JF2124: Beginner Tyler Caglia Shares 5 Steps In Investing Out of State

Tyler has always been interested in investing in real estate but living in California he has always felt like it was tough to do so since the houses were so expensive. He recently discovered and consumed Joe’s show and Bigger Pockets content and afterward has quickly started investing in long-distance single-family homes in Ohio. He shares his 5 step process on how he goes about investing.

Tyler Caglia Real Estate Background:

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Best Ever Tweet:

“If you over analyze everything and overthink it you will never finish your first deal.” – Tyler Caglia

TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Tyler Caglia. How are you doing, Caglia?

Tyler Caglia: Good, Joe. Good to be here.

Joe Fairless: Well, I’m glad to hear that, and it is nice to have you here. A little bit about Tyler – he’s a full-time project manager, managing multi-million-dollar projects for a civil construction company. He’s based in Clovis, California. He’s been investing for ten months. He currently owns three long-distance single-family rentals. Based in Ohio. With that being said, Tyler, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tyler Caglia: Yeah, Joe. So I’ve always been interested in real estate, but living in California, as we all know, it’s very expensive and the conditions can be unfavorable for landlords… So about a year ago I discovered the Best Ever Podcast…

Joe Fairless: I recognize that…

Tyler Caglia: Yeah. As well as Bigger Pockets… And I read, as everyone seems to do, Rich Dad, Poor Dad. I was hooked from there. So I kind of realized how accessible real estate can be, and I was determined to jump in, and right away started buying long-distance properties. Ten months later, I’ve got three in Columbus, Ohio.

Joe Fairless: So talk us through how you ended up there.

Tyler Caglia: I’ve kind of got a five-step strategy that I outlined a little bit.

Joe Fairless: Oh, nice!

Tyler Caglia: Not just for finding Columbus, but just for deciding on my strategy overall…

Joe Fairless: Okay, please. Yeah, good.

Tyler Caglia: So I kind of started with education, obviously, which there’s plenty of great books out there, podcasts, like I’ve already said, and I’ve done a lot of research… I identified a strategy; that was my second step. With California being so expensive, I wanted to go long-distance. I think most people are familiar with the BRRRR strategy, which I felt like was attractive… And I wanted to self-manage before I hired a property manager, so I can understand the whole process and what I’m looking for.

For funding, I took out a HELOC on my primary residence.

Joe Fairless: Okay. Are we still on number two, identify strategy, or are we on three, funding?

Tyler Caglia: Alright, so number three would be funding.

Joe Fairless: Okay.

Tyler Caglia: So I took out a HELOC on my primary residence…

Joe Fairless: Alright… And how much was the HELOC for?

Tyler Caglia: I’ve found a HELOC that was 100% loan-to-value. I ended up getting — due to some natural and forced appreciation of my personal residence, I was able to get one for 100k. So that was really cool. It took a while to find a lender that would do that, but once I did, it was a pretty easy process.

Joe Fairless: Let’s talk about that a little bit, and then we’ll go to four… Natural and forced appreciation on your primary residence – what did you buy it for? And I assume it appraised for 100k, since it was 100%…?

Tyler Caglia: Well, they allowed me to go up to 100%. So I was at about 80% with my primary mortgage.

Joe Fairless: Oh, got it.

Tyler Caglia: So the HELOC covered that other 20%.

Joe Fairless: Okay. So you got 20k.

Tyler Caglia: No, sorry – so basically my balance due on my mortgage was about 240k. My home appraised for 340k.

Joe Fairless: Understood. Every other person who’s listening was understanding it except for me, so it was my bad. Got it. So you have a 100k line of credit, and you had a mortgage on it, and the line of credit allowed  you to go up to 100% of the loan-to-value. In this case it was like 240k to 340k, right?

Tyler Caglia: Exactly, yeah.

Joe Fairless: Alright, cool. I’m with you. So you said that there’s forced appreciation… What did you do?

Tyler Caglia: So with my construction background, I’ve kind of utilized that to do a lot of — and I know it’s more difficult to do forced appreciation for a single-family home, but we’ve done a lot o upgrades around our house that really helped when we got it appraised. We basically got it appraised for the highest dollar per square foot in the neighborhood, essentially…

Joe Fairless: Oh, nice job.

Tyler Caglia: So that’s how we forced it.

Joe Fairless: But let’s talk specifics. What exactly did you do at that house to force the appreciation?

Tyler Caglia: A lot of basics – paint, updating light fixtures, new baseboard…  That kind of stuff goes a long way. We also completely redid the backyard, redid the bathrooms… I’d say overall we probably put 30k or 40k into it, and we got every bit of that back in the appraisal.

Joe Fairless: How much did you buy it for?

Tyler Caglia: 275k.

Joe Fairless: You bought it for 275k… And how much did you put into it, would you say? Approximately 30k?

Tyler Caglia: Let’s say 35k.

Joe Fairless: Okay. I apologize, you just said 30k — so 30k to 35k, got it. So you put in about 30k-35k, and you bought it for 270-what?

Tyler Caglia: 275k.

Joe Fairless: 275k. Quick math, 305k, and it appraised for 340k.

Tyler Caglia: Yeah.

Joe Fairless: And some of that was the neighborhood appreciating over the period of time that you owned it, and then another part of it was just being the best house in the neighborhood, and the proof in the pudding is it was valued at a higher price per square foot than any other home in the neighborhood.

Tyler Caglia: Essentially, yeah.

Joe Fairless: Cool. Congratulations on that. You said that finding a lender to give you a HELOC for 100% of the loan-to-value was challenging… And I’d like to know – and I’m sure a lot of listeners would – how did you find that lender?

Tyler Caglia: Most lenders wanna go up to 80% max; there’s some that would go up to 90%. Honestly, I used Google and just kept calling, and this credit union in San Diego happened to have a 100% LTV program. I’m sure there’s others out there, but this is the one I was able to find that would lend to a property in California.

Joe Fairless: How many phone calls did you make?

Tyler Caglia: Dozens… I spent probably a couple weeks, because I knew [unintelligible [00:09:07].03] heard of it, but it’s one thing to know that it’s out there, but it’s another thing to actually find it. So I’d say I spent a couple weeks just googling and calling, and then I found it and it was super-easy from there. I’ve referred them to quite a few people now.

Joe Fairless: In your case, it’s easy math – it was the difference between if it’s 90%, $10,000; if it was 80%, then it was $20,000. Right?

Tyler Caglia: Yeah.

Joe Fairless: So you got that line of credit, and then what did you do with the line of credit? And I understand that we’re still going through your five-step process, but I’d love to hear what you did exactly with that 100k once you had access to it.

Tyler Caglia: I essentially used that to buy my first rental… So using a HELOC when you’re buying a property – it’s essentially the same as cash. So I used that to purchase my first rental in Columbus outright.

Joe Fairless: Okay. And what are the numbers on that? Purchase price, renovation costs, what’s it rent for, what’s the value of it?

Tyler Caglia: The first one’s a three-bedroom/one-bath, with a garage, that we found  on the MLS. They were asking 65k, and this was actually on day one of looking for a property. So I just by chance got lucky. They were asking 65k, and my realtor said “Hey, this one’s gonna go fast. If you want it, you should probably offer more.” So we offered 71k, they accepted the next morning. Rehab was about 18k, and it appraised for about 107k once I refinanced it six months later.

Joe Fairless: Wonderful!

Tyler Caglia: Yeah.

Joe Fairless: You said six months later; okay, got it. Six months later, you’re done with the rehabs, and it appraises for about 10k-15k more than what you’re all-in at?

Tyler Caglia: Yeah.

Joe Fairless: Okay, cool. Congratulations on that, right out of the gate. It’s day one of looking on the MLS and you’re making not only your offer, but you’re making an offer higher than what’s being asked for the property. Any thoughts going on in your head at the time, like “Wait a second… What am I doing here? I’m making an offer day one of looking. One, am I jumping the gun? And two – listen, I see that you want 65k, seller, but I’m gonna hook you up with 71k.” Any alarm bells going off? And it ended up being a good deal, it sounds like, but any internal dialogue that you had about that?

Tyler Caglia: Yeah, absolutely. Of course, it can be nerve-wracking to buy something that really I’ve never seen. My realtor – he’s fantastic. He walks through it and sends me a very detailed video as he walks through the property and kind of points everything out, and then we come up with a rehab budget… But ultimately, you’ve gotta be prepared to just kind of make that decision on the spot. If you over-analyze everything and over-think it, you’re never gonna known out that first deal, and you’re never gonna get to that second deal.

So eventually I had to take that leap of faith and realize that I’m dealing with a realtor that I had known at that point for at least a month; he has fantastic reviews on Zillow, Realtor… Anywhere you can check, he’s got five stars, with hundreds of reviews and dozens and dozens of recent sales. So at some point  you’ve gotta realize that somebody with that kind of a reputation is mostly likely not going to risk that reputation to make a couple thousand bucks on a commission. Not to say it doesn’t happen, but that was kind of my thought process, that at some point I have to trust that his advice is solid, and my research is solid, and I’ve just gotta take that leap of faith. I knew the market was hot, and I wanted that first deal, and at 71k I knew it was still a good deal.

Joe Fairless: Earlier you said “we”. When you said “We were looking at the MLS”, was that you and your real estate agent, or was that you and your business partner, significant other…?

Tyler Caglia: My agent.

Joe Fairless: Your agent, okay. And are you single?

Tyler Caglia: No, I’m married.

Joe Fairless: So what was the conversation like with your significant other? “Hey, I’m gonna look at properties today. Oh, I’m gonna buy a property. Oh, I’m gonna make an offer more than what’s being asked for this property,  and as you know, we’re gonna use the equity we have built up in this house to purchase it.”

Tyler Caglia: So it’s a crazy process, especially buying it with HELOC, or essentially cash… You sign everything over DocuSign, essentially. It’s not like a typical mortgage where you have a notary… So it’s crazy. You’re buying a house and you’re just doing these electronic signatures… It’s a crazy process. And she trusts me… I had done a lot of research, and she knew that I kind of knew what I was looking at, and I had found the best realtor I could essentially find, who owns dozens of his own rental properties; so a rental property is nothing new to him. Eventually, she trusted me and I trusted the process and I trusted my agent, and we just kind of went for it.

Joe Fairless: Step one, learning. Two, identity strategy. Step three, identifying where or how you’re gonna fund the property. What’s step four?

Tyler Caglia: So step four was where I found the market. I’ve had a lot of new investors reach out to me on Bigger Pockets especially, saying “This is where I can tell they get stuck.” They get stuck in analysis paralysis. And in my opinion, a lot of times they over-analyze this part, identifying a market. I’ve heard people say they identified thousands of markets, and this and that… And to me, that’s more important the bigger you go, but for single-family homes I think you just need to stick to some of the basics… Because in reality, that home is surrounded by other property owners, and you can do all the research in the world, but nobody knows exactly what that neighborhood is gonna look like in 20 years. You don’t have the kind of control that you would with an apartment complex.

So I tried to stick to the basics. Priority number one was a price to rent ratio – I wanted that strong cashflow, so I started just basically networking and doing some basic research to identify where are people talking about the cashflow is. And then I would kind of follow up by just looking at some basic data of what are homes selling for and what are they renting for.

And then of course, overall you wanna look for good employment and population data. You obviously don’t want it to be dependent on one industry. Columbus seemed to be strong in that aspect. I wasn’t too concerned about long-term appreciation right now, and in the Midwest typically you’re not gonna find that as much. So from there I kind of narrowed it down to 5-10 markets pretty easily… And finally just kind of picked one and jumped in.

I was looking for neighborhoods with low crime, B- to C ratings, and then I wanted to be all-in for over 100k.

Joe Fairless: Now, one follow-up question I should have asked you about that property that you bought with the home equity line of credit – I asked you the numbers, we talked about how much you bought it for, how much you put into it… You bought it for 65k, you put in about  18k, what it appraised for afterwards… But what’s it rent for?

Tyler Caglia: It rents for $1,150, and it’s a good neighborhood. The renters that I’m getting – they work for banks, and solid jobs like that. So it’s a cash-on-cash return, plus or minus 28%. After expenses, I’m cash-flowing about $350.

Joe Fairless: Amazing. That is a good cashflow. So how do you think about that with your line of credit? Because you did buy it all cash… So if you look at “Hey, I’m making $350 on that amount of out of pocket”, your cash-on-cash return from that standpoint is not as strong as if you had leverage.

Tyler Caglia: Yeah, so that doesn’t take into account that the money came from a HELOC. Exactly. That’s a great point.

Joe Fairless: Any plans to refinance that out into a loan and get access to that HELOC money again?

Tyler Caglia: Well, I guess I never explained — so when I refinanced at six months, I then paid off the HELOC.

Joe Fairless: Oh, got it. Okay, cool. Good.

Tyler Caglia: Yes. So during that six months I was putting my own cash, paying off the HELOC to the point where when I refinanced, essentially my HELOC was whole again. So in reality I did have essentially my own cash in the deal. It ended up being about 12k or 13k overall. So at 25%-28% cash-on-cash – I’m pretty happy with that.

Joe Fairless: I think everyone would be pretty happy with that. Nice work. So what are the numbers on all three of the properties? We talked about the first one, so you don’t have to talk about the first one.

Tyler Caglia: Yeah, so what’s funny – you asked about whether it was nerve-wracking buying more than they were asking… That was actually my best deal. The second and third are pretty close… The second one – again, we found it on the MLS. They were asking 69.5k and we bought it for 69.5k. We put about 17k into it. I’m refinancing it now, and it should appraise for about 110k. And I’ve got a renter in there for $1,125. And again, cashflow after expenses is about $350/month.

Joe Fairless: And the third one?

Tyler Caglia: The third one – that one’s a little trickier. So all three of these are 3-bedroom/1-bath. This one we got from a wholesaler. He was asking 80k, we bought it for 77.5k. It’s occupied, and I’ve had to put about $1,000 or so into it. They needed a new fridge and some smaller repairs. I’m refinancing that as well, and it should appraise for about 100k.

My problem there – and I realize how difficult it is to take over an occupied property… He was only paying $580/month, and the market rent is about $1,000. They’re on a fixed income, so I’m trying to raise it slowly, hopefully to $800 or so shortly, and then I’ll try to raise it at 10% or so after that per year. So once I get it up to market rent, I’ll hopefully cashflow about $300/month… But right now I’m kind of breaking even.

Joe Fairless: 3-bedroom/1-bath for all three of them… Why that setup, instead of say 4-bedroom/2-bath?

Tyler Caglia: We’ve put in offers on some 4-bedroom/2-bath, and I think the cashflow would be even better… I just haven’t been successful yet, for some reason, in this area. In Columbus there’s a substantial amount of 3-bedroom/1-bath homes, which I’m not used to as much; at least it seems like in California you see a lot of 3-bedroom/2-bath… But yeah, that’s just kind of the hot spot right now, what we’ve been successful with.

Joe Fairless: What’s step five of  your strategy? Steps 1) learn, 2) identify strategy, 3) funding, 4) market… What is five?

Tyler Caglia: Five is finding the team. That’s what I found with my real estate agent. One of my favorite quotes from David Green, “Rockstars know rockstars.” That couldn’t be more true, at least from my experience. My agent introduced me to a great lender, and then I’ve also been introduced through other investors to a good property manager that I’ve recently hired… And it’s been good.

Joe Fairless: You’ve found the agent through what method?

Tyler Caglia: Essentially just on Zillow, actually. I said I’m gonna go ahead and just try to call the highest-rated guy I can find, and go from there. Zillow shows you who has the most recent sales and the highest ratings in the area, and he kept popping up, so I said “He probably won’t be able to take me on right now, but I’ll give him a call…” And we just kind of clicked. I had a good strategy in mind, and he saw that, and he kind of had a good idea of what I was looking for, and it worked out great.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

Tyler Caglia: I would say don’t overthink it when starting out. Think of the first few properties as the learning experience and look for base hits. I wouldn’t say any of my deals have been home runs, but the amount I’ve learned is unbelievable, and my cashflow is stronger than expected. If I had been waiting for the perfect deal, I’d probably still have zero properties right now.

Joe Fairless: Based on what you’ve learned, how would you approach deal 1 differently, if presented the exact same thing now?

Tyler Caglia: I don’t know that I would change deal number one. Funny enough, but I think —

Joe Fairless: Deal number three, the tenant? [laughter]

Tyler Caglia: [unintelligible [00:21:40].26] Deal number one, I think the biggest thing was the six-month seasoning for the cash-out refi. I’ve since done a lot of research and figured out a way around that.

Joe Fairless: How?

Tyler Caglia: From what I’m told, it’s essentially put the rehab price on the settlement statement, you put it on the purchase side, on the seller’s side. Because when you do a cash-out refi, essentially you can refinance out what you purchased it for. So if you put the rehab on the purchase side, you can refinance out the purchase price and the rehab. That’s yet to be done, but on my next purchase that’s what I’m hoping to do, so that I can refinance it out as soon as I finish the rehab.

Joe Fairless: We’re doing a lightning round. Are you ready for the Best Ever Lightning Round?

Tyler Caglia: Yeah.

Joe Fairless: Let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:31].23] to [00:23:22].19]

Joe Fairless: Best ever book you’ve recently read?

Tyler Caglia: Funny enough, when I got asked to do this podcast, I had just finished your book, The Best Ever Apartment Syndication Book. It was fantastic.

Joe Fairless: I’m glad to hear that. What is the best ever way you like to give back to the community?

Tyler Caglia: I’ve been networking a lot recently, sharing the numbers for my first three deals with new investors, and a lot of them have reached out to me, private-messaged me, and I’ve been trying to give back in that way.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing and get in touch with you?

Tyler Caglia: You can find me on LinkedIn, Instagram, or even preferably just email me, tcagliarei@gmail.com.

Joe Fairless: Tyler, thanks so much for being on the show, talking about your 5-step process for how you get started, and put idea to actually action, and then the lessons you’ve learned on each of the three purchases, how you got creative… And quite frankly, just you make it happen with what you want to do, from Google searching, and continuing to call the credit unions until you find one that is what you’re looking for with the line of credit, to just taking a very practical approach of “Hey, I’m gonna find the best agent rated on Zillow, I’m gonna call him/her and I’m gonna try and work with them.” That makes a lot of sense. It’s very practical and logical, but you also have to have persistence, and you clearly show that… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Tyler Caglia: Yeah. Thanks, Joe. I appreciate it.

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