February 19, 2018

JF1266: Creative Financing And Live-In Flips With His Wife & Kids with Josh Daniels

Josh has been investing in real estate for 5 years now and has done a good amount of deals. He’s gotten creative to purchase some of them, and has even done live-in flips with his family living in the house with him! To hear some creative strategies and how to tackle difficult situations click listen on this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review

Best Ever Tweet: 

Josh Daniels Real Estate Background:

– invest in single family homes and small duplex

– Real estate investor for the past 5 years

– has 8 units in his portfolio

– Have completed 8 buy-n-hold deals, flipped 4 properties, wholsaled 2

– Say hi to him at joshcecATgmail.com

– Based in Columbus, Montana

– Best Ever Book: Millionaire Next Door

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Josh Daniels. How are you doing, Josh?

Josh Daniels: Good! Glad to be here.

Joe Fairless: Glad to have you on the show as well. A little bit about Josh – he is an investor in Columbus, Montana. He invests in single-family homes and duplexes. He’s completed eight buy and hold deals, he has flipped four properties, and he has wholesaled two properties. So he’s got eight units in his portfolio; he’s been investing for five years, and we’re going to learn more about him. Josh, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Josh Daniels: Yeah, I started five years ago. I got in by living in a duplex; we bought one and moved in the upstairs of it and then rented out the lower unit. Then over time we just slowly have kind of added more units, living in quite a few of them as we go through the process, and slowly just building up a portfolio. Our goal is to continue to just have that passive income from real estate.

Joe Fairless: So you’ve been buying a bunch of properties, living in most of them, renting out while you’re living there, or what?

Josh Daniels: Yeah, sort of. That first one was the only one we lived in that was a multifamily. The rest we’ve been doing those kind of live and flips type thing, where you live in it, and then of course you get the two of the last five years if you live there, and you can sell it tax-free. So that’s kind of been our strategy to make good returns. And then we take all that tax-free profit and then buy and hold deals. That’s kind of our goal and strategy over the last couple years.

Joe Fairless: Okay, that makes sense, and that is a beautiful way to build a portfolio. What’s been a challenge along the way?

Josh Daniels: I guess the challenge for us is trying to find good deals. Lately it’s been getting harder and harder. The market has gone up, and just really hunting those things down, but… I guess the other obvious challenge would be just living in construction zones and living close to your tenants, and those kinds of issues that you deal with when you’re kind of doing that hands-on investing, especially in the early years.

Joe Fairless: Do you have a significant other?

Josh Daniels: We do, yeah, my wife, and we have two little kids right now, so… It makes it a little bit more challenging for those live and flips, the construction and all that.

Joe Fairless: Yeah, how aligned is your family on doing live and flips?

Josh Daniels: [laughs] Well, we started off doing well, and now with a couple of little kids it’s getting harder and harder. I think this next one we’re gonna buy when we sell the one we’re in – that will be up in June, and then assuming the tax law doesn’t change here in a couple weeks, we’ll sell that one; then I think we’ll be done live and flipping, just because of the young kids and my wife… But she was on board for the first two or three that we’ve done, and that’s really been an important part to have her there, and really excited about the process with me as we work and do this stuff. I’d say you can’t do it without having your partner on board with that.

Joe Fairless: You said you’ve been an investor – or maybe I’ve said it – for the last five years… How did you get the money to buy the first deal?

Josh Daniels: You know, that was a challenge. We were fresh out of college and kind of lived pretty poor during college; we didn’t have a ton of money, like most college students that I’m sure are out there… But when we graduated, I got a job making about 40k a year and man, I thought I struck it rich; I thought I was really making a lot of money… So we lived on about 20k/year (me and my wife), we were very frugal with our funds, so we banked the rest of it, we just kind of piled up this little chunk of cash and then jumped into our first duplex, which was about 70k, so we put 10k down and jumped into it. So that’s where we kind of came up with our money.

I’d say that’s good advice for anybody that’s getting out of college – just live on less than you make to start with; it’s amazing how much you can save for that first investment.

Joe Fairless: And were you living in Columbus, Montana at the time?

Josh Daniels: Yeah, that’s where I got my first job, moving here; I moved here from Minnesota.

Joe Fairless: Okay. I’ve picked up the Minnesota accent…

Josh Daniels: Okay… [laughs]

Joe Fairless: I didn’t know the Montana accent… I wasn’t sure what a Montana accent sounded like, so I thought like “This is very similar to Minnesota.”

Josh Daniels: That could be, yeah. [laughs]

Joe Fairless: I imagine there are some Best Ever listeners who are thinking “Well, it’s a lot easier to save money on a 40k salary in Columbus, Montana than it is in the city I’m living in.”

Josh Daniels: Yeah. Our rent was like $450 or something, so it’s pretty easy to save money. But we don’t make 90k or 100k like you would in a bigger city.

Joe Fairless: Very true. Touché, yes.

Josh Daniels: Either way…

Joe Fairless: You all have eight units in your portfolio now, and basically – let me make sure I’m understanding this… The big picture strategy that has gotten you where you’re at now is you’ve lived below your means, you saved up, then you put it in live and flips, then you rented those out, sold them, got the tax-free gains and applied that towards other stuff?

Josh Daniels: Yeah, pretty much. So we didn’t put in a lot of money of our own money after that initial purchase, because we started using creative leverage on some other things to help us grow our portfolio… So that’s pretty much where we’re at today – just using home equity lines of credit to grow our portfolio. So we don’t save — I wish we lived on 20k a year now, but we pretty much spend everything I make from my day job and we just reinvest the profits from our real estate to grow our portfolio.

Joe Fairless: What’s your day job?

Josh Daniels: I’m a pastor at a church; I work with kids.

Joe Fairless: Okay, very cool. So let’s talk about these creative strategies. You said HELOC, your own credit… Can you tell us about that stuff?

Josh Daniels: Yeah, absolutely. So our second deal we bought was a mobile home that we moved onto a lot that came next to the duplex, and all-in we paid about 18k to get that set up and buy it and everything, and we paid it off really quickly.

We used that, our first free and clear property, and we went out and got a line of credit on it for $50,000, and then we used that to do down payments on our next one, so we could kind of do it without trying to come up with down payment money.

Joe Fairless: How did you get the debt finance for the property?

Josh Daniels: That was just through a local bank. It was an in-house loan, it wasn’t some conventional loan that they sell off to the big companies; it was just a little — maybe portfolio loan is a lot more familiar to people. They just lended [unintelligible [00:08:48].28] and it was like a three-year balloon loan with a 6% interest, or something like that.

Joe Fairless: They were okay with you borrowing via your line of credit to come up with the down payment on the loan that they were giving you?

Josh Daniels: Yeah, they were good with that, and then as long as we were refinancing with them in portfolio loans as well, so… Eventually, we’ve kind of changed all that now. We have three different lines of credit that we use to buy properties against our paid for — we have three paid for properties now, and we’ve got lines of credit against them, and we just go ahead and we buy properties cash with that line of credit, and then we just refinance to conventional mortgages now. That’s kind of our way of buying it. It works pretty good – pay cash and then refi.

Joe Fairless: I’m just trying to follow the breadcrumbs here… When you have a line of credit of, let’s say, $50,000 on a house that you own free and clear, and then you use that line of credit – let’s say you use 25k of that, so now you have 25k that is in use, and you use that for a house that you buy all cash and then you put a conventional mortgage on, eventually the well is gonna run dry, right? Unless you’re doing something to liquidate.

Josh Daniels: Yeah, so we’re paying all cash for that property, and then we refinance the whole amount with a secondary market loan, a conventional loan. So we’re getting all our money back on that second one, and then we just do it again. So we pay it down, pay the line of credit back, and then we buy it again. We can do it every about 45 days to two months or something like that, if we can find a deal. This summer we ran about three in a row and then we’re trying to hunt for more deals now.

Joe Fairless: That’s the key, finding the deal that has the equity spread that allows you to get an increased value based on what you paid for it. Basically, you need something that’s worth 25% more than what you buy it for, that way you can get your 25% back out?

Josh Daniels: Exactly, minimum 25%. The one we did this summer – one of them was a 70k purchase, and we rehabbed it, cleaned it all up and then we got the new appraisal back 45 days later, and it came back at 130k, so there’s lots of room in there, equity, and then the bank is comfortable loaning us the whole purchase amount from the original purchase, 70k. That way we can get all our money back, minus rehab; we have to put in the rehab cash.

Joe Fairless: So the system is that you pay off one house, and then you put a line of credit against that house, and then you go find another deal that is worth at least 25% more than what you’re paying for it, you pay all cash, and then after a certain period of time (a month, two months, whatever) then you put a traditional mortgage on it with 25% down, which then allows you to get back the money that you put into it initially. You cash-flow on the second house and now you’ve got the original money back and you do it again.

Josh Daniels: Nailed it, yeah. That’s what we do. You said it much better.

Joe Fairless: Oh no, I’m just listening, I’m just repeating what I’m hearing. That’s a great strategy, so then really the key is finding those deals, and initially getting that line of credit from the institution. What interest rate do you have? Not that it matters as much, because it’s short-term money, but I’m just curious.

Josh Daniels: Our primary one we use is 5% with our bank – that’s interest-only – and then we just got a $50,000 unsecured line of credit against a property, and that’s at 7%.

Joe Fairless: And this is from the same portfolio lender?

Josh Daniels: Yeah, the same bank we use here in town.

Joe Fairless: They’re in Columbus, Montana?

Josh Daniels: Yeah, exactly.

Joe Fairless: Which one are they? What are they called?

Josh Daniels: This is First Interstate Bank; it’s a pretty small, regional [unintelligible [00:12:42].02]

Joe Fairless: How did you get in touch with them initially?

Josh Daniels: Goodness, there’s only four banks in our town, so… [laughter] I went to every single one of them and asked “Hey, what can you give me? What can you do? How can we work this out?” I worked with two of the other banks in town here, but this one (First Interstate Bank) seems to be the best for us.

Joe Fairless: Very cool. That makes sense, with the four options only, because I searched for Columbus, Montana before we started talking, and on Google Maps the only picture so far that pops up is a log cabin.

Josh Daniels: Yeah, there’s not much here. We are a small town.

Joe Fairless: Just West of Billings, for any Best Ever listeners looking for a frame of reference.

Josh Daniels: They know where that is, yeah.

Joe Fairless: Yeah. Alright, so you’ve got this approach that you’re taking… Now, you’re in a small town – how are you finding deals and what is your approach to finding deals?

Josh Daniels: You know, that’s the trick in a small town… Normally, it seems like in the bigger markets, at least what I hear from people online and stuff is they’re kind of niching out on a way to find deals; maybe it’s all foreclosures, or maybe they’re focusing just on direct mail… In a small town we really have to do just about anything possible to find deals. You’re looking at every possible option, so we do some direct mail, we do a lot of just cold-calling, driving the streets, looking for ugly houses, a lot of MLS stuff. We have a really good realtor we work with, and they really help us find some good deals; we’ve had a lot of really good pocket listings from them. Craigslist – we’ve found a deal this summer on Craigslist… So whatever we can do to find deals, we scour it pretty hard.

Joe Fairless: What has resulted in closings for you?

Josh Daniels: What has resulted in closings for us… Probably the most would be the MLS and — I don’t know… Yeah, probably about half of our properties were on the MLS system.

Joe Fairless: Okay. What about the other half.

Josh Daniels: I wanna say two on Craigslist, one by word of mouth this summer, too… We just had a neighbor come by. A couple of them were from just cold-calling, looking down the street, seeing an ugly house and calling them up, and they said “Oh, sure, I wanna sell”, and go that way… That kind of works, too. But a little mix of everything.

Joe Fairless: When you call the number — well, first of all, how do you get the number? If you’re driving by, you see an ugly house, what’s your approach? Can you walk us through that?

Josh Daniels: Yeah, so find it on Montana Cadastral – it’s a website with basically everything that’s available at the courthouses online, so you just get online, look up the map and then find the property, and then it shows who owns it, and all the tax information. Then from there, I usually just do some kind of Google search of that person’s name, or a  lot of times we’re connecting with these people on Facebook.

We’ve had a lot of leads this year through Facebook. Only one of them has turned out, but that’s how we connect – I just look them up and try to find them. Thankfully, Montana is a really small place, so people know each other, and usually you’re friends with someone that they’re friends with, or something… So it works out good in a small town.

Joe Fairless: I’m gonna guess that you don’t get a lot of out-of-state landlords…

Josh Daniels: Not many, although I’m kind of surprised how many absentee owners are in our small town… People from California, or people that inherited something. I don’t know where these people are, but it’s kind of surprising how many absentee owners are in this area.

Joe Fairless: Alright, you found them on Facebook… What is your approach then? What do you do?

Josh Daniels: Usually I just message them if they’re Facebook leads, if I can’t find their phone number. My preference is to find the phone number, but I just message them and say “Hey, are you interested in selling the house?” Usually if they get back to me and say yeah, then we just set up a time either to see it, I ask them some basic information and try to feel out their motivation; as you know, motivation is the main thing… Trying to find somebody that’s truly motivated, and not just kind of “Oh, sure, I’ll sell it for the top dollar” or whatever. So feeling that out and then just set up the time to go check out the house, and we’ll walk through it and then make them an offer.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Josh Daniels: My best real estate investing advice ever… Man, that’s a good one. I’d say just take as much action as you possibly can on things that you’re looking at doing, and get a good mentor. Find somebody that’s really doing what you wanna be and is who you want to be.

Joe Fairless: Who taught you the business? You said “find a good mentor.” And by the way, sorry if I talked over you; it cut out, so I thought you were done talking. I didn’t mean to talk over you if I did.

Josh Daniels: No, I think it did cut out too on my end, so I didn’t hear anything…

Joe Fairless: Alright, fair enough. So we were both flying blind.

Josh Daniels: Something was going weird.

Joe Fairless: You mentioned the mentor thing – who taught you the business?

Josh Daniels: Yeah, I kind of wish I would have got some more mentors, but the first guy that really got me into it was my landlord when we first moved here at $450/month; we were renting from him and he had this apartment complex and we were getting ready to move, and he started really just telling us “Hey, you guys should really buy a multifamily to move into”, and that’s really what kind of piqued our interest in going into real estate. He’s given us tips throughout the years that have just been very valuable… Finding deals off the market and all that stuff came from him.

Joe Fairless: What’s a specific tip that you recall that helped you out?

Josh Daniels: Probably finding those off-market deals and just driving the streets looking for ugly houses. Those really have been — our best deals have come from that.

Joe Fairless: Okay. Are you ready for the Best Ever Lightning Round?

Josh Daniels: Sure, let’s do it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:18:22].15] to [00:19:13].19]

Joe Fairless: What’s the best ever book you’ve read?

Josh Daniels: The best ever book I’ve read… I probably like The Millionaire Next Door by Thomas Stanley.

Joe Fairless: Okay. I don’t think I’ve come across that one.

Josh Daniels: Yeah, it’s really good… Just understanding wealthy people and how they live in our culture.

Joe Fairless: Best ever deal you’ve done – can’t be the first, can’t be the last.

Josh Daniels: Oh, man… Let’s go with my second – probably that mobile home we bought; 10k purchase, all-in for 15k, and it rents for $800/month, and should sell for 80k-90k today, so a really good deal.

Joe Fairless: That’s incredible. How were you able to purchase it for all-in 15k and it would sell for 80k?

Josh Daniels: Well, I guess that’s a little misleading because the lot we had for free, we just had to develop it and add in some stuff. Because the duplex came with a really large lot, so we moved a mobile home next door to it. So a little misleading there.

Joe Fairless: Will you elaborate on that? Will you tell me the structure of that? I just wanna make sure I understand.

Josh Daniels: Yes, the duplex we bought came with two city lots – one that the duplex was on, the other one was empty. After figuring that out and kind of what we could do with it, they said it was zoned for a manufactured home, had to be a certain age, kind of a newer one, and double wide pitch roof, all that kind of stuff. So then we found one about four hours away in a much cheaper area, and the nice thing about mobile homes is they’re mobile, so we moved it in, and just that alone brought in a ton of value.

We’ve just got real high rental demand in our small town because we have a huge mine just outside of this here that creates crazy demand here… So we moved the mobile home in and rented it out, and it’s been a good deal.

Joe Fairless: Okay. And how much was the duplex with the land?

Josh Daniels: The duplex with the land was 70k, and that rents for $1,000/month, that thing. So altogether on that package, after we’ve put everything in – we had just under 100k all-in into it – it rents for $1,800/month.

Joe Fairless: Wow.

Josh Daniels: Yeah, good deal.

Joe Fairless: Yeah, great deal. The moving a mobile home next to a duplex that you just bought – did you have any reservations about not being able to command the highest rent because you’re putting the mobile home next to it?

Josh Daniels: No, because that neighborhood had probably three mobile homes in it. There was one behind it, so that area was kind of a lower class area, if that makes sense.

Joe Fairless: What’s a mistake you’ve made on a deal?

Josh Daniels: A mistake I made on a deal? Man, we didn’t rehab our first flip good enough. We bought it and we just kind of — I don’t know, we didn’t do a good job with the fix-up; I didn’t do things right the way we should have, and it just cost us money and in the end it took us 11 months to sell that… That whole time just because of the issues that people kept finding in inspection periods. They would either drop out of contract, or just walk away or whatever… So it just took us a while to get there.

Joe Fairless: What’s the best ever way you like to give back to the community?

Josh Daniels: I think just doing my vocation that I’m here at; I’m not gonna make a ton of money ever in this vocation, but it’s just a cool thing to be able to give back to the community by serving them and serving the youth in our community.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Josh Daniels: Probably e-mail me if you want to… That would be the best if you got that in the show notes. I’d love to connect with people and help anybody I can.

Joe Fairless: Alright, and it’s joshcec@gmail.com, right?

Josh Daniels: That’d be me, man.

Joe Fairless: Perfect. Well, Josh, thank you for sharing your approach and how you have gotten where you’re at. I love the strategy – you buy a house, do what you need to do to own it free and clear, then get a line of credit on that property, buy a property with at least 25% equity in it, then get a loan on that second property to cash out your 25%, and then you’re whole again on the line of credit and you just keep doing it again.

Josh Daniels: Absolutely.

Joe Fairless: Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Josh Daniels: See you later, man.

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