Posted on: February 26, 2020
WI 371 | Building Passive Income

 

Let’s face it, the idea of creating passive income without using money from your own pocket can seem too good to be true. However, it is possible! In fact, today’s awesome guests were able to pull off a feat as impressive.

Zach and Jessica Morgan is a phenomenal young couple who’s in the process of building their passive income stream. Zach is the relationship manager at Fox Cities Home Buyers while his wife Jess is the director of operations in the same company.

In this episode, Zach and Jess shared the amazing tips and life-changing strategies that have helped them create a rental portfolio and earn passive income. In addition, they also shared the valuable tools that have helped make their journey a lot easier.

Hosted by rockstar rhino Corey Reyment, this episode is filled with beneficial wisdom and gold nuggets for those who would like to build passive income and create equity out of thin air!

Building Passive Income Using Other People’s Money With Zach And Jessica Morgan

If you don’t know me, I had been in the tribe for about two years and successfully left my job doing all of the things that I learned in the Rhino Nation. I took those abilities and now build a rental portfolio of about 70 units. I have a business that focuses primarily on wholesaling. We’re going to do a little different episode than maybe what we’re used to. Hang in there. You guys are going to want to take some notes. This is going to be awesome. What I’m excited about and one of my passions has been building a rental portfolio with no money out of pocket. 

I’m going to share some tips with you guys and I have some awesome guests who have done it. They just went through it and they’re going to share some amazing tips and some strategies on how they did it. I’m super excited for these guys. Let me welcome you to the show. I have Zach and Jessica Morgan. Welcome to the podcast guys. I’m excited to have you here.

Thanks for having us.

Let’s get into the meat and potatoes of this. First of all, give us a little background on you guys, how you got into real estate and why you got into real estate. Tell the audience a little bit about you.

I’ve always been very interested in real estate back from personal training, training realtors, and hearing a little bit about the world. Also, working in insurance, insuring houses and talking to people about their houses as assets and stuff like that. It wasn’t until Jess got into working as an agent and then working with Fox Cities Home Buyers that I was introduced to all of this, all the possibilities, and what we could do.

Jess, tell us a little bit about your background because you have a unique background maybe from a lot of our audience, but some people are going to be able to relate to your story as well.

I started off as an agent and I did that for about a year. I loved it. It was awesome, but then I got connected with Corey and his wife, Carrie at Fox Cities Home Buyers.

Where did you grow up? Tell our audience a little bit about that background. I want you to go all the way back there.

I was born and raised in Germany. I speak fluent German and I moved over to the US in 2012.

It was right at the height of the real estate market. That’s when everybody was buying properties. This is so cool. I’m so excited. If you’re reading this and you’re 23 or 63, the strategies we’re going to dump into right here are going to be life-changing if you apply them. You can start at any age. It doesn’t matter. What we’re going to talk about in this episode is you did your first deal. I want to get into the meat and potatoes of that a little bit. I want to find that out. I want to help our audience who is out there who says, “Either I’m wholesaling and I love wholesaling, but at the end of the day, it’s work.” It’s transactional. We do a wholesale deal, we get paid. We got to do another wholesale deal to get paid.

Maybe you’re out there. You’re wholesaling and you’re doing that. You say, “What’s the end game for me? What does this look like? I want to start to build some passive income. How do I do that?” Especially if you’re new, you’re listening and maybe you’re not wholesaling yet. You want to get into wholesaling but you don’t have the cash you think you need to get into wholesaling or maybe you’re looking at it saying, “I want to build a rental portfolio but I don’t have the cash to buy these properties. How in the heck do people build these portfolios?” Seventy units we did with no money out of our pocket. Zach and Jess are here to talk about and break down their first deal where they got paid to buy the property.

Hang with me here. Zach and Jess, let’s dive into it a little bit. Tell us a little bit about how you found the property. You guys have a little bit of an advantage. Maybe somebody else out there could do the same thing, and then we’ll get into how you fund the deal. Give us the meat and potatoes here. How did you guys find this deal?

We found this deal through Fox Cities Home Buyers, the wholesaling company we work for. When we were looking for our first deal, I wanted something bigger. I was like, “I’m building my passive income now. I’m starting huge. I was so convinced that I’m getting a 10-unit or a 6-unit or something a little bit bigger. I know Corey told that to you and you’re like, “No bank is going to give you that much money.”

Let’s get going. Let’s get one deal under your belt first.

We were renting an apartment at the time. We didn’t even own our own house at this time when we got this thing, which is cool. That put into perspective what we need to start with. Get something a little bit smaller and start to build that. It came through our company as someone who needed to sell their duplex. We got to see it from the start. I know you nudge us a little bit Corey and you said, “This is what I’m talking about. This is something that can help you get started. The numbers look good.” That’s how we found it.

I got to give you guys some credit and anybody out there. These guys are action takers. When we met Jess, we knew right away. She was a rockstar. We met her husband and we’re like, “These guys are a rockstar couple out there doing this together.” They’re building wealth now. They’re doing an amazing job. They just took action. If you’re out there and you’re like, “I can’t do it,” find a mentor in your area. Find somebody who has done it and get with them. Maybe you got to give them a little bit of a deal or something, but do something to get started because once you do that first one, it becomes real. It opens your mind to so many possibilities. For you guys, tell them a little bit about how has your mindset changed since you’ve gotten that first deal.

We’re addicted now. We are hungry for the next thing. It takes a little bit of nudge or maybe a little bit of push to get going. Once you get through that first one, that first one is the scariest. We are refinancing it. It’s fully occupied. It’s rented and prepared. We’re like, “We’re ready.” I am ready for something else.

Now, you’re ready to get into something a little bit bigger. I know you were ready before. If you’re out there and you’re reading this, I bet if you talk to any big multifamily syndicator or somebody who’s doing a lot of these big deals and you’re seeing it, my guess is 95% of those people started in single-family, duplex, quad or something like that, just because the barrier to entry is a little bit easier to get into them. You get your feet wet, get a track record going that you can then take maybe to a commercial lender or somebody like that. I don’t want to get in the weeds of all that stuff. If you’re out there where you guys were thinking, “Go big,” start with something smaller to get your feet wet. Would you agree with that?

Definitely.

WI 371 | Building Passive Income

Building Passive Income: Jump in and get into it. Find someone knowledgeable who has done some deals and knows what they’re talking about.

 

Let’s talk about the numbers and then I want to get into maybe some fears you had before you bought that first one. Let’s break the numbers down on this property. Take us through that. What did you buy it for? What did you stick into it? What is it renting for? What was the refinance or what’s your new loan and payment and things like that? Let’s break that down. If you’re reading and you’re interested in this strategy, take some notes on these numbers because these are real numbers. They’re happening and these guys are doing awesome with this property with no money out of pocket. Go ahead.

We initially bought the property for $50,000 from a company here.

Was this a duplex?

Yes.

If you’re not familiar with duplex, it’s a two-family. It’s one family up top and one down below.

We bought it for $50,000. We fund it using a friend who has had some money. We use private money for that. We recorded the note and mortgage with them. We had a few repairs to do. We did about $3,500 in repairs total. We got that. That has been taken out of the rents we had so far. We bought the property occupied. It was under rented and we were able to get in there right off the bat. We start using some of those rents for further repairs, windows, paints and stuff like that.

You guys bought the property for $50,000. You said it was under rented. What do you mean by under rented?

For the market there for renters, it’s a two-bedroom, one bathroom. They were renting at $375 for the upper unit and $450 for the lower unit. We knew those needed to be bumped up.

How did you guys know that they needed to be bumped up? What was your process like? How did you guys know that there was room to possibly increase that?

We used a tool called a Rentometer, which is helpful whenever we’re looking at even wholesale deals where we’re putting them out there. We’ll look at that to see, “What’s the rent like in the area here? What’s realistic? What’s the average? It’s like pulling comparables for rents instead of property values.

Rentometer is a website. If you are not familiar with it, it’s Rentometer.com. You can go out there and plug in your address. You put in how many bedrooms, hit go and it spits out medium rents. You knew there was some room to bring the rents up. You are stuck on $3,500. You’re at about $53,000. You got some rents going while they were in there so you were able to fix it up. How many months did this go on? How many months did you guys have the property before you were able to refinance it?

Three months.

What happened to the tenants that were in there?

We gave the tenants that were in there notice that we’re raising rents. They could stay and sign a new lease or if they were to choose to leave, they can leave. They chose to leave, which was fine. We’re using property management to help through the whole process, which I recommend. We signed with the property management before we even closed on the place to know exactly what our plan was going to be to have someone help us through it. They helped a ton. They confirmed the rents in the area and what we could charge for it. They manage repairs and all that stuff. That was huge for us.

If you’re reading this, that is a freaking golden nugget right there. That has been something that will allow you to scale at an incredibly faster rate than managing yourself. If you’re a self-manager and it works for you, great. There are some people out there that have it down to a science, but if you’re brand new and you’re trying to figure out how to do a lease, how to get a rent increase, and how much repairs it’s going to need and things like that, I highly recommend you seek out some good property management in your area. Get them on your team. They’re a huge part of your team. That is an awesome goal right there. Property management helped out with that for sure. You talked about the refinance. You refinanced it. Give us the numbers on that. What did the appraisal come in at?

Our appraisal came in a little bit lower than what we were hoping or expecting. That’s one of those things. You got to plan for it and make sure you’re buying it right. It came in at $72,100. That’s what came back to appraise that. At our closing, our total loan amount was about $53,000.

You guys paid $50,000. You’d put about $3,500 into it. You collected some rents in that three-month period while you were fixing it up. You’re over what your loan amount is right now. You essentially got paid to buy this property. If I had my bell with me right now, we’ll be ringing this bell because that is awesome. Beyond that, so you got a property with no money out of pocket. That’s phenomenal as it is. The return on your investment is infinite. That’s crazy. Let’s talk about passive income because now you have an additional income stream. What does that look like? What is it renting for now? What are your payments? What are the out-of-pocket you have around the property?

It’s fully occupied even before we closed on the refinance. Now the upper rent is $650 per month and the lower rent is $700. We’re pretty close to double the rents that were in there to meet the market. We didn’t have to do any improvements on the inside either. We had to do windows inside and a little bit of paint outside. We had to redo the gravel driveway and that was pretty much it.

When you say, “We had to,” you mean your property manager?

You have to take that first leap. It’s not that scary once you get started.

Yeah.

Your guys were out there swinging hammers and doing things. That’s so important. You didn’t do any of the work. You just had to show up and buy a property, get the financing, direct your property manager on what to do and how to orchestrate that, refinance it and boom. How much are you creating every month? What’s the cashflow look like every month?

$1,350 is our total rent per month. Our PITI is only $508.

What’s PITI, Zach? Can you explain that to our audience?

That’s our total mortgage payments, the Principal, Interest, Tax and Insurance. It’s the total costs to own the place basically. There’s only $508 a month for bringing in $1,350. After our PITI and our property management fee, we’re bringing about $761 per month. It’s how much we are netting.

That is incredible and that was one deal. Now, you’ve opened up the gateway in your brains to be able to do this over and over again. That is so awesome. This has been awesome. One other thing I want to talk about because what’s awesome with you guys is you are action takers. You get out there. You just make it happen. You find a way. That’s such a key thing I see in anybody successful in this. You also bought your first primary residence. Talk about that deal a little bit because that happened shortly after you bought the duplex.

Yeah. In just about a month from close to close, maybe a little bit of a week or so difference in there.

Break that deal down because that was a deal where now you have a ton of equity in the property. Tell us a little bit about that deal. Give us some numbers on that. Give us some meat and potatoes in the plan.

We use a commercial loan to get this place. We bought it for $146,550. The bank gave us $26,000 to do any repairs needed.

It’s like a construction loan basically because this house wasn’t in tip-top shape when you bought it.

It needed some cosmetics on the inside and a new roof. We had the property appraised for the future after repair value and our appraisal came back at $222,000.

How much are you guys all into it? Are you going to be all into it once that’s all done?

We’re just about done so we have almost all of that $26,000 drawn out. It’s like $176,000. That will be out, then having a value on the house at about $220,000 to $222,000.

Even though you’re not renting this out and it’s not a cashflowing asset per se, you were able to create some equity and increase your net worth pretty drastically with these two purchases. Would you agree with that?

Yeah, absolutely.

That is phenomenal. I love every second of this show. For anybody out there that is reading this, what advice would you give somebody who’s maybe never done a deal before and wants to start to accumulate some assets? What would you tell them?

I would say number one, jump in and get into it. With that, find someone knowledgeable who has done some deals, knows what they’re talking about and someone who can help walk you through it because that was huge for us. We needed a little bit of nudge. We needed to know what to expect and some of the connections. That was huge.

The unknown seems scary, but you got to take that first leap because it’s not that scary once you get started.

I remember our first deal. I didn’t even know what a water heater was. We’re walking through the property looking at it going, “That looks good. Whatever that is.” It was scary but you’re right, after that first one out, it just catapults you. You guys are rockstars. Twenty-three years old, killing it, creating equity out of thin air. I love every second of this. If you’re out there reading this and you want to get more information on this or you want to start to do this strategy, go to WholesalingInc.com and book a call. Get set up with one of our folks. We’ll talk about your goals. Find out if it’s a good fit for you or if you are a good fit for them. We’ll put you on a path to start creating some real legacy wealth. I hope you enjoyed this show. Check us out and we’ll talk to you soon.

 

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