How I Bought 7 Houses With $0

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This is the digital nomad quest podcast, Sharon Tseung. teaching people how to build passive income become financially free and design their best lives.

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Hey guys, Sharon from digital nomad quest, and today we’re gonna talk about how we purchased seven properties with close to $0 out of pocket. So I think this is an interesting topic, because I think a lot of people are interested in how to purchase properties with $0 out of pocket, you guys might have heard about the birth strategy, it’s kind of similar, we basically buy property, renovate it, rent it out, refinance it, and then repeat that process. And with that, you can basically take money out of the deal by tapping into the equity of the home and getting a loan through that cash out refinance. And putting that money back into more properties. This is kind of similar. But let me talk about our journey. And what we did a little bit differently, and how we’re able to acquire seven units for portfolio which is a huge help in our cash flow. So this is how we found the deal. We had already been investing in Georgia in this specific market. And we built a strong team there, the property managers really like us because they know that we are kind of helping improve some of these homes in their community. And she really respects what we do, it’s really great to hear and the property management company actually talked to our agent and told us about how their client wanted to sell their homes to buy their dream home. So they had a bunch of these rental properties, they wanted to get rid of it so that they can use that money to help buy their dream home. Now that property management company instantly thought of us because we are the ideal clients for that type of property because they knew our buying criteria, they knew what we’re trying to do with these properties to get them right ready. And that’s why the pm company offered this deal to us, we are presented initially with a deal of six units for $270,000. That’s basically $45,000 per unit, he told us that one got a new roof recently, but two of them are missing central heating and air. So that’s going to be costly. We were also told that the average market rents were $695 per month when fixed up as you can see, these properties have lower rents than some of the properties that we may have talked about before. So because these properties are a lower price point, they are going to charge lower market rents. But we do think this market has a lot of appreciation potential, the average market rents have gone up over time, especially because there’s more demand for this area due to population growth, job growth, income growth, housing, price growth and other factors like this. That is why we chose this market. And we think that housing prices and rent prices will go up over time. We also as landlords, we make sure to care for these tenants and not just like increase rents, when we feel like it, we usually just allow rents to be about the same. But if these tenants move out, we’re going to fix up these properties and boost the rents to maybe a little bit below or average market rents. So we’re never trying to charge something crazy, right, we want to make sure that we take care of our tenants. Now with all this information, we decided to talk to our agent and see if we could go under $40,000 per unit, our agent is really good with negotiating on price for us. And they ended up adding another unit for this package, and then bringing it down to around $38,285 per unit at seven units, this would total to $268,000. Again, this is an affordable market. But supposedly these units could go for 50 to $57,000 per unit. So we’re already getting a discount of about 25 to 33%. So that’s pretty good already. So without doing any repairs or anything like that we’re already getting this package at a discount, the current gross rents are $4,363 per month, that’s an average of $623 per unit. If you divide the rents by the purchase price, it does meet the 1% rule, the 1% rule basically states that your rents are 1% or more of the purchase price. And if you look at our numbers, it’d be 1.63%. So that greatly exceeds that 1% Rule already. So that’s a good sign. So basically, the 1% is a guideline to make sure that your units are going to cash flow, although it’s just a basic framework. And you need to do that due diligence of analysis. It’s a good kind of benchmark to look at. Anyway, after we get these properties fixed up, we know that it’s going to cashflow decently and cover our mortgage, our property management fees, our insurance repairs, property taxes and potential vacancies. The interesting part of this whole purchase is how we finance the deal. These seven properties were purchased basically with none of our own money. So we thought this would be a great way to increase our portfolio without having to take money out of our own pockets. And you guys must be wondering how we’re doing this. And we have developed an amazing connection with a local commercial lender out there and they pretty much offered amazing terms for us. Now most lenders are going to request 20 to maybe 30% down because especially this is a package deal, and most banks aren’t even going to do loans at 50k per unit because of such a low price point. So in these scenarios, you might want to do cash or hard money loans in

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stead. However, because we have these nice terms with this lender, we were able to do something called cross collateralization, where we essentially took the equity of a property that we currently own that we bought all cash with and use this as the downpayment. To complete the deal, this lender usually allows us to do just 15% down but because this required a larger portfolio loan, we ended up having to do 20% down for this one. Now, let’s go back to the cross collateralization thing. So basically, we purchased a property at around $40,000 before and now it’s worth $60,000. They took the equity from that property so that $60,000 and use it as a downpayment. So ended up being able to cover the entire downpayment of the seven property package, there are seven homes that we’re purchasing, and then plus this one that we already own, that is worth $60,000, the purchase price of that seven property portfolio is $268,000, which means a downpayment was around $53,600, which is about 20%. And that $60,000, from that property that we purchased all cash covers that downpayment plus an extra $6,400. Now basically, what happened was we wanted to cover more of the closing costs, these closing costs ended up being $10,011, which might seem like a lot, and it is, especially at this $268,000 purchase price. But if you look into it, it makes sense because since it’s seven properties, the title company had to do a title search for every single property here. And that’s going to add up in fees. Plus, we also got title insurance anyway, because the closing costs are so high at $10,000. That extra $6,400 wasn’t going to make up for those closing costs. So we decided to ask the lender hey, look, can you help us out? Can we increase the loan amount so that we borrow more money that covers all this stuff. And that’s why our loan amount is $276,000, instead of at that purchase price of $268,000. Because some of that money could cover more of these costs. Now it essentially covered these closing costs, so that we were able to basically buy this with about $0 out of pocket, except we did pay for the end, which was less than $3,000. So it’s a little bit more than $0. But still really good. Now, if you guys don’t know an EMD is the earnest money deposit. And that’s the amount you pay in the very beginning to secure the deal to show you’re serious about buying it. But with the EMD, it’s taken out of the purchase price essentially. So it’s not like you lose the EMD it’s still part of the purchase price that you pay for. So hopefully all this was understandable. And that’s how we’re able to do 100% financing essentially, and get this with close to $0 out of pocket with this loan. It is a 20 year loan where interest will adjust every five years, we’re able to secure this loan in mid fours, which is not bad considering interest rates are crazy right now. But yeah, with every five years we’ll have to reevaluate or see if we want to do some type of refinance. Now let’s break down the numbers around cashflow. So current gross rents are $4,363 per month the mortgage payment is $1,755 per month pm fees are $340 per month insurance is $140 per month, around $20 per unit property taxes are $233 per month, so cash flow should be around $1,894 per month, but we like to a lot 10% for repairs and potential vacancies. That’s why the total net cash flow is $1,458 per month. So hope you guys liked this breakdown of the numbers of the seven property portfolio that we purchased and how we bought it essentially was $0 out of pocket we’re really happy that we could bring up our cashflow without even taking that much capital out of pocket if we can buy a few units per year we’re able to increase our passive income even more and we keep learning more and more as we attempt more of these projects. So if you guys liked this episode, let me know in the comments below let me know if you guys have any questions probably be buying more and more projects and reporting back to you guys and also providing tips around real estate side hustles personal finance and things like that. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.

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