Welcome to The Accelerated Investor Podcast with Josh Cantwell, if you love entrepreneurship and investing in real estate then you are in the right place. Josh is the CEO of Freeland Ventures Real Estate Private Equity and has personally invested in well over 500 properties all across the country. He’s also made hundreds of private lender loans and owns over 1,000 units of apartments. Josh is an expert at raising private money for deals and he prides himself on never having had a boss in his entire adult life. Josh and his team also mentor investors and entrepreneurs from all over the world. He doesn’t dream about doing deals, he actually does them and so do his listeners and students. Now sit back, listen, learn, and accelerate your business, your life, and you’re investing with The Accelerated Investor Podcast.
So, hey, welcome back. I’m so excited that you’re back with me at Accelerated Investor. Thank you so much for spending a few minutes with me today. And I wanted to jump right into a case study. This is the 242 Sand Stone Ridge case study, this is a property that we’re actually, I’m recording this podcast on a Friday and this deal is actually set to close on Monday in about three days. And so I wanted to tell you a little bit more about this deal and how we used private money to acquire this property and how we were able to pivot into multiple different types of exit strategies depending on what the market was kind of telling us and how we use private money to find the deal, position the deal, renovate the deal and then exit. And the exit that we’re going to have on Monday is going to produce about an $85,000 net profit check, so big deal, big profit, but also has created a lot of tax benefits and a lot of other benefits.
So let’s just talk through the deal for a minute. So 242 Sand Stone Ridgeway is a property, you can look it up if you want on Zillow or public auditor’s website. I bought it years ago, about five years ago. I bought it as a HUD home. So the first question people ask me is, well, how do you find deals? I found this deal through HUDHomeStore.com it was up on HUD home store.com for about $171,000, $175,000 I made a low ball offer. We were able to get it accepted for $134,000 so I was able to buy the property for $134,000 now the neighborhood, everything in the neighborhood sells for $220,000, $230,000. So I knew immediately, okay, I’m acquiring this property at about 65% of what it’s going to be worth. So I made a blind offer, you know, in the low one hundreds $110,000, $120,000 they came back with a counter offer.
Then after they came back with a counter offer that was kind of in my ballpark, I thought, okay, now I can go see the property. So I made a blind offer online. I used the brokers NA ID number. So if you’re making an offer on a HUD home, you have to do it through an agent that has an NA ID number and they can make the offer right through HUDHomeStore.com. So I found the property there, made the offer, got a counter offer, and okay, I thought, okay, now we’re kind of in the same ballpark. Me, the buyer and HUD, which is obviously the government. It’s an FHA loan gone bad. So it’s a HUD home. And basically we were in the same ballpark. So I thought, okay, let me go figure this out. Let me go look at the property.
I walk into the property, I’m like, oh my God, this house has just been renovated. What is going on? It’s actually in pristine, perfect condition. So I leave the property, I walk over to the neighbor’s house. I talked to the neighbor and the neighbor is like, yeah, well that’s a bank owned, you know, government owned property because the owner moved to Alabama and just left the property, just walked away from it and ended up turning off the sump pump. This sump pump was not running and so the bunch of mold in the basement. So the government, FHA, HUD did not want to put the property back on the market with a bunch of mold in it. So the government actually paid to redo the entire basement, okay.
Put up all new drywall, all new two by fours, all new carpet. Redid that even did part of the first floor redid part of the kitchen. So I’m like, okay, well the property’s already been renovated. We had an inspection done. All the mold was taken care of, essentially a brand new property, but people in the neighborhood knew that the property had been abandoned for about two years. So it’s, you know, typical foreclosure property, typical HUD home, you know, going through foreclosure, abandoned for a while, and then the bank turns off the electricity, which turns off the sump pump.
And all of a sudden there’s water in the basement. So that’s how we found it. But when I bought it, it had already been renovated. So I’m thinking, okay, home-run opportunity, bought the property, put some more work into it, painted it, put some new backsplash in, finished off with some new granite. I replaced the old countertops with some new granite, put in stainless steel appliances and put it back on the market.
Well this is going back about five or six years ago and the market in Northeast Ohio and Cleveland was still sort of suffering from the great recession. There was not a tremendous amount of activity, definitely not in the, you know, $225,000 range. So put the property on the market and we weren’t really getting a ton of showings, we weren’t really getting a ton of offers.
So what I did was when I bought the property, I recruited the capital from a private lender and I told the private lender, hey, if I’m going to buy this property, I want to flip it, I’ll pay a 12% interest or 15% of the profits, whichever is greater.
And private lenders said great, well they, so they funded about $160,000, which was my purchase and some minor rehab. It actually didn’t even need the whole
160,000 I only needed about $150,000 so bought it for $134,000 about $10,000 $12,000 grand in Rehab. But I got one 60 so I was actually able to put $10,000 in my pocket when I bought the property, okay. If I wanted to spend that, I could, but the money was in my bank account, so I actually got paid essentially when I bought it.
So then we went through the renovation process, put the property on the market, we’re all into it for about $150,000 and it’s not selling partially because the property had a little bit of a stigma to it because of the mold and also because again, the market just wasn’t that hot yet. Back in 2013, 2014 and so and so I decided to run it. So refinanced it, get a new appraisal on it, property appraised and $235,000 $240,000 range, put a new loan on it. Okay. For about $150,000, paid off the private lender and was able to pay off that, that private lender loan. I had to take that $10,000 that was in my account and bring it back to closing actually when I refinanced it. So had a new loan on it with a regular commercial lender for $150,000.
Now, over the last five years or so, I rented the property out. I had the same tenant in the property for about three or four years. Tenant was great, tenant took care of all the repairs. I had very, very little money invested in the property beyond that because the tenant was awesome. Took care of the property and did everything. So, you know, this was in a class, a neighborhood a class a type of property.
So I had a class a tenant who did a good job of maintaining the property. Very little money I put it up, maybe a thousand bucks over the past five years. Now, over the last five years, the tenants been paying me rent. I’ve been making about $400 a month in positive cashflow. I had been paying off the mortgage and every month, every year we’ve been paying down the principal, so now we go to close Monday a couple of days from now, I only owe $127,000 on the property.
I’ve paid the mortgage down from $150,000 down to $127,000 $128,000 and so now put the property back on the market. The market’s definitely hotter now there’s a lot less inventory. There’s a lot, but more buyers looking for properties. The property has been rented for five years. The property has been lived in for five years. There’s no mold, there’s no stigma.
Everything in the property looks great, feels great, smells great. I put it on the market for two 20 and got a full price offer in 48 hours for $222,000 minus $3,000 in seller closing costs. So essentially $219,000 is what I have it sold for and I’m only into it for $128,000 so when we walk away from closing on Monday, assuming that we close sign and I get the wire proceeds on Monday, it’s going to be about an $80,000 to $85,000 net profit check, which is going to be amazing.
Now, why does a deal like this work, right? Why does a case study like this come together? One isbecause I had the private money raised and had private lenders that were already ready to do business with me. People I had relationships with people who were ready to loan me the money to do that deal at 12% interest or 15% of the profits, whichever was greater. So we decided to keep it and we refinanced it. We paid that private lender back their principal plus 12% interest just for a very short amount of time while I owned the property. So I only owe them 12% interest for a few months while I was trying to flip it and sell it. Then the commercial loan comes in, so I had to have decent enough credit to go get a commercial loan. Now today, five years ago, I had to go with a Fannie Mae Freddie Mac loan.
There were very few private lenders five years ago willing to lend on rental properties. Now today there are dozens, hundreds of lenders out there that love to land on rental properties and they pretty much do it based on the asset. They do it based on the appraisal and they do it based on the income from the property. They’re not doing it like Fannie Mae and Freddie Mac does. They’re not doing it based off the debt to income ratio. They’re doing it on what’s called debt service coverage ratio. So debt to income ratio means, let’s say I make a hundred grand to use a round number and they’ll allow you to have about a 40% to 45% debt out of the a hundred grand, you’ll have $40,000 to $45,000 a year in debt. That’s called a debt to income ratio. Today, what a lot of these lenders are doing is they’re doing what’s called debt service coverage ratio. Debt service coverage ratio, DSCR. That service coverage ratio means that you have enough income from the rent to cover the debt service, which is your mortgage payment, okay.
And they’re typically looking for a debt service coverage ratio around 1.3% so again, if you’re getting $1,300 a month in rent, then your debt service could be about a $1,000 a month. That’s 1.3% debt service coverage ratio. While on this property, I was getting $1,600 a month in rent and my mortgage was only $1,100 a month, about $500 a month of net income.
So it was really an awesome opportunity. So today if you work with even companies like mine at FreelandLending.com you can get funding not only for the acquisition but also funding for your long-term rental property. So I pivoted five years ago into a long-term rental loan owned the property. For the last five years I was able to get cash flow but
also depreciation. I was able to write off that as an expense on my tax return. And now I’m going to sell the property for about a $80,000 net profit, holding it for five years and selling it now at the virtual top of the market.
So what are your, what are our takeaways from this? One is the way we do deals like this, which is essentially buy, rehab, tried to flip it, couldn’t flip it, rented it, refinanced and then sold it down the road essentially on a rent. And then ultimately the tenant moved out and I sold it to a retail buyer. So you’ve heard of the BRRR method, buy, rehab, rent, refi, enroll or buy, rehab, rent, refi and repeat. That’s exactly what we did on this property to a t worked out perfectly, okay. So in order to pull that off, what do you need? Well, first of all, you got to find deal flow. In this case, we use HUDHomeStore.com definitely recommend checking that out. Now, today there’s not as many HUD homes on the market as there used to be, but when there’s a recession, when there’s a correction in the market, there’s going to be a lot more Fannie Mae, Freddie Mac and FHA foreclosures.
You’re going to find those FHA foreclosures at HUDHomeStore.com. Secondly, had to have access to private money, right? Because I told FHA that I was paying cash and I did pay cash, but it just wasn’t my cash. It was someone else’s cash from a private lender that lent me the money to buy the property, so I had no money out of my pocket, no credit check, no money down, literally no money out of my own pocket. Then I did have to have decent enough credit to get the refinance loan, okay. The refi loan to be able to cashflow at longterm. I had to have good enough credit. And then finally I had to work with an agent.
I worked with my buddy Steve Junker over at Remax. You can look Steve up online he is a fantastic realtor. And this year when I decided to sell Sand Stone, Steve said, hey, market’s great. This is what you should price it at. We did it. We sold the property in 48 hours. We went under contract and now we’re going to close. So that’s an amazing opportunity. An amazing case study, a big profit, big tax return, big tax benefits, big cashflow, all using private money to do buy, rehab and flip or buy, rehab, rent, refi and repeat.
You’ve been listening to Josh Cantwell and the Accelerated Investor Podcast. Leave a comment on our iTunes channel and let us know what you want to learn next, or who you’d like Josh to interview. While you’re there, give us some five star rating and make sure to subscribe so you can be the first to hear new episodes. Follow Josh Cantwell and his companies, the Strategic Real Estate Coach and Freeland Ventures on all social media platforms now and stay up to date on new training and investment opportunities to start your journey toward the lifestyle you’ve always dreamed of. Apply for coaching at JoshCantwellCoaching.com.
Understanding how other investors structure their property deals and hearing their strategies for creating cashflow or long-term equity can be extremely helpful when pursuing your own deals.
In this podcast, Josh shares a case study of a single-family property he sold recently. He used the “Buy, Rehab, Rent, Refinance, Repeat” (BRRRR) method – in a slightly different order. This case had a few twists and turns that were unexpected, such as the reason Josh was able to snag a home in near-perfect condition for such a low price in the first place.
It’s an insightful example of how all the “pieces” of real estate investing can come together to create a perfect deal for you – the investor. It simply takes some knowledge and strategy, on your part, to ensure that the deal generates the profits you’re expecting.
- How Josh found this HUD property deal
- How Josh financed the property (and then refinanced to a new loan)
- Josh’s net profit when the deal closed
- The details as to why this deal was a win for Josh
- What you need to do to replicate this process and score your own amazing deals