ITF 3 | Real Estate Investing

 

Daniel Kong has got what it takes to be a real estate investor. With reading books and listening to podcasts, he jump-started his journey in real estate. Now, he successfully gained financial independence and has been investing ever since.

In today’s episode, Daniel shared the importance of having the right skills and proper knowledge in real estate investing. He also shared on getting his first deal and how he continuously steps up his game in real estate investing.

You’ll gain a lot of real estate insights in this episode so listen until the end of it!

Listen to the podcast here


 

Educating Yourself On Real Estate And Successfully Getting Deals With Daniel Kong

I’m here with my buddy, Nick Monge. Nick, how are you doing?

I am living the dream. How about you?

I am living the dream as well. In Denver, we’ve got these things called a swamp cooler, which is like a fake air conditioner. It works probably about 50% to 60% as well as an air conditioner. I got mine hooked up for the summer, so that’s always a good feeling.

This was an awesome show. Dan is a cool guy from Hawaii. I met him there on the leeward side of the island at a REA meetup. He came to mind when we were thinking about getting guests on the show. I’m excited and happy to have him here. He has a solid story.

The biggest takeaway for me from this episode was how quickly you can move, and how quickly you can expedite the process towards financial independence. If you take those first couple of months, educate yourself as much as you can, and then jump in knowing that you’re going to make some mistakes and you’re going to learn from those mistakes. That’s going to make you a better real estate investor. It’s inevitable. Everybody hits those mistakes. You could sit on the sidelines for the rest of your life and you’ll be working for the next 40 or 50 years. That’s what we are discouraging. Without further ado, we should get Clean Dan on the show.

Let’s do it.

Dan, welcome to the show. How are you doing?

I’m awesome. Thanks for having me. I’m excited to be on your show. I read your book, Craig. I like the tone of your book too. Nick, I’m glad to see you again closing deals, dealing over there wherever you’re at.

I’m excited to have you here on the show and chat about what you’re doing over there in Hawaii and Indy because I know you’re over in that market too. Let’s jump right into it.

Dan, I want to call you Dirty Dan but you told me in a conversation before that you’re Clean Dan.

I’ve got to keep it clean.

I met a lot of Dans, and not a single one that I know is clean, so it’s good to find the first one. How did you hear about financial independence? You look like a young dude.

I’m a lot older than I look. It was a book that everybody started off with, I read Rich Dad Poor Dad. In my whole life, I grew up responsible. My parents told me like, “Don’t get dead and buy a house.” Although in Hawaii, it’s hard to buy a house so I’ve been putting it off. The median price of a home here in Hawaii is $800,000. In the back of my mind, I was like, “There’s no sense in buying a house. I’ll rent for the rest of my life.” Reading Rich Dad Poor Dad blew my mind. From there, it started me on this idea of passive income which was so foreign to me. I didn’t know anything about it. I didn’t know anything about investing either, but that was the book that got started.

At what age did you read Rich Dad Poor Dad?

It was 2018. I was 39.

He is older than he looks.

I got the aging gene.

I was going to say but I’m glad that you did. That’s awesome. You’re 39 and you read Rich Dad Poor Dad. You were in the mindset you’re going to rent forever. Now you’re in the mindset, “I’m going to keep buying rental property and start producing some passive income.” You know Nick back from Nick’s Hawaii days. What happened next after you read the book?

After I read Rich Dad Poor Dad, it blew my mind and I got my mind thinking, “How can I create this passive income?” I went through reading every book and podcast I could get my hands on. I first started down the path of stocks, but after a lot of research and more due diligence, I realized that there was a lot of luck involved and things out of my control. I started researching more on the real estate side and then from there, I listened probably to 200 episodes of BiggerPockets. I read all the BiggerPockets books, all the real estate investors, and everything I could get my hands on. I was probably reading a book every few days at that point in time. I’m consuming as much material as I could and learning as much as I could.

I went to one of those three-day bootcamps, the seminars to introduce you to the real estate investing programs. They have the education. I went to one of those and the three-day event was helpful. I was close to pulling the trigger and going for the full package but I ended up not doing it. The three-day has been helpful. I started connecting with people in my local market as much as I could. I went to meet-ups, real estate investing clubs, etc. I tried to meet as many people as possible. I read the book, Rich Dad Poor Dad, in September, I went nuts doing things, and then I pulled the trigger on my first rental property at the end of November, early December.

Two months later, you were buying your first property.

I was trying after a month, but you don’t know what you don’t know. There are all these things I didn’t know about. You can’t use bond funds for funding and all these other kinds of things. I pissed off some lenders not knowing what I didn’t know. As a rookie, you’re excited trying to get something started. Eventually, it got rolling and I closed on my first deal in early December.

ITF 3 | Real Estate Investing
Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!

This was 2018?

Yeah, end of 2018.

What market was this in?

This was in Indianapolis.

How did you choose that market?

I’m a software engineer by day, so I’m a techie guy. One of the first things I did as a developer was I wanted to learn while I compile data. I build this script where I started scraping on these turnkey websites about trying to analyze numbers and automatically put them into the spreadsheet that I had. I had hundreds of data. I analyze numbers like, “What makes good sense for my ROI, my cash-on-cash, etc.?” What I found was there are certain markets in the United States that, on average, cashflow way better. If you look at Hawaii, our cashflow on average is terrible. It’s guaranteed negative. If you look at places like Kansas City or Indianapolis or Oklahoma City, on average, the deal cashflow is better over there.

After putting numbers into my spreadsheets for a little while, I came to the conclusion that there are a few markets that I want to research to investigate a little bit more. BiggerPockets had some ideas that we have, some of their favorites. I know Indy kept on popping up and I was like, “Indy feels like a good market where the cashflow numbers make sense.” That’s how I got started choosing Indianapolis.

You’ve been in Hawaii this whole time and you started off investing out-of-state. Have you ever been to Indianapolis yourself?

No. I bought my first two deals in Indy and then I flew up after the fact.

How did you get comfortable buying at out-of-state?

It’s nerve-wracking at first. I read David Greene’s Long-Distance Real Estate Investing and listened to a whole bunch of podcasts. It was scary. You’re worrying over $60,000, $70,000 cash. I’m like, “Is this a scam? What if once I wire this over, the money is gone?” I researched the website of the title company. I called them from different numbers to make sure like, “Is this real?” It’s a little scary pulling the trigger in the first estate, but I did some internet research, met some people on BiggerPockets, and talked to some people on the phone. The internet is such a game-changer for our industry. You have so much more information than you would have had years ago.

Clean Dan, tell us about your first deal there in Indianapolis. How did you find it? How did you fund it? What made you comfortable investing out-of-state? Give us the clean details.

When I first started investing, my general thought was I just wanted cashflow. I was researching multifamily property, trying to get the highest on cash-on-cash to get my passive income number as high as possible, as quickly as possible. After more research and reading, I stumbled across the BRRRR strategy and that made so much more sense for me.

After that, I switched my mindset where I’m looking for a deal that’s going to cashflow after, but I want it to be something where I can pull my money out and refinance it at the end of the year to retain my cash. I started looking in Indy. We talked a little bit about how I chose that market. I started networking with as many people as I could in the market, a couple of real estate agents and wholesalers. I googled wholesalers in Indianapolis and tried to get on every list I could get on. I’m trying to see properties and I was looking for properties every day. Eventually, I met this guy in Indy. He was on BiggerPockets. We started connecting and talking and then he brought a deal to me. I did some research and background on the deal and then that’s how I pulled the trigger on my first deal.

Who’s the guy that you met?

His name is Matt Speer.

I don’t know him. I know a couple of guys over in Indy though that are doing some stuff, so that’s awesome. You’re working on building your team and you want to do BRRRR. If you don’t know what the BRRRR strategy is, that’s when you buy a property. Dan bought a property for $60,000. That’s the B. He goes in and rehabs it. Let’s say he puts $20,000 in rehab and now he’s got $80,000 all-in. After the buy plus the rehab, the property should be worth more than what he put into it. If it’s worth $100,000 now, you can then go and refinance it. That’s the second R, third letter. Now he’s got a loan out for the $80,000. He pulled all of his money back out.

He rents the property out after he’s refinanced it and now his mortgage payment is probably somewhere around $500 or $600. He rents it out for $800 or $900. He cashflows a couple of hundred dollars a month. With that refinance, he can now pull his money back out, that $80,000 he put into it. That’s the last R, the repeat. That’s a strong strategy to build wealth quickly through real estate. Dan read about that and that’s what he’s going to do. You mentioned your wholesaler on BiggerPockets.

A little background on how I funded the deal. At the time, I didn’t say too much. I had no debt. I had maybe about $50,000 in cash but that wouldn’t be enough to do deals. I met some people locally about doing different strategies and how to pull on personal lines of credit or other things, HELOCs and stuff. One day, I went on to all the local banks around me and I applied for a personal line of credit to try to get as much access to cash as I could.

I’m not sure if you want me to explain what a personal line of credit is versus a personal loan or HELOC or whatever. It’s access to cash that you can have at local banks. A local bank will give you between $10,000 to $50,000 line of credit depending on your credit score and your debt-to-income ratio. From the five banks altogether, I pulled out over $100,000 and access to personal lines of credit.

On top of that, I also had a 401(k) that I was like, “I don’t want to take all this money because I’ve got to pay a tax penalty,” but you can borrow from your 401(k) tax-free. That was another $50,000 that you have access to, money that you want to use to do deals. At the end of the day, I had access to $200,000, which I could start my investing journey.

It’s such an awesome strategy. You went to these credit unions, which aren’t the big banks. Those are going to be hard to get these lines of credit from. You’ve got $100,000. How much total investable capital did you have?

There are certain markets in the United States that, on average, cash flow way better. Click To Tweet

About $200,000. I had $50,000 in cash seed, and then about $50,000 for my 401(k) that I borrowed. For the 401(k), you borrow it but they have to pay it back in a five-year period or something so you’re making monthly payments. The basic idea is that now I have to have the cash in hand so I can start doing things. In Hawaii, we have good lines of credit. These are unsecured lines of credit, but I was getting some introductory rates at 4% and 5%. The rates are good in Hawaii at the time.

I remember the first time I met you at the real estate meetup at the UPS there on the leeward side of the island. We ended up having a sit-down and I was so intrigued by that. I’ve never heard of that before, getting a bunch of personal lines. I remember you told me you hit five credit unions in a row. It may not be the best strategy, but for somebody starting out to do flips or whatever, it’s a great strategy to access some capital. That’s a solid story.

You’ve got $250,000 lines of credit so this is a little bit risky. Did you know that this was risky at the time? Were you like, “It’s my money?”

I’m a responsible person. I weigh the risks. The thing about the lines of credit is you’re only paying interest once you’re using it. Because you opened it, it doesn’t mean you have to touch it. You can open your lines of credit and pay no interest and not use any of it, or you can pull it out, use it when you want to, and then when you’re done with it, you put it back, and then you’re not paying any interest on it.

That’s the beauties of the lines of credit and it works perfectly with the BRRRR strategy because I just need to borrow the money for the BRRRR for a short period of time. The idea was like, “I have access to these lines of credit. I would pull money when I need it into the BRRRR strategy, and then I would put it back when the refinance happens.” That’s the strategy of how I wanted to utilize the lines of credit.

That’s the perfect way to use a line of credit. That’s why I use a line of credit. I suspect you learned this throughout the two months of crazy communication.

BiggerPockets, 200 episodes of podcasts, YouTube, books upon books of investing, and learning from other investors what they’re doing too. The strategy was from another group of investors and I popularized the concept of it over here in Hawaii.

Honestly, I love that you educated yourself. BiggerPockets is a tremendous resource. All of us use it crazily. I heard someone say once, “If you want an MBA or a Master’s degree in Real Estate, listen to every BiggerPockets podcast, and you’ll know more than 90% of the people out there.” You went through BRRRR and you found this thing with these lines of credit. Take us through the deal.

When a wholesaler presents a deal to you, 9% of them are going to inflate the after-repair value, the rehabs, what it’s worth, etc. I was looking through all the numbers. To me, it was a pain in numbers. Even with my conservative numbers, it has still worked out for me. I was like, “I decided to go ahead with the deal.” The purchase price of the property was $70,000 and there was an $8,000 assignment fee included with that. The actual purchase price of the property is $62,000, plus the wholesaler’s $8,000 finder’s fee. Out of pocket, it was $70,000 for the purchase.

He connected me with a contractor, and I didn’t interview any other contractors. I just looked at the scope of work and what was involved. I said, “This makes sense. Let’s go with it.” Because the wholesaler connected me, I thought I had a little bit more trust. I interviewed the contractor over the phone and I was like, “You seem like a stand-up guy,” and all these things. He checked in with me every week, showed me pictures, etc. The rehab was projected to be $30,000 and then the ARV was projected to be $135,000. That was my numbers as far as the deal going in. I thought it would rent for $1,200 at the end of the deal. That’s what I was projecting as far as my numbers.

Brief recap there. You purchased it for $70,000 and you wanted to put $30,000 into it. The ARV would be $135,000. Theoretically, that’s more than 20% value-add. You’d be able to refinance it out fully and get it out. I suspect something went awry or did it not?

Yeah, of course. The rehab was supposed to be $25,000. That was the projected rehab cost. In the beginning, everything was going well. The first week, the contractor was in touch with me. The next week, he stopped communication. It was shoddy and stuff. I had a hard time connecting with him. The work is still getting done, but he just wasn’t communicating.

I talked to some people in BiggerPockets and someone referred to me this guy. He’s a project manager for other state investors. He’s like, “Connect with this guy. He manages rehabs for other people out-of-state.” It’s common for investors to invest in Indianapolis. What he’ll do is he’ll take a look at the project and help you make it run smoothly, and then you just pay him a fee on top of whatever the GC is to help make sure it happens. This guy has been a total rock star for me, honestly. He’s the reason why I’ve been successful out-of-state.

I connected with this guy and we had a chat over the phone. I said, “Let’s go forward with helping me to manage the rehab and the contractor.” When they brought him in, things were going more smoothly. He would be the one taking the pictures and making sure that work was getting done. He’s like the angel on the ground for me to make sure things are getting done on top of the jobs and stuff. That has made the project go a lot smoother but there were overruns.

At the end of the day, the actual contractor did some shoddy work and didn’t finish the job. My project manager had other contractors that he works with. He had one of his other contractors come in and help me. He completed the job of the renovation. At the end of the day, the whole renovation came on through $30,000 and it was a nice job at the end of it.

You only were $5,000 off from your estimate?

Yeah, it was a good win.

That’s not bad at all. That’s under budget.

I did have a question for you though. You paid the first contractor. How did you pay him? Did you pay him in increments? Did you pay him upfront? What agreement did you have?

We had draws. It was three draws that we have planned. I don’t remember the exact amount. It was maybe $7,000, $10,000, $15,000, or something along those lines. I did give him a decent chunk to get started and then gave draws as time went on.

You paid him in draws but you said he didn’t finish the work. Did you at least get what you should have got out of him?

In the end, it was a touchy subject, so I paid him 90% of what we contracted for. He didn’t finish some of the work, so I didn’t pay him for some of the work, but it was a small amount. He was upset that I didn’t give him that last chunk, even though the work wasn’t finished. It is what it is.

ITF 3 | Real Estate Investing
Real Estate Investing: Lines of credit work perfectly with the BRRRR strategy because you just need to borrow the money for the BRRRR for a short time.

 

That’s part of the deal. You’ve got to do rehabs done. You’re all in now for $100,000. What did it refi out at and what was the appraised value?

This is an interesting story. When I went to go get the appraisal, we had the appraiser walk in and then I asked my project manager, “Can you talk about the house and the neighborhood?” There are other flips that are going on in the area and stuff. It was an up-and-coming scene inside of Indy. My thought process was when I calculated my ARV, I took into account other nearly flipped homes or newly renovated homes in the area.

After we had the appraisal done, the appraisal came back for the house at $70,000, and then I was like, “There’s no way this house can be worth $70,000. Look at the houses around it.” I looked at the comps that the appraiser used, and one of the comps was another house that had just been purchased in the meantime of the rehab. Now it’s going to go over renovation. The other company that the appraiser used was $60,000 comp, but it was on the market for $150,000.

A flipper had come in and bought an old beat-up house and put it in the market. It was for sale for $150,000 in the same market. Looking at comps, I was like, “This appraiser is not doing a good job. It looks like I’m probably going to have to get another appraiser or go to the new lending company and submit a rebuttal of my thoughts on the comps that they used and stuff.”

In the best community, they’ll raise it to $90,000 or something. I wasn’t expecting much. I created professional photos of the house and the scope of work of what I did, talking about the neighborhood, the up-and-coming, and some houses sold in the area. I made this nice little PDF for ease of use to rebut what the appraiser’s opinion was of the house. I submitted it and they’ll carry it.

I started the process of trying to find another lender or somebody else because I thought, “There’s no way the appraisal is going to come back higher.” The miracle is the appraisal came back and the new appraised value was $140,000 a year. When I got to the house, I was shocked. I was like, “How is that possible?” Even it feels worth that much appraisal, I would not be able to tell myself that I was this far off on appraisal. I wasn’t going to play or anything but I was like, “I’m really happy.” That’s a huge win.

It worked out almost exactly to what you planned, which never happens. The lesson there was, just because they’re an appraiser doesn’t mean they do their job correctly every time. That guy could have had something personal going on that day and been in a rush to get home or whatever, and wanted to get the report out. It’s good that you did your diligence on that and called him out on it. That’s sweet. That saved the deal for you.

I went up to another appraiser and they would have been higher than $70,000, but my target was $130,000 or $135,000, so $140,000 is good for me.

When you refinance it out, it sounds like you probably could have pulled all your money out. Did you pull all that out?

It was $105,000, the 25%, but you got to pay about $5,000 in lender fees, etc. It comes out to just about breakeven after you pay the lender fees, fines, and everything.

Did you get that thing rented out?

Yeah, I did. That’s another little challenge in itself too. I chose this property manager. I met him when I went to take my visit after the fact, and he seemed like a sound guy. I like him. The thing I didn’t realize is I had another property during that time and that was rented out. That was a lot smaller for $1,100. The next street over with a new building should be rented for $1,200.

My property manager listed it for rent, and then he’s like, “People are calling about it but when I tell them the price, they don’t like it.” I was like, “That’s odd. Maybe you should lower the price.” I also read David Greene’s book and he said, “You should under-rent your property and try to find the best tenant versus having to add market value. It raises the next time they’re going to re-up because you can worry about having a good tenant and making that extra $100.”

I was like, “That makes sense too. Instead of jumping into $1,100, let’s jump into 1,000.” I told my property manager, “Let’s jump into $1,000. I want to make sure I get a good tenant and screen them well.” I come to find out that my property manager is not tech-savvy so he didn’t post it on Zillow or HotPads or anything online. He put a For Rent sign inside of the yard, so there was no way for anybody to see the upgrades done inside. If you’re driving by, you see the sign but other than that, there’s no other way to get access to the property. I found out after the fact from my project manager but the next day, it got rented. I was like, “I had a new renter in there for $1,000.”

How did you find this property manager?

After I bought the first few properties, there’s a guy buying in Indianapolis. He gets together a bunch of investors or new investors, and he takes them on a tour to Indianapolis. It was a lot of fun driving around in a big van looking at properties. He has a team of people that he uses, property managers, agents, inspectors, etc.

After the fact, I was like, “That sounds like something that would be useful for me.” I want to connect with his team and look at what it looks like. I decided to jump on this tour with him. In the first few days, I went to every single stream in Indianapolis to get a feel for the neighborhood, what it’s like. I met my team, my project manager and contractor, up there and everything.

After that, I went on the tour with him, and then I got introduced to some of his property managers. I liked one of his property managers. He is a stand-up guy. He works hard. He’s fair and stuff. He does know what he’s doing. He’s an older gentleman and he’s not tech-savvy. Your property manager has to mash your price point and your neighborhood. Depending on your price point, certain things are more important than others.

I feel like he would do a good job as far as making sure the tenants are paying on time and making sure they’re not doing any kind of stuff because of his personality type. On the con side, he’s not tech-savvy so he doesn’t use any tech porno. For my monthly statement, he emails me an invoice that he PDFs and writes by hand the expenses as my property manager, etc. When I met him in person, I liked the guy. We had a good connection. That’s the reason why I chose him as my property manager.

It wasn’t because he was tech-savvy. That was the con that you gave away. Usually, you can’t find the perfect person. You gave away that in order to have someone that was legit, reputable, had his stuff together, and knew that he would get good, valuable tenants for you. Let’s get back to the deal here. You got $1,000 in rent coming in. What’s your new mortgage at?

It was $720 or something like that.

Let’s say you’re making $250 a month over the mortgage. How much do you put aside for vacancy, repairs, and all that kind of stuff? Do you do that?

The internet is such a game-changer for the real estate industry. You have so much more information than you would have had years ago. Click To Tweet

I’m paying $100 to my property managers on top of the $730. You have to factor in set aside cash reserves, there’s breakeven or a little bit negative if I calculate everything correctly.

Are you in an appreciating market there? You’ve got a free house.

Appreciating is speculative but I’m in appreciating markets. I talked to some realtors in the area. In their opinion, they think this might be the next big thing. People are guessing. It’s on the edge of this area that’s gentrifying, so it’s like the bleeding edge where houses were so cheap but they’re rising in value. Even now, we’re trying to find deals in the same area. I can’t buy any deals. All the housing prices have gone up. I’m in an appreciating market.

Path of progress. That’s a beautiful way to do it. In my first deal, I bought in the path of progress. I bought it for $385,000. It was a duplex. 2.5 years later, it was worth $550,000. Sometimes you just get lucky, but in order to get lucky, you’ve got to buy deals. I like the strategy. I love it. What was the timeline for that? When did you refinance it?

I refinanced it five months later.

Early 2019?

Yeah.

We’re approaching the spring of 2019. What happens next for you?

After I bought the first one, I still have cash reserves to keep going so I bought another one in the meantime while the project was going on. Over the course of 2019, in total including that one private property, I bought six BRRRRs in Indianapolis. Make sure I keep rolling.

We don’t need to go into each one because we’ll be here forever, but is it the same type of deal? You buy it for a little less than $100,000, you put $20,000 to $30,000 into it, it appraises at $140,000 to $150,000, refi, and then rinse and repeat.

Some of the numbers are slightly different or a little less. Pick it up for $50,000, put in $20,000, and then appraise for $100,000-something, etc. I was in the same neighborhood. This is the neighborhood where I feel like I can get cashflow and appreciation. So far, it’s been working out for me.

After 2019, after these six BRRRRs, how much passive income did you have coming in?

It depends on what you call passive versus if you set aside for reserves. Each house averages between $200 to $400 a month, so maybe $600 or a little over $1,000, $1,200 a month, but they’re not all completely reserves. $250,000 to $450,000 with no reserves. Maybe $1,200 to $1,400 without any reserves allocated for that.

Rent over mortgage, you’re $1,200 to $1,400.

Yeah, more rent mortgage and property management.

That works. Maybe after reserves, you’re right around $600,000. In year one, you’ve got $600 and you’re going to grow much faster than that in year two. That’s how real estate works. It’s a snowball. If you ever hear Brandon Turner on BiggerPockets webinars, he talks about the stack where you buy one property in year 1, two in year 2, three in year 3. It keeps growing exponentially. By the time you’re buying 5 or 6 properties a year, your stack starts at six so maybe next year you buy twelve or something like that. It’s exponential growth. It’s sweet. Is that where you are now or is there anything else?

At the beginning of 2020, I’m in the middle of two BRRRRs here in Hawaii.

You’re stepping your game up. What are those purchase prices? I’m sure it’s a huge difference.

One of them, the purchase price is $360,000. I’m going to put in $50,000 into it and then refinance for $600. We’ll see.

That will work for you.

The whole idea was that I was trying to do some flipping in Hawaii. Hawaii is not a BRRRR market because our price points are so high and things don’t cashflow well here. Market employees are usually more of a flippers market. I was trying to find some flips in Hawaii to supercharge my Indianapolis passive investing, but it just so happened that I lucked out in a deal over here.

We had an Ohana Unit where it’s a single-family house, but then there are separate entrances with separate kitchens and baths. We rented almost like a duplex. That’s where this property falls into the fact that it was a little cheaper price point, which is only $360,000. In Hawaii, that’s a relatively cheaper house. The fact that it’s also duplex, meaning having a possibility for it to turn to a BRRRR to a cashflow. The reason I did it was I was trying to find flips or deals for flips.

ITF 3 | Real Estate Investing
Real Estate Investing: The money that you keep in your pocket goes away fast, as far as the equity build-up that’s going to come in, as well as the cash flow and tax that you got with the BRRRR.

 

It’s great to have multiple strategies and multiple things you can do and have those tools in your toolbox, that knowledge in your head to know, “This is a good BRRRR. Instead of selling this, I’m going to hold on to it.” You could make $200,000 right now or you make $500 a month, which is closer to your goal of passive income.

The other thing is you look at the flipping and it seems attractive. $150,000 of profit but then you pay the realtor $600 expense for the cost, $40,000 gone. On top of that, you pay active income taxes, including FICA and everything. Your tax bracket, if I added to my W-2, is close to 50% if you include state and federal tax. The money that you keep in your pocket goes away fast, as far as the equity build-up that’s going to come in and also the cashflow and the things, tax, or whatever that you got with the BRRRR. The refinance is completely tax-free, so that’s another big one, where you’re not paying any tax on top of that refinance that you do.

You can then use the HELOC, home equity line of credit, to buy your next deals.

My long-term goal is passive income. This one should be a passive income-producing property. That aligns with where I want to get to eventually. Otherwise, you do flips and then I have to buy rentals years on the road anyway, but I can kill two birds with one stone by turning this to a BRRRR.

Dan, what’s your magic number? What are you trying to get to in passive income each month?

I feel like everybody has the same number. Everybody always says $10,000 so I hate saying that. For me, I feel like if you get to $5,000, it’ll be a good starting point and everything. The thing about me is I like my job. My W-2 job is I’m a software developer. I can work from home remotely and make my own hours. I have some independence as far as what I can’t and can do already, so it can be added on top of that. It’s not a super huge thing. I started off with $5,000 and now I’m like, “That’s too easy. I feel like I can get to $10,000.” My number is $10,000.

Good number. $10,000 is a number that does seem to almost everyone there, but I’m sure you’re not going to stop at $10,000 even when you do get there because you’ll get there faster than you think.

Hopefully. We’ll see. A little bit of luck and a little bit of involvement along with hard work.

To recap your story here, you started off in Q3, Q4 of 2018 reading Rich Dad Poor Dad. You put a couple of months in and became a sponge and absorbed all the information you possibly could. You moved quickly. By December, you were doing your first Indianapolis BRRRR. You finished that one by early 2019 and the rest of 2019, you did five more so you did six BRRRRs in your first year, 2019. You’ve got $500 to $1,000 passive income from that. About 1.5 years later from when you first read Rich Dad Poor Dad, you’re doing $360,000 properties and hundreds of thousands of dollar properties in Hawaii, which probably seemed unattainable to you before.

Honestly, the reason why I didn’t buy a house early was if I could afford it, I would have to be eating like Simon every night to pay my mortgage or whatever. Seeing the possibility that’s available to me now, I honestly feel like the sky’s the limit. That $10,000 passive income, if you talk to me a few years ago, that’s impossible. That’s somebody with a scam. There’s no way for that to happen. I’m looking it down like, “Five years, I feel like I totally can do that even faster.” Rich Dad Poor Dad and BiggerPockets, thank you so much. That’s changed my life.

If there’s nothing else, we can move into the last part of the show, which is The Final Four. Do you have anything else you want to share?

No, nothing that comes to mind.

Let’s get into it. The first question we have here is what book are you reading right now?

This book is called Traction, but I stopped part ways because we have a local investing club that I’m part of. Our local investing club decided to start reading Rich Dad Poor Dad again, so I’m reading along with them on that book.

I heard of Traction. I haven’t picked it up yet, but I heard it was a good read. I’ll have to jump on that and listen to it on Audible.

I listen to things on 1.5 and 2 speed to try to get more in but after a while, my brain starts to hurt so I’m back down to the 1x.

I’m at 1.25. That’s where I’m at all the time.

That’s the sweet spot.

I feel like podcasts and books are different, too. I can listen to podcasts at 1.5, no issue. Audible though, I need to read at 0.5. I’m like, “I need to understand every word they’re saying.”

It’s more information. The podcast has stories and there’s laughter back and forth, versus a book is just information. In order to absorb it, it takes a little longer to process the thought.

The second question is when you first started, if you had to give yourself one piece of advice that you know now, what would it be?

You need to network well with people either in your market or other investors because that’s a huge source of this help. Time put into meeting people and helping people or learning from other people is time well-spent that you don’t see any immediate feedback when you first started. The payoff down the road is huge.

ITF 3 | Real Estate Investing
Traction: Get A Grip On Your Business

You are the average of the five people you hang out with the most or the five people you associate yourself with the most. When you start going to these meetups, you’re going to start making friends that are doing real estate, that are doing big deals, and suddenly owning 6 to 10 properties. It doesn’t sound like such a big deal so you go do it, but when you go talk to your old friends before you got into real estate investment, you’re like, “You got six houses? That’s crazy.” I agree with networking is big and accountability is huge too.

One of the reasons why I took so long is because I make a little bit above average compared to my other normal friends. I was like, “I’m doing good. I’m not killing it but I’m making a little bit more than my normal circle of friends.” I felt like I was doing good compared to my world. Whenever I’m introduced to this world where some of these guys are killing it, I’m like, “Now I have somewhere to aspire to or someone to run alongside with.” I feel like I’m getting pushed. That’s helpful.

Question three here, what is your why?

My big why would be freedom, financial independence, and being able to decide what I want to do with my time. A lot of people say they don’t like their jobs or they don’t like working. I enjoy my job. I enjoy working. I enjoy creating or doing things. I would never stop working or doing something. For instance, let’s say I want to quit my job and work part-time or do something else or volunteer in my community or other things. I used to do a lot of volunteering at my church before and that was awesome, but having the opportunity to pick and choose what I want to do or also to give to other people is something that I look forward to.

What is one app on your phone that you absolutely hate but you use it anyway?

I’m not a people person. I did some marketing in Hawaii for some properties, so I downloaded this app called SmartDaddy. It’s a second line you get into your phone if you have a second phone number. I did some marketing with direct mail, website marketing, etc. The number comes into the second app that I have. Whenever I get that number, honestly, I get this icky feeling in my stomach like, “I’ve got to talk to this person who can’t sell their house.” I’m super uncomfortable talking to random strangers and those kinds of things. It’s useful and good but at the same time, I don’t like that dread when you see the number calling from the business.

I totally get that. The app produces goodness for you. It’s productive for you. You have to use it. When you have your $10,000 of passive income, that’s the first app that you’re going to be deleting probably.

Where can people find more about you?

I have Instagram and Facebook. You can try to google Daniel Kong on Facebook. My handle on Instagram is BallerKobe808. I used to be a huge Kobe Bryant fan ever since ‘97. All my handles back then, my AOL account is all Kobe Bryant stuff, so I kept the handle on Instagram.

Quick question, can you ball?

It’s a funny story, when I graduated from college, I flew up to the mainland to look at some places to work in like California. At the time, I used to go to the course and play basketball all the time. In Hawaii, we have a bunch of Asians and there’s not a whole lot of tall people. I’m 5’10” but in Hawaii, that’s a little bit above average.

When I went for the recruiting trip to some California companies, one of the things I saw in all the basketball courts are these huge, giant athletes. White and Black guys were destroying me, so I stick to my local Asian-Hawaii games in Hawaii. That was part of the deciding factor why I decided to stay in Hawaii as far as relocating the job. In Hawaii, I was decent. I’m older now so I’m retired.

You stay in Hawaii so you can play better basketball.

I’m above average in Hawaii but in Indy, I’ll get destroyed.

Thanks so much, Dan, for coming to the show here. Your story is inspiring because you moved so quickly and started crushing it within six months of picking up Rich Dad Poor Dad. It usually takes me a little bit longer than that. It shows the power of taking action, getting comfortable, and moving forward. If you have any other parting words of wisdom, that would be great. Otherwise, we can check with you next time.

Thank you, guys, so much. I appreciate the opportunity to share and connect with you, guys. I’m always down for a chat. Next time you come to Hawaii, we’ve got to catch up and grab some Zippy’s or something over here to do.

I’m down for that. It was great having you. I appreciate you getting on with us. I hope your projects there in Hawaii and Indy go well. We will definitely have to have you on again in the future.

Thank you, guys.

Everybody, that was the episode with Clean Dan Kong. He has a cool story. I love how he read Rich Dad Poor Dad, soaked in a whole bunch of information for a couple of months, and then started going to town and out-of-state investments in Indianapolis. It’s brave doing that.

I like how he met his team and got connected through BiggerPockets with a wholesaler there. That’s how he jumped started his journey in real estate. He’s got a solid plan going forward and he’s going to do well.

Honestly, anyone who can take action and can learn from the mistakes that they make will do well. I’ve never met a failure who has taken action and then learn from his mistakes and then repeated and iterated fixing things along the way to make it. He’s got a well-oiled, smooth machine. He said himself, he’s not in this to make billions of dollars. He wants $10,000 in passive income, which is achievable over the course of 5 to 7 years. I’m sure he’ll still be growing it, but it matters less because he’s going to have his family, kids and all the stuff that he wants to do. That’s what we’re here for, things that are meaningful in life. Overall, great episode. I learned a lot from him and I’m looking forward to seeing where he goes.

It was great talking with Dan. Maybe we can get him on the show in the future. With that said, I’m ready to go. I hope you have a great day. I’ll talk to you next episode.

We’ll see you next time.

 

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