I taught high school for three years while I was working on an MBA and flipping my first couple of deals. I also coached girls volleyball, boys golf, and boys soccer. Every day, the coaches met in the athletic director’s office and ate lunch together.
One of the recurring topics of conversation was the properties I was flipping. The other coaches (teachers) were VERY interested in what I paid for properties, how the rehab was going, when I listed them on the market, how much they sold for and, of course, how much profit I was making. Over these three years, I converted their outright skepticism (There’s no way this market can last), to begrudging approval (Nice, very nice… make sure you save it all), to outright support (What you are doing with these properties is amazing! When are you quitting teaching?!). I personally enjoyed the daily banter and conversation. It forced me to be clear about my plans and defend them constantly.
One teacher by the name of Dick Bundy never said much at the daily lunches. He had been a health teacher in the same school system for 35 years. He was ready to retire and, because he had a PhD, his pay scale would ensure he made over $8,000/month for the rest of his life. The other coaches told me privately that Dick had a VERY interesting house/property. He had essentially converted a half acre parcel into his own personal museum of stuff he had collected over the years. I wouldn’t say he was a “hoarder,” but he had a ton of cool and different things spread out over his property. He was, however, VERY frugal with his money and NEVER spent the whole paycheck he received each month. In fact, I would be surprised if he even spent a third of it.
About a year into my flipping career, Dick pulled me aside one day and told me he wanted to meet with me about doing some investing together. I had no idea what that meant, because Dick was a man of very few words. I said, “I have a few deals I have kept my eye on but haven’t been able to purchase because I am waiting for funds from a couple of properties that need to close.”
Dick then said, “How much can you put to work?”
I was stumped because I didn’t want to ask for too little and have him agree, which would have left me short of potential investment money, but I was afraid if I asked for too much, he would balk at the idea entirely.
I figured there was no way he would want to invest more than $25-30k, so I said, “Dick, I could sure use $40,000 right now to invest.”
Dick looked at me, scratched his head and replied, “That’s really disappointing, because I have $250,000 cash in a savings account I have been hoping to put to work with you.” I about fell off my chair and onto the floor! I never expected a high school teacher would want to roll the dice on a quarter million dollars!
After stammering out a reply, I assured Dick that we could keep all the money working, and asked him how he wanted me to secure it. He looked at me, stuck out his hand, and said, “I want you to come to my house on the first of the month, bring me a check for 1% simple interest ($2,500), look me in the eye, and tell me you aren’t stealing from me.”
I laughed and then said, “You know what, Dick? Either you are an excellent judge of character or really stupid, because I KNOW I would work at McDonalds before I would ever default on your retirement money or use it for ANYTHING other than real estate investments.”
For the next three years until I moved to Indianapolis, I would head over to Dick’s on the first of the month with a check for $2,500. It was a fantastic partnership because in that time, I easily made over $750,000 off of his money.
Here’s how I would structure a typical deal:
Make an offer on a deal—let’s say $100k—that needs $25k in work and would be worth $200k after work was completed.
Get the offer accepted. Tell the seller I will give them a $10,000 non-refundable down payment if they’re willing to wait one year for the other $90k.
Use Dick’s money for the $10k down payment. Also use Dick’s money for the $25k in work. Pay monthly payments to the seller of the property until I pay off the other $90k I owe them. Use Dick’s money for those monthly payments.
| Purchase Price: $100k | Sell for $200k |
| Down payment to seller: $10k (Dick’s money) | – $90,000 to original seller |
| Rehab costs: $25k (Dick’s money) | -$10k back to Dick + $25k back to Dick + $8,400 in payments back to Dick + $5k in interest profits to Dick = $48,600 to Dick |
| Monthly Payments of $700/month (Dick’s money) | -Commissions and closings costs=$14,000 |
| $47,400 left over profits for me |
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