On the show today we talk about how to… My First 3 Deals with Dan Cleary!
Listen on: iTunes | Stitcher | Google Play
Show Links:
– CertainLending.com – nghi@certainlending.com – C: (206) 504-2069
– Broker at Fresh Look Real Estate
– The Millionaire Next Door on Amazon
Show notes for My First 3 Deals with Dan Cleary
The Vantastic Life is…
– is in Florence Italy
Two old friends on the show today! Nghi Le and Dan Cleary on My First 3 Deals.
New co-host for My First 3 Deals is Nghi Le, that we will be doing at least once a month. There are so many interesting experiences in people first 3 deals, so we thought this would be fun!
ALSO… Certain Lending is our new Lending Partner at Seattle Investors Club and the new podcast series (My First 3 Deals).
You can find Nghi Le at nghi@certainlending.com – C: (206) 504-2069.
Julie
Go Cougs!!!
Dan
I’m used to it because my brother went to UW when I was at WSU. So, I’m used to the rivalry! Haha!
Born and raised in the Seattle area and went to Kentwood high school. Dad worked for Boeing and Mom worked for the school district.
I was working really hard and things just weren’t working out financially. So I started asking what wealthy people were doing to get to where they are, and that set me down the road to looking into real estate investing.
Julie
That is very very true.
Where did you get your initial real estate education from?
Dan
Well, I did a lot of reading. Built a library at my house filled with real estate books, personal finance, etc.
One of the first books that really spoke to me was The Millionaire Next Door.
I’m still working at my day job, and it’s a long journey.
Nghi
I don’t know if people know that, but I tried to quit my day job, and it was kind of embarrassing when I came back. But I had to come back, mostly for the financing.
It was actually a 3 month leave of absence, and we had a flip gone bad that I needed financing for. And I needed a job to get that financing.
Having a stable job that funds your life helps you to make better decisions.
Julie
Do you feel like you like having your day job?
Dan
Having a steady pay check come in is a good fall back.
The nature of being someones employee… this is something that I struggle with. What I would say to people starting out is, don’t get into real estate with the mindset of quitting your job, because it’s probably going to take a few years and several deals before that’s going to happen.
The banks like the stable W2 income, that’s what they like to see.
Julie
And keep in mind that if you’re in one industry and move into real estate you’ll have to show stable income.
Nghi
Talk to a loan officer to have an extra exit strategy just in case things don’t work out the way you thought.
Everyone’s comfort zone is different, but I don’t know if anyone has played the Cashflow game. It’s a really good game! One of the things I’ve learned from it is that the janitor or the person that has the lowest income wins the game. This is because they don’t have as many life expenses.
Julie
What made you decide to go for it with getting your real estate license?
Dan
My first thought was that it would put me into touch with other investors and I could show my own houses. It’s been pretty useful, I can do listings and help buyers.
Julie
How many deals have you done up to now, and how did they go?
Dan
I’ve done a totally of 4 fix and flip deals, and made money on 3 of them.
Nghi
That’s pretty awesome! How did you get your first deal?
Dan
I bought it at the Pierce county foreclosure auction. I put a bid in on it, and I won the bid. I was the highest bidder, or I paid the most.
I actually lost money on my 4th deal.
Julie
Are you still working with the auction group in Tacoma?
Dan
I’m not working with them anymore, even though I had a good experience with them. The auctions are just hard, and like you said, it’s like fishing.
With auctions there are a lot of unknowns, and you have to take that into account with you make your offers. But even with me being conservative, I probably offered too much money.
After the auction I tried to move onto greener pastures.
My next two deals I found on the MLS.
Nghi
What year was the first deal?
Dan
It was 2016.
Nghi
I think there was a time that you could find deals at the auction, but it’s becoming less and less.
Dan
Yeah, I went to the auction for about 3 months, and was putting in bids. Then I was the only person that put in a bid on that house. But when I got to the house I figured out why no one else put in any bids.
Nghi
How was the closing process, and what was your contractor experience?
Dan
I was like wow! I own a house now. Another layer of complexity was that there was someone living in the house, and I would advise new investors to stay away from houses that people were still living in.
I had a hard time finding contractors, so I went to Craigslist and called about 10 contractors to come give me estimates. 3 of them showed up, and 1 gave me an estimate, which was terrible.
So, I called some of my friends that had handyman experience, and we flipped that house ourselves.
Julie
WOW!!!
That’s something to think about… you really need that lead time when you’re looking for a new contractor.
Dan
Yeah, I thought that I’d call some contractors and everyone would want the work. But in reality that’s not how it works in real life.
The advise that the gurus give is probably correct in a perfect world, but it’s the real world. Where you constantly have to improvise. We were all trying to fix this house, but none of us were general contractors, and that was just the rehab before getting the people out.
When I bought the house it was occupied by holders, and I have never in my life seen so much garbage! There were 3 RV’s and a dozen cars, and garbage on top of garbage, and they still didn’t want to leave.
So, I gave them the 20 day notice to vacate. On the 21st day I went there and they were gone, but there was so much junk that I didn’t know if they were actually gone, or just not at home.
The first thing was to fill a 40 yard dumpster, and I think we cleared out 5 of those. And the saddest thing is that they left their pets behind (in the summer). So I called animal control to get the animals.
Julie
And the crazy thing is that you still made money on this first deal.
What were the main two nuggets on that one?
Dan
Don’t buy properties that are occupied, unless you get them for free. Looking back on this one, I overpaid. This house was not worth the trouble.
It costs a LOT of money to get rid of garbage and old vehicles.
Julie
Did you have any advice on numbers for that deal?
Dan
I did. The real estate team at the auction helped me out with the rehab numbers.
Julie
Did you end up listing it yourself?
Dan
I did, and I probably would have lost money if I didn’t list it myself.
Nghi
What were your initial lending terms?
Dan
1% a month with 2% down. I had to do 2 extensions. The project took 9 months to completely and 2 months to get it sold.
Nghi
How painful are extensions?
Dan
I think I had to pay 1% for every month or every 2 months. It’s not cheap, and that’s on top of an already expensive loan.
Julie
And you probably didn’t for see these things…
Dan
Yeah.
I think that most of the things I did take into account, but I didn’t realize how long it would take. I was only going to hold the house for 6 months, but I ended up doubling my holding.
There are so many things… the HOA comes after you for unpaid bills, and the water company shuts off the water, and on and on and on! I’m lucky that I made any money.
Julie
So get you license everybody!
Nghi
Not enough people plan for the worst case. What I love about Dan is that he asks a lot of questions.
No one really asks what happens if I can’t pay off the loan at 6 months.
I love all of these stories because no one talks about this stuff!
When you buy at the auction there is no title insurance.
Dan
Deal #2 was a rambler in Spanaway. It was like the first deal, but it went a lot faster. But I underestimated the rehab and the holding costs.
This deal had people in the house, and they stayed in the house for 4 months, and we had to physically remove the people with the sheriff! And they almost got arrested!
This deal was expensive because I couldn’t do anything with the people there, and there were court costs and a lawyer.
Julie
Knowing what you knew after the first deal did you do anything different on this second deal?
Dan
I think I thought that it couldn’t be worse than the first one, and that was a mistake. I used my experience so the process when a little smoother and a little faster.
The second people were more sophisticated, and had a plan for staying in the house.
Julie
You bring up a good point there! I wonder if there are any indicators to sniff out the smarter people/tenants.
Dan
I would say that if you’re dealing with someone that’s been able to avoid their lender for several years, then you should probably avoid them. These people made it their full time job to work the system.
Imagine if we woke up every morning and tried to figure out how to rip people off. We could probably do a lot!
People like this have a lot of rights, and it can be hard to overcome that. You have to prove that you’ve done everything right.
If you make one mistake you have to start back at square one.
Julie
What were to top 2 lessons learned on the 2nd deal?
Dan
That one that I didn’t have to extend and I got out of there in 9 months.
Nghi
I always try to get at least a 12 month loan. You just never know what’s going to go wrong. A lot of things just take up a lot of time.
Dan
Before we go I have to tell you about my best deal in Tukwila. A 1 bed 1 bath house that I converted into a 2 bedroom. I found it off the MLS, and converted the old laundry room into the 2nd bedroom.
I completely remodeled this one and made $75,000. And nothing went wrong. We were under budget, and on time. It was all good.
Dealing with people selling their house voluntarily, and having a great real estate agent, and a good crew. The contractor was able to fix up the house in 6 weeks, and I used some of the same people from the 2nd house.
That house sold in 2 days for $40,000 above asking. The timing was perfect, the right location, the right price. And I think that was an exception.
Julie
I think that the point here is… don’t quit!
This is so awesome, and what happens at our weekly mastermind every week!
Nghi
In hindsight, what do you wish you would have learned or known more about?
Dan
Good question! A little bit more about how the financing really works, and how to work with credit and lenders, and should have had my finances more in order than I did.
I should have learned that first before learning real estate investing, and the fix and flips, if that makes sense…
Julie
It does, and that’s exactly why we have Nghi Le on this podcast. People need to learn about the lending side as one of the most important things.
Nghi
I completely agree! You don’t know what you don’t know. The biggest two line items are your holding costs and your construction costs.
There are mistakes that everyone has to make, but there are things that people shouldn’t have to go though.
Julie
Thank you for sharing.
While you’re finding your first deal you should also be finding your lender, and always look for someone you can partner with.
Ask the right questions! Ask more questions!
Nghi
A lot of people are mislead by successes, but you learn more from your failures. And recognized when you’re being saved by the market. And I think that Dan did a really good job.
Dan
I did do a pretty good job, but I was also in a forgiving market. There are a lot of hidden cost!
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