Tailwind Talks
Tailwind Talks is a podcast for high-performing professionals who want to build serious real estate portfolios without leaving their careers. Hosted by an airline and military pilot turned investor, it dives into actionable strategies for scaling your real estate portfolio while balancing the demands of a full-time job.
Tailwind Talks
Closed on a Duplex & Single-Family with Hard Money | My Path to 100 Units
Stepping closer to my goal of owning 100 rental units, today marks another milestone as I close on two new properties—bringing my portfolio to 60 units after some recent sales and acquisitions. These seemingly ordinary properties reveal extraordinary lessons about creative real estate financing and spotting long-term value in today's market.
When conventional banks wouldn't touch a duplex with non-paying tenants and verbal leases, hard money lending became my solution. Yes, at 14% interest and a 4% funding fee, it's painfully expensive. But sometimes the best opportunities require unconventional financing strategies. I walk you through exactly how these closing costs break down, revealing how security deposits, tax prorations, and rent credits dramatically reduced my out-of-pocket expenses—allowing me to close one property with just $1,500 at the table.
The $68,000 single-family home might be my most interesting purchase. At 750 square feet with some foundation issues, it's not perfect—but I see tremendous upside potential. These small homes aren't being built anymore, yet as interest rates and housing prices push buyers down market, they're becoming increasingly attractive. It's why I believe this modest investment could eventually be worth $120,000 or more.
My six-month strategy involves stabilizing these properties and refinancing into conventional loans before the hard money balloon payments come due. I've learned this lesson the hard way, once refinancing a property three times and paying $15,000 just in funding fees.
Whether you're just starting your real estate journey or looking to expand your portfolio, remember that sometimes you need to dive in with both feet rather than testing the waters. As I always say, nothing changes if nothing changes. What unconventional real estate strategies have worked for you? Share your experiences in the comments!
What is up everybody? My name is Cole. I'm a part-time real estate investor, a full-time legacy airline pilot and a part-time military instructor pilot. Today I closed on two new properties, not really an earth-shattering deal, but I told myself I was going to document each and every closing on my path to 100 units, and today was one step closer. I actually took a couple steps back by selling some properties earlier this month, and now we're getting back, so I think I'm actually at 60 units. Technically is the total right now.
Speaker 1:So these properties one was a single family, one's a duplex. I've got the closing statements up on my computer here, so we'll just talk about a couple of things that I think are interesting. One is that I used hard money for these deals. I did not use the traditional financing that I would normally go with, which is typically 20% down. I actually went with hard money, and the reason was one of the two duplexes had a verbal lease for the upper and a non-paying tenant for the lower, and banks don't really love to see that and they don't like to deal with that because they're looking at the property as a bet, let's say, and the bet is not very strong when you have one person that's not paying and one person that's on a verbal lease. There's not a lot to hold on to right there, right. So the bank knows they're already buying into kind of a deal. That is, a property that's got problems, somebody was mismanaging it or there was some sort of issue for some reason and the property ended up in this state and they're trying to figure out whether or not they're going to end up with this thing back in their possession six months after you close. And so hard money in that case I think is a good solution. It's expensive. In this case I was paying 4% on the funding fee, which means they take the purchase price that you're paying for the property. They take 4% of that and that's what you're going to pay just to get the loan originated and then you're going to pay monthly interest every single month. So these properties I don't plan to make any money off of for six months or more down the road, if at all.
Speaker 1:No-transcript is, like I said, one person's not paying, the other person's not even on a lease, so banks do not love that at all. But there's one thing that I was to put 20% down on this property. A lot of people think, let's say we're spending $100,000, which isn't really too far off this purchase price. A lot of people think they're going to have to bring 20% of $100,000, which isn't a bad guess to start with, but you are going to get some credits towards your closing. That can help offset some things and, for example, in this case, rent deposits. This property is occupied, like I said, even though one tenant's not paying, and actually one tenant doesn't even have a security deposit, the other one does, and in most cases when I'm buying stuff, there are security deposits for every tenant that's in the property. So that's something that can help offset your down payment.
Speaker 1:Now, it's not free money. There's no free lunch in this game. That money will eventually come out when your tenant leaves and you give them their security deposit back. So it's not really a one for one, but in the immediate of closing the property, trying to get to that closing finish line, it can help you a little bit and if you're getting close on how much money you need to get this thing done, it could actually help push you over the edge and get you just that much closer. And in the bigger deals, the larger the deal, the more that's going to influence your down payment. Again, it's not a free lunch. That money will eventually wash itself back out when the tenant leaves, but it's something that can help get you to the finish line.
Speaker 1:The other thing I have on here is the city taxes. So they've it's June right now, so half of the year, half of the annual taxes is going to get dumped into my credits, which is going to help reduce my down payment and, again, not a free lunch. Obviously, when January rolls around and I owe taxes again, again I'm going to get nailed for that money. But in the short term it can help get you to the finish line. And I know it's not so much of a big deal for me now, but when I was starting out like I was putting everything I had into this financially and so the difference of having an okay deal or a good deal could sometimes be what you're getting in credits to help get you through through that closing and then make it to the next year when you're actually gonna have to pay the taxes and whatnot and, like I said, the rent deposits and then prorated rents for the month, it didn't really work out. Actually, it worked out okay this month. It's the sixth, so they're gonna usually prorate you for the sixth through the end of the month, because the owner has already collected the rents for the month.
Speaker 1:Generally. In this case one of the tenants hasn't paid their rent yet, so I'll be collecting that. So I didn't get that credit. But generally speaking you're going to get a credit for whatever you're getting the rest of the month because the previous owner already got paid all the rents. That's a kind of a nice feature too, because if you close on a property I've done this on purpose close on a property on the first of the month, you're going to get prorated the entire month's worth of rents. And if you do that can be really advantageous because if you're buying a property that's bringing in 10, 20, 30 grand a month in rent, obviously you have to have a huge down payment to get that thing done. But it can really knock some of the numbers down and make them a little bit lower. When you combine that with the security deposit, with the prorated rents, with the taxes and again, no free lunch, we get that. But in most cases when you're closing on a property the loan is not going to start drawing from your bank account for at least probably a month or two after you closed it. So it does give you a little bit of breathing room and ability to get that property up and running, so you're not getting stuck trying to make all these payments and not be able to pull it off.
Speaker 1:Something to think about. There Again. You wouldn't want to bet your whole life on this, because then you're going to get over leveraged, overextended. But when you're starting out, sometimes you have to make big bets and that's something that I think is really important, because people really want to play it safe. They don't want to take any risk, but that's what you're going to have to do to get started in this game. I really believe that, especially when you're starting out, you're going to have to take some chances, take some risks, because that's the only way to get started and honestly, I think it's more risky not to do anything at all, because then nothing will change for sure. So nothing changes if nothing changes and the case of starting with real estate you're going to have to sometimes dive in both feet instead of being one foot in, one foot out. So that's that property.
Speaker 1:The other property is a single family and this one's kind of an interesting case. I ended up getting it for $68,000. So pretty good purchase price in my opinion. I think it could be worth about $100,000 once everything's cleaned up. It's got a good tenant in it. It's actually clean on the inside. I just want to do some exterior grading and whatnot, because it's already got beams in the basement and some movement in the walls. It's really a lot to do with the property's construction. It's a small single family, about 750 or so square feet, and these small properties I've spent in a couple of them and my buddy has been in way more than me and they all have problems with the basements. There's always issues.
Speaker 1:This one has been beamed so it has been addressed to some extent. It's fine right now, but when you're looking at this like 10, 20 years down the road, I don't know if that's necessarily going to be enough. There's new gutters, there's a new roof. If that's necessarily going to be enough. There's new gutters, there's a new roof. Getting the property management company to address the grading outside. So I'm going to try to pitch it further away from the house Because right now it's just pretty flat and there's a lot of pooling of water. I actually visited on a day that was raining so I was able to see that Generally when you have a basement that's beamed, they're good to that. But I think for 68,000, even with a little bit of basement, a TLC, I think that this thing's still going to be worth at least $100,000.
Speaker 1:And these are the houses that I really am bullish on for the future, these properties. They're not making more of them because they literally can't afford to make more of them. A 700 square foot house who's making that? Nobody's making that. And so when I look at that, I think that this is a really bullish case because when you're pushing everybody from one tier to the next tier, lower with their purchase ability between housing prices and interest rates and a lot of other things like property taxes that are going up in a lot of places, when you look at all that and you're pushing people lower down their tier, I think these houses are going to be pretty sought after at some point because they're pretty cheap Right now. They're really cheap. They could never be built for that kind of price.
Speaker 1:No-transcript. Be interested in trying to save money, live for a little bit cheaper and avoid some of these pitfalls with the interest rates and the high purchase prices, and I think they're gonna filter into properties like this. So bullish on this for the future. I could see it easily going to 120,000 or more in the long term. In the short term, I think I'm just gonna buy it, hold it and wake up in five years, hopefully.
Speaker 1:I got the rent deposit credit no-transcript to pay for the funding fee, which in this case was $2,700. Pretty expensive. Like I said, it's unnecessary evil. But a lot of these prorations helps and I actually only between the deposit and what I brought today I brought $1,500. I think is what I brought to closing total on this property.
Speaker 1:I know a lot of people appreciate you need 20% down or more oftentimes I say that, but you can do this for relatively cheap. You have to find the right deal and there's a lot of pitfalls. There's a lot of snake oil out there. I'm trying to document my journey to offset some of the chaos that's out there and some of the things that people are pushing, but in this case I did it with $1,500. And I could have done that back when I first started in real estate. I just happened to find this deal now. So $1,500 to get your foot in the door, granted, six months from now these loans are going to come due. And when they come due, that means that it's a balloon payment and your choice is to either refinance and pay another massive fee or to move it to long-term debt.
Speaker 1:And so the thing is you have to get these properties ready to go so that they can get moved to long-term debt. Which means to me I need to have people renting, I need them to be current, I need to have a. Basically the property be cleaned up from the inside and out so that way I can take it to a long-term lender and say, hey, I want to put long-term debt on these. They're on hard money right now. What can you do for me? And you want to make it attractive to them. You're trying to sell the product to them as much as they're selling the product to you. So these properties, I'm going to basically try to clean them up, get paying tenants in there, get basically all the odds and ends tightened up, so that way I can take it to one of my long-term lenders and then put it on long-term debts. That way I don't have this massive interest payment. Right now, the interest-only payments on this are going to be 14%, so that is not cheap. So basically, I'm planning to make no money off these with cash flow for the next six months. Ideally maybe two, three months and I can get them to long-term debt. But worst case, six months and then move on.
Speaker 1:I've had one situation with hard money where I ended up having to refi it three times. I just got destroyed on this deal. It was totally my fault Not going to blame anybody else for it, it's all on me but it really hurt because I paid probably $5,000 for the original funding fee and I had to do the two other times. So $15,000 just in funding fees, then interest only payments on top of that. It was a disaster and that's all on me. That's a story for another day.
Speaker 1:But the idea is that you put something on hard money to get a short-term solution because it's not really ready for a long-term debt, for whatever reason. That's a quick closing. That means that the tenants aren't paying. There's no tenants in it. It's got rehab that needs done. Whatever the case may be, that stuff you want to take care of in the six-month period. Generally they're six-month terms. You want to take care of that in the six month period that you have the hard money and then get it onto long-term debt and forget that you ever did the hard money to begin with. So it's a tool.
Speaker 1:It's one of many tools in the real estate game, but I wouldn't recommend people do this all the time. I'm doing it for a very specific use case with these properties that I think is going to pay off down the road. But there's a lot of times that people use hard money and rehab properties. There's people that do it successfully, don't get me wrong. There's people that do all kinds of things successfully, but there's a lot of people that get into that and they end up getting in over their head and before you know it, the property goes back to the lender, the bank, the hard money lender, and before you know it, your real estate journey has ended before it even started. We'll talk about all that stuff down the road. Like I said, I just wanted to document this closing today because I thought it was important. On my path to 100 units, we were at 65, then down to 57, now we're back to 60 and we'll probably be 68, I think, by the end of the month. So we're making progress and, as far as that goes, 100 units is still a long ways away.
Speaker 1:But I appreciate everybody that's watching this so far. I just crossed crossed over a thousand subscribers, so that's pretty cool, but some of it was because of ads too, so I don't know how much of it people are actually watching or care. I'm not going to pop any champagne, but those of you who are watching and have watched some of my previous videos and came back to watch others, I genuinely appreciate it, and the comments that you guys leave really is like my oxygen in some way. It keeps me going, gets me interested and excited about making other videos. If you got value out of this, let me know. If you got no value out of it and you hate landlords, also, let me know. Appreciate it, and I'll talk to you guys soon, see ya.