How to Buy Real Estate With No Cash Using a Private Lender | Darrel Donohew

Darrel Donohew (00:00)
I made him an offer that day, $175,000. I said, cash as is, close in 10 days, no, no worries. I immediately was like, I left there and I was like panicked, like, I don’t have the cash. What am I going to do? called everyone I knew. One of my buddies said, Hey, I have this guy down in Little Rock, three hours away from Northwest Arkansas. And this gentleman got on the phone with me and he said, Yeah, I’ll give you the money. so he gave me $175,000 to close on the house. And then I paid him back, I think $195, if I can remember right. But at the time, the house again was worth $265,000, $275. And it was immediate, my goodness, this is how this works.

Issa Hanna (01:12)
Welcome back to another episode of the Real Estate Pros Show. I’m your host, Issa Hanna, and today we have Darrel Donohew with us to share his knowledge. Darrel, welcome to the show.

Darrel Donohew (01:19)
Thank you, Issa. I appreciate you having me here today.

Issa Hanna (01:22)
Super excited to have you, man. You bring a wealth of knowledge in different spaces in the real estate game. You started off as a realtor. before we get into that though, can you kind of give us a day to day in your world?

Darrel Donohew (01:32)
Yeah, right now, day-to-day activities. it looks like prospecting for my age of business. So, staying connected with my sphere of influence, text, calls, emails. And then really my passion is the developments that I’m working on. So continuing to push those things forward through the city with engineering and continuing to build those out. I have two small format developments I’m working on and really just trying to get those moving ahead every single day.

Issa Hanna (01:57)
Yeah. I love that, man. and yeah, we were talking earlier. I have passed as an agent. I’m still a licensed agent. You are too. you’re on that natural progression that we all kind of take, right? We start off with the clients and we’re like, hold on, I can do this on my own and start a whole different business. So eight years as an agent, I want to get the origin story first. What made you decide to get into the business?

Darrel Donohew (02:18)
Yeah, that’s a that’s actually a really good question. For me, growing up as a kid, my father, I remember always said real estate, the American dream everyone should buy a and own a home. And so real estate’s kind of been stuck in my head from the beginning. But I joined the military outside of high school and came back, went to college. As I started studying hospitality, I realized very quickly working and studying hospitality. I didn’t really need to study it. it’s more of a action opposed to something you study. So I switched over to finance, which is one of my passions. And they said, what do you want to concentrate in? And real estate was on the list. So went to the University of Arkansas, studied finance, and concentrated in real estate. And had the most amazing professor who taught every real estate class at the University of Arkansas, Mark Risk, who’s since passed on, but a great, great mentor, great teacher and leader. And he always said, get your license, whether you use it or not. It’s a great tool to have. and so yeah, I used actually instead of going to a traditional 60 hour, workshop where you sit down and you take your hours for your real estate license, I actually got to sit in college classes and use those credits to to go take my license, licensure test. And so yeah, that kind of put me on the path to getting my license and getting started in real estate.

Issa Hanna (03:32)
Man, amazing story. You didn’t tell me that when we were talking before, but the finance background, right? Going to college and concentrating on finance. When you understand financing in our game, it makes you lethal as a real estate agent, and an investor in general. the finance world is something a lot of people don’t mess with. They call the loan officer, the loan officer asks for some documentation, you give it to them. Bada bing, bada boom, it’s done. So when you understand how the process works, the secondary market, that kind of stuff, man, I’m telling you you’re built for success in this game. I love it. and I want to get into your flips now. you started off in the game as a as a realtor, I assume, taking on clients, and then you progress into flips. Can you tell me more about the flipping business? What made you want to get into that?

Darrel Donohew (04:15)
Yeah, it’s so funny how, you said, the natural progression. it there’s there’s two major stories I would love to share, but I’ll stick to the first one. I during this time I was actually working in hospitality. So at hotels, when COVID came around, right, we had a team of about eighty-five employees. We laid off about seventy-five. and I went from the number two man to the number two man of 10 instead of the number two man out of 85. And so, I was mopping the floors, making the coffee, doing it all, and I with a 25% pay cut. And I’m like, Lord, what in the world am I doing here? And I am not kidding. We had a guest come in, we just got chatting and talking. And over the course of a year, we got to know each other. And he said, I heard you’re a real estate guy. Do you want to buy my house? And I said, I’m very interested. Yes. At this point, I think I had only had two long-term rentals. So I was very early in my in my investing career. And he said, I just wanna, I wanna sell it to you for what I owe. And I said, That is amazing. No way. And he said, I owe 141. I looked up the comps and I was like, this is worth 275. Are you sure that you understand what you’re doing? And he said, Absolutely. And it did take about three more months to get that deal done. just getting to know me, getting to know him. but he sold me his house at what he owed at the 141. And to this day I can’t believe it. But it was like, this is what I’m doing here, right? 25% pay cut, everyone’s making more than me, doing nothing. Well, it’s just being a good, faithful steward and just continuing to work hard. And that opportunity came about. And it wasn’t a year later. I was in a very difficult situation again, where an entire team, I took over a new hotel, an entire team walked out. I’m doing it all, right? Working overnight, housekeeping, inspecting rooms. I was changing the light bulbs, doing it all. And one night I decided to pick up a book and it was *7 Figure Flipping*. After about the third chapter, I immediately was like, Well, just let’s start doing it. I went to the county newspaper or the state newspaper, pulled out the foreclosures, started Facebook messaging everyone. And by that morning, 6 a.m., I had someone respond and said, Come on by. So I went to this house that morning. And the gentleman, it’s incredible. I don’t know if it’s luck or being just being blessed. I don’t know. But the Lord was like, you know what? You read the book, you stuck to it. And so I showed up and he said, Yeah, I’ll sell you my house. I have to close in 10 days because it’s going to the auction. And I said, perfect. I’ll figure it out. And he, and so I made him an offer that day, $175,000. I said, cash as is, close in 10 days, no, no worries. I immediately was like, I left there and I was like panicked, like, I don’t have the cash. What am I going to do? called everyone I knew. One of my buddies said, Hey, I have this guy down in Little Rock, three hours away from Northwest Arkansas. And this gentleman got on the phone with me and he said, Yeah, I’ll give you the money. so he gave me $175,000 to close on the house. And then I paid him back, I think $195, if I can remember right. But at the time, the house again was worth $265,000, $275. And it was immediate, my goodness, this is how this works. Now it took me another 500 touches to get the next deal after that, right? It was like, It was kind of like the carrot, it got me, I got hooked on it and I was like, this is the way to move forward. And so I say that to say both of those properties needed a little bit of love, a little bit of rehab. It was nothing more than $10,000 to $15,000 and aesthetic upgrades, but I knocked out both of those and I thought, well, I mean, let’s keep doing the foreclosure thing. And so I kept looking for foreclosures and I found very quickly that foreclosures tend to be houses that need to be flipped. And so that’s really what got me moving into the forec both flipping. because my next one after that was pretty rough. Like it was a hoarder house, two foot of junk, you had to shovel it out, it was gross. and that really got me started into flipping. And I learned very quickly that, no matter what you put on the rehab budget, it’s never going to be right. It’s either going to be higher or it’s going to be lower. And you probably have some experience here and would say that most of the time it’s going to be higher. So as an early investor, I would recommend always having at least 10% as a contingency, if not way more, and never go with the first contractor. I did that way too many times in the beginning and it really bit me in the butt. Right. It’s never the right price. It’s it’s either, I think they say the three things you have to pick from are price, quality and time. And so you really need to make sure that you have the quality and the price right and or at least the quality, no matter what. I mean, if you don’t have the quality, it’s gonna come back to bite you. So that’s really kind of my foray into in flipping. Now some of those were kind of creative in the way that they were acquired. And the financing part really is the most intriguing part to me. And I think that it’s the most fun because, there’s so much creativity in it. that first hoarder house that I did buy, I bought it subject to. and as most listeners probably know, that’s just taking on a mortgage that’s existing. But that was just a fun way to learn by doing it and getting involved. But Yeah, that’s how I got started into flipping.

Issa Hanna (09:58)
I love that man. you picked up a book, and you’re like, what, man, I’ve got the background. I know this stuff. And then we were talking, I asked you, I said, What is the strength that you have that you’re bringing into our industry? You said that you’re hyper analytical. People that are hyper analytical that understand financing, man. You guys clean up i in the in the flip game because you can estimate those numbers and then back to what you said about the construction cost. You guys estimate high. And you estimate your profits low that way when you get a surprise, it’s always a good surprise, So amazing story, man. I’m getting a lot of inspiration. I know the viewers are too. and then you’re not done at flipping too. Now you’ve moved into the development, you’ve built homes. give me a story about, your first home that you built or the first property that you built.

Darrel Donohew (10:41)
Yeah, so it was a very unique build. I to back up a little, I had a concrete company for about four and a half years and I’d completed about 250 new construction homes at that point. And I decided to move into to new home building. and a gentleman gave me my first shot. He said, I got a very unique build I’m trying, and one of the most difficult cities here to build in. I don’t even have to name names. If you know northwest Arkansas, it’s know what’s sitting on talking about. and man, it was so interesting. I started the build right before COVID and COVID hit. So you can imagine again going from the number two guy who had, 85 employees to the number two guy with 10 employees. I was then working the desk and the front desk. And so it was kind of a humbling moment. I’m building this guy’s triplex and I call it a triplex. I want to I want kind of talk about that because I say that for simplicity, but he was building, and this guy was ahead of his time, and I was so happy just to be a part of it. And this was 2019, is when we started, but he was building a single family residence with an attached ADU and then a detached ADU in the in the back. and this lot was 8,000 square feet, and so it wasn’t a huge lot, it had alleyway access. 10 minutes to the University of Arkansas, actually probably less. but it was a he wanted everything to be individually metered, so he could rent out all three units separately. and the fall from the front to the back from that detached ADU, because we had five foot setbacks on both sides. so to get the sewer line to fall and the water line, everything had to go under the front single family home with the attached ADU. tons of challenges. It was probably a great way to just, cut my teeth in building because it was hard. there was a lot of things that came up, a lot of difficult conversations that I had to have. and I’ll be fully transparent. I actually told him my number. I said, This is my number, okay? And I said, I’m sticking to it. Well, I didn’t stick to the number. I actually ended up going over. And I think I lost somewhere between 10 and 12,000 bucks. on the build. but I see that as an opportunity to pay for my education. And I had no problem doing it. I said, look, I’m going over budget. And he was so gracious too. He’s like, look, I’ll tell you what, let me take care of the sod. So he took care of the sod. So the 10 to 12 that I lost probably was more. but he did help me out on a few things. But it was a very difficult build going through a city that has a lot of unique building codes. know you go white by the IBC International Building Code and you do it the first time and then they come back and say well our city says you need to do it this way right you have to redo things it was a very challenging build very tight and narrow that was the first build I ever did and of course it came right before COVID. We started in 2019, COVID in 2020. Material prices change, labor change. Everybody knows how difficult that was. and so it’s every challenge I could have encountered, I think I encountered during that build, but it was just the most rewarding process. even though I did lose money, I went over the timeline. and I say the twelve gray hairs that I have came from building because you’re babysitting 32 adults who don’t get along with each other. So It was a fun experience. but I don’t know, it took me six years to get to the point where I’ve said, I’m building again. All right. I’ve maintained my builder’s license and so now with these developments, I’m gonna probably build my own houses moving forward and give it another go.

Issa Hanna (14:40)
Man, I always say in our business, right? You never lose, you always learn. So you lost ten to twelve thousand because you had the integrity to stick to your price. I guarantee that guy you did business with, you’re his number one guy now. he can’get enough of you. He can’t, he’s referring you to everybody. So, that ten to twelve thousand that you lost because you have the integrity and you told them sticking to my price. I told you something, I’m gonna honor my word. and you weren’t looking for that, but I guarantee that that’s brought you so many more clients and so much more business from that one person because hard to find somebody that would do that, especially in the in the builder space. and I love how you’re grateful for the lessons that you learn. When you go through these, I always call them when you go through the fire, right? when you’re in it, it’s hot, it’s stressful, you get gray hairs. You make it out the other side, and now you’re super grateful because. if you ever, God forbid, encounter that problem again, exactly the process, the system, everything to get through it. So it’s not that much of a big deal. So amazing, man. Amazing. And that’s that’s the education that you learn on this long, bumpy road in real estate. Don’t assume if you get a real estate license or you go to school and you learn finance, you’re gonna know everything, right? you gotta go through it, you gotta deal with the cities, you gotta encounter these type of real estate nightmares to get there. man, amazing. I want to look into the future now. you’re developing, you’re still taking on clients, all the good stuff. I look you up in five years. Where am I gonna see you?

Darrel Donohew (16:05)
That is that’s a deep question. Five years. I actually foresee myself probably being a mixed use developer. And so I would love to develop unique projects in field within city centers that mean something to me. And honestly, it’s probably going to be my hometown. here well to northwest Arkansas, but I live in a really small city, Called Elm Springs, Arkansas. And so we’re about to go through this transition period with major roads coming through. We’re going to be kind of a focal point. And I would love to lead the development space in Elm Springs and with some mixed-use buildings with some commercial and residential. So I would love to kind of develop and transition into being a developer that’s moving outside of residential and adding in that mixed use, adding in that commercial space, and adding value to the people who live in the city that we live in and making it you spaces that people want to live and work in. I’d so cliche to say, and I think a lot of people want to do it right now, but I think investing in your own hometown, you really know what people want. You talk to people, you understand their needs, their wants and how they want it to look, right? Some old timers want it to look a certain way and they want know that development to stay out of their backyard, but someone said, either either create the change or lead the change or the change is gonna lead you. Right. you have to lead it. And I would love to have those conversations with my city and forge a path forward in developing in Elm Springs. I would love to walk to my projects every day and so and just walk walk a quarter of a mile down the road And be able to look at a mixed-use project, with some commercial downstairs, some apartments upstairs, just and also just unique builds. I think everyone wants to do that right now. but being in a position in five years where I’ve done enough infill residential developments to then fund these larger projects, I do as much as I want part I as much as I want to go solo, right? I do believe I’ll be at a point where I would I would be bringing on partners. with different, backgrounds and different specialties, right? So I think in five years that’s where you’ll find me. I mean in this development space, growing and learning and continuing to just get better at it and impacting my city that I live in.

Issa Hanna (18:17)
I love that man, because your hometown, you grow up there, you love it, you have memories attached to it. Somebody lives thousands of miles away from his hometown. fun fact, just for relation, the only town that I’ve ever flipped a property in is my hometown because I do understand what people want and I feel very confident in my decisions and how fast that property’s gonna sell. So I see that plan coming to fruition in five years with the integrity you’re bringing, with the honesty, with the love, that you’re bringing into the game. why wouldn’t want, Elm Springs want one of their native sons to, spearhead this redevelopment. amazing, amazing plans, man. like I said, the integrity projects to the screen. And I want to give you the floor. if my people in Northwest Arkansas wanted to use the best realtor, this side of the Mississippi, where could they find you?

Darrel Donohew (19:03)
Man, I have a newer YouTube channel. It’s *Real Estate Money with Darrel*. you can find me on Facebook at Darrel Donohew. and the *Real Estate Money with Darrel* is also on Instagram. I believe I have a TikTok. Don’t quote me. I was told I needed one, gotta keep up with the times. but yeah, and also you can always reach out to me if you wanted to email me, [email protected]. I’m an email guy. I like emails and text, just it’s just quick. It’s, and then obviously, because I like to be in the spaces that I’m in, interacting with people. But yeah, so you can find me there. And what sets me apart, Issa, is I have an extremely diverse background from finance to construction to building, all of it. that makes me a unique real estate agent. and I am looking to grow my sales business slightly. So looking to take on some new clients. I have to ask Issa too. I didn’t ask. The one flip you did. Can you talk to us about it briefly? Is that

Issa Hanna (19:59)
I mean, I as a as an agent, I’m always looking to I’m I’m more of a buy and hold guy. So I I was looking in my hometown and I seen a guy that, he was little distressed. He said, you wanna buy my property? Kind of grew up with went to high school with him, bought the property cash, knew the numbers because like I said, us real estate guys with the finance backgrounds, very analytical. We could run numbers pretty good. So I’m like, Man, I can make some good money here. But like I said, very conservative. so I’ve never flipped. I buy and hold, buy and hold guys. So this was the one time where I got the itch and I’m like, I can make some money. and I did make some money. So yeah, amazing, man. and I want to close out the show with some advice for our for our new professionals, right? Our new agents, our new loan officers, new flippers, investors, whatever they are in the space. our networks, our business relationships are very, very very important. So I might say the most important thing in the game. So if you had to give these young guys one piece of advice on how to get that ball rolling with the network, what would you tell them?

Darrel Donohew (20:59)
Man, it’s like a ship, right? You can’t build a ship in a day. And there’s, all of these planks that make the ship float and have the fastest speed, whatever it might be. But just add a plank a week, right? I don’t try to overwhelm yourself. And these relationships evolve as you add people to your network. put yourself out there, call yourself whatever you are trying to be. If you’re trying to be a real estate investor, call yourself a real estate investor. Don’t be shy. If you’ve done no deals at all, I’m a real estate investor. You can add value to someone somewhere. and just put yourself out there, find your local real estate meetups, your local networking groups, networking events. If you put yourself out there, shake hands and tell everybody you’re a real estate agent, real estate investor, that’s the only way to grow your business. Well in the beginning, right? You’re trying to build up that sphere of influence or those people that know you as the real estate guy, as the real estate investor, as the builder, whatever it is that you’re trying to build, just make sure that you’re selling yourself and don’t be shy about it. I think for a long time I was shy about telling people I was a real estate agent. don’t be shy. Tell everyone. yell it, put it out there on social media, talk to people, go to all the meetups and add a plank. Every single week, right? Whether that’s a title agent, whether that’s a real estate agent, a loan officer, another agent, another investor, find somebody who you can always have in your back pocket, right? And it’s also the contractors, right? Your painters, your drywall guys, your concrete guys, people that can, or you can add value to your clients by having all of these people in your back pocket. Having a Rolodex is an asset and it makes you a unique agent because not everybody has all of those contacts. That was a long-winded answer for find people, meet people, add new people to your to your Rolodex.

Issa Hanna (22:42)
Golden, golden advice. That is literally the how-to on how to build your network. if you guys didn’t catch it, go back, take some notes, because that is literally the how-to on how to build the network. Darrel, amazing advice, amazing knowledge we got from you from the short 20-minute interview. I’d like to invite you back on the show at a later date if you’d have us.

Darrel Donohew (23:02)
Yeah, we’d I appreciate that, Issa. Thank you.

Issa Hanna (23:05)
yeah, man, I would definitely love to have you and to our viewers at home. If you enjoyed my conversation with Darrel and want to see more like it, make sure to hit like and subscribe. I talk to people every day that can bring us different knowledge on every aspect of the real estate industry. Until next time, the Real Estate Pros are out.