For many newer investors, the goal is to create enough real estate income to have the option to leave their job if they choose. Melchor is well on his way as he has grown his portfolio from zero to 15 units in 2.5 years. Great episode for newer investors, but we also dive into some deal specifics for a little higher level insight. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“If you know your why, then educating yourself become easy” – Melchor V. Domantay
Melchor V. Domantay Jr. Real Estate Background:
- He is a controller of a Non-Profit company in Chicago, a CPA, and a real estate investor
- In just 2.5 years, he has built a portfolio of 15 units
- Based in Chicago, IL
- Say hi to him at https://www.linkedin.com/in/melchor-jay-r-domantay-jr-53856639/
- Best Ever Book: Millionaire Success Habits by Dean Graziosi
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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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Melchor Domantay. How are you doing, Melchor?
Melchor Domantay: Hey, how are you doing, Joe? Thanks for having me.
Joe Fairless: Well, it’s my pleasure, and looking forward to our conversation. A little bit about Melchor… He is a controller of a non-profit company in Chicago, a CPA who a couple days ago got his CPA license – congrats on that – and a real estate investor. In just 2,5 years he has built up a portfolio of 15 units. Based in Chicago, Illinois. With that being said, Melchor, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Melchor Domantay: Yeah, thanks Joe. I was born in the Philippines and came here when I was 17. I’m 29 now, so – regular American dream, just trying to go to college, have a full-time job… But I had a great mentor, who was actually my boss… And he told me to buy real estate. I didn’t listen to him for five years, and after that I bought my first house. It was a two-flat house-hack, and I had a great tenant. I got that first check, and then just the light bulb — you know, that investor/landlording light bulb came off. Then from there I started researching everything, educating myself, looking for the right people in my team, and then with their help I acquired 15 units in the last 2,5 years.
Joe Fairless: Well, I don’t wanna fast-forward too much… So you went from a two-flat house-hack, and in 2,5 years you have 15 units. The two-flat house-hack – how much did you buy it for, what did you have into it as a down payment, and improvement costs?
Melchor Domantay: The first house was really kind of like a training wheel. I bought it fully rehabbed, $280,000. I put 3,5% down… I had a good realtor at the time, and she taught me about doing a credit. I had a 3% credit, so really, to be honest, I probably brought all-in $7,500.
Joe Fairless: What’s the 3% credit you’re referring to?
Melchor Domantay: It’s a seller’s credit that they gave me. It was a probate, and [unintelligible [00:03:32].22] just wanted to get rid of it, so they gave the 3% credit to me… So it was a cool structure.
Joe Fairless: Okay. And is that 3% credit something that’s typical on a transaction, or how did you go about asking for it?
Melchor Domantay: To be honest, most of my deals I always ask for a credit. The reason I do is because it’s an advantage for a person to not bring a lot of money to the closing table. For example, easy math, $100,000, if you’re putting down 5%, that’s $5,000, plus any closing costs. And if you ask for 3% credit, which most lenders I think will allow – that’s the cap – then that’s $3,000 off that you don’t have to bring to the closing table… So I try to do that structure as much as possible.
Joe Fairless: Okay, so that was the two-flat. That was about 2,5 years ago. And then what did you do?
Melchor Domantay: Then after that I found a realtor from Bigger Pockets that’s also an investor, so that helps a lot.
Joe Fairless: Who?
Melchor Domantay: John Warren. I’m not sure if you’re familiar with him. He helped me a lot, he added a lot of value… And seven months after I bought a foreclosure property, a two-flat in the West suburbs of Chicago. But the cool thing about it is there’s people living in there, so it was livable. But it was a foreclosure. I bought that for $80,000. Great deal. Then I put about $15,000 of work, and that kind of like propelled me and gave me a lot of confidence to do more real estate… Because I think my mortgage at the time was $750, and I was bringing in about $2,100, so it was great.
Joe Fairless: It is. That is a great ratio there… The property was a foreclosure, but it had people living in it. Were those the people that were being foreclosed on?
Melchor Domantay: Yeah, I think they were the owner, and they just couldn’t pay the mortgage. I asked them to stay, actually… So they can just stay there, and not worrying about moving, but I think a week before I closed they left already.
Joe Fairless: Okay. So you made it a point to say it was a good thing that people were living in it… But if they moved out before you closed, what was the benefit of them living in it?
Melchor Domantay: For me, the benefit of living in it — usually, a foreclosure property, an REO, usually they have been left behind for a long time… So when people are living in it, the advantage of it is there are still some people who live in it, and that means it’s livable. Most foreclosure properties have a leaky roof, or leaky pipes, and grass is five feet tall… So that’s the advantage of me saying that it’s great that there’s people living in it.
Joe Fairless: Did they trash the place on their way out?
Melchor Domantay: No, it was a Hispanic family and they were really nice. I got to talk to them when I was under contract. I had a conversation with them and they were really nice. I asked them, “Okay, why is that you’re getting foreclosed?” and they shared with me that something happened in the family and they just couldn’t pay the mortgage.
Joe Fairless: And you put $15,000 into it… Did you do the work yourself and pay for supplies, or did you hire contractors?
Melchor Domantay: I tried, but I’m just not a handyman. That’s not my strength.
Joe Fairless: Me neither, by the way.
Melchor Domantay: I hired a lot of people. It was – keep in mind – seven months after I bought my first property, and I think I was making $35,000, so I wasn’t making a lot of money. I was still a staff accountant at the time, and… I just hustled, man. I came up with the $25,000 to close, and another $15,000 to repair it… I hustled. I was driving Lyft before work, driving Lyft after work. It’s a good thing I worked in downtown Chicago. The parking here is hard, but I was fortunate that I can park right at my office. So it was a lot of hustle, a lot of driving Lyft… Because that’s not my skill. My skill is I can drive Lyft. So if I was making $20/hour driving Lyft, and in turn I can just pay a contractor to do the same job $30/hour, I feel like that’s okay, because I don’t have to do all the learning process, being skilled about it; that’s a lot of time. So I feel the right decision for me at the time was to just drive as much Lyft as possible, and pay the contractor to do the work.
My model was always get the property as fast ready as possible, because every time the property is vacant, you’re losing money.
Joe Fairless: Did you have a general contractor who then hired subcontractors?
Melchor Domantay: No, there was a lot of handymen at the time. I couldn’t hire a GC because there’s a margin the GC charges. So it was a lot of building relationships with all my handymen, and a lot of it came from my realtor. So having a great realtor, who’s an investor as well – they would know a lot of other people.
Joe Fairless: Yes. Very important, especially with construction workers, to go through references, and good thing that you had that person. Okay, so that was the next two-flat, so at this point you have four.
Melchor Domantay: Yeah.
Joe Fairless: What did you do after that?
Melchor Domantay: After that – I think November of 2017 – I bought a three-flat, another foreclosure, again, around the same area.
Joe Fairless: And you’re making $35,000/year, you said, at the time.
Melchor Domantay: Yes, at the time. I was still focused on my full-time job too, while doing this.
Joe Fairless: Oh, of course.
Melchor Domantay: So I was getting promoted… At the time when I started I was staff accountant, and now I’m a controller. So as I go, the last 2,5 years, I was still focused on my full-time job, and not forgetting that I have that responsibility. And I have great mentors. My boss at my full-time job knows everything that I’m doing, so with the support from them and from all the team members I have…
Joe Fairless: I bring that up because, relatively speaking, it could be considered a low amount of money, but you’re buying all these properties; that’s my point. So you were getting this extra income from (I imagine) keeping your living expenses pretty low, and then also doing the side hustle of driving for Lyft?
Melchor Domantay: Yeah, the key for me to buy the next property, the three-flat, my third property, is I refinanced the foreclosure, because at the time — it was considerably low when I bought it, so I bought it right… It was [unintelligible [00:09:44].12] I think about $130,000 after, so I basically got most of my money back.
Joe Fairless: The one you bought for $88,000?
Melchor Domantay: Yes, correct. And then I used that, and then some of my 401K to buy the three-flat that I bought. It was $240,000. And I learned how to paint. I think painting is the only one I can do. [laughs]
Joe Fairless: The 401K money – did you pay a penalty? I guess you can probably do self-directed, because it’s your own deal…
Melchor Domantay: It’s a loan. You can do a loan in your 401K. Basically, you pay a minimal interest. At the time I think it was 4.5%… And [unintelligible [00:10:22].02] That’s basically what happens.
Joe Fairless: Alright. So you bought one for 240k, that’s the three-flat, so at this point you’ve got seven. What did you do next?
Melchor Domantay: So that one was a foreclosure as well. I knew coming in it’s gonna be worth $300,000 when I bought it. So right away when I bought it I just created $60,000.
Joe Fairless: Which one, the three-flat?
Melchor Domantay: The three-flat, correct.
Joe Fairless: Okay, alright.
Melchor Domantay: So I think the key for me growing really was buying it right in the beginning. Most of these properties — the two-flat was a little distressed, but not too distressed. But the three-flat was really distressed. We’re talking about carpets that animals feed on… So I had to do a lot of work for it, but right now I think it’s worth $360,000.
Joe Fairless: Good for you.
Melchor Domantay: Again, that was about 3,300 sqft. I spent mornings and evenings after driving Lyft painting, just to get it ready. It was in the middle of winter, too… But it’s a lot of hard work. I think that’s what most beginning investors lack. Because I did excited listening to your 1,700 podcasts. I’ve listened to Bigger Pockets 300 podcasts while driving Lyft… So I like to think of myself like a taxi driver; all of them have a Ph.D. in something, because I’m sure they’re listening to everything.
So it’s a lot of hard work, man… Waking up at [4:30] in the morning, not coming home till 8 PM… I think at the time I was still single. I don’t know if I can get away with that now.
Melchor Domantay: At the time I would wake up at [4:30] in the morning, go paint for like an hour, and hour and a half, and then drive Lyft. Go to the gym, then go to work, and then again drive Lyft. Around probably [7:30] I’d stop and then come home and paint till 11. That was really my day.
Joe Fairless: [4:30] AM to 11 PM… For what period of time did you do that?
Melchor Domantay: I was doing that for about two, two and a half months. I got sick a couple times doing that. [laughter]
Joe Fairless: Your immune system was not enjoying the lack of sleep, plus the paint fumes, plus everything else that you were doing.
Melchor Domantay: Yeah…
Joe Fairless: Well, thank you for sharing that schedule. That is important and necessary to note, so thank you for that. Real quick, let’s go faster on the next properties. You had a three-flat, then what was the next one?
Melchor Domantay: The next one was a five-unit, so that was nice…
Joe Fairless: Alright…
Melchor Domantay: It was totally distressed… At this point I’ve been talking to a lot of people and building a lot of relationships, and then after that, that actual seller of the five-unit got me the last property, the three-unit, which is a seller finance.
Joe Fairless: Okay. Let’s talk about that five-unit – how did you hear about it?
Melchor Domantay: I found it on the MLS, put an offer that day… Just the regular MLS; all of my properties are MLS, besides the last one.
Joe Fairless: When you say “distressed”, will you describe the circumstance of the distress?
Melchor Domantay: Sure. Floors are broken, tuck-pointing needed, it smells like pee… The problem with that too is there were people in there. So there were people in there paying rent. The seller was just your typical old, mom-and-pop, and doesn’t wanna basically deal with it.
Joe Fairless: How much did you purchase it for?
Melchor Domantay: I purchased this for 280k.
Joe Fairless: 280k. So for someone who’s not in Chicago or doesn’t know the market, that sounds like a lot of money for a property that is distressed, and smells like pee, and people not paying rent.
Melchor Domantay: Yeah. I think I’d pay for it probably higher right now. That was probably around 56k per unit, if I’m not mistaken. So right now in the same area it’s probably exchanging at around 75k/unit. So there was a lot of meat on the bone, however I think all this stuff that I have to do – it’s probably just gonna even out.
But a thing that I wanna point out – because especially right now that’s how I’m looking at deals – is when you acquire it… Because I look at it long-term. Let’s say that property, for example, will net income, after I pay it off, let’s say it’ll give me $30,000/year. So if I acquire four of those, regardless of if they become a dollar — let’s say just the rent stays, and everything else stays… Which if the expense goes up, more likely than not the rent will go up. But if it stays just $30,000 after I paid it off, that’s $30,000 that I can earn without me basically doing anything. Just passing it to the management company. So that’s really how I look at deals now, and especially if the seller of the property has more properties.
It doesn’t hurt to buy it and build rapport that you can actually perform — because that’s the reason why I received the award for the seller finance, because the seller, after three months I kind of change the look of the property. They’ve been in the block, they saw how windows changed… They saw that I’m actually doing something with the property, instead of just staying like an eyesore. The seller saw that too, so — as a young guy especially, most people will say “Look, you don’t have a lot of experience”, but even if you don’t have a lot of experience, a lot of hustle, a lot of people that you know that you can leverage, it will kind of even the gap.
Joe Fairless: Thank you for sharing that. The five-unit led to an opportunity with the three-unit and seller financing. Based on your experience, what’s your best real estate investing advice ever?
Melchor Domantay: I was thinking about this, and it’s very generic, but I think the foundation of any business you can go to is knowing the purpose, what’s your Why. Because I think if you know your Why, then educating yourself becomes easier. There’s always a Why… And hustling becomes easier. Waking up at [4:30] in the morning becomes easier. Driving Lyft…
Joe Fairless: What time do you wake up now?
Melchor Domantay: Right now I still wake up at [4:30], but I do the Miracle Morning by Hal Elrod. I do that in the morning. I still drive Lyft, even though I’m a controller… But I’m more into just building relationships. The reason I wanna be a realtor is I wanna just exchange dollar-per-hour from Lyft, becoming a realtor… And I just love seeing houses, and helping people.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Melchor Domantay: Yes, sir!
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve recently read?
Melchor Domantay: Recently… Millionaire Success Habits, Dean Graziosi.
Joe Fairless: Best ever deal you’ve done?
Melchor Domantay: I think the second two-flat I bought, the foreclosure. The 80k one. That gave me a lot of confidence to do more real estate, definitely.
Joe Fairless: What’s a mistake you’ve made on a deal?
Melchor Domantay: Trusting contractors. I think a lot of us have done that before. I think if I have one skill, it’s to delegate… But the problem I had on that transaction is I didn’t put systems and processes in place to have a checks and balance. I asked the contractor to do something, thought it was done, but I didn’t check on the tenant, I didn’t ask for pictures, and I paid the contractor… And I’ve basically just not used that contractor again.
Joe Fairless: Yeah. How much did you pay him?
Melchor Domantay: Man, I paid him $700.
Joe Fairless: And did they do any of the work?
Melchor Domantay: Nope.
Joe Fairless: [laughs] They did none of the work…
Melchor Domantay: Nope, none of it. I learned from that. That was when I was dreaming still.
Joe Fairless: Hey, it happens to everyone.
Melchor Domantay: Yes. At least it was only $700.
Joe Fairless: Right. Enough to remember, but not enough to side-track things majorly.
Melchor Domantay: Yeah.
Joe Fairless: Best ever way you like to give back to the community?
Melchor Domantay: I do go to meetups, and I talk to other investors. I just started doing a video content every week, that I wanna share with everybody, because I think a lot of the stuff that’s popular – they don’t really go through steps on how they got there. They just say “Okay, I have 100 units…”, and all that. I think sharing my experiences will help a lot of investors, especially new investors, with how to think about it. I was making $35,000… There’s a lot of people making more than that now, that I think can buy properties. I think there’s a little trigger that if they can see themselves, it would give them the trigger to pull it.
Joe Fairless: That’s why we do this show, to share your story, so it will inspire others and help others. How can the Best Ever listeners learn more about what you’re doing?
Melchor Domantay: Can I give my number?
Joe Fairless: Give your number.
Melchor Domantay: They can call me at 708-979-0852. If they’re around [unintelligible [00:19:49].24] or even Chicago area. They can also email me at email@example.com.
Joe Fairless: Call, text, anytime, day or night.
Melchor Domantay: Yes, yes, yes…! I don’t sleep.
Joe Fairless: [laughs] Well, Melchor, thank you for being on the show. Thank you for talking about your habits and how you got to where you’re at. The [4:30] AM to 11 PM typical day that you had for 2,5 months whenever you were repositioning one of your properties, the business plan that you take with each of your properties, which is basically you find a distressed property and you fix it up, and then you take the proceeds from that and you parlay it to something else… And in some cases, you parlay the relationship into other deals, for example that 5-unit, into the 3-unit, which you got seller financing with that 3-unit.
Thanks for being on the show. I hope you have a best ever day. I enjoyed our conversation, and we’ll talk to you soon.
Melchor Domantay: Thanks, Joe.