Are you new to real estate investing and you want to get off on the right foot? Then sit back and listen to Paul Lizell’s guest, Bailey Kramer. Bailey is a junior at the University of Central Florida who got into real estate after reading Rich Dad Poor Dad. He talks about learning the different asset classes in real estate investing and why he decided to start with single-family rentals fix-and-flips in Northern Illinois. He also explains his lead generation software company called The Property Dogs. These two different sources of income match and help him create more opportunities. Join in the conversation and be inspired to make your own game plan on getting started. Your journey begins with this episode! Tune in.
Watch the episode here:
Listen to the podcast here:
Getting Started In Real Estate Investing: A New Investor’s Game Plan With Bailey Kramer
With me is Bailey Kramer. Bailey, we got to know each other here a little bit. You’re an interesting person for me to interview for the fact that you’re still in college, which is great. You’re a junior at what university?
University of Central Florida
It’s in the Orlando area. You read Rich Dad Poor Dad which gave you the edge to get into real estate investing. You’re getting into it at a great age and a great opportunity here. We are in a red-hot market. There’s going to be so much opportunity. We’ll talk about that later in the interview, where Q4 should open up more deals for you. Give us your background a little bit. What areas of investments are you looking at?
First off, thanks for having me on the show. I’m super excited to chat about everything that’s going on. To dive into my story on how I got involved in real estate. I’m still a junior at the University of Central Florida. Rich Dad Poor Dad is that classic purple book that gets a lot of people interested and gets the mind thinking. That’s what happened to me. I read the book. He mentioned real estate a few times in there. I said, “I need to learn and find out what that even means.” At the time, I had no idea. I looked up on the internet about real estate investing, how to get started and all that good stuff. The resource, BiggerPockets, which I’m sure a lot of your readers are familiar with, kept coming up.
I spent the next three months after I discovered BiggerPockets listening to their podcasts before class, in class and after class. I was consuming information. I was learning something new each time, different asset classes, different strategies, different people’s stories. It’s super interesting. Fast forward from there, after those three months, I was like, “I have a pretty good idea of what’s going on. There are so many different things. I have to pick a direction.” I ended up joining a multifamily-focused mastermind group because that’s what I saw as the golden ticket. I was like, “Multifamily syndication. I can get 1,000 units by the end of this year. I’m going to be living big.” After doing a little bit more learning and reality check, I realized that there is less multifamily out there. You’re dealing with a different sophistication of owner. They take a little bit longer to close.
Don’t get me wrong, I love multifamily. They have so many benefits. For where I was at now, I came to the point where I said, “Let me start with single-family. Let me get some momentum going.” I know that will spiral into many different things. That’s catching up to speed. Where I’m at is I partnered with somebody in the mastermind. His name is Frank and we are acquiring single-family properties in Northern Illinois. That’s where he lives. That’s his market, his backyard. My family lives 1.5 hours North in Wisconsin. It works out conveniently there as well. We’ll jump into it and we’re focusing on the creative financing and the fix and flip properties.
That market in Northern Illinois is right for rentals. You can cashflow properties pretty well. Taxes aren’t too horrible there. Their cost is low. There are good blue-collar working-class areas, good solid jobs and industry. It’s a great market to be in. I know a lot of people, a lot of investors who are in that market. That’s a good choice for you. You also got in Orlando. If you ever wanted to dive into it, but Orlando is a whole other animal in and of itself.
When I was going through the whole journey, when I was multifamily focused, I was starting to look in Orlando for some properties. I couldn’t make sense of any of the numbers. I was getting a deal from a broker and it’s $180,000 a door for a property that needs to be completely renovated and stuff with an awful neighborhood. If it was brand new, I don’t know if I could pay this much. Orlando is a whole other beast and Southeast is a whole other beast as well.When you have a pretty good idea of what's going on and there are so many different things to consider, you have to pick a direction. Click To Tweet
It’s a good fix and flip market where you can make some good money doing some of those things but cashflowing is tough there compared to other markets. There are certain markets you want to target for cashflow. Generally, it’s blue-collar working-class. In the Central US, I love Indiana and Ohio. They’re cashflow-crazy. In Tennessee, you could do similar things, and the Carolinas, both of them are good for cashflow. Texas is also right for cashflow. These states have a lot of things in common as far as lower cost of living. You have lower taxes as far as real estate taxes. Except for Texas, they have a little bit higher taxes there.
There are many great benefits there. In terms of good jobs, you want to be targeting markets that have good job growth and stable areas. Not ones that are on the decline. West Virginia might be tough being a coal area. That’s tougher for jobs, for sure. That’s an area we’ll never focus on. You’ve mentioned you had a lead-generation company as well. Would you talk a little bit about that? That’s incredible that you’re getting into this business this quickly, then you’re creating other businesses within it. Talk a little bit about that. I know you’re in multiple markets as well.
The company is called The Property Dogs. I started with a partner that is in Illinois that we’re acquiring these properties with. How that came about was he’s been in the game for twenty-plus years. He’s been doing the single-families fix and flips. He came to me because something that I bring to the table is I have a lot of time and hustle. Number one is the time piece. A lot of people have families. They have jobs. It was, “How can we work together to generate some leads and get some more properties?” Things on the market were tough. If it’s on Zillow or if a realtor is listing it, it’s tough. It’s not that it can’t be done but it’s hard. We put our heads together and said, “Let’s start doing some off-market lead gen for his market,” which is Northern Illinois. We did that and we found a lot of success out of it.
We figured, “How can we duplicate this and use it to create another stream of revenue?” It’s sharing resources amongst multiple people to keep everyone’s cost low, to get results for others, and to keep doing what we’re doing. That’s how it came about. We’re single-family focused. We have clients in New York, Georgia, Florida, Maryland. I’m probably missing a few others but anything from people who want to do fix and flips and creative finance strategies. We’re also starting to work with some realtors as well who are looking for more leads for their company.
It’s great because you can potentially grow and nurture that business and always be giving you some extra income on the side as well, which is awesome. I love your focus on single-family. I do think that asset class is perfect to be in. You’re going to find off-market deals like you’re doing in creative financing. Let’s talk a little bit about that because you’re doing a lot of subject–to deals. Give us a sample of a subject-to deal that you have done.
I’ll give you the home run subject-to deal. These deals aren’t your everyday deals and all that good stuff. We contacted a property and it’s off-market. The reason why we contacted this one is because it had low to no equity. That’s a sign that someone might be interested in selling. That’s one of the lists we pull. With this specific property, when we contacted him, the timing was perfect. To tell you, he bought the property because that rolls into the whole thing. He is a military guy. He was able to utilize the VA loan, which in simple terms he had to put nothing down on the property. He was able to get a great interest rate of 2% something that I can’t qualify for a loan being a student. He bought the property about some years ago at a pretty high price, to say the least. The market has been hot. COVID escalated up but nonetheless, he bought it at a high price. A few years after he bought it, he got military orders to move to Texas for training. He doesn’t want to be a landlord. His wife doesn’t want to be a landlord. He needs to move on from that obligation of the house. He was getting ready to put the keys in the mailbox and walk away because he didn’t want anything to do with it. Let me say this because it’s probably a big question that a lot of people have is, why didn’t he sell the property?
Exactly, no equity. Even if he tried to sell it himself, he’d still have to come out of pocket for the difference between what he bought it for and what somebody would buy it for quickly that he’s expecting someone to buy it for, the realtor fees, closing cost and the whole thing. He would have been out of pocket probably $15,000 when it’s all said and done. He doesn’t have the $15,000. He doesn’t want to come up with $15,000. He just wants to move. What we’re able to do is subject to the mortgage. We’re going to be taking over his mortgage payments. His taxes, mortgage and insurance are about $1,100 a month. This property runs all day long for $1,800. That was the home run slam deal. We put in closing costs and we’re paying half of his mortgage. We’re letting him stay there an extra month while he figures things out, giving him $500 for that. All-in, between me and my partner, we’re looking at a total of a $3,000 cashflow before the repairs and maintenance. Some of those smaller expenses are between $600 and $700. There’s some expense that we need to pay for but that’s been our home-run deal so far.
You’ll have your money out of that between 4 and 6 months into the project, which is great. These subject–to deals, you can’t find enough of it. The greatest thing is you’re $3,000 into a property. If I go buy, I buy a lot of bank-owned stuff, my deposit is usually $3,000. Let alone the purchase and all that stuff. We got to refi and hope to recoup those costs out and not at 2.7% on a mortgage. You’re in a great situation. This is a perfect example of how you’re helping somebody out of a tough situation that they didn’t want to be in. It’s a win for you. It’s a win for them because you’re saving his credit and giving him the opportunity to go without having to worry about anything. That’s where real estate investors come in. They fill that void. They take care of it. A realtor coming in can’t do anything for this person. They’re going to work a short sale, which is going to damage his credit and cause problems. This is a perfect example of how real estate investors help people.
After explaining this deal to people, two big questions that I got and I’m sure some of your readers are thinking, number one, “This property must be a bad-looking property and it needs a lot of work. How could somebody give you a beautiful-looking property?” To answer that one, this property still blows me away. The floors are brand new. I would live in this property. It has a nice-looking kitchen. As far as the condition of the properties, all the deals are different. We had put some money into where it’s a perfect condition that I would even move into. That’s that one. Another issue that we run into a lot from the sellers and a lot of people ask is, “If this person has the mortgage in his name, how is he going to be able to qualify for another loan?” That’s a question he asked. A lot of people ask that. First and foremost, talk to your mortgage lender. Talk to your attorneys, all that good stuff. One thing that we could say is there’s something called DTI, Debt-To-Income ratio form that these sellers can fill out when they’re applying for a new loan that shows, “This debt, I’m not obligated to it. Someone else is responsible for it.”
That’s a big piece right there. It’s a big saver. This is a golden-egg sample deal here. There are other ones and I’ve done two in the past where you’re getting $200 to $300 cashflow a month, which to me is still a no-brainer. Anything that’s above what you’re paying me is good. You have control of an asset that should go up over time. You’re going to have maintenance. If it spits off a couple of hundred dollars a month, that’s still great if you’re not into it for much money. It’s why these are the great deals out there.
We’re doing another deal. We can get into it or not.
Give us a sample.
There’s the property. The person is already sixteen years into his 30-year mortgage. He bought it at the last market crash. It’s worth what he bought it for fifteen years ago. He couldn’t have bought it at the worst time. He was just in a bad situation like a lot of people were. He held on until where we are now. We looked at the numbers and said, “He has only fourteen years left on his mortgage. What can we do about this?” We’re buying this property. It’s the same thing, subject to. We do need to put a little bit of work into it, when it’s all said and done, it’s about $9,000, including closing costs. There’s a realtor involved in this one. This is an on-market deal.
They have to. You can get them on market. These deals are out there and available on market.
The funny thing is it was listed on market for $135,000. We looked at it and said, “It might be worth $135,000 fixed up. What do you mean $135,000?” We bought it for $95,000. What he owes on it, what his mortgage is and we subject to that. We have to put about $9,000 in. The thing is we’re not going to cashflow much money. It’s breakeven, maybe $100 a month among three partners in total. It’s not a lot of money. The play on this one was the long-term look on this. We said, “It has fourteen years left in the mortgage and then it’s free and clear.”First and foremost, always talk to your mortgage lender and your attorneys. Click To Tweet
We looked at it more of the fact that we each put in $3,000. In 14 to 15 years, it’s going to be free and clear and worth about $150,000. It’s a different type of investment. I didn’t even know we could do that type of thing going in. I didn’t know that was something I’d even be interested in. It’s not your everyday deal to do that. Cashflow is a big piece of the game. We figured if we put $3,000 down into it and we also have properties nearby. That’ll be easy with the management as well. In fifteen years, we’ll have a $50,000 each nest if we want to refi it, sell it or do whatever. That’s a unique one as well.
You’re also doing fix and flips. Is this your first fix and flip that you’re doing?
The one that I closed on with my partner, that’s the first fix and flip that I’ve been part of.
They’re fun. It’s a whole different animal. Each one is different in and of itself. Sometimes they run smooth and are great. Sometimes you run into all kinds of unforeseen things. Trust me, I’ve been there, done that for twenty-plus years. Are you doing this as more like a whole tale where you’re fixing up a decent amount to sell it, make it mortgageable? Are you doing a full scale?
We’re doing a full-on fix and flip. This is another off-market deal. The list that we pulled for this one was a vacant property. A lot of times, that’s another sign that sellers might want to sell if the property is sitting there vacant. Once you start talking to the seller, you realize why it’s vacant. That will give you the indication. For this one, the property owner bought it. He wanted to fix and flip it. He has so many different products going on. He owns companies. He’s a busy guy. He wants his cash back to put it into something else. He doesn’t want to wait any longer and do the work. We’re able to buy it cash at the price that he bought it for before he made improvements and gutted the place for us. It was perfect in that sense. We came into it fully gutted. We need to put about $30,000 into the place. We’re hoping to sell it for the $170,000 mark, which will make for a nice little first deal.
What do you anticipate is the projected profit on that one?
We’re looking at between $10,000 to $15,000. For me and my partner, we’re 50/50 on this one, so between $20,000 and $30,000 profit at the end of the day.
Those are great. Sometimes you get some big ones. Sometimes you get the smaller ones. If it’s $20,000 to $30,000, I’ll take it all day long.
We were talking about it. Do we want to go for it? Do we not? It’s not a home run but not every deal is going to be a home run.
You do the deal. The way the market is here, it’s going to potentially increase while you’re rehabbing this property here. When you slap that on here in this late spring or early summer, you’re going to be in a good position. Hopefully, you’ll get a good strong offer on that property. The fix and flips are fun. I have done many more this year and compared to years past because of constricted inventory. Instead of wholesaling these deals and maybe making $5,000 to $10,000 on the side, I’m going to flip some of these because I got the potential to make $30,000, $40,000, $50,000 on some of these, which I’ve been doing. Try to maximize each deal.
For people out there, if deals you’re worried about are constriction of inventory, maximize your profits on your deals. Bailey, I love the subject-to deals. It’s such a great model. It’s such a great way to pick up rental properties for little. Continue to do that. Continue to do the fix and flips to give you cash. I know you’re looking at other asset classes. You’ll eventually get into that multifamily. The big multifamily for me is a little bit further down the road. I’m a bit constricted. I’m looking at the 10 to 50. I’m looking at that one that’s being ignored by a lot of people in the industry here.
That’s a good spot to be in.
What’s your next step? Where are you going from here? Do you have a next step where you are looking to go?
As far as the next steps, we want to get to scale. We’re doing one fix and flip. We want to do one a month. We then want to scale the number of rentals we’re doing. At the same time, I’m getting my real estate license down in Illinois so that we can capitalize on more of the leads that we’re getting.
You can list them cheaper and save some money when you resell.
I’ve been debating with myself for a year. I checked my email. The last time I inquired about getting my license, it’s been a year and I’ve been going back and forth. Should I do it? Should I not? At the end of the day, I’m at a point where I want to get the license. I could use that extra little squeeze of capital to put me that much farther. A few years down the line, I can hire that out. Forget the few thousand dollars that I’m saving or earning. Spend my time focused on other places. I’m super excited to get it and be able to capitalize on a few different aspects of it. Snowball that money into more investments and keep growing.Cashflow is a big piece of the game. Click To Tweet
It makes sense. I’m a licensed realtor here in Pennsylvania. For me, it’s an extra usually $30,000 to $40,000 of income per year. I’m not even working the business. This is on commissions on properties I’m purchasing that I would otherwise not get. For a lot of people out there who are like, “Do I get it? Do I not?” Because we‘re all worried about liability. You just disclose it. You are a licensed agent and you have a vested interest in this property. You’re covered. That’s pretty much it. It covers you for a lot of other stuff as well. It’s not a liability in a way. Some people look at it as that. I look at it as an asset. It takes time to get your license. You got to study and do all that. You’re already used to studying. You’re in college.
I’m in the middle of the course. I’d love to chat with you about the specifics of how to even go about being an agent and an investor. That’s something that a lot of people have on their minds.
We could talk about that. If you want to dabble in a business and push the agent thing, that’s good too. What I’d recommend for people who are looking to do that is get people underneath you and refer it. You’re then splitting the commission. You don’t want to have to do all the work. Listing is a pain in the butt. Running around the properties with buyers is a pain in the butt. It’s not something I push doing that unless you have people underneath you because you want to focus on investing.
Being an investor in this business is where you make true wealth. Being an agent is transactional income. It’s like the fix and flips. It’s transactional income. You’re getting it. You need it to live day to day. True wealth is made of long-term holds. I do a lot of it and we’ll talk about this too. I do a lot of owner finance deals where I’m the bank. I love them. Bailey, I probably got about fifteen of them over the years. Some of them paid for 7, 8, 9, 10 years. It’s crazy. It’s mailbox money. The drawback to that is you don’t get to depreciate it. You don’t have anything to write off.
The positives are, you’re the bank. You don’t have to worry about tenants and toilets. You don’t have to worry about the maintenance of the property. You don’t have to take care of all that thing. It’s a whole other asset class in and of itself. One I definitely recommend. I fell into it in 2012, 2011 when I first started doing these things years ago. I had a deal that was tight, I could have sold it and maybe made $500. I said, “Forget this. I’m going to sell it with owner-financing. Hold it over time.” These things pay out more than anything else I make. Profits on them are insane. That’s another thing that you could do because a lot of these properties that you have the subject to, you could wrap these properties and sell them to an end buyer. Go that route. If you get tired of them, you got total options with what you’re doing. I love what you’re doing. That could be another aspect of your business down the road. Plant a seed for that.
Are we talking about a lease option?
A lease option is one. I’ll sell on installment sales where it stays in your name and you control it. You wrap it. A lease option is a good way to do it. Most people don’t convert on these lease options. I’d much rather sell, which is good for you.
It could be good if they’re putting a nice down payment on the place.
Most of the time, you don’t want them to. Every once in a while, you’ll get one on the owner-finance or have them refinance it. I got paid off windfall money. It’s a great property. I paid $3,750. This is going back a few years ago or so. They refinanced it a year in. I made about $10,000 on payments and I got paid another $33,000, whatever it was. My net profit was $30,000 to $38,500 on a $3,750 deal. You can’t beat that. The ROI is awesome. Think about that for the future too. It’s another asset class for you as well. It could go alongside your buy and hold.
It’s just tools in the toolbox.
You want to have everything right. The best thing about this deal is this. This is going to be a rental. This one’s an owner-finance. This is a fix and flip. Look at each deal separately in and of itself. What is the highest and best use of this property? In real estate, if you do that, you’re going to be good overall. One quick question for you that I forgot to ask, how old are you since you’re a junior in college?
I’m twenty years old.
To be twenty years old and be in a position with what you’re doing, you’re setting yourself up for the future. I first got into the business when I was around 26. I’ve been in business for years. You’re in a great spot. You’re ahead of me. You’ll be ahead of me at my age. You’ll be far ahead of me, which is great. Keep up the work. Is there anything else you wanted to talk about? Different strategies that are working well for you that the readers might want to know.
We’ve covered a lot. With the types of lists we’re pulling, that’s a big question I get a lot. The off-market deals. The vacant leads have been great for us. High equity, low equity. Something we’ve been struggling with is the pre-foreclosures. Everything is weird with COVID and with the foreclosure laws. That’s another piece of information about what exactly we’re pulling from.
Keep on that one because that will open up more as COVID dissipates, which looks like it is. It’s going to open up. I do expect in Q4 a windfall of foreclosures. I talked to guys at Auction.com. They’re expecting big-time foreclosures. You’re going to see a rate that far exceeds what happened in the 2008 crisis. For people, for the future, know that as soon as that hits, you’re going to see such a change in this real estate market. We’re at the peak, in my opinion. We may have already crested and started going slightly down. Even with the constricted inventory, certain markets are still going up. Once we hit that, where you got more inventory, the prices are going to level a little bit. If interest rates go up, prices are going to continue. Hopefully, we have a steady leveling off and not a sharp decline.
The hard thing is only time will tell.Snowball your money into more investments and keep growing. Click To Tweet
That’s still something that genies got to be let out of the bottle. We’ll figure out what happens when that happens. I’m sure the government will intervene and cause problems in one way or another as they always do.
That’s why I have got to buy crypto.
It’s the other asset class we’ll talk about. Your twenty, five-year stashing. We’ll talk about that offline for sure.
That’s a whole other ballgame.
You’ll definitely need to get into it because that’s another asset class for the future for sure, those digital currencies. It was awesome talking with you. I appreciate all the info and the samples that you had here. It was tremendous. Our audience is going to get a lot out of it. I appreciate it.
Paul, appreciate you for having me on. Thanks.
You got it. You have it going.
- Bailey Kramer
- Rich Dad Poor Dad
- The Property Dogs
About Bailey Kramer
Bailey is a real estate investor, entrepreneur & podcast host, based in sunny Orlando, Florida! Bailey uncovered his passion for real estate investing when he was 19 years old after reading Rich Dad Poor Dad in his college dorm. Since then Bailey has focused on acquiring properties, all using creative financing strategies. Bailey also co-founded an off-market-real estate lead generation company that serves investors across the nation, called Property Dogs. In his free time, Bailey enjoys traveling, playing sports & eating delicious food.
Love the show? Subscribe, rate, review, and share!
Join Flipping Out community today: