Real Estate Investing Podcast

Get Started in Real Estate Investing with Limited Cash
Posted Thursday, October 13th, 2022 by Richard Roy

Investor Tom Durhan returns to share how he got started investing in real estate. He shares his top tips on how to get started in real estate when you have limited cash in the bank.

Brett Bernard: All right, welcome back. This is Brett Bernard, and, I brought back my good friend Tom Durhan, who we had on a previous episode. He’s an investor, and after the last show a topic came up about how time got started. As he explained that, we realized that might be a good episode for some new investors that are out there listening to understand how to get started in real estate when you have limited cash in the bank.

Tom Durhan: Yeah. Thanks for having me back, Brett. Really appreciate it. It’s a good topic and I get asked that a lot cuz I’ve been able to build my portfolio up now to 40 houses. But, when I started I didn’t know anything about rentals. I was marrying my wife as 20 years ago and my in-laws told me, Hey Tom, keep you the house you’re in as a rental, and I didn’t want to. I was like, Ah, I don’t want to deal with tenants, I don’t want to chase rent, I don’t wanna have repairs. But they convinced me because they had kept all their houses. They had four or five. That it was a good thing. So I tried it and it worked real well. Then when we moved, uh, in together, after a while we started having kids, we moved again and kept her house. So then we had two rentals. One of the keys is you, when you have a rental house, you cannot, and you only have 1, 2, 3, 4, you don’t wanna live off that, you wanna reinvest it in the houses, pay down your equity, so you have some assets. And too you need good credit. So once that happened, I actually got involved with another investor who taught me about, introduced me to hard money loans and refinancing.

How do you go about getting a hard money loan?

Brett Bernard: Hey, look, Explain to explain for, for the people listening a hard money loan. What is, what is a hard money loan? How do you go about getting one? What are the ups and downs of it? Are there any ups and downs?

Tom Durhan: Well, there are up ups and downs. Well, a hard money loan is where you go to a company or an, investor that gives them, like, I use REI capital, Hewlett Gregory, Eric Linderman a lot and, uh, what they’ll do is they’ll loan you money, uh, and they’ll give you, as long as you qualify, they’ll give you up to the value of the house, including the rehab if you want. Mm-hmm. . Uh, but you have, you pay point. You usually pay three or four points up front. So if you’re borrowing 60,000, you’re paying ’em 1800 to 2,400 up front, and then you’ll pay anywhere from 0.75 to 1% per month. On that balance every month, interest only you pay them, and typically there’s six months to a year. So what you have to do is you borrow that money from them and then you have to refinance it cuz once that balloon’s due you in six months a year, you owe that full balance. So you’ve got to refinance to a bank, which, like for me, I use Bank of Barlett, they’re great, Mark Edwards. I’ll contact him, He’ll refinance it for me.

Brett Bernard: Okay. So would you recommend that as a path for a new investor? A guy’s 26, 28 years old? His hair’s on fire. He just left a real estate class in, in California. He’s, he’s ready to be the next Donald Trump.

Tom Durhan: Yeah. Wel the first few you can get our FHA loans on, which is much easier. You can actually contact realtor like Brett, find a house and get a FHA loan on. You can own up to four properties pretty easily through FHA. Then once you get to that point, if you find a good enough deal, a hard money loan’s, not a bad idea, like you find a house in Fraser that’s worth, you know, 60, 70,000, that cash flow are 800, 900. You can buy it for 30 40. The hard money loan’s cheap. It makes sense.

Do you suggest doing an FHA loan on your first investment property or some kind of a conventional financing?

Brett Bernard: Okay. But on the ones you’re buying, 70,000 rents for 850 a month, you suggest going out and just doing an FHA on your first one or some kind of a conventional financing?

Tom Durhan: If you could. Yeah, absolutely. So what you can do is get pre-qualified and then you walk in he, he tells you, Hey Bratt, I’ve pre-qualified for $80,000, you make your offer, and you buy it.

Brett Bernard: Okay. And just do it on straight mortgage instead of hard money.

Tom Durhan: It’s a little harder because hard money you can close fast like two weeks. That’s a big benefit.

Brett Bernard: But you gotta have some margins in the property in order for it to make sense. Because you are, like you said, you’re paying 1% a month. So let’s do a $1000,000. You’re paying a $1,000 a month a month interest Only.

Tom Durhan: Yes.

Brett Bernard: While you’re doing the rehab and getting her rent ready and you’re paying a 1,000 a month until you’re able to refinance, and obviously sometimes the refinances take 30 to 60 days to get completed cuz you got appraisals and inspections and all that. So if I’m a new investor, I decide to, to go to REI and get a hard money loan, what do I need to bring in with me? Proof of income, they’re gonna run my credit?

Tom Durhan: Right. You’re gonna…

Brett Bernard: I have a check for $1,800 or whatever.

Tom Durhan: They know me, They, they never ran my credit, but they’ll a new guy, they would run your credit, they would prove you out of income. But keep in mind, if you default, they take the house.

Brett Bernard: Sure.

Tom Durhan: So they, they put a deed against, you know, you sign a, a lien and a waiver and once you pay them off that you get that back. If you don’t pay ’em back, it’s their house. So they’re gonna make sure the house will value for… You know, that they would want.

Brett Bernard: I gotcha. If I bought a $1000,000 house, let’s say I carry it to full term, 12-months.

Tom Durhan: You have 3000.

Brett Bernard: 3%. 3 points

Tom Durhan: Plus 12,000

Brett Bernard: Plus 12,000. So I’m all, so my carrying cost for the year is $15,000.

Tom Durhan: Right.

Brett Bernard: So you really have to run your numbers and your math and make sure you’re, you’re not gonna, uh, uh, exceed your value because then you won’t be able to refinance it and actually settle your REI debt.

Tom Durhan: Right. And it’s, it’s more of an advanced thing. You have to have all your ducks in a row because you have to know your rehab costs and be able to get it done quickly so that you can get to that re refinance point quick and know basically how much you’re gonna be in so that you can have all everything worked out. So this is something more advanced that I wouldn’t recommend just right away, unless you really know the market or have a really good construction contact, or super realtor like Brett.

Brett Bernard: Yeah, Tom, Tom’s a construction guy. He obviously knows what he is doing.

Tom Durhan: Yeah. That helps Owning your own construction company as an investor really helps. But Yeah. But as far as how I grew, I grew slowly and didn’t do a whole lot of hard money loans. I did a few, but you keep paying down your debt, you don’t live off of it, and when you get to 10 houses, you got a lot more flexibility. You can go to a bank, get a line of credit if you’ve just been paying all of them down.

Brett Bernard: Right, Right.

Tom Durhan: And not pocketing money. And then you can get a line of credit and do more. Then you can go to Brett and be like, Hey, I’ve got 3000,000 what, what can we do with it? Help. If you find any properties, let me know, and Brett’s great at that.

Brett Bernard: Well, let me ask you this. So we talked about the, the hard money. Is that how you’re doing most of your stuff now or do you got to the point where you

Tom Durhan: I have lines of credit.

Brett Bernard: Yeah. That you’ve used, that you’ve used, you’ve opened up against the properties you own.

Tom Durhan: Correct? Cause you have a lot of equity cuz this we talked about this last, last episode. It’s a buy and hold. So if you’ve got 10 properties you’ve had for seven years, you’ve got a lot of equity in there, you can borrow against it and then you pay down that loan. It’s a basically a long term strategy that in 10 years, I am gonna start living off these properties and I’m not gonna work anymore.

Brett Bernard: I always look at ’em as a long term retirement plan.

Tom Durhan: Exactly.

Brett Bernard: I do get a lot of young investors that call me and you know, they, they, they want cash flow. They want income. I don’t ever think you can get wealthy on the income of rental properties.

Tom Durhan: You will.

Brett Bernard: Not single families. You just can’t, but I think eventually if you do what you’re doing, end up with 40 properties. that are, uh, worth $4 million, eventually you can now liquidate the asset and retire, or produce, you know…

Tom Durhan: 46,000 a month.

Brett Bernard: Yeah, in income, so you got retirement income. I try to encourage a lot of my younger investors to get away from the income stream and, and you should buy it on income, but I like your idea and I think that’s a smart move to take the money you make, just leave it sitting in the bank so that when the HVAC goes out, you’re not coming outta pocket. When the roof needs to be replaced, you’re not coming outta pocket.

Tom Durhan: Well, it’s funny, the guy that introduced me to hard money loan and buying and refinancing. It’s really sad he lost his houses. He lost them all because he was living on that money. Because when the management company deposits that big amount into your account, you do whatever you want, you don’t have to pay your bills. So he was using money for other things that he ended up. The bank came and took ’em all. It was really sad.

Brett Bernard: Because he didn’t have the income anymore.

Tom Durhan: He didn’t have the income. He overed himself. So that’s important. You can’t over leverage.

Brett Bernard: I think a lot of, a lot of the local investors learned a hard lesson, an ’08, ’09, 10, you know, I mean. I was at the law firm at that time and, we were bailing out investors on a daily basis who were just, you know, 40, 50 properties in upside down and everything struggling. We did a lot of, of, of, uh, walkaways where they got to walk away clean and we settled out the debt and, and took care of the, the property. So, so I’m gonna take and then reiterate Tom’s advice here. Don’t live off the property, because if you live off the property and the market changes, guess what? You’re screwed.

Tom Durhan: Yes. You’ll lose it.

Brett Bernard: Your idea of reinvesting the money, building an asset and building equity for the future, to me, that has always been the main reason people invest in real estate.

Tom Durhan: It should be.

Brett Bernard: Equity. Value. Now if you get into multiplexes and apartment building, sure there’s some considerable income to be made there, but there’s also some considerable expenses you have to pay. Taxes, insurance and, maintenance and so forth. So, so come, come at your investments with a different way of looking at come, come to your investments as a 10 year hold value. And I’ll give you an example, Tom. Like I said, you, you made 300% on that package we sold that I sold for you and I moved that from you to one of my other investors who was looking for a package. So it was a, and I kept the commission at 3%, which put more money back in your pocket.

Tom Durhan: Yes. That was very kind of you.

Brett Bernard: So you’re a perfect example of, of if you played long game and you play it right and reinvest the money in the properties, keep the properties going, that eventually return will be there.

Tom Durhan: It will. There’s no get rich quick in this game. It is a long term process. You, you just, And it’s taken me 20 years, to get where I am.

Brett Bernard: But you’re in a good, solid position now because you’re gonna end up with 40 or 50 houses and uh, that’s a nice retirement.

Tom Durhan: That’s a very nice retirement.

Brett Bernard: Especially ones they’re all paid for.

Tom Durhan: Yes, that’s objective.

Brett Bernard: When will you have ’em all paid for?

Tom Durhan: Probably about 10 years.

Brett Bernard: 10 years, yeah?

Be Social:

Published in Real Estate Investing Podcast.

Memphis Area Association of Realtors
Realtor Logo
TN Association of Realtors Logo

CALL 901-671-1015 CONTACT US