E3 ACQUIRING YOUR FIRST INVESTMENT PROPERTY
Speaker: JC 00:03
We're live.
Speaker: Heidy 00:08
Hello, listeners. Welcome back to another week here at Side Hustles by Seoenz I am Heidy Seo
Speaker: JC 00:15
And this is Juan Carlos Enriquez
Speaker: Heidy 00:17
And today we have Luis Cardenas, a Real Estate investor here in El Paso, Texas. So, Luis, before we get into your niche, what kind of business do you have? How did you get started? And where are you today?
Speaker: Luis Cardenas 00:32
Okay, so first of all, I want to say good morning to everyone. And thank you for inviting me to your show, guys. I'm honored. It's an honor to be here. And I do several different things, I try to have different sources of income. I follow that thing they say your average millionaire has seven sources of income; I’m trying to get there. I'm not a millionaire yet, but I'm trying to get those sources of income started. So, the first thing I started with back in 2013, was investing in real estate, so I'm a real estate investor. And I also do credit restoration and debt elimination. And I also do Solar System sales, so, I do that as well. I do other things, but they're not really our main focus, not that, it doesn't take a lot of my time, like online sales and all that. But what I really focus my niche on is real estate investing. So, what that entails is, you find properties that are distressed, or the sellers are very motivated to sell, for different reasons such as divorce, death in the family, or maybe they lost their job. And so, they need to sell their home very fast. So, a lot of times, they're very motivated to sell. So that's when you can find really great deals; discounted properties. That's the whole idea of real estate investing, finding discounted properties that you can buy for pennies on the dollar. If they need some repair, then you do rehabbing; you fix them up, and then you sell them for a profit. So, you buy low and sell high. That's basically what they call fix and flip. That's, what real estate investing is all about.
Speaker: Heidy 02:27
Great! So, we have our friends and family who are always listening to us. And we're very thankful for it. So, they actually sent a couple of questions ahead of time for you. And we want to go over them. So, Victor from Victory Insurance, he's the one that sent this question. And I hope he's listening. So how to prepare yourself financially, to buy an investment property. And for someone that wants to do Airbnb, what will be the method to prepare financially?
Speaker: Luis Cardenas 03:01
Okay, all right. So for Airbnb, I know you're an expert in Airbnb, I'm not, but I am familiar with rentals. And so even though it's not the same Airbnb and rental, it applies. So really to prepare yourself financially, for an investment property, Airbnb or any other kind of property. Before you think about money, you really need to get prepared, as far as credit-wise, you need to have good enough credit, good credit history, and also a low debt to income ratio. What that means is that your debts should be less than what your income is, or it should be in a balanced ratio so that lenders can see you as credit-worthy. And your credit score should be around (it varies) but it should be at least a 650-credit score to be able to pre-qualify for any kind of property. Usually realtors, they like to prequalify you and so if you're not at that level, yet, sometimes they won't even show you properties. So that's one way. Another way is saving. Usually saving money is oftentimes not realistic, because it takes a long time. It's not really something that you know, you could say, I want to save $100 a month, but how many months is it going to take you to have enough for a property. So, it's not realistic, savings. It's more realistic to either start a business, very low key, very slow and basically just sell anything of value that you can find.
If you have an extra car that you're not really using right now then sell that car. If you have things that are laying around that you're not really using, sell that; that's one way to do it. Another way would be fund-raising with family and friends. If you have a good investment property, and you've done your numbers, you've done your due diligence and you present that to your friends or family members or anybody that you know, an acquaintance, and you try and show them, look, this is a good property, it's a good investment, if we partner up, you put the funds, I put my expertise, I do all the work, that's one way to partner up. That's, another way you can prepare yourself financially. And another way is if you're a first-time homebuyer, a lot of times, you don't even need a down payment, because there are programs out there for first-time homebuyers, that the banks don't even ask you for a down payment, or maybe a very low-down payment, maybe a 3%, sometimes they do that. For VA loans, most of the times there's no down payment, so that's great. People can qualify for a VA loan. And if you already do own a property, another property, you can also do something called a HELOC, which is a Home Equity Line Of Credit. So, you use the property you currently own, to gather up funds to buy another property. So that's why when they say when you buy a home, that's when you can really start acquiring wealth, is because you can use your main residence as a means to get started with the funds for an investment property. Those are some of the ways to prepare financially.
Speaker: Heidy 06:31
Those are great answers. Okay so, the next question will be, how to assess the value of an Airbnb property? And before you answer that, I do want to point out to our audience that we are mainly focusing on an Airbnb investment property. Because since that's pretty much what we do, what we know, that's what we want to share with you on how, once you acquire a property meant for Airbnb, how you could actually put it on Airbnb and make money off of that. So that'll be your next side hustle if you stick around with us.Sorry, so go ahead. So how do you assess the value of a property?
Speaker: Luis Cardenas 07:17
Well, the main thing you really want to focus on is you need to assess:
- The house
- The square footage of the house
- The rooms that are in the house; How many bedrooms? How many bathrooms?
- Any repairs needed?
You can assess the value of the property, because if it needs a lot of repairs, then it's not very valuable, you're going to have to spend money on that. So, the value would go down that and that's how you can negotiate a lower price. And another thing you can do is you can compare by comparing in the neighborhood, to see different values of homes around the neighborhood, usually around half a mile radius is a pretty good way to do it. And also comparing rent prices. You know, that's how you can assess the value of the property using those things. But mainly, it's about the neighborhood and what's inside the property, and in what shape the property is.
Speaker: Heidy 08:24
And I want to add to what you just said about checking out other rental properties around the area. And that's such a great idea because as you know, Airbnb can pretty much double or triple your rental income. So, if you do have an idea of what the rent will be around that neighborhood, put in that design aspect, that it will be very pretty and that you will have it furnished and you could probably you know, maybe allow pets in your area. So those are factors you can put in and then that's what will get you the double or the triple on your income properties. So, do think about that when you're looking for a rental property estimate around your neighborhood.
Speaker: Luis Cardenas 09:13
Definitely!
Speaker: Heidy 09:14
Alright, so moving forward, what key factors should a potential buyer look for in an investment property?
Speaker: Luis Cardenas 09:23
Okay, I think the main one is to focus on properties that only need cosmetic rehab, cosmetic work. You know, it needs paint, it needs, moulding, trim, fixing up walls that are, just the sheetrock, you know, just patching it up and painting it, making it as nice as possible. But you don't really want to look into properties that have major issues, like structural issues, maybe there's a wall that's load bearing and it's in bad shape, you don't want to deal with that. Or roof issues, foundation issues, plumbing issues are very expensive, electrical issues. And I'm talking major, if it's one clogged pipe, that can be taken care of, but if it's like the whole plumbing, where they need to dig up part of the foundation to fix all that, those are major, and you're talking thousands of dollars, so that's going to take away your profit. Or electrical, you know, if it needs a light somewhere, that can be done. But if like, the whole system needs to be upgraded, because maybe the electrical panel is not going to be able to hold the current or, you know, whatever, a big refrigerator, or something that's major, the electrical system is not in good shape, you're going to have to redo the whole electrical, you want to stay away from that, because that's going to take away from your profits. Now, unless the property that you're looking into is priced extremely low, then it would make sense to get a house that has some major issues, but mainly, you want to focus on properties that only need cosmetic, repairs and improvement
Speaker: Heidy 11:21
And the reason will be just because you want to get this property, and the sooner the better you get on Airbnb, then the sooner you start getting your money back. And even though you're not going to sell this property, and it's going to stay with you at your portfolio, your rental portfolio, you do need to make sure that you're not spending more money than what you got the loan for, right? Because maybe you did get families and friends to do a fundraiser with you. Or maybe you went the conventional way and bought this property. So, you just have to think about those, where are you going to get the money from if you no longer have a loan, you only have your mortgage. So, think about that before you get into this very maybe big investment, that was supposed to be just acquiring property and now it just went all over budget. And it's hard to maintain your budget when you're doing repairs. Yeah, as long as they're just cosmetic, or maybe just changing, fixing walls, as Luis mentioned, that's totally fine. But we speak from experience. Me and my husband, when we did acquire our duplex, we just were not prepared for what we had to do. And thank goodness that we had our friends and our family to help out. And we did a lot of work. Well, my husband did a lot of work. Because he needed to do that in order for us to save some money. We didn't have the budget anymore to hire a contractor or someone that had a license, I would say and I know that sounds very bad, but he is usually able to do some quick fixes. He's able to work with, you know, plumbing, electrical and that's a blessing in disguise when you're into this big investment. So, I would definitely agree with you and stay away from something that needs that big of investment because you're going to run out of money. And then now you don't have it ready for your Airbnb guests. And so, if it's not ready, how can you offer this accommodation for someone to pay money to stay in, right?
Speaker: Luis Cardenas 13:53
And your biggest asset is if you're able to put sweat equity into the property, which means when you're trying to do an investment property for Airbnb, especially, you're going to be doing a lot of little fixes. And you got to really focus on details. Everything has to be detailed, very clean, very sharp. And if able to do the work yourself, you're going to save yourself a lot of money. So sweat equity is very important for investments.
Speaker: Heidy 14:25
I hadn't heard that term. I think I want to start using it: sweat equity. That's a really neat term. Because that's pretty much what business is right? You have to put in your time and you have to put in your sweat.
Speaker: Luis Cardenas 14:40
You can't be scared to get your hands dirty. You gotta do it!
Speaker: Heidy 14:48
Okay, awesome. I just learned something new. I hope my listeners are learning something new too. Okay, so the next question is, how to find the right location for an Airbnb investment property? What location is the right location, and of course that could vary, but what will be the pinpoint for you that you would recommend?
Speaker: Luis Cardenas 15:17
So, for Airbnb, I think it's quite simple. You definitely want to compare, actually inside Airbnb, you know, you want to look at other properties in Airbnb and determine high demand locations. So, if you log into Airbnb and you see that there's a demand for a specific location, and other Airbnb properties are renting per day, way higher than other locations, that's your indicator that, that area, that location is prime. You want to do Airbnb there because there's a high demand, so you want to look into that, for sure, use Airbnb to your advantage and, and compare inside Airbnb. And then also depending on that, that's going to tell you what side of town, you're going to want your Airbnb in. And you also want to make sure that there's freeway access, that's pretty close, that the guests are not going to have to be, driving 10 miles just to get into the freeway. It should be readily accessible, as much as possible, you know, not very close, but also not over 10 miles, because then all they're going to spend their time as is driving, just to be able to get from point A to point B. And you also want to make sure it's a safe neighborhood, it doesn't have to be the best But it's better to find a neighborhood that's established already, that's been around, that it’s a desirable area. you don't want to get an Airbnb, near, let's say, low-income housing or places that don't look safe, where the homes are in really bad shape, because then that's not going to make the guests feel safe, they're not going to want to go anywhere, they're just going to want to stay in there. So that's going to, that's not going to be a good experience for the guests.
Speaker: Heidy 17:22
Yeah, I definitely agree with that. And you know, it's going to, once they don't feel safe, then they'll put that on the review. And then sooner or later, you're going to start seeing that dip in your income because more people they don't want to be around. Especially, I would say, right now, we have a lot of traveling nurses. And you know, they're traveling solo, so, they definitely do want something that's safe, that they feel comfortable, that they can access maybe easily the freeway to get to work, because I mean, they're coming here to work, just like all of us. So that's something that is very important. But I think I definitely would emphasize the safe part. If you want to get that house, and it's a great price, but around you, the houses are not great, they're in very bad shape, do not get it because it's not going to be to your benefit. And it’s just gonna, on Airbnb people are just going to say, oh, no, don't go to that area or, you know, it's just not safe. So, even though it's going to be very cheap, probably, right? Getting an investment property in that area, is not going to pay off. And again, if it doesn't pay out for Airbnb, that's the beauty about rent, you can rent it to a long-term tenant. But if your main thing is wanting to put it on Airbnb, then definitely lookout for those things because it's very important. Okay, so once you determine the right property, what are the steps to buy?
Speaker: Luis Cardenas 19:27
Okay, like you said once you've found that something that looks good, you researched on Airbnb, you made sure that the neighborhood looks safe. Maybe there's some interesting things around the property that guests would like to go to, you know, near restaurants, maybe near downtown, maybe near UTEP (University of Texas at El Paso) all of that stuff. Maybe some at a specific side of town, like East Side. I know on the east side, there's a lot of interest on the East side. So, once you've determined that, then it's pretty straightforward, you're usually going to be working with a realtor most of the times. And sometimes you will get properties that are sold by the owner, but usually not, most of the times, it's going to be with a with an agent or real estate agent, or realtor. And so, you submit your offer, what you want to pay for the property, you submit it to the realtor. And then after that, if the seller agrees to your offer, usually they don't, usually it's a back and forth. You'll submit your offer, they'll come back with a counteroffer, and then you can negotiate from there. So, after the offer is accepted, then you would submit a deposit to a title company, a real estate title company, which is called an earnest money deposit. So, you know, depending on what the terms are, is going to determine how much of an earnest you need to put down as a deposit that’s the earnest. And then so after the earnest, you schedule an inspection of the property, and also an appraisal of the property. And, you know, make sure there are no major issues, which is what you want to look out for. That's what the inspectors are going to help you with. And the appraiser, the appraiser is going to let you know, okay, you're within a range of what you're trying to pay for the property. So that'll help you out too. After that, if everything looks good, the inspection looks good, the appraisal looks good, then that's the time when you secure funding to actually purchase the property. And you can do that through, if you did fundraising, then you can do that through cash if you have the cash. And then you could also do a conventional loan, which is working with a mortgage company. You know, the mortgage company, they'll actually help you a lot with the whole credit thing, and your debt-to-income ratio. They know, and not only do they know about credit scores and where you need to be, but they can also let you know what to move around to bring your debt-to-income ratio balanced. If you need to pay off something first, before you can actually qualify for that amount, they'll let you know-- the mortgage lenders. They usually help with that. Or you can also do what I had mentioned, which is a HELOC. The home equity line of credit, you secure that funding, go ahead and pay for the property. And then after that, they give you the keys to it. It's pretty straightforward.
Speaker: Heidy 22:46
Awesome! So, I wanted to ask you a question. So how have you been doing your real estate investing? So, have you been using all of what you mentioned, or you really focus on that HELOC that you that you've talked about?
Speaker: Luis Cardenas 23:00
Well, I've done different things. A lot of the investments I've done is called wholesale. Which is finding a property that's very low priced. And so, for that I've used something called hard money. Now, I hadn't mentioned that before, because for Airbnb, you don't really want to use hard money. Hard money is basically a loan that you get from a private lender, it's usually not a bank.
It's just a company that focuses on lending out very short-term loans, usually three months, at the most, six months. So, for Airbnb, that doesn't really work. But what I've done in the past for my investments is I've used a hard money loan to secure a property. And then I do what is called wholesale, which is after I secure the property with that funding, then I sell it to someone that is going to rehab that property, they're going to fix it up, then they're going to resell it. So, I've done the hard money lending and I've also done conventional loans. I haven't done fundraising yet. I haven't done that route yet. And a HELOC, the home equity line of credit I've done that, but not to purchase properties but I've actually done it to pay off my properties quicker. So, I can help. I've done it myself and I can help other homeowners pay off their 30-year mortgage in as little as five to seven years using HELOC. So yeah, those are strategies that you can use to pay off properties' way faster. You know, because you can save on the interest. The interest on a mortgage is what really keeps you those 30 years there. If you get rid of that interest, then you can pay it off in as little as five to seven years. It's doable.
Speaker: Heidy 24:54
What would be an interest rate that you would say, to stay in between. So for example, I know right now the interest rates were very low, but they're not going to be low forever. So, what will be like a good average, stay between maybe, I don't know two to four or what is it that you think is a good interest to pay when you get a mortgage?
Speaker: Luis Cardenas 25:20
Okay for an Airbnb property you don't want to ever-- because it's going to be long-term, you're not going to resell it really quick. So, you definitely want to stay below 4%. If it goes above 4% I would only, do it temporarily. And then I would try to refinance with a lower interest. You don't want to pay any more than 4%. Because that's going to mean a lot of expense down the road, when years come. So, you want to stay below 4%. And if you have to use something that's above 4%, I would only think of it, like maybe keep that for a year and then after a year, refinance to a lower interest.
Speaker: JC 26:10
Will you go first to a credit union or to a bank, would you? Do you have them in a-?
Speaker: Luis Cardenas 26:19
Sometimes. Actually, sometimes. That's a really good question. A lot of times credit unions are willing to help you more than banks are, you know, banks are a lot stricter. So, I would definitely try a credit union first. I would try a credit union first. Yeah,
Speaker: JC 26:35
But shop around, right?
Speaker: Luis Cardenas 26:37
Yeah, it's a good point. Yeah, you got to shop around too, but another thing is, you don't really want to (you can compare), but you can't really be requesting loans from a lot of different places, because then they do something called a hard inquiry on your account, on your credit. And a hard inquiry is going to affect your credit score. So, every time they check to see if you qualify for a loan, the hard inquiry is going to reduce your credit score quite a bit every time they check. So, you don't want to do it very often, maybe a couple of times and it has to be within the same month, so that it doesn't show from month to month. If you're going to be shopping around maybe tops shopping around in three different banks, maybe two credit unions, one bank, but I wouldn't do more than that.
Speaker: Heidy 27:33
So now that you point out that whole financing thing, so I've been hearing a lot on Tik Tok, and the method is called BRRRR, so it’s B and then four Rs. And what it means is that you buy, then you rehab, you refinance, you rent and then you repeat.
Speaker: Luis Cardenas 27:57
Now I learned something new because I didn't know that. That's great. Wow, that's that makes sense. Yeah. Okay. So, it's Buy, Rehab, Rent...
Speaker: Heidy 28:13
Refinance, and Repeat.
Speaker: Luis Cardenas 28:17
Okay. I like that, BRRR...
Speaker: Heidy 28:24
The reason they do that, it's because they're trying to, like, you're supposed to refinance, right? And I'm not there yet. So, we bought and then we rehabbed and it took us a little, like a while to finish that Airbnb. I think we probably did a lot of it ourselves. So, we did, maybe like five months, it took us to finish that upstairs unit. And then starting in July, that's when we received our first payment from Airbnb. Okay, and so, mainly, we're going to try and refinance this July, even though it's just been a year. The reason is that, you go to your bank, and you show them, maybe the potential income that you're going to get, throughout the years, you show them this information, what I've been renting my property for a year now, these are the numbers. And now you can use all that rental income as an extra source of income. So, it's like if you were to have a second job, let's say, so you have your own payroll, right, your check stubs, and then you take into consideration now this extra rental income that adds to your debt-to-income ratio. So that's very good because now you can refinance and you can get a lower interest rate, or, you know, you can pay off your loan quicker.
Speaker: Luis Cardenas 30:12
So that shows us cash flow from basically a business, you're getting extra income, you have cash flow on a business, which is a rental. So that plays a lot into your debt-to-income. Because if you only had one income, now you have the cash flow of the property, you have two income streams now.
Speaker: Heidy 30:33
I think that's neat. I learned it on Tik Tok. So, I know there's a lot of people learning stuff on Tik Tok. And maybe that's why you didn't know about it, you are not on Tik Tok.
Speaker: Luis Cardenas 30:46
As much as it is for kids, I am learning a lot you know, I might get into it a lot more.
Speaker: Heidy 30:54
I'm here advertising Tik Tok like they were to pay me—soon! So that was great! Thank you so much for all of your information. So, tell us how can our listeners reach you? If they're thinking about doing this real estate investing? And how can they reach you to know, so that you can teach them or at least, you know, guide them. Take them by the hand, and then, you know, maybe do something together? So, they can actually get their hands on their first investment property?
Speaker: Luis Cardenas 31:31
Sure! So, I think the way to win basically is collaborating, as opposed to competing with one another. It's a great way to go because no one can do it all. It's always valuable to have a whole network of people that you can rely on. And everybody can earn from it. It's good to collaborate. So, I have a group, a group page on Facebook, that's mainly where I exchange ideas about real estate investing. And it's called @elpasorealestateinvestorsassociation. Pretty long name, I know, sorry. It's a Facebook page. So, you can just like the page, and then just go on there and, and look at different posts that are there. Learn from that. I also have a meetup group that I'm going to hopefully be working in there together with you guys on a meetup group. And that's called El Paso. I mean, I forgot the name because it's kind of long. So let me see if I can find it. It is El Paso Real Estate Education for Buyers and Sellers, I believe, and let me look on my laptop, I'm looking in front of it. But yeah, it's a El Paso Real Estate Education for Buyers and Sellers. And so, you can connect and a lot of times on meetup, you can actually, you know, schedule actual meetings to meet in person, meet the people in person that you're going to be working with, to team up with, or it could also be virtual, it doesn't have to be in person. But it's nice to also have that option to be able to meet in person.
Speaker: JC 33:22
And we're going to add all this in the comments. And we can do both. We can do virtual. Well, we have some people in the space, where Heidy is at, the venue, promoting the venue.
Speaker: Heidy 33:41
So, the other thing that I wanted to point out is that, I didn't know because I also don't know a lot of things. But meetup is actually an app, right? So, you had to download this app. And it's called meetup. And then you join this other group, and then you'll see all the events that happened, and all the events that are going to happen. And then that's where you can schedule so I, when you would say meet up, I was like, okay, we're going to meet up, you know, I didn't realize that it was an actual app, until JC showed me, he's like, Oh, yeah, it's on meetup. And I was like, okay, maybe there are other people like me that they didn't know. So that's why I'm pointing it out there. You know, it's an app and then you just look up, look us up on a group. And is there anything else that you feel that will be good, you know, maybe just a good recommendation on, or anything that you wanted to add that we didn't ask you, that you feel would be worthwhile?
Speaker: Luis Cardenas 34:48
The thing that I always have in mind is, no matter how much you know, you can always learn more. So, you know, the key to success is KEY-keep educating yourself. I like that saying a lot. It's the key to success. If you don't keep learning, then you're not improving, you're not evolving. And, the world changes every day. So, if you're not learning daily, you're falling behind. And a great way to learn is to network and meet other people, to collaborate with other people. And you learn from each other. So yeah, that's the main thing I always preach, keep learning. No matter how much you know, you can always learn more.
Speaker: Heidy 35:42
No, and that's, that's a very good, saying, I would say a motto to go with your life. Yeah. Just keep working on yourself, keep educating yourself. My husband loves to say that all I know is that I know nothing. That's like his, preach moment. But yeah, definitely we love to have you all. Thank you so much, Luis for being here. And teaching us all of these things that our listeners are willing and wanting, and you know, they want to learn more. So, we're very happy to have you. And we also want to show his books. So, you know, if you have time, our listeners, here are some of the other books Luis Cardenas has written. And these books reveal ultimate home buying and selling secrets. So, reach out to him, how can you acquire these books and they're not going to be a long read or anything, but definitely will give you more information on what you want to do with your next home purchase. Anything you want to add on to that, Luis about your book?
Speaker: Luis Cardenas 37:00
I just want to say thank you guys, it was an honor. And, you know, yeah, I'm willing to help anybody that's willing to learn, basically, let's collaborate. And there's room for everybody in real estate, real estate is the way to go.
Speaker: Heidy 37:16
Awesome. We've mentioned it before, we do not think that El Paso is at its peak yet. There's a lot of potential here in El Paso, Texas. And let's keep it local, let's try and keep it for the people that are born and raised here in El Paso before all these big companies come in and in snatch it from us. Because, you know, a lot of people know that, that Amazon is already on its way here, right? They're building their warehouse as we speak. And sooner than later, you know, El Paso is going to continue to grow, and it's going to become a bigger city. So hopefully, we have our listeners and that they want to grow and take advantage of the potential that El Paso has to offer.
Speaker: Luis Cardenas 38:13
Definitely! Thank you so much for inviting me. It was an honor.
Speaker: Heidy 38:17
No, thank you for accepting the invite. And we'll see you soon. And guys stay posted. We're going to do an interview in Spanish. And I'm just very happy to continue this conversation. But also stay posted to all of that Facebook that we're going to continue doing on the meetup and on the Facebook group that we're going to start learning later on.
Speaker: JC 38:41
Okay, all right. Great, thank you.
Speaker: Luis 38:45
Bye