so you're not just creating that cash flow like that is one one piece of the puzzle, but you're also paying down your mortgage. So that's one piece so your cash flowing potentially like your situation, your cash flowing, you're paying your mortgage down every month, and your house is appreciating, right? So you have like three powers working in your favor. If your house hacking especially. And if you're not house hacking, you have two things working in your favor, your mortgage balance is going down and Your house is appreciating. So obviously, I'm obsessed with real estate. And I think it's just like such a cool investment. But it's really important to look at it from this angle of like, it's not only the cash flow, it's all three of these things. Yes,
totally. What about, I feel like most of your investments are pretty local. Most of them are like, based in Austin, I think you just made your first you're under contract for your first property in Oregon, Utah, Utah.
But we didn't get that one. Oh, it's a roller coaster. It is so sad. We've I was so excited. But yes, so we are super local. And in fact, we tried dipping our toe into the San Antonio market, I'm based in Austin, San Antonio is about an hour and a half away. And it was, it was a struggle, our organization wasn't there for it to be a successful situation, even an hour and a half away. So what I encourage people to consider if they want to invest out of the state or out of the city, is to make sure you have an incredible team, you have to have a real estate agent, you have to have property manager, and you have to have some sort of like handyman contractor team that will be there for you and that you can trust. And how do you go about finding those people? So open house has a network across the nation, so you can definitely get a realtor that way. And then I I think Realtors I mean, obviously I am a realtor. So take this with a grain of salt, but they should have infinite connections. And they should have been vetted. And they should be able to say like this is this person is good for tearing this wall down or replacing your roof. So I would leverage your, your real estate agent to build your team. And you have to spend some time there,
like in the actual location
in the actual location. Yeah.
Because I feel like there's there's a lot of talk on like bigger pockets, and other real estate resources that talk about like secondary markets, tertiary markets, and how like, the opportunities there can be better. They just shared a post of like the 10 best rental markets to invest in. And it was like Orlando, Tampa, Salt Lake City. Austin was on there. Boise. So do you feel like for somebody that, I guess what are your thoughts on someone who maybe is living in a city that can't afford it? And is like, Okay, well, I guess I could invest in like Boise or something?
Totally, I would get connected with a realtor who has done this before. So not a realtor who rents not a realtor who has one house. Yes, a realtor who investor an investor investor. Exactly, they're going to help you figure out where the best area is, they're going to help you figure out the balance between sales price and rental income, they're gonna help you figure out how to get this property ready to rent, and they've done it before, this just doesn't make sense to help have someone help you who's never done this
thing. That's a really smart point. Because I think a lot of realtors, or at least my impression of Realtors, because you're the only realtor I've ever worked with. And then my partner became a realtor. And then he's the only one I've ever worked with. But it's true. If you're working with a more traditional realtor who doesn't know the ins and outs of of investing, then they're not going to know what to like look for because what are the things as a realtor slash investor that you would help somebody look for?
The biggest thing is, where do the numbers make sense, right? Because you're buying a property, usually you want to cash flow, you know, everyone has different goals. But if you're buying a home in an area that has high prices, a lot of times the numbers don't work out for long term rental. And then if they don't work out for long term rental, you're considering shorter term, maybe mid term. And you have to know the laws and the city or the city regulations. So you're considering balancing those numbers, sales price and rental income, and then different rental strategies and their legalities. So like those, those are the top like, first things you need to know before you even consider an area. So like
an example of that is like getting a short term rental permanent Austin, for example. And the legality of that. Yes, it's
very difficult. Yeah. So technically, if you don't live on the property in Austin, short term right to your house is not an option, legally, right. So that's different in every single city. Like literally you can go 20 minutes to the north, and it's different in Round Rock. It's different in Leander. But you have to have someone if you're hiring a realtor, they have to know those things. And those people who've done it before they'll Bill know what the best.
Okay? Yes. So when you're looking at getting started, whether you're investing locally, or somewhere else, and I know that in the wall circle Factora helps you calculate all this. We have like all these crazy spreadsheets that help you calculate but a sort of a high level what are like the baseline numbers that you need to know before you get into the serious like looking process? Yeah,
so So you definitely want to know, you want to be pretty familiar with the relationship between sales price and monthly payment. So when you're thinking of like, oh, well, I just buy in this area, this is what I can get it's 700,000, you need to know roughly what that translates to in like how much this will cost every month. So that's your principal and interest payment that never changes. And then in every city, and really every state, taxes are different. So you're thinking of taxes, and then you're thinking of insurance. And so that's really important to start with like, Okay, this is going to cost me this much. I have to cover this plus a little bit to make this make sense. For this just like a straight up rental property. Here's
a really good app, what's it called? When that you use that mortgage?
I use mortgage plus, okay, like it's so basic and not affiliated in any way just like so easy. And then you have to know what the rental market looks like. And, and that's going to change
figuring that out how to get rental because comps, right? Yeah.
So that like preliminary, like if you're like okay, I'm gonna just like consider Tampa maybe I'll go there and buy something before you talk to a realtor even. You can go onto Zillow, and just say like, Okay, two bedroom, two bath, you know, pretend like you're looking to rent and Tampa, Zillow, look at Craigslist, look at Facebook marketplace, do some like preliminary research as to what you think you could get, because there's a huge market that's outside of the MLS. But once you start getting serious you can get like because those things are houses on the market, right? So like if you're looking at Zillow with an active listing, you don't know if that person is actually going to rent their house for that much. So when you start getting more serious your Realtor can pull comps in any area they can do any any like boundary and zip code and they can fully pretty comprehensive data based on what actually rented and how much you rented for
because you want to because for comps it stands for What does the company have comparable comparable properties? I want to like search for the properties that have the same general specs as yours, right, so like two bed two bath, if that's what you're gonna buy, and that's it you want to search for same with like square footage land, like all make make sure those are as similar as possible.
Exactly. And you have to be a little bit conservative about that. And this is like these are obviously just for to straight up, like I'm gonna buy something to rent it out. Right? You know, this is like rental property. And that's one way to do it. But there's so many ways and I think, for your first especially, I would consider places that your friends live. Where is someone living that would maybe this is a good idea for partnership like my my friend, Eleanor, who you know, was living in LA, and she was you know, we were 2728 la is a very tough market and it will remain so. And I was in Austin and I was like, okay, Eleanor, you're not gonna be able to invest where you live. I'm here in Austin, do you want a partner, and it was a primary residence. So I was gonna move into this, this is actually my third house. And I was like, listen, here's what we could do. And she was like, I'm not going to be able to do it here. So why not partner. And so we were able to put less down because it's a primary residence. I know the market, I have the team. So I would just consider like, thinking about creative ways to partner with people that are in markets that you might be interested in. In addition, and obviously buying a rental property is attractive, you don't have to share it with anyone. But if you don't have the resources, the cash, you know, you don't want to spend the time, this is a good way to go. Totally.
And so in that situation, you had the knowledge, the market knowledge you were actually listening in as your primary residence and Eleanor brought the cash is that kind of how you guys
structured it, she brought some cash, but she also brought, I wasn't able to get approved for a mortgage at that time, because I had just started my real estate career and I had quit my teaching job.
Right. So you're technically unemployed?
I was two Yes, exactly. Like they can't. And this is for people who are contractors or who are you know, gig economy, you have to be doing the same thing for two years. And you have to show income for those those two contract years, those two contract years will be then averaged out. And that's basically that's what they used to approve you for a loan. Yeah, basically, I made no money at all.
Okay, and how did you guys like high level? How did you structure that partnership from sort of like an initial cash investment and equity perspective?
Yeah, this is actually a three way partnership. I don't want to get too much in the weeds here. But it's cool to know.
It's so cool. I think people are really curious about partnerships, and they feel like they're a lot more complicated than they are. And I feel Yeah, a perfect example that no, they're not.
Yes, yes. Okay. So I found this house is my dream location. Lynn and I had about $7,000 in my account. Again, we find myself in this position. I was not viable for a mortgage. And so I was like, I'm gonna get creative. I want this house. so bad, I'm going to do this. So I pulled in Eleanor who had the W two, she had a good salary in LA. She actually didn't bring any cash. Now that I remember, I then pulled my little sister in, who had a chunk of money saved up, she was like 21 at the time. And she was like, I have 7000. And so, me and Lily, my little sister split the downpayment. And we all sweat equity. 3333 33 amazing. And I, since I wasn't able to get the loan, I brought in sweat equity. So I did the renovation, I paid for the renovation, all of that money that I put into this house. So I basically renovated it from the ground up. All of that I will get back, when we go to sell this. And then past what I get back from my renovation, we split that
3333 33. Amazing. And do you guys split the cash flow from that 3333 332?
No, since I've done all of the sweat equity, I've done all the work, I live there for a while, all of that cash flow comes to me got it. So they're only going to get paid out. If and when we sell
it, okay, but it's just it's a long term equity hold for them. It's a long
term equity hold, I think you could work it out, if you wanted to do some, like you wanted to get some cash flow, then you could work it out that way where you're giving some cash flow to the investors. However, it was such a low lift for them. Like Eleanor literally signed some papers. Yeah. And you know, Lilly has her cash in there, and then Lily will get her cash back also, right? So we'll pay back all of the cash that was put in and then past that payback. That's when we split it in thirds.
Amazing. And how will you know when it's time to sell?
So in our operating agreement, we say like we're not selling at a loss, yes. Which is great. And like now, there's no possible way that we could sell for a loss since it's such a good appreciation. But really, it's like a unanimous decision, we all decide that we want to sell then we will sell amazing if one person wants to sell and someone doesn't want to sell we keep it. That's so
good. That's so good. I yeah, I think that when people are investing in real estate, too, maybe sometimes they put too much emphasis on cash flow. And even if you don't have an immediate cash flow with the mortgage is covered. So you're not paying anything for per month for that asset. It's gonna pay off in the long term, and you're setting it up for your future self.
Totally. And then the other thing, I've since refinance that property in my own name, because I've now viable for mortgages, likely, and Eleanor is no longer on the loan. So she now has this equity hold where she literally there's nothing that she's, there's no downside for her right now. Yes. The other thing is, and this is also like, when you think about putting your name on something or being on the loan, that does tie your name up for a whole year, you are responsible, quote, unquote, for that mortgage payment, but after a year, if you can prove that you've never paid a payment from your any of your accounts, then it's completely off of your record.
Why do I didn't know that? Yeah, that's cool. So you don't have to go through a refinance to get yourself off.
Alone? No, you I mean, you're still on it. Yeah. Like, you'd still have to prove like, every time you go to get a mortgage, you'd have to say, oh, no, no, I don't pay that one. Yeah, like, that'll come up on my credit, but like, I don't pay it. And here's all of my bank statements. And then they would, she would come to me and say, can you send me your bank statement showing that you've paid the mortgage every single
month instead of me? So it doesn't it wouldn't like affect your debt to income ratio? Exactly.
So if you are considering a partnership in this realm, and you're nervous about that, it would just affect you for one year. So like you would, it would be on your debt to income for that first year. So if you were planning to, like buy something yourself in the next year, then it probably wouldn't be a good deal for you.
Okay. Oh, my gosh, that's the best. Okay, one last question for you. If someone's like, Okay, I'm gonna start looking at investment properties. Obviously, this answer is going to vary based on the city that you're in. But if you maybe if there's a general way that you could answer it, and they're like, Okay, I want to set some alerts up on Redfin, what are your like, go to parameters for like Redfin alerts for an investment property.
Yes. So what I would do before I set up any alerts is really look at those two numbers of what's available in the city. What's the condition, right, because your condition matters as far as a print investment. If you want something turnkey, which, you know, you should be if you're going into a different market, you can choose what market you go to. So you could do to choose a market where you can say like, Okay, this turnkey situation will work with my numbers, you know, because it is really hard to do a renovation, especially for your first one. So I don't recommend like buying in a different city of complete fixer upper. So I would say what can I get turnkey? At what price? Then go from there? Say what is that mortgage payment going to be with taxes insurance go from there. How much can I get for rent? Yes. And it's possible you've done that. You've gone that far. And you've come to the rental portion. You're like, Oh, nope, that won't work. Yeah. Moving on, you know, so you find some boundaries with which those two numbers work. And then that's how you set your search up. And you can say I want stuff that's built 2000 and newer, so that I can kind of control that like turnkey element. Interesting. Because it's I mean, the problem with that is that you're you're nixing like some renovations. So like, if it was 1950 spelled, and it's been renovated, it will still say 1950s. But preliminarily, you can just look at those neuro properties to try to like, Okay, this is this all research until you start looking for a realtor. So I would do that. And then I would say, okay, set an hour aside every other day to analyze these deals. This is what I seen. This one came through on my Redfin alert, Zillow, or whatever. Once you're like, Okay, this is really awesome. This is like a good opportunity. That's when you want to start getting hooked up with a realtor. And you like getting more serious about either going there, or I've had people buy houses with video tours, right? It's riskier. But like, if you're really wanting to make this a pretty hands off experience, you could do it. I mean, I would do it
totally. Also quick sidenote, there is a whole section in the wealth circle. That is how to analyze a real estate property. So once you have that skill set, you can just start using it and applying it and analyzing deals.
Yeah, practice makes perfect to add really, it's all about people are really, really scared of analyzing real estate deals. And they don't know they want formulas and they want you know, I've never had, you know, there's not a formula. Yeah, it's all about practice. It's about being in it. And you can't just have someone hand you numbers. You have to do it yourself.
I love it. I love that. Thank you so much for this. I feel like I just learned so much. I hope everybody else did too.
Yes. Thank you so much. And I don't think I said this, but I took one of the very first Factora circles, and it really changed my trajectory investment wise community wise. Julia's the best deal breakers of St. It's been amazing. So,
so fun. Okay, everyone, I can't wait to see everyone in the next episode.
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