Beki and Kelly Cassels’ journey in the real estate investment world is both inspiring and educational. Within a short span of two and a half years, they have gone from being brand-new investors to successfully executing significant deals. Jay Conner, their mentor, plays an instrumental role in their success by providing them with the knowledge and financial resources required to thrive in the competitive market of real estate.
In the latest episode of Raising Private Money, Beki and Kelly shared the details of their latest deal, providing in-depth insights about their journey, the acquisition process, repairs, and the unexpected challenges they faced. Here is a breakdown of how they transformed a problematic property into a profitable investment.
Identifying and Securing the Deal
Finding the Property
Beki and Kelly’s latest project, located at 2332 East 10th in New Mexico, was identified through a referral from a neighbor. The property was notorious in the area for being the “problem house.” The landlord, tired of dealing with tenant issues, was looking to sell. This was a classic case of a “tired landlord” and represented a perfect opportunity for the Cassels.
Understanding the Market Value
The after-repair value (ARV) of the property was initially assessed at $230,000 by their knowledgeable realtor. This valuation was crucial as it provided a baseline for determining the potential profitability of the deal. However, due to market dynamics, they planned to list the property at a higher value of $280,000, significantly increasing their potential return on investment.
Repairs and Unexpected Challenges
Estimating and Executing Repairs
The initial repair estimate for the house was $110,000, but they wisely set aside an additional $10,000 for unforeseen issues, following the well-known Murphy’s Law. True to form, challenges did arise, particularly with the gas lines and HVAC system, necessitating a complete overhaul. This thorough rehabilitation included gutting the house down to the studs and installing new electrical wiring, plumbing, and insulation.
Detailed Repair Budget
Their strategy involved getting a contractor’s rough estimate before making an offer on the property. While the detailed estimate came in after the property was purchased, it closely matched their projections. By diligently working with professionals and being prepared for surprises, Beki and Kelly ensured the project stayed within budget.
Financing and Profit Calculation
Securing Funding
One of the standout aspects of this deal was the financing structure. Beki and Kelly borrowed $172,500 through multiple private lenders at an interest rate of 10%. The funds were wired directly to the closing agent’s trust account, covering the $43,000 purchase price and leaving them with $130,000 upfront for repairs and other costs.
Calculating Net Profit
After accounting for the $120,000 spent on repairs, realtor fees, carrying costs, and other expenses, Beki and Kelly calculated a net profit of $88,200 from this deal. They also paid a 6% realtor fee amounting to $16,800 and anticipated their private lender interest to be around $9,000 over six months. Such meticulous financial planning ensured that they could maximize their returns even with significant upfront and carrying costs.
Key Takeaways and Lessons Learned
Networking and Referrals
One of the central lessons Beki and Kelly highlighted was the power of networking. By maintaining good relationships with neighbors and service providers, and by making their capabilities known, they secured this valuable deal. They also emphasized the importance of appreciating referral sources; rewarding their neighbor with $1,000 was not only good practice but also fostered goodwill in the community.
Importance of Communication and Transparency
Their story also underscored the importance of clear communication and due diligence. Working closely with realtors, contractors, and private lenders helped ensure the project’s success from start to finish.
Unexpected Positive Outcomes
An unexpected but welcome outcome was the transformation of the neighborhood’s perception. The drastic improvements to the problematic property uplifted the community’s spirit, garnering praise and appreciation from neighbors. In addition, they already have an interested buyer, demonstrating how positive community impact can lead to profitable opportunities.
Rewarding Persistence and Hard Work
Finally, Beki and Kelly’s experience reiterates that significant rewards come from perseverance, informed decision-making, and diligent work. Their profit not only exemplifies financial success but also the long-term value of proper mentorship and a solid support network.
By sharing their journey, Beki and Kelly offer invaluable insights into the world of real estate investment, inspiring both beginners and seasoned investors to aim high and tackle challenges head-on.
10 Discussion Questions from this Episode:
- Motivation and Discovery: Beki and Kelly’s deal was sourced through word-of-mouth and neighbors. How important do you think community connections are in real estate investing?
- ARV Calculation: Jay emphasizes using local, experienced realtors for after-repaired value (ARV) estimates. What are the advantages of this approach compared to using online valuation tools?
- Repair Budgeting: Beki and Kelly estimated over $120,000 in repairs. What are some strategies for accurately estimating repair costs before making an offer on a property?
- Murphy’s Law: They mentioned “Murphy” in terms of unexpected repair costs. Can you share an experience where unexpected costs significantly affected a project you were working on?
- Offer Strategy: Their maximum allowable offer (Mayo) was $43,000 which was accepted. How would you determine the right offer to make on a distressed property?
- Rehabilitation and Transformation: The entire house was taken down to the studs. What are some pros and cons of such extensive renovations compared to lighter rehabs?
- Private Lender Financing: Kelly and Beki borrowed 75% of the ARV at 10% interest. What are the benefits and risks of using private lenders for real estate investments?
- Property Appreciation: They adjusted their selling price from an ARV of $230,000 to listing the property at $280,000 due to market changes. How do you stay updated with market trends to ensure your property is priced correctly?
- Community Impact and Referrals: Beki and Kelly received community appreciation and rewarded their neighbor with $1,000 for the referral. How important are community goodwill and rewarding referrals in your business model?
- Learning and Improvement: What lessons did Beki and Kelly learn from this deal, and how can these lessons be applied to future real estate investments?
Fun facts that were revealed in the episode:
- Neighborly Referrals:
Beki and Kelly discovered their latest real estate deal from a neighbor’s referral about a tired landlord. - Profitable Purchase:
They brought home a $130,000 check at closing with no initial outlay. - Appreciative Community:
The neighbors are thrilled with their renovation, and they even rewarded the neighbor who referred them with $1,000.
Timestamps:
00:01 The Problem house owner is ready to sell the property.
05:40 Listing for 280, confident about the budget now.
08:23 Extra $10,000 covers carrying cost, 8% interest.
10:09 Net profit: $88,200 after all deductions.
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Turning Challenges into Profit: Beki and Kelly’s Transformative Real Estate Deal
Jay Conner [00:00:05]:
Okay. Let’s talk another real deal, and it’s my pleasure to introduce Beki and Kelly Castles. Hello there, Beki and Kelly. Hello. So, take a moment and, and introduce yourselves, and then we wanna hear all about your deal.
Beki Cassels [00:00:24]:
You got it. Well, Beki and Kelly, we are from New Mexico, and we’ve been in Jay’s world for about two and a half years. We were brand new real estate investors when we got involved with Jay, and, it’s obviously changed our life because having the money to buy those deals and having the knowledge of how to buy the deals, is really invaluable. It’s been awesome. So thank you very much, Jay.
Jay Conner [00:00:51]:
Well and myself and the whole team, we’re mighty proud of your all success that that y’all have been enjoying by implementing, you know, what you’ve learned to do. Okay. Let’s talk a real deal. Let’s hear all about it.
Beki Cassels [00:01:05]:
So this deal, it’s our latest deal that we’re working on right now, and it’s actually right down the street from us. We can stick our head out of our front door and see the house.
Jay Conner [00:01:18]:
Let me just put in my notes. What’s the physical address? Just the street number name.
Beki Cassels [00:01:23]:
2332 East 10th.
Jay Conner [00:01:26]:
2332 East 5th. Okay. Go ahead.
Beki Cassels [00:01:30]:
And this was a well, we’ve lived down the street from this house for a while. You know, there’s always that problem house in the neighborhood, and this was the problem house in the neighborhood. But the next-door neighbor visited more with the rent renter and the homeowner. And when his last renter moved out, she referred him to us and said, I think I think he’s ready to sell. Very, very tired landlord. Let’s put it that way.
Jay Conner [00:02:01]:
Alright. So you found out about this deal. The motivation is a tired landlord, but you found out about it by word-of-mouth or referral. Right?
Kelly Cassels [00:02:13]:
Yes. Absolutely. Yep.
Jay Conner [00:02:15]:
Alright. Go ahead.
Beki Cassels [00:02:17]:
So the after-repaired value, when our realtor did the analysis was $230,000.
Jay Conner [00:02:27]:
230,000, the after repaired value. And by the way, don’t miss this point. We are getting our after-repaired values, our mastermind members are getting our after-repaired values from our credible, reputable, knowledgeable, experienced realtors. We’re not getting the after repaired values from some, like, online service, that you know, there are hundreds of those, but we’re using the local realtor that knows the market. Go ahead.
Kelly Cassels [00:02:59]:
Well, and I think something else to add to that is we’re gonna be putting this house on the market at 280 because of the properties that have sold
Beki Cassels [00:03:09]:
In the meantime.
Kelly Cassels [00:03:10]:
In the meantime since we’ve since we’ve bought this.
Jay Conner [00:03:13]:
Wow. So the r was 230 when you bought it, but now you’re gonna be listing it for 280.
Beki Cassels [00:03:21]:
Correct.
Jay Conner [00:03:21]:
Seems as though we have a trend and a thing here. Okay?
Beki Cassels [00:03:25]:
Yes.
Jay Conner [00:03:25]:
So listing for 280. Alright. Go ahead.
Beki Cassels [00:03:29]:
So repairs were about 110,000 plus 10,000 of Murphy.
Kelly Cassels [00:03:38]:
Alright. So showed up.
Beki Cassels [00:03:39]:
Oh, Murphy always comes. Always.
Jay Conner [00:03:42]:
Yeah. Oh, yes. Oh, yes. Alright.
Beki Cassels [00:03:45]:
Which, I think took with the MAO, that took our maximum allowable offer down to $43,000.
Jay Conner [00:03:56]:
So MAO’s maximum allowable offer was how much? 43,000. Alright. So just to review that formula, you took $230,000 multiplied times 70%, subtracted repairs of 120, and that’s an MIO of 43,000. Right? Correct. Okay.
Beki Cassels [00:04:18]:
He accepted.
Jay Conner [00:04:20]:
Okay. So the purchase price was 43.
Beki Cassels [00:04:25]:
Correct.
Jay Conner [00:04:26]:
Alright. Alright. Go ahead.
Kelly Cassels [00:04:28]:
Now, Jay, on this, property, when I first entered this property and opened the front door, the cockroaches just scattered. And it was so we tore this house all the way down to the studs, Sealing, everything down to the studs. It got completely rewired, brand-new plumbing, everything. You know, obviously, new insulation. Yeah. And we start drywall on Friday. Okay.
Jay Conner [00:05:01]:
How did you come up with your repair budget? Did you do it? Did you initially do an estimate? Did you get a did you not close on it till you got your final general contractor bid, or how did that work?
Beki Cassels [00:05:14]:
We walked it, and then we also walked it with the contractor.
Jay Conner [00:05:18]:
Yep. Did you get a contractor figure before you made your offer?
Beki Cassels [00:05:23]:
Not a concrete, not a concrete contractor figure.
Kelly Cassels [00:05:27]:
Because we hadn’t looked behind the walls yet.
Beki Cassels [00:05:29]:
Yeah. But it all came together about the same when he brought all his numbers in.
Jay Conner [00:05:37]:
Okay. Very good. Yep. Alright. Go ahead.
Beki Cassels [00:05:40]:
So, yeah, like Kelly said, we’re gonna end up listing this for 280. I think Murphy is finished Mhmm. Making his appearance because he usually comes in behind the walls and underneath and all those things, and that’s all done. We’re we’re ready for the pretty work now, which is, pretty straightforward. So we feel pretty confident about the budget now.
Jay Conner [00:06:07]:
Hey, Beki. Just so everyone here knows, what form did Murphy take in this property for you guys? Like, what was unexpected?
Kelly Cassels [00:06:15]:
Well, I mean
Beki Cassels [00:06:16]:
Gas lines gas lines that had to be replaced.
Kelly Cassels [00:06:20]:
We had to replace the gas line from the meter to the house, and we put in a new gas line because it wouldn’t hold any pressure when the plumber tested it. So we ended up putting a new gas line all the way through the house.
Beki Cassels [00:06:34]:
Yep. And, also, more more in the HVAC, than we had budgeted for a little a little bit. So
Jay Conner [00:06:45]:
Yeah. Do you think you’ll sell it for 280?
Beki Cassels [00:06:48]:
Yes. I we do.
Jay Conner [00:06:49]:
Alright. So, what percentage do you pay your realtor?
Beki Cassels [00:06:54]:
6%.
Jay Conner [00:06:55]:
6%. Alright. So your realtor fee, selling it for 280 would be $16,800.
Beki Cassels [00:07:05]:
Correct.
Jay Conner [00:07:05]:
How much did you borrow?
Beki Cassels [00:07:08]:
We borrowed right on the money, for a point 75, 75% at 1725.
Jay Conner [00:07:14]:
So you borrowed 1725. Okay. Wait a minute. Wait a minute now. You borrowed a 172,500. That money was wired into your closing agent’s trust account.
Kelly Cassels [00:07:30]:
Escrow. Yep.
Jay Conner [00:07:31]:
You bought it for 43,000. So if you subtract a $172,500 minus 43,000 purchase price, are you saying you brought home a check of about $130,000 when you bought it?
Beki Cassels [00:07:47]:
We did. We did.
Jay Conner [00:07:48]:
So here’s the question, who wants to get paid $130,000 to buy a property? Y’all y’all get that? Right? So, Beki and Kelly brought home a $130,000 check, and you took no money to the closing table. Right?
Beki Cassels [00:08:08]:
Nope. Nope.
Jay Conner [00:08:09]:
Right? You bring home this check for 130,000 less a little bit of closing. So of that 130,000, you’ve had a 120,000 go towards the rehab. Right?
Beki Cassels [00:08:22]:
Mhmm. Correct.
Jay Conner [00:08:23]:
Which has left you over about an extra $10,000 to help with carrying costs etcetera. Right? Correct. Alright. Let’s go ahead and run the figures on this deal. I think I’ve got all the oh, about how much would you guess is gonna be care a carrying cost? So, what percentage are you paying your private lender? 8%?
Beki Cassels [00:08:42]:
So on this deal, we have multiple private lenders, so we’re everybody’s getting 10% on this particular deal.
Jay Conner [00:08:48]:
Okay. So if you had it for an entire year, which you would, and that’s 17,250. So from start to finish, how many months do you think you’re gonna have this before you cash out from start to finish?
Kelly Cassels [00:09:01]:
4.
Beki Cassels [00:09:02]:
Do I have to say 5 to 6. 6 at the absolute.
Jay Conner [00:09:06]:
So you’re paying $1400 a month in interest. Call it 6 months. So your private lender interest is only gonna be $86100. Right?
Kelly Cassels [00:09:13]:
Yeah.
Jay Conner [00:09:14]:
So for easy figuring, let’s call it $9,000 in, private lender interest. And other carrying costs, taxes, insurance, what would you guess?
Beki Cassels [00:09:26]:
Insurance on this property was 1200 for our policy for this while we were while we had it.
Jay Conner [00:09:33]:
And that’s for a year. Right? Mhmm.
Beki Cassels [00:09:36]:
Yes. And then
Jay Conner [00:09:37]:
6 months, that’ll be 600.
Beki Cassels [00:09:39]:
Well, this is a builder’s risk that’s fully actually, I think it was a 9 I think we did a 9-month policy.
Jay Conner [00:09:44]:
Okay. Is it fully earned?
Beki Cassels [00:09:46]:
Yes. Fully earned.
Jay Conner [00:09:47]:
That means you that means you don’t get any money back. Right? Correct. Yeah. Correct. And that about how much was it?
Beki Cassels [00:09:53]:
That was 121200.
Jay Conner [00:09:54]:
Okay. So 1200. And how much are taxes and insurance?
Beki Cassels [00:09:58]:
Taxes and insurances I mean, taxes and utilities, it’s gonna run probably, I don’t know, maybe $1500.
Jay Conner [00:10:09]:
Yeah. Okay. That’s 1512127, call that 3,000. Alright? So let’s run the numbers on this net profit. So here we go. We’ve got a sale price of 2 I hope you all are writing this down. So $280,000 sale price, less a rehab of $120,000 less a purchase price of $43,000, less realtor fee of 16,800, less carrying cost of 9,000, less other, I mean, that was, private lender interest, less other carrying cost of 3,000. Wow, Beki Kelly, you got a net net net net net net of $88,200.
Jay Conner [00:11:05]:
Wow. That might have paid for your coaching. I’m not sure.
Kelly Cassels [00:11:13]:
Our coaching is priceless. Yeah.
Jay Conner [00:11:15]:
Oh, wow. That’s amazing. Amazing. Any takeaway or lessons from this deal you wanna share? Budget tie Make more offers, and don’t be shy about your offer. I’m sorry. Go ahead.
Beki Cassels [00:11:30]:
Right. Go ahead. Yeah. The biggest thing from this offer is to talk to everybody you know. Talk to your neighbors. Talk to just make sure that they know what you can do. If there’s a, like Crystal said, with the delivery drivers and play people that can see these types of houses and give you the referral to know about these houses, that’s the way you’re gonna find the good ones.
Kelly Cassels [00:11:59]:
And, Jay, you’ll appreciate this. Today, the guy who delivers our mail is interested in buying the house.
Jay Conner [00:12:06]:
Hey. You got a referral from down the street, and now that you already have an interested buyer. Right? Right. Yeah. I love it. I love it.
Kelly Cassels [00:12:17]:
And I would add one other thing. The amount of appreciation that we’ve gotten everybody from everybody in the neighborhood is immense because it has really changed, everybody’s perspective about our neighborhood, and, they’re very, very happy that it’s going on. We gave the lady next door $1,000 for the referral after we closed.
Beki Cassels [00:12:44]:
Nice. And then she feeds Kelly all the time.
Kelly Cassels [00:12:47]:
I’m getting I’m getting lunch every day. She makes homemade, beans and chili, and I get it in tortillas.
Jay Conner [00:12:57]:
So Well, there hey. Look. There’s another takeaway. Take care of your referral sources.
Kelly Cassels [00:13:03]:
Yep. Yes.
Jay Conner [00:13:05]:
Beki and Kelly, here’s a sophisticated golf clap for you right now. Thank you. Congratulations on that amazing deal.