25 Properties at 27 Years Old by Building His Own Rentals

Key Takeaways:

– Donovan Adesoro has built 25 homes, often making around a 100% return on his money
– He started by buying a duplex in 2020 using a zero percent down loan program
– Donovan linked up with other investors to oversee the new build process in exchange for capital to buy land
– He used the plots of land as collateral for new construction loans
– Donovan now owns a brand new duplex with a lot of equity
– Donovan breaks down the building, funding, and capital-raising process for new construction
– He provides actual numbers on the profits he makes for each new home
– Donovan offers tips on lowering costs and selling for a high price.

BiggerPockets:

Do NOT buy rental properties. There’s a MUCH better way to build wealth. And we mean that literally, “building” wealth is the best path. At just twenty-seven years old, today’s guest has built twenty-five homes, often making around a one-hundred percent return on his money, all without the hassle of the creaky floors, poor piping, and outdated electricals of old, “cash-flowing” rental properties. So, how is he doing it?

Donovan Adesoro bought his first duplex in 2020. He took advantage of a zero percent down loan program, allowing him house hack a new build for just $3,000 out of pocket. But once he saw how much equity he could make, he realized he had to do more. So, Donovan linked up with other investors, overseeing the new build process in exchange for capital to buy land. He then used the plots of land as collateral for his new construction loans, and within six months, Donovan was the proud owner of a brand new duplex with TONS of equity included.

But if you’re like most investors, you know NOTHING about new construction. Thankfully, Donovan, who wasn’t a builder by trade, breaks down the entire building, funding, and capital-raising process so you can repeat his system and start building your wealth instead of buying it! Plus, Donovan gives ACTUAL numbers on what he’s making for every new home and some expert tips on lowering your costs while selling for a high price!

David:
What’s up, everyone? Welcome to the BiggerPockets podcast, the biggest, the best, and the baddest real estate podcast in the world. I am your host, David Greene. I’m here with my skilled, talented, handsome, buff, and brilliant co-host, Rob Abasolo.

Rob:
Thank you. I appreciate that. That’s what I needed on a Wednesday, my friend. How are you?

David:
I’m good. Did I leave anything out? I suppose I could have said ripped, artistic, wonderful lover.

Rob:
Two out of three is not bad. Listen, for everyone at home, we have a pretty incredible story for you today. We’re here with Donovan Adesoro. Donovan started investing in duplexes right out of college in the Houston market, my backyard. He has grown quite a portfolio in his short time as an investor, and has started building duplexes himself.

David:
So if you’ve ever been frustrated by the lack of inventory, wanting to get deeper into real estate, but traditional paths don’t seem to be yielding much fruit, today’s show is for you. You’re going to hear about how Donovan selected a product that was needed in his market, saw where the demand was, and move forward mitigating risks on how he did it. What an awesome story and incredible young man. Let’s bring him in.
Donovan, you started investing in duplexes right after college, not something that everybody does. What year was this, and why did you choose duplexes specifically?

Donovan:
So, in 2020, after I bought that first duplex, I realized there’s just not too many in Houston given how vast the land is. So, duplexes was a small niche market, and I felt like I could be a little bit more competitive there than compete with the major single family home builders.

David:
What year was it when you were graduating college?

Donovan:
2019.

David:
All right, so 2019, you get out of college. You’re stepping into the whole COVID matrix, and you decide, “I’m going to buy duplexes.” Give me a better understanding of what you were looking at when you surveyed this vast array of land that you describe of and why duplexes stood out to you. What caused the shining light of brilliance to shine upon the duplexes?

Donovan:
After college, I was listening to BiggerPockets podcast on the way to and from my engineering job. A big thing was having multiple exit strategies, and when I was looking at the numbers on a single family home, they just wouldn’t pencil as a rental if worst case scenario we had to keep them. So, the downside of the duplex was like, “Hey, if we can’t sell, it’s okay. We can refi, and make 8%, 10% cash on cash.” So, having those two exit strategies was really what drew me towards it.

David:
Okay, so you were not a purely cashflow buy and hold investor. You were actually looking to buy properties, improve them, and sell them, I’m assuming, and then you thought, “Hey, if I can’t sell it, at least it’ll cashflow. I could hold it.”

Donovan:
Exactly. Yeah, I wanted to have both options available.

David:
All right, and were these new properties that you were looking at, or were these existing inventory?

Donovan:
There were all new that I was looking at, so I bought… The one I moved into was brand new, construction, house hack, and it was because I can barely change a light bulb, so it needed to be hopefully maintenance free for a couple of years.

David:
Perfect. How much did you pay for this deal?

Donovan:
This one was 275, right at 275.

David:
Whoa. Did you say where you’re buying these at?

Donovan:
Houston, Texas.

David:
Houston, Texas. Rob, you didn’t tell me that you could buy duplexes for $275,000 out there. Have you all been keeping secrets?

Rob:
Well, back in 2019 maybe, but have those numbers changed pretty substantially since then, Donovan, or is it still in line with that?

Donovan:
Absolutely. That same duplex is 430 now, give or take.

Rob:
Okay. So, you spent about $290,000 on your first duplex. Walk us through some of those numbers. What did you put down? Give us the whole rundown on that.

Donovan:
For sure. The duplex put down 0% technically. The way I did that was there was a mortgage through… At the time, it was Cadence Bank, but yeah, they had a 0% down program for a one to two unit, so brought like $3,000 to closing just for closing costs. The projected rents were about 1,350 per side, and the mortgage payment with taxes and insurance was like 1,886. So, it wasn’t a perfect house hack, but because it was a new construction, I felt a little bit more comfortable being a little bit more thin on the cashflow.

David:
Folks, take note of how Donovan said they were about 1,886, which is funny that you said about with the number that specifically accurate. That is not a coincidence as to how Donovan went on to be successful with his story that we are going to be getting into. I thought that was hilarious. They were about $1,880.37 cents a month, give or take two cents on either side. So, you got this property, which I mean most people listening to this would be salivating in just the thought of these numbers. Maybe I should ask, were they in good neighborhoods? This just seems a little too good to be true even in 2019.

Donovan:
You probably have to change your definition of good, but I thought it was reasonable. The location was good. It was 15 minutes south of downtown. It was close to the medical center. It was still in an early gentrifying area, but because I was living by myself, I was willing to suck it up to be honest with you.

David:
There you go, so realtor speak, up and coming neighborhood. All right. You mentioned a program that you used to buy the house. Can you tell us more about that?

Donovan:
I think it was called the Affordable Home Loan or the Freedom Home Advantage Loan. The purpose of it was 0% down up to two units as long as you bought in a LMI tract or a low to moderate income tract. So, that was another… one of the reasons why I had to buy in maybe an up and coming area. It’s because I really wanted that 0% down.

David:
Smart. How did you find the lender that had that loan program?

Donovan:
I actually was about to go under contract on another deal on the listing. They were pitching, “Hey, buy this duplex with 0% down,” and so I found it through a previous listing, and then just took that same lender to this new construction duplex.

Rob:
Makes sense. So, you put 0% down on your first deal. Obviously, that’s more so because you’re actually living in it, and it’s available to that first time home buyer is my guess. But how did you scale your business after the first deal? Because I imagine you started to probably be in need of capital to start buying more properties, right?

Donovan:
Exactly. Yeah, and I didn’t have any capital. That $3,000 I brought to closing was 60% of my liquid net worth, so it was all tied up in that. So, I was able to raise money from investors to go on to build new construction, because I didn’t have any capital myself at the time.

David:
Bro, did you just calculate 60% of $3,000 in your head while doing this podcast?

Donovan:
I like 5,000 liquid, and so I brought 3,000 to closing. I think that’s 60%.

David:
It’s a round number. That is 60%. I just still think this is hilarious that you pay attention to this much detail. I don’t know why we say the devil is in the details, because the success is in the details. You don’t think about success when you think about the devil, but this is great. All right, today’s guest, Donovan got started with $3,000 and a little bit of other people’s money, but how did he scale from there? We’ll hear about that and how he continue to find funding and the smart way that he structured his deals right after this break.

Rob:
Welcome back. We’re here with Donovan Adesoro who said no housing inventory, no problem, and literally started building his own duplexes.

David:
All right, so now, this first deal worked, but you had no money. We got no food. We got no booze. Our pets’ heads are falling off, and you’re still able to pull this thing off by pulling all the strings. How did you scale after that without having cash?

Donovan:
It was a combination of just leveraging social media to be honest with you. So, I leveraged social media on the investor front to find partners who could bring the capital, and then I also leveraged it on the front to connect with wholesalers and realtors to send me their off-market land deals, because I still was working my full-time job at this point, so I didn’t have time or money to spend on marketing. So, that’s how I leveraged social media in those two ways.

Rob:
All right. A lot of people come on the show, and they say, “Hey, I use social media, and I think conceptually, we understand that the power of social media can actually help you get those lenders or those partners or private money partners.” Could you just give us a tangible example of something you did that actually resulted in some level of result?

Donovan:
Absolutely. One of the first investors I got, I think he was my second investor. I was in the real estate rookie Facebook group, and I saw an investor comment about out-of-state investing. They were just asking some general question, and I would specifically target out-of-state investors posting. I would say, “Hey, would you like to partner on a duplex in Houston? I’ll be your boots on the ground.” Now, again, I’m oversimplifying it. I got rejected probably 30, 40 times before this, but eventually found an investor who was like, “Hey, I’m interested in that. I’m willing to partner with you.” That’s just one example.

David:
All right, Donovan, it sounds like you had this moment where the first duplex worked out, and you knew you were going all in on duplexes, which is not something I think I’ve heard a lot of other people say. Paint me a picture for what was going on mentally when it clicked, and you said, “No, I got a duplex. I want to get a fourplex, or I want to flip a house.” Most people experiment in the beginning with different elements. When did you say, “I’m going all in on this strategy?”

Donovan:
After I closed on that first house hack, I realized that it took me six months to do that, and there’s tons of other people like me in my shoes, early college graduates or mid-20s, early 30s, and they just couldn’t find anything. So, the first idea was, “Hey, I want to build fourplexes or triplexes,” which is what everyone looks for. The issue there is in the city of Houston, anything three units or greater is considered commercial, so you have to go through an entirely different commercial permitting department. It’s a bit confusing because we’re taught residential mortgages are for one to four units, which is true, but on the permitting side of things in construction, it’s been treated as commercial.
I was like, “Okay, I’m all in on duplexes,” because that’s the best and highest use of land I can get while still going through the residential permitting department, which is a lot quicker and cheaper.

Rob:
Now, you had the luxury of buying your first property. I think you said it was a new construction, right?

Donovan:
Correct.

Rob:
Okay, so you’ve never really understood the pain of buying an old creaky house. What was your strategy moving into the next set of properties?

Donovan:
It was definitely to continue on what was working. I had evaluated a couple flips, but I could just never get comfortable with the thinner margins. Even though I’ve done this a few times, I still make tons of mistakes, and so I like to have a good healthy margin of error, and with new construction, I felt like I had that, versus on the flips, the margins were just a bit too tight for my liking.

Rob:
So, as you moved on into your partnership, I think you said that you found someone social media. They fund it. Are they funding a brand new property? What type of property was this?

Donovan:
They’ll fund the land acquisition, so me and the partner will create a new LLC. We’ll split it 70/30, 60/40, give or take. They’ll put in the money for the land acquisition, as well as for the permitting fees. Then we’ll use that land as collateral for the construction loan so that we’re not coming out of pocket any additional capital. Then the lenders is funding all the construction.

Rob:
When you went into the idea of partnering with people, bringing on private moneylenders, was the strategy to basically build new construction duplexes or multifamily with them?

Donovan:
Exactly. So, I had my pitch deck, and it was specifically for a new construction duplex in this zip code. So, I got really granular with what I wanted, and I felt it made it easier for the partner to come along.

Rob:
There’s such a long payback though with new construction, because you have to permit it. You have to find the land. You have to actually do the construction. How was pitching that to investors that, “Hey, I’ve got this really cool opportunity, but there was a bit of a waiting period before we see tangible results?”

Donovan:
For some people, they were definitely turned off by it. Then for others, they were like, “Well, I can only make 8%, 10% in the stock market anyways. So if I’m waiting…” At the time, it’s about a year, give or take, four months for permitting and six months for construction, maybe another month or two to sell it. They were like, “20%, 30% is still better than what I can get in the stock market.” So, that’s how I compared it.

David:
Did you think, Donovan, about how much work you’re going to be taking on, because that 30% with what you’re doing is not the same as 30% in the stock market, right? This is significantly harder, and there’s more risk. How did you factor all that together to know this was the right move for you?

Donovan:
I don’t think I factored quite how much work it would be. I was like, “I can figure it out.” It’s that mindset I took, and once I got into it, I was like, “This is a lot of work for maybe little relative return compared to how passive the stock market is,” but my whole thing was I really want to get the experience so I can leverage that into bigger projects one day. So, for me, it wasn’t too much about the money. It was about making the investor happy, getting the experience, and hopefully parlaying that to something bigger one day.

David:
That’s brilliant. I’m glad you mentioned it, because you often see gurus post things like, “I’m getting 28% returns,” and so people compare that to 5% they could get on a CD in the bank. It looks better, but they’re not mentioning the risk they’re taking, the headache they’re taking, the work they’re taking, and the fact that sometimes you lose money on a deal too, and if you add that into the 28% return, it factors down to be much lower, but what you hit is really important. I’m learning something. I’m gaining skills. I’m learning how construction works, permitting works, engineering works. Tell me a little bit about some of the skills that you’ve built since you started with construction, particularly what it’s like working with architects, ways that you found to save money that maybe somebody else doesn’t know.

Donovan:
One of the things I like to do with the architect that I figured a little bit early on was to optimize the square footage a little bit. Most people, most buyers when they’re looking at a property, they’re primarily focused on the beds and bath, right? So, whether a house is three bed, two bath, 1,900 square feet versus three bed, two bath, 1,800 square feet. In the buyer’s mind, generally, they don’t really notice that 100-square-foot difference. To me, that’s huge because if it costs me, I don’t know, $120 a square foot to build, that’s $12,000 I can save, and still probably get pretty close to that similar comp that sold that was 100 square feet bigger. Because the delta on the square footage is not too large, the appraiser usually isn’t going to take too big of a haircut on you.
That’s one of the things I did was optimize the square footage to be 100, 150 square foot less than some of my comparing properties that I was looking to compete against.

David:
What you’re saying is you may have had a little bit less square feet, which would save you money on the building, but you made sure that the bedroom count, the bathroom count, the amenities, the type of kitchen, the materials that you’re using were the same or better maybe than your competition. So, an appraiser looking at two condos, one of them is 1,400 square feet. The other one’s 1,550. In their head, basically, that’s the same thing, but you’re spending less on the build.

Donovan:
Exactly. That goes straight to the bottom line.

Rob:
What do you mean by that? Can you explain that concept of going straight to the bottom line for people that may not be familiar with what that means?

Donovan:
Yeah, great point. In that example, saving $12,000 on construction, that goes straight to your profit. So, any money saved on construction is like a dollar earned almost in the sense of… It’s probably the same thing with the flip as well, right? Save money on the rehab, that goes straight to the profit generally as well. So, that’s what I meant.

David:
That concept works for haircuts as well, actually. I save money there.

Rob:
I think it’s a really overlooked thing to see the bottom line concept, because this is something we talk about with maximizing revenue in our portfolio where it’s so much easier to try to increase revenue on a property that’s already profitable, because every dollar that you increase revenue by goes straight to your bottom line, is an extra dollar of profit that you actually get to keep, versus going out and buying a new property or doing a new construction, and having to start all that work to start the whole process over, and try to be profitable there. It is just a very long-winded process, where I think trying to maximize from the get-go will make you the most money over time, which brings me to my next question.
Obviously, duplexes were your thing here, but did you ever go into the mindset of maybe trying a triplex or a quadplex? I’d imagine you’re already doing all the permitting. You already have the land. I’d imagine profitability is higher on those types of properties.

Donovan:
Yeah, we looked into it. Again, one of the big pieces was the difference in permitting. So, instead of going residential permitting, if you went a triplex or above, you would have to go through the commercial multifamily building department. Basically, that’s the same department as they evaluate 200-unit complexes. So, it just takes longer, probably double the time, give or take. It’s more expensive. The other thing too was as you build more units, you’re spending more on construction, which means you’re having to sell that at a higher price point. For example, if I built a triplex, I would probably have to sell it at 600, 700 plus. In Houston, the median is 350, so now I’m almost selling double the median.
In my opinion, I feel like there’s a smaller buyer pool for that as well. So, I was trying to keep in mind making sure it’s somewhat reasonable for a lot of first time home buyers as well.

Rob:
That point makes a lot of sense. Then if I’m hearing correctly from your first point, there’s a level of effort that goes into triplexes and quadplexes where the juice may not be worth the squeeze for you, because you found such a comfortable groove in the duplex world, right?

Donovan:
Exactly. Yeah, it would extend the timeline from 12 months to maybe 18 months, and so definitely impacts the returns a little bit from the investor point of view.

Rob:
Makes sense.

David:
All right, let’s talk about the construction process itself. Since at 27 years old, you’re managing entire ground-up constructions, which is incredible, and congrats to you. By the way, if you guys know anyone out there who’s saying, “I’m still young. I’m 27. I don’t have to take life serious.” We have a 27-year-old here who not only owns real estate, but is building it and selling it from the ground up. You are literally a real estate developer, so kudos to you, but I want to hear for those of us that have never including me, built something from the ground up, what’s the process like? Give me an overview of the steps, and then we’ll dig in on the details.

Donovan:
For sure. There’s probably five or so big ones basically. Like most things, you’re starting with the foundation, so you’re putting… In Houston, that’s generally a slab on grade, which is basically just concrete on top of the dirt, so pretty straightforward there. Then you’re going to frame the project with your lumber or however else you’re going to frame it. From there, you’re going to start on some of your rough ins, meaning your initial plumbing, initial electric, initial plumbing, electric and HVAC. Then from there, closing up the walls, putting the drywall up, and then that’s when you get into your finishes, so foundation, framing, rough ins, drywall. Then you’re finishing stuff like cabinets and tile and flooring, almost like a rehab at that point.

David:
All right. How long does it take from the point you start to the point where it’s finished and ready to be sold?

Donovan:
Generally, for me, it takes about five to six months from when we start and pour the foundation to when we’re finished. There’s people who are quicker, but my whole thing is my GC is a little bit slower, which is okay, because I get a pretty good price. So, it’s that balance of I want to make sure someone knows what they’re doing, but also needs to be affordable to where the project pencils out. So for me, about five, six months.

David:
All right. That is from the point that you said the foundation’s poured. What about getting the permits and getting the land developed? What’s that process look like for you?

Donovan:
Generally, that can be done in about three to four months, give or take, from when you first submit the plans to when you actually get the building permit and are ready to built.

Rob:
So in this entire process, talk about the funding a little bit. Obviously, you mentioned that you were working with investors. What’s the actual tangible loan product that you’re using to get this to the finish line?

Donovan:
We go to a construction lender. Sometimes it’s a bank. Sometimes it’s a hard moneylender fund that flip, where now they’re called upright. They provide hard money loans on construction, so you’re putting the land down as collateral, and then they’re giving you similar numbers to a flip, where they’re looking at 70% of ARV, and giving you and loaning construction amount based on that.

Rob:
When you say that you’re using the land as collateral, that basically means if you pay $50,000 for a piece of land, you’re buying that part cash. Then you’re going to the bank, and then you’re saying, “Hey, I’ve got this land that I own free and clear. You can take this away from me if I don’t perform on the loan?”

Donovan:
Exactly. Almost act as the down payment basically.

Rob:
Perfect. I think this is a very underutilized loan product. Just new constructions are really, really great. I tell people all the time that it is one of those things where you’re going to get the best return, in my opinion. You just have to wait for it, but I like this process so much more because you get a brand new shiny house. You don’t have to worry about all the maintenance and CapEx right at the very beginning of it. You have some time to build up to it. So, tell us a little bit. You finished this project. How do the numbers actually work out? What do you build it for? What do you sell it for? Run us through some of that.

Donovan:
For sure. One of the more recent ones, we probably buy the land for 70, 75,000. We pay that in cash. We’re getting a construction loan for about 200, give or take, and we’re selling them at 370, 375.

Rob:
So, does that put your all in around 270?

Donovan:
I’d say with permitting and closing costs, maybe it’s 285, 290-ish.

Rob:
You said you’re selling these for how much, 375?

Donovan:
375, yeah.

Rob:
Wow. Okay, cool. So, close to a six figure spread on that, but 80 to 100,000?

Donovan:
Yeah, and then the investment in that scenario is about the land plus 10,000. So, say they put in 80, we’re technically taking home 80 again before the profit split between me and the investor.

Rob:
Tell us about that. So, you work it out with your investor. From a partnership or equity standpoint, are you basically 50/50 on that, or how do you structure that?

Donovan:
I think on the initial Rookie show, I mentioned I was giving 70, 75% of the profit away. Now that I’ve done it a little bit more, it’s a little bit more favorable. So, what I have now is a preferred return for the investor. Meaning if they put in 70,000, I’m paying them 15% on their money upfront. Then they additionally get 20% of the profits as well.

Rob:
That’s interesting. That’s a really interesting way to do that. That’s a pretty high preference investor, but it makes sense. You’ve got the results. I feel like you could probably negotiate that down a little bit at this point. But that does get me into my next question here, which is you were doing this in the midst of a tough market. I’m sure you’re having to pitch this and prove yourself to investors. How did you even make sure that this specific niche in the real estate business would be so profitable? We’ll get into that and what Donovan is doing differently in current market conditions after the break.

David:
Welcome back, everybody. Rob and I are here with Donovan Adesoro, and he’s breaking down how he’s turning 80 to $100,000 of profit on the duplex is that he’s building in Houston, Texas.

Rob:
You were doing this in the midst of a tough market. I’m sure you’re having to pitch this and prove yourself to investors. How did you even make sure that this specific niche in the real estate business would be so profitable?

Donovan:
I guess going in, it was more of a… I felt very confident in the numbers, because I had the construction numbers. Then I had the land numbers, which were obviously that’s what we paid for it, and I was comparing it to the duplex that I bought. So, because I know the duplex that I bought was 275, I know that’s what the end value would be. Back in those days, you could be all in at 200 or 180. So, I’m not sure if I knew or insured. I guess, I felt comfortable enough that it was a worthwhile risk.

David:
All right, so give me an overview of your all-in costs of everything that goes into your typical duplex, what they sell for, and then how much of that is leftovers profit?

Donovan:
I would say we buy the land for 70,000. We have on our contract right now for 67, we’ll just call it 70, 70,000 for the land.

David:
It’s a big step for you, by the way, buddy, to round from 67 to 70. I see that you’re adapting here on this podcast.

Donovan:
I’m trying to make sure the less details. The construction is 190 with closing costs, added another 10 for interest and whatnot, so call it 200, 270 right now, permitting and impact fees, another five, give or take, so 275. Then we’ll throw on 10 for, I don’t know, contingency budget sometimes, so 285. Then 375 is what we sell it for before commission. I typically… I’m a realtor as well, so I’ll usually save the 3%, and we’re just paying 3% to the buyer, 375 minus the 3%. I then minus the 285 all-in would be, give or take, what the net profit would be.

David:
So, you’re at 365 minus the 285. What’s 65 plus 15? By $80,000 profit. Then you’re going to have short-term capital gains on that.

Donovan:
Correct. Unfortunately.

David:
Any way you figured out how to get around those capital gains, reinvesting the money, anything creative?

Donovan:
Nothing at the moment will be done. So on seven of the duplexes so far, we refinanced them, and so we’ve kept them for a year. Then there’s two that we… Once we’ve crossed that year mark, we go ahead and sell.

David:
Long-term capital gain’s a lot cheaper. Then are you 1031-ing when you sell, or just paying the taxes on the long-term capital gains?

Donovan:
The original plan was 1031, but now with the… We wanted to 1031 into a 12-unit or something like that, or slightly larger apartment building. The market in Houston’s tough on those right now. It’s just tough to make in pencil, so we just pay the taxes on those.

David:
My advice is you 1031 into one of Robuilt’s projects here. He’s always a little mad scientist behind the scenes putting together. He’s got a land with a host of porta-potties in the middle of nowhere that people will travel out there just to use them. He builds tiny home communities in the trees where he rents them out to forest elves, all kinds of creative stuff that Rob’s always coming up with. His dream is to visit the world’s largest potato, and stay the night there to put on his bucket list.

Rob:
I’ve recently launched a bachelorette pad called the Pink Pickles, so always brewing up weird ideas over here.

David:
There you go. So if you’re that type of clientele, DM Rob. Now, I want to know about your clientele, Donovan. Who are the people that you are building for, and who’s buying your properties?

Donovan:
Most of the people I’m selling to at this point are young professionals in a similar position as me. Either they’re a nurse or engineer, but somewhere in that 25 to 35 range, and this is usually their first home. On my Instagram, I try to talk about the benefits of house hacking, and so that’s where I get a lot of the buyer flow from.

David:
All right, and then give me the avatar of what the buyer who buys your properties is like. Are these young married couples buying their first properties? Are these investors who have already got a portfolio looking to scale? Who’s picking these things up?

Donovan:
Usually, a young single person generally, typically no kids, working professional, graduated school four or five years ago, looking to buy their first home, and no longer rent in the nice apartment downtown.

David:
So, they’re a house hacker mostly.

Donovan:
Exactly.

David:
Then how many of these duplexes have you kept, and how many of them have you sold? Do you have a ratio of what you’re trying to hit?

Donovan:
It’s more of depending on rates. We would love to keep more. We’ve kept seven of the… I guess we just about finished number 25 now, so yeah.

David:
Drives you nuts. That’s a harder number to do the math in your head. Seven doesn’t go into 25 really easy. I could read your brain as you were like, “Oh god, I hit the 60% number earlier so good. I’m going to ruin my reputation here at the end.”

Donovan:
Yeah, I need a calculator.

Rob:
Donovan, obviously, you have a really impressive portfolio. You’ve done a lot. You’re young. I don’t even know what you’re going to do by the time you’re 30, but obviously you’re crushing it. One thing I do want to ask though, because I think a lot of people, they’re seeing many of us who had success in the last five years, and things have changed a little bit. So, can you tell us a little bit how things are changing for your business now? Have you pivoted? What are the numbers looking like in 2024 as opposed to when you got started?

Donovan:
When I got started, pretty much, you buy any single lot in the area where I’m building, and you threw a duplex on it, it would sell. Didn’t matter what it looked like. It could be the most hideous things. I’ve seen a few. I’m no artist myself by any means, but there’s been some rough ones. So, design wasn’t a factor when rates were at zero, basically. Now, design’s a big factor, and land prices have caught up as well. So, one of the things I’m doing to be a little bit more creative is buying slightly larger parcels, and instead of only fitting one duplex, there’s some I have now where I can fit three duplexes. There’s a new ordinance that came out in Houston called Livable Places where I’m now doing a duplex in ADU, where I can get a defacto triplex while still going under the residential permitting code. So, those are some of the things I’m doing to make sure.

Rob:
Now, going into the triplex world, well triplex-ish, pseudo triplex with the duplex and ADU accessory dwelling unit, how would do those numbers look compared to a conventional duplex build? Is it more profitable, or is it just a wash now with the way rates are?

Donovan:
I expect it to be more profitable. This will be, I think, one of the first ones in Houston that I’m aware of. So, we’re very, I guess, conservative on the exit value. But to give you the numbers on that, the duplex and ADU, we’re doing a slightly larger duplex, so it should cost about 220 just for the duplex, and another 70 for the ADU, so like 290 construction. The land is 70, so 340, all in 350, 360, plus permanent cost, call it 380, but we’re expecting to sell at 550, a little bit larger spread, we think, because there are some just standalone duplexes selling for 550 themselves. So, we feel good about getting duplex and ADU to sell at 550.

Rob:
Interesting. One thing that stuck out to me is that you said that you’re building these duplexes now to be a little bigger when your initial strategy was to go a little smaller. Why the change these days?

Donovan:
We’ve seen that the two-twos is what I did previously, and I still do those now and then. A lot of the house hackers are looking for a three-bedroom unit just because it’s easier to rent out from their point of view. So, we’re doing probably a little bit less two-twos, and a little bit more three-twos as we see the demand for those increasing.

Rob:
Cool. Final question for me, because you’re good at raising money, you’re good at what you do. When you’re going out and pitching investors, how is that process these days compared to a few years ago? Is it still an easy sell for you, or do you have to work a little harder to get some of these private moneylenders involved? How’s that going?

Donovan:
I think it’s going well just because I’ve been, I guess, talking about my progress on Twitter specifically for the last couple years. The people who are maybe hesitant at first now I’ve seen like, “Okay, at least he’s done a few.” Then I explain to them now how my underwriting is a little bit more conservative, and I’m forecasting lower exit values, so just explaining my mindset. I think it’s still… My issue now is more not enough deals. Have the capital ready to go, just don’t have the deals.

David:
Ain’t that something? You don’t remember this, because you were just a twinkle in your father’s eye, but back in 2010, everybody had deals. Nobody had money, and they all complained about the fact that you couldn’t take them down. Then there was a point where there was an even amount of deals and an even amount of money, a nice little equilibrium if you will, but we couldn’t find a contractor to do any of the work. Now, there’s contractors that are looking to do work, and there’s money everywhere, but we have no deals, and that is how real estate works. It is always bouncing around with some form of unevenness, and you, Donovan, have figured out how to take advantage of one of those opportunities by building stuff from the ground-up.
If you can’t find a deal, build a deal. Maybe that’s how you could market yourself on Twitter. Instead of build a bear, you could be the build a deal guy, which is another question. Should I be posting on Twitter? I don’t think that I’ve ever done it. I never quite figured out how Twitter worked. What’s your thoughts on that?

Donovan:
Yeah, I think so. There’s, I’d say, a growing real estate community on there for sure. A lot of them are in commercials. There’s probably less residential, but I think I’ve learned a ton from being on there. I’d say a lot of private moneylenders are on there as well.

David:
Robert, do you have a tweet presence, a Twitter presence?

Rob:
I do. Well, sorry, I have a small following there mostly from people like Cody Sanchez tagging me, or random people, so I don’t curate the content, but I would like to. Maybe you and I could keep each other accountable. We can tweet each other.

David:
Yeah, there’s a situationship. What’s a Twitter relationship called? A twitch and ship?

Donovan:
Checks out.

David:
Very nice. Donovan, if people want to hear you on other shows, I understand you’ve done a different BiggerPockets recording. Do you happen to know the show number on that one?

Donovan:
I believe it’s 123 for Real Estate Rookie.

David:
I believe if you say it’s 123, I feel pretty confident that that is accurate based on everything that we’ve seen about you. Thanks for being on the show, man. This has been awesome, and big congratulations to you for making the moves that you’re doing, and not looking for the easy way around it. Man, I can’t tell you how frustrated I get when people come along and say something like, “David, every opportunity in real estate is hard. Where’s the easy one?” As opposed to you that said, “All right, it’s hard. I’m going to do it.” Maybe it was a blessing you didn’t know how hard it would be, because it might’ve stopped you from doing it. But now that you’re in there, you’re lifting the real estate weights. You’re getting real estate strength, and it is definitely going to pay dividends later in your career.
If I could buy stock in you right now, I would. So, let me know before you have that IPO, and I would definitely be one of your first investors. Rob, anything you want to say before we get out of here?

Rob:
I’m really excited to have you back on the show, Donovan, because what you have accomplished really in the last couple of years is insane. So, let’s have you back in a year, and see what the progress update is.

Donovan:
Let’s do it. Thank you guys so much.

David:
All right. If you want to know more about Donovan, his info is in the show notes as well as Rob and mine, so make sure you check that out after you’re done listening to this. Also, if you like the show, please go give us a five star review wherever you listen to podcasts. Those help us out a ton. If you’re listening to this on YouTube, you see how good-looking Rob is, how handsome Donovan is, and how… Well, I’m also here. This is David Greene for Rob, the perfect, prettiest, pink pickle, Abasolo signing off.

 

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Property Chomp’s Take:

Do NOT buy rental properties. There’s a MUCH better way to build wealth. And we mean that literally, “building” wealth is the best path.

At just twenty-seven years old, today’s guest has built twenty-five homes, often making around a one-hundred percent return on his money, all without the hassle of the creaky floors, poor piping, and outdated electricals of old, “cash-flowing” rental properties. So, how is he doing it?

Donovan Adesoro bought his first duplex in 2020. He took advantage of a zero percent down loan program, allowing him house hack a new build for just $3,000 out of pocket. But once he saw how much equity he could make, he realized he had to do more. So, Donovan linked up with other investors, overseeing the new build process in exchange for capital to buy land. He then used the plots of land as collateral for his new construction loans, and within six months, Donovan was the proud owner of a brand new duplex with TONS of equity included.

But if you’re like most investors, you know NOTHING about new construction. Thankfully, Donovan, who wasn’t a builder by trade, breaks down the entire building, funding, and capital-raising process so you can repeat his system and start building your wealth instead of buying it! Plus, Donovan gives ACTUAL numbers on what he’s making for every new home and some expert tips on lowering your costs while selling for a high price!

David:What’s up, everyone? Welcome to the BiggerPockets podcast, the biggest, the best, and the baddest real estate podcast in the world. I am your host, David Greene. I’m here with my skilled, talented, handsome, buff, and brilliant co-host, Rob Abasolo.

Rob:Thank you. I appreciate that. That’s what I needed on a Wednesday, my friend. How are you?

David:I’m good. Did I leave anything out? I suppose I could have said ripped, artistic, wonderful lover.

Rob:Two out of three is not bad. Listen, for everyone at home, we have a pretty incredible story for you today. We’re here with Donovan Adesoro. Donovan started investing in duplexes right out of college in the Houston market, my backyard. He has grown quite a portfolio in his short time as an investor, and has started building duplexes himself.

David:So if you’ve ever been frustrated by the lack of inventory, wanting to get deeper into real estate, but traditional paths don’t seem to be yielding much fruit, today’s show is for you. You’re going to hear about how Donovan selected a product that was needed in his market, saw where the demand was, and move forward mitigating risks on how he did it. What an awesome story and incredible young man. Let’s bring him in.

Donovan, you started investing in duplexes right after college, not something that everybody does. What year was this, and why did you choose duplexes specifically?

Donovan:So, in 2020, after I bought that first duplex, I realized there’s just not too many in Houston given how vast the land is. So, duplexes was a small niche market, and I felt like I could be a little bit more competitive there than compete with the major single family home builders.

David:What year was it when you were graduating college?

Donovan:2019.

David:All right, so 2019, you get out of college. You’re stepping into the whole COVID matrix, and you decide, “I’m going to buy duplexes.” Give me a better understanding of what you were looking at when you surveyed this vast array of land that you describe of and why duplexes stood out to you. What caused the shining light of brilliance to shine upon the duplexes?

Donovan:After college, I was listening to BiggerPockets podcast on the way to and from my engineering job. A big thing was having multiple exit strategies, and when I was looking at the numbers on a single family home, they just wouldn’t pencil as a rental if worst case scenario we had to keep them. So, the downside of the duplex was like, “Hey, if we can’t sell, it’s okay. We can refi, and make 8%, 10% cash on cash.” So, having those two exit strategies was really what drew me towards it.

David:Okay, so you were not a purely cashflow buy and hold investor. You were actually looking to buy properties, improve them, and sell them, I’m assuming, and then you thought, “Hey, if I can’t sell it, at least it’ll cashflow. I could hold it.”

Donovan:Exactly. Yeah, I wanted to have both options available.

David:All right, and were these new properties that you were looking at, or were these existing inventory?

Donovan:There were all new that I was looking at, so I bought… The one I moved into was brand new, construction, house hack, and it was because I can barely change a light bulb, so it needed to be hopefully maintenance free for a couple of years.

David:Perfect. How much did you pay for this deal?

Donovan:This one was 275, right at 275.

David:Whoa. Did you say where you’re buying these at?

Donovan:Houston, Texas.

David:Houston, Texas. Rob, you didn’t tell me that you could buy duplexes for $275,000 out there. Have you all been keeping secrets?

Rob:Well, back in 2019 maybe, but have those numbers changed pretty substantially since then, Donovan, or is it still in line with that?

Donovan:Absolutely. That same duplex is 430 now, give or take.

Rob:Okay. So, you spent about $290,000 on your first duplex. Walk us through some of those numbers. What did you put down? Give us the whole rundown on that.

Donovan:For sure. The duplex put down 0% technically. The way I did that was there was a mortgage through… At the time, it was Cadence Bank, but yeah, they had a 0% down program for a one to two unit, so brought like $3,000 to closing just for closing costs. The projected rents were about 1,350 per side, and the mortgage payment with taxes and insurance was like 1,886. So, it wasn’t a perfect house hack, but because it was a new construction, I felt a little bit more comfortable being a little bit more thin on the cashflow.

David:Folks, take note of how Donovan said they were about 1,886, which is funny that you said about with the number that specifically accurate. That is not a coincidence as to how Donovan went on to be successful with his story that we are going to be getting into. I thought that was hilarious. They were about $1,880.37 cents a month, give or take two cents on either side. So, you got this property, which I mean most people listening to this would be salivating in just the thought of these numbers. Maybe I should ask, were they in good neighborhoods? This just seems a little too good to be true even in 2019.

Donovan:You probably have to change your definition of good, but I thought it was reasonable. The location was good. It was 15 minutes south of downtown. It was close to the medical center. It was still in an early gentrifying area, but because I was living by myself, I was willing to suck it up to be honest with you.

David:There you go, so realtor speak, up and coming neighborhood. All right. You mentioned a program that you used to buy the house. Can you tell us more about that?

Donovan:I think it was called the Affordable Home Loan or the Freedom Home Advantage Loan. The purpose of it was 0% down up to two units as long as you bought in a LMI tract or a low to moderate income tract. So, that was another… one of the reasons why I had to buy in maybe an up and coming area. It’s because I really wanted that 0% down.

David:Smart. How did you find the lender that had that loan program?

Donovan:I actually was about to go under contract on another deal on the listing. They were pitching, “Hey, buy this duplex with 0% down,” and so I found it through a previous listing, and then just took that same lender to this new construction duplex.

Rob:Makes sense. So, you put 0% down on your first deal. Obviously, that’s more so because you’re actually living in it, and it’s available to that first time home buyer is my guess. But how did you scale your business after the first deal? Because…

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