in this video I'm gonna show you guys how I bought my first rental property
when I was 23 years old
hey what's going on everyone this is Sam Kwak one of the Kwak Brothers: real estate
investor and entrepreneur and this video I'm gonna show you guys how I bought my
first rental when I was 23 years old and I'm gonna go from start to the finish
like how I did it, how I found it, how we negotiated it, how long it took to close
what we're doing now with it ,and give you guys a rundown. So I got my
whiteboard here so that you guys can come and see my beautiful wonderful
drawing ok worthy of Nobel Peace Prize. I don't even know if they give Nobel Peace
Prize for art but um so this was back in 2016 when I found it
I was 23 years old and the way that I found that is Ida mentor that told me
Sam. I want you to go and start creating your team and what he meant by team is
putting a team together of contractors putting a team together of lawyer you
know if you need to evict tenants right you need to have a lawyer also to close
on properties you need to have lawyers as well and attorneys I was putting a
team of different types of contractors like flooring people carpet plumbers
general contractors so I was putting together a team and I remember put
posting something on local my local marketplace on Facebook group so you
don't know what that is it's a Facebook group in your local area and remember
posting it on garage sale in a town name and I posted saying hey
I'm a real estate investor I'm looking for a contractor to work with on a
long-term basis if you're interested please send me a message and that's what
I posted on one of these free Facebook groups about selling things and a couple
days later I had this gentleman reach out to me I'm not gonna say who the
actual name is cuz you know protect a privacy I'm just gonna call that person
Matt Matt's reached out to me he sent me a Facebook message saying hey Sam I see
that you're a real estate investor you posted looking for contractors I'm a
roast investor myself I'm looking to sell my portfolio would you be
interested and I said heck yeah send it over and this is cool
because Matt wasn't Matt didn't listed on on the MLS it wasn't public so this
was considered an off-market deal so he sent me a packet an email with a list of
I believe 16 properties and he sent me all the all the information about the 16
properties as well as the address the monthly rents that are being collected
and it's in the purchase price and we took a particularly the information
redid some comps on it we used the software to run some comps to see if the
value was if the value to home was anywhere anywhere near the purchase
price that Matt was asking so they did fall anywhere between plus or minus
5,000 or I should say two thousand plus two minus two thousand dollar range
which is good which is actually pretty accurate and that is a real estate
broker and still is and obviously he did comes to to figure a fair purchase price
so the purchase price checked out so the first thing we did is we did comms to
make sure that the purchase price was not like outrageously crazy like
off-the-charts way expensive we found that through doing comparables
the properties all 16 properties were within plus or minus $2,000 in terms of
what we found to be the value based on what the market was saying so that
checked off right the comps were good perfect the next thing we did is we met
with with with Matt and we didn't see all 16 properties using the reason why
we do that is we like to see one or two properties that the seller manages and
we we prefer to see the the management style of the landlord so we knew by
looking at two or three houses or I think we looked at four out of the 16 we
looked at the 416 and we got an idea of okay Matt prefers to manages it this way
we can see the tenant makeup we can see the general sentiment of the tenants we
can see how the properties are ran the maintenance done on all those properties
so we looked at four properties and we said you know what this and that's not
too bad it's not it's not awful we can do a little bit of work in the future
but yeah I think this is you know acceptable condition based on the market
so after we saw the property what happened was we decided to go and sit
down for coffee for about an hour to talk numbers so our progress so I'm
telling guys the promise it takes for us from beginning to close founded the on
Facebook Matt sent me the information via email of all information the
purchase price and so on did our comps we met with Matt at the
properties just for just to see what just kind of getting a sample because
obviously you don't have all the time to look at all 16 if it did we would but we
did it so we let that four properties the next thing we did is we sat down to
do coffee slash lunch with Matt to talk numbers so we didn't want to get into
too ggressive we actually ended up just buying four we selected the four
properties that seemed to be the best in condition as far and as well as the the
rents as well as a purchase price so we came down to agreeing that we're just
gonna buy four properties from out of the 16 and I'm gonna give you guys the
purchase price of each of the property that we bought and they're all single
families so none of them was like a duplex or anything like that
all of them ended up being a single family the first one was the by the way
these these are Midwest rental properties so for those who live in New
York City or California you guys are might be like oh my gosh like these are
super duper cheap well these are like Illinois so don't get freaked out but
these are normal home prices in some certain parts of Illinois the first
property we bought was the purchase price was 25,000 gonna use a different
marker color for this the first price was 25,000 the next one was 35,000
another one that's for 35,000 and the last one I believe we bought it for
55,000 in total the whole total purchase price to move our book here was 150
thousand dollars so that's why we came out to be for the purchase price okay
given that the rent on each of these I'm gonna write the rents on on it because
if I put the rent it will make more sense and you guys will think this is
this is amazing the rent on the first property was
$800 okay second property was 750 was it was a little bit of an unfavorable
neighborhood so the rents are a little lower the third property was 800 I'm
sorry this one was 900 now that I think about it this one was 900 and the third
one was 800 the fourth one was 950 so pretty darn good in terms of rent to you
purchase price ratio so in total we have I'm gonna pull up my calculator okay
our gross purchase price is $150,000 gross rent okay is at I'm gonna throw
this number in here open up my phone
okay I'm gonna do some additions here so clear the calculator 900 plus 750 plus
800 plus 950 gives gives us a gross rent of $3,400 a month okay so what we do
from here is that we need to do the cash flow analysis on the gross rent and from
there we'll we start working on the financing terms but let's go and first
work on the gross rent and that's part of the part of the analysis process we
actually of a whole separate video dedicated to how to analyze your cash
flow on a rental property so what we do is we usually take this is more of a
general rule of thumb there may be specific situations where we may use
different numbers but we're gonna use more of a rule of thumb here with you
10% for maintenance okay maintenance 10% for management cost okay 8% for vacancy
and I don't have the exact insurance in the tax numbers of top and pad at my
head I'm gonna be very close to what we were paying every month I'm gonna get as
accurate as possible so bear with me here guys so 10% of three 3,400 is $340
every month that we are setting aside for maintenance even if we don't have an
actual repair that needs to be done we still set that money aside for any
future repairs or means that we need to make 10% for
management also another 340 dollars a month 8 percent vacancy I'm gonna do a
quick math on that contrary to belief I don't like math so we're gonna go on x
8% which gives us two hundred and two hundred seventy two dollars a month and
our insurance from what I remember for all four properties was that two hundred
ten dollars a month and our taxes are around 280 a month okay so our bottom
line that you guys are seeing here I'm going to do the math we're gonna take
$3,400 and start subtracting these numbers out again these are rule of
thumb different situations may call for different types of numbers and
subtractions and additions so 3400 - 340 another 342 72 and 210 and another one
of 280 so our net operating income this is what we like to call net operating
income this is our bottom line before our financing we have an noi now an
operating income of 1958 okay i'm gonna divide that and to make sure that we're
within the the 50% expense to income ratio so what we have is 57% okay
income to expense ratio so approximately 57% of our gross rent is going towards
our expenses which is pretty good and by the way the general rule of thumb is 50
percent of your gross rent is gonna be considered expenses such as you know
maintenance management vacancy insurance and taxes now this is not the this is
not this is not what's going into our pocket right we have we certainly have
more going into our pocket so what we have done is we got to do our financing
here I'm just like I'm just make sure double check our numbers here okay so
our financing here is that we have $150,000 purchase price now we were able
to negotiate this to be owner financing which meant which meant that was gonna
play our bank Matt agree to take monthly payments in exchange for the ownership
right of these four properties so Matt's kind of like our bank and what's great
about the owner financing is we don't have to go through a background
check or credit check we don't have to go through underwriting just like a bank
financing would ask us to do so this is very convenient we don't have to use our
own credit to be able to finance the the purchase so Matt was financing to
purchase for us so that we didn't have to do that now the way that we got to
got to have Matt say yes to owner financing was that Matt Holt held on to
these properties for a very long time so he had he had some capital gain taxes
that he had to pay now I'm not gonna go into too deep of a detail as far as how
to negotiate for owner financing in fact we have another video specifically
dedicated towards how did negotiate for owner financing so what I'll do is I'll
leave that link below in the link description box so that you can go and
check that out and watch that video and how to negotiate for owner financing but
assuming that you know how it's done we were able to get Matt to take 10% down
payment okay because anymore if he if he takes anymore in terms of down payment
he's gonna end up paying more taxes up front okay so 10% down which meant 15%
of $18,000 down okay and the remaining $135,000 balance was being carried by
Matt at 6% interest at 15 year amortization okay so what that turns
into I'm gonna actually write down the the principal interest payment every
month okay so Pia and I I'm gonna do the math here by the way if you guys want to
use a mortgage calculator carl's mortgage calculator is a great app for
you to calculate the the monthly payment for on a mortgage or a owner financing
payment so we started out with a $150,000 purchase price we put a down
payment on this calculator for 15,000 okay and our interest rate is 6% on a 15
year amortization we have a principal interest payment of one thousand one
hundred and thirty nine dollars and 21 cents okay that's our principal and
interest payment not counting insurance and taxes okay so
if we if we do the math take 1958 dollars of our net operating income mmm
and subtract that with the principle interest payment 1,001 or $39 1958 - 1 1
3 921 we get a cash flow of 818 dollars and 79 cents a month not bad Plus this
is on a 15 year amortization which means guys is we're gonna be able to pay off
all these four properties within 15 years
okay building more equity and we have mass amount of cash for that we get to
generate so this is actually the first for rental properties that we bought
starting out in 2016 late 2016 and we were able to buy these
on owner financing so from beginning to end sort of doing a recap we found these
properties on face book and they're out there guys gonna be doing the right
marketing we found the properties to Facebook group
okay Matt reached out to us we asked for more information which Matt sent this
information we booked a meeting with him with in one of those properties so we
went in and saw and met Matt as well as seeing some of these properties that
were looking to purchase we obviously did a walkthrough to see if there's any
problems or issues and after we saw the property we took Matt out to lunch and
coffee talked about the numbers negotiated for owner financing which
again we have a separate video for that came with the purchase price of $150,000
and then we ultimately negotiated for these terms now for owner financing we
use something called contract for deed which is a an acquisition strategy that
we can go and talk about in a later date but I'm just wanna show you guys what
our first deal was and how we were able to repeat this process over and over and
over to get to 75 rental units in just one year speaking up we do have a book 0
to 75 rental units in just one year if you guys want this we're actually giving
this out for free absolutely for free you see to go to 75 0 to 75 units com
will even include that down below in the comment section as
well as the links description so this is an absolutely free book you see to pay
for shipping and we'll send it out to you guys we'll talk we'll share how to
get started how to get in the right mindset as well as how do how does how
to prepare yourself for massive success so that you can surpass even us right if
we can get you to to buy 120 units 150 rental units or even let's say thousand
rental units based on what we show you guys here we've done our job well so
this is how we did it I've shown you guys all our numbers how we know how we
structured our deal a lot of times when it comes to owner financing we do 10%
down we even got away with 0% down which Daniel has a separate video for that so
this is it guys if you guys have any questions or thoughts go ahead leave
them down below if you have any questions about this deal or if you have
any other questions about our about how this whole process went in the next
video I'm going to show you guys how to buy your first rental property without
using your own money or credit so that video is gonna be right here I'm gonna
point at it go watch that video and I'll see you in that video to show you guys
how to buy your first rental property without using your own money or credit
I'll see you guys there