The Everyday Millionaire Show
The Everyday Millionaire Show
From Market Fluctuations to Million-Dollar Success - Brooke Kane (Full Podcast)
Ever wonder how a real estate mogul navigates through decades of market fluctuations and emerges victorious? Join us as we sit down with Brooke Kane, a heavyweight in Baltimore’s investment scene. Brooke takes us on a journey from his formative years, detailing his early challenges and triumphs in the real estate brokerage of the 1980s. With high-interest rates and a volatile market, Brooke's story is a masterclass in resilience and strategic pivoting, especially during the economic shifts of the 1990s.
Learn how impactful mentorship and strategic collaboration helped scale their business from a modest start to a multi-million enterprise, even in the face of an ever-evolving market landscape.
There'll be a point where you'll not be relevant or you'll not physically be able or want to sit there or whatever.
Speaker 2:So why don't you keep acquiring? What was your mindset behind that?
Speaker 1:I'm twice their age. I don't want to have 500 of these, and I'm 85 years old and never pulled any money out.
Speaker 3:So those who are listening and watching this is a guy, brooke Kane, who lent me on my first deal back in 2018. And the biggest qualification at the time was you needed to see 30,000 in the bank, and that was the only time that I had, up until that point, 30,000 in the bank, and it just so happened to be the last bank statement that.
Speaker 1:I sent had that. Now we see more clearly the benefit of dealing with many of the same people over and over and over again, because they're good business people. They don't bring you stupid mistakes, they turn the money quicker. Welcome to the.
Speaker 2:Everyday Millionaire Show with Ryan Greenberg and Nick Kalfas. All right guys, welcome back to another episode of the Everyday Millionaire Show. We're here today with Brooke Kane. How you doing, brooke?
Speaker 1:Good, good. Thank you for the invite.
Speaker 2:Thanks for coming.
Speaker 1:Nick, how you doing man.
Speaker 3:Good, good how you doing, Ryan.
Speaker 2:Good, I'm here, we're here. Chase, all right, we're all here, so, brooke, thanks for coming down. I really appreciate it. You are like a I call a staple in the Baltimore investment world. You've started out so many investors, including our friend Nick here right.
Speaker 3:Yep.
Speaker 2:So we have a lot to ask you, your wealth of knowledge. I was actually with Chase and I were at the gym with Sean Magner this morning. Yeah, there you go, and he's like you got Brooke to come down to your house. He's leaving the city. I said, yeah, he's coming down.
Speaker 2:He said okay, okay, I gotta give him a hard time he said this is gonna be a good conversation because you have so much to offer. Well, thank you for kind words. So where did where did you start? Where are you from originally? Where'd you grow up? We'll start there and then go into, like kind of your first career, and obviously there's a lot to happen in between. So where just where you from start?
Speaker 1:there I'm from calvert county, south of here. Yeah, a galaxy far, far away yeah, yeah okay.
Speaker 1:So I grew up there and uh went away to college, actually went to prep school uh, believe it or not in st paul's up here in brooklynville and one of the few boarding students, uh, when they actually had a small boarding department. And then I went to uh vanderbilt in nashville, came back and got in uh, this was would have been about 72 um and for the first 10 years I bounced around, but primarily as a general brokerage. You know, real estate agent, um didn't really care for that. I managed offices, I trained, you know, and sold houses for other people and that type of thing, but it was never. So my early thirties I was done with real estate. I was just, you know, I got fired two or three times from the same company and just like I was done and my dad and I he was in the home building land development uh business and him and I didn't really. You know, we tried to work together a few times but he wasn't really willing to give up. You know the reins of it quite yet.
Speaker 1:But in the early uh, I was in my early thirties unemployed, uh, on, well, not welfare, but on unemployment Right and I needed a couple hundred bucks a week and I went to him and said dad, I'll do whatever you need. I need a couple hundred bucks a week, I'll pay you back. But I'm I'm you know, I'm out of real estate, I'm just done with real estate. And he had tried to retire. He took some lots to bed with him and generally the business down there is you have to be a developer, a ground person, as well as a home builder to, but you need the cashflow of the home building to pay for the long-term ground business. And he had lots, but he gave up the building business. So he said well, I need to build some of these lots to get the cashflow back.
Speaker 1:I'd never built a house and, uh, found a guy who did. And what I did find out is when I could make the deal on the house. In other words, I sat down with a buyer and I had control of the price, I had control of the floor plan, I could sell the hell out of houses and I did okay, when they're, you know you're able to have that decision making to, to put the deal together fast forward. Uh, it was early 80s. Um, I think there was a recession. I didn't know that there was one, I just knew that, you know, we kept on going um.
Speaker 2:at that time, the rates for real estate were insanely high, like in the teens, right.
Speaker 1:But you know, everybody was doing the adjustables, the buy-downs, and I sold a boatload of houses at 12% and 13%. I never, ever thought, and a different frame of reference, but I never thought you'd see single-digit rates. When they went to nine, I thought it was crazy. When they went to six, I said the money's free, okay. And so I started, you know, buying my own piece of ground, still with him, but I kind of he was getting older and I kind of, four or five years later I was running the business and um, did basically buy the farm, cut it up the houses, rinse and repeat, and again, small builder, 25, 30 houses a year, nothing huge.
Speaker 1:But as time went on, uh, early 90s, you know, politics changed down there, more, um, no growth, people that came in and they, uh, they fought every development we did, the. The rules got worse and worse and worse. And after the recession, uh, in 08, I started to see that, look, every lot that I sold was one I couldn't replace because the new rules would stop you from and, and if you can't cut up ground, it's hard to build new houses if you don't have lots. And I knew in about 10 that, uh, the market was in the toilet. Uh, I knew I had to get out of calvert county and I started looking at different parts of the state and then finally I I looked at baltimore. My wife was from baltimore, I'd been up here a little bit like in school and DC was too expensive. I couldn't break into that market. So I'll never forget the night it was February of 2011.
Speaker 1:And my best friend at the time, glenn Walker, who was in the carpet business I bought carpet from him over the years and I was saying, glenn, I just I was down man, I was really in a bad spot mentally, um, and I said I really want to, you know, go to Baltimore. I really want to get out of here. Now. I didn't know exactly what I was going to do up here, but it couldn't be any worse. And that was a ship burning in the Harbor down there. And I'll never forget. He says why don't you move now?
Speaker 1:Two weeks later I bought Alisana. I just said, hey, let's just do it. I'm scared to death. And that's how I got to Baltimore and I said in four or five years, there won't be any builders down here. And that part was true. There's one guy down there left, but there hasn't been any new lots in years and they've got it locked down, so my future would not have been one. So came to Baltimore, figured that you know I'd build some on what I call the outside. You know I bought some lots out of foreclosure from BB&T and brought my guys up, built some new stuff. That went okay and then I hooked up I forget where. I met tyler banks and we formed charm city builders. He'd been a uh flipper and I, you know, funded his deals and you know we were together a couple years and I started did my first hard money loan, um in 2014, middle of 14. Same time I met oswaldo galarza and his wife, anna provaya, and we started buying in dundalk for rentals.
Speaker 2:So it's not even that old really, that the whole baltimore real estate investment world for you is 10 years, 10 years old really, first four came up in august of 11, actually moved, bought it in april but actually physically moved in august of 11, you're right.
Speaker 1:and the first four years were kind of to do the, what I call the outside. Where I was doing the, the the ground up single family detached thing, I saw that he had to buy more than 16 lots. And then I was back in the land business and the debt business and I said, you know, I don't want that business anymore. Still kept going with tyler as funding. I was doing the funding, he was finding them and we'd split the profit on the deals. And then that's when I learned about hard money, cause I didn't know what that even was, cause it seemed like to me most of my life every bit of money I made was, was seemed hard. Um, so that just made my first loan to a guy named Nick Lipperini who was a ground guy for a large national builder, and so that it just kept going from there.
Speaker 3:So what, when you started buying lots and when you came up here, bought lots and built and sold, what made you transition from that to buying rental properties for the long-term wealth?
Speaker 1:I knew I needed rentals but there weren't any houses in calvert county, so to buy rentals down there. And um, it was looking back as waldo and anna were referred to me by Marta Lufashanska, who's from the Ukraine, so is Anna, and they were coming to me for hard money and I asked him. I said what do you plan to? Because I would have approved him on money. I said what do you plan to do with the money? He said we're going to buy more rentals and I said where are your rentals? You have some now. They had five in Highland Town and I said what's your turnover? Like you know the big, it's the killer in rentals and we don't have turnover.
Speaker 1:I said well, who in the hell are you renting to Hispanic families? And I said okay. I said do you want to do some volume? I'll bring the money. You got to find them, fix them, put 8% in for management and we'll split it. And that was. We bought our first one late 14, early 15. And I stopped buying in February of 18 and he done 121 of them in Dundalk, some in Essex, some in middle river, but um, so that that kind of blew up and I I was the one that brought the money cause. I had familiarity with banks, you know, through the land developing and stuff like that, so that was a question of mine.
Speaker 2:So at that point, when you started buying and you started lending, were you using your own money or were you raising capital from other sources and then re-lending it out with a margin?
Speaker 1:I was mainly using my own money. I came up here um christine, who's my second and business manager, she'd save some dollars out of the recession, bless her heart. And we started with um yeah, I think I had like three million bucks or something like that in liquidity save some dollars out of the recession, bless her heart. And we started with um yeah, I think I had like 3 million bucks or something like that in liquidity when, in 18, I sold the rest of my lots and closed down the building business because the building business doesn't have any value. It's it's the hard assets, which is, your lots, basically that that that builders buy, and you know there were the. The lots were paid off 40, 50 lots, something like that. So I had another three, four, maybe five million to add to the pile and that's increased. And then I brought in all of our IRA money the self-directed and then I did some friends and family. So we're about friends and family is about 30% of what we have. We got about 25, 26 million on the street.
Speaker 2:And what's your margin from your own money versus when you take friends and families, like when you're lending it out?
Speaker 1:Well, of course, when it's your own money, it's all good right, I pay 10% for friends and family money. It's all good right, I pay 10% for friends and family money. So right now our top line is 19, 19.5%. So the delta between the 10 and the 19.
Speaker 2:So 19.5, that's your net margin or gross margin? No, it's gross. Gross margin that's gross. So then you got some employees and stuff like that. You got some of that, yeah.
Speaker 1:But still it's a wonderful business.
Speaker 2:The net is still above 50 and what's some of the things that you do to mitigate taxes, because it seems like that business is very highly taxable. There's really nowhere to hide. There's no assets involved, really that you own. What is there anything that you do to?
Speaker 1:there was a, the ideal situation, and I tell everybody you know, when I'm having lunch with people are looking at the business, the, the money business, the ideal situation. It was beautiful when I was with oswaldo and anna I mean, we're still together on the partnership but it went during those acquisition days. It was perfect, um, because I was getting the drag off of the houses we were expensing. We were able to. I was able to write off cause I was the only one on the loan at the time. Now we refied in 21 and they're on the loans now, but at the time I took over. You know, I assume the responsibility of the, of the, the loans, so that allowed me to get all the depreciation or the.
Speaker 1:We were able to write off the improvements to the house, or most of them, and which was about 30, 35,000 a house. And so for that three year period I sheltered a lot of the, of the, the income from the hard money business, and that is totally the problem with the hard money business. And that is totally the problem with the hard money business because there's no way to hide it. Okay, it's all pure short-term, high tax ordinary income. So why?
Speaker 2:don't you keep acquiring? What was your mindset behind, behind that?
Speaker 1:you're telling me why I don't sleep at night, thinking why did you stop buying their freaking rentals? Uh, I'm half their, I'm twice their age, okay, and we were plowing the money back in there and I said, well, you know, I don't want to have 500 of these and I'm 85 years old and never pulled any money out. So, with good advice from pristine and a lot of the other folks that I take and listen to, um, I stopped because I wanted to get flow, I wanted to to use the money out of it. Looking back, I would have probably run it for another year, okay, because 19 was still good. Then the prices went crazy and there weren't the deals.
Speaker 1:Um, I've looked at some exotic things to try to shelter, uh, the income. You know, equipment rental, private placement, life insurance and all these are they. I get close, but I don't know those, those avenues, and they frighten me. And so, um, I'm actively looking now for a deal where I could I would be the one on the note and I'm okay with that because that's the only way I can get get the the maximum drag and maybe I start it up again. You know, maybe not in dundalk, because that's kind of done, but I'm actively looking at getting re-involved in the rentals, not so much from the cash flow, okay, but from the the drag so like bigger, bigger deals then?
Speaker 1:whatever, yeah, uh, nick, whatever I I mean. Um, yeah, I mean because I the balance sheet looks pretty good at this point, because I don't have a bunch of ground debt and you know, so I could lever a nice size loan and get back on it.
Speaker 3:Yeah, yeah, and that makes sense what you said, because you know, when you're growing a business, all your cash just keeps getting recycled back into it. All your cash just keeps getting recycled back into it, and then until you realize, like once you stop and look back at what you've grown, that's when you can really start to see that cash flow coming in that you mentioned.
Speaker 2:It's also funny you mentioned you just said that you would get you would lever a loan to get you know these assets. I think some people that listen are, you know, kind of confused about why you would need a loan when you have $25 million that you're lending out to other people. Is it beneficial to keep lending your money out and borrow it for these assets from the bank if you're going to buy something?
Speaker 1:Well, that's what I would do.
Speaker 1:In other words, I'd find somebody that I do another Oswaldo and Ana deal, you know where. I would say and I had discussion just today with, uh, some folks on that I would take, I would take the loan. You know, let's say you're buying 20 rental houses, I'll take the, I'll do the loan. Okay, you get half the equity. I know it's a great deal for, for you know, I've taken the risk for sure, um, but that's the only way I can get the full amount of the tax drag and that's my interest. I'm not interested in just doing more rentals for the cashflow. I don't need that. Okay, I need the, the shelter. So, cause, the more loans you do, the more you make and the more you taxeded and it's, um, I got a problem paying taxes yeah, I, you and me both.
Speaker 2:You know any way that you can uh legally yeah, pay taxes right.
Speaker 1:There's some other ways that are skirting and I don't want to do any of that because it makes me nervous.
Speaker 2:So when you started lending out money, did you know like the business? How did you learn and build that business to now doing $25 million? Did you have somebody that helped you? Did you have an attorney or did you just start doing handshake deals? And then it turned high on Christine, how did you get from $2-3 million to $25 million with no experience in the lending space?
Speaker 1:I had had some when Tyra and I were together. You know I got to know some other hard money lenders. Jack Bevere certainly was a great mentor of mine and he helped me in many ways. Neil Roseman I did some deals with early on and I found that other people unlike Calvert County where there's this scarcity mindset up here it's abundance, you know. So people share. So I learned, and a lot of it you learn.
Speaker 1:You know I did my own. Uh, you know I have lunch at deepest qualities. That was my loan committee, that was my vetting and in the early days, uh, it was just me, so I did my own draw inspections. Um, christine moved the money around and it was just the two of us. You know she worked maybe a third of her because remember I still had the building business and finishing up the land business down there and made some mistakes, you know, early on, um, a couple years in, and you know I didn't check my draws like I should and I got hung on a little bit there. But I learned. I mean there's not like a book, right and slowly you build up your relationships and you listen and learn and ask questions and it just kind of multiplied.
Speaker 2:So one question about things that you've gotten burned on in the hard money space have you foreclosed on people before? No, no, you've never had to foreclose. So what makes you different than some other local lenders that I know personally that I've done work for that might have might foreclose on several people a year. What do you think the difference is? Why are they foreclosing on people and is it just picking the right people? And how do you do that kind of like vetting? You buy them a real italian really I really do think.
Speaker 1:You know, it didn't start out the way it was the mission. I didn't have an office and I just felt that getting to know people and there's something, there's a trust element there. There is there's a trust element. There. There is there's a risk element. I think now we see more clearly the benefit of dealing with many of the same people over and over and over again. Okay, um, because they're good business people. They don't bring you stupid mistakes and stupid decisions and they turn the money quicker. Um, but I can't say I haven't taken some back. That second year I took back some, you know like nine, from one person. The five of them broke even on, four of them tore me up.
Speaker 1:You know, uh like a quarter million of principal.
Speaker 1:You'll give up on the interest in this business pretty quickly, but the principal is where you want to guard against. But I did a forbearance agreement where we agreed that I would take over as LLCs, and that way because foreclosure man, you've got transfer taxes, you've got attorney's fees, you've got headaches, headaches, headaches, and so those are the only ones I've taken back uh at all. But I really tried to not have now someone I still had a relationship with. This person wasn't great, but I still had a relationship and, um, I try to avoid foreclosures. Now someone goes completely dark on you.
Speaker 3:You got no choice I mean, if they just don't pick up the phone, they're gone then knock on whatever.
Speaker 2:I haven't had that so far yeah, I've definitely been, nick, and I went to lunch with you a couple years ago I mean, this must have been three or four years ago and the next day that was the first time we met and the next day I had a hundred thousand dollars loan in my account from you. It was the easiest process that I've ever dealt with in my life. And that that money. I just want to say when we did that, we were like repositioning our construction company and doing some things to scale. Since we did that, we've more than doubled our revenue from from that year of. We use that money for different things and growth and we've doubled our revenue and a lot of it was thanks to to that loan. So we appreciate you believing in us.
Speaker 1:Uh, and sometimes that's what it gets down to. The same thing with the forward funding on some of the deposits that Nick brought to us. Is it out of the box a little bit? Yeah?
Speaker 2:And what is that exactly so?
Speaker 3:I approached Brooke I guess it was a few years ago and I had a lot of deposits out and a lot of the deposits were on foreclosed properties and, as you guys know, it takes maybe five to six months for those sales to go through. So your deposit is sitting out there for a while. So there's one point where I had like 80 or $90,000 in deposits just sitting out and a handful of them were foreclosures so they were going to be sitting for a long time. So I called Brooke and I said, hey, would you be willing to uh fund the deposits on these properties? And he's like, let me think about it. And they call me back.
Speaker 2:he's like, yeah, I think we can do that so we I mean that's out of the box and most hard money lenders aren't gonna um yeah because that's before you have a lien right, essentially yeah, but I you know it's all about the operator yeah, it is. It's all about the operator. It is totally so. So, yeah, so that's basically the. The one thing that I see you do, versus some of the other companies that that are bigger, maybe you know, have these hundred million dollar debt funds and stuff is that you personally know, I think everybody that you lend money to right? I mean, has everybody had lunch at deep esqual's?
Speaker 2:I hope so I know I've had one or two lunches there so um, yeah, so. So that's basically your. Your thing is, like all the guys that that I know, the derbies of the world. Everybody has been through you. I mean even the people that I recently have met and became friends with, like dave shannon yeah, yeah, yeah. More people that I recently have met and became friends with, like Dave Shannon yeah, yeah, yeah.
Speaker 2:The more people that I know that have been in the game for a little while have all been through Cain Investments, so that's cool. You've definitely made a mark. So do you have right now like an exit strategy with your business or are you just going to keep running it? It seems like you have it pretty automated with Christine and Kiri and the people that borrow from you is.
Speaker 1:Yeah, I mean I have wonderful with Stacy and and and Carrie and Christine. Um, I'm I'm privileged to work around people, uh, that have my back like that. So basically, I, I get to do my lunches and the old man, can, you know, tell stories. That's all I really do. I I market a little bit. I'll make some calls. You know the people that have rentals or people that I see you know we get monthly reports who's lending to who, and all that. I'll make some calls and and, but basically I don't have an agenda. Let's just talk real estate, it's, it's. If you took away my lunches, I'd be in trouble. I really would be so, because that's where I I interact and and that's where I get my, my uh, sustenance from that, and and particularly, and when you help people like yourselves, whether it's getting them in the business or helping with a loan, it's a great feeling. Yeah, yeah.
Speaker 2:So my first lender his name's Leon. He's an old guy, didn't have any kids and had a lot of money and didn't really do anything with his money. He lived on a little rinkety houseboat and he basically, when he got me started, he loaned me like a half a million dollars the first year in a couple different properties and he said like the one stipulation that I have is that one day you'll pay it forward and do the same for somebody else, because that's what he did. He took, he basically took me under his wing. He underwrote all the deals that I was trying to buy and he if it wasn't for him, I would have bought five stupid deals, but instead I bought five good deals that I was able to refinance in a couple years and take, pay them all back and do it all again. So it's cool when you do get to help people and um even like feeling in the world nick and I were.
Speaker 2:We spoke at the wealth and wisdom conference the other day and people are, you know, after. People are texting or emailing, messaging you and asking for advice and stuff. And just being able to like kind of lend your ear and brain to people is cool, it's the.
Speaker 1:I'm having the best time of my life. That's great, I really am.
Speaker 2:So, nick, you've said this story like a thousand times probably on this podcast, but we have to talk about it because he's here now. So, like the story of you getting started buying your first rental property, yeah, so I'll tell it for the thousand and one time yeah, no, but yeah, and I was very grateful back then.
Speaker 3:So those who are listening and watching, uh, this is a guy, brooke kane, who lent me on my first deal back in 2018. And I think I reached out to maybe four or five different hard money lenders and I was denied because I had the small business back then. I had the landscaping business and it didn't have good tax returns. And I reached out to Brooke I think maybe Brenton Hess maybe gave me your information. I've reached out and we met at Deepa Squally's. We sat down and we went over what I wanted to do and my goals and such, and you sent Jared out at the time to look at the property and you're like, yeah, I'll lend to you. And the biggest qualification at the time was you needed to see 30,000 in the bank and that was the only time that I had, up until that point, 30,000 in the bank.
Speaker 3:And it just so happened to be the last bank statement that I sent had that and you never asked for it, ever again. But obviously, as a business owner, that money fluctuates. So I hit $30,000 and then it fluctuated after that, but you never asked for it again and you lent to me. I met Jared at the property, a $52,000 property in Dundalk. You can't come close to any deals like that nowadays, but that was in 2018. He met me there. He's like how much do you need? I said well, I have 30. Purchase price is 52. I need 22,000. He said okay, what about the construction? I said, oh well, I can just fix it up over time as money comes in. He's like well, we can lend on that too. And that was like a light bulb went off in my head, because I didn't even know what the term hard money was, let alone know that I could borrow someone else's money and get a construction loan to fund the deal. I was like, man, that's pretty cool. Well, you guys can do that. And they're like yeah. And you guys were like yeah, so that's how it started.
Speaker 3:And then after that it was like an addiction just to keep going, and I was very nervous at the time because you guys had me reach out to Columbia Bank just to confirm that I could refinance it and they said yes, on the surface. But I was also nervous because of my tax returns Because, like I said, I didn't show a lot of income. But luckily, when we came down to that point, I was able to refinance it with Columbia Bank Now it's Fulton Bank and just kept pushing forward. I never focused on multiple steps in front of me. I always focused on the very next step, and when I got the house on the contract, I'm like the next step was how do I get the money to buy it? And then the next step was the construction, and then the next step was finding the renter and then the next was refinancing it.
Speaker 1:Obviously, and, and you've done it a number of times- Yep.
Speaker 2:Yeah, it's pretty cool to see so questions like what you're seeing right now. So back when we started in 2000, I started buying in 2016, 2017. You couldn't miss really Like you couldn't miss you could buy pretty much anything and make money on it.
Speaker 2:If you bought then and held, it's worth almost double probably what it now and held, it's worth almost double probably what it now. What are you seeing from the loan perspective with investors? Now, where the rates are 7% 8%, deals are harder to find. Are you seeing a shift in what people are doing? Are you seeing less volume that you saw?
Speaker 1:Our loan volumes, ryan, are still up Like we, like we were talking about, I think, before we started up. Today we're seeing we're running about 60%, say a couple of years ago, of rentals versus people that were borrowing to flip. Now that's shifted a little bit, so we're in the 40s I've got it exact on the spreadsheet but of rents versus flips, buying holds versus flips, I hate to say it but I mean I think people investors, you know buy and hold folks are willing to take less spread. Investors, you know buy and hold folks are willing to take less spread. I mean it's got to come from somewhere because the price is. I most familiar with dundalk, middle river, essex, and those little 1024 square foot row homes. Um, you know we wanted 500 a door after, not just principal interest and tax insurance, but you know you gotta have maintenance, capex, all that.
Speaker 1:Yeah, the whole thing boom and, as waldo bless his heart, he'd go to these auctions or off multiple listing back then and he he'd walk.
Speaker 2:I was at the auction they have at 400, you know, you know, but he, he was dynamite with that, he was a hard line and I I hear people taking substantially less and if we only had a time machine to go back to those auctions because we probably would have pushed the limits a little bit with some of those prices, those hard lines would have definitely I know. For me anyway, I saw properties I think about these properties that I turned down when we were buying on like the 100 and 200 block of Patterson Park, like above Patterson Park, and I was getting them in like the 30s. And then I started seeing them in like the 60s, 50s and I'm like man, this is getting too high now, like a shell is a 90. And I could have held them and lost money for three years, not paying, not getting any rent, and doubled my money.
Speaker 1:But you know, hindsight's always 2020.
Speaker 1:Yeah yeah, no crystal ball. Uh, I think people, when you combine the higher prices again, I'll go to the dundalk market, um, and the rates are up, um, I, I think they've skinnied up on what they're willing to take and they, they I think it's a little bit of bullshit. They say, oh, the house will go up in value, or uh, you know, the rates will come down, our refi to something lower. Man, that's all cherry on the top, stuff you can't count on on appreciation to get you out of a thin deal. And I, but I, I see and I hear you know people willing to settle for less flow that's funny.
Speaker 2:You say that because chase and I are under contract that we're closing on a property here in Severna Park. It's a duplex right now Could be sold individually or as one. Right, we're buying it as two. We're getting a great deal on it. It's worth as it sits. It was appraised at like $350 a unit. We're getting them for $275 a unit after renovations, like $450 a piece, like $900 total. And from the front we were like, oh, oh well, let's just sell them off. We'll put 50k into each of them, sell them for 450, make 200 grand and walk away. It seems great from the surface. And then, do you know, matt fullerton, yeah so county boy yeah, so matt is buying the duplex.
Speaker 2:It's all one big lot that was split, so there's two duplexes on this big lot that was now split you got four total units.
Speaker 2:Four total units. He's buying two. And he assigned two to me and he's like I called him today because we've been working back and forth with splitting this condo association that makes up the place that we are now taking ownership of, and he was like why are you selling them? And I'm like, well, you know 200k is great. And he was like why are you selling them? And I'm like, well, you know 200K is great. And he's like you're being short-sighted with the potential appreciation and all this stuff. So what we're going to do is we're going to refinance them and then take a line of credit against the equity, because we're going to have like $350,000 in equity. So I want to ask I guess both of you if you had that opportunity. So let's just call it a $200,000 profit, or we can pull a $200,000 line of credit and keep the asset and get a little bit of cash flow.
Speaker 1:Yeah, I thought I was going to go ask you what kind of flow, what's the cash flow like?
Speaker 4:nothing like 200 bucks, yeah, I would take the 200 000 all day long oh yeah, hmm, yeah one, they're not gonna.
Speaker 1:When you say you're gonna do a line of credit, you got a first on them already, right?
Speaker 2:yeah, so I have a lender that's willing to do 75 on the equity as a second.
Speaker 1:As a second okay, that's a private lender.
Speaker 2:It's a broker that does these things, yeah okay, so what are you gonna be paying?
Speaker 1:in the eight about ten percent, but okay you're up one rate because of the risk position of the paper, but I, where's the beef?
Speaker 2:free and I have. We have 300 plus thousand in equity on a place. That's an a plus. Now this is the other thing saverna park. I don't know if you know this, this area, it's like very sheltered and people don't leave here there's, it's hot there's no rentals. Available directly across the street from this place is a 15 million dollar like waterfront property and there's no rentals. So, like over time, the the price will go up, the cash flow will increase, but we have this like primo, a plus lot that will never go vacant.
Speaker 4:We've we've been back and forth with this oh my god, ryan's called me three different times like I think, we should sell it.
Speaker 3:I think we should keep it now, let's, let's make the decision right here on the podcast I vote that you sell it, walk away to 200 000. If this is not a rental market, who is the person that's going to move here and when, not with the intention of buying something, but renting?
Speaker 2:so that's. I think that's the thing. There's only one other rental that I saw was available recently recently and it was close to $5,000 a month, where these would be $300 to $3,200 a month each. There are families in this area that need to rent, or it makes more sense for them to rent, considering there's zero other rentals.
Speaker 1:What's the bedroom bath count? They're both 3-2s Basement.
Speaker 2:It's a split foyer. It's basically, if you look at two split foyers and they just attach them and it's two split foyers that are attached to each other. Three and two up and finish down. Yeah, both finish down.
Speaker 4:Like 1,400 square feet somewhere in there.
Speaker 2:Yeah 1,400, 1,500 square feet Up top the whole thing and it's like including the downstep, including the below grade yeah, well, not truly below grade it's sitting on top.
Speaker 1:It's on a slab. Yeah, it's on slab, it's walk out basement you know, okay, so you walk up some steps to get to the five steps up. Yeah, yeah, yeah, so it's a split, but it's it's on grade. Yeah, okay, um, and it's just like you got a lot of light down there.
Speaker 2:And the other thing is and and I this isn't investment advice for everybody, that's gonna, you know, roast me for this, but I drive past these places every single day, like I literally drive right past them. It's right next to the high school, which is like one of the nicest high schools and best high schools around, and I just feel like it. It's like such a primo lot to have that equity and you just, you know you don't make the cash flow up front, but you can take that equity and reinvest it.
Speaker 1:I don't know so tell me about the. Okay, you got 10 points. You're paying on the, on the, the uh.
Speaker 2:Second on a line of credit, though, so it's the line we pay it when we use it.
Speaker 1:So what's the term of that loan?
Speaker 2:It's just an adjustable line of credit, essentially based on Renews every year, based on prime renews every year, yep, and I think it's a 1% variable and you pay a point.
Speaker 1:How much you pay a year? You pay a point a year no, there's no, there's no fees really yeah, no fees, except the whatever the closing costs are.
Speaker 4:It's kind of like a credit card for your house.
Speaker 2:Yeah, oh it's kind of like a heloc, it is a heloc, but for investment, for for llcs, essentially yeah.
Speaker 1:Second position, you know, prime plus two or three, whatever it is still, it's a second position so what is it so, with that on there and your first, what's your ltv at the uh between the both loans, would you say? 90, something like that right yeah, depends on your need, I mean is it 200 per door or 200 total for the whole building?
Speaker 2:no, 200 total, like if we broke it right now, if we sold each.
Speaker 3:No, like $200 cash flow per month. Is that per unit or per for the whole thing?
Speaker 2:Well, we ran it at 8%, so if we can get it lower than 8% interest it'll go down a little bit. But yeah, it's a couple hundred bucks, it's not like it's not $500.
Speaker 1:Like a couple hundred betting on the. Uh, it's a good piece of the second. Trust is good money. Okay, because I don't know anybody's.
Speaker 2:It's good money and if I, if we take the 200k profit, sell it. We, we you got tax implications, we pay 70k in taxes, we walk away with 130 and then on the on the back end when we're borrowing that money, the 10% interest that we borrow is just a write-off anyway.
Speaker 1:Yeah, yeah.
Speaker 2:So it's like we're getting some more, even more tax benefits from doing it that way than just taking the 130 and walking away after taxes.
Speaker 1:How much could you get? On the second? You're talking about 200. Again on the second.
Speaker 2:Yeah, about 75% of whatever the equity is.
Speaker 4:It's like $150,000, between $150,000. Because I think those houses can appraise at like $850,000 to $900,000.
Speaker 1:Yeah, you know this market better than I certainly do.
Speaker 2:This market. That's the only thing I am sure about this. Saverna Park market is like gold.
Speaker 4:The only thing I'll say is the reason I really like this deal is because you'll have those b-class people that want to upgrade their kids lifestyle to a better school. So if these rentals become available, they'll move in and then they'll hunker down and they don't want to move well, there's no argument.
Speaker 1:Yeah, that, um you know, more people are going to be renting now than owning okay, I'm not I'm not even challenging.
Speaker 1:You know who played that same philosophy, a good friend of mine, brian Diamond, and you might not recognize that name, but he's an attorney by trade. But he was buying rentals up in. Where the hell was it? It was in the county, like Rogers Forge area, and what he was playing on he was buying a bigger house, bigger rent, single family detached, but he was playing the elementary school. And the reason he was playing the elementary school is because you know family mom, dad, couple, kids type set up. He knew that they would stay, at least during the elementary years, and that was was the attraction. And so he he was and it worked for him. I mean, he didn't buy hundreds of them, but it was a bigger rent. At the time I said, gee man, I'm worrying about a $1,500 a month and he's getting three grand. But he was renting to families that had kids, that wanted to be in a good school district, safe area, boom, and it worked. That's kind of what you're doing here.
Speaker 2:I mean, if there's a month of vacancy over five, six, seven years, I'd be surprised, just because it's such a sought-after school and the other thing too, is it elementary. All the schools are 10 out of 10 schools right there in that neighborhood.
Speaker 2:Okay, maybe I'm changing my mind here so and then the other thing that I was, you know, basically rummaging around in my head is with I manage a lot of properties and we have a lot of headache. Tenants right that this market. When we, when I went there to go see these places with matt a couple weeks ago, they are like immaculately kept perfect. They never have missed a payment. They've never been late on a payment like it's. It's a plus tenants too, so there's very little headache. So I'm just like my my plan oh, I didn't finish the plan actually so I have a hundred thousand dollar escrow for construction.
Speaker 2:My plan is because they're still they want to stay the tenants is that I'm going to renovate piece by piece, I'm going to do a bathroom while they're living there and just give them like an incentive, like hey, here's a half month's rent, we're going to be here for two weeks doing the kitchen or doing the bathroom and I'll, over the next 12 months which is what my hard money loan is I'll use that $, that 100k escrow, to upgrade the house and then refinance it with the tenants in there. So right now they're paying under market value. Let's just call it four grand a month. My hard money cost is what did we figure it out? 4200 or like it's like, almost covered completely by the current rent you're gonna go up and rent when you finish the refi.
Speaker 2:Oh, yeah, yeah, we're gonna jump up to 3,000, 3,100 yeah so the 2,000 per unit right now yeah, right now it's 2,000 per unit, which is under value, but they've been there forever. They've been there. One guy's been there since like 2006 or something like that, like they've been there a long time. So if I could renovate it, if they agree I haven't talked to the tenants about this yet, obviously, but if they agree, I've been thinking this has been a big part of my thinking every day now um, but if I can do it while they're in there, they're paying rent. I'm barely paying any holding costs on the hard money and then when I refi, we pull all of our shit back out. Now we're basically in it for a couple grand and we're yeah. Sure, we're not cash flowing a lot, but we have an, a plus duplex yeah, I'm warming to that idea more I'm more is.
Speaker 1:Is the uh? Are you warming?
Speaker 3:to. I'm not. I think you should sell it. I don't think it's a great idea to keep that type of property. The value is too high, the cash flow is too low 200 000. You can buy a couple rentals, fix them up, spend that easily and and and keep that whole 200 000.
Speaker 2:Yeah, but the point is that I can take the heloc and do the same thing and buy and recycle that money we can buy?
Speaker 3:no, because that money is going to be 10 right, but I'll just use like 150, I'll put it down on cane investments and just leverage the 150 into 500.
Speaker 1:So is the 10%.
Speaker 2:The rate floats the rate is locked a year at a time.
Speaker 1:Okay, well, I ain't going to go over it. I doubt it would go over 10.
Speaker 2:It moves with prime. There's an, it's an exact.
Speaker 1:I think you'll see rates come down some sometime.
Speaker 2:So, and that money in my eyes, 10%. It's an exact. I think you'll see rates come down some sometime. So and that money in my eyes, 10. It's less than a year. We turn these other ones over, these flips and stuff we're doing in six months or less. So it's like sure we're paying 10, but I can use that 150 as down payments for let's just call it two other places. My hard money right now is pretty cheap, so I'm about the same on my hard money as this HELOC.
Speaker 1:I don't know. I'm warm into that idea. I'm warm into that idea.
Speaker 4:We'll have to revisit at the end of the podcast.
Speaker 2:Yeah, we'll have to revisit this, because it is something that's like on my I would sell it and that's the final answer. And if you go with anything else I mean you can take your $200,000
Speaker 3:and lend it and make $1,700 a month, but you're only making $200.
Speaker 1:Yeah but you're going to pay taxes on it right off the bat. You're going to pay taxes the $150,000, while you're not getting the full thing you can defer the taxes.
Speaker 2:So there's another piece to this actually.
Speaker 3:Well, he won't pay taxes on that. If he does, independent from that, buys a couple rental properties.
Speaker 2:This year puts in $150,000, $200,000 in renovations That'll write off that whole $200,000 income. Yeah, I don't think you can. Yes, you can, I don't know. Maybe, maybe I'd have to ask. So wait, there's another. What was the other piece? I was just getting ready to say it. Oh, the HOA situation. So when we buy this duplex, we can redo the hoa docs so they're basically would each part of this duplex would be an own individual, what they would call a condo essentially, and we can stay the owners of that condo association even after we sell the asset and collect dues and do the be the I'm liking this.
Speaker 2:More and more people that do the like. Our company, my construction company, would fix the siding and the roof and whatever else is covered in that HOA association with the dues and money that you bring from the new buyers.
Speaker 3:It's not big enough for that dude. Okay, We'll revisit.
Speaker 1:I let you young boys figure that shit out I don't know, it's just it's.
Speaker 2:I don't know we've, I've been.
Speaker 4:Either way, it's a great deal oh, either way, it's a great deal yeah we're arguing between making 200 grand and borrowing. It's a great 150 grand around it yeah it's a good you know how'd you know, matt?
Speaker 2:so I hate to call out people, but somebody I'm not even going to say names somebody owed me a favor, a lender that messed up a couple of transactions for me and basically he was working with him in some way. He said, hey, I owe you one. This guy's selling this. I know it's your neighborhood, here it is. So I like it was like within minutes of matt mentioning it to somebody that he was going to sell the other two of these. Do you know, matt arnold? He's another, he's a real estate agent that they were working together in some way. Ryan?
Speaker 2:um, I'm never mind so I can't say that the other, the other guy, basically called me and said hey, these deals are coming to play. I called matt and I was like hey, so this is the first time you met him through this deal.
Speaker 2:Yeah, yeah, yeah, oh, wow, I called him and I just said, hey, just send me the contract, like I'll see it when I see it. Give me 10 days to get in there, because the tenants whatever. And I was like, just send me the contract, I'll sign it when I see it. Give me 10 days to get in there, because the tenants whatever. And I was like, just send me the contract, I'll sign it. Send you the deposit Because those numbers I mean we're buying two houses under 300K a piece and nothing in the neighborhood has even sold for less than $400,000 in years.
Speaker 1:He's a good guy. Yeah, yeah, he's a good guy. He's being a car business.
Speaker 2:And up until this morning, when I talked to him, I was like, oh, we're gonna sell these things, we're gonna put the money in my pocket. And then I called chase on my way home. After I got off the phone I was like we need to talk about this again, and I've been. Literally we've made this decision back and forth now four times, I think so yeah, either way.
Speaker 1:Either decision is is uh, you're not gonna lose money, yeah, no I hope not that would.
Speaker 2:if we lose money? I told him not. If we lose money, I told him. I said if we lose money on this deal, we're wrong on this deal. We need to both quit real estate and go get jobs somewhere, maybe at CVS or something. And we had our lawyer on a couple episodes and she was talking about trusts and setting them up. How can you just go into like a little bit of detail on how you set your trust up and what that looks like, because we've had a lot of people interested in that topic, like, is it a business trust that you have that is operating? We're all still learning these uh, legal jar.
Speaker 1:Mine was done um, or the trust. That is primary, primarily created for inheritance tax, estate tax avoidance, so it's not necessarily a younger person's play. Yes, it does have. Uh, when you put properties or whatever, or in this case, properties, into a trust, it does have the um asset protection piece and if you get sued or whatever but that wasn't the drive, it was primarily to take advantage of the 2017 tax credits Not tax credits, but tax cut thing that Trump put in, which basically raised the threshold and I'm speaking of couples. Now it wasn't like 55 or 5.5 million, 11 million combined for a husband wife that you could pass without being taxed because your, your tax rate on, uh, inherited state taxes is brutal. Um, and plus, I've got a bone that you paid taxes on the money to get it in there. Now you're paying taxes on the money to get out. But he raised it to it's up to 26 million now. Okay.
Speaker 1:Now, so we put my half of the rentals into a trust. Okay, there's a million trust learned about that. There's, there's a trust. You got a problem. They got a trust to to fix it, and this was called a slat, which stands for spousal lifetime access trust. So what that means basically is the properties. My half of those properties with ananas waldo are in this trust. We still get it's in my wife's name or the. The trust is for the benefit of my wife spousal like so she has access to the cash flow. So you get the cash flow.
Speaker 1:Now, this is only good if you've got a wife that you plan on keeping. If you get divorced, you got deep problem, okay, so it's not for everybody. And um, we were going to put, we were prepared and we still are prepared to put the cash money the the part that I have in the hard money business, the cash portion of that as a cash portion of that, into a flat as well for my benefit and again you're able to get the income off of it. But I don't want to do that now because this law is going to supposedly sunset at the end of 25. So it's everything. I'll be able to tell you more about what we're going to do. The hard money business we're set up with the paperwork, set up with the paperwork, but I want to see who gets elected, because trump's saying that they'll extend the tax cuts. Okay, at another 4.7 trillion dollars the debt, but let's not go down that road.
Speaker 2:So does it mean so, if it's a $25 million cap, does it mean that if you have more than $25 million, you're going to get taxed on the entire? Thing, or is it just?
Speaker 1:above the $25 million. Yeah, it's escalated to about $26 million now.
Speaker 2:So anything above $26 million is what you have to pay those taxes, right, okay?
Speaker 1:Which is a big jump from where it was at 11. Now they're talking about bringing it back to 5 000 for two people. I mean five million, five million. I'm sorry, um, you know if, if the democrats get it so I'm going to be watching the election.
Speaker 1:So that's like only if you inherit that money well, if you have an estate now, if your estate's only a you know less than a million dollars, then you don't worry about it, okay. But if your estate's bigger and there's a threat that you're gonna be beyond that, that threshold, um, it's something to think about. But again, it's more of an old guy's kind of deal when you're passing it on, okay, and you're trying to pass on your money, your wealth, whatever you want to call it, yeah, your hard work To your kids and their succeeding generations. But again, it was a once in a lifetime opportunity because you weren't assured that that was going to live beyond the 2025 sunset. It's scheduled to die at the end of 25. But 24, the election will tell you. The Democrats are going to do away with it, they're going to cut it back and I think, if Trump gets in, it's one of the main things they're running on is they'll keep it going.
Speaker 2:So what are some of your goals now? You've done just about everything somebody could imagine doing in real estate. Now you're kind of in the sunset phase of your business, right? You're like kind of doing lunches and mentoring people and lending out money. What are, what are some of your goals that you have, you know, in business and personal?
Speaker 1:Um, you know, I once asked a very dear friend, uh, dick Holler, uh, who I met in Calvert County. He's been a good friend for any number of years and he's in his 90s and still active, still with it and I asked him this was a couple of years ago and I'll never forget what he said. I said, dick, you know you've done a lot been in politics, been in school administration, been a consultant. I mean, he's done a lot. And I said what are you trying to do with the time you have left? And he said, brooke, I want to remain relevant. And I said, wow, and that really stayed with me and that's why I hang on to the and enjoy so much the lunches, because, and things like what we're doing here, it allows me to remain relevant.
Speaker 1:I can, you know, I I can pass on some knowledge, I can pass on some whatever I've learned or what I can still bring value to a relationship. Now, at the time where you know you get a little fuzzy and you don't remember who you're having lunch with. Um, you know, maybe then you know, but as long, I'm just having the best time of my life. Right now I'm having the best time of my life.
Speaker 1:And as long as I can be somewhat, you know, pain-free a lot of arthritis and stuff over the years, as long as I can remain relevant, you know, and add value to someone else's life, their business, um, I'll run that as hard as I can for as long as I can. There'll be a point where you know the the ugly truth. Reality of life is that you, you'll, you'll not be relevant or you'll not physically be able or want to sit there or whatever. But as long as uh, uh, I'm just having the best time of life, so I don't have uh well, I think relevance is.
Speaker 2:You know you, you are gonna stay relevant because there are so many people like nick um matt derby, all these people that you've been such a pivotal part of their careers, of them starting um nick like we I joke, but I nick seriously. How many times you think you've told this?
Speaker 4:story about.
Speaker 3:Yeah, it's been a lot of times.
Speaker 2:yeah, so, like you know, we've hundreds of thousands of listens on this podcast and your story has been said, and not only nick, but the other people that we've had on, and, and you know, the guests we've had. They're all big players now and in 2018, matt derby didn't have more than a couple properties and you were a big part of that. He had a couple properties and now they're doing it. They're big players. So that's all on you. So that's cool.
Speaker 1:Well, I certainly appreciate the kind words and I can tell you, at this stage in my life, nothing has more meaning than I mean when you see people where you've had a small role in changing their, in literally changing their lives. You know you played it, whether it's lending or helping get in the business or whatever. You played a small piece of their success, their transformation. Uh, they quit their daytime jobs and they, they've gone on to you know, um man, it's as good as it gets. Yeah, for me that that truly is priceless. For me it really. I know it sounds kind of cornball, but for for me it's real.
Speaker 3:Yeah, no, that's awesome.
Speaker 1:I'll do that as long as I can, and that's my plan.
Speaker 2:We hope to have you on again and keep the lunches going, and we'll have to schedule a lunch soon and get another Italian sandwich and talk business. Love to do it we appreciate all your time coming down here. I know it's far from Baltimore, kind of that's all good.
Speaker 1:Thank you for coming. Thank you for having me, I really appreciate that Everybody until next time.
Speaker 2:thanks for listening.
