Welcome to another episode of the Business and Life Mastery Show! Today, we have a fantastic conversation lined up with our guest, Christina Spells, all the way from St. Louis, Missouri. Christina is a powerhouse investor who launched her real estate career at the young age of 23 and has since built a thriving business focusing on wholesaling and rentals. She’s here to share her journey, business model, and the equation for rental success.
Meet Christina Spells
Christina Spells hails from Miami and is the daughter of immigrant parents. Her mom is Venezuelan, and her dad is Cuban. Christina credits her parents’ hustle and sacrifices for much of her own work ethic and drive. At just 27 years old, Christina has already made a significant mark in the real estate industry.
Christina’s journey began with a significant investment in her education. She enrolled in the Rich Dad Education program, an endeavor that cost her $90,000, a sum she placed on credit cards. Despite the initial struggle and risk, Christina emerged successful and emphasizes the importance of mentorship. She believes that the right education and guidance are crucial to navigating the complexities of real estate investing.
Christina’s Business Model
Wholesaling: The Heart of Christina’s Business
A significant portion of Christina’s business—about 80%—revolves around wholesaling. Here’s a glimpse into her strategy:
- Networking: Christina places a high value on building relationships. Networking accounts for a substantial portion of her lead generation.
- Driving for Dollars: This technique involves driving through neighborhoods to identify potential investment properties. Christina favors this method for its effectiveness in spotting opportunities before they hit public lists.
- Pulling Lists: She also uses data from absentee owner lists and other sources to identify properties that fit her investment criteria.
Rentals and Equity Partnerships
The remaining 20% of Christina’s business focuses on rentals and equity partnerships. Here’s how she structures these deals:
- Acquisition and Completion Fees: Christina often acts as an equity partner in her rental properties. She earns fees both at acquisition and upon project completion.
- Joint Ventures: She leverages partnerships to manage and finance these deals, ensuring a steady income and equitable profit distribution.
Rethinking the 70% Rule
The Problem With the 70% Rule
Christina challenges the traditional 70% rule, particularly for rentals. The rule states that an investor should pay no more than 70% of a property’s after-repair value (ARV) minus repair costs. While this might work for flips, it falls short in rental markets where cash flow is king.
Importance of Cash Flow Analysis
By focusing on cash flow rather than strict ARV calculations, Christina can offer more competitive bids on rental properties. She calculates potential rental income and deducts all associated expenses to arrive at a more accurate and lucrative purchase price. This approach often allows her to outbid others who rigidly adhere to the 70% rule.
The Rental Equation
Calculating ROI
Christina uses a specific formula to calculate her Return on Investment (ROI) for rental properties. Here’s how it works:
- Net Income: Annual income minus annual expenses.
- Desired ROI: Determine the ROI you want to achieve and plug it into the equation.
- Repairs: Deduct any repairs or deferred maintenance costs.
- Assignment Fee: Include any assignment fees if applicable.
The formula allows investors to determine the maximum allowable offer (MAO) based on their desired ROI. This method ensures that all expenses are accounted for, providing a clearer picture of the property’s profitability.
Key Expenses to Consider
When analyzing rental properties, it’s crucial to consider all potential expenses. Here are some common ones:
- Insurance
- Taxes
- Property Management Fees
- Vacancy Allowance
- Maintenance Allowance
By factoring in these costs, investors can avoid unpleasant surprises and make more informed decisions.
Finding the Right ROI
Reverse Engineering ROI
One of Christina’s top strategies is to reverse engineer deals based on desired ROI. Here’s how:
- Ask Landlords: Speak with local landlords to understand the typical ROI they seek.
- Consult Property Managers: Property managers can offer insights into standard returns in specific markets.
- Market Conditions: Consider the market’s health and risk levels. High-risk areas may demand higher ROIs.
Typical ROI ranges vary by market. In appreciating markets like Miami or California, ROIs might be as low as 1-5%. In cash flow-heavy markets like the Midwest, returns can range from 10-14%.
Syndication in Single-Family Rentals
Crowdfunding Approach
Christina also employs syndication to expand her single-family rental portfolio. This method involves pooling funds from multiple investors to acquire properties.
Christina’s Syndication Model
- Set ROI Targets: Her syndications aim for ROIs of 12-16%.
- Voting Process: For higher-risk deals, all participants vote to ensure consensus and manage risk effectively.
Christina’s approach allows her to scale her business while providing solid returns for her investors.
Scaling the Business
Small, Loyal Team
Christina attributes much of her success to her small, loyal team. She prefers a lean, tight-knit group to maintain control and oversight.
- Family-Like Culture: Creating a close-knit, family-like culture fosters loyalty and trust.
- Equity-Based Compensation: Her team members are often compensated through equity rather than salaries, aligning their interests with the business’s success.
Advantages of a Lean Team
A smaller team means better control, stronger relationships, and a more agile operation. This approach ensures everyone is invested in the company’s success.
Marketing Strategies
Christina emphasizes the importance of:
- Networking and Joint Ventures: Collaborating with other wholesalers to find deals.
- Driving for Dollars: Personally scouting neighborhoods for opportunities.
- Targeted List Pulls: Using data to identify absentee owners and other potential leads.
Analyzing deals correctly is crucial. Christina stresses the significance of accurate assessments to ensure profitability.
Mindset and Personal Growth
Taking Responsibility
Christina believes in taking full responsibility for one’s life and actions. She emphasizes the importance of self-awareness and self-improvement.
Surrounding Yourself With Positivity
The people you surround yourself with can significantly impact your success. Christina advises aligning with positive, like-minded individuals.
From “Why” to “Vision”
Instead of focusing on a singular “why,” Christina suggests creating a broader vision for your life. This vision should encompass all aspects of your desired lifestyle, from business goals to personal aspirations.
Giving Back
Non-Profit Work
Christina is deeply involved in non-profit work, particularly with marginalized young black men aged 18-26. She focuses on providing affordable housing and opportunities for those in need.
Making a Difference
An example of her impact is a young man whose family was tragically affected by violence. Christina helped him by providing work opportunities, transforming his life and future.
Final Thoughts
Christina Spells’ journey from a young investor to a successful real estate entrepreneur is a testament to her determination, strategic thinking, and unwavering work ethic. By challenging traditional norms and focusing on cash flow and ROI, she has carved out a unique path in the competitive world of real estate. Her innovative approach to wholesaling, rentals, and syndication, coupled with her emphasis on mentorship and community impact, provides invaluable insights for aspiring investors.
Christina’s story is not just about financial success but also about creating a positive impact and fostering growth in others. Her dedication to her vision and her community serves as an inspiration to all, proving that with the right mindset and strategies, remarkable achievements are within reach.
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