- Abraham Anderson saved most of his salary to buy a piece of land to build on.
- He did this in order to be able to apply for a construction loan instead of a conventional mortgage.
- He also used commercial loans and cash-out refinances to help scale faster.
Abraham Anderson was only 21 years old when he bought a 20-unit home.
Real estate agents hardly took him seriously when he went shopping. Every time he stopped to tour a property, their faces would droop and they thought their time was wasted, he said.
So he started bringing a document to show them that a bank had pre-approved him for a property worth the value he was viewing. Today he is 26 years old and owns almost 1,300 rental units, according to public properties that have been checked by Insider. And no, he didn’t have a co-signer or sponsor when he started.
Anderson’s units are a mix of apartments, single-family homes, and RV properties, with the exception of a few vacant apartments. He owns some of the properties directly and is a co-owner of others.
Anderson is also not a real estate guru, and he does not have a college degree. He started selling insurance when he was 18. He worked for commissions, which many would shy away from. But for him it meant that his income wasn’t capped by the hour, or how much he could earn in relation to his age.
In his first year, he earned $ 143,000 as an insurance agent, according to a 2014 tax return viewed by Insider. And he was very frugal, lived at home and saved every penny.
As he traveled a distance to close a deal, he told Insider that he would rather sleep in his car than take a hotel. A loaf of bread from the local Walmart would be his breakfast. Yes, the sacrifice wasn’t pretty, but the payoff was well worth it for Anderson.
The income saved would change his life and put him on a path that would make him financially free in a few years. He would use it to buy a piece of land on which he would build four units – the first in a portfolio that, thanks to cultivated relationships and a careful loan application strategy, would eventually grow to thousands.
The first deal
Anderson said he had $ 56,000 ready to use on a plot of land in Cleveland, Tennessee that he was targeting. But that had to be built upon – something that his friend’s father could handle since he was a building contractor.
To finance the project, Anderson applied for a construction loan from a small local bank. It would normally not be easy to get a loan at such a young age and with just under an annual income.
But it had a couple of pullable threads. First he went to a bank recommended by the building contractor. The contractor had a relationship with the bank because he had done business for other construction projects.
“I would highly recommend people speak to local banks, not even regional or national,” said Anderson, “mostly because [the latter] have almost no authority. It always goes to someone else. At local banks, you can talk to people who can make decisions and they know the community and it’s just a lot easier to work with. “
Second, he submitted a credibility book, a folder with various items to demonstrate his ability to repay the loan. Not having a tax return at the time, he said he had submitted awards he received as a top seller, a copy of his bank statement to show his savings, a credit report printout, and a blueprint of his schedule.
“One thing I’ve learned is that banks are pretty flexible about what they can do, especially in the commercial space.” [loans]”Said Anderson. âLiving is much different, they are much more regulated. They have a lot of flexibility with commercial loans. So if they believe in you, if you can show them that you have a good business plan and / or experience, they can really work with you. ”
Anderson applied for $ 300,000 but did not get all of it at once. Instead, all expenses would have to be settled by the bank. Once approved, they would release the funds and 5% interest would be charged on that amount. When the construction was completed, the conditions were changed to repayment and interest payments.
The first deal was a buy-and-sell. When he got out, he told insiders that he had made a profit of $ 74,000.
In hindsight, it was a process he wouldn’t recommend to a first-time investor. First, it didn’t get him much more than if he had turned over a property that just needed an upgrade. Second, it was a lot more work. For him, however, it was an accessible route back then because credit was easier to get hold of than a mortgage.
Scaling his portfolio
While building the first lot, he kept his job and aggressive savings strategy. That meant he saved an additional $ 150,000 that year. And he put it in the direction of a multipurpose property in Sevierville, Tennessee that he used as an office and living space, he said.
It wasn’t a cash flow property, but he could use it as collateral for his next purchase, he said, which would be the property that would give him financial freedom.
Anderson’s next purchase would be just over five units for two reasons, so it would qualify as a commercial property. The first reason was that it was easier to get a loan. Second, it gave him more control over his appreciation potential.
âIf you increase the net income of the property, the value increases with it. If there are one to four units, then it’s residential, and [net income] doesn’t matter, it’s based on comps, “said Anderson, referring to similar homes in the area.
This property was a 20-unit residential home whose owner had a personal event and had to sell. It was about $ 1.3 million. Anderson had to put down 10%, or $ 130,000, that he had from the sale of his first property. The bank loan covered the reminder, he said. He added that his multipurpose property was also used as a lien on the loan.
He made a few upgrades, such as minor landscape adjustments for aesthetic reasons and necessary repairs. These allowed him to increase rent or net income and apply for approximately $ 1.6 million commercial refinancing.
Anderson would use that money as a down payment on the next property. He has recycled this process many times.
Today he loves teaching others how to invest in commercial real estate. His Capital Cashflow website and YouTube channel are free resources teaching people how to find and review properties and select tenants.