He Made $60,000 in 2 Months with This “Failed” Real Estate Deal

21:29Tony Robinson:Caleb, can you define live-in flip for Rickies that aren't familiar with that phrase? Yeah. So I think it's just like any other flip, except you're buying a property that you think you're buying under market value. You are renovating it, making it worth more. And then after on my timeline, it's after two to five years selling it and rolling that profit into the next one and not a tax professional. But if you own a primary home for more than two years, you can sell it as a single person and take the first two hundred fifty thousand dollars of profit tax free. Or as a married couple, you can sell it and take the five hundred thousand dollars worth of profit tax free.

22:11And so it's a lot more attractive and kind of the only way to avoid paying Uncle Sam that I know of. So I think that's what makes it attractive.

22:23Ashley Kehr:Now, as a real estate agent, did you have any advantages or opportunities to find these potential properties that would make great living flips? Yeah, I think I have the advantage that I'm looking at it all day, every day, but of the properties that I've bought or offered on, I've offered on four houses in my neighborhood from just knocking on their doors or sending letters. and so anyone can do that. And then the triplex I'm currently purchasing was just a friend who's a real estate agent and I told him, I don't need to represent myself if you're going to bring me this lead because I wouldn't want to cut him out.

23:06And so I would say no.

23:09Tony Robinson:Caleb, one follow-up there because you mentioned just knocking on doors. And I think for a lot of rookies, even Ashley, uh knocking on doors is like probably one of their their biggest uh fears and and and nightmares so when you when you knock on their door what are you saying you know i i feel like that that's probably one of the highest kind of sales resistance type moments is is you just knocking on someone's door with with some sort of uh picture presentation so what what does that what does that look like for you to open up that conversation yeah i mean uh as a way to get listings. I've knocked on expired listings.

23:48So that is something I'm a little more used to, but there was a house right behind my house that was in complete disarray. And I was like, wow, this would be a perfect flip. I was talking to my buddy, Trent, who at the time was a project manager. And I was like, man, I think we could make some good money if we purchased it. And they're living in squalor essentially. And so they could buy a house 30, 45 minutes away. That's really nice and kind of restart. And I think we can make good money on this and I can actively manage it and then sell it on the back end and we can split the money. And so I ran the comps beforehand and I knocked on our door five or six times until they were willing to answer, essentially.

24:34And they let me in. We probably talked seven different times. I was reaching out probably every week or two. And it got down to it. I initially offered$225 ,000 for the house. My final and best was$275 ,000. And she was thinking about it. And they had been in the house forever. And it was, I would say, pretty unlivable. And I was like, I got to be honest with you. If we went on the market with this, or if you shopped the price, you probably could get more, probably around$300 ,000. And she ended up selling it to an investor for$300 ,000 and he is flipping it. And I think we had a good relationship and they appreciated my honesty.

25:17And so they were like, hey, the house down the road, this guy wants to sell as well. You should drop a letter off. And so I dropped the letter off, didn't think much of it. It was a pretty vacant looking house. And he calls me probably a month or two later and said, Hey, I'm open to selling. Let's have a beer in his house on a Monday. And so I did that. And we kind of hung out. He's a great guy. And I kind of told him what I was willing to offer. And he thought about it for a couple of months. And I just would check in every few weeks. And eventually he was like, yeah, I'm willing to sell the house for that price.

25:59And so, yeah, even though the initial door knock didn't work out, it did directly lead to the next one.

26:06Tony Robinson:And, you know, activity tends to lead to more opportunities. So I love seeing that come to fruition for you. But if we go back to the initial door knock, when you said you knocked like, you know, five or so times, when they finally opened the door, what are you saying to them to even start that conversation? Like, hey, my name's Caleb, I'd love to buy your house. Like, like what is the opening statement? If Ricky wants to replicate, you know, they see a property, they just want to go knock on the door. How do they open that conversation? Yeah. I mean, it's definitely an adrenaline rush and I sometimes have a tough time getting words out.

26:37Um, but I would just knock on their door every time I walked my dog and I have a super cute, very feisty dog. And so I was like, back off. He's like a 12 pound dachshund. And I was like, Hey, I live next door. I'm your neighbor. If you ever think about selling, I'd love to buy your house. If you want me to bring by lunch tomorrow, I can show you what my offer would be. So I picked them up Jersey Mike subs the next day. And it actually was Jersey Mike's. I didn't even make that connection.

27:10Ashley Kehr:Jersey Mike needs to sponsor this episode. Yeah. I mean, they sold out to private equity. So I've heard that the meat, it's a little bit less meat now. I actually just, not to go on a tangent, but I just saw a reel this morning where somebody, actually it was Dave Meyer, the host of the real estate podcast. He shared it onto his story and it was a guy making a sub and said, this is my application to be hired at Jersey Mike's. And it was just like, I didn't completely get it, but now I do. is you saying there's not enough meat because I was literally little tiny slices of meat and then just loads of vegetables, just pounds and pounds.

27:48Ashley Kehr:And then he wrote like higher than he achieved it. Yeah. And their thing used to be just loading it up with meat. And so anyway, yeah, I brought that by and that really greases the wheels. And so we talked for a while and I also brought five or six options that with the money they would make on the sale that they could buy in cash, probably 45 minutes away. And so I thought that was a good idea at the time. Obviously they didn't sell to me, but I think that's a decent tip to anyone. If you're in that exact situation, bring them a potential house that they could buy with the proceeds. So.

28:30Tony Robinson:A few weeks ago, I took a trip down to Pensacola, Florida with my dad and my kids. We spent our days at the beach in the pool. We We cooked dinner together one night, and I got to experience the simple joy of just watching my dad suck up time with his grandkids. We played a round of mini golf that ended up being the best part of the whole trip. And it was one of those visits where you just slow down with the people you love and realize how much these ordinary days together actually mean. But while I was gone, my house was just sitting there empty. That got me thinking about something I hadn't really considered before.

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31:25Ashley Kehr:Nobody has a perfect plan when they start a business. I sure didn't. I just had an idea and a lot of nerves. And between teaball games, weddings, and whatever chaos summer throws at you, there's genuinely never a good time to sit down and figure it all out. That's honestly the best thing about Shopify. You don't need a free weekend and a computer science degree to get something live. My go live day is still one of my favorite memories. I picked a template, dropped in some photos, and Shopify's AI tools basically built the bones of my site for me. It looked like something I actually paid a designer for.

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32:35Tony Robinson:If you listen to the show, you've heard us say this a thousand times. Run the numbers. Don't buy a property because somebody tells you it's a great deal. Look at the income, look at the expenses and decide for yourself whether the numbers actually make sense. So let me ask you something. When was the last time you ran the numbers on what you were paying for health care? If you're self-employed, investing full time or paying for health insurance on your own, that could be one of the biggest monthly expenses in your household. And a lot of people just assume there's nothing they can do about it.

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33:36Ashley Kehr:Now, Caleb, one thing you had mentioned was you always want your buyers that you are representing to get an inspection. inspection so did you get an inspection on this house too yeah so uh at this point i've been selling real estate for like two and a half years so i knew the things i needed to do and uh as far as due diligence um and so i did a well inspection i did a septic inspection and i did a home inspection um so the numbers on that deal i was under contract for 325 000 and then the chimney he fell off the house. And so while I was under contract, which I have on my Instagram, I did a little AI video of that.

34:17But he gave me a 7K seller credit for that. And so we did the whole home inspection and basically found out that the kitchen was built on a finished porch. So they basically slapped a roof on the porch and finished out the porch. It was six foot ceilings in the kitchen. And instead of being able to build out that kitchen, we were going to have to tear it off and build a new kitchen. And so I was like, Hey, I don't think I can do it at 325. And he's like, okay, how many tens of thousands are we talking? And I was like, okay. So I asked the number, he thought about it for a couple of days and we ended up taking 40 ,000 off the sales price because we're going to have to take the kitchen off.

35:04And so it ended up being$285 ,000 with a $7 ,000 seller credit, which covered my closing costs. And they gave me a check back at closing for$1 ,500.

35:15Ashley Kehr:And what type of loan did you do on this? Did you do another conventional loan? Yeah. So I was planning to and talk to a few of my lenders about it and then walk through the house with kind of like a that mindset and was like no appraiser is going to deem this house livable um and so i talked to four or five people and mike a quarter who i work with he's um the principal on my team he was like okay i'll give you um a loan and so we ended up doing a hard money loan um and you know that was a typical 10 hard money loan and then jumped to 12 after a certain amount of months, but, um, you know, he wasn't going to break my kneecaps.

35:59I don't think

35:59Tony Robinson:if I was a little late in payment. So, so did you guys actually move into it? Cause the initial strategy was a live in flip or was this just like a straight out, you know, a regular flip? So good call. The live in flip would have entailed, you know, getting a conventional mortgage on it. And so what the hard money loan did was allow me to not commit mortgage fraud, because you have to move into a primary within 60 days of getting a conventional loan. And I knew that just wasn't going to be possible. And my wife wouldn't be thrilled about that. So the hard money loan, the plan was to do the renovation, which I expected to be eight to nine months because it was a large demolition addition and then full house renovation.

36:43and then in the meantime, sell our house and then refinance into a conventional mortgage. And so it was a very elongated live and flip was the plan.

36:55Ashley Kehr:Now, what did you end up learning about this addition and what the plan would be moving forward? Yeah. So I am a deal guy, pretty big picture. And so the minutia of permits and all that is terrifying to me. I've let my registration be expired for six to eight months recently on my car. That's not what I'm good at. And so that was a good learning experience. I had the addition drawn by a builder. And so he needed setbacks to the exterior lot lines to know, hey, how far can we build this out? And then what's the setback from the septic so that we're not too close. And so I called the county. I was like, hey, I'm buying this.

37:41Another thing I did, we went under contract in February. We didn't close till June. And I had the owner sign off on me pulling permits with his permission on the property prior so that I could get the ball rolling as soon as we closed. So I wasn't paying 10 % for an unnecessary amount of time. And it wasn't really any sweat to him. He had another house.

38:03Tony Robinson:Okay, let me ask though, because there's also I like that strategy. And just for the rookies that are following basically what Caleb did is like, he knew that he was gonna be pulling permits for, you said, but four months, give or take. So instead of paying hard money for four months, well, nothing's happening. He's like, Hey, let me just let the current owner stay there. And then once we get all the permits, like pretty much pulled, then we can close and I'll transact. It's great to save money. But maybe there's also some additional risk there as well. Because I don't know what happens if the seller, you know, I don't know, like doesn't play ball.

38:35Tony Robinson:What happens if something happens and permits don't move through? Like, like, do you feel there's maybe risk on your side as well? Or was it net net maybe a better move for you? Yeah, I think there's risk if the seller doesn't play ball. That's a that's a good thought. I think if there's a hold up in the permits, my thought was, well, I would have been paying 10 % on this anyway. And so I'm further down the road. And of course, I probably went to the permit office 10 different times and I'd go into the health department just to check. And one of the times they're like, yeah, we don't have your well info on file.

39:10So you need to do that. It'll cost a thousand dollars and it'll take a month to get the results back. And we can't give you a safe, adequate and proper evaluation until we have that. It's like, wow, that would have been nice to know on the front end if you had just given me a checklist. And so there's stuff like that. And it always goes longer than you think. I went under contract in February, had a two week study period. And in that time, I got all the setbacks, did my due diligence and, you know, got the setbacks for the builder. And one of my questions was, hey, the house is built on two lots that are both 0.19 acres and the interior lot line splits the house currently.

39:54I was like, just making sure that's not going to be an issue for the addition because I own both lots. And they were like, no, no, no big deal. You own both lots. And so I got the plans drawn. You finished up around April and I submitted the permits April 27th, 28th, sometime in the end of April, which was a good learning experience. I new at something like this, doing it online is super confusing. I just went into the county office and had them walk me through step-by-step. And if you pretend to be an idiot and not know what you're doing, people naturally help you. It's what I found. And so I closed June 2nd.

40:40And then June 9th, I'd submitted an alteration and addition permit. And they were on the same Sometimes like needed the same amount of things, needed the health department, which was the final thing that I got signed off for. And so I get on June 9th, I got the approval for the alterations permit. So I text my guy. I'm like, hey, let's get the kitchen ready to demo Monday, which I thank God that didn't happen. And then on June 10th, I get an email from the zoning department and say, hey, you need to do a boundary line adjustment and combine your two lots into one. and resubmit the permits because we can't approve this.

41:19So that threw a monkey wrench into things. I ended up going back multiple times. I went to the boss, the boss's boss, the boss. I got the Loudoun County supervisors involved. And after probably five or six rejections, I was sitting there in mid-July, no further along with the boundary line adjustment. and so I just I texted four or five flippers that I knew and two of them came through they both offered on the property both were cash offers quick close I mean they were getting a fairly good deal as well and ended up settling on the property property July 30th and so yeah.

42:05Ashley Kehr:What did you sell it for and how long did you hold the property? Yeah. So it was just under two months. I bought it for$285 ,000 with the seller credit and sold it for$355 ,000. So after holding costs, after permit fees, you probably ended up making some money on the deal? Yeah, it was a little bit over$60 ,000. And so I was under contract for two weeks and I thought about getting a QI to hold the proceeds so I could 1031 exchange. But I was like, hey, this amount of money at this point in my life, I'm willing to pay taxes on it. I don't want to be one of those guys that rolls my 1031 money into an unsafe investment.

42:47Ashley Kehr:Just to meet the deadlines of a 1031. Exactly. And there are fees associated with that, with holding the money, even if you don't move forward. And so I decided not to. And then I was at a nine unit multifamily building that I'm currently listing. And I was talking to my co-listing agent on it. And I was like, yeah, I've got this money I'm going to have to pay short-term capital gains on. I didn't 1031, but still kind of looking. And he was like, oh, I've got a triplex near where you used to sell real estate probably an hour and a half away in a cheaper market that could be a good fit. So I put an offer in sight unseen with a seven day study period on it.

43:32And after some back and forth, we ended up coming to an agreement on that. The inspection went fairly well, as well as you can find at that price point. And so that's going to close probably the beginning of September.

43:45Tony Robinson:it's so interesting caleb how like a lot of your deals are just like through relationships you know it's like you you have this attempt to you know with the first door knock of getting this property that fails but they're like oh but by the way i have this other thing right uh and then you you have the the flip you invest all this time and energy it doesn't work out then someone else like oh by the way i have this other thing um i think the lesson there for our rookie audience is that you know and you've heard this the same phrase share many many times but it's like the the harder I work the luckier I tend to get and and like the more activity uh uh the more active I am uh the more opportunities tend to come my way and Caleb I feel like your entire story is just an example of that like you work really really hard and sometimes the first door closes but immediately the the second door opens yeah and I think with door knocking um sitting open houses pretty much everything is a lottery ticket to some extent.

44:45And if you pick up a thousand lottery tickets that you're not paying for, a few of them are going to pay off. And in the looking back 10 years, it's going to be, oh, there wasn't much effort behind that. And there was a lot of luck. And I still think there's a lot of luck with some of these things. But yeah, I mean, Craig, the guy that sent me the triplex, he's a real estate agent that does a ton of work in the Harrisonburg, Virginia area. And he's sending deals to his clients all the time. So it's just kind of who asked him that morning. And I've asked him 10 times and he sent me deals that weren't a fit.

45:23And this one hit me at the right time. And it's a good deal for the seller. He's going to make a good amount of money. So yeah, I think it's just putting yourself in position. And especially when you're young, I think people will go out of their way to help you and kind of try to put you in a spot that maybe they wouldn't give a 40, 45-year-old.

45:45Ashley Kehr:Now, this will be your first time managing tenants. So do you have any systems and processes in place? Are you going to hire a property manager? What is your plan for becoming a landlord? Yeah. So landlord's kind of a four-letter word right now, it seems like. And I don't think that's necessarily fair. I think a lot of times the mom and pop landlords that I've seen treat the tenants pretty well. And what you end up seeing is that the rents don't go with the market. And it's more like the private equity, bigger companies that are, you know, kind of give it the bad rap. I met all the tenants while I was there for the home inspection.

46:27They were all lovely people. And so, you know, I'm just trying to provide them a nice place to live. And also, you know, it'll work out better for me than the 30 % losses I've seen this year in the stock market, just for my picks. And so there's a property management company that was managing it, doing a good job, and I'm going to continue with them. The property is an hour and a half away from me. And so it's not realistic for me to drive down there and fix a toilet when needed. And so I think whenever you're looking at a investment property, you should build in the 10 % property management fee.

47:04If you want to manage it yourself, you're basically taking on another job. And so you should get paid extra for that. And so I built the 10 % into the expense ratio and the property still works. And so if at some point I moved down there or I have a better deal in property management great, but if not, it should run without me.

47:26Tony Robinson:So Caleb, I mean, you know, lots of ups and downs in your investing journey and the triplex will be that next phase. But looking forward for you, what strategy are you seeing is like the one that Caleb's going to leverage to continue building the portfolio? Yeah. So I think my goal is to invest probably around where I'm buying this triplex because it's still an area where you can see cash flow. And I also think there's good opportunity for appreciation. I'm also a real estate professional. And so there's tax benefits when it comes to commercial investing that I plan on leveraging on this one and any other property I buy.

48:10As far as the live and flip strategy, I'm sending out 20 to 25 letters every day and hitting an Excel spreadsheet of 500 properties on a seven-week increment. And we'll see. I had our AI friend Claude scrape 50s to 80s ramblers with a tax assessed value between$400 ,000 and$700 ,000 in four towns in Western London that I would want to live in. And it's all sellers that have lived in the home for at least 30 years. So more likely sellers that have high equity positions in the homes. And so sending those letters and it's a two year campaign. So I'm not viewing it as a success or a failure until the two years is in a benefit of my job.

49:01We do get 20 free stamps a day. So I'm using those and just paying for envelopes and then the print company to stamp all the envelopes. And so that's my plan with the live and flip. Hopefully one presents itself in Western Loudoun and then we'll move in there and sell the current one. And then on the, you know, I'll be looking for cash flowing real estate that I can depreciate against my active 1099 income in cheaper, cheaper markets.

49:32Ashley Kehr:That's such an interesting fringe benefit, but it totally makes sense as an agent to do mailers or marketing. Yeah. Yeah. Everyone has an angle. I think. Mine's obvious, the real estate agent investing in real estate. But I think there's always, whatever your job is, there's someone you can find in it that gives you a leg up in real estate investing. And so it's just finding what benefit my job or career can offer to my real estate investing career. Well, Caleb, thank you so much for joining us today on Real Estate Rookie. where can people reach out to you and find out more information about your journey?

50:13Yeah. So I have an overly active real estate Instagram account. That's probably the best spot, Caleb Smith, R-E. I try to make it funny because I kind of cringe at myself if it's not funny. And then if you live in Northern Virginia, DC or Maryland, I'm a real estate agent up there. If you have a Rambler in Western Loudoun that you're looking to sell, I would love to buy it. So that's the best way.

50:39Ashley Kehr:Well, Caleb, thank you so much. And hopefully you'll come back on the podcast in a couple of years and tell us that you got a deal from this podcast and be able to tell us that story and your lessons learned. I'm Ashley, he's Tony. And thank you guys so much for joining us today. If you're not already, make sure you are subscribed to our YouTube channel at Real Estate Rookie. And we'll see you guys on the next episode.

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