On the show today we talk about… My First 3 Deals with Aaron Royce!
Contact Aaron Royce at:
(425) 657-3512 Call or Text
Show notes for Investing from My First 3 Deals with Aaron Royce
The Vantastic Life is…
– is in Anchorage Alaska
Joe is in Anchorage, Julie is in Ballard, Nghi is in his basement, and Aaron is…
Welcome Aaron Royce of Think 3 RE!
Aaron has done 5 fix and flip projects and has started buying rentals out of state.
Also, welcome to co-host of My First 3 Deals, Nghi Le of Certain Lending!
We are so stoked to have Certain Lending as our lending partner at Seattle Investor Club.
Aaron is a local investor that regularly attended our weekly SIC masterminds. I have very much enjoyed getting to know Aaron this year.
Thanks for being on!
Thank you, this is exciting!
I feel like these are great!
I grew up in Santa Monica CA in apartments with a single mom. When things started picking up for my mom she moved us out to San Fernando CA.
During that time my mom bought her first property, and her making that mortgage payment was a really big thing.
So, growing up I thought that owning real estate was a negative.
I went to college and was making a good amount of money, but still had this negative perspective of real estate.
Then when I met my wife I was about to go on a Christian ministry trip, and it was so cool that she wanted to go out and adventure with me.
At that time my friend had quit a great engineering job and start teaching. And he did that because he had bought a small multi family building.
That friend had me play the Rich Dad Poor Dad Cashflow game, and the gears started turning in my mind. I started realizing that real estate helps you build long term wealth.
At the time we were living in South Africa. And we needed a place to live… the real estate was so cheap there that we looked into buying land.
We found this great property, and ended up building on it. We built a house that had an amazing ocean view.
The house appreciated, and we thought that maybe we should do this intentionally.
But during the downturn of 2008 we got hit really hard, and were out of the game for many years.
Our first flip wasn’t until 2017, and we started moving forward from there.
What happened in 2008?
We made good money with our house and we read Rich Dad, and we came back to the states and started buying things at the top of the market, and even tried to develop a property.
There was a time when my partner on the development deal said we couldn’t put another cent into the deal.
And the rentals weren’t really cash flowing, and there were repairs that kept coming up.
We actually ended up going through bankruptcy at the time. We went in way too fast, and we didn’t have good mentors around us.
So, once you read the book and played the board game… where did you start learning again, when you tried to get back into real estate?
Back in 2005-2008 we got involved in a real estate investing company, and paid about $20k to do that. We just tried to do too much at one time.
So, when we got back into it in 2017, I opened up all of that education again, and it was very valuable.
When we got back in we partnered with some people that could bring us deals. This is because we didn’t have time to find deals ourselves.
I was scared because going bankrupt as a father with a family, you don’t want to do that again.
We finally had enough capital to go at it again, and went for it.
How many properties did you lose?
We had a number of houses here and out of state, and the development project.
We did the project all backwards, we were building while we were doing a short plat.
Wow! What do you think the biggest lesson for you?
By the time we bought the first rental we were in such a hurry to take actions, and frustrated that we ended up buying a top of the market deal. It was all about speculating. We bought it at full retail because we were so impatient.
We learned to stick to the numbers. It’s better to wait for a good deal than to rush into something that doesn’t make sense because you want to get started.
That’s so good! And we’ve had a few of these deals come up at our weekly meetup where everyone has said to NOT DO IT. ‘
You should come join us if you have a deal you want to analyze.
I think you said you got your first deal through Heaton Deanard.
Yep, and the first deal was pretty simple and straightforward. Even the contractor nailed it to the week, and we got a $35k profit.
We used a local hard money lender, and we put 25% down on entire amount.
How did you find the contractor?
We asked the broker that sold us the deal. They were tentative to recommend a contractor.
They gave us a couple names, and we did the groundwork to interview them. Heaton Deanard gave us come contracts to use.
Are you still using those contracts?
Yes, but I did use another contractors contract once, and that became a disaster.
Let’s chalk up your previous deals as “oh shit that sucked”. So, let’s move forward.
Your first deal (West Seattle) from Heaton Deanard are a great source of deals. You all are responsible for the due diligence of your own deals.
You had a good experience there?
It was pretty smooth. Our contractor had done some of his own flips and had some thoughts for us that didn’t make sense for us.
Like never put a laundry right next to a bedroom because you can’t do laundry at night when kids are sleeping.
Ultimately you make the decisions.
We are still using this contractor today, and he has really bailed us out and become a partner for us.
We went into this thinking we’d make about $25k, but the market was good and we made $35k.
That was good for our confidence.
Then we did our second one…
Did you hit your construction timelines?
Yes, this first one went very smoothly.
Nghi, let me ask you a question. Nghi is really good at asking good questions.
Can you tell us about the loan terms?
I think that everyone should get a 1 year loan right now. We just don’t know what can happen. Even if you have a 2 week flip, get a 1 year loan.
This will give you more time, and avoid extensions and fees.
Is a 1 year term normal for hard money?
The majority of local lenders are 5-6 months. But there are more national and regional lenders that are having standard 1 year terms.
If you think you are going to hold it for 6 months… add at least 3 extra months.
Did you do anything different on your second deal?
Yeah, we were feeling more confident so let’s try another company. So we started going the the Caliber meetings. And we wanted to try buying at auction.
After going to many weekly auction meetings we found a few properties that we wanted to bid on.
It was a pretty fun process, getting phone calls, and asking about prices.
We had a number that was our max and we were going to stick with it.
When we reviewed the property it looked pretty good, but we couldn’t go inside. There were a few cars outside and some other junk, but it looked pretty good.
We thought it would be about a $50k rehab, and they said they’d done a bunch like this.
Do they want you to stick with your numbers or go higher?
They applaud you if you stick with your numbers, but they get paid when you win the bid.
So, we did win the bid at our top number.
Looking back we wish we would have lost the bid.
Then we found out the owners were not leaving yet. They said they needed a few weeks.
They eventually did a strategy of Cash for Keys to get the people out.
It took them longer to get out than we thought.
We also went with Rain City Capital as the lender.
The big surprise was when we finally go access. I took off from my job, and there were still cars in the yard. And then I opened the door and almost threw up.
Because it stunk and I realized that my budget was way off.
I’m seeing garbage everywhere, even in the fire place. I started walking into the bedrooms and needed to weigh through stuff.
We thought it was a 3 bedroom, but there was on 2 because they had ripped a wall down.
And the toilets were piled up with crap flowing over.
It was a drug house that had been without water for 2 years. They had the electricity shut off, but they were stealing it from the pole.
So, nobody drove by to see that there was something weird going on here?
Also, if you own the house can’t you give them a 48 hour notice and go in?
I’m not sure. I think they have at least 2 weeks.
Many of the houses that are vacant, they go out and look in the windows and look for a way in.
This one they didn’t do that because of the person still in the house.
Even Caliber was super surprised and said they’d ever seen one like this.
We were looking at this and our hearts sank. We worked with Caliber and they were really really good.
We didn’t know if we should walk away, or try to wholesale it…
Would you make more money if we cleared out the house?
We tried a few different things. We tried the 1800 junk, and don’t recommends that.
Then we rented a 26 foot truck and 3 dump runs, with people helping.
We found 5 couches in all that garbage… 25 tires.
When you have this… go rent a truck and hire guys from Home Depot until you get it all cleaned out.
So, you just picked up the guys that are hanging outside of Home Depot?
Yep, we did that for about $20/hour, and did that for about 3 days.
Caliber gave us come contractors to call, and all of them were bidding so high ($100 and up), and we had estimated $50k.
Then we went back to the contractor that we used before and asked him if he could do it for $80k.
He didn’t know if he could, but said if he could make his own choices.
Then we had to get the power and water turned back on.
It took 2 months before we could even start, and the draw process was harder than working with the other company.
So, we paid off the hard money, and got a HELOC on our house, and had some money come in from a death.
Side note: I needed to have my job to get the HELOC.
We decided that we needed to do something to make sure the holding costs weren’t going to crush us.
Tip: how to get rid of a car that you don’t have title for. Push it into the street and call the police. They will come out and git rid of it.
Wow, that’s awesome!
The Caliber guys wanted us to make sure the structure was protected. And they kept giving us a lot of options.
Regardless what happens is we a going to learn a lot from this. We put our head down and kept moving forward. We kept saying… what’s the next step.
We had drug people coming back to the house. We had to put spikes on top of the fences. We had to get Ring cameras all around the house.
This was in Auburn. We didn’t have much hope for the neighborhood.
We did a lot of work ourselves. The widows are blacked out, and we strapped the paint off them.
When we walked into the house once it was staged, I almost cried. The stager had made it look like an HGTV house.
When you are making spending trade offs make sure that every dollar you spend there is a return on that investment.
One feature that we didn’t agree on was the back deck. There was this sinking patio, and one of the guys from Caliber recommend putting a deck on it.
The contractor said it would be about $5k, and my wife didn’t want to do it. But I could envision the deck, and we decided to do it, and it was just phenomenal.
We ended up getting an offer that was $25k over our listing price.
Then Caliber did a really classy thing, and cut down our sale costs down to $1000 because they didn’t want this to put us out of the game.
This took us about 8 months, and I think we netted around $12k!
I’m glad that you had a good experience with Caliber because they are our off market property vendor.
The big lesson learned… I myself am thinking it doesn’t sounds like anyone went to look at the property beforehand. It sounds like an exterior look would have worked.
What were the major takeaways? And what did you change going into the third deal?
We didn’t buy at auction anymore. The auction has changed.
We realized that you need to see the inside of a house before you buy it.
We could have done two good deals in 8 months if we had been able to look inside.
What made you keep going?
We had a long term vision to quit my job some day, and to build up enough capital from flipping to buy some rentals. We also wanted to have something that we could teach our kids.
We want our kids to work a job if they love it, but to have choices.
I was actually able to quit my job in May of this year. We have built up enough momentum, not income, but momentum.
What was it that gave you that lead-flow? Or what changed that allowed you to feel comfortable quitting your job?
We started networking with a lot more wholesalers. My wife was an agent for about a year, but decided she didn’t like it. But she found us our third deal.
Then Caliber brought us another deal.
Being able to put that focus into ramping up. We could do 2 deals, and then when I quit was able to spend more time working on more deals, and sourcing my own deals.
I was just talking about this with Jacob Weaver, you have to take massive action to lead generate. A ton of focus that’s really hard to do part time.
I think that people are spinning wheels a little bit right now.
If you had to pick one thing that was your biggest awhaw moment, what would it be?
Get really good advisors around, learn how to run the numbers, get good at your skill set.
Figure out what you do have, and fill in the holes with people around you.
I didn’t have time to find deals, so I used others that were paying thousands of dollars a month to find deals.
I’ve spent so much time chasing deals. People need to not put all of their eggs in one basket.
Sounds good! I’m inspired. It would be cool to put together a checklist for people that are getting into real estate investing.
Maybe we can do this at one of our meetups… come up with a questionnaire that will give people a little more focus.
This is the number one thing you should do before looking at a deal.
I’d love to help out with that.
Let’s do that this coming Tuesday. Everyone can help out.
Hey Aaron, thank you so much for sharing that story!
Everybody goes through tough times, it’s to be expected. The best thing you can do is get a group of peers to help you out.
I’m here for you, and so is Aaron and Nghi.
I know I would run all of my deal through Certain Lending if I could.
Reminder, we have our weekly small group mastermind on Tuesday from 12-2pm at Angelo’s in Burien.
We are starting a new meetup at the Family Pancake House.
I love how you learn from all of your deals, and the other thing is that you got started a decade ago and that gave you so much experience. Even the bankruptcy says experience to me.
Lean on your failures and don’t let them hold you back.