Kris and Cody went to the same high school, went to separate colleges, crossed paths again and went to a Rich Dad Poor Dad seminar, and caught the real estate bug! They started immediately putting deals together, purchasing four properties in 5 months. To hear an up-and-coming story of two investors who will be very successful, tune into this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Kristofer Kohlstedt Background:
-Recent college graduate, just turned 23, retired collegiate basketball player and is a real estate investor
-Purchased 4 properties, 5 units in 5 months
-Acquired mentors and investors, now hunting for apartment complexes to purchase
-Big advocate on the mental approach to life and creative ways to solve problems
-9-5 work is at ABC Financial where I travel the country and train clients how to use our software.
-Based in Little Rock, Arkansas
-Best Ever Book: How to Make Money in Small Apartments
Say hi to them at:
Website: journeyestateinvestments.com
Facebook Group: https://www.facebook.com/TheGuysInRea…
Cody Dover:
-Instagram: https://www.instagram.com/cody.dover/…
-LinkedIn: https://www.linkedin.com/in/cody-dove…
-Facebook: https://www.facebook.com/cody.dover.7…
-Snapchat: Dover23
-Email: Cody@journeyestateinvestments.com
Kris Kohlstedt:
-Instagram: https://www.instagram.com/kriskohlste…
-LinkedIn: https://www.linkedin.com/in/kristofer…
-Facebook: https://www.facebook.com/kris.kohlste…
-Snapchat: Kris_Kohlstedt
-Email: Kris@journeyestateinvestments.com
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TRANSCRIPTION
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, Kris Kohlstedt and Cody Dover. How are you two doing?
Cody Dover: Man, doing awesome.
Joe Fairless: Well, that’s great to hear. Nice to have you two on the show. A little bit about Chris and Cody – they are 23 years old, they just started investing five months ago, and within a five-month span they have closed on three deals totaling five units. They’ve done those three deals using a different technique – one with no money, one with bringing in partners who have an equity stake, and one just traditionally. So we’re gonna dive into that and how they got their start so quickly. With that being said, Chris and Cody, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Kris Kohlstedt: Yeah, so like you mentioned, we did five units in five months. Our big focus was really just getting started and just getting things going. Now our focus is more on the multifamily space, so we are trying to transition into the syndication process, which is actually how we stumbled upon you, Joe, in the first place.
Joe Fairless: Sweet.
Cody Dover: And to kind of piggyback more off of what Kris has said, really we’ve just found a model that works for us, and getting into units with tenants, already occupied. That can be good or bad, depending on where you are and who the tenant is, but for us and for the time being it worked out, so we’ve figured why not take this model elsewhere and kind of level up, so to speak, into apartments?
Joe Fairless: Cool. Well, let’s talk about what you’ve done, and that will give us some more context for where you’re going and how you’ll apply those lessons for future stuff. Let’s talk about your first deal… Tell us about that, please.
Cody Dover: The first deal was a little more traditional, as Kris said. This deal came off of Facebook; a family friend was selling it, and we were like “Well, this could be a deal, this could not be…”, so we looked into it, we ran some numbers and it seemed to work. And mind you, this was our first deal, so we really didn’t know what to expect.
In that deal we just scraped up about $5,000 total between the two of us to bring to closing for the down payment, and that was all we needed to get into the deal. Looking ahead now, that deal is making us around 72% cash on cash return for the year that we’ve had it, and after that, moving forward, I’ll kind of let Kris explain the next two deals, but we really just didn’t want to scrape up any more money after that.
Joe Fairless: That’s incredible. Let’s dig into the first one before we move on to number two and number three… First off, how do you two know each other?
Cody Dover: Well, we went to high school together, and then we kind of parter ways throughout college, and then after college we kind of stumbled back upon each other. It’s kind of a funny story, because our friends — we’re the only people posting about books on Snapchat, so we just kind of linked up and started talking about books. We were like, “Wow, not too many of us read like we’re doing. We should do something.” Chris invited me to a Rich Dad, Poor Dad seminar one night, and no questions asked, I was down. We went, and that was really where it all started.
Joe Fairless: Okay. You two were looking at this first deal, and you said you ran the numbers to see if it would work… You hadn’t done a deal before, so what numbers were you running and how did you know to run those numbers?
Cody Dover: For getting started for us we did have the Rich Dad, Poor Dad education, so to speak; we invested in that program.
Joe Fairless: How much?
Cody Dover: It was $16,000, but we both split that, so it was $8,000 a piece. And just to dive into that really quickly – we quickly when we got to our local market and went to our local meetup, I was asking everybody “Hey, what education programs did you get in?” and everyone was like “I didn’t do one.” So for me it was kind of like, “Well, I guess you don’t really need the Rich Dad, Poor Dad education.”
But nonetheless, I stumbled upon Bigger Pockets and found their analysis sheet. From their analysis sheet, it lines out what your income is, what are your expenses, what is your total return for the year and what’s your cash on cash return. So I kind of put some formulas together in an Excel document and that’s where we began running numbers, using the income and general expenses for a property.
Joe Fairless: Okay.
Cody Dover: And now for the analysis, I kind of overdid the numbers because of safety, because it was our first deal… And the numbers still worked. It met the 2% rule, so to speak.
Joe Fairless: How much is the all-in price which includes the purchase and the renovations, and what do you rent it for?
Cody Dover: The purchase price was $30,000, so we were trying to stick to a simple model – get a house that didn’t need a lot of work to it – and that’s just what we did. This house, even though it may be $30,000, it really didn’t need any work to it, with the tenants already living there. It rents for $600, so if you do the 2% rule, it’s 2% right on point.
Joe Fairless: You said you brought $5,000 to the closing table for your down payment… How did you get financed with that?
Cody Dover: Well, the $5,000 came out of our own pockets, $2,500 each, and then we got a commercial balloon note, a three-year amortized over 25 years, from a local bank. That was only 15% down, which is the lowest that we’ve found thus far.
Joe Fairless: What was that like? You said it was a commercial loan… Was it like a community bank or a credit union locally?
Cody Dover: That was a community bank.
Joe Fairless: Okay, community bank. What was that process like, working with a community bank for the first time?
Cody Dover: It was interesting. I travel for work, and whenever I am home — or back then when we started, I would literally go to all the community banks or call on them and just tell them, “Hey, we’re getting into real estate. We’re trying to learn the ropes, basically”, and anyone that was interested in building a relationship was one that we wanted to stick with… As opposed to some people, they have like a cut and dry process; there was a couple of them, like this bank in particular, that we stumbled upon, and they wanted to build a relationship… So we knew that we wanted to work with them, and they also offered that 15% down, which was an easy way for us to get into this, a cheaper way.
Joe Fairless: What bank is it?
Cody Dover: Eagle Banking Trust.
Joe Fairless: Eagle Banking Trust. And they’re in Little Rock, or…?
Cody Dover: I believe they’re only in Arkansas right now. Don’t quote me, I could be wrong, but they are here.
Joe Fairless: Cool. And you two are headquartered in Little Rock, Arkansas? Got it. That’s the first deal, you brought $5,000 into the deal; you each brought $2,500, and you got a loan from Eagle Banking Trust, which is a community bank locally. You found the deal from someone on Facebook, a family friend; you ran the numbers from a Bigger Pockets spreadsheet and you had the foundational knowledge for what the heck is going on through the Rich Dad, Poor Dad program. So what about the second deal?
Cody Dover: Right. So the second deal was a little different. Kris and I were searching for deals, and he started just putting in low-ball offers. I think we submitted around 30-40 low-ball offers, and coming back we had about eight get accepted, and of these eight was a duplex. There was no negotiation going on, nothing. The seller just wanted out. So we ended up getting this duplex at —
Kris Kohlstedt: 71k.
Cody Dover: Let’s see… It was at $0 down because we were able to finance the down payment, so…
Joe Fairless: What did you just say? I didn’t get that part.
Kris Kohlstedt: So the purchase price for the property was 71k. That was the offer we submitted. They were asking 105k. Once we knew our offer was accepted, we immediately said “Okay, who do we know that can fund this down payment? Because we need to get this deal done.” And we called on family and friends, we went to the local meetups, and we ended up finding financing. It was $12,000; I think it was two that we paid as a down payment… Close to 12k.
Joe Fairless: You basically brought in someone for $12,000, which was the down payment of the $71,000 purchase price?
Cody Dover: Right, and they don’t have an equity stake in this property. What we did was just an under-the-table loan, to carry for six years at 6%. So it’s really a no-brainer for us to be able to get into a duplex that’s cash-flowing from day one, to get into it with nothing out of our own pockets. That kind of just debunked the myth that a lot of people think you have to have money in real estate. It’s also a bonus to have, but for those getting started or not knowing what to do, it’s all about the hustle and the grind and grit that you put forward to be able to get where you wanna be.
Joe Fairless: Amen! I second that, that’s for sure. I wanna make sure I’m understanding that correctly… You said the loan was $12,000, and you got the loan from someone – we’ll get to that in a second – and it was at 6% for how long?
Cody Dover: Six years.
Joe Fairless: For six years, okay. 6% of 6 years. Is there a pre-payment penalty?
Cody Dover: No. So it comes out to be about $256/month.
Joe Fairless: And that is interest plus principal payment?
Cody Dover: Right.
Joe Fairless: Okay. And with that loan on the property, plus your mortgage, are you able to still make money?
Cody Dover: Oh, absolutely. It’s around $400-$500 in profit a month after everything’s taken care of.
Joe Fairless: That’s great. That’s outstanding. Now, the person who brought the $12,000, how did you meet him/her?
Cody Dover: It was just a family friend; they’d seen what we were doing and what we were getting into, and we built that trust over the years with him… So really, we just kind of pitched him “Hey, we’re looking at this deal. It’s really a no-brainer for us. What can we do?” and they said “Well, you know…” — really, we’re just walking them down the path that “You have money sitting there that’s not earning but 1% or 2% in your CD or whatever at your local bank. Why not take this and earn a couple more basis points and help us out? We help you out and we give you more interest”, and that’s really where it started.
Joe Fairless: Who suggested the 6%, you or them?
Cody Dover: I believe it was them, and we didn’t negotiate from there because that was fine for us.
Joe Fairless: Okay, cool.
Kris Kohlstedt: Yeah, we were definitely in agreement about that.
Joe Fairless: And what type of loan do you have on this property?
Cody Dover: The same thing, a commercial balloon.
Joe Fairless: With Eagle Banking Trust?
Cody Dover: Yeah, with Eagle Bank.
Joe Fairless: Cool, good stuff. Anything else on this deal that you wanna mention?
Kris Kohlstedt: Yes. This deal – the duplex appraised for $105,000, so we actually had $34,000 of instant equity, and both of the sides of the duplex were occupied, so we came into it already cash-flowing, and they are still there.
Joe Fairless: That’s outstanding. Now the third deal. Tell us about that one.
Kris Kohlstedt: This one we were in negotiations for — it was actually a couple months before we closed the deal. This was a package of homes. We stumbled upon these properties and it was just really — the seller was kind of being a pain; she wanted top dollar in the market, and I said “No way.” Anyway, we go back and forth, got her down, and she said “Okay, I agree at $75,000 total”, which means 37,5k each.
Cody Dover: For two.
Kris Kohlstedt: For two, yeah. So we agreed upon that, and now we said “Okay, we need to raise the money”, so back to the same strategy – family, friends, local meetups. Our local meetup does this thing called Deal or No Deal where you can present your deals and see how to find creative financing, or people can help you run through the numbers. So we mentioned the deal, we mentioned that we needed some money, that we were interested in doing an equity stake with someone else, that that was an option.
A couple approached us and said “Hey, we’d like to fund your down payment and do an equity stake with you guys.” From there, we did close on that deal and that one is I think our most profitable, actually.
Cody Dover: Right, yeah.
Joe Fairless: You said 75k total for these two homes… How much was she originally looking to get for the two homes in total?
Cody Dover: She was trying to get $50,000 each for them, so probably around 100k(ish) for two houses. But this was an investor from California, and I guess she didn’t really know the market that she was into well, and the market that it’s in is a really good rental market with houses up there that average anywhere from 40k to 60k. But with this being on the lower end, we were able to knock it down a little.
Joe Fairless: Damn, those investors from California… [laughs] Kidding. I’d say statistically, the state that has the second most listeners of this podcast are California, so I’m just kidding, California Best Ever listeners. Alright, so how did you get this financed? It was through Eagle Banking Trust again?
Cody Dover: Right [unintelligible [00:14:46].28] same lender.
Joe Fairless: And are they fine with you on the second deal? Because you mentioned something, you said an under the table loan… Are they fine with you borrowing the money for the down payment from someone else?
Kris Kohlstedt: Yes, and that’s the difference in a commercial note from the bank [unintelligible [00:15:05].08] They don’t want the down payment to be from another source, whereas the commercial allows you to bring it from wherever you find it.
Joe Fairless: So on the third deal, what are the terms for your loan?
Cody Dover: They’re all the same, they’re all three years, amortized over 25, right around 6,5%. So the percent is a little higher than we would ideally want, but however, the houses are a little bit cheaper, so it’s not an alarming number.
What I like about this deal – and I haven’t talked to Kris about this – we’d much rather have 50% of a deal than nothing of nothing. That’s why we’re able to bring on partners, because we knew we didn’t have the financing, and instead of just walking away, going back to [unintelligible [00:15:51].08] we went out, hustled and found the right pair, and here we are.
Joe Fairless: You read my mind for the next question I was gonna ask, and that was how you structured it with these investors, so it sounds like you two in total have 50% and the couple has the other 50%?
Kris Kohlstedt: Right. So they brought the down payment and we brought the closing. The difference between the two is around $6,000, so what we were doing is paying them on a two-year note right around $175 a month to accommodate for the gap in between of what we brought to the table.
Joe Fairless: Okay, I like it.
Kris Kohlstedt: So then it’ll eventually balance out 50/50 and then we’ll obviously have a 50/50 share, because everyone’s in it equally.
Joe Fairless: In the meantime, are you two splitting the profits 50/50 because you’re also paying them back the difference on a separate note?
Kris Kohlstedt: Yeah, it’s all 50/50, and then aside from that, whether or not we get our money or not from the renters, we still pay them an even $175/month.
Joe Fairless: Right, right. Okay, I get it. [unintelligible [00:16:53].18] Cool. That’s great stuff. You two certainly are resourceful, and that is going to serve you very well. It already has, and it will continue to serve you very well. What has been one surprising aspect of these deals that when presented the same circumstance you would do it differently?
Kris Kohlstedt: I think I would try to do all of these with no money down. So we did have some negotiations with the owners, but if I could go back and do it again, I would have a lot more conversation with them to really try and break down the barrier and see what are your goals and in what ways can we meet those goals and also get ourselves into the deal to create a win/win situation?
We did have realtors for two of them, but now looking back, knowing what I know now, that’s the one thing I would change.
Cody Dover: Yeah, and to kind of piggyback off what Kris said, really it’s more so walking them down the path, to say “Well, what do you need the money for?” That’s something we didn’t really know how to do or what to do, so we just assumed “Well, we have money in the bank. Why not just unload it all on this first property?” Well, after the first property we realized that we’re low on cash, we don’t have any reserves, and if we’re trying to scale this thing we’re gonna have to take another approach to it.
That’s one thing I wish we had done – really approach the owners themselves and kind of walk them down the path and see “What are you trying to do with the funds that you get? Are you trying to purchase, pay down debt?” and then kind of let them know the capital gains tax will hit them, unless they [unintelligible [00:18:24].21]
Joe Fairless: Based on your experience as real estate investors, what is your best real estate investing advice ever?
Cody Dover: Really to invest in yourself first. You need to learn as much as you can with the resources you have. With this big thing called the internet nowadays, you can pretty much do a lot of stuff, connecting with people, networking, sourcing and searching for deals… But really, it all starts with you and taking advantage of what you have in front of you, and where you wanna go.
Kris Kohlstedt: And I would say to be proactive and to be resilient. Being proactive meaning you’re going out, you’re connecting with people, you’re trying to build a relationship with your power team – your CPA, your bankers, your realtors – all the people that aid in this real estate transaction. Be proactive and meet those people, be proactive in searching for a property, running numbers constantly until it’s second nature to you… But also being resilient. So if you don’t get a deal, not to beat your head on the wall but to bounce back and say “Hey, I’m gonna go find another deal and I’m gonna get it done.” So just to really not give up.
Something that I try to do a lot – and this is what I would like to give advice to other people… We all have limitations, and the idea of creating $0 out of your own pocket transactions with real estate is you have to become aware of those ways to do so. So just raising the awareness and taking off those limitations that you have on yourself.
Joe Fairless: Are you two ready for the Best Ever Lightning Round?
Kris Kohlstedt: Let’s do it!
Cody Dover: Let’s get it!
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:19:54].21] to [00:20:41].17]
Joe Fairless: Best ever book you’ve read?
Cody Dover: For me it’s gonna be “How To Make Big Money In Smaller Apartments” by Lance Edwards.
Joe Fairless: And I heard Rich Dad, Poor Dad?
Kris Kohlstedt: Yeah, that was the started book for me that got me going, and I have to credit that. Emerging Real Estate Markets is a good one.
Joe Fairless: David Lindahl. Yeah, that is a good one. Best ever deal you two have done?
Cody Dover: It’s gonna have to be the duplex with no money down. Of course, we had instant equity and didn’t have to put a penny out of our own pocket.
Kris Kohlstedt: Yeah, and I would say the most valuable, even more than the duplex, is investing in yourself and your journey, just like we talked about. That’s why we named our company Journey Estate Investments, because we’re all on a journey.
Joe Fairless: Best ever way you two like to give back?
Cody Dover: We just like to provide value to others. We know that we’re the ones new, and there’s a lot of other people out there stumbling whether or not they can get into it and having those beliefs… So we just like to enlighten people and let them know that we’re here to help them and that there is a way.
Joe Fairless: And how can the Best Ever listeners get in touch with you two?
Kris Kohlstedt: You can go to JourneyEstateInvestments.com/bestever. We’ve made a quick video for you guys so that you guys can be introduced to us, put a face to the name and get to know us a little bit more.
Joe Fairless: Well, Kris and Cody, thank you for being on the show. Congrats on your success out of the gate, very quickly, in what you’ve done, and the deals and the case studies that you’ve walked us through will serve as inspiration for not only beginning investors, but also seasoned investors who want to take a different approach or maybe scale their business if they’re running low on using their own money, maybe bringing in other people to do joint ventures with… And just the creativity that you two have exercised to get deals done and financed, both from an equity and a debt standpoint. Thanks for sharing the details of each of those three.
I hope you have a best ever day, and we’ll talk to you soon.
Cody Dover: Thanks, Joe.
Kris Kohlstedt: Thanks so much, Joe.
