Podcast: From Profit to Property: How DTC Founders Can Build Wealth Through Real Estate

Written By Sherilee Maxcy

Episode Summary

In this episode of the Free to Grow CFO podcast, Jon Blair and Chad Hampton discuss the importance of real estate investing as a means to build wealth while running a DTC brand. They explore Chad's journey into real estate, the significance of cash flow, navigating high interest rates, and various financing strategies. The conversation emphasizes the need for a knowledgeable loan officer and the potential for scaling a real estate portfolio, providing practical advice for DTC brand founders looking to invest in real estate.

Key Takeaways

  • Real estate can be a powerful asset class for building wealth.

  • Diversifying investment sources can help scale a portfolio.

  • Real estate investing is accessible even in a challenging market.

  • Investors can use the property's income potential to qualify for loans.

Transcript

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00:00 Introduction to Real Estate Investing

02:18 Chad's Journey into Real Estate

04:08 Understanding Wealth Building through Real Estate

07:27 Navigating the Current Real Estate Market

10:33 Cash Flow vs. Appreciation in Real Estate

13:43 Risk Management in Real Estate Investments

17:23 Leveraging Debt for Wealth Building

20:34 Long-Term Strategies for Real Estate Success

21:20 Building Wealth Through Real Estate

28:05 Understanding Leverage and Debt Financing

32:48 Scaling Your Real Estate Portfolio

39:14 Getting Started in Real Estate Investing

42:00 Final Thoughts


Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free to Grow CFO podcast where we dive deep into conversations about scaling a DTC brand with a profit focused mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. We're the go-to outsource finance and accounting firm for eight and nine figure DTC brands. And today I'm here with my buddy Chad Hampton. He runs the Gulf Coast branch of Cornerstone First Mortgage. What's happening, Chad?

Chad Hampton (00:25)

Hey Jon, glad to be here man, I'm excited for this. I love your content and I'm looking forward to being a part of it.

Jon Blair (00:32)

Yeah, so this is like this we're going a little bit off the beaten path here of the Free to Grow CFO podcast, but I think it's going to be incredibly enlightening and empowering to our audience. So Chad is actually the way I met him was he actually is the loan officer at a previous lender that he worked at Movement Mortgage and he's helped me finance my own personal real estate portfolio in the Mississippi area. And in getting to know Chad and learning a little bit about his story and he himself is a small business owner, he's also a real estate investor and from my standpoint, know, Chad is a real estate financing guru. He knows how it works inside and out and he's been one of the most helpful loan officers, actually the most helpful loan officer I've ever worked with on financing real estate deals.

Here's why we're gonna talk about this today and why I brought Chad on.

We talk a lot about how to increase profit and cashflow as you scale a DTC brand. Super, super important things, right? But I think there's this common misconception in the DTC space that the only way to build wealth is to sell your brand one day. That is a way, but it's also a binary outcome. You either do it or you don't. And so at Free to Grow CFO, we're working really hard with our clients right now on this effort to help them figure out how to take cash out of the business on a regular basis.

and buy assets. So buy things like real estate, index funds, whatever asset classes you're interested in personally. But the bottom line is to build wealth along the journey of building your business. And so today I want to focus on how to build wealth through real estate. And that's why I brought Chad on. So Chad, before we dive into this, can you give everyone just a quick background of and how you ultimately got into real estate investing and also real estate lending?

Chad Hampton (02:26)

Yeah, absolutely. So I actually came through supply chain management through a large corporation. I think it's fine to say the name DuPont is where I kind of grew up through that. At that time, I think we had somewhere around 27 business units. And I was in a space on the Gulf Coast, southeastern United States, but doing lots of work with China, South America, and So doing that under that umbrella, picked up finance and the mergers and acquisitions space when we were going through things like that, and was used to using set amounts of capital and budgeting and all that and figuring out how to optimize the company's profit. I started consulting with some companies, some other large companies. And then honestly, during the COVID shutdown, it kind of changed where I could go as far as the facilities and things. And so I had more time on my hands, I couldn't travel. So I started doing some real estate finance, which some friends had talked to me about for many years, and I just didn't have the time, but the time freed up, started playing in it, found out that I loved it.

I had a passion for it because I could impact people and help people's cash flow improve or else, you know, even when you're buying a personal house.

you know, as far as that standpoint goes, if you get a better deal, I mean, even your monthly personal household cashflow can be benefited in a positive manner. And I could see the impact much more than what I was doing before. On stock prices, can't, even if you save 50 million bucks, you're not going to see that in the stock price of a company that big. Right? So, yeah, so, so started doing that. Did both the consulting in that work for a while.

Jon Blair (04:05)

for sure.

Chad Hampton (04:13)

probably about a year and I just, my passion kind of took over for this and I just dove head first into it about five years into just doing this now and really, really, really enjoy it. So on a personal side, I initially got into real estate investing.

with some developer friends and other investors as like a part member, partial member. And I would dive in a few little deals where we would raise capital together and go in and buy them and what have you. I've also done the other thing where, like you're talking about, I've sold us a small business as a partner and took the cashflow from that and used it to do some real estate investing as well. So I've done both.

Jon Blair (04:59)

Awesome man, well it's interesting because like both you and I come from a different business background, right, and kind of turned real estate investors. I actually, I'm curious, I'm gonna tell a little bit of my story and I'm curious of like what got you interested in terms of real estate as an asset class, but for me I had this light bulb moment.

Maybe about two years ago and it was the classic. was reading Robert Kiyosaki's Rich Dad Poor Dad, which had been on, I'm an avid reader, but that's been on my list for like, for like 10 years. And I was like, I'm finally going to read it. And it really, really changed my perspective. And what, one of the things I took away from it that I want the audience to understand is that like, you know, to get rich or really build wealth, right? It's about building wealth. You don't have to quit your day job, right? So like for me, my day job is

Chad Hampton (05:25)

Yeah.

Jon Blair (05:49)

growing Free to Grow CFO. For a DTC brand founder, maybe scaling their DTC brand, right? You still have a day job, Chad, in running the branch of a mortgage lender. But what I took away from that book was take your day job income, right, and invest it into assets. And most importantly, Robert Kiyosaki says, just pick an asset class you like. It actually doesn't matter which one it is.

But you need to like it because you're going to do it for the rest of your life. You're not going to just build wealth over time or immediately. There's no get rich quick schemes. There's get rich slow schemes. So pick something you like and get rich slowly in it, right? So turn your day job income into assets, which will build financial freedom over time. And this light bulb went off that I had been given this conventional kind of advice from CPAs of just like,

Fill up your 401k every single year, invest it in index funds, and that's the way you get wealthy. And this light bulb went off where I was like, I can't get to my 401k until I'm old. And I wanna retire before I'm old, or I wanna be financially free before I'm old, right? And so I'm like, how can I build financial freedom quicker and enjoy the fruits of it sooner? And I started to realize that cash flowing real estate was the way and then I got super nerdy about it and as Chad knows, I love it because we get into conversations that are probably too long about all the deals that I want to do. But that was my aha moment. For you, when you kind of started to finally understand real estate investing, what was the light bulb moment or moments for you when you're like, this is a great asset class to build wealth in?

Chad Hampton (07:32)

Yeah, great question. So a few things, not unlike you, I was dumping into the 401k, I was dumping into different things like that. But I started looking for diversification of risk, right? And I was reading a lot of things too, and I saw what asset class performs the best historically in down markets and things like that. It's real estate, looking at things like ⁓ the fact that rents are growing faster than anything else.

The better part of the next last two decades, we've had less homes produced, new homes produced, then we've had housing demand rise. So there's a lack of affordable housing. So a lot of people are going to have to rent that didn't have to otherwise and what have you. thinking about all those things, you know, and then talking to people that I know that do well in real estate.

and the tax benefits involved in all that as well, it just made sense, right? It was the next step just try to learn everything I can from every person that I come in contact with in that world and take little tidbits here and there and also reading like you do. you know, over time, it's something that you have multiple ways to build wealth, whether it's property appreciation or...

you know, paying down whatever debt service you have and then using that equity for other things down the road. And then, you know, monthly cash flow benefits that can be used to grow other things.

Jon Blair (09:11)

Yeah, okay, so you touched on a couple things there. I'm still a newbie. You probably don't even know this. I'm just gonna like lay it out on the table. I'm very candid on this podcast. The first real estate deal I ever did was through you. You financed all of my investments, right? My personal residence was financed with a different loan officer. I've done all my real estate deals. Like, you've been my guinea pig on the financing side of the house. But you have taught me, I'm already a finance guy.

So I understand how debt works and I understand how leveraged return on equity works, right? But you have really helped me understand the ins and outs of the different levers that you can pull using debt as a tool, right, in real estate, which is something you can't do, generally speaking, in the stock market, right?

And so you just hit the nail on the head in terms of multiple factors for building wealth. There's monthly cash flow, there's principal pay down on your loan, right? There's appreciation. And then there's this kind of X factor, which is like, how do you creatively use debt and the equity in your portfolio to continue to scale? Here's my question for you right now. I chose to jump into real estate investing when a lot of people are not jumping into real estate investing. Or I'll say the average person is like, now is a terrible time to invest in real estate because interest rates are so high. you know, a couple years ago when interest rates were 3%, you could buy a deal and cough and you would make money. Like you didn't have to analyze it very well, right? I have seen the deals that we've done together, we've done I think six or so, they're already cashflow positive and I believe they're going to gain steam over time. if someone were to come to you or the audience is like, hey, interest rates are seven plus percent, there's no way I could find a cash flowing deal. What would you say? What are you seeing out there? I mean, obviously you've seen my deals, but like, is it possible to find cash flowing deals and finance them with debt today?

Chad Hampton (11:19)

So it is possible. I think each individual person has a unique situation, right? And so like that's one thing that I think, like I said, my background didn't grow up through banking, right? It was finance, it was supply chain, it was multiple things like that. And so I kind of follow the concepts of that book range ⁓ where you take different things that you learn in different parts of life and then you apply things that maybe aren't as commonplace in a new subject, right? That is very common in another place. So in that aspect, I would say I try to understand each person's individual goals. Like is it monthly cash flow? Is it long-term?

A growth through appreciation. Are you trying to gain some tax benefits? Are you taking money from another investment that you've earned and trying to take a 1031 and save some taxes now and build that way? So to get back to your specific question, I think we have to be just very diligent in the particular property deal and you're great with that with your models, which is why I had no idea that you hadn't done this before. They're super sophisticated and I love that because I kind of geek out with you on these numbers. So I think that's the deal. You find a property where you make some form of positive cash flow in the interesting rate environment that we're in now, okay? And then all you can do there going forward is improve it. So if you're...

Jon Blair (12:40)

Hahaha

Chad Hampton (13:03)

making money under the assumptions right now of of occupancy and you know what your property taxes and insurance and all that thing and all those little components add up to then okay we're going to make money here on a monthly basis we're going to get you know depreciation and other tax benefits at the end of the year and then when the overall market improves and provides an opportunity to either take cash out and use it on another investment or, and hopefully at the same time, reduce your interest rate, you can improve your cashflow then and your earning potential kind of goes up. But I think the biggest thing is just making sure that from day one, you're okay, whether that's breakeven or making positive cashflow and you're good with that situation, that's built into your assumptions and you're not assuming what's gonna happen down the road, which...you look for an opportunity to improve it, yeah.

Jon Blair (14:02)

For sure, yeah, okay. So that's a we actually talk about this a lot on on our podcast with other investments because if you think about it like scaling a brand When you're incrementally trying to invest in ad spend or the next inventory order those are all investments that you're making right? those are all like bets you're placing with capital and It's about how what we talk a lot about is like how to do so in a manner that gives you the best risk adjusted return Not the best return the best risk adjusted return. Super key, right? Because comparing a super risky 20 % IRR and a not very risky 5 % IRR, that's apples and oranges. You cannot compare those two investments unless you consider risk, right? And so, what you just said right there is like, when you're underwriting a property, when you're building your financial model, like that you're not basically assuming all your upside will come from an assumption that has not played out yet, right? And is overly concentrated in one area. I see that a lot with assuming that all of your upside is gonna come from appreciation only, right? And so I get a lot of people coming to me say, hey Jon this is gonna lose me 200 bucks a month to start, but it's gonna be worth it because of appreciation, but you're putting all

Chad Hampton (15:06)

Right.

Right.

Jon Blair (15:25)

your eggs in the basket of appreciation, right? Do you ever have people that bring deals to you that you're like, you kind of maybe advise them against or at least advise them to think through like what the ramifications are from a risk adjusted return standpoint?

Chad Hampton (15:39)

Yes, that's an absolutely great question. So a couple of things that I've built in that I like to look at is historical rate of return by the zip code that this property is in, the neighborhoods around it, all that kind of thing. Now, I'm not a realtor, you know, so they have a little bit different.

Jon Blair (15:48)

Mmm.

Chad Hampton (15:58)

research that they do comp wise and things like that, compared to property wise. And I will get input there. But what I do like to do is look at the condition of the property, what's going on around the property and try to see, I mean, cause sometimes you find a deal that's worth doing on a cashflow basis because it makes money, right? But that property is probably not going to appreciate that much because maybe the condition of the property is going to require a lot of investment down the road and or the neighborhood or the area around it maybe is maybe it's deteriorating or maybe there's not a lot of investment you know infrastructure wise and so those are things that I like to throw caution you know out about but also it can work the other way I mean I know of a few markets where either either they're getting something like a new airport or some other major investment infrastructure wise, it's going to have to bring in revitalization to an area. And that's kind of another thing that I like to consider if it's a metropolitan area, the cycle, the life cycle of that city. Because a lot of times, you know, people move out of the cities, it starts to run down and then someone will have an idea to revitalize it, start investing money, making it trendy or, or cleaning it up or improving things. And then stuff's going to grow around

it, you know, in a 10-year window or something like that. So I think these are things that are very important to look at if you're in a buy and hold strategy other than someone that's just going to buy a property and make some cash for a couple of years and sell it, which people do that too, you know. So I think that's, again, that goes back to the individual person's goals that I think that's a great question and I think that's a serious focus you have to have up front when you're figuring out what you want to do.

Jon Blair (17:32)

So I'm gonna turn to financing in a second, because that's obviously an area of expertise for you, but before I do, I just wanna kind of summarize a couple things. So generally speaking, what I've found is that even though the interest rate environment is quote high, by the way, it's not high historically, when you take a step back, but it is high in the more micro-historical viewpoint for the last like say, you know, five to 10 years.

I've personally been able to use how high interest rates are as negotiating leverage and I'm completely honest. I'm I am a very honest negotiator I'm like, hey, I'm an investor with as high as rates are this is what I can afford to pay you if you can't sell for this I totally understand and no one can force you to do that, right? But this is what I can afford to pay so I underwrite it so that all of my properties after covering

your mortgage payment, taxes, insurance, a repairs reserve and a capital expenditures, a future capex reserve, that there's some amount of cashflow, right? But I have studied the data in these areas and there's an upward trajectory in rent growth. There's some amount of appreciation and it's different based on the different sub markets that I invest in, but the mortgage is also getting paid down. Furthermore, a part of my thesis is that at some point, but I'm not betting on when this is gonna happen,

At some point, I believe interest rates will come down below where I've financed these properties at. It could be in one year, it could be in five years, it could be in 10 years, but at some point when they do, I can refinance them and either crank up the cash flow or take cash out and go buy more property. So there's multiple levers. So that's my strategy right now, Anything that comes to mind, Chad, as I was running through that?

Chad Hampton (19:34)

No, I mean, it's a great strategy and I think it's logical and I think risk averse, you know? I got a great piece of advice 17, 18 years ago. So, you know, I've always been one who wants to be in the room with people who I think are smarter than me, know more about me, more about a subject than I do so I can learn little things and what have you. And I had a mentor type of gentleman back then who, again, not his day job, very, very successful day job, but completely different avenue, exactly like we're talking about, where he had real estate investing and other types of investments, including some small hotels and things. And I ran by the first real estate deal I did with him. I know I'm digressing into a tangent, but it comes back. So I was contemplating, this was my first deal.

Jon Blair (20:23)

No, no, this is great. This is great.

Chad Hampton (20:28)

kind of partner on this commercial building. think, yeah, the first one was a piece of a commercial building and then there was some rental aspects to it, some condo, condos in there. And then the second one was like a seven, seven unit portfolio of things that we were doing. I told him, I laid it out there for him. had done all the numbers and I took a bunch of the assumptions that you're kind of talking about here. And he said,

And I said, you know, we're putting this on a 20 year AM instead of a 30, which hurts our cash flow. But the idea is here's what we'll make when we pay this thing off. I'm to be very aggressive and throw money at this. And he said, you know, I've done several deals like this. And what I will tell you is I like the deal. I like the numbers, but you're never going to pay that off. You're never going to see that. And I said, what do you mean? And he said, I know you're talking about throwing money toward the principal and that's great.

He said, what you guys are gonna do is you're gonna build this equity and then you're gonna go refinance it, take that equity and you're gonna go buy more things. That's exactly how the seven unit thing happened next. He was right, he predicted the future, you know, and now doing this on a regular basis, I see why. Because you're not paying taxes on that money when you pull it, right? And then you go take that money and you reinvest it and now your cashflow just continues to kind of compound because you're getting a little here, a little there and.

Jon Blair (21:30)

Yeah, for sure.

sure.

Chad Hampton (21:52)

and you're only part of it, the interest rates are dropping as you take the money out from refinance if you time it in that manner. And if not, you're at least taking money for your down payment or your entry cost, acquisition cost on the next one without paying a tax benefit, I mean a tax consequence. So yes, I think it's a tried and true thought process.

Jon Blair (22:05)

Totally.

Chad Hampton (22:17)

And if you're just diligent upfront, then you can build something that's going to bring you cash flow and retire. know lots of people that fund their retirement that way. They just sit on their 401k until their ⁓ past 59 and a half. They delay the social security and all that and all their living on their rental portfolios.

Jon Blair (22:37)

Totally. Dude, I love real estate investing so much because of what you just said. You cannot take cash out of your index funds, your S &P 500 index fund, tax-free in the same way that you can with real estate, but furthermore, there's the leverage component, right? It's actually a refinancing that's generating the cash flow in that situation. ⁓ It's this powerful growth lever.

Chad Hampton (23:02)

Yes.

Jon Blair (23:05)

that just isn't, that leverage enables, right? And furthermore, I wanna mention something here, because we talk a lot about debt financing from the perspective of scaling a DTC brand. It's usually around buying inventory. Why is leverage, and I'm not talking about why lenders wanna lend against real estate, although we can, we'll probably get into that next, but why is leverage as an investor a good idea? Because technically you can borrow.

You can qualify to borrow and invest in the stock market technically. But why is that a bad idea versus leverage for real estate? Because real estate's a hard asset that has a very low likelihood, maybe an impossible likelihood of it ever going to zero. And prices can definitely go down. Don't get me wrong. But we just saw 20 % drop in the stock market not that long ago, like just weeks ago. ⁓

Real estate is projected to maybe go down flat or down by a couple points nationally, right? Over the same time horizon. You don't see these and stocks investing in a business, that's a zero sum game. Your investment can go to zero. Highly unlikely, probably impossible that that will ever happen in real estate. So using a responsible amount of leverage of debt is a lot less risky with real estate because there's this inherent hard asset value.

where you're not taking debt out on something that could potentially go to zero, which is the riskiest possible thing you could use debt for, as if something can go to zero. Next, I wanna talk about just some practical kind of advice on like, I'm a DTC brand founder. I'm able to take cash out on a monthly basis, and let's say I'm able to save $50k to $100,000 a year that I wanna put towards buy and hold real estate.

You as a lender who does these kinds of deals all day long, let's bust the myths. Like, what's possible, what's not possible, what kind of down payments are needed? Like, how should someone who just wants to take out 30-year mortgages to do buy and hold real estate deals, couple a year, what do they need to prepare themselves for to be able to do those successfully from a financing standpoint?

Chad Hampton (25:24)

Yeah, sure. Great question. One comment before we dive straight into that. When we're talking about the stock market can turn super quick. You can lose a lot really fast depending on the asset class. With real estate, it also is market specific. So like if you've done a good job of analyzing the market, even though nationally we may get a 2, 3 % reduction in value,

Jon Blair (25:41)

Mm.

Chad Hampton (25:53)

a lot of markets are still appreciating just because supply and demand of housing or growth or whatever. So that's another thing to contemplate. Diving into your question. if you can pull 50 to 100K per year to invest, you could build a portfolio fairly quickly, a cash flowing, positive cash flowing portfolio, depending on

Jon Blair (25:55)

Totally.

Chad Hampton (26:20)

you know, the price point you decide and which market you're looking at. Again, there are even risk categories of that. Are you doing short-term rent? Are you doing long-term rent? Are you doing mid-term rent? You know, short-term would be more risky. You'd have a higher upside in return. So those types of things. But generally speaking, the minimum amount you can put down on a property like this and we're talking residential because commercial that's another thing in that you only have a 20 year term the rates are going to be higher it's going to be harder to cash flow this just depends on unless you're buying a portfolio of properties at one time you probably want to go with a residential investment loan instead because you're getting 30 year terms or maybe even 40 with a 10 year IO on the front end of it and it's less out of out of pocket typically to get into the property as well. So that being said, you're doing that, the minimum you can put down would be 15%. There are other things that come into your cash out of pocket at that lower down payment percentage that come down through, not to go too far into that, but they're called loan level price adjustments and they come down through the government regulatory agencies. The agencies are Fannie Mae and Freddie Mac.

Those those types of fees kind of work themselves out in 5 % down payment increments. So Typically if you can get to around 25 % you're probably going to get the best the best terms for the lowest amount out of pocket It is possible. Like I said though to do lower you can do 20 % if you're doing more specialty product which we can talk about if you want to down the road like a DSCR or something. But yeah your rates are affected by down payment percentage, credit score, and your debt leverage, your debt to income leverage. There are investment products that don't consider that if you want to talk about those like the debt service coverage ratio, the DSCR loan, which is pretty popular now for investors, where you just use the property's income generating potential against its cost as your income and debt.

But there are lots of ways you can get creative and get these properties started, build your portfolio. There's lots of options.

Jon Blair (28:47)

Yeah, so a couple things I want to dive into further there. let's talk about debt to income ratio and how I think this is a common concern for a lot of people like, look: Can I? Will my debt to income ratio allow me to get approved to buy another rental property, right? So walk through a little bit about how debt to income affects

Chad Hampton (28:54)

Okay.

Jon Blair (29:14)

the ability to get approved for a loan in the buy and hold real estate context.

Chad Hampton (29:19)

Okay, so typically your cap on that would be 50 % and that's monthly liabilities. That would be your minimum monthly payments on things like credit cards, loans, mortgages. Doesn't consider things streaming services or utilities or anything like that, insurance, none of that stuff, except for on the property. And then the income would be your gross.

If you're a W-2 employee, that's pretty easy. It's just whatever your gross is that way. If you're self-employed or you have tax return generated income, it would be what you made throughout the year with a few things that are added back like depreciation. And then another thing that's used to improve your debt to income ratio on one of these types of conventional investment loans would be the property's market rental potential. So whatever the appraiser judges the market rent to be based on comparable properties or if it has leases or things like that, you can use 75 % of the appraisal value there to contribute to your income in that calculation. So a lot of people think they can't qualify that way, but they actually can once you add.

I mean, this is property, this is an investment property and you're doing it to gain income. So you're going to use 75 % of it. And the reason why that number is not a hundred is they're just factoring in occupancy. And then another option, if you don't make the 50 % cap on debt to income is,

is if you're self-employed, you can do a bank statement and you're using your monthly deposits averaged over a year or two years, depending on which way you do it. And then you just factor out an expense ratio for whatever type of business that is. Or another way, the popular way is the debt service coverage ratio. And so that would take 100 % of whatever the property will make and it'll be used monthly average. And then you just...you know, do the math, divide the debt, which would be the mortgage note, any property taxes, insurance, if there's HOA fees, that's it. You know, if you want to shoot for a break even, you can actually do it with a 25 % loss if you really wanted the property. But yes, yes, so .74 would be that ratio, would be like the minimum, but the rates get better once it breaks even at a 1%.

Jon Blair (31:55)

Interesting. I did not know that.

Chad Hampton (32:05)

a one to one ratio and then as it gets better like 1.1 or 1.15 or 1.25 you just get better rates. But that's a super popular thing right now.

Jon Blair (32:14)

Yeah, interesting.

What I'm hearing when you walk through that is like, if your business makes cash flow and you can take a consistent amount out every single year, there are several different ways that you can qualify for a loan and keep scaling. One is if you're buying places cheap enough that they're, effectively their monthly mortgage payment, their monthly debt service is...

Plus the rest of your personal debt services is less than 50 % of your income, right? You can qualify for on that basis. Additionally, because you're doing buy and hold rental real estate deals They will add in 75 % of the market rents for the property You're gonna buy into your income. So that increases your ability to still qualify under debt to income. And if you're finding really good deals, there's several deals that I've done with Chad where Chad's like, hey man, this actually made your DTI, your debt to income ratio, better because you found such a good deal of rents relative to what your mortgage payment is. Like you bought this thing for such a good price that like this actually makes your DTI better. Then the other, then if you're still having issues after accounting for those two things,

there's the DSCR debt service coverage ratio type loan where they will underwrite, if the income from the property at least breaks even with the mortgage payment taxes and insurance, you can get a loan through the DSCR program. I'm curious, like Chad, how, just because I think a lot of people don't know this, like I know a bit about this, but like, if you're just an owner operator of a business, you're taking cash flow and you're buying a few properties a year, you're getting 30 year loans on all these. How many loans can one person have? At what point do they have to stop scaling and look for capital somewhere else?

Chad Hampton (34:06)

That's a great question.

Okay, so it depends. So from the conventional loan standpoint, like Freddie Mac, Fannie Mae, they're gonna say 10 financed at a time. But there are investors like investment banks or hedge funds or whatever, venture capital funds. So, your Citibanks, your Goldman Sachs, those type of investors that we can use their products to do DSCR loans, bank statement loans, all the things that fall under the umbrella of non-QM, non-qualified mortgage, where they'll have their own rules. Some of them will allow 20 properties, or some of them will allow five properties with just them. There's different things like that. It depends on that particular investor's appetite. And you can add to your portfolio just by diversifying the investment source behind the scenes that's guaranteeing the loan.

Jon Blair (35:04)

Hmm, Yeah, see, that's interesting. Those are some of the tidbits that you know that like not every average loan officer understands that has been really intriguing about working with you is that like, and I'll say this, and I'm not trying to just like, you know, shamelessly plug Chad Hampton, although he has been fantastic to work with, but having the right loan officer makes all the difference in the world.

Like I actually moved from a different loan officer within ⁓ the same lender over to Chad. It was partially because of just licensing, local licensing. My previous loan officer who helped me buy my personal residence, who was fantastic at that, right, was not licensed in the state where I was investing, but I learned a valuable lesson, which is that Chad is also an investor, right? And a loan officer who understands investing, is really important because the options and the factors, especially when you're talking about scaling a portfolio, are not the same options and factors that a loan officer is walking you through on the personal resident side of things. Like, Chad, how important is it that people have a loan officer that understands financing investment properties?

Chad Hampton (36:25)

Yeah, it's big. Honestly, so I have a partner in our business, Brian Lynch, and he is a guru with condos.

We gained a lot of business internally from our umbrella just because you understood the condo space so much and there's different tripping hazards, I'll say there. So given the market we're in, most of the deals are second home or investment property. So we had to be very, very detailed and knowledgeable about the ins and outs and the things of that manner that affect those types of deals. Because they are different. The income sources of the people that we deal with are different. The way that their tax returns are done are different. And so basically, I'm one of those people that has a thirst for knowledge and so I just try to learn everything I can about that. Like I'm saying, every time we do a deal, we talk about things and I think about your mindset and we'll implement that somewhere else, right?

And so I think just...having someone that understands what you're trying to do as a both a macro and micro level, I think makes all the difference in the world because I may have seen something, for example, somewhere else that we don't know to ask about, right? And so, I mean, it's the same thing. There are types of deals that I don't do that much of and I'll go ask someone that I know that does a lot of those, right? Or, you know, might even say, hey, this is in so and so's wheelhouse, whatever. But there are, for example, a lot of people build a portfolio like we're talking about for cash flow for long-term appreciation for residual income later in life and maybe they exhaust their capital upfront on their first deal or their first or second deal or whatever and they want to acquire some more properties because they like the cash flow they're getting. Well, there are things like HELOCs or HELOANs which are the the 30 year fixed rate equivalent of the line of credit option, right? And a lot of people will use those to get down payments on more properties. And because we saw so much of that, Brian and I expanded our state licenses. Like I can do business in 49 states and Puerto Rico because I would have people wanting to buy, you know, a beach condo or an investment house somewhere, but they lived somewhere else. And things just got more complicated where I need to get I need to get equity from here to do this and do that or what have you. So I like to build portfolios with people, right? So we have like a working relationship where I understand what they want, they understand, you know, and it just makes it smoother. And so I think the more experience you gain there...

the more things you can predict and make them either not a problem or easier to handle when it comes up. I think it's just the same as any other type of business that any of these founders or business owners do. They're gonna know more about whatever it is that they do than someone else that may compete against them, but not really in their wheelhouse.

Jon Blair (39:40)

Totally. I found the same thing with agents as well. Like got to work with agents who have they don't have to exclusively work with investors, but they should have a they should have a significant book of business with investors because it is not the same game. Right. And like knowing the ins and outs and the lessons learned and the, you know, tips and tricks and hey, the avoid this because I've seen this mistake made. That's what saves you the money in the long run, you know, and ultimately helps you place better bets as you're growing your portfolio. So look, before we land the plane here, I'm curious if there's a founder of a DTC brand who's listening to this episode and they have 50 to 100K that they've been thinking about wanting to invest in real estate, just what is your simple advice on how they can get started on just like doing their first deal.

Chad Hampton (40:40)

Yeah, so So first of all, to structure it, I think talking to a loan officer that knows investments would be a good thing upfront because you figure out, know, a what it's going to cost you out of pocket, and then be what that would look like. cash flow modeling on a on a monthly basis or an annual basis, however you want to look at it.

The thing about that is, I think that could help you also look into a specific market, because if you can figure out the price point first, that will drive which markets you can play ball in and still have a desirable property, which in my opinion is one of the most important things, because that drives your supply and demand, right?

Because you can get a great deal on a property that's not necessarily a great area and it might not be that easy to keep it rented. I think talking numbers with someone is a great first step. And then you find out how serious or how...

you know, how tough it would be to make that first deal happen. And then you can go plug in with a good real estate agent who, like you said, is familiar with investors because they're going to know good inspectors, they're going to know good contractors. You know, a lot of times you can just do cosmetic stuff and increase your rental potential, but you want somebody who's going to find the hidden problems ahead of time.

I think that's your first two probably most important steps. Find somebody to talk money with and then go find an expert from a local area that you're interested in to go look at properties.

Jon Blair (42:31)

Yeah,

I think that's a great idea. It's a money game you're playing, so talk to the money guy first for sure. And not to mention, I mean, Chad has been super helpful on like, helping me think about what other markets we could potentially play in, because if he's doing deals all around the country, he's seeing some, he's seeing numbers, right? All around the country as well. So like a big part of how I got started was I just started asking people in the space, where should I invest? Why?

You know and like you got to go do your own research and validate it, but just ask people for introductions ask people for suggestions and believe me you'll you'll have more than your fair share of opportunities before you know it if you're willing to just get out there and ask. So unfortunately, we have to land the plane. This we could talk about I could talk about this for a really long time, but before we do close up here, where can people find more information or reach out and contact you and find out about how you and your partner can help with their real estate lending needs?

Chad Hampton (43:33)

Yeah, thanks for asking. So my personal cell phone is 601-624-7163. We can drop that. And then I have an email address, is champton @ cfmtg.com.

Jon Blair (43:49)

Heck yeah, definitely reach out to Chad. If he can't help you for some reason, I'll be pretty surprised, but if he can't, he will definitely pass you off to someone who can. He's a wealth of knowledge when it comes to not just the financing of real estate investing, but also other resources that can potentially help you in your journey. So man, I really appreciate you coming on, Chad. I just want everyone to take away from this. If you're able to generate cash in your business,

And there's no reason why you can't become a real estate investor. As Chad mentioned, even in today's interest rate environment, if you've got 20, 25%, you can put down on a property and you can get it to cashflow. There's multiple upsides from here on out into the future, Appreciation, refinancing when rates come down, rent growth, just to name a few. And it's never been a better time.

Contrary to what you may be hearing out there. It's never been a better time to look at starting real estate investing There's lots of opportunity. There's more buyers markets out there than there have been and I don't know five plus years. So now's a great time to get started

Chad Hampton (45:00)

Totally agree with that, man, totally agree with that. Also see a lot of people who offset W-2 income with their tax benefits too.

Jon Blair (45:08)

Yeah, which is absolutely huge. Look, I hope this was helpful everybody. Remember, use your brand to create wealth. Don't just wait for the exit and real estate is a great way to get started. And also, don't forget if you want more helpful tips on scaling a profit-focused DTC brand, consider following me, Jon Blair, on LinkedIn. And if you're interested in learning more about how Free To Grow's DTC accountants and fractional CFOs can help your brand increase profit and cash flow as you scale, check us out at freetogrowcfo.com. Until next time.

Scale on. Thanks, Chad.

Chad Hampton (45:39)

Thanks, Jon.


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