SPEAKER_01 0:03

All right. Welcome back, episode two. If you just finished listening to episode one, here we are sitting in the car holding our check for about$60,000, which is the time was about Nick's whole annual salary. I had a negative annual salary because I was in medical school. So I was, you know, I was digging a whole each tuition bill. And that was our first successful burr. And the word burr didn't even exist at that point. Bigger pockets became popular a couple of years after we started investing and they they created that concept of Burr, but we had executed a Burr, even though we didn't know what the name was. And that was when we decided we wanted to do this as many times as possible in our lifetime. And to this day, that's that's what we've been doing. And so now we've built Black Swan Real Estate up to about half a billion dollars in assets under management. We've successfully executed hundreds of cash out refines. And what we really want to walk you through in this episode and the next episode is the trajectory between that first single family home to when we first started doing our funds. I feel like that's kind of where most people land in their real estate investing journey.

SPEAKER_00 1:14

Do you want to talk about Meradel's house?

SPEAKER_01 1:17

Yeah, that's coming up.

SPEAKER_00 1:18

I I like talking about some of those first deals because I think for a lot of listeners, you know, it's hopefully inspiring to see the gymnastics, the grit, the creativity that was needed to get those first deals done. And then once you get that snowball rolling, you just become unstoppable. But getting it rolling is tough. And so I hope for listeners it's inspiring. It's it shows you what it takes and that it's truly possible for anyone who's who's determined to do it.

SPEAKER_01 1:43

And you have to find your unfair advantage. So, you know, a lot of these stories are probably somewhat unrelatable in the sense that there aren't very many homes in the United States for$35,000 if you listen to our episode one or this story that's coming up. Like my hope is that for everyone listening, you don't encounter murderers in your real estate.

SPEAKER_00 2:04

A little foreshadowing there. I wish that was hyperbole.

SPEAKER_01 2:07

But what you hear is we took the advantage that we had, which was we were young, we had time, we didn't have a ton of money, so we knew that our time was more valuable than our money. If you're listening, maybe that's true for you. Maybe the opposite is true for you. Maybe time is scarce for you, but you have some net worth saved up, you have a high income. You have to find whatever your unfair advantage is and find a way to leverage it to create financial freedom for your family. We'll kind of fast forward a little bit. So I graduated medical school, we moved to Rochester, Minnesota. So now we're in a new town. This is the town that Nick was born and raised in. So even though he hadn't lived here in 15 years, we had some area knowledge, but we had less time. We had our first baby. I was now in residency, which is much harder than medical school. Nick had a very good career at Mayo Clinic that was taking up a lot of his time. And Minnesota was a much more expensive market than Oklahoma City, about three times as expensive. So we hit this wall where we wondered shoot, did we go through that steep learning curve with real estate investing and all that work we had done with Dawn and doing that renovation and getting that cash out refi and saving up all that money for not? Would it be years and years and years before we would be able to acquire our next property? Like had we just stalled out because of changes in our life circumstances related to my medical training, and yet we knew we had to find a way.

SPEAKER_00 3:38

So one of the best things you can ever do when you want something is to tell everyone about it. This primes your reticular activation system, and when you you project that energy in into your social circles, just neat things happen, serendipitous things. We're very spiritual people, and one way or another, a path is is made for you. And so we told everyone that we knew that we wanted to buy an investment property. And it was a little absurd, frankly, for us to say that because houses in Minnesota cost like four times more than houses in Oklahoma. It was such a hopelessly unaffordable market. We had saved up a bunch of cash. We had, I don't know, maybe, you know,$70,000 or or so dollars, you know, saved up from that first deal we had done on the$35,000 house, but we were looking at houses in Minnesota that cost, you know, like$200,000. And it's just, it seemed unconscionable to us that we could actually buy something and make money at it. But we knew if we just thought about it, prayed about it, told people about it, it would happen. And one way we would we'd we'd find a way. And so uh there's this family, the D Alens, and they had a relationship with me when I was a kid in Rochester, and there was this little old lady who gave me a ride to church as a kid, her name was Meradel. And fast forward, you know, 20 years, she was an even littler old lady in the same house that she lived in when I was a kid in Rochester, and she had come into a pretty bad situation. She was in the hospital, and you know, kind of through the church grapevine, I had heard that it seemed like there was some dangerous person living with her. And there were questions or concerns about what had happened and what was going to happen. And there was this house that she lived in that was deeply distressed, and that's kind of how it hit our radar. And we tried to go visit and get to know the situation, and it was indeed a very dangerous uh situation. There was a person who she had invited into her home who had, you know, come on hard times, and she was, you know, just a very kind woman. And this person was taking advantage of her, and we think tried to uh tried to kill her. And so she was in critical condition in the hospital and and so forth. And so we went and met with these people and you know encouraged them to move along. Eventually worked with law enforcement, and eventually they were brought to justice through a complex story that involving high-speed chase with the police and pursuit through a Walmart and all sorts of it would be a long story to talk through all that, you know, it was a made-for-TV movie or something like that. But we eventually purchased the home. We purchased it for$125,000. We didn't have$125,000, so we had to get a conventional loan on the property, which was really difficult with the condition that it was in. So what was happening was I was managing, you know, several teams of software engineers by day. Elaine was working 100 hours a week as a resident physician, and somehow in between, we'd go over to this house that we did not yet own. We had it under contract, but we did not yet own, and we would kind of clean it out uh to give you some idea of the the really terrible situation that these individuals had had kind of put the house into. When we walked in the house the first time, Elaine we walked in the front door and there was such a strong odor of urine and feces that Elaine just immediately threw up just spontaneously. We're pretty gritty people, but it was it was bad.

SPEAKER_01 6:43

I've never thrown up in a living room before or after. It was that was that was a first and to date last real estate investing journey. It's a pretty interesting situation when you meet someone for the first time, you know, they're like greeting you at the front door. Oh, come on in. Come on in. And then you're throwing up in their living room and I'm like, you know, trying to catch it in my hands and like running out to the lawn.

SPEAKER_00 7:04

It was that's uh it was intense. Yeah, yeah. That was an interesting situation.

SPEAKER_01 7:08

And Nick is just this like calm, cool cucumber. He just like carried on the conversation like as though I had gotten like a phone call or something.

SPEAKER_00 7:18

It's just my wife. She often throws up in people's living rooms.

SPEAKER_01 7:21

It's kind of a show me where the bedrooms are.

SPEAKER_00 7:23

Like And one of the bedrooms was where the dogs did their business. Instead of letting the dogs outside, they just they had a mop and a bucket and a shovel and like a trash can, and that's just what they did. And so the the house smelled like it. And the house was very distressed, and we had to get this thing to conform for a conventional mortgage where an appraiser comes in and says, Yeah, this is a good enough house that you know a bank should lend on it. And so we went in and we cleaned the house and cleaned the house and cleaned the house, you know, after getting these people out, trashed out, you know, hauled off like six thirty-yard construction dumpsters, did like a Facebook marketplace free to get people to haul off for some reason.

SPEAKER_01 7:56

They had like hundreds of bookshelves that they were all like empty, border situation. Yeah, just bookshelves everywhere. So we had like a free bookshelves on the curb for like two weeks. Yeah, it's crazy.

SPEAKER_00 8:07

Yeah, just disposing of this waste, you know, as efficiently as we possibly could. Because again, we didn't own this house and we didn't really have a lot of money. So just clearing this thing out and then you know, being there ourselves, scrubbing it, you know, as best we could and just recruiting help any way we could. And it took five appraisals. So I still remember the fourth time the appraiser came out and he was blown away because he had been there the first time. The bank would want a loan, and the appraiser's like, No, there's no way in heck a bank would lend on this place, and I'm like, why not? And he went through like the laundry list of all the things wrong with it. I'm like, Yeah, I know, I'm fixing it up. And he's like, Yeah, you have to fix those things before the bank will put a loan on it. I'm like, but but that's the reason I'm buying it. So we had to go repair all those things and then get it to where it would it would conform for for mortgage. And I still remember the fourth appraisal, we'd gotten this list of like a hundred things. This this appraiser, his name was Mike, and he actually appraised our personal home here recently. So he the small town living, just a cosmic coincidence. He's like, Nick, this is a little bit more than a little bit.

SPEAKER_01 9:03

Our personal home smells a little better.

SPEAKER_00 9:05

We got a lot of kids, I don't know. But uh the fourth appraisal, he's like, Nick, you've really turned this place around. This is amazing, but it still smells like, and you know, he had some colorful language, you know. And and I'm like, Okay, so are you telling me that if you come back and you don't smell dog urine and feces, you'll say that this is good to go for the loan? He's like, if you do that, then yeah, absolutely. I don't see how you will, but sure. And I literally went and bought like 30 glade plugins. I still remember it was a pineapple scent, the most aggressive, obnoxious odor. And like I called Mike back the next day, I'm like, we're ready to go.

SPEAKER_01 9:36

So did it smell like Hawaii?

SPEAKER_00 9:39

Uh it smelled like I was living inside of a glade plug-in. And he walked in and he just kind of shakes his head at me and he's like, Nick, you can't smell anything in here. I'm like, said you said you can't smell dog urine and feces. So we got we got a loan on it. We got a conventional loan on it. We do another kind of sweat equity remodel on it, and then we have to wait for a year for it to season, another concept we were completely unfamiliar with. We were figuring this out as we go, but I still remember getting the appraisal on it, you know, after it seasoned, and uh we spent about$30,000 on renovations of this home and appraised for$250,000. So we've made about$100,000 in, I don't know, probably took about a month for principal renovations, you know, working very hard, but still I remember seeing that appraisal, getting the big cash-out refinance check. Again, we had to wait a year for that one. It was a tough wait, but knowing there was a big pot of gold at the end of the rainbow. And again, holding that check in our hands and saying this works. We figured out a way, you know, the real estate here costs like quadruple what the real estate back there costs, but we found a way. We found a way. Let's do this again. And we so we did it again and again and again.

SPEAKER_01 10:43

And then we spent some time, you know, during that time, we were looking at things like sub two mortgages and seller financing and some other things, things that have worked for other people. If you've listened to some other podcasts, you probably have heard of those strategies, and some people found a lot of success with them. We did not find a lot of success with those. So we didn't have any money in that year period where we were waiting for our cash out refi, but we wanted to keep going. And so we tried as many things as we could, but we just kind of couldn't get traction there. So we had the check in hand for about$100,000, and then we bought our first foreclosure that we bought ourselves. So, as kind of all of this was going on, we continued to look at properties. We continued to stay in the market. We wanted to build that unconscious competence that we talked about in episode one. So we stayed in the market, we looked at things. You know, Nick was actively trying to negotiate things like seller carries and other things. And we decided along the way that Nick would get his real estate license. And we were so just kind of oblivious to that value at that time. We literally were just thinking from a scheduling perspective. By then we had two children, or maybe I was pregnant with our second child, but we definitely had one child, probably pregnant with our second child. I'm still in residency. Nick's still in his career at tech. And we thought, you know, if we only had two schedules to contend with, and Nick could be the one that unlocked the door, as opposed to having three schedules, you know, needing to coordinate with a real estate agent, it would be a little bit easier for us to go look at every single house on the market. At that time, we tried to look at one house every single day. I wouldn't say we were looking at 365 houses a year because we would take weekends and holidays and those sorts of things off. But pretty much every business day we wanted to look at one single family home because we were working toward that just magical experience that we had seen with Don, where he walked into that house and knew within 20, 30 seconds if it was a deal or not. So Nick got his real estate license and that unlocked so much for us, you know, so much that even to this day, it's such an integral part of our negotiations and you know, just the core structure of our business. And then we bought our first foreclosure that Nick represented us, and he uh it's your story to tell, but I'll say you uh you you you maybe were less willing to listen to advisors than you had been back when it was dawn, and we paid for that. We suffered some consequences from that. So tell us that story.

SPEAKER_00 13:12

Sure. So it was kind of wild. Elaine had just slipped on some ice and broken her ankle and was under anesthesia when I came to her and said, Babe, I think I think the deal just hit the market. I'm gonna go buy it.

SPEAKER_01 13:22

No, no, no, that wasn't the exact timing. I looked at the house the day before I broke my ankle. Yep. Yeah. So I I had seen it and it was a duplex. Yep. I had seen it because in fact we have a video. Um, and I remember, you know, watching that video when I was rehabbing my my ankle injury and thinking, like, man, I really hope I can walk again someday. But then you wrote the offer while it was in the OR. So we looked at the property, decided we were gonna buy it. I broke my ankle the next morning. A couple of days later, I was in the OR, and that's when the call for offers was.

SPEAKER_00 13:53

Yeah. The listing broker's name was uh Chad, amazing agent and just a just a good guy. And he had worked through countless REOs, you know, hundreds of REOs in the area and was kind of an expert on it. I didn't know any of these things at the time, but uh I called him and I'd you know never written an offer as an agent before. I was you know learning all these things. Like I had you know coaching and and stuff from Keller Williams, but this was this was very specific. And I'm like, hey, my name is Nick Stockerberg, I'm with Keller Williams. Yeah, I was very vulnerable and transparent with him. We love to just lead with with authenticity and transparency, all that we do. This is this is the first time I've ever written an offer on on anything. I'm a brand new licensed agent, and this is an REO, this is a bank foreclosure, it's a bank owned property, so I don't know what exactly I'm supposed to do here, but I'd I'd like to make an offer on the property. And since I'm you know not represented by an agent, I want a 3% discount. And I had a bunch of weird terms that I kind of made up that were complete nonsense. And Chad just kind of said, That's awesome, man. I'm really excited to you know have a new agent in the investor world. There's not enough of them. Here's what you need to do. You know, the listing price is you know 90,000. If you wrote an offer at 87,000, I might be able to get them to go along with it. You said it was, you know, all cash, no contingencies, right? Yep. Well, they got an appraisal for 90,000. So they're gonna be pretty stuck on that number. And so just here's here's all the terms. Maybe you could get you know an inspection contingency in there, and maybe you could ask for a discount then. But the here's the number, here's the offer, just write that offer. And I I got off the phone. I was just so taken aback by how much he wanted to serve us, how much he wanted to, you know, to get a deal done. I was expecting this like kind of poker face and a hard nose negotiation. And I'm like, uh maybe maybe he's just tricking us or something. I'm gonna write an offer for 85,000. You know, maybe it's a better deal than I realized or something. I submit the offer and and and Chad's like, Nick, I I told you the number, didn't I? I'm like, Yeah, well, I I want you to submit this. He's like, they're not gonna take this offer. I I'm telling you right now, they're not gonna take this offer. I'm like, I'll submit the offer anyway. He's like, Nick, if I if I submit this offer, they're gonna say no. We're gonna get more offers. And if you really want this house, you have to pay even more for it. That's what's gonna happen. So submit it anyway. And they said no, a bunch of offers came in. We ended up paying like$93,000 for the house, exactly as he said. And uh, you know, different at different times of journey, you know, I've I've had to learn to when when when a uh a guide presents themselves, like follow them. Just just don't be an asshole where you you ask for advice or offer advice and just just almost willfully do the opposite. You don't get good outcomes when you do that. It was still the cheapest duplex that had sold in our market in like a decade. It was still a phenomenal deal on our property, needed uh quite a bit of work, it was over a hundred years older. It it had just had its 100-year anniversary the year that we bought it, and was a beautiful old mansion that had been kind of chopped up into a duplex, one of those types of properties, but went through the exact same process, went and you know, renovated everything, did it with it with cash, and then you know, kind of raced to a cash-out refinance on that on that property, got a full cash out refinance to go to go do the next deal.

SPEAKER_01 16:56

And then we got into the fun period with our single family home. So at that point, we had a little steam, we had a couple of repetitions. Nick had his license. We at that point we had built a small team of handy people to help us. We were just working with some unskilled craftsmen or what would you call it? Unskilled laborers, people who would help help us paint and do basic landscaping and some other things. So we would still, you know, principally take care of the renovations ourselves, but we had some helping hands. And we decided we wanted to buy as many homes as we possibly could as quickly as we could, because at this point we're in 2016, 2017, going into early 2018, and we suspected that that post-2008 discount period, for lack of a better word, was coming to a close. So we wanted to put the pedal to the metal.

SPEAKER_00 17:46

So we took- That's exactly how I feel about multifamily right this second.

SPEAKER_01 17:49

Yeah. So we took all of the capital that we had generated from the deals that we had done, that you know, that we that we've just described this whole time through. We're saving up as much as we can, we're living as lean as we possibly can, you know, living in a home, much less than we, you know, technically could afford with our personal mortgage, driving old$5,000 paid-off cars, just really believing in the future. We'll we'll talk about that on our next episode of the sacrifices that we made. And in episode one, you know, I shared the perspective that sacrifices can be very joyful. So we'll talk about that in the next episode, the joyful sacrifices that we were making. And we decided that capital was our bottleneck. And so we started working with passive investors. And that was really scary for me at the time. You'll hear, you know, in these stories, Nick is kind of the visionary, and I think I'm a visionary too. But I'm I'm Nick calls me like his board of directors or his chief risk officer. I'm often, you know, maybe a step behind or a half step behind, a little more like, are you sure? I don't know about that. Is the timing right? You know, Nick really has to like sell his ideas to me.

SPEAKER_00 18:57

Well, it saved us from bankruptcy a hundred times over.

SPEAKER_01 18:59

So in order in order for me to get on board. So we wanted to work with passive investors, but I really wanted to make sure that we could make good on that. It was, you know, it was horrifying to me the idea that someone could invest with us and potentially lose money or not get their return or something. And so we decided to do just a really simple 10% fixed rate of return, promissory note, first lien on the house, those sorts of things. And then we went into the period where we bought as many single family homes as we could in a several year period. We'll talk about that on our next episode. That's gonna be a ton of fun to dive into that.