Rental Income Podcast Interview: How I bought 3 properties by 22 years old

Inspiring interviews with today's top landlords. This is the Rental Income Podcast.

And now, Damle. My guest on the podcast today had incredible timing when he decided to start buying rental properties. He bought three properties at what, looking back on it, was essentially the bottom of the real estate market.

So, these properties are all cash flowing really well. He was able to pick them up really cheap, and today those properties provide a good base salary. His income from his regular job is not steady; he has good months and bad months. But the income from the rental properties is steady and really kind of covers his basic living expenses.

Graham, welcome to the podcast! Why don't we start with you telling us what got you first interested in real estate?

A lot of it was, I think, was just a fluke. I did so terrible in high school that I didn’t have two grades to go into college. I mean, I didn’t really get in. I only applied to one school, but I thought I’d get in, and I didn’t get in. There’s left, it’s like, what do I do now? And real estate seemed like one of the things that I thought initially—I thought I was just going to do it for a year and then reapply to schools.

I ended up getting my real estate license as I was graduating high school, and I ended up falling into it and really enjoying it. I think about eight months, nine months in, I sold my first house, and that was three... I think it was like 3.6 million dollars. And that commission was just like more money than I had ever seen in my life, than I had ever had. I mean, that was just like winning a lottery for me.

Having that Commission like this, it’s like, "Well, I could go back to school. Let me give this another year." And I think I sold my next home a few months after that. At that point, I’m like, you know what—this isn’t the way I can go back to school after this. This is so much fun. I’m really enjoying this, and I really saw it as just a future career that I loved. That was just so much fun for me.

It’s awesome! And then, how did you go from being an agent to being an investor? How did that part come about?

A lot of it was just the uneasiness of having such an inconsistent income because I would have months that I would work and grind. I would work, you know, six, seven days a week, 10-12 hours or more a day and earn nothing. Then, four months later, I’m earning nothing and grinding it out and working every day, just being stressed out.

You cause one deal and that one deal pays for the last four months, plus like the next three, and then you don’t know when the next deal is going to be coming about—and it's so inconsistent. A lot of that uneasiness, um... you know, I feared for some sort of stable income initially. Even though I loved real estate and I loved the challenges, I partially liked the inconsistency because it makes it exciting.

But there was just the stress behind it of needing to constantly hustle for Commission and needing to constantly work for some sort of income. So, a lot of that, I just—I saved pretty much everything I made. I just saved it because in the back of my mind, I'm like, this could hypothetically be my last Commission that I'm gonna make for I don’t know how long, right? So I need to save it. I need to make it last.

After about three and a half, almost four years of just like saving, saving, savings as much as I could, I think I pretty much lived like a hermit crab. Like, I never went out. I would rarely spend money. I think like me treating myself is fine, like a Subway, like a $5 footlong. Like, that was my idea of treating myself.

So, I saved as much as I could, and in 2011, I just heard these properties were just so cheap. I had saved up enough at that point to be able to get in the real estate investing game, and part of that was luck that the market had turned down enough that it got to a point where I could finally afford a property of my own.

That’s how I started to get into it, and I just saw that as a way for me to get some consistent income that would allow me to focus on, you know, my real estate agent career without the, you know, the stress and hassles of having to produce an income every single month.

That’s really the great thing with rental income—it’s so consistent every month that those rent checks just show up. It’s great that you’ve got kind of that base salary almost to cover your expenses, so that if you have a slow month at your real estate job, at least you know you’ve got your bills paid. So that’s great!

So, tell me about your first deal. How did you find that first property?

So, what I did a few months prior to getting my first property, there’s an area in San Bernardino that I really like, and I would just go there every single weekend and just drive around, getting to know the area. Because there was an agent, I had a program set up from the MLS. It was like this auto-notify program that sent me things as soon as they would come on the market.

So, anytime the listing came on the market, anytime there was a price reduction, anytime there was a listing cancelled, extended, or anything done to a property, I would get an email from it instantaneously. So, I would look at these listings at the second they would come up. And, because I was an agent and I had templates to write offers on, I would pretty much write an offer on almost anything that came up that looked decent.

A lot of these, because they were short sales, I had to make offers sight unseen. Sometimes what I would do—I’d drive by, but other times I would write an offer subject to interior inspection, and I would just write offers at prices that I thought would make sense.

Because there were so many of them available at the time—I mean, there were hundreds of short sales—everything was a short sale. Because there were so many of them, I would just lowball pretty much everything. A lot of them wouldn’t pan out, but because there were so many of them, I knew that if I lost this offer, it didn’t matter because there were three others that were going to come on the market.

So, the first one came on the market. This is a property, by the way, I think in 2006. The current owner had refinanced the house for over like three hundred thousand dollars, and so they had a loan against this for like three hundred-something grand. The house came on the market, I think it was at like eighty thousand dollars as a short sale, and even that was cheap.

So, I made an offer, I think at sixty thousand dollars cash, and these were all short sales. So, because they’re short sales, I knew that it was going to take time for the bank to approve these things. So, my rationalization was that I’m just going to submit an offer on everything I can get accepted, get it sent to the bank, and then the bank was going to take three months to twelve months to review that.

And then, come back. Anytime the bank comes back, then you have another chance to decide if you want to accept it or deny it. By that time, they probably have other buyers lined up anyway. So my thinking with it, it doesn’t hurt to get these offers accepted. If the bank comes back and agrees, then great! If they come back at a higher price, I’ll just evaluate where that deal stands in compared to, you know, everything else that I have and decide at that point if I want to get this place.

So, it ended up getting accepted at $60,000 by the seller, and then a few months went by, and the bank actually ended up accepting this offer. So, at that point, I saw the house for the first time, and it was a mess. She was a hoarder. I think, you know, there were needles around the house. So, obviously, she had, you know, been dealing with a lot of demons in her life.

The house was just in terrible condition, and then fixing it up, I think by remodeling cost about 12 grand on this house. Today, it would probably have been around like 20. But because everything was so cheap back then, it was like 12 grand, and I ended up, I think, I rented that house initially for like twelve hundred and fifty dollars a month.

That’s incredible! Wow! So, was it hard to find contractors? Because this house, it sounds like it was an hour or so away from where you were living. Was it hard to find contractors in that area?

Oh, not at all. The thing with the background was that contractors were out of work. I mean, there were so many contractors and so many workers that just had nothing because nobody was remodeling homes. Everything was just sitting there, becoming dilapidated. The owners were just letting them go. They had no financial incentive to fix anything up.

So a lot of these people were out of work, and getting someone to go over there, which I got someone within like a day. Crawling around, awesome! I ended up finding somebody who had worked with one of my clients, and he was so desperate for work. He had the whole team, and all of his people were just desperate for work—they had nothing to do.

So, this worked out great because I was able to get such a good price because all these people were just desperate for any sort of work. And at the same time, I was able to provide them with something to do. I mean, it really worked out for everybody in this one.

Now, what about managing the rehab? Did you have to go over there a lot to check on them, or did they just kind of do the work and tell you they were done? You know what I mean?

These sort of people would have just done the work and would have just called me. I went over, I think, every few days. But that’s just because of my own curiosity, sure! And just because I wanted to be involved, and I wanted to see what was going on. It was exciting for me, yeah! So, I really wanted to become a part of that process. I didn’t need to be there.

Okay, yeah. I enjoyed it. Sure! So, I know you got that property done, and that cash flow is incredible now. How long did you wait before you bought your second place?

The next one—it was just like a few weeks after that. But the thing is, I submitted probably 40 or 50 different offers on places like anything that would come up. I pretty much wrote a lowball offer, so at the time I had a queue of like, I don’t know, maybe like 10 different places that I hadn’t asked for at the time, and there’s no way I would have closed them.

But I knew that I would just see what comes up at the time and decide at that time if it’s a worthwhile investment. So, the second property I got was just down the street from the first one. I think this one was worth like probably about the same price—well, it was slightly bigger—but it was worth probably like 350, 375 fifty years prior.

And it came on the market, I think, at like 90 grand. I was going to offer at—I think it was 70—and we ended up getting an acceptance from the bank at 72. Wow, so we bought that one at 72 grand, and it was down the street from the first one. I closed, I think, like a week or two later.

Graham, we have a lot of listeners in California and in Los Angeles, and they all tell me that it is impossible to find cash-flowing properties. You found some really good deals. Is this just luck? Did you really just happen to buy these properties at a perfect time, or are these kind of deals out there today?

No, I highly—duh, I know. I don’t think I could have found another deal like this again. In my opinion, I mean, this was a once-in-a-lifetime. I mean, it’s just partially just luck that I happened to be in the market at the same time these houses had just totally crashed.

I don’t see—I mean, now these same houses are just selling between 2 and 350.

Okay, wow! So, are you ever tempted to just cash out? I mean, you’re sitting on just such a huge gain. Does it ever tempt you to cash out?

Not really. It’s a little bit because my thinking at this point is it—realistically, I think we’ve somewhat capped out in terms of what San Bernardino can do in terms of appreciation with the next probably 10 to 20 years. Realistically, I think we hit a plateau where we should see some normal gains of maybe 3 to 5%, maybe 5% a year is getting a little ambitious; maybe 3 to 4% a year, pretty much on par with inflation, maybe plus a percent.

Part of me does think about cashing out every now and then, but I mean, all of these cash flows over a minute—I don’t have to worry about it anymore. So part of me is thinking, "I’m just going to let it ride." Yeah, I don’t need the money. I mean, there’s no reason for me to sell these, and I enjoy the rental incomes. I may as well just kind of keep them.

I think that’s a good move. When I talk to a lot of old-time real estate guys that have been doing this for 40 years, they always tell me that their biggest mistake was selling properties. They thought they were selling at a nice profit, but over time those properties appreciated more. So, I think you can never go wrong holding.

That’s too! Thanks to you, a lot of the most successful people I’ve seen just sell right. It kind of stuck with me—"Why sell then? I just can keep it forever and just pretend like, you know, it never existed."

What about buying more? Now, what about management? You seem like you’re busy with your real estate business and you live kind of far away. Do you manage these properties yourself or do you have someone local that’s helping you out?

I do a little bit of both. So, I manage all of these myself for the most part, but I do have someone local that I pay hourly, and he’s just been amazing. He is also another property owner—he’s pretty much retired—but he’s a property owner and a contractor, and I pay him hourly.

So if something breaks, he’s local and he can go there and take care of it himself. I pay him hourly and if anything breaks, I just tell the tenants to call him directly. He goes out, he’ll take a look at it, he calls me basically just for approval if anything breaks, if just prices and stuff like that. But I mean, it’s worth it.

I don’t know if I would want to go and like all contractors myself, in line of video, no. But having someone like that on call that I can pay hourly just to oversee things is worth it, absolutely.

All right, so let’s get back to your portfolio here. So, after you bought that second property, you ended up buying another property?

Yes, so the triplex was one that I think—I saw this one in 2005. It seems like all of these properties that I ended up buying were refinanced in 2005 and 2006. So, I think people there too saw their property increase so they could pull up on cash.

I think everybody at that point pulled out all the cash and flew it all. You know, actually, it’s kind of spent at all, right? So, this is something I think in 2005/6. He refinanced this for like five hundred grand or something like that, something ridiculous.

This came on the market, I think, like 150, 150 grand, and I think I submitted an offer—this is, you know, five years ago, so don’t remember the specifics. I think it was around like 110. I won—it was 105 grand—that's what I submitted my offer at, 105 grand.

It took maybe eight months for the bank to get back on this one, and the bank came back at 125. I did the inspections on it, and it came back with, you know, some pretty significant repairs that needed to be made in one of the kitchens. The bank wouldn’t budge, and the bank was saying, "Listen, 125, take it or leave it, otherwise we’re going to list it as an REO, and you know, you’re out."

I remember at the time thinking 125 was too much, and I thought at the time this place is worth like 110, and at that kind of like, I’m overpaying for this by 15 grand. But I thought, I'm in so deep on this one. This is still pretty much on par with all the other ones that may or may not get accepted that I currently have in queue. May as well just overpay on this one.

I mean, I had no idea the market would have gone up as much of it, but now it’s probably worth 350 or so—it's incredible!

Oh wow! So then did the market then start shifting where the short sales started going away? Did it become harder to find these deals?

Yeah, so what I noticed is that the market just got too cheap for people to really start passing them up, and really investors were the ones that saved those markets. Investors were coming in cash; they were buying all of these foreclosures, and they were fixing them up.

It really changed the area around because you could drive down and see these houses boarded up. The grass was, you know, two feet tall, and you would see these investors go in and clean them up and make them nice and turn them into rentals. The rental market back then was super strong because all these people were losing their homes, and nobody had the money to buy, especially because there were so many investors out there buying cash and all these foreclosures.

I mean, some banks wanted cash deals. Brando, anybody who really wanted to buy—just those areas—most people didn’t have cash to be able to buy those homes, so they were forced to rent. The rental market then—I mean, everyone was nothing. Nobody who was buying was merely finite investors. Wow, that's incredible!

So, Graham, this is just an incredible story. I’m so happy for you that you’ve been able to build this incredible portfolio. Congratulations! I mean, this is really inspiring.

So, tell us what you’re doing today. If someone wants to reach out to you if they’re interested in buying properties in LA, what’s the best way for someone to get in touch with you?

Right now, I have a business email set up. Really, the market I work in a lot is very specific. I really don’t do much under like seven hundred grand, and most of what I do is really between the one to five million range.

But I have an email account set up if anyone wants to reach out; it’s GrahamStefanBusiness@gmail.com. It’s just my full name and then business at gmail.com, and that’s probably the best way to reach me if they’re interested in doing something like that or working with me.

Really, I just focus on West LA for the most part.

The other thing that you’re doing that I think is really cool is you have a YouTube channel where you talk about a lot of real estate stuff. Tell us about your channel and where we can find it.

Yeah, if you type in just my name without a space—GrahamStefan—full name, just no space on that—and YouTube, you’ll be able to find it. It’s really just a place for me to share my thoughts, vent, and share things that I think are cool with a mixture between real estate and, you know, money and wealth and finance and all that.

So, it’s basically a place for me just to nerd out, you know, and record things that I’m interested in and put them up. And I’m glad that other people enjoy it!

I will go ahead and put a link to your YouTube channel and to your email. You can find it at rentalincomepodcast.com/episode115.

Thank you so much for listening! We’ll be back with a brand new interview next Tuesday. My name is Dan Lane, and this has been the Rental Income Podcast.