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How I Purchased My First Investment Property With No Money Down

September 28, 2017

 

My first deal taught me the most valuable lesson that there is in business, life and real estate. 

 

Life ain't fair, but that ain't no excuse. 

 

My first deal was actually a flop. Not only did I not make money on the deal, relationships and bridges were burned and  lots of time was lost. Did I mention that the deal was only a few days from being foreclosed on? Luckily, I was able to escape the burning bridge by selling the property subject-to to another investor.

 

However, this isn't about that deal. However, the mention of that deal plays a significant role in the creation and hunger for my second deal. 

 

I won't dig much into what happened on my first deal, as it is a much longer series (about a year span), but I will highlight it in a later post or  Youtube series.

 

"It's about loyalty in this game bro."

 

Were the words that I heard in my mind after that last conversation. It was the words that were spoken from my mentor, who had been on my newfound real estate journey with me over the last year. We had just finished up having a heated discussion about that deal I mentioned earlier which turned into a termination of the partnership. The deal had turned south as we ran out of money on the project and after 4 months of delay after delay with a combination of hearing the words "don't worry about it, we got this" and noticing no progress after stopping by the property everyday after work.

 

I had had enough.

 

The entire project I had relied on my partner for everything: the funding of the deal, the entire construction and rehab process, all but the end. Obviously I put in the work that I could by doing a little sweat equity and doing what I could on the weekends and on my lunch breaks (meeting with contractors, etc.). I reached my breaking point when our lender for the project, buzzed me what felt like every hour to check the status of when we'd catch up on the payments. 

 

Each day, I remembered telling my wife and others around me, "it aint as easy as it looks on HGTV". 

 

Not only was I faced with the reality of the ugly side of real estate investing, I became overwhelmed with fear, anxiety, excitement, love, pain, and joy of welcoming a new gift to this earth; our lovely daughter. 

 

In the midst of the storm, you find peace.

 

There's an incredible, indescribable power that comes when a man becomes a father. I'm not sure how other dads' 9 month experience with preparing to be a first time dad was, but mine was certainly an intense life-training course.

 

However, There was something about seeing my daughter for the first time and holding her in my arms that triggered something in me that I had never felt in those nine months of preparation. 

 

I'm sure that in every man has heard his subconscious say, "it's grind time baby". Like a switch, when those words are uttered, our mind, body and spirit activate that good old caveman like nature that's ready to grind at all costs to provide for his family. Even if it means staring down a pack of hungry, viscous lions, the man is willing to put it all on the line to make sure his family is taken care of.

 

When you realize that the goals you once set for your own gratification are now requirements for someone other than yourself, you realize that it's bigger than you and that excuses are no longer acceptable. 

 

On that day, I decided that it was time for me to take action and take responsibility for the things that occur in my life. No more excuses. No more relying on others to make it happen for me. I decided that if I were going to do this real estate thing, I'd better strap up and commit and make it happen, no matter what the circumstances. 

 

I'll never forget. It was 3 am one morning and I had woke up out of my sleep suddenly with an idea of how to purchase my first property solo. I immediately grabbed my pen and notebook and drafted a plan from considering my budget for the the acquisition price, to the rehab, the time frame and phases of the rehab, the exit strategy and even how much I'd profit from the deal. I believe I had found a $22k property in Fort Worth, TX that I was structuring my numbers off of. I was confident in my 3am, 3 page brain-stormed beautifully planned deal, that I showed my wife the next morning around 6 am. It was full proof. Loving and supporting as always, she was excited to see the strategy. (Or she might've just been being an awesome supporting wife. Either way, she gave me the motivation I needed.)

 

"When you fail to plan, you plan to fail." - Benjamin Franklin

 

After the brainstorming and planning session, I felt great. Not only that, but I felt confident that I could do a deal even though I hadn't done a successful one on my own yet. However, I knew it needed to be done. Unfortunately, my other deal was still fading and the Fort Worth property's owner was no longer answering my calls.

 

I was distraught, but not defeated. 

 

About a week later I noticed two things come in the mail:

 

One was a balance transfer check from Chase and the other was a pre-approval advertisement from Prosper.com. I had received these two promotions before, but this time was different. Usually I'd throw them away and not pay them any mind. 

 

It's ironic that the Prosper advertisement had a faux check with my name on it, written out in the amount of $35,000. Mind you, I received this same advertisement about a year ago and I decided to keep the check and plaster it on my dream board just for fun. Occasionally, I'd point to it and say to my wife, "queen, one day this check will be real".  

 

About a week earlier, my wife and I decided to get a personal line of credit with Wells Fargo, with the hope of using it at some point in time for our real estate dealings. 

 

About 2 weeks later, my mom texted me a picture of a for sale by owner house right down the street from the street I grew up on. 

 

It was a great neighborhood and marked at an incredible price. I was interested in it. The only issue was I'm way out in Fort Worth, Tx, while the project is over 5 hours away. How the heck could I pull this off? 

 

The numbers look good, but how could I possibly do it? 

 

My mom sent me the sign with the phone number. I ran additional comps to double check to see if it was worth doing the deal. It was. I stopped and stared at the phone, hesitant to call the owners. It was a great deal, so why was I worried? Maybe because it's 5 hours away dude? Maybe because you have a new daughter and it'd be too much to risk? Didn't you forget about the other house? You've got to sell that thing this month or you wont be able to buy a house to live in!

 

I was hesitant. 

 

A week went buy. Everyday after work, I said I'd call the owners up. I didn't. It wasn't until Friday the following week that I decided to man up and call the owner. What's the worst that can happen? It's a sweet deal, so I can't even see it being still available. Surely someone snatched it up. 

 

The power of leverage and faith. 

 

After finally getting the courage up to call the owners, we discussed an offer on the house, came to an agreement and signed the contract the next day. The excitement of making it this far was an elation to me. I had finally did it! I was on track to do my first deal solo! A day or two went by and I was still on cloud nine as I celebrated my victory! 

 

Then it dawned on me. 

 

Where would I get the money to buy the property? It was too low to get traditional financing and too low to get a hard money loan. Not only that, but I had set the close date to be 2 weeks from the executed contract date. Not to mention, I bought the property completely site unseen with no idea of how the inside looked, only trusting the owner's word that it was move-in ready. What the hell am I going to do?!

 

Regardless, I knew I needed to make it happen. But how?

 

I decided to go to my closet (my thinktank office) and ponder up some strategies. As I opened my notebook, I noticed the strategy that I had game planned a few weeks ago. It was perfect for this project! After minutes looking over the plan, I began to regain hope and faith that the deal could happen. 

 

Later, I noticed the check from Chase, the Prosper advertisement and immediately realized that I had hope! I had a sizable amount of credit available on my Chase card that I could withdraw using the balance transfer check. Boom there goes 1/3 of the funds needed for the purchase. Then I applied for the other 1/3 of the funds from a personal loan from Prosper. I was able to get a favorable rate and decent terms on the loan, so I accepted. Boom there goes another 1/3. And now we're in there like swimwear! Lastly, right before closing, I was able to withdraw the funds from my line of credit with Wells and was able to close about a week after the close date (due to title). 

 

The Friday after we closed on the property, I decided to take the day off and travel to see our new project and first step into a new challenging yet fulfilling role; the role of a real estate investing. 

 

This time everything was on us. The payments, the structuring of the exit strategy, the rehab, everything. It was exciting because we had made what seemed like the impossible, possible. Did I mention that we were also able to sell our the first project as a subject to, just two days after we closed on this new deal? It was an amazing feeling of having a clean slate. 

 

The surprise of a lifetime and real challenge began once we walked through the property. 

 

Once we saw the inside of the property, we were up for the next phase of the adventure. The property ended up needing way more than just cosmetic upgrades as we thought. Luckily with the help of family, we were able to secure additional financing to remodel the project. We had a little extra in savings that were just about wiped out to cover the rehab as well. Not only that, but we spent countless hours and weekends driving to put in some sweat equity and make material deliveries that weren't available in the city. Safe to say, we went all in, risking it all, with no sure guarantee of a return. 

 

Luckily, through a tremendous amount of sourcing to find a lender to refinance the debt used to purchase the property, we find a local lender that was able to do a cash-out refinance within the time frame of us completing the property. (That was a whole story in itself, as most lenders have a seasoning requirement of 6 months) Luckily we were able to complete the project in 60 days and were able to refinance it shortly after. 

 

I bet you're wondering, what's up with the $35,000 check that you talked about on your dream board?

 

I'm glad you asked. Well, as I mentioned, the check was on my dream board for almost a year. I'm happy to say that when we refinanced the property I received a check for, yup you guessed it, about $35,000 (actually $34.6k but close enough). 

 

 

The moral of the story is, when there's a will there's a way. If you have a set and defined goal and lock eyes with it and believe and take the actions to make it happen, it will. The first step is taking that massive step and believing that you can and you will do it. The second is telling yourself that you will be committed to doing it and that you are 100% responsible for the actions you take and the results. Obviously you must plan, but you must also know that there will be errors in your plans, but you must continue to move and adjust as needed. 

 

Lastly, the biggest step is to take action. Just do it. You will have some deals, some businesses and ideas that will fail, but just know that the best lessons come from failures. In life you win or you learn. I learned many lessons on my failed deal that I used to implement on my next deal. Had I not failed the first time and learned, this deal too probably would have been a flop. So get on out there and if you have a goal, passion or idea, embrace it. Draw it up and move on it. Even if they amount to small physical success, the largest success they create are the fact that they created action and the psychological accomplishment is all you need to get hooked and confident to want to do more. 

 

***Disclaimer. Issue caution when using high cost debt vehicles such as credit cards. Luckily, I was able to utilize an interest free card and mix it with high interest rate personal loans and had them refinanced quickly. While this strategy worked for me, it may not work for someone else.

 

Here's my first project (the completed rehab project):

 

 

 

 

 

 

 

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