Free Houses: How to Build a $1 Million Real Estate Portfolio on the Side (Greatest Hits)

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1:16Free houses, how to build a million dollar real estate portfolio on the side, even if you're broke.

1:26What's up, what's up? Nick Loper here. Welcome to the Side Hustle Show because money only follows value. Now, people have been side hustling in real estate for centuries. It can be a great way to generate passive or at least semi-passive cash flow to build wealth and to take advantage of some friendly tax codes. The drawback is it's not cheap. For a lot of people, a house is the most expensive purchase they're ever going to make. Now, at the risk of sounding like a late night infomercial, what if there was a way to get started in real estate investing without putting your limited funds at risk?

1:57Could you use other people's money? That's why I invited Austin Miller to join me on the show this week. Austin got his start in real estate at 23 years old as a side hustle. And over the last eight years has accumulated a property portfolio worth$1.2 million. And more importantly, is cashflow positive more than$3 ,000 a month. But the kicker is that all of these properties, we're talking about more than a dozen homes, were free, meaning he didn't have to come up with the traditional 20 % down payment to buy them. Austin's the author of Free Houses, How to Build Your Real Estate Investment Portfolio with No Money.

2:36And look, he'll be the first to tell you, look, there's no free lunch, but he's consistently been able to make these deals work without a giant stockpile of his own cash. That's what we're diving into in this episode, the exact strategies Austin's used to build this empire and how you may be able to borrow those same strategies to do the same. His basic strategy is this. Find a killer deal, usually on a house that needs a lot of work. Buy it with creative financing or other people's money. Those are the strategies that we're going to get into in the call. Do the rehab work or more often hire somebody else to do the rehab work.

3:10Put a tenant in place and then refinance with traditional bank financing to pay back the original funding source and to lock in a low interest rate. And because he's bought the property well, he can do it with no money down because there is at least a 20 % equity cushion that the bank requires after the rehab. The end game is positive monthly cash flow from rental income, plus building long-term wealth through having the tenants pay off his houses. You with me? I know there's several steps involved, but you want to keep that end game in mind. Cool? Notes and links for this one are at sidehustlenation.com slash Austin.

3:44I'll be back with my top takeaways from this chat with Austin after the interview. We begin this chat with a question that was at the top of my mind, which is, you know, where do you find houses at such a discount? Ready? Let's do it. A lot of people always know, where do you get the deals? Where do you get the deals? You'll find like in any industry, when you're in it, you've got to nose around a little bit, but the deals are out there. Are they less prevalent today because it's a hot market? Absolutely. But are there deals in every market? Yes. So to share some of the areas I've gotten my deals, obviously talking to bankers, what do they have that they're trying to get rid of that they're foreclosing on?

4:25Talking to the real estate investors in your area, join your real estate investor group. There's all kinds of wholesalers out there that that's all they do is find deals. And then they sell them to another investor for a quick buy, a quick nickel over a slow dime guy. The real estate investment realtors, because there's definitely a difference between a retail realtor and an investment realtor, but then also your tax sales, your county courthouse sales, also marketing yourself. You see everywhere. I buy house signs and online marketing. I've gotten calls from that. So to say that there's a rainbow out there and you get to the end of it and all of a sudden you're in the, you're a real estate investor, you know where all the deals are, is not indicative of reality.

5:10But one of the things I love about the side hustle nation, you guys getting out there and hustling, that's part of it. You know, you've got to submerge yourself into that industry. But once I really did and submerge myself in the content and the local real estate investors groups, and I'm sure there's a Facebook group you can join and outside of just your monthly meeting, then you start finding more and more deals and they kind of start to domino effect, but they're definitely out there. Is this where you're spending the majority of your side hustle hours? Like if you're working full-time 40, 50 hours a week, like this is where you're spending your couple hours in the evening is doing this, going to these meetups, talking with banks, like going to the courthouse, that sort of thing.

5:51Absolutely. I go to courthouse sales just to see if I know a property's going. And And I know a lot of the other guys who are there to buy now. And sometimes they're like, hey, you want to buy this for a little more than I just bought it for? I got too much going on. Yeah. I mean, even like, you guys have penny powers in California or thrifty nickels? Thrifty nickel sounds familiar. Yeah. It's like just the little classified newspapers that they give away for free at the gas station. I found a couple of deals in that before. I mean, there's so many ways to find deals. When you're talking banks, I imagine you're not talking like Chase, Bank of America, or are you?

6:27Not necessarily, no. Usually, I deal with small local banks for a couple reasons. One, you can talk to a decision maker quickly. You usually know, hey, who's making the decisions on your lending? And two, because they are just more personal, and they are going to have a lot of the deals in your area. Because when it comes to real estate investing, the portfolio lenders, as they call them, they're gonna keep all their loans in-house. They're not gonna sell them to the secondary market, Fannie and Freddie. And typically people are like, well, how do you know if it's a small bank? Well, usually it's like the first bank of Austinville or Millertown Community.

7:06It's pretty dead giveaway in the name. You know what I mean? Yeah, that makes some sense. Like, okay, deal locally, they're more willing to, not necessarily cut your deal, but they're more really to work with smaller people on individual properties. And sometimes they have the best deals. And some of the bigger banks will also have bigger formalities in liquidating their non-performing assets. So they may have to go through this online sale or this realtor or whatever. I haven't dealt with a ton of big banks, but the smaller ones, I can call the guy and say, hey, do you have anything that you're wanting to sell?

7:41And he'd say, oh, I have a trailer and the next time over right now, and that's all I've got, but call me next month. Okay, okay. Well, let's get into some of the acquisition strategies. There's a million resources out there on how to find different deals, and Austin just gave us a half dozen different ideas there. So let's say you find something that looks promising. It's that$100 ,000 house that needs some work for$50 ,000, or that's the asking price, or is that? I don't even know. We'll get into maybe that. What comes next? You say, okay, I want this thing. I think there's money to be made here.

8:13What comes next? Well, I guess it depends on what your current financial situation is. For me, the first deal that I did, I mean, I graduated college. I had very little money to my name. I knew I wanted to get into real estate investing. And my realtor at the time kind of introduced me to some hard money lenders. I had no idea what that was at the time. Sounds kind of scary, hard money. It sounds like the guy who's going to break your knuckles. You know, you just send the muscle over if you don't pay. So what I came to find out was that hard money lenders were just little companies. I guess you could even call it like a little mini bank that would lend out money to invest in real estate short term.

8:54Now, the catch with that was you had to pay high interest, right? Like 14 % to 18%. But from my standpoint, this hard money lender, which the one that I ended up going with from our first deal was a guy who was very well off and had like one or two admins. I mean, it was a very small company. He just had money that he was looking to make high interest on and get all of it to investors. so then from my standpoint it was like well i could either not buy any real estate or pay 14 to 18 percent for four months five months tops yeah basically however long it takes you to rehab the property not paying that for 30-year mortgage correct to buy they'll fund the purchase and the rehab and then you go to the bank and say hey i need a loan on this and so for me it was like, you know, I've had several people be like, oh my gosh, you paid 14 to 18%.

9:48I'm like, yeah, but I got a property that cashflow is 275 bucks a month, man. And they're like, yeah, but I would never pay that. You know, so, you know, you're missing the point. Okay. Right. The forest through the trees analogy. Okay. More with Austin in just a moment, including how hard money lending works and how to find those lenders and how to accurately estimate construction and rehab costs right after this. Did you know there's a disease running rampant alongside hustlers and new entrepreneurs? It's called superhero syndrome. Symptoms include a feeling like you got to do everything yourself, thinking you're the only one who can do it right, and struggling to let go of certain tasks.

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12:19More than 90 ,000 businesses are already running on Quo, from solo operators to growing teams. Try it free when you go to quo.com slash side hustle. that's q u o dot com slash side hustle you can even keep your existing number quo no missed calls no missed customers so the hard money strategy is one way to go and so that would be they write you the lump sum check for the acquisition cost and the closing costs and the rehab costs all up front no so it's a little more formal than that it goes through title company when you have a deal under contract they will issue a pre-approval letter right that they're going to fund this deal.

12:57So you can use that when you're making your offers. And then when it comes down to close, they actually fund through the title company. So I never was written a check. And then we had, I don't know, a handful of construction draws and they funded that through the title company as well. So just to keep them safe as the hard money lender, it's an asset backed loan. They're in first lien position on the house. It's not if I disappear or move to Mexico or whatever, they get the house. Okay. Okay. So that mitigates their risk. Absolutely. Is this as simple as Googling like hard money lender Livermore, or you said you had an introduction from your agent?

13:35No, absolutely. You can Google it and there are hard money lenders all around the nation now that will lend from anywhere, but they want the deal to be sweeter. They want to know that you're, it's an absolute home run deal. And, but as in anything, I think you're better to find someone that you can talk to locally in your area. And that's the way that I went. And over the last eight years, they've become more popular online, but still I would highly recommend going through someone locally. Was that tough for you to like, look this guy in the eye and being like 23, 24 years old and be like, yeah, I promise I'm going to pay you back, sir.

14:09I never met him. I just talked to him on the phone. Okay. And that was it. My realtor, I listed him as a reference and it sounds kind of crazy, but yeah, it was seamless. I mean, it was a very smooth process. And of course, he being a smaller company, he wanted to go out and look at the property because for a hard money lender, the deal itself, the house, the property, the investment is just as important as whoever you're giving the money to. Okay, once the thing is all, once the house is all fixed up, you can go to the bank and say, hey, now I have this house. I think it's going to appraise for 100 grand.

14:47Maybe you're into it 60, 70 with your rehab costs. And so you can take out that$70 ,000 loan now with traditional financing from the bank because they have a greater than 80 % loan or less than 80 % loan to value. And so you can pay off the hard money lender. And now you're back to a reasonable interest rate on a long-term traditional mortgage. You got it, man. That is it right there. That's the game plan. How much math are you doing beforehand to look at rental comps and make sure, okay, traditional financing is going to cost me this much per month. I want to make sure I can clear at least X on rent.

15:23A good thing is I went directly with a realtor and my realtor was fantastic. He's a real estate investment realtor. So he knew how to help me through the process of this is what the comps are going to be for what it's going to appraise out after it's rehabbed. Okay. So knowing that I could then develop what my offer was going to be because I knew after looking at the house, rehab costs, obviously purchase price plus rehab is going to be my only cost. And that had to be below the 80 % loan value. Are you out there swinging hammers nights and weekends or are you contracting out the work? Starting out, I did swing some hammers on this particular first one.

16:04It was kind of a home run deal. I found somebody to do it. So I had to do very little on this one, but there have been some, you know, I'm going to save the money on this one and do it myself. Or this deal is a little tight, so I'm going to do this myself. That's usually what people end up doing. And it's not worth it. You can only do so much. You know what I mean? Someone eventually kind of told me, like, you're limiting your business. You're limiting your potential if you're trying to do everything yourself. And it's absolutely true. Yeah. So make sure you've got enough margin in there to pay a contractor.

16:37Did you have any experience in estimating what the rehab costs would be? It seems like that would be a big variable expense that would be, at least for me, not being handy at all, pretty easy to mess up. Absolutely. That's the number one. Well, not number one. One of the major questions I get is always, how do I know what construction is going to cost? Through my local real estate investor group, we had some classes on that and reading online. I I mean, there are so many YouTube videos and just online forums and so many areas that you can kind of get a good ballpark for. But then also, you know, it's in your contract to you have your 10 day investigation period.

17:21And in that 10 day investigation period, I got bids from contractors to make sure that I was right. Oh, OK. But I was accurate. Because if I'm the first one, the hard money, I was figuring$20 ,000. Also, my realtor helped me with that too because he is an investor, so he's done similar properties. And that first 10 days, immediately, once the contract was accepted, I called three contractors and got bids. So once those bids came back around$20 ,000, I was like, all right, we're golden. We're good to go. Okay. Let's move forward. Tell me about your networking meeting looking for private money. Yeah.

17:57So the saying within real estate investors is that hard money is good. Private money is better. I call it like the rich uncle strategy because everybody has someone in their life. And it doesn't mean they're related to you, but everyone knows somebody with money. Whether you know it or not, you do. And you find that out just by talking to people. I was at my friend's house and talking to his dad. He's like, how's business? I said, oh, real estate's booming. It's going great. I just can't keep up. He's like, what do you mean? And I said, well, I'm passing up so many deals that I don't have funds for.

18:30And I just need some more money if I'm going to grow to the next level. Every time I clockwork, how much money are you looking for, Austin? I can't tell you how many times I've had that conversation. And to your point, at the networking, I went to a networking meeting where those are great, where you can talk to other people. And everybody kind of gets their 30-second elevator time. You go around the room, and then it's just networking. And I stood up. I said, hey, I'm Austin Miller. I'm a real estate investor. and I'm looking for somebody with a lot of money. And I sat back down. And everyone was just looking at me, kind of laughing.

19:01I said, sit back up. I said, no, that's kind of joking, but I am serious. I'm looking for somebody that might be interested in getting into real estate because I find a lot of deals and I can only fund so many of them. If you're interested, let's talk. So I sat down and there was a lady that had been coming for a little while, mid-50s, average clothes, drove a pickup truck. never in a million years would have thought that she had any large sums of cash. And she slides me a note that said, how much money are you talking about? And I wrote back 50 grand minimum, preferably a hundred grand. I sent it back to her.

19:35Okay. And she wrote back, let's talk and pass the note back to me. I was like, my mind was blown. Okay. So hard money is good. Private money is better. What makes private money better? Well, typically a common saying is hard money. they set the terms. Private money, you set the terms. Because if you're talking to somebody, they're like, hey, I have money, I want to invest. How do we do it? Then you explore those options, or you present options to them. So typically, the interest rate's less, 7 % to 10 % instead of 14 % to 18%. Man, you can get as creative as you want. You could partner with them on the deals.

20:10Maybe they have the money, they just don't have the time, and they're willing to partner. And they just want 50-50 ownership. Maybe that's for you guys, maybe it's not. Maybe it's just 7 % return on their money. That's a lot better than 14. But there's different ways you can work that. So that's why they say private money is better because it gives you more flexibility, especially when you're having a one-on-one conversation about how do we make this work? Okay. You're in the driver's seat in terms of interest and terms. Absolutely. Terms are what you make them. Now, I'm curious, Austin, you got these dozen or more different properties.

20:42Just from a liability standpoint, do you have like separate LLCs, separate entities for each of these? Talk to different people and they'll have a different strategy. And some people say maximum of five and one LLC. But all of mine are in the same LLC. So as long as we don't, talking to my attorney and accountant, as long as you don't pierce that corporate veil, as they said, and we keep it separate, we're as safe as we think that we need to be at this point. But certainly talk to your attorney about that. Definitely, I recommend don't keep them in your personal name. Yeah, yeah. But beyond that, I'd say that's probably between you and your attorney.

21:20Is that just as simple as assigning the title over to the company after closing? Or how does that work? Yep, absolutely. That's it. Obviously, setting up another LLC is very simple. But keeping it in that LLC is something outside of your personal name. So regardless of what happens in your business, your family and your personal life will always have its assets. Okay. I was just curious about that because I've heard different things too. Well, you got to have a separate one for each property or you just need some monster umbrella in policy or insurance policy and different strategies. And once you get to a certain point, the umbrella policy is then a good idea.

22:01But I would probably refer you to your insurance agent. I'm just dodging them here. No, but the umbrella policy for sure, once you get to a certain level. All right. Tell me about buying the house with the credit card. I think this is crazy. Yeah. You tell people you bought a house with a credit card and they kind of look at you like you have three heads. It's kind of like, wait, what? So I was researching ways to get funding and I came across balance transfer checks. I don't know if you're familiar with them, but essentially credit card companies used to do this a lot, but they will send you a balance transfer check, which is a check that can be written out for whatever your credit limit is.

22:45If you have a$10 ,000 credit limit on a credit card, you can write a check up to$10 ,000. But they have terms that are a little bit different than what your typical interest rates are on your card, on your credit card. So I've got like five credit cards. I love credit cards. They're a tool that can be, it's kind of like FIRE. Fire can be used to cook your food, heat your house, or it can be used to burn your house down, as long as you use it correctly. Yeah, treat them with respect. Treat them with respect. So I just started getting my credit cards out and flipping them over and calling the number on the back.

23:15And the first one I called and I said, hey, do you guys offer balance transfer checks? And I said, no, sorry, sir. I said, okay, pulled out the next credit card, called the number on the back. I said, hello, do you guys offer balance transfer checks? They said, yes. I said, tell me about the terms. It was about 6 % annually. And then after the first year, it went up to like 12%. It wasn't a bad gig, but it wasn't great. I could find something that good through my private money. So the third one I called, I called them and I said, hey, call them to see if you guys offer balance transfer checks.

23:47Yes, we do. What would you like to know? And I said, what's the interest rate? And she said, 0 % for the first year. I said, you're loaning money at 0%. I just want to make sure I heard that? She said, yeah, that's right. I said, okay, what other fees are there? She said, there's a funding fee one time. I said, okay, great. What's that? She said,$75. Okay. I can live with that. So I said, you're going to loan me the full balance of my credit card limit for$0 a month, as you're in interest. She said, well, you have to pay the monthly minimum, which is$275. And I said, well, but that goes directly to principal.