Dave Dinkel’s REI Mentoring Student Makes $94,000 Profit
Dave: Hi, I’m Dave Dinkel. And today, I’m here with Gabe. Gabe happens to be one of our mentor students and he is, I’m not going to say notorious, but I’m going to say well-known for the fact that he’s the guy that I told to quit his job. I’ve talked about him a number of times where he had a property in another county where he was going to close on a 3 or 4 unit rental income property and he was making not much money after college education and everything else, the only job he could get. But I said to him, “You’re going to make than that deal what you made all of last year. Why don’t you go ahead and quit because they were hassling you at work about making phones and stuff even on your lunch hour.
Dave: So, he did quit. And of course what happens, it didn’t close. And it was a little terrifying for a month or so. But that’s all history. And he has done extraordinarily well. Gabe was saying to me, “You guys will do 7 figures this year.”
Gabe: For sure.
Dave: Yeah. So let’s talk about this one property. And the reason I want to talk about it is it’s what I call lipstick on a pig. And it’s kind of you get a house and do the minimum rehab possible. You try not to replace kitchens for sure. You try not to replace bathrooms but paint and patch.
Now how big was this property?
Gabe: This property was a 4-bedroom, 3-bathroom house and it had about 2,400 or 2,500 square feet.
Dave: And you had to paint the inside and the outside, so your painting budget was a little above what you expected.
Gabe: Yeah. Yeah, painting came out to, I want to say it was about $8,000 painting inside and out of the house.
Dave: So you didn’t replace the kitchen?
Dave: OK. So what was your total, do you think, cost to do it and how long do you think that actually took?
Gabe: We did the rehab in about 2 weeks or 3 weeks. The longest part that took really was just waiting for the granite guy to bring the granite because what we did do was the kitchen had an old formica slab. So we took the slab out and we put granite countertops in the kitchen and we put new vanities in all the bathroom with granite. And that’s what took the longest. So waiting for the granite guy to come in and put that in.
In the usual lipstick on a pig, we don’t do that but this was a high-end house so we thought it was – it would have helped us sell it a lot faster given that we had a big loan on it and help us sell it for more since we were trying to max out our profit.
Dave: When you say a big loan on it, you had a hard money loan.
Dave: OK. So how long did it take you from the day you closed until the day you closed on the sell side?
Gabe: Well, due to it being that we had 90-day deed restriction and then we had a title issue that came upon because our closing agent on A – B made a mistake and recorded the deeds on the A – B side, it took a little over 4 months. I want to say 4 and a half to 5 months it took. But if it wasn’t for the deed restriction and if it wasn’t for that title issue, we could have been done in 2 months.
Dave: Yeah. You just waited out the deed restriction and it had been done, yeah. So, 91 days or whatever.
Gabe: Yeah, because we had already – we had it sold. We listed it on the market. We sold it in a week.
Dave: So the problem was – just talk about the title issue – was you originally had a buyer come to you and said, “I want to buy it.” And he went down signed all the documents as far as I remember and then he didn’t close.
Gabe: That’s exactly what happened.
Dave: Yeah. But what happened is the clerk filed the documents that he signed and he was on title. He was actually owner of the property.
Gabe: He was actually on the title.
Dave: So, when you went to close the second time, all of this came up and it showed you’re not the owner anymore.
Gabe: And we actually found it – my partner found it going into it by chance. I don’t know what he did. Somehow, he was searching on iMap, which is a tool on the MLS® and he saw that we weren’t on title. And he let the closing agent know and they looked into. They just had so many files going on that it wasn’t something urgent. When he said he was going to handle it, we took his word. And when it came time to close with the buyer and they did their title search, we had an issue.
It turned out, we had to switch title companies because the buyer’s title company wouldn’t close the file. And since our title company did the mistake, they said, “Look, tell the buyer to switch over here and let them know everything will be fine and we would not charge them for any of their closing costs. We’ll wave it as part of our – for making the mistake.”
Dave: And as silly as that sounds, it’s not uncommon where let’s say you have a double closing A – B and B – C the same day and they sent it to be recorded, now when I say sent it to be recorded, everything is recorded electronically in Florida now so it’s done very quickly. But they record the B – C side first and then the A – B side secondly. When you look at the public record and the guy who sold it originally is still on title and you’re in between so the end buyer doesn’t own the house. The original owner apparently on title does it. Those are pretty easy to fix. This one was not so easy to fix and it cost money and time to do it.
Gabe: It costs money and time because then the original – the buyer who didn’t end up closing had a real stickler of an attorney and this guy was a Realtor® actually.
Dave: Oh, the buyer was a Realtor®?
Gabe: The buyer was a Realtor®. So you know how some Realtors® are. They are so like – they are so rigid and by the book that he said he was not going to sign anything until his attorney was going to look over it. And I went, “Look, all we’re asking for is a quick lien deed to give us title to a house you don’t even own.” He said, “I’m not signing anything without my attorney looking into it.” So the attorney looked into it and he gave our attorney a real hard time about it and going over stuff. It took a while to get that. We were waiting for a little bit.
Dave: And the other unexpected thing was the day before closing, somebody broke in and took the appliances.
Gabe: He took the appliances, yeah. They broke into the house twice – actually, it was funny because – well, that’s the first time that has ever happened to us and we rehabbed in way worst areas. This was in actually one of the nicest areas that we’ve rehabbed in and they broke into the house twice.
The first time, we left the garage open. Luckily, the house’s doors in the thing weren’t opened because one of the garage doors, the lock wasn’t working. And the owners – the buyers asked us if they can bring their shutters to the property so they can get a discount on the insurance. So they brought the shutters over and then one day they called me and say, “Hey, where are my shutters?” I’m like, “What are you talking about?” He’s like, “They’re not there.” I’m like, “Oh my God! I haven’t touched your shutters.”
Dave: Are they aluminum shutters?
Dave: Oh boy! It’s really easy to resell on the metal’s market and expensive to begin with.
Gabe: Yeah. They have probably $1,500, $2,000.
Dave: Easily, yeah. But what happened then? They had to replace them themselves.
Gabe: Yeah. I told them that I wasn’t going to pay for it because that wasn’t – those weren’t my shutters and I’m sorry. When the appliances things though, I mean they actually closed and the day of the closing, they went home and I get a call at 6:00 o’clock at night and me and my fiancée are looking at the call because she does her sales and I’m like, “Oh boy! Here we go!” So they called and they were freaking out. Someone broke into the house and the door was open and all the appliances are gone and they left holes in the wall.
Dave: Oh, they did? They actually vandalized it.
Gabe: Well, because where the fridge was, it was so close to where the – there was an island and in order to take the fridge out, you have to actually remove the handles for the fridge to come out. So when they were dragging it off, the floors were wood laminate floors, so they scratched all the floors. They scratched a whole bunch of walls.
They were very nice buyers. I felt bad. We didn’t have to replace them because technically, it was already their house. They already closed. It was their house. But I felt bad. They had already lost their shutters. So I talked to my partner and said, “Look, I think we should give him the appliances.” And he was fine with it. So we put in new appliances and we just didn’t fix anything else. We didn’t send anyone to go paint or anything. We said, “Look, we’ll give you the appliances and anything else, just deal with it.”
Dave: OK. So you, for some of you that are curious about where the property came from, this was a short sale.
Dave: And what you guys do with your short sales is you work them, I’m going to say, in-house. You have a designated person. What that takes away from the equation is an attorney’s negotiation fee and whatever else is involved with that. So you pay your short sale person based on the files completed.
Gabe: I pay her – she gets paid hourly. And – no, she gets paid a salary. She is in-house and she does other things. She started off as, let’s say, our executive assistant. Now, she does strictly, she handles – she coordinates our closings and she does short sales. And I trained her on how to do the short sales because I had negotiated many short sales myself and it works out great. I save $2,000 or $3,000 per short sale and it’s easier because regardless whether we close or not, she still gets paid.
And what I’ve noticed is that when you’re hiring somebody who doesn’t get paid unless your short sale closes, it’s very stressful to try and negotiate for a good price when their livelihood depends on it.
Dave: Yeah. They just want to get it closed.
Gabe: They just want it to get it closed. And sometimes they may fight with you and say, “Look, you’re getting a good price. Just take it.” But it’s your business and you want to take it at the price you want. So when you have somebody who gets paid regardless, it’s easier to do that.
Dave: So, let’s see how well she did on this. Now, she happens to be a virtual assistant. What country is she in?
Gabe: In India.
Dave: OK. So she speaks English, not American.
Gabe: She is in Calcutta, India.
Dave: OK. So she negotiated the short sale for what price? What did you actually close at?
Gabe: We bought the short sale for – when it was all set and done – well, the thing is that we got a Realtor®. We take the commission also.
Gabe: Since my partner is a Realtor®. So with the commission and everything, with the credit of the commission, I think we were all into it for like 185 or 188 or something like that.
Dave: OK. So say, 190, let’s pick a number. And what did you sell it for?
Gabe: We sold the house for 340 but we didn’t pay commission on the sale side.
Dave: OK. So when all that smoke cleared, from 190 to 340, you netted 90 some thousand dollars.
Gabe: Ninety some thousand dollars, yeah.
Dave: So, he told me when he first was getting ready for the closing, he said, “I got my first 6-digit lipstick on a pig,” that turned out to be very close but not quite 6 digits.
Gabe: It turned out to be slightly under.
Dave: Does it really matter?
Dave: OK. So that’s an idea of how to do short sales, have somebody in-house in another country as a VA actually does them, does a good job and there are some real insights into how you’re doing your deals.
Gabe: Yeah, because so many people think you know, I know you teach your students and you taught me to be fearless about short sales not being so complicated. So, so many people think short sales are this complicated thing that only special people who know about them can do them. But it’s not quite the case. If you actually call – if you actually – I will recommend for anyone who is doing a short sale actually, just do one yourself completely, from beginning to end and they’re not that hard. It’s just a follow-up process.
Dave: Yes. It’s a tenacious follow-up process. I didn’t ask you this, but how long did you think it took her from the time you got it under contract to actually it was approved by the lender?
Gabe: That one, right now, we’re averaging about 3 months in our business. But that one was over 3 months. That one took about 6 months. It was also behind on taxes and that specific property. It went to foreclosure so we had to file a motion to stop the sale and I think we filed a bankruptcy for her. So when we filed the bankruptcy, that stops the whole entire short sale process until it gets dismissed. So that also delayed our process a little bit.
Dave: So that’s great though that you had to have some legal maneuvers to be able to get it. She came out better. You guys came out great and the bank got its money anyway.
Gabe: Yeah. She was super happy. She was a little bit skeptical at first about doing the bankruptcy. We gave her about $3,000 for moving expenses and we told her, “Look, if you do the bankruptcy, we’ll give you $5,000.” And we referred her to a credit repair company that told her when she filed the bankruptcy, it’s going to show on her credit report but since it’s getting dismissed, that it’s a very good case that they can go to their credit bureaus and get that removed from her credit report because she was concerned about it.
Dave: Yeah, rightfully so.
Gabe: And the $5,000 and her talking to the credit repair company gave her confidence and she went forward with it and filed the bankruptcy.
Dave: OK. So now that you are one of our fearless mentor students, what would you say to new people who are thinking about coming in?
Gabe: Into the program?
Gabe: I’d say that if you’re passionate about real estate and real estate makes sense for you, this is definitely one of the best programs to get into, not just because of the tools they train you but basically because you got somebody like Dave who has been in the business. He knows – he is in touch with all his students who are successful and knows exactly what they are doing and he knows all the systems and all the tactics that people – that can get you to success much faster. And from my personal experience before I joined the mentorship program, that was a year just trying to learn, going to seminars and reading books. And I did one deal and I made a thousand dollars.
Dave: That’s a biggie.
Gabe: As soon as I linked up with you, everything skyrocketed and the amount of success that I was able to get with your mentorship and your help, I mean was phenomenal. It’s something that you can never do on your own without someone who has already been there or someone who knows.
Dave: Now, sort of as a caveat in closing, the $94,000 or whatever you actually made was almost equivalent to 3 years’ worth of your income before you get into real estate investing.
Gabe: Yeah, a little bit more when I computed the taxes and all that stuff, probably $25,000 with taxes.
Dave: Yeah, OK. So that’s what can happen if you do it right. All sorts of good things can happen and it’s changed your world to say the least.
Gabe: Yeah. And I work from home now every single day. I always tell my girlfriend and she’s like – she comes home sometimes and she’s like, “What are you doing in your pajamas? It’s 2:00 o’clock.” And I say – I always tell her, I say, “I make millions in my pajamas.”
Dave: Again, thank you very much, Gabe. Appreciate it.
Gabe: No problem, my pleasure.
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