Welcome to Radical Wealth Plan. Today, I'm going to talk about how to do a real estate deal when you have no money. Real estate is the one asset class that if you can find a great deal, and I'll explain to you what that is, you can find the money. The money will be there once you find a great deal. So let's talk about what a great deal would look like. Think about this. Every single building that you drive by has been purchased with other people's money. Very few buildings are bought with cash like other asset classes. People who buy stocks, they're generally paying cash for the stocks. But every building that you walk by, it's either syndicators' money, investors' money. Certainly a bank is involved, so therefore there's bank money. Someone is using other people's money to make that purchase. So just use that as a reframe to begin with. Most investors are stuck on the amount that's inside of their bank account rather than focusing on the deal. The deal determines the funding. And here's what I mean by that. If you can find an opportunity that provides a great yield, meaning a great return on capital, then it's easy to find the money to put into the deal. And again, I'll give you an example. At different times, different rates make a deal great. five or six years ago, there were properties that were trading at about 4% cash on cash. And what that means is if you bought the building 100% cash, you would net 4%. That's a cash on cash rate of return. And nowadays, you can find sixes and sevens and even more if you look hard enough. And if you find a deal that will return greater than prevailing rates, it's easy to go out to investors, people that don't understand the market or don't know real estate or just simply aren't willing to put the work into it to fund your deal. And that's exactly what I did with my first very large transaction. People are willing to invest in competence and clarity. And here's what that means. You don't have to be a real estate expert to have competence. What you need to have to have competence is just real clarity on that particular deal. Know the ins and outs of a particular property that you're looking at. For example, I looked at a fourplex in the mid-cities area in Los Angeles, and it was really ramshackle. It had been on the market for a while. I can see why people passed it. It really didn't look that great, and it also was half vacant, two units vacant, two units filled. The two units that were filled were paying a low rate of return, and the two units that were vacant were pretty ramshackle, and if you filled them as is, would get you sort of mid to low range rents for that particular area. And the two units that are filled, I would just leave them as is for now because it can be difficult to get people out of a rental unit. You've got to look at the local laws to determine that. But you can look at the two empty units and see how much work would it take. You go in with a contractor you figure out how much will it take to bring these two units to a place that will drive top rents for that particular area You got your purchase price you got your cost of renovations and then how much rent are you going to get from those particular units It's easy to figure that out. You just go on Zillow or one of the major rent aggregators and you find a similar apartment that's in great shape and you'll be able to see what things are renting for in that particular area. So you really can estimate pretty closely what those after renovation rentals are going to be. And that's going to give you really an upside from the purchase price. And that upside and purchase price is going to give you more rental income. It's going to give you more net operating income. And what that is, net operating income is the amount of income after you pay all of your bills. and that's going to drive the rate of return on the purchase price up to a point that will make sense for investors. So you're using your competence and the clarity of telling the story of that deal in order to attract an investor. If the apartment building were totally done, done, done, they wouldn't need you. So they wouldn't fund your deal. But what you're doing is you're looking at an apartment building or a property that needs work. You're figuring out all of the different things that you need to do. What does it cost? How long is it going to take? What's the after renovation value or the after renovation rentals going to be? And how does that pencil back into a higher rate of return? Now you're offering something to an investor that they can't get without the competence that you're bringing and the clarity that you're showing. And when you do those two things, you can get investors to get into your deal and you don't need money to invest in real estate. Just now I explained how you would get into a deal without money for the deal. And I was asked a question that really takes it a step further. And that is, hey, you're entering a market. You really don't know the market. How are you going to find this particular deal that's going to attract these investors? Where do you even begin? And I'm going to talk about a shortcut that it's a little out of the box. And I really believe it will work every single time or almost every single time. And that is you find an investor. You find an investor by determining what criteria they're looking for. In essence, what rate of return are they looking for in order to invest alongside you in a real estate deal? Once you've done that, I would find a realtor that specializes in the class of real estate that you're looking to buy and take to that investor. And what I'm suggesting is the mid-range. You're well below what professional investors are looking at, so 10 units or less. You're definitely dealing in sort of the mom and pop area, so you can really compete well in that area. and you find a realtor that specializes in doing those deals. And when you find a realtor that specializes in doing those deals, you want someone that doing 10 to 20 of those deals per year because you know they looking at a lot of them they evaluating them and they closing the sales They closing the sales because they bringing these deals that make sense to mid-level investors or new investors. So that's the realtor that you want. Now, I would invite that realtor out to coffee, say, hey, even though I'm a new investor, I have money behind me and I'd like you to show me some of the current deals that you have. And start evaluating those deals. What is a value add deal? A value add deal is a deal that requires some work in order to bring it up to market value. And you're going to get rewarded by that, by doing that work. So if you have a deal, I call it a retail deal. A retail deal is really a deal that's done, done, done. And you're going to pay top dollar for that. It's going to drive the price up and it's going to drive the rate of return down. Because the higher the price, the lower the rate of return. When a place is done, done, done, it's going to command that high price. So you're looking for something that has some hair on it or has some brain damage, as I like to refer to it. And that's your value add deal. and you look at it, you get the realtor's advice and you figure out which deal makes sense to bring to your investor. I would look at several of the deals that they have and figure out, walk through on paper with that realtor what needs to be done on that particular property, what is it gonna cost to make those renovations and what's going to be the after renovation value of the property, which is driven by the after renovation rental. So you're going to rehab that building and you're going to bring rents up to market rent and therefore increase the rental role. That is the amount of rent you're getting for that particular building. That's going to drive the rents up and the yield up. And you're still buying it at a very reasonable cost because it needs work. And you're going to solve that problem. By solving that problem, you are bringing the competence to the deal. that I was talking about competence and clarity. And the clarity is the exact numbers. Here's exactly how much I'm buying it for. Here are the exact things that need to be done. Here's how long it's going to take to get them done. Here's how much it's going to cost. And this is what it's going to be the total cost all in after renovation. And how much more rent are you going to be able to get? You can do that simple math and figure out how much the yield increases and therefore how much the value of the building increases once you do that. And you can take that deal to an investor and get an investor to back that. Now, one of the things that I would do, again, like I said, this is a little bit outside the box because we're talking about Sarah Smith. And Sarah Smith, she's doing 20 deals a year. Guess what she's doing? She is selling these deals generally to a group of investors she knows will close them So she going to take her very best deals to her tried and trued investors And one of the ways to get to the top of that list is to say to her hey what does it take for me to get a shot at one of your great deals? One of the things I would consider doing is actually offering a higher incentive, and that is paying a higher rate of commission to do your first deal. Get to the front of the line with Sarah Smith and say, hey, look, I know that you're generally getting about 2.5% from a buyer and you're dealing with professional buyers. So you're doing a certain amount of work that gets you that 2.5%, which you deserve. And I'm a newer buyer. I'm willing to pay 3% or 3.5%, which is unheard of because Sarah Smith, I want you to walk me through this deal. I want to make sure that this deal is a great deal because I'm going to put a family member or a friend in it. We're going to do it together. I want to make sure that this thing is great. The other thing I'm going to do is we may buy and hold this thing or we might buy, renovate it and then sell it. If we sell it, I promise you that I'm going to give you the listing on the way out. That is the way to get to the top of Sarah Smith's list and she will bring you her very best deals. The other thing that you have to do in order to really assure yourself that spot is the ability to make a decision pretty quickly. Because she needs to know, oh wow, I found this great deal. I'm going to take it to my regular investor. Wait a second, I'm going to give Paul Morris a chance. He's a newer investor. He's willing to invest in me. He's going to pay me more because I'm going to do a bit more work over here. And I'm going to go ahead and give him a shot at this. The one thing that will sort of kill that deal is if you don't act quickly. So get with Sarah. Make sure you understand the deal quickly. Get with your investor. That clarity will bring the money to the table. People hesitate when there's lack of clarity. But once they really understand the deal and they understand that you understand the deal, that's what will bring a deal to the close very quickly. And so that's a little bit outside the box. I don't usually hear people talking about paying realtors more than the commission that they're asking for, but it's a great way to get to the top of the heap. It's a great way to compete and get ahead of other investors with Sarah Smith, the realtor that you've chosen. And that really is a formula, I believe, that will work right here, right now in this market. when you have no money, you find someone that's willing to invest in you once you demonstrate the competence and clarity, and now you bring them the great deal. You close that great deal with Sarah Smith, the realtor, and you make sure that she gets the listing on the way out when you sell it. Thank you.
