How I Bought My First Rental Property at 23 Years Old
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How I Bought My First Rental Property at 23 Years Old


in this video I’m gonna show you guys
how I bought my first rental property when I was 23 years old hey what’s going on everyone this is Sam
Kwak one of the Kwak Brothers: real estate investor and entrepreneur and this video
I’m gonna show you guys how I bought my first rental when I was 23 years old and
I’m gonna go from start to the finish like how I did it, how I found it, how we
negotiated it, how long it took to close what we’re doing now with it ,and give
you guys a rundown. So I got my whiteboard here so that you guys can
come and see my beautiful wonderful drawing ok worthy of Nobel Peace Prize. I
don’t even know if they give Nobel Peace Prize for art but um
so this was back in 2016 when I found it I was 23 years old and the way that I
found that is Ida mentor that told me Sam. I want you to go and start creating
your team and what he meant by team is putting a team together of contractors
putting a team together of lawyer you know if you need to evict tenants right
you need to have a lawyer also to close on properties you need to have lawyers
as well and attorneys I was putting a team of different types of contractors
like flooring people carpet plumbers general contractors so I was putting
together a team and I remember put posting something on local my local
marketplace on Facebook group so you don’t know what that is it’s a Facebook
group in your local area and remember posting it on garage sale
in a town name and I posted saying hey I’m a real estate investor I’m looking
for a contractor to work with on a long-term basis if you’re interested
please send me a message and that’s what I posted on one of these free Facebook
groups about selling things and a couple days later I had this gentleman reach
out to me I’m not gonna say who the actual name is cuz you know protect a
privacy I’m just gonna call that person Matt Matt’s reached out to me he sent me
a Facebook message saying hey Sam I see that you’re a real estate investor you
posted looking for contractors I’m a roast investor myself I’m looking to
sell my portfolio would you be interested and I said heck
yeah send it over and this is cool because Matt wasn’t Matt didn’t listed
on on the MLS it wasn’t public so this was considered an off-market deal so he
sent me a packet an email with a list of I believe 16 properties and he sent me
all the all the information about the 16 properties as well as the address the
monthly rents that are being collected and it’s in the purchase price and we
took a particularly the information redid some comps on it we used the
software to run some comps to see if the value was if the value to home was
anywhere anywhere near the purchase price that Matt was asking so they did
fall anywhere between plus or minus 5,000 or I should say two thousand plus
two minus two thousand dollar range which is good which is actually pretty
accurate and that is a real estate broker and still is and obviously he did
comes to to figure a fair purchase price so the purchase price checked out so the
first thing we did is we did comms to make sure that the purchase price was
not like outrageously crazy like off-the-charts way expensive
we found that through doing comparables the properties all 16 properties were
within plus or minus $2,000 in terms of what we found to be the value based on
what the market was saying so that checked off right the comps were good
perfect the next thing we did is we met with with with Matt and we didn’t see
all 16 properties using the reason why we do that is we like to see one or two
properties that the seller manages and we we prefer to see the the management
style of the landlord so we knew by looking at two or three houses or I
think we looked at four out of the 16 we looked at the 416 and we got an idea of
okay Matt prefers to manages it this way we can see the tenant makeup we can see
the general sentiment of the tenants we can see how the properties are ran the
maintenance done on all those properties so we looked at four properties and we
said you know what this and that’s not too bad it’s not it’s not awful we can
do a little bit of work in the future but yeah I think this is you know
acceptable condition based on the market so after we saw the property what
happened was we decided to go and sit down for coffee for about an hour to
talk numbers so our progress so I’m telling guys the promise it takes for us
from beginning to close founded the on Facebook Matt sent me the information
via email of all information the purchase price and so on
did our comps we met with Matt at the properties just for just to see what
just kind of getting a sample because obviously you don’t have all the time to
look at all 16 if it did we would but we did it so we let that four properties
the next thing we did is we sat down to do coffee slash lunch with Matt to talk
numbers so we didn’t want to get into too ggressive we actually ended up just
buying four we selected the four properties that seemed to be the best in
condition as far and as well as the the rents as well as a purchase price so we
came down to agreeing that we’re just gonna buy four properties from out of
the 16 and I’m gonna give you guys the purchase price of each of the property
that we bought and they’re all single families so none of them was like a
duplex or anything like that all of them ended up being a single
family the first one was the by the way these these are Midwest rental
properties so for those who live in New York City or California you guys are
might be like oh my gosh like these are super duper cheap well these are like
Illinois so don’t get freaked out but these are normal home prices in some
certain parts of Illinois the first property we bought was the purchase
price was 25,000 gonna use a different marker color for this the first price
was 25,000 the next one was 35,000 another one that’s for 35,000 and the
last one I believe we bought it for 55,000 in total the whole total purchase
price to move our book here was 150 thousand dollars so that’s why we came
out to be for the purchase price okay given that the rent on each of these I’m
gonna write the rents on on it because if I put the rent it will make more
sense and you guys will think this is this is amazing
the rent on the first property was $800 okay second property was 750 was it
was a little bit of an unfavorable neighborhood so the rents are a little
lower the third property was 800 I’m sorry this one was 900 now that I think
about it this one was 900 and the third one was 800 the fourth one was 950 so
pretty darn good in terms of rent to you purchase price ratio so in total we have
I’m gonna pull up my calculator okay our gross purchase price is $150,000
gross rent okay is at I’m gonna throw this number in here open up my phone okay I’m gonna do some additions here so
clear the calculator 900 plus 750 plus 800 plus 950 gives gives us a gross rent
of $3,400 a month okay so what we do from here is that we need to do the cash
flow analysis on the gross rent and from there we’ll we start working on the
financing terms but let’s go and first work on the gross rent and that’s part
of the part of the analysis process we actually of a whole separate video
dedicated to how to analyze your cash flow on a rental property so what we do
is we usually take this is more of a general rule of thumb there may be
specific situations where we may use different numbers but we’re gonna use
more of a rule of thumb here with you 10% for maintenance okay maintenance 10%
for management cost okay 8% for vacancy and I don’t have the exact insurance in
the tax numbers of top and pad at my head I’m gonna be very close to what we
were paying every month I’m gonna get as accurate as possible so bear with me
here guys so 10% of three 3,400 is $340 every month that we are setting aside
for maintenance even if we don’t have an actual repair that needs to be done we
still set that money aside for any future repairs or
means that we need to make 10% for management also another 340 dollars a
month 8 percent vacancy I’m gonna do a quick math on that contrary to belief I
don’t like math so we’re gonna go on x 8% which gives us two hundred and two
hundred seventy two dollars a month and our insurance from what I remember for
all four properties was that two hundred ten dollars a month and our taxes are
around 280 a month okay so our bottom line that you guys are seeing here I’m
going to do the math we’re gonna take $3,400 and start subtracting these
numbers out again these are rule of thumb different situations may call for
different types of numbers and subtractions and additions so 3400 – 340
another 342 72 and 210 and another one of 280 so our net operating income this
is what we like to call net operating income this is our bottom line before
our financing we have an noi now an operating income of 1958 okay i’m gonna
divide that and to make sure that we’re within the the 50% expense to income
ratio so what we have is 57% okay income to expense ratio so approximately
57% of our gross rent is going towards our expenses which is pretty good and by
the way the general rule of thumb is 50 percent of your gross rent is gonna be
considered expenses such as you know maintenance management vacancy insurance
and taxes now this is not the this is not this is not what’s going into our
pocket right we have we certainly have more going into our pocket so what we
have done is we got to do our financing here I’m just like I’m just make sure
double check our numbers here okay so our financing here is that we have
$150,000 purchase price now we were able to negotiate this to be owner financing
which meant which meant that was gonna play our bank Matt agree to take monthly
payments in exchange for the ownership right of these four properties so Matt’s
kind of like our bank and what’s great about the owner financing is
we don’t have to go through a background check or credit check we don’t have to
go through underwriting just like a bank financing would ask us to do so this is
very convenient we don’t have to use our own credit to be able to finance the the
purchase so Matt was financing to purchase for us so that we didn’t have
to do that now the way that we got to got to have Matt say yes to owner
financing was that Matt Holt held on to these properties for a very long time so
he had he had some capital gain taxes that he had to pay now I’m not gonna go
into too deep of a detail as far as how to negotiate for owner financing in fact
we have another video specifically dedicated towards how did negotiate for
owner financing so what I’ll do is I’ll leave that link below in the link
description box so that you can go and check that out and watch that video and
how to negotiate for owner financing but assuming that you know how it’s done we
were able to get Matt to take 10% down payment okay because anymore if he if he
takes anymore in terms of down payment he’s gonna end up paying more taxes up
front okay so 10% down which meant 15% of $18,000 down okay and the remaining
$135,000 balance was being carried by Matt at 6% interest at 15 year
amortization okay so what that turns into I’m gonna actually write down the
the principal interest payment every month okay so Pia and I I’m gonna do the
math here by the way if you guys want to use a mortgage calculator carl’s
mortgage calculator is a great app for you to calculate the the monthly payment
for on a mortgage or a owner financing payment so we started out with a
$150,000 purchase price we put a down payment on this calculator for 15,000
okay and our interest rate is 6% on a 15 year amortization we have a principal
interest payment of one thousand one hundred and thirty nine dollars and 21
cents okay that’s our principal and interest payment
not counting insurance and taxes okay so if we if we do the math take 1958
dollars of our net operating income mmm and subtract that with the principle
interest payment 1,001 or $39 1958 – 1 1 3 921 we get a cash flow of 818 dollars
and 79 cents a month not bad Plus this is on a 15 year amortization which means
guys is we’re gonna be able to pay off all these four properties within 15
years okay building more equity and we have
mass amount of cash for that we get to generate so this is actually the first
for rental properties that we bought starting out in 2016
late 2016 and we were able to buy these on owner financing so from beginning to
end sort of doing a recap we found these properties on face book and they’re out
there guys gonna be doing the right marketing we found the properties to
Facebook group okay Matt reached out to us we asked for
more information which Matt sent this information we booked a meeting with him
with in one of those properties so we went in and saw and met Matt as well as
seeing some of these properties that were looking to purchase we obviously
did a walkthrough to see if there’s any problems or issues and after we saw the
property we took Matt out to lunch and coffee talked about the numbers
negotiated for owner financing which again we have a separate video for that
came with the purchase price of $150,000 and then we ultimately negotiated for
these terms now for owner financing we use something called contract for deed
which is a an acquisition strategy that we can go and talk about in a later date
but I’m just wanna show you guys what our first deal was and how we were able
to repeat this process over and over and over to get to 75 rental units in just
one year speaking up we do have a book 0 to 75 rental units in just one year if
you guys want this we’re actually giving this out for free absolutely for free
you see to go to 75 0 to 75 units com will even include that
down below in the comment section as well as the links description so this is
an absolutely free book you see to pay for shipping and we’ll send it out to
you guys we’ll talk we’ll share how to get started how to get in the right
mindset as well as how do how does how to prepare yourself for massive success
so that you can surpass even us right if we can get you to to buy 120 units 150
rental units or even let’s say thousand rental units based on what we show you
guys here we’ve done our job well so this is how we did it I’ve shown you
guys all our numbers how we know how we structured our deal a lot of times when
it comes to owner financing we do 10% down we even got away with 0% down which
Daniel has a separate video for that so this is it guys if you guys have any
questions or thoughts go ahead leave them down below if you have any
questions about this deal or if you have any other questions about our about how
this whole process went in the next video I’m going to show you guys how to
buy your first rental property without using your own money or credit so that
video is gonna be right here I’m gonna point at it go watch that video and I’ll
see you in that video to show you guys how to buy your first rental property
without using your own money or credit I’ll see you guys there

4 Comments

  • Devin Nunn Investment Channel

    Good video, I have built my passive income up though real estate investment up to 37 units and counting!

  • hurbs

    Is this a common strategy you follow? Seems like a lot of moving parts just for an $800 cash flow. I get the feeling these are long term tenants, especially considering these are SFH’s so maybe less risk involved?

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