July 23, 2019

JF1785: Side Hustle Nets $7.5M In Real Estate In 10 Years with Matt

Matt shares his Best Ever Advice with us, which includes his first rental property that he was cash flowing over $1k per month. He used the equity he had from his personal property, which was obtained through working as much as possible to make money and pay down his mortgage. When he found out he could use that equity to purchase property, Matt knew real estate was a business he could scale. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

“I spent a year of my life just working as much as possible and saving money” – Matt Spangenberg

Matt Spangenberg Real Estate Background:

  • 36 year old real estate investor who started from nothing
  • Used a HELOC to do 30 BRRRR deals
  • Acquired $7.5 Million in real estate over the last decade as a side hustle
  • Owns 51 units with 7 closing next month
  • Based in Pennsylvania
  • Say hi to him at karleyinvestmentholdingsATgmail.com
  • Best Ever Book: Never Split The Difference

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Theo Hicks: Hi, Best Ever listeners. Welcome to the best real estate investing advice ever show. I am your host today, Theo Hicks. Today we will be speaking with Matt Spangenberg. Matt, how are you doing today?

Matt Spangenberg: I’m doing great, Theo. How about yourself?

Theo Hicks: I am doing fantastic, thank you for asking. A little bit about Matt before we get started – he is a 36-year-old real estate investor who started from absolutely nothing. He actually used a HELOC loan to do 30 BRRRR deals. That’s the buy, rehab, rent, refinance, repeat strategy. He has acquired 7.5 million dollars in real estate over the past decade as a side hustle, and currently owns 51 units, with seven additional units closing in the next month. He’s based in the Lehigh Valley, Pennsylvania, and you can say hi to him at karleyinvestmentholdings@gmail.com.

Now, me and Matt were talking a little bit before we went live, and he mentioned two deals in particular that I am looking forward to diving into during our conversation. One of those deals was where he was able to create over $350,000 in equity, and then another one was 100% owner-financed.

Before we hop into discussing those deals, can you tell us a little bit more about your background and what you’re focused on now?

Matt Spangenberg: Sure. So my email is actually karley with a k. Everything else you said was good, but it’s Karley with a k. Karleyinvestmentholdings. So as far as my background, I grew up as an average person, I left home at 18… I bought my first house at 20 years old; I worked my butt off, saved money for a down payment, 20% down, thought that was the way to do it. But as a 20-year-old I bought a foreclosure, as is, no water, no electrical; everything was off. But I just had the guts to just buy it. I didn’t really know what I was doing. But I fixed that up. My wife and I got married three weeks later. We were hanging sheetrocks together, we were painting together, doing all that… But the cool thing was we bought that, we got a good deal on it, and the market went up in 2004-2005, and we were able to get a HELOC and get a $100,000 home equity line of equity because of the equity we had made in that first house we bought, that we lived in. So that’s kind of how I got started – getting the first house young, building up sweat equity, and then getting a HELOC.

Theo Hicks: So that $100,000 HELOC loan – was that the foundation that you used to acquire the remaining 29 BRRRR properties? So you just kind of rinse and repeated with that same capital?

Matt Spangenberg: Absolutely, yeah. My first deal was a twin in the local city of [unintelligible [00:05:00].26] near me. I bought it for 68k because it had a fire. So then I’m 24 years old and I have a 100k line of credit; I see a house for sale (actually, my brother found it and brought it to me, told me about it). 68k, I bought it… I got laid off from my job; the market crashed, I got laid off, so I didn’t have much to do… I went in and started working on this house, fixing it, painting it, doing it all myself.

I didn’t even know about the BRRRR. I’d never heard that term before. This was ten years ago. I fixed it up, got it rented… I was in it total for about 95k, I would say, after I bought it for 68k and put some money into it. I went to the bank and said “Hey, I wanna refinance this”, and they came out and appraised it at 130k, and gave me a loan for 100k. I was like “Man, this is awesome. I’ve just got 5k back.” And my mortgage tax insurance was $900/month for this place, and I rented it to local college students and they paid me 2k a month. So my first rental property I was clearing $1,100/month, and I was hooked and off to the races.

Theo Hicks: Did you buy that property all-cash? Was it 95k out of your own pocket, or did you mention that you got a loan for 25% down?

Matt Spangenberg: No, the first rental property I used my HELOC for, and I bought cash with my HELOC for 68k, did the improvements with my HELOC. Then I refinanced it, got 80% of appraised value, which is all my money back, paid my HELOC  back down to zero, and then had that house basically no money out of pocket, and $1,100/month cashflow, with no money out.

Theo Hicks: That’s a slam dunk. Where did the money come from for that initial down payment on your first house, at 20 years old?

Matt Spangenberg: My first house, at 20 years old, I just worked my butt off, man… When I was 19, I did nothing but work every night and weekend. I saw my fiancée on Friday nights and Sunday afternoons, and other than that I just worked for a whole year and was able to save $28,000. My first house was 98k, and I put 25k down, and that was it.

Theo Hicks: That’s a great success story, and I’m glad you were able to do that, to work hard and make that money. It sounds like you’ve essentially created this 7.5 million dollars business with just that $28,000 cash-wise; the rest is coming from your own sweat equity and spending time doing it yourself.

Matt Spangenberg: Exactly.

Theo Hicks: So I wanna dive into these two deals. Let’s talk about the first deal that you mentioned, when you were able to create over $350,000 in equity. Walk us through how you found it, how much you paid for it, how much you put into it, and how the heck were you able to create so much equity?

Matt Spangenberg: Sure. I was doing single-family homes; I used my HELOC maybe 20 times myself, I just kept doing one at a time. Then I realized “Man, if I partner with a friend, we could do more.” I only had 100k to work with, so talked to a friend who had a home equity line of credit, and him and I said “Hey, let’s go together and we’ll have more money to do bigger deals.”

So I was driving by this property, a rundown six-unit apartment building; all rundown, dilapidated, and there was a “For Rent” sign out front. It said “Apartments for rent.” So I called the phone number, talked to the guy, who was in his eighties, and I said “Hey, I’m calling about your apartment for rent.” He says “Okay, how many people are gonna be living there?” and I said “No, I don’t wanna rent it, I wanna buy your whole building. Would you wanna sell it?” And he said “Um, I don’t know. Maybe. Make me an offer.”

So I just pulled up the tax assessments, which means nothing; the tax assessment was 300k, and I said “Would you take 300k?” He said “Sure. 300k.”

I didn’t have the money, so I called my friend and I said “Hey man, I’ve got this deal. I think it’s a great deal.Do you wanna go in on it with me? We’re gonna need money down and money to fix it.” He said “Yeah, I’m in.” So that deal – we bought it for 300k, we went to the bank, and because I had done so many BRRRRs and refis with the local bank, they knew me and they knew I could do this… And I said “Listen, I want you to finance 80%. We’re gonna put 60k down, 20%, with our HELOCs, and then we’re gonna fix it and then we’re gonna come back and refi.” And the bank said “Okay, sure.” So we bought it for 300k.

We went in, and the rents were $600, $550… There was stray cats everywhere, there was [unintelligible [00:09:08].22] infested apartments, there was mice, and rats, and hoarders, and all the typical stuff. But we went in, bought it, and started fixing the vacant ones up. We gutted them down to the studs, new plumbing, new heating, new everything, ripped out [unintelligible [00:09:23].13] This was a 100-year-old-building. And when we were all done — it took us about a year, because we were doing it on the side. So we had to get one tenant out, fix the apartment, rerun it…

We put 500k into it, maxed out our HELOCs, maxed out our savings, borrowed hard money… Anything we could get. We borrowed money from friends, family, whatever, to come up with the 500k ourselves. So when we were done, we took the building from rents of $600 and $550 to $1,350 and $1,500/month rents. Hardwood floors, granite countertops, central air. We took it from a D class building to an A+ class building.

Once we finished, we went back to our bank and said “Hey, we’re done. Let’s refi. Let’s get some money out.” So we were in it for 800k, and they came out and appraised it, and it appraised at 1.2 million. So we got a loan for 850k, we got all our money back, paid back all the loans, put 50k in our pockets, and it still cashflows amazing.

Theo Hicks: Talk about a success story… So you said it was a D property when you bought it, and then you upgraded it to an A… Did you know that the market would be able to support this A property? When you bought it, did you know that the market was a B market, but you found this really rundown property that you knew if you fixed it up, put in all those high-end amenities you’d be able to get higher rents and find those tenants that were willing to pay those higher rents?

Matt Spangenberg: Yeah, and the reason being is because I have 30 single-family homes in that same town, where I’ve done the same thing – bought old homes, fixed them up, and was able to get top dollar. So to me it was like “Oh, this is just six homes, and I can just repeat what I’ve been doing.”

Theo Hicks: Okay. And then you mentioned that you put that $500,000 into it, and obviously you and your partner friend fronted some of that cash, you said you maxed out your HELOC loans, got some hard money loans, asked friends and family for cash… How did  you present the opportunity to those friends and family in order to convince them to invest?

Matt Spangenberg: We kind of just told them our track record. “Hey look, this is what I’ve been doing. I’ve been buying these homes, and I’ve acquired (at that time it was maybe) 3 million in real estate by buying one at a time”, and showed them my track record. Then I said “Would you like to invest the money with us? We’re giving you a promissory note, we’ll give you an 8% return on your money. We’ll probably use it for a year or two.” And they were like, “Okay, sure. I’ve seen your track record, I see what you’re doing, you know what you’re doing… I’d love to make 8% on my money, as it’s sitting in the bank right now.”

Theo Hicks: So that’s the one deal; you created $350,000-$400,000 in value. What about the other deal that you mentioned to me? The one where you were able to get for 100% owner financing. Can you walk us through that deal as well?

Matt Spangenberg: Sure. That was another six-unit apartment building in the same town. The guy was in his seventies, owned it for 30 years; it wasn’t as dilapidated, but it definitely had a lot of deferred maintenance and a lot of updating needed. So that deal – I actually knocked on the guy’s door and said “Hey, I see you own this property over at 123 Main Street. Would you be interested in selling it?” And he says “Nah, I don’t wanna sell it. I like the cashflow.” And he says “And I don’t wanna pay capital gains.” I said “Okay, I understand. If you were to sell it and get rid of that headache, and sell it to us, we would allow you to owner-finance it.” He said “What would that mean?” I said “Well, we would pay you every month, and you’d still get the cashflow, you’d get no headaches. We’d do an installment sale owner finance, so you only pay your capital gains each year on the profits you make.” He said “Well, I’d want $450,000 for that building if I had to sell it.” I said “Well, I’d love to give you that if it’s worth that. Let’s go look at it.”

In the meantime I was actually reading the book “Never Split the Difference”, Chris Voss, about negotiating. And I used all the tactics – I used guns blazing on the poor old guy, I used all the different tactics of negotiating. I got him down to $310,000 from $450,000, and then he said “I don’t know if I wanna sell for that little.” I said “Well, you know what – to even make the deal sweeter for you, why don’t we do interest-only for two years, and then we’ll buy it from you?” He said “Well, how does that benefit me?” I said “Then we’re gonna basically give you…” — it came out to like 15k in interest we would be paying. “So we’re gonna pay you 310k, interest-only two years, which is 15k and 15k, so you’re gonna get 30k in interest from us, and then we’ll buy it for 310k. So you’re actually gonna get 340k if you look at it that way.” He said “Oh, I like that.”

Now, obviously, to us interest-only is great, because now we have more cashflow to put back into the building… And because he owned this for 30 years, he really had attachment to it, he really liked the building, and we said “Listen, if we buy it from you we’re gonna do a new roof, we’re gonna do new windows, we’re gonna update the outside, put some siding on… We’ve got a lot of improvements we wanna do. So we’d be happy to give you a down payment, but if we give you a down payment, that’s  [unintelligible [00:14:14].16] gonna get an interest. If we give you 20k-30k, that’s 30k less in interest you’re gonna make. Or instead, if you wanna do 100% owner financing, we’ll take that 20k-30k and we’re gonna dump it right back into the building right away. So you’re not losing the money, you’re getting that in equity.” And he said “Okay. I’ll finance it, 5%, interest-only two years, 100% finance.”

My partner and I were looking at each other shocked, because we went in with a low anchor, expecting to go up, and we stuck to it and he took the low anchor. So that was a great deal.

Theo Hicks: That’s a great deal. The entire concept of identifying the pain point and then presenting a solution… This is like a picture-perfect example of that. You knocked on his door… Well, first of all — because me and Joe talked about this before, because we’ve heard the door-knocking strategy on single-family homes, or we’ve heard the door-knocking strategy on places where multifamily properties have the owner actually living in the building… So  you actually knocked on this guy’s personal home; so you looked up the property on the assessor site, you found out where he lived and you showed up to his house, asking him about his property, correct?

Matt Spangenberg: Yeah, exactly. I didn’t even know what I was gonna say when I got to the door. I just knocked and just winged it when he answered the door.

Theo Hicks: That’s fantastic. That’s probably the first time hearing that particular type of door knocking… But what I was saying is that you identified his pain point; he didn’t wanna sell it because of capital gains, so you fixed that by rather than buying it straight up, you paid him cashflow each month, so he’d only pay taxes on those, as opposed to paying massive tax on the sale. He also wanted the cashflow, so you were able to solve that by giving him the interest-only for however many years, that $50,000. He didn’t want the reduced price, so instead you presented this interest-only… I mean, you [unintelligible [00:16:04].08] and you essentially were able to remove all of the pain points.

Matt Spangenberg: Yeah. And I told him — obviously, he’s in his seventies, and he wants to go to Florida for a couple months in the winter, but he mentioned when he goes down he gets calls from the tenants… So  I said “Listen, if you do this deal, you can be sitting on a beach in Florida and you’re gonna get your checks every month from us, and you’ll get no headaches from any tenants.”

A month and a half later when we closed, after we closed, he said to us “I never thought I’d sell it for so cheap, but I’m really happy I sold it. And the thing that got me is when you said “You could be sitting on the beach, collecting your check from us and not have a headache.” That’s what sealed it for me.”

Theo Hicks: It’s everyone’s dream… So good for you. Alright, Matt, for the money question – what is your best real estate investing advice ever?

Matt Spangenberg: Best advice would be just to be creative. You’ve gotta think outside the box. If you see a door closed, look for windows. You have to be disciplined. So many people today wanna have everything upfront… But I spent a year of my life when I was 19 just working my butt off and saving that money, and that’s what started the whole empire – just being disciplined and not giving up.

Theo Hicks: Solid advice. Alright, Matt, are you ready for the Best Ever Lightning Round?

Matt Spangenberg: Sure.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:17:26].16] to [00:18:14].24]

Theo Hicks: Alright Matt, what is the best ever book you’ve recently read, besides Never Split the Difference, which you’ve already mentioned?

Matt Spangenberg: Oh, man! That was my book. I was gonna say Never Split the Difference. That’s a good one. There’s always Rich Dad, Poor Dad. I’m in the process of reading Fake right now, by Robert Kiyosaki. That’s pretty good, too. It talks about reserve banking stuff. But Never Split the Difference is the top one.

Theo Hicks: Alright, I’ll give it to you.

Matt Spangenberg: Alright, thanks.

Theo Hicks: If your business were to collapse today, what would you do next?

Matt Spangenberg: I would hustle and find deals. If I had no money, I would go out there, knock on doors, call people, and I’d find deals. Once you find the deals, you will find the money.

Theo Hicks: Besides your first deal and your last deal – and go ahead and say the two deals we’ve mentioned already – what is your best ever deal?

Matt Spangenberg: Alright, so I’ve got another one that I bought back in January – it was a seven-unit, off market deal. The guy wanted 450k and I got him down to 370k, but all my money was tied up in other deals that I had going, so I went to a friend of mine and said “Hey, do you wanna make 8% on your money?” He said “Yeah. What do you need?” I said “Give me 75k for two years.” He said “Okay.”

So he gave me 75k and I used that as the 20% down, and got 80% owner financing from the bank for the rest. So that’s another seven-unit I bought with none of my own money, with hard money, friend money for down payment, and bank financing for the rest.

Theo Hicks: And then what is the worst deal that you’ve done?

Matt Spangenberg: Worst deal… I don’t wanna say worst deal; maybe a mistake I made would be over-improving a unit. I bought a C, C- apartment and I thought I could make it an A, and it wasn’t the neighborhood, and I put 25k into remodeling it, putting in hardwood floors, granite, all that stuff, and the rent was like $75 more than if I didn’t do any of that stuff. So I was just kicking myself, like “Man, I over-improved that…!” I guess I just didn’t know the neighborhood.

Theo Hicks: Okay. What is the best ever way you like to give back?

Matt Spangenberg: I give money to my church, commissions [unintelligible [00:20:09].15] I also love to help young guys or girls coming up that wanna learn about real estate, wanna learn about debt, and leverage… And the good debt, not the bad debt. I love to open young people’s minds up. When you start telling them about real estate, and cash-on-cash returns, and no money down – I just see their eyes light up when it clicks.

Theo Hicks: And then lastly, what is the best way to reach you?

Matt Spangenberg: The best way would be email. I’m not on Facebook, I’m not on Instagram, I’m not on Twitter… I think I’m on Bigger Pockets, but I never check that. I’m too busy finding deals and working that stuff to go on social media. So the best way would be to email me at karleyinvestmentholdings@gmail.com.

Theo Hicks: Matt, I thoroughly enjoyed this conversation. I learned a lot. It’s always great to hear success stories where it’s literally just 100% about hustling, and just grinding, and especially doing it at such a young age.

Just to recap what we discussed – you mentioned how you bought your first property at the age of 20, you worked for a year to save up money for the down payment, and you happened to be laid off from work, so you and your fiancée at the time worked on the — you actually got married a few weeks later…

Matt Spangenberg: Yup.

Theo Hicks: …and you guys were the ones that put all the sweat equity into the house, and were able to create $100,000 in equity, which you used as a HELOC, and that was the foundation of your business. We went over two deals in particular. One is where you were able to create 350k. It was your first deal, where you (in a sense) raised money; you had a business partner who brought some capital and you raised money from other people that you knew, and you were able to do that because of your track record, and you explained to them “Hey, I’ve done this before. I know what I’m doing. I’m definitely gonna make money.” Also because of your relationship with the local bank you were able to pull out all of that capital to pay back your investors and put $50,000 in your own pocket.

The specific numbers were you bought it for $300,000, put $500,000 into it, raised the rents from around $600 up to $1,300 to $1,500, appraised for 1.2 million, and got a loan for $850,000.

Then your second deal, which was the first one I’ve ever heard of someone knocking on the door of an apartment owner. They don’t live there, you found their house, knocked on the door, didn’t know what you were gonna do, didn’t know what you were gonna say, ended up buying the six-unit property well below the price that the owner wanted because of the negotiating tactics you learned from Never Split the Difference, and essentially every single pain point, every single reason why he didn’t want to see, you were able to solve for him. Ultimately, the thing that closed the deal was when you mentioned how he can be sitting on the beach, getting paid, instead of having to deal with any headaches from the tenants moving forward.

And then, of course, your Best Ever advice, which you’ve obviously implemented in your own life, is to be creative, think outside the box, and be disciplined. You worked your butt off for a full year, saving money, seeing your fiancée only a few times a week, and that’s what allows you to launch this 7.5 million dollar real estate empire, and I’m sure that it’ll only go up in the future.

Matt Spangenberg: Absolutely.

Theo Hicks: Matt, I really appreciate you taking the time to talk to us today. Best Ever listeners, thank you for listening, and we will talk to you soon.

Matt Spangenberg: Thanks, Theo.

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