Episode #8 Creative Financing With Alex Olson

 

Show Notes:

Episode #8 Creative Financing With Alex Olson

In this episode of Real Estate Investing Made Simple, Alex Olson talks about the creative strategies he’s used to purchase real estate.

Alex Olson was able to go from 0 doors to 11 doors in just 18 months using OPM, or other people’s money.  Alex set out to buy investment properties in some of the most sought after areas of Kansas City.  He successfully secured nearly 2 million dollars worth of real estate, without putting in any of his own money.  Today, Alex helps people secure apartment complexes in Kansas City!

 

Contact Alex Olson:

Linkedin

https://www.linkedin.com/in/aolson/

Email

alex@clemonsrealestate.com

Book recommendations:

Am I Being Too Subtle by Sam Zell

 


Podcast Transcription: 

Introduction  00:02

Welcome to The Real Estate Investing Made Simple podcast, the show empowering and educating people on how they can grow, manage, and protect their wealth through real estate investing. Now, here’s your host, Bailey Kramer.

 

Bailey Kramer  00:22

Hello and welcome back to the real estate investing Made Simple podcast. The goal of this show is to break down complex real estate investing strategies that you can use to grow, manage, and protect your wealth. I’m your host, Bailey Kramer, and today we are joined by our very special guest Alex Olson, to talk with us about creative financing.  Today, Alex helps people secure apartment complexes in Kansas City. Welcome to the show, Alex.

 

Alex Olson  01:06

Hey, great. Thanks for having me, man.

 

Bailey Kramer  01:08

Yeah, absolutely. So why don’t you go ahead and start with telling the listeners a little bit more about your background and how you got into real estate investing?

 

Alex Olson  01:15

Yeah, no problem. So in in my background was in creative financing, or really, it was in financial technology. And I always had this desire to purchase real estate and I didn’t want to purchase any real estate. I wanted it to be in a great location. But like most people in the world, I don’t have a lot of money. I didn’t have really any money a W two job and, and no real, real way to go beyond that. And, you know, I tried the savings route, but we weren’t really super and then I, you know, really watched the market all these deals, almost all these deals were all on market deals. And some people are very much like, Oh, you can’t buy anything on market because it’s not going to be worth anything and you’re going to overpay for and all that kind of stuff. Which isn’t necessarily true if you are watching the market well enough. And you’re persistent in what you’re looking for, and very, very diligent. And so I of course, I’ve got alerts on all my different I, you know, websites, everything else out there. So I was able to pick apart different pieces of the market that were stuffing themselves on the market for a long period of time. Or maybe were overpriced. And so when I talk about creative financing and using other people’s money it takes it always takes two to tango. And so you’ve got to find something or somebody that’s willing to take on a creative financing strategy. And so, the first thing I was able to find is you got to find the right bank. Okay. So I found the right bank was able to do a large home equity line of credit. And then you got to find the right seller. And the right seller is you know, has to be somebody that is either not desperate but they want to sell or they’re tired of being on the market forever. Or they they know that the price is too high. And so you got to create a win win situation for everybody. And this, this strategy is you know, as basic you can use this on single family homes, you can use this on a large complexes, I have a client of mine right now who is you know, close to under contract on a, on a very large complex using a piece of it as creative financing. And it all just has has to be that people are willing and interested. And so that’s really the basis of creative financing.

 

Bailey Kramer  06:23

Okay, awesome. So your first deal, home equity line of credit, that’s kind of how you got it started, or some other pieces of the deal. And what did you do next after you got that home equity line of credit?

 

Alex Olson  06:32

Yeah, so I now I have this home equity line of credit sitting in my bank, and it’s not doing anything for me, but it’s also not cost me any money. So I could afford to be patient with it. And so again, that comes back into the wait, strategy, wait for the right opportunity. And so I use that home equity line of credit I, I had it set in my bank, and then I went out I finally put something on a contract. So I bought a duplex and it was two blocks from university. of Kansas Medical Center. It was way overpriced to start sound the market for six months, which is a very long time for that market didn’t have the greatest of pictures. You know, it was advertised as a two bedroom, one bath for each unit but it was actually a three bedroom one bath because the one unit just wasn’t they considered it a closet but it was an office but it was actually a bedroom. It just didn’t have a closet, which in Kansas City is acceptable. So I went into it and gave you know finally agreed upon a price. I then went to the bank that I had the home equity line of credit with and drew down that amount of money that I needed for the for the downpayment, okay, and typically on a duplex. You know, there’s many different ways to skin a cat. But when you’re starting out the best possible loan rates and terms you can get is with a mortgage on the secondary market, which is you know, it’s gonna be backed by Fannie Mae or Freddie Mac and you can Do that on investment properties for anything that’s four units or less. And so that’s what I really wanted to go after. Because you get a 30 year fixed rate, it’s going to be the lowest rate you can get typically, it’s also going to be a 30 year term, which is important. You know, once you once you step outside of Fannie, Freddie back loans, then you get into, you know, where, where the term is only going to be five years or maybe seven. And so you want to make sure that on your first deal that you can maximize that thing the most you can but you also have to have the right income and expense ratios and, and finding a really good bank, it’s willing to walk through that with you is important. So that’s what I did was I went to a good bank and they were able to kind of show me a little bit more of the ropes of okay at 25% down because it’s more than one unit. And I said, Okay, well great, but I’m using a home equity line of credit to finance that 25% down and they were okay with that. Some banks aren’t. And so that’s how I was able to secure that very first property. I went, I guess I ended up I did end up using an agent on it, because I was not an agent at the time. But I really kind of secured the deal on my own until I got to a point where I needed an agent, complete the contract for me. So that’s what I did with my first deal.

 

Bailey Kramer  09:23

Okay, awesome. So what kind of advice would you give to someone who maybe doesn’t even know what a HELOC is? Or has equity in their home and is now considering using a HELOC? What advice would you give to them?

 

Alex Olson  09:36

Yeah, so on a HELOC or a home equity line of credit, you can basically let’s say for example, your your house that you live in is worth. Let’s call it $100,000 for simple math, okay. And, and you don’t owe anything on it. You’ve paid it off because you worked hard or whatever the case may be so you’ll know Oh, nothing on it. So Now you have an asset sitting there that’s worth $100,000, you’re not using any of that equity, which is fine. But for somebody who wants to do more with what they own, you can go to a local bank. Find find your call around, the first thing you got to do is call around, hey, do you offer a home equity line of credit, and then you’ll start to know what you know what kind of rates and terms they can give you some people, some banks only allow for maybe your line of credit to be up to 50% of value. So in the hundred thousand dollar example, they’re going to give you a home equity line of credit of $50,000. And then some banks are able to do up to 80%, maybe even 90% of the value of your of your property. And so in that case, if they give you 90% you know, you’ve had $90,000 they could you could use to invest in an on a home equity line of credit. Usually the interest rates are oftentimes It’s interest only payments. You know, at pretty reasonable rates, I don’t remember what exactly they were offering me at the time. But then you also have the place where I got mine from, which actually has a it’s more of a hybrid loan. So it it does pay off over time. And it’s a traditional amortizing product once you start drawing on the, on the on the loan, so looking for, you know, I did a lot of research, I spent probably two months just researching where I could get the biggest and best home equity line of credit. And so that’s very important to do when you are considering that option.

 

Bailey Kramer  11:40

And besides the local banks, are there any other sources that you recommend people go check out to get their HELOC? I would

 

Alex Olson  11:47

say yeah, I mean, the first place I always first place I went to was I talked to the bank that I was using at the time, you know, for most of my personal stuff, and then Okay, well, they weren’t really offered me the best. So then yes, I started call I said A lot of times banks did like to trade information back and forth and help each other out if they’re you know nice so I was asked somebody said hey, you know, okay you can’t do it for me what are three other banks that you know have the can and so that’s really the way that I did and of course you can Google it and find out you can go on bigger pockets and ask you can go on LinkedIn and ask which I love LinkedIn for for this kind of stuff. And and ask you know who people have used what and when but typically it’s a local bank, but you know, like a US bank or or even a bank of america they may offer a service like this I’m not sure

 

Bailey Kramer  12:37

Okay, awesome. So you did your first two bedroom or really a three bedroom deal. What was the next steps for you?

 

Alex Olson  12:45

So that was a very vacant by very vacant is 100% vacant building. The tenants have just moved down you know, the the bank was a little bit hesitant on even closing out the deal because it was vague But luckily for me, I was pretty sure the location was solid and I started advertising even maybe before I should have for as closed. But I knew I was going to buy it. So at the time I advertised on Zillow, I was doing all my own property management at the time. And so I knew I needed to get that thing filled fast, because every book, you read, everybody you talked to the biggest revenue killer is vacancy. And so I did, I don’t know. 10 showings in a week, and fumbled through showings and those kinds of processes. But the one thing that you have to do before you do any of that you either have to have your property management in place that that you know that they’re going to take care of your property and get your place leased. Or if you’re managing yourself, you’ve got to have a lease ready. You got to have how you’re going to collect money ready. You know, you gotta have all your legal documents beyond Just Elise available like if Are you gonna accept pets? So there’s a whole slew of things you have to be prepared to do before you even, you know lease out a property. And so one of the most important books I read that was very basic but that’s all I needed was the book by Brandon Turner on rental property or investment property management something like that. It’s a Brandon Turner’s, you know, property management book. And it’s a really good, just basic, here’s the steps you go through you. First of all, you got to do this and you do that and it even includes if you buy the book, it includes the basics of the documents. So you know, if you choose a property management company, it gives you a basic lease, it gives you a pet rent, it gives you a notice of non renewal, so you have those, at least as a starting point if you ever need it, and you didn’t have it prepared by your attorney, which I definitely didn’t at the time. You know that that’s the whole key to You know, if you don’t have a property management how you got to get started?

 

Bailey Kramer  15:03

Right, right. And for that first property, did you guys use a property manager? Or did you self manage it,

 

Alex Olson  15:09

I manage it myself. I still do manage it myself, I’ve turned over the leasing reins to other people. But you know, I use a system to manage it myself. And so I use a service called cozy, excuse me, which is a free service that anybody can use, I think there’s a limit on the number of properties and you know, apartment units that you can have on there for free. But it collects the money for you for free, it sends it to you for everything’s free on there. And so I also made it as part of that. I try to make everything as simple as possible myself. And so, you know, the only type of rent payment I accept is through cozy. The only type of application I accept is through cozy, you know, so I keep it all in one place so that way I can manage it myself, because I I’m too busy to, you know, mess around with the basic stuff of collecting rent that just should come automatically.

 

Bailey Kramer  16:07

Right. So after you’re using your HELOC, what were some other creative financing sources you use to use OPM or other people’s money?

 

Alex Olson  16:16

Yeah, so I use part of my HELOC on that I had additional money available from the lock. So I bought a five Plex using that same kind of strategy. But again, that was going from Fannie Freddie loan to now I’m going to a five Plex, which requires a true commercial loan. And so that’s where you got to go out and find a portfolio lender to go in there. And, you know, make sure that they can you know, that they’re going to be able to service the loan, keep the loan on their books. And once you get up above four units, then you get into, you know, now we’re on a five year term, maybe it’s a 25 year amortization schedule. You know, so it’s a it’s a lot different way of looking at things, but that’s what I do for myself. Second property and then after that, I decided that I didn’t have much money left one and then two. I wanted to keep buying anyone have any money and again remember, I didn’t have any rich, wealthy people, anybody around me still didn’t really have a mentor. I just I but I love doing I love doing deals and and, you know, acquiring stuff in great areas. So I found a property that had been sitting on the market for six months. It was advertised as a office space. But it was a single family home that had been converted into an office space, and is about a block from Children’s Mercy Hospital and Truman Medical Center, which I knew that they were doing a huge, you know, $150 million expansion to that hospital. So I knew that that was in my wheelhouse of what I wanted. And so I talked to the owner a couple times and her price she was very pretty firm on her price. And but I knew that I wanted that property. So I would check in with her every single month. Sometimes every other week, if I was if I thought that she was, you know, getting closer to accepting my terms and my terms were not necessarily seller financing, although that’s what you know most people classified as, but it was really a lease purchase option. So, again, I like to keep everything as simple as possible. And I also like to make sure that everybody wins on the deal. Because you know, my reputation is important to me. And I also just, you know, I want to treat people well. So I presented a lease purchase option Tour, which was really two parts. So at least purchase option you have a you have a contract to buy at a certain price at a certain point in time. So that price is locked in and so is that point in time where then you at that point time you go into a normal contract to buy so you go to the normal title company, a tow company can help you with all that. You don’t need an agent for two Higher title company and they basically help you get closed. And then so that’s one document is the contract to buy. Then the other document is the actual lease, which is just like your normal rental lease. So your normal, you know, hey, I’m renting an apartment, that lease it just says I’m going to pay X amount of money per month, I’m going to do all these things. So I, I negotiated that piece, both those pieces with her and I kept it very simple. And here’s where my pay each month it’s interest only. And if it goes towards principal, and here’s some down payment money that I was able to have, but it wasn’t nearly the 20% that I needed. I didn’t have that. And so I needed a creative way to get it done. So that’s what I did on that site. I think it was 5% down maybe 7% down so that’s a lot less than 20% that I needed. And then I went ahead and I converted that office space into an Airbnb house that has you know, I added a better bedroom. I redid everything and it is almost like a flip job. But I, I didn’t flip and I still have it. And you know it does it does well enough. It’s you know, right now isn’t a great time of the market to do air b&b work but you know, it, it, it’s a great asset, a great location, it’s only going to increase in value.

 

Bailey Kramer  20:21

So this lease purchase option. So there’s kind of two parts to it. The first part, you don’t actually own the property, you’re leasing it from the owner and you’re collecting the rents and making money from that, and you’re just paying interest only to the owner. I will point to become the owner and have you come to that point on this property.

 

Alex Olson  20:36

I haven’t come to the point where I own this property yet. But it’s very clearly in the contract of when that time is supposed to be. And you can have depends on what the owner wants and what you want as, as a buyer. You know, do you want it to be 18 months you want it to be a year sometimes maybe the owner says, hey, look, I’ll give you six months. So you really have to, again, negotiate on what’s gonna be best For everybody, with this particular property, I had originally set a year long contract on it. But with Airbnb market being the way it was, is, you know, I had three or four other houses that were also doing the same thing. I didn’t have any cash flow. And so I went back to the owner and kind of asked him says, Hey, are you happy with how this is going? You know, you’re getting a check every single month. And I’m paying your there’s other things too. And there I was paying or taxes and all this other stuff. And so you can negotiate an extension. So I got a six month extension on that, to give me a bit more time to to be able to purchase that outright.

 

Bailey Kramer  21:40

And just to clarify, you’re not obligated, according to the contract to actually buy it. That’s kind of where the option comes in. Correct?

 

Alex Olson  21:47

Yeah, so it’s a lease purchase option, so you have the option to buy it. I’ll give you another example. So I spent a lot of money on another property. That was a couple blocks away from University of Missouri Kansas City Campus. Nice large house best house I had from a single family home perspective. But the numbers just weren’t working out. And I gave, I gave the owner a certain percent down on it. I had every intention to buy it. But it was a lease purchase option. And it came to the end of the end of the lease, and I couldn’t buy it. I just didn’t have the money wasn’t really going to work out. I could tell from the outset that the long run on it wasn’t wasn’t going to be a good buy for me. And so the best thing I could do was was given the property back to the owner. And, you know, everybody kind of understood that, hey, this is just a lease purchase option and the lease option didn’t work out. And that’s where we left it and we’re still, you know, cordials today.

 

Bailey Kramer  22:52

Oh, that’s awesome. So the lease purchase option, it gives you and the owner the flexibility to kind of test it out and see For you, do you like the property? Is it something that you want long term? And then also for the owner, you know, does he or she want to sell the property? So that kind of is really mutually beneficial?

 

Alex Olson  23:11

Yeah, it’s worked really well for me. You know, I have there’s a couple other instances where I yeah, so there’s another instance very similar almost in the same block actually another house I did, I’ve done the same thing, but on that particular project, I negotiated a two year lease purchase option on that one. So we had some more time left on on that property and on that one, I wanted to keep it as simple as possible, but the the owner wanted me to pay more towards principal. Okay, so I was getting I would lose all that money if the deal stopped. Right. And so that particular one is I am paying him a principal pay down each and every single month, which is fine with me because I have confidence that I want to buy it and you know, the house performs well for me from an Airbnb perspective. So, again, that’s another win win situation for everybody.

 

Bailey Kramer  24:01

Right. So what tip would you give to somebody who really wants to start out in real estate, but doesn’t have much money in their pocket? What what tip would you give them?

 

Alex Olson  24:11

Yeah, if you will a couple things. One is if you don’t have much money, and you’re not really able to save because of you know, your W two job, but you want to get started in real estate investing and you don’t have, if you have a significant other, you know, make sure that they’re on board with it. That’s the very first thing you don’t want to start a fight between you and your spouse or whatever. But beyond that, what you want to do is see what assets you have? What assets Do I have, okay, I own I own meaning. I’ve got a mortgage on this house, whether it’s a condo or anything, and I’ve owned it for three or four years, or two years, depending on the market. And I think there’s probably some equity I can pull out in that. And so that’s where you can call around to your local bank. Maybe you can only get 10 grand, maybe you can get 25,000 it really just depends on your market of where you want to be investing to use that those funds. So that’s the very first tip and the safest really way to do your first investment.

 

Bailey Kramer  25:18

Are there any major misconceptions around the idea of using the HELOC or the lease purchase option or any other kind of creative financing strategy that you’ve used?

 

Alex Olson  25:27

Yeah, I think the misconception one on the HELOC the misconception there is it oh my gosh, you don’t want to use that you don’t wanna be over leveraged on your house. Which is true. Okay. You don’t I would never recommend somebody taking out a home equity line of credit to put a pool in their backyard or to you know, redo a bathroom or something. That’s not something that I would do because you know, it’s something that you need to save up your own money for and you’re not really helping your own wealth to mean that I mean sure your home increases in value. But you know, if You’re using a home home equity line of credit and the right way you’re not using it to buy cheeseburgers, you know, or whatever the case may be, you want to use it for investment purposes. And so that’s one thing that you definitely do tons of research on to get over that hurdle, if that’s impacting your psyche, and then on the lease purchase option. I think there is some stigma there that owners aren’t going to want to do that. Okay. But guess what, the owner that sold me the or is selling me The house has no chills, mercy. She told me no, probably a dozen times this you never do. Okay. And so over six to nine months, you finally said yes. Now, you know, that’s not gonna happen every single time. But that’s the thing that you’ve got to get around is it never hurts to ask?

 

Bailey Kramer  26:51

Definitely, definitely. So besides the heel lock and the lease purchase option, are there any other creative strategies that you recommend? Or maybe That you’ve used or are planning on using.

 

Alex Olson  27:03

There are other ones that you can use. And I don’t know 100% if I’d say I recommend them, I’ve used them. And one of which is, and again, this has got a bad stigma around it, but as a personal loan, okay, I’m not talking about a payday loan or something that’s got, you know, 235 600% interest rate, I’m talking about a personal loan from like, a prosper, or a Lending Club or a sci fi, something like that, that has a reasonable interest rate, where you can get in there it’s non recourse, meaning it’s not going to, I shouldn’t say it’s non recourse but it’s it’s you don’t have to have collateral for meaning you don’t have to give them a bike. You don’t have to give him a boat or anything. It’s just, it’s going to impact your credit, okay? negatively. But if you have that interest payment that interest in principal and interest payment built into your model of what your of what you’re trying to buy. A lot of people use hard money, Okay, I’m gonna buy this saying I’m gonna get hard money loan, I’m gonna flip this house, whatever it is, I’m gonna use a hard money loan, well that’s like, you know, 1012 15% interest rate on your first deal, you might be able to get a personal loan for 30 to $50,000. And it might only be 6% 9% interest rate over seven years, you know, so that’s one thing that I would be very cautiously considering. I could because I don’t have access, I didn’t at the time to know any hard money lenders. And again, I didn’t know any private money guys, I didn’t know any of this stuff. And so even if you don’t know anybody in real estate, my point is using a personal loan only for a real estate acquisition and only if you understand What the payments are going to be, is acceptable, but you got to do it correctly.

 

Bailey Kramer  29:06

Right, right. And there’s so many different strategies out there. And we’re kind of just highlighting a few here. But you know, you really have to find what works best for you. And you know, go from there.

 

Alex Olson  29:18

Exactly.

 

Bailey Kramer  29:19

there any last things you want to add about creative financing before we move on to the next section of our show?

 

Alex Olson  29:25

I would just the only other piece of creative financing is one of the things I love about real estate is you can do anything. efficiency, you can do anything, but there’s a lot of different things you can do to secure a property. So don’t give up just because two or three different things didn’t work out for you. Right.

 

Bailey Kramer  29:44

So now we’re gonna move on to the next section of our show, which is the big four where we asked all of our guests the same four questions. So number one, Alex, what’s your number one habit for success?

 

Alex Olson  29:55

Number one habit is persistence. And I think you could kind of hear that through my story. Have being on top of people not giving up, checking in, you don’t have to be a jerk about it. Look, everybody’s in this world together. And so even if you’re just checking up to say, hey, people start to remember that they might not remember the first six times you reached out to them, but maybe that seven time on persistence, so finally, say, Okay, yeah, I’m available now let’s talk. And so that’s my number one thing.

 

Bailey Kramer  30:28

Yeah, persistence is key. So number two, limiting beliefs or thoughts in our heads that hold us back from realizing our potential. What is one limiting belief that you were able to crush and how did that impact your life?

 

Alex Olson  30:40

The one belief that, again, I thought I had to have was money. I thought I had to have my own money to get started in this. And the way most people talk, it seems like it’s true, but it’s not you can buy your first investment. You can buy many investments. Without using a dime of your own money if you research it right and work hard enough at it,

 

Bailey Kramer  31:05

definitely. And that’s probably the biggest misconception I see. People think that they need millions of dollars in their pockets before they get started. But in reality, that’s not true. Yeah. And number three, what advice would you give to someone who’s considering investing actively or passively in real estate for the first time?

 

Alex Olson  31:23

The best advice I would have is I know it’s cliche, but the location, location location, okay, just because it looks like a great deal on paper, might want to pull up that map and make sure that it’s, you know, a great deal on location. And then make sure that the numbers work. So make sure that you’re, you know, you put some doesn’t have to be super conservative because you don’t want to ever analyze yourself out of a deal. You want to make sure that you’re looking at it realistically. So just make sure that you’ve analyzed the deal, but also don’t make it look Better than it actually is.

 

Bailey Kramer  32:03

Right? And number four, what is your favorite real estate business or personal development related book?

 

Alex Olson  32:10

My favorite real estate book is a book by Sam Zell, who is a billion dollar real estate investor. And he wrote a book autobiography called, am I being too subtle. And it’s chronicles his life of how he kind of walked into real estate. But the reading between the lines in there you can see that he worked really hard. He really tried to find ways to make deals, not find ways to not do deals. You know, I run into a lot of investors on the buy side, you know, I work as a broker’s agent or as a buyer’s agent, excuse me, to where a lot of people try and find a way to not do a deal. But Sam always looked at away How can we get a deal done? Hear. And so that’s one thing that I’ve taken from that book and applied it to the real estate world.

 

Bailey Kramer  33:07

Yeah, I’ll definitely have to check that one out.

 

Alex Olson  33:09

Yeah, it’s great man.

 

Bailey Kramer  33:11

And Alex, Where can the listeners get ahold of you?

 

Alex Olson  33:14

So best way to get ahold me is on LinkedIn. Obviously search for my name, Alex Olson, O-l-s-o-n on LinkedIn. There’s probably a bunch of other Alex Olsen’s out there, but hopefully you can see my face and know it’s me. And then of course, you can email me, I respond to emails all the time, Alex at Clemens real estate, that’s Clemens with one M. But Alex Clemens real estate , and those are the two best ways to get a hold of me. Awesome. Well, Alex, it was great having you on the show today. Thank you so much for adding so much value and teaching all your creative financing strategies. Yeah, man, no problem. Appreciate it. Thanks for time.

 

Outro  33:58

Thank you for listening to the Real Estate Investing Made Simple podcast. For more resources or to connect with us further, please visit our website http://www.baileykramer.com. We’ll see you next time.