What is happening, YouTube? It's Matt Faircloth. I got an exciting, exciting guest today. As
you guys know, I wrote a book called Raising Private Capital with my friends over at biggerpockets.com.
Raising Private Capital teaches a lot how to go find money in your own network. There
are people who have read that book and that have implemented what's in the book, and have
had success and have made a lot of money and done deals through what they've learned through
Raising Private Capital.
If you guys have not read Raising Private Capital yet, just go to derosagroup.com and
pick yourself up a copy of it there. You can also get it from Bigger Pockets or Amazon.
If you buy it through the Derosa site, it's just going to forward you over to Bigger Pockets.
But if you get it there, order on Derosa site or wherever you go, you're going to get a
big basket of goodies and lots of extra stuff that they're going to throw in. If you buy
it from Amazon, it's going to be a little bit cheaper, but you're not going to get a
whole bunch of extras.
Today's Derosa success story is a friend of mine, Kevin Brenner. Kevin, you are a co-host
on a podcast called Active Duty Passive Income. Before we get into your success story, just
tell everybody a little bit about yourself so they can get to know who you are.
Hey. Thanks for having me on the show, Matt. Yeah, so I started real estate about two years
ago, so I'm, as far as real estate goes, pretty new. But I've been hitting it pretty hard
ever since, and I started with a VA ... I'm active duty military stationed now in Washington
DC at the Pentagon. I started out using my VA. I got a quadplex and was able to get into
a quadplex.
Time, time, time. Just so everybody knows, when Kevin's referring to a VA, you're talking
about a what? Some people might think you used a virtual assistant to find your deal.
I happen to know that's not what happened, so what do you-
No, no, no. The VA loan, so veterans affairs loan. Zero down, 100% LTV that veterans and
active duty military have access to.
Zero down, up to four units. You got to live there.
Yep.
Great, great, great giveback to those that are serving our country like you. And by the
way, thank you for your service to our country.
Thank you, Matt.
Four family, on a VA loan, zero money down, sounds awesome. Keep going, pick it up from
there.
Yeah. With that deal, I got into this quadplex. With all the closing costs and everything,
I ended up being about three grand out of pocket. Got myself a quadplex, was able to
put about 40K into it, and consequently double the rents in each unit. And because I got
orders to go to Washington DC in the middle of all this renovations, because you get 60
days from the day of closing, you have to move in within 60 days just like an FHA, just
like anything. I got orders, and I said, "Hey, sorry, I got to go," and I ended up moving
to DC. So, I move to DC.
You get orders, you got a VA loan. Sorry to cut you off. If you have a VA loan and you
get orders-
Then you're out.
Okay, so they're going to release you from the requirement to live there. Okay, got it.
Exactly, exactly. Yep.
Okay, so now you're in DC. You got this four family that's cash flowing. You don't mind
me asking, how much per month, post-reno?
Yeah. Post-reno, cash flow was about 2,500 a month.
Boom. Well done.
Yeah. That was before the COVID crazy, because I had to drop a lot of rent. Some people have
been out, so-
We know. Yeah, yeah, yeah. A lot of [crosstalk 00:03:05]
That was when times were good. But it's still cash flowing. It's still cash flowing, and
that's the awesome part, so I'm able to reinvest a lot of that capital.
That's awesome. Then what, you get 2,500 bucks a month coming in, a property you're going
to live in, 0% down VA loan.
Mm-hmm (affirmative).
That's exciting but not everybody has access to that kind of thing, and so then what?
I move out to DC. I'm keeping all of my connections. This is in Savannah, GA, my market where I
invest. Keeping all these connections going, and I get a call from my agent who also is
a veteran himself, a West Point graduate. He calls me up and says, "Hey man, there is
a quadplex that came up on the market two blocks from your property."
Whoa.
"And I think it's perfect for you." I was like, "All right, boom. Let's put an offer
up on it." It came on the market, within six hours, there were six different offers.
Wow.
We ended up losing out. I was like, "Well, lesson learned. We tried. We'll get it next
time."
Wasn't meant to be.
Wasn't meant to be, wasn't meant to be. Fast forward maybe six-eight weeks or something
like that, I get another call that said, "Hey, remember that quad that you put the offer
in on? Well, I know the seller's agent and he called me and said the other buyers couldn't
get the financing together." They obviously didn't read your book. They couldn't get their
stuff together, I'll keep it PG. "Do you want this?" I was like, "Heck yeah, I want it."
In that six months, I was trying to figure out. I was like, I know I want to keep doing
this, so what do I got to do? I think after I put a full list offer in, $318,000, full
list offer, get it under contract. I have nowhere near the $85,000 I need, that's the
down payment. I had nowhere near that amount of money.
And you couldn't VA loan it again, right?
Nope.
Okay, got it. So you can't VA loan it again, you can't go zero money down. He's got to
go 20% down likely on a 318,000 bucks plus-
Yeah, 25. 25% down.
25% down, plus closing costs.
Yeah.
How much did you need to close? You're checking your pockets like, "Geez, I'm a little short."
How much did you need to close?
I needed the 85,000.
85,000 bucks to close a deal that would likely make you ... What was your projections on
cash flow?
That one, so that one was currently renting for about 6-700 a door and my projections
had it about 1,200 dollars a door, so it was the same thing, renovate it. Our renovation
budget on that project was $78,000. However, as it stands right now, I'm at $52,000 spent,
so I'm significantly under budget. I have one more job to do, but it's only going to
cost me six to eight grand, so I'm going to be way under budget on my renos and I'll be
cash flowing pretty dang good on that one.
What do you calculate it to be?
That cash flow is going to be around two grand per month.
Sweet.
Yeah.
That's great. I think this video may create a little bit more competition for you, a little
more friends in Savannah, Georgia because it sounds like an awesome market in that.
But let's keep moving. Then you needed 85 grand to close. You were like, "Now what,
where do I go?"
In that entire time, like between when I got locked out of the deal to when it opened back
up, I was listening to your book. Every day, I take the train to work and I listen to the
book on my headphones on the metro going to the Pentagon every day. I'm listening and
I'm like okay, well let's reach out to family. I reach out to family, "Hey guys, I really
want to get into real estate." My brother and sister-in-law are both high net worth
earners, and they were like, "Hey, we're interested, we're interested." I get the deal under contract
and I say, "Hey, Jason. This is the one. Here's all the numbers. Here's everything. I've done
it. I know how this works because I have exactly the same property two blocks away, built the
same year. Everything is the same because it's just how that neighborhood was set up."
Slam dunk, right?
He ended up not being able to pull the trigger. He was like, "I don't know, I'm scared. Blah
blah blah." I was like, "Oh, what do I do now?"
That happens. Note here guys, and I talk about this in the book, but I'm going to talk about
it here. A lot of times, yes to invest with you doesn't turn into a check, and that's
okay. But you got to account for ... You probably got to get two yeses to get one check. Because
people have things come up.
Yeah.
People have, "Oh, my kid's got to go to college." Or, "I hate to say it, my spouse said no,"
because maybe you have one aggressive spouse that wants to invest and one a little more
conservative spouse. And for a lot of reasons, a yes doesn't always turn into a check. So
this happened to you, Kevin. Then what?
Yeah. I did the thing that you showed me and I pulled this guy out.
You mean you didn't just cancel the deal after your first investor backed out? You didn't
just say, "Screw it, that's it."
Yeah, I watched Netflix. I sat on the couch and watched Netflix all day."
Right. This is too hard, I'm going to go back to doing nothing. Great.
Yeah.
No, you picked up your handy dandy cell phone which we all probably have a couple of thousand
contacts in, right, and then what?
I started texting some college buddies and I said, "Hey guys," and while this was going
on, I'm also highly involved in Active Duty Passive Income, which is its own private community
of 10,000 members, and people know me. I'm doing a lot of social media interaction, so
I'm not just coming completely out of left field. I made a live video just on my personal
feed, not on the ADPI feed, and said, "Hey, I have this real estate deal. I'm interested
if anyone's interested in learning how to do real estate, just let me know. I'd love
to help."
I didn't mention anything about the deal, the money, anything like that. I just said,
"I'd like to help you guys," and it was out to my personal friends. Then I was texting
people and one of my friends reached out, my old college roommate. He said, "Hey, listen.
My wife and I, we're both out in Los Angeles." They're both in the movie industry. He's a
high net worth earner in Paramount, he's the vice president of Paramount. He was like-
That'll do it.
Yeah. He's like, "I got this six figure bonus this year and it's still not enough for a
down payment for a house in LA. We still rent in LA."
That's crazy, crazy.
Because it's LA. I was like, "Yeah, that sounds insane." He's like, "But I know," he was telling
me. "My father was into real estate and my father wants me to get ... He grew up in alabama.
He's like, 'Your money goes further in the south and this that and the other.'" I was
like, "Dude, I got this thing. I just so happen to have this deal right now."
That's great.
"Let's talk about it." And we ended up structuring something.
What terms, just so everybody ... Because a lot of times, people either come to me or
just want to know. For folks that are offering their first deal, what kind of terms do you
offer investors? What did you give him?
Yeah. This was a learning lesson for me. I'll tell you about the deal that I structured
and then I'll tell you about what I wish I would have done.
Tell me what you did and what you would like to do.
Yeah, yeah.
Well, you're moving forward when the next four family shows up, because you know it
will. Right? So, go ahead.
Yeah, yeah. What I ended up doing was he put up ... We set up a private money loan, so
we did the promissory note, we did the whole got it all legal, everything like you say
in the book, do it the right way. With the LLC and everything. It was for the down payment
and closing costs, it was like 85,500, something like that and change.
We did a three-year balloon at 7%, so 7% but no payments until the end, until the exit
because the whole thing was we're going to BRRRR this deal. We're going to add a ton
of value.
Buy, renovate, rent out, refinance, repeat.
Yep.
Got it, okay.
Yeah. We're BRRRRing the quadplex, but that still stands as the exit strategy. When we
exit, when I calculated it, he was going to get all of his money back and I was going
to make about 30 grand on it, based on its ARVs.
Great deal, okay.
I was like, "Okay, great."
And he's out? At that point, is he out of the deal?
No.
Oh.
No, okay. So what he wanted-
Put a pin in that one, guys. He's got all his money back, but Kevin didn't push him
out of the deal at that point.
Yeah.
So he's going to get his money back, but then he's a residual owner.
Then he gets 25% of the company that owns the property.
Okay, got it.
That, to me, was what I had to do to make the deal happen. And also, he wanted to learn
real estate and he knows that with what I do, I coach 100 students. He's learning, so
he's one of my students now as well. And it was my first one.
Let me pause and just comment on that. So, you got the deal done, right?
Mm-hmm (affirmative).
The first thing, the most important thing, guys, is get the deal closed because you get
to live another day, do another deal. If you structure a deal that's a little heavy towards
the investor, it's okay. Just do the next deal. The only problem you got is that investor,
if he comes up with another bonus to do another deal with you, he's going to expect the same
terms in the next deal. That's the only reason why you want to be a little more shrewd when
you negotiate terms, guys, because investors are never going to want to hold back on terms.
They'll at least want to keep things where they are, if not increase, if not move the
needle a little more in their favor. But they're not going to want to do a deal where it's
less in their favor the second time. So, you've probably established a precedent with him,
right?
Mm-hmm (affirmative).
That said, you closed a deal and you got something you can fly on your flag pole, and now you
got some students that are learning from you and you got some other people learning how
to do what you do. Quickly before we have to move on, what would you have done on the
deal moving forward?
What I wish I would have done was not only raise the money for the equity, for the initial
equity and stuff, I wish I raised the money for the renovation costs.
Where'd you get that? Was it out of your pocket?
Yeah, so that's out of my pocket and I'm paying myself back. I have a line of credit on my
stock portfolio and stuff, which is whatever, but I'm paying for that and I was like, "Okay,
well I have three years to exit this deal and the cashflow will more than pay for this
to happen." However, the logistics of that and racking up credit card ... I have zero
interest credit cards and stuff that I'm racking up these reno costs on, then I'm paying that
back with ... I'm playing a shell game with money, and it's frustrating. It's just like,
ugh-
Yeah. People do that to get started. It's okay to get started like that.
Exactly.
You have a little five grand over here and 10 grand over there, and you go and borrow
it from this little 0% interest credit card. I talk about that. I talk about 0% credit
cards a lot.
It's the getting started strategy.
Yeah.
But now, it's like one of those things, and I'm doing more and more quadplex deals and
other ones-
Moving forward, let's say you get this guy back to the table. You'd have gone for the
down money and the reno money. Would you have given him equity after refi?
No. Well, I would actually, moving forward, what I would do is I wouldn't give him a preferred
return. I would simply either go 60/40 with him straight up and this is what it's going
to cost you. You want into this deal, you're going to provide not just the 25% down but
also whatever the reno costs will be. Or something like that, just straight up keep it simple,
guys. That is the biggest thing.
Yeah. KISS it, right? KISS it. Personally, just feedback on the deal, I would have offered
a little more interest, maybe taking it to nine. Because you said you took out 30 grand
at the refi, well, here's the question. How much of that 30 grand would you have given
him for the 25% ownership you had to give, right?
Yeah.
Personally, I probably would have slid all of it to him. Like, "Here you go, take this
30 grand for your 25%." I'm not saying that you would have had to have done that. Maybe
he would have taken less, but I would always pay a little higher interest rate in exchange
for equity as a buy out. I would have paid him more, or maybe a burnout. Maybe he gets
into the deal, I just thought of this. This is something I haven't done yet, but let's
say year one, he's at 20% ownership. Year two, he's at 15%. Year three, he's at 10.
Year four, he's at five. Year five, he's at zero.
Kind of like a waterfall, yeah.
Where you kind of just burn him out. Waterfall typically is where you are-
Oh, going the other way.
It can. But you can just slowly push back his equity as the property goes ownership
and maybe you hit certain hurdle rates of cash to him. Once you get a certain amount
of money to him, then he drops to a lower level.
Anyway, Kevin, great deal. Thank you for sharing what you learned from Raising Private Capital.
Now that you have more quadruplexes, whatever you want to share briefly, what's next for
you? Then I want to talk about how people can get a hold of you.
Yeah. Pretty much, the sky's the limit. As I briefly mentioned earlier, I'm one of the
core members of Active Duty Passive Income. That entire company, we're 10,000 members
strong. What we do is we teach active duty military, veterans' spouses, military families
how to build generational wealth through real estate investing across all facets. But pretty
much what we do is we hone in on single family real estate investing up to four units, and
multi-family real estate investing.
I coach the single family program, so I have about 110-120 students now. It's all done
in a private Facebook group and it's awesome. We're learning so much and those people are
crushing it. Then we have the multifamily academy, which is just opening up again. But
that community is growing so fast, and we are just taking a huge market share out of
everything. The founders of that company, I'm blessed to be able to work with them and
be on the core team and really, really enjoying it, but also hosting the podcast, the Active
Duty Passive Income podcast is what I do as well.
Got it. Great stuff. You got a lot of good things in the pipeline. People want to hear
more about you, they want to reach out and hear how to get a hold of you or just check
out your show, whatever it is. Where do they go to hear more about you?
Yeah. You could find me on LinkedIn, it's Kevin Brenner. Find me on Facebook, same thing,
Kevin Brenner. Active Duty Passive Income is our community and then just email me. That's
the best way, guys. Honestly, just kevin@activedutypassiveincome.com
Beautiful.
Shoot me an email and we will get after it. I love helping.
Keep an eye on this young man, ladies and gentlemen. Kevin, you applied some great principles
for your deal. Also what I notice about you is that you are looking at each deal that
you do and taking lessons on how you can tweak it and optimize it to move forward for the
next one. As you do deal, and take this for you guys too that are watching. As you do
deal one or deal two or whatever, think about things you would apply to the next deal. Just
be continuous improvement, things you can always do to make the next deal better and
everything like that.
Kevin, great lessons. Thank you for sharing today, and I appreciate you being here. Hopefully,
we'll have to have you back on again soon. As I know, I was on your Active Duty Passive
Income show recently, so I'm looking forward to that episode going out as well.
Yeah. Definitely for your audience out there. Anywhere you listen to podcasts, look up Active
Duty Passive Income. I think, Matt, your episode is going to come out in about three weeks.
We had a lot of fun.
Yeah, we had a lot of laughs.
We had a lot of fun.
We had a lot of laughs. It was one of those times where you kind of forget the microphones
are there. It was fun. I think middle of May 2020 it will come out.
Mm-hmm (affirmative).
Great, good stuff. Guys, thanks for watching. If you have a Derosa success story you would
like to submit, just email it to success@derosagroup.com. That is success@derosagroup.com. You may get
right here on the YouTube channel to share your story with everyone else. I appreciate
all you guys watching. Have a great and profitable week.