19, Broke, and No Credit to 28 Units and Over $1 Million in Real Estate

Ashley:
This is Real Estate Rookie, Episode 283.

Caleb:
Yeah. So today we’re at 28 units. We’ve got three deals across Texas. We’ve got a 10-unit in McAllen, an eight-unit in Laredo, and a 10-unit in Houston.

Chuck:
Well, first of all, we love just more units. I mean, it’s just more scalable, so we can just keep that momentum going. But also, I feel like there’s a lot of opportunity in that mid-size multifamily range, or small, or whatever you want to call it, because a lot of them are just self-managing.
So if we can get a good manager, a good operator, and we throw them in there, and we do a little bit of renovations, we pick it up, the ship, so it’s actually moving.

Ashley:
My name is Ashley Kehr, and I am here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And as always guys, we’ve got an amazing episode for you today.
We’ve got Caleb and Charles. They’re a slightly younger duo that’s been crushing it in the small multifamily space. I think they’re up to 28 units as of this recording.
And in today’s episode, we break down how basically they had a six-month ultimatum from their families about whether or not they were actually going to be real estate investors, and they parlayed that into a successful real estate business.

Ashley:
Yeah. One of my favorite things about this episode, and we’re actually going to have another episode in a couple weeks that we recorded today, too, is talking about how many phone calls they made. And the other episode we do talks about how many handwritten letters, somebody did to get their first deal.
So if you are struggling to get that first deal, listen through this episode just for some motivation and inspiration, and how long it took them to actually get that first deal done after continuously making these calls.
And also how they transitioned from not just calling the owners, they stopped calling owners that became to be too frustrating for them. So listen through to see who they call to actually get these deals done.

Tony:
Yeah. I think the other thing to call out is how they were able to negotiate seller financing on this 10-unit at a ridiculous deal, and it really came down to understanding one thing about the seller. So make sure you listen for that part as well.

Ashley:
Tony, do you have a review for us? I just want to hear how wonderful and beautiful and amazing you are.

Tony:
Absolutely. So this review comes from wblakec, and Blake says, “I loved your episode about sober living homes. BiggerPockets motivated us to open our first house here in Virginia. Grand opening is in August, and we’re planning on implementing the BRRR and opening a woman’s house down the road. Love BiggerPockets.”
So if you guys didn’t listen, that episode was with Devana, Reid. Her and her husband shared how they built a pretty sizable portfolio of sober living homes. I don’t recall the episode number. If you go back a few episodes, I’m sure you’ll find it. And the receptions, that episode has been fantastic. So I’m glad someone got some value from that.
But if you guys are listening, all of our Rookies listening, if you haven’t yet left us a review on Apple Podcast or whatever platform it is you’re listening, please take a few minutes and do that. The more views we get, the more folks we can reach. And the more folks we reach the more folks who can help and impact on their journey to financial freedom.

Ashley:
And I should mention that today’s episode, Tony is in Mexico where is wonderful and beautiful and he has turned his camera several times to show me his view. Well, I’m sitting here in Buffalo where it’s been snowing and raining all day here in April, so.

Tony:
Yeah. This is actually the first time I’ve recorded two entire podcast episodes in my swimming trunks. So this is the best thing ever. So I got to come to Mexico more often.

Ashley:
Usually Tony’s in his black shirt and then his underwear. So yeah, this is a big change for him.

Tony:
This is a big change for all of us.

Ashley:
Well Chuck, do you want to start telling us a little bit about yourself and how you got into real estate?

Chuck:
Yeah. So we kind of got into real estate together. It was just Rich Dad Poor Dad. My mom gave it to me, was it junior high school? And then I couldn’t really act on it because I’m 16 years old, but I just kept reading books and then eventually got into contact with my mentor.

Caleb:
Yeah. It was kind of, I’ll piggyback off that a little bit. It was kind of a whole perfect storm that came together. It was kind of junior year, the COVID thing hit the world. That’s when we were still in high school and we was like, “What do we do?” It’s like we’re bored out of our mind. None of our friends can leave our house. Luckily we lived pretty much right next to each other. So Chuck’s mom’s like, “Oh, I heard of this good book!” And then Rich Dad Poor Dad, he gave it to me and then we just started going down this path together.

Tony:
So if you guys get this real estate or financial freedom bug pretty early, but like you said, you can’t do much as a 17-year old in high school. So kind of fast-forward to the point where you guys are actually at a point where you can start taking action on what you learned.

Caleb:
Yeah. It kind of went by pretty quick. It was like so, went through our senior year of high school, a little more normalcy and then we’re both in junior college, I’m still playing baseball at the time. Chuck’s just going to school.
And I think I can speak for both of us when it’s kind of like, “Gosh, this just isn’t where we want to end up.” So that’s kind of when we started getting back into everything and kind of branching out, looking for where to start now that we were actually legally aged.
So we just started networking and then we eventually just found our mentor. We cycled through a couple different people and we didn’t really get anywhere. And then we eventually found Cody and he kind of just guided us on exactly what to do.

Ashley:
So what did you do?

Caleb:
Yeah. When that whole thing started, I met Cody very early on. This was before he was even on BiggerPockets and just got referred to him through a local loan broker down here in San Diego. And just was bugging him with questions, as many as you could do in a day, just constantly hounding him.
He is like, “Hey, I’m actually starting up a mentorship program right now if you’d be interested.” And me not having the money for the monthly fee, I call Chuck and I’m like, “Hey, you want to go in and all this thing together?” And then that’s kind of how we got started with that.

Tony:
And what strategy did you guys end up landing on? Because there’s so many different ways to get started in the world of real estate investing. So what was the path you chose and help us understand why you felt that was the best room for the two of you.

Chuck:
We went with creative financing, because number one, we’re young so we can’t get regular traditional financing and we just didn’t have any money. So it was kind of the only option unless we were going to partner on some big syndication or something like that, and we didn’t really find. See that as our path.

Caleb:
It was like being young, broke, no credit, none of that stuff. And it’s like, “Gosh, how do we do this?” And it really lucked out having Cody and Christian as our mentors because that’s exactly the path they had went down. So there was a great blueprint already in place and we’re like, “Well, we don’t have any money. You’ve got a little bit more money than us, but you still did it. Let’s see if this works.” It kind of starts stumbling our way down in.

Tony:
Can we talk a little bit or just clarify for folks? Because the phrase creative finance encompasses a few different strategies and techniques. So when you all say creative finance, what exactly does that mean? Break it down for the audience.

Caleb:
Yeah. With creative financing, basically we did all three of our deals have been seller financed. We haven’t delved into any of the wraps or sub2. One thing Cody and Christian really instilled in us was just keep it as simple as possible, and seller financing’s how we found to do that.

Ashley:
I just want to mention real quick, that Cody that you’re talking about, he was on episode 554 of the BiggerPockets Real Estate podcast. If anyone wants to go back after this episode and take a listen to it.

Tony:
So if you guys can, let’s break down what seller finance means and why is that called creative financing versus traditional financing.

Chuck:
Yeah. So all it is just the sellers acting as your bank. Instead of going to the bank getting a loan, the seller’s actually just going to lend you the money.

Caleb:
And that’s great for people getting started. Because bank, you have all this underwriting, you have to meet all these qualifications. Seller financing, there’s just none of that. It’s all made up or brainstormed by you and agreed to it the seller.

Ashley:
Let’s talk about that first deal. What were you guys doing to source the deal?

Chuck:
Yeah. So it was a hundred percent just on market stuff. We were just calling pretty much every broker in Texas. We didn’t even really have a real buy box or anything. We’re just like, “Okay. We’re just going to volume this out and we’re just going to call everybody. Look at every single deal and see if we can make something happen.”

Caleb:
Yeah. There were a lot of calls between zero and number one.

Ashley:
So was this when you guys were still in high school at this point in time or what were you guys doing at this point of time in your lives?

Caleb:
Yeah. At this point, so we had gone through junior college we met Cody and then Cody joining. Cody gave us the confidence to drop out of school. And so Chuck told his parents, I actually didn’t tell my parents, I just stopped going to baseball practice and stopped going to school. And then from there just kept following Cody has preaching and then that was around winter of 2021 until spring of 2022, is when this whole thing was really going on.

Ashley:
So were you leaving the house to go to college classes or…

Caleb:
That’s actually how my parents found out, is I just wasn’t going to class or baseball anymore. They’re just kind of like, my dad took me out to breakfast one weekend, he is like, “What’s happened to school?” And I’m like, “I don’t go anymore. Didn’t appreciate that very much.” And that’s when we got set our timeline, or at least myself. I had six months or I had to get out of the house.

Ashley:
So that was what your parents set for you?

Caleb:
Yeah. It was just, “You got to figure out the deal or got to go find somewhere else to stay.”

Tony:
Can we just pause for a second on that? Because I think kudos to your parents for not overreacting and saying, “Hey, you better go back to school or else.” But to give you the grace, to give you the time to try and figure that out on your own. It kind of gave you permission to go all in on this and I’m sure it probably motivated you, because who wants to be homeless as a recently graduated high school kid. Right? So what were the steps kind of flowed from that?

Caleb:
Yeah. I know exactly. Nobody wants to be homeless at 19 years old, so that was nice they gave me the grace. Kind of when I talked to them about it, how the six months came about is I was like, “Well look, if this is my dream and I’m going to chase it. The worst case scenario that happens is I’m back here in six months in the fall semester for college. It’s just an extra six months to go try to chase this.”

Ashley:
So, with doing your DoorDash, did you ever come across any properties? Maybe you’re delivering at one house and you see the next door, the properties vacant, there’s mail piled up at outside. Did you kind of incorporate any driving for dollars?

Chuck:
Not really because we weren’t really looking to buy in our backyard, San Diego. Just it’s tough to break into that market if you have no money and just not a ton of connections. So we just were focusing on our Texas deals.

Caleb:
Yeah. One thing we were doing though is when we were doing DoorDash and driving, at least for me, I always had a real estate audiobook on. It was always just trying to make the most of my time. But yeah, not much driving for dollar San Diego. I mean it’s hard enough to start real estate with no money, let alone start in San Diego, California.

Ashley:
And how did you guys choose your market then?

Chuck:
So initially we were looking in Northern Nevada and you’re looking on just on market deals. I mean, there were only a handful and we just wanted to volume it out. So we’re like, “Okay, we need to go somewhere else that’s pretty relatively close that we can go fly to, but has a enough deals where we can just call, call, call, day in, day out.” So we just went through Texas, it’s because it’s just a huge bucket.

Caleb:
Yeah. It eventually, piggybacking off what Chuck said. It eventually came down to, “Well, we’re either going to do Texas or Florida.” And kind of the logic was Texas is halfway closer across the country than Florida, so we’re going to try here first and see what happens.

Tony:
How many, you mentioned that there were a lot of phone calls. Roughly, how many people did you have to call in Texas before you actually got a deal that turned into something?

Caleb:
Yeah. That’s a great question. Gosh, amount of brokers. It was probably around 500 to a thousand phone calls. Somewhere in there.

Tony:
Can we break down? So you mentioned that you had a script. What exactly were you saying when people picked up the phone to pitch them on the seller finance?
Was it the first thing that came out of your mouth like, “Hey, will you sell the finances deal?” And it’s like a quick yes or no or were you trying to understand their situation, their motivation? What did that conversation typically flow? Mic.

Caleb:
Yeah. So I was doing the majority of the calls and they were mainly to brokers. Just we had bad luck with owners. We tried them a little bit, but it was kind of got shut down pretty quick. So we’re like, “Gosh.” And we actually went out to Texas to meet with an owner. Had five meetings scheduled, four of them canceled.
So we’re kind of like, “Yeah, this isn’t going to make much sense when we’re saving every penny to have for this and then gets kind of screwed over last second.” So what we ended up doing was just calling brokers and the first thing was just making sure the deal was still available just because if it’s not, it’s a waste of five minutes of their time and my time.
And then we knew which areas in Texas we liked. We’d look up population growth to obviously see how the area is, but neighborhood to neighborhood, we weren’t too sure. So I wanted to go find out about that, find out neighborhood in the area. And then after that is when we’d bring up the seller financing. How long have they owned it, what’s their motivation here for selling? And then if it’s older looking to retire, we’re like, “Would they be open to a seller finance?” And most of the time it was no. But eventually we landed on a few yeses.

Ashley:
Can you talk about some of the advantages for the seller to do seller financing? And do you ever work that into your pitch?

Chuck:
So that’s not really a big focus of ours because we’re just talking straight to the brokers or the brokers communicating with the seller. But a couple of the advantages I’ve seen, is if you’re passing it onto your children, it’s a lot easier to just pass on a note than a building. I mean, a lot of these people are self-managing it. They don’t want to just throw it all on their kids to actually manage the building.

Caleb:
Yeah. And then piggybacking there as well, I think a huge advantage is being able to give the price that they might be looking for. Sometimes with conventional financing. Currently, the building just isn’t worth X, but seller financing you’re like, “Okay, I know it’s worth blank day one and I know I can get the rents up to this, get the expenses down so the building will be worth enough.” But just day one, it’s not. So there’s a lot more room for creativity and getting sellers what they’re looking for.

Ashley:
We just had Pace Morby on episode 280 where he talked about seller financing and that was kind of exactly one of the things that he had said too, is that the purchase price is sometimes just what’s important to the seller. And with doing seller financing, you’re able to get there too.

Caleb:
Yeah. I think everybody’s motivation’s different, but a lot of these people, they just have a purchase price set in their mind, especially in the market today. They just have that one purchase price they’re looking for and they’re not going to move off it. So with seller financing sometimes that’s the only way to get it done.

Tony:
One question I want to go back to guys is, you talked about 500 to possibly a thousand calls you had to make. Over what timeframe was that? How long did it take for you guys to get those 1000 calls before that first deal came through?

Caleb:
It took about five months for us to actually get a deal under contract. I mean, it’s just a long time of doing it day in and day out.

Tony:
So to go through that process, a thousand calls, five months. A lot of people I think would’ve given up after 90 days of, some even after a week of just kind of banging your head against the wall.
So what was the motivation for you? That’s a lot of rejection. What was the motivation for you guys to keep pushing until you found that first yes?

Caleb:
Yeah. I think one of the big ones is just knowing it was possible. If we hadn’t met Cody or doing this on our own, we’re like, “Gosh, maybe this didn’t just isn’t real. Maybe you just can’t do it.” But having met and Cody and Christian and seeing that they had actually done this and made it happen, it was like, “Okay, we know that this is possible. It’s just we got to figure out how to find the right deal.” But that was a big one and then also it was just our dream.
It was since we were 16 years old, we had been looking to buy real estate and we’re like, “We’re not just going to give up now. We’re going to ride this thing out, see if we can make something happen.”

Ashley:
Okay. So let’s talk a little bit about your guys’ partnership going into this. So you guys read Rich Dad Poor Dad together. When did it become official that you guys were going to work together?

Chuck:
It was kind of just straight away. We just kind of hopped in it together and we were learning with each other and it was kind of scary at first just talking to anybody, especially cold calling an owner or a broker. It’s just like, and you’re 18 years old and you have no idea what you’re talking about it. So hopping in with him just helped me a lot. I’m sure it helped him a lot, just having more confidence.

Ashley:
And you guys have partnered on all your deals together or have you done some that are separate?

Chuck:
Well, we’re partnered on all 28 units so far.

Tony:
Just for context, how are the two of you separating duties? Caleb, what do you do? Chuck, what do you do and how do y’all make sure that you’re not stepping on each other’s toes or get in the way of each other?

Caleb:
That’s a great question. At the beginning we were doing a lot of the calls. I was doing a lot of the calls, but Chuck was helping out with most of the underwriting duties. So it was like, I’d find the deal, be like, “Hey, I got a deal, look at this.” Send it over to him. Then we’d kind of get together, congregate on it like, “Hey, this is what we’re thinking, could this work?” Almost every time it was no. And now today it’s a lot more of, I’m kind of the one still doing the acquisitions and Chuck is handling most of the operations and kind of the back end stuff.

Tony:
And then do you guys have an agreement, an operating agreement or a joint venture agreement or a partnership charter? Have y’all kind of sat down to outline what this partnership looks like or is it more of a handshake back and napkin type of relationship?

Chuck:
No. We have an operating agreement, yes, because we also have our capital partners, so we got to make sure they’re protected as well. And we’re all just fulfilling our duties as managers and them as members.

Ashley:
Yeah. Let’s get to your portfolio then. What does it look like today? Are you holding properties and how many deals have you done?

Caleb:
Yeah. So today we’re at 28 units. We’ve got three deals across Texas. We’ve got a 10-unit in McAllen, an eight-unit in Laredo, and a 10-unit in Houston.

Ashley:
What made you guys want to go after the small multifamily, instead of doing single-family or even duplexes to go ahead and jump in with something a little bit larger?

Chuck:
Well, first of all, we love just more units. I mean, it’s just more scalable, so we can just keep that momentum going. But also, I feel like there’s a lot of opportunity in that mid-size multifamily range, or small, or whatever you want to call it, because a lot of them are just self-managing.
So if we can get a good manager, a good operator, and we throw them in there, and we do a little bit of renovations, we pick it up, the ship, so it’s actually moving. We can actually increase the building a lot because they’re so under rented. Our first building, the rents were all at 600, easily can be at 800 with just a little bit upgrades.

Ashley:
With the multifamily, are you guys doing the operations then? The property management, the asset management, that piece of it? And what are you outsourcing, if any of that?

Caleb:
Yeah. So being out of state, we have property managers for our properties down there, but we’re overseeing the managers kind of making sure the assets going in the direction we want, handling the renovations, overseeing everything.

Tony:
Can we talk about how you guys chose and vetted that management company? Because I think for a lot of folks they underestimate how much goes into managing the property manager and choosing the wrong person can obviously derail your deal.
So how did you guys choose the right property manager for your market and how were you able to hold them accountable? What does that relationship look like?

Caleb:
Yeah. So when we’re vetting the property managers, I had called, one huge benefit of calling so many brokers in the state of Texas is I had called so many different people in so many different markets. So once we finally hit in those markets, it was like, “Hey, who’s your PM here? Who’s your go-to, who’s your favorite property manager?” And then one name kept coming up.
So we were called them, just was like, “Hey.” Just talking to them, wanted to see what their vision was for the property, if it aligned with ours, if we kind of had the same goals in mind with it. And then we did. And so we decided to go with them.

Tony:
And then in terms of the ongoing relationship, because I know Ash and I will talk about this where you see some PMs where the costs are kind of spiraling out of control and the day-to-day management things are slipping. So how do you all act as asset managers and hold your property managers accountable?

Caleb:
Yeah. I think it’s a weird balance because you have being on them too much and you have being on them not enough. So it’s a constant struggle to find that perfect balance. So I think it just all depends on what’s going on.
If you’re doing renovations like we’re getting into now it’s, you got to be on them a little more like, “Hey, how’s it going? What are we doing here?” The progress, everything. But it’s just letting them do their job at the same time. It’s, they’re a property management company for a reason. So it’s just the big thing is just finding a balance between being on them too much and then not being on them enough.

Ashley:
If you guys could do it again, or maybe you did this in the beginning, but what are some questions that you can give to our listeners that they can ask when interviewing a property management company?

Chuck:
Yeah. I think a huge one. I don’t know about you, but it’s how many units they own in the area and how long they’ve been doing it. It’s because some of these fresh managers we’ve interviewed, a few of them just didn’t really know what they were doing.
It was, they kind of sounded uncertain on the phone and I’m like, “Well, you’re uncertain, there’s no way you have…” If you’re uncertain, I’m going to be uncertain about this. So it just didn’t make sense. But just how long they’ve been doing it and how many units they have is a huge thing.
And then I think market rent and then how they’d handle certain situations like, “How would you handle vacancies? How do you go about filling vacancies? What do you see as market rent here? The units are currently at this, do you think we’d get to this? What would it take?” So just their understanding of the area and knowledge is huge if they’re going to manage your building the right way.

Ashley:
I do agree with you that I think there have been a lot of startup property managers the last several years of people just thinking that, “Here’s a opportunity. I’ve got a couple units myself, I might as well share the overhead. I can manage these units great.” And then go on and it ends up not really working out that well.
Or I’ve also seen where they do start and then they grow too fast where they don’t have the processes and systems in place to handle that many units and that’s where it kind of starts to hurt them.

Chuck:
Yeah. I know, I definitely agree. We have three managers, because we’re in three different cities in Texas, so it’s the same process for all three. Each city we came across in, people got a recommendation, they were really fresh in the game. It’s had barely in our units under management, not even in the area.
We were looking in that city and it’s like, “Oh, I think we’re going to go a different direction here. So I, hundred percent agree. It’s about finding one that’s established has been in business and has a clear plan for your building.

Ashley:
And what do you think about fees? Are you willing to pay a little bit more for the property management fee instead of going with somebody who’s cheaper even if they are more green?

Chuck:
Yeah. This is something you can’t skimp on. Property management is almost everything when you’re going out-of-state investing, so you need to make sure you find the right one.

Tony:
And on the note of fees, I just also want to talk about again, just what that relationship looks like. So when your property management company is solving problems on a day-to-day basis, at what point do you require that they communicate with you? Is there a dollar threshold? Is there a certain, I don’t know, impact level that you’re looking for? How do you make sure that you, as you said Caleb, you’re not over-managing but you’re not under-managing either.

Caleb:
Yeah. Usually it’s, if must it’s a little fix in the building, it’s just go ahead and get it done. But if it’s an AC unit or something like that of that nature on that level is, when I’d like to start to be notified like, “Hey, this tenant’s AC went out, we need to get a repair.” “Okay. Let’s get on that.” But at that level and up is probably when I’d like to be notified.

Tony:
Yeah. I know what I did when we had our long-terms, we had a specific dollar amount in our property management agreement that said, “Anything under this dollar amount, don’t talk to me about it, handle it on your own. Anything above this dollar amount is where I need to be involved to get the final say.” And Ashley, I think you have a very similar thing in all of your property management agreements as well. Right?

Ashley:
Yeah. It’s a dollar amount and then the appliances, which has been a big issue for me. “Do not ask me to replace an appliance. Please just replace it.” What am I going to say? “No, the fridge isn’t working.” “Let me think about it for a couple days and I’ll get back to you.” “No, don’t even ask me. Just take care of it.”
But I want to ask about the rehab process too with using the property management company. You said that they kind of oversee it and you have to keep on top of them for that.
What are their roles that they’re doing for you during the rehab process? And then what are your responsibilities? Are you designing the rehab? Are you the one hiring the contractors? Are the managers doing it? And what does that whole process look like?

Caleb:
Yeah. The main thing so far has been, they kind of hook us up with their contractors in the area that they’ve been in business with for a while. Then that contractor gets me a quote and they kind of oversee the work as that contractor goes about it. And it’s all different.
One of our PMs, the one in Houston’s like, “Hey, we got this. They’re asking for this on the floor. If we can get this done, we can get it rented out for X by the end of the month.” And it’s like, “Okay, let’s go ahead and do it.” The other ones is going more through the contractor because they don’t have an in-house. So each one’s different, but it’s kind of just making sure we oversee it and that they stay on top of the contractors as well.

Chuck:
And we work with great property managers, so they’re really good at assessing what we need and what we don’t need. So usually it’s pretty tight and we can get the best ROI for our money on the renovations.

Ashley:
And then are they charging you a project management fee on top of your regular management fee at all?

Caleb:
Not so far, no. They’ve kind of just been, “Hey, our contractor’s doing this.” And then that’s the company that outsources it. He’s really close to them and the other company just has an in-house, so.

Tony:
That’s actually pretty solid. Right? Because a lot of property management companies, they make more revenue by upcharging things like repairs and maintenance and managing construction projects. In fact, they’re giving it to you just kind of on the house. It’s a good property management company.

Caleb:
No, it’s awesome. Have great relationships with then.

Tony:
So I want to deep dive one deal. So do y’all have maybe one deal on mind that we can talk through the numbers on?

Chuck:
Okay, yeah.

Caleb:
Yeah. Well our Houston 10 plex.

Tony:
Okay. Let’s talk about the Houston 10 plex. I’m going to shoot you some questions. Just give me some rapid fire questions. We’ll set the table, we’ll go back and kind of deep dive it from there. So first, what was the purchase price on this property?

Chuck:
It was 725,000.

Tony:
725. And you said this was a 10 plex?

Chuck:
Yep.

Tony:
And that’s awesome. You guys are crushing it. And did you find this property on market? Off market?

Caleb:
Off market from a broker relationship I’d built.

Tony:
And then how did you fund this property?

Chuck:
We just brought in an equity partner. So they own half the deal, we own half the deal and we just split the cash flow.

Tony:
So first, before we even go into the deal, what you just said, where you found the deal, you kind of put the whole thing together and you brought in a partner to pretty much carry all of the financial burden for the deal and then you split everything 50/50.
I’ve done that countless times in our business and the majority of the properties in my portfolio today, we purchased without using any of our own capital. But it’s because we found the deal, we did the work, we set it up, we managed it long term, and there are so many people out there who have the capital but don’t have the time, desire, or ability to do it themselves. And they would happily partner with someone else who’s willing to do those things for them just in exchange for a little bit of cash.
So you guys are a great example of that. So let’s kind of take this deal from the beginning. So what about, I guess just kind of give us the story. Right? Walk us through how you found it, how you found this partner, how you put the whole deal together.

Caleb:
Yeah. It was just so, it was a broker relationship. I had called him on a deal in Houston two months prior and just kind of stayed checking up every three weeks or so, like “Hey, how’s it going? You got anything coming on the line?” “No, no, no.” Then he shoots me a text one day, “Hey, 10 plex in Houston, would you be interested?” I’m like, “Of course.”
So start looking at the deal and it’s like, “Holy cow.” For asking this guy once, this deal’s bringing in, what was it? Over eight grand. It was like, “This thing is a cash cow.” We knew a good deal when we saw one. “Okay, wanted to make sure he’d seller finance a hundred percent.” And we got the confirmation on that. So after that we started negotiating the terms, “Hey, what’s most important to him?” And it was the interest and the purchase price and then just kind of went under contract from there.

Ashley:
What did you guys end up doing for the terms? What was the amortization period in the interest rate?

Chuck:
So it was interest only, it was 5.25% and it was 10% down.

Ashley:
Okay. And then how long was it interest only for? Did you have a balloon payment or how did that work?

Caleb:
Yeah. So we have a balloon in three years, but the only reason we are okay to compromise on that balloon time is the deal. We bought it so under market value. It’s realistically we could go refinance right now if we wanted to. So we were comfortable shorting the balloon on that. And then yeah, IO for all three years.

Ashley:
I did a seller financing with interest only and did a balloon for a year and I was sweating. Man, it was the same day closed on it and then I did it. I mailed the check overnight to the guy that did the seller financing and he didn’t get it and I was just like, “Oh my god.” And I was in sheer panic and he thought it was going to be hand delivered to his house.
But he had lived in some development where they have mailboxes at the beginning of the development and the postmaster from that town, I called her, I was like, “I don’t know what to do.” And she actually drove out there and was like, “Um, it wasn’t his mailbox.” He thought it was going to be delivered to his door.
I mean, that was hours of pure panic and pain that I felt. So that’s good that you guys, give you guys a good cushion for three years compared to one year. But I think that’s a great example of looking at the different variables. You guys bought so below under market that you’re not worried about when you do have to refinance that it’s going to appraise enough so that you’re able to pull all your money back out and pay off that seller financing.

Chuck:
Exactly.

Tony:
I was just going to ask. What does the rehab look like? Was this a turnkey property? Did you have to put in capital to get this rent ready and increase the value?

Caleb:
Yeah. So day one they were rent ready, but they aren’t to market standard on the units. They’re already achieving, we’re making 15% cash on cash on the deal day one. It’s, we love it, but they’re still an extra $200 upside per rent or per unit and rent. So it’s, we just go in whenever they leave the lease. We just go in, renovate it, get an extra 200 to 250 on the rent.

Tony:
And what’s the potential or projected cost per unit to get them that additional $200 in rent?

Chuck:
Just usually about three grand. It’s super simple. Reno. It’s that one company we’re talking about before.

Caleb:
Yeah, they have in-house contractors just handle everything like, “Hey, this person’s leaving, let’s go and get this done.” They give me over the quote, it’s like, “Okay, let’s get it going.”

Ashley:
What was one lesson that you guys learned on this deal?

Caleb:
I think the biggest one is everybody’s motivation’s different, with sellers. Some sellers are just like, “Hey, I need this price, blah, blah, blah.” Or they want a large down payment or they want a lot of interest.
This guy was like, “Hey, I just don’t want to manage it anymore. Can we please just come to an agreement?” He wanted to keep it off market. He didn’t want his tenants knowing he was selling the building, because he had built such a great relationship with his tenants that he didn’t want to let them know and damage that relationship and have them all leave. So it was completely off market. They didn’t know, and a big motivation for him was not upsetting those tenants either.

Ashley:
We talk a lot about estoppel agreements and sending those out to tenants before you take over to verify the lease information or especially if there isn’t a lease with what the property owner is saying. Were you guys able to do those or were you not able to, since the owner didn’t want the tenants knowing they were going to sell?

Chuck:
We did something else. I think, what is it called, an affidavit or something along those lines. I can’t remember exactly what it’s called, but it’s basically, he signs off on it himself and if they were to be incorrect then we can go after him legally.

Caleb:
But yeah, they all ended up being correct. We closed, got them all verified with our management company and everything’s been going smooth.

Ashley:
That’s awesome. Well congratulations guys, that’s really cool.

Caleb:
Appreciate it.

Tony:
Just one last thought on my side and I’m so glad that you brought that up, Caleb, is that every seller has a different motivation and we can’t always assume that we know what’s going to motivate someone to sell a property.
And for some people it could be time they want to close quickly. For some people it could be price, they just want the highest overall price. Some people it could be cash in pocket today, they want the biggest down payment. Others, it could be interest, it could be an infinite number of things. And for your seller, interestingly enough, they were most concerned with making sure that they maintained that relationship with their tenants. And as long as you’re able to solve that problem, now you are in a position where it’s a win-win situation.
And I’ll never forget, Ash and I interviewed somewhat, that was quite some time, I can’t remember which episode, but they end up getting a really great deal on a single-family house. And all they had to do was pay for a moving company to help this old lady move.
In her mind, the biggest reason or the biggest obstacle to her moving was packing up all of her stuff. And this person was like, “Well, ma’am if I just get you a moving company and help you move to your next place, would that help?” And she was like, “Oh my gosh, that would help so much. And would you really do that for me?” And it’s as long as you’re listening, you can identify what those challenges are and if you can solve that, you get a great deal.

Caleb:
Yeah. Couldn’t agree more. One thing that’s difficult, more going through brokers is you don’t always know what that motivation is. It’s because sometimes all the brokers aren’t the best at conveying what the seller really wants. So once you find that key, what they’re really looking for, that’s when negotiations really take off.

Tony:
So that’s a great point. If I can ask one follow up question. So a lot of times agents aren’t super excited about seller financing because in some of those situations their permissions could cut or things like that. So how did you still incentivize the agents to actually present this deal to you?

Caleb:
Yeah. I think I had let him know what I was looking for as seller financing over time, like, “Hey, this is what I’m looking for. Seller financing, Houston five to 25.” Made it very clear. And for him there was no stress. Just I made it clear like, “Hey, we’re still going to get you your commission.” That’s not get an issue. And when he was confident that we weren’t going to cut the commission or anything like that, it was just a normal deal for him.

Ashley:
Okay. Well you guys, thank you so much for sharing that deal. I’m going to take us into our rookie exam. So we’ll give you guys each a question here. First, Chuck, let’s start with you. What is one actionable thing rookies should do after listening to this episode?

Chuck:
I would say just hop straight in, because that’s how we basically learned everything and Cody gave us a little bit of information, a little bit of direction, and then we just go heavily apply it, just apply it, apply it, apply it. And that’s how we just did all of our learning. And that’s how you really get started. Even if you don’t know everything day one.

Tony:
All right, Caleb, next question’s for you. What’s one software app or system that you use in your business?

Caleb:
Nothing too complicated honestly. Just make sure you’re keeping track of everything. For me, I use Excel spreadsheets. It’s, you want to keep it as simple as possible, but just make sure you’re keeping track of things. Even if it’s just broker calls.
If you’re calling a thousand people, you’re not remembering every single call from three months ago. So it’s just staying on top of it, whether it be Google Sheets, Excel, Notes in your phone, whatever. But just make sure you’re staying on top of what you’re doing.

Ashley:
Okay. And then this question is for both of you. Where do you plan on being in five years? Chuck, you want to go first?

Chuck:
Here at least one goal. I want to at least have one building paid off in five years. That’s something I, hundred percent want to do. Probably that 10 plex pay that thing off, that’s where I see myself in five years.

Caleb:
Yeah. I think I agree with that a hundred percent. I’d love to pay that building off. And it’s also just keep scaling up and buying the seller finance deals.
So I mean, seller financing, it’s not everybody’s open to it, but it’s just the easiest way to get a deal done. It’s the simplest works for both sides. It’s more of a win-win in most scenarios. So just at least 150 units by then, bare minimum.

Tony:
Love that. Those are some amazing goals guys. And the pace that you’re moving at, I have every reason to believe you guys will hit that number. So kudos to you both.
Cool. So before we start to wrap things out here, I want to give a shout out to you this week’s Rookie Rockstar and this week’s Rookie Rockstar’s name is Derek Gocal. And hopefully I got the name correct there. But Derek said, “My goal was to purchase my first investment property within a year and a half of graduating high school, and I did it. Being 19 years old, I gained a few or saw a few negative reactions to people who didn’t think I could do it, but hard work, drive and a strong support system can help you achieve anything.” So Derek, congratulations to you for being 19 years old and getting that first deal done.

Ashley:
Well, Chuck and Caleb, can you guys let everyone know where they can find out some more information about you and reach out to you?

Chuck:
Instagram’s the best if you want to reach out, @chucky_sotelo and then…

Caleb:
I’m caleb.hommel, and we also have a YouTube channel. It’s Caleb and Chuck.

Ashley:
Well, awesome. Thank you guys so much for taking the time to come on today and share so much value with us and the listeners.

Caleb:
Thank you.

Tony:
Yeah. You guys are great.

Caleb:
That was fun.

Chuck:
That was awesome.

Ashley:
What a great episode with Caleb and Chuck, what a inspirational seller financing story as to, here they are, they have no money, they’re doordashing just to learn about real estate to pay for some mentors. And then here they are now, they have three big deals locked up with seller financing.

Tony:
One of the things that, I think Caleb said this, that really stood out to me was he talked about his buy box and how the fact that he was so specific when he reached out to these brokers is what eventually led to one of them sending him that 10-unit deal that they closed on.
And he said, we told every broker that we spoke with that we’re looking for between five to 25 units, specifically sellers that are willing to sell our finance in this area of Texas, and when you’re that specific with an agent or a broker when something matches that, they have a reason to want to reach out to you.
And then the second thing that Caleb said was that he was able to still incentivize the brokers to send him deals because he made sure to reassure them that he was still going to give them their commissions as if it were a regular transaction.

Ashley:
Yeah. And they talked too about their partnership, how that kind of formed. And it was definitely over time, it wasn’t just they met one day and they decided to partner. So I think that’s kind of an interesting story as to how they’ve grown their partnership in and work together today and also how their roles and responsibilities have also changed.
So Tony, let’s do a social media shout out to Sara today, because Tony’s wife Sara recently changed her Instagram handle from Sara Rad to Sara Rad Robinson. Right? Can you spell it out for me?

Tony:
Yes. She did. So S-A-R-A-R-A-D Robinson. So Sara Rad Robinson, she made it official. And it’s because the whole Meta verify thing, you can’t change your username afterwards. So she was like, “Am I going to be Sara Rad forever? Should I be a Robinson?” I was like, “I didn’t marry you for you not to change your last name on Instagram. So you got to have the Robinson in there.”

Ashley:
But it did take her a long time to change her name because I remember when she did change her handle, I was like, “But did you actually change your name to that?” But Sara puts out a lot of great content, but unlike Tony, it’s not just great content. There’s also very funny reels that she posts that are real estate related. So I think should give her a follow.

Tony:
Yeah. And actually, Sara posted yesterday, and I don’t know if I shared this on the podcast yet, but Sara is officially four months pregnant right now. So she posted on her Instagram yesterday and we kind of shared it with the world. So come October, baby Robinson, we’ll be here.

Ashley:
Yes. And so excited for both of you. I’m really excited for a little tiny baby co-host. Be a part of this podcast. So guys if you haven’t already, go wish Tony and Sara, congratulations on their Instagram account and maybe we’ll get some baby love time here on the podcast episode a couple times, so.

Tony:
Thank y’all. Appreciate it.

Ashley:
Okay. Well thank you guys so much for joining us. I’m Ashley, @wealthfromrentals and he’s Tony, @tonyjrobinson. And we will see you guys on Saturday for a Rookie Reply.