Progress Update #5 – 6-month, $200k challenge.

It’s time for another update.

  • Property #1 is completed, rented and refinanced.  I made $83k in equity and it’s rented now at $1,800/mo.
  • Property #2 is completed, rented and refinanced.  I made $42k in equity and it’s rented now at $1595/mo.
  • Property #3 is completed, rented and refinanced.  I made $42k in equity and it’s rented now for $1700/mo.
  • Property #4 rehab is complete!  Appraisal is also complete, coming back last week at $236,000!  I’m all-in at $141,000, making this the best equity capture yet at $95,000!
  • Property #5  This property closed last month and is now rented back to the sellers until May.
  • Property #6  The rehab on this one is nearly finished and should be done-done by the end of this week.  I’ll end up all-in on this $140k and if I’m lucky, it will appraise for $150k.  This has been a nightmare rehab consisting of the worst termite damage I’ve ever experienced, requiring a complete rebuild of 60% of the house, a new roof, expensive tree removal and more.
  • Property #7 Yes, I bought another one.  This closed in late December and it was a quick and easy cosmetic rehab that stayed on budget.  I purchased this for $82k and put $30k into it.  It appraised at $150k and it’s now rented at $1600/mo.

Photo updates below!

Property #3 Final Professional Photos

Property #4 Final Professional Photos

Property #6 Progress Photos

Property #7 Before/After (including final professional photos)

 

5 pieces of advice I would give myself five years ago – from five different real estate investors. Part 2 of 5.

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While we can’t go back in time, we can capitalize on our mistakes and lessons learned to improve future projects, make our business more efficient and more enjoyable as a whole.  With that said, I reached out to five investors that I trust and respect and asked them: What five pieces of advice would you give yourself five years ago? 

Part 2 of 5 below is from Jamal, an investor based in Los Angeles that is involved in single family buy and hold as well as single family flips – enjoy.

Contract Management

The first one would be about learning and working with contract management. If you are going to hire someone to work on your property,  know when to pay them, say no if they ask for more than what they deserve.  how to negotiate your payment structure.  know what to do If they do not perform the work you’ve agreed to.

Understanding Interest Rate Dynamics

Understand interest rate macro economics.  Up to a year ago,  interest rates are so low,  and the Fed had theirs at zero.  Whenever that happens, buy new properties,  refinance existing priorities out cashout refinance ones you have.  Low fixed 30 year mortgage is a great way to build a great portfolio.

Macro Economics

Understanding macro economics and its impacts on the rental market is important, specifically as to how rental supply & demand is affected.  Increased interest rates make houses tougher to buy,  so rental prices increase.  Of course, when rates fall, a lot of those renters are inclined to jump into home ownership and as such, rental demand falls.

Rent Management

RAISE RENTS!  At least to keep up with inflation.  So many investors don’t raise rents and lose out on this year after year.

Home Warranty

5th would be to always have home warranty, they are cheaper than having to fix things yourself, especially like HVAC or appliances,   and even if they weren’t,  at least they are a fixed annual cost for maintenance,  so leaves the guessing out of it and allows you to estimate revenue better.

Progress Update #4 – 6-month, $200k challenge.

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It’s been another crazy last couple of weeks, juggling some extensive business travel and new project assignment with my W2 job and relocating from Mexico to NE Maine USA, while still making business trips back to Mexico.  I love the travel and being constantly on the go – proving that I can manage these rehabs while doing it all is a fun challenge.

Fortunately, things are going mostly well.  

  • Property #1 is completed, rented and refinanced.  I made $83k in equity and it’s rented now at $1,800/mo.
  • Property #2 is completed, rented and refinanced.  I made $42k in equity and it’s rented now at $1650/mo.
  • Property #3 rehab is now on the rental market at $1700/mo.  It’s an awful time to be looking for tenants so I’m prepared to sit on this one for a couple of months while we find the right family.  HOWEVER, this home was a home run as the appraisal came back in at $165,000, capturing $42,000 in equity.
  • Property #4 drywall complete, paint on-going, floors will start late next week.  I’m working on the refi packet this week to get started with the new credit union.
  • Property #5 Finally got the loan approved yesterday, sigh.  Appraisal to occur first week-ish of Jan.  This will be my last loan with this credit union for the time being.
  • Property #6  I really didn’t want another property but it was hard to turn down the equity capture with this one.  I’ll post more details later but the core numbers are below.

    Purchase Price:  $65k
    Estimated Rehab:  $40k
    Estimated After Repair Value: $150K ($86 sq ft)
    Estimated Monthly Rent:  $1400
    Source:  MLS (Fannie Mae Foreclosure)
    Funding:  Financing w/local credit union.
    Schedule:  Unknown.

5 pieces of advice I would give myself five years ago – from five different real estate investors. Part 1 of 5.

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While we can’t go back in time, we can capitalize on our mistakes and lessons learned to improve future projects, make our business more efficient and more enjoyable as a whole.  With that said, I reached out to five investors that I trust and respect and asked them: What five pieces of advice would you give yourself five years ago? 

Part 1 of 5 below is from Adriel, an investor based in Texas that is involved heavily in multi-family buy and hold as well as single family flips – enjoy.

1. Learn how to find market value (ARV).

The biggest thing in the beginning is fear.  Psychologically, fear stems from a lack of understanding.  Fear to pull trigger on deals mainly stems from not knowing what the property is actually worth and how much repairs will cost.  It’s easy to find ballpark rehab numbers online, but market value is specific to your area, sometimes even down to the exact streets.

For wholesaling and flipping, accurate comps are your lifeline. You NEED MLS access. No way around it. Build relationships with realtors or get your own realtor license, whichever way, being able to run accurate comps is ESSENTIAL and everything else is useless without it.

For multi-family real estate, you need to know how to evaluate the value as well.  Focus your time on learning all the terminology and how multi-family real estate is valued.  Know what the market CAP rate is in the area, know what price per door apartments are trading for, for A, B, and C class apartments.  Know your market to the point when you see an asking price per door, you know exactly what the apartment will look like without even seeing a single picture.

In my local area, If i see an apartment for sale and it’s around $40k-50k a door, I know exactly in my mind what it would look like. Garden, low rise apartment, built between 1962-1985, slab foundation, shingle roof, no gated access, no garages, single pane aluminum windows, etc.

2. Keep marketing consistent

 Marketing is your lifeline (for wholesalers and flippers) and you need to stay consistent.  It’s basically impossible to find an “on market” deal, so it’s essential to get to them before the public does.  But keep in mind, just because something is off market, doesn’t mean it’s a deal!

 In order to have a full pipeline of deals, you have to be consistently marketing.  Early on, I made the mistake of slowing down my marketing when I had a flip I was working on, as I would focus my time and funds on that flip, but once that flip was done, I would get hungry again for another deal and it could take a few months.  I learned to keep marketing even when I had multiple flips going on, as closing and negotiations take time, and that has helped me keep doing deals consistently.

Remember, you have to have multiple contacts with a seller.  Do not just send a mailing once, be sure to be on top of repeat mailings and always be ready to adjust your game plan.

3.  Always make an offer

 You will look at a ton of leads from your marketing and very few of them will be actual deals that pan out. With that being said, you should always make an offer, even if it seems futile.  A seller can tell you adamantly that they want no less than $100,000, but you know for your numbers to work, you need to buy it at $50,000.  Simply explain your reasoning and make the offer, and let them know that offer stands if they ever change their mind.  You’d be surprised at the number of sellers that get in touch with reality and change their minds several months down the road.

I know an investor that saw a foreclosure sit on the MLS for 3 months asking $120,000 and he told his realtor to make a $50,000 cash offer and it was accepted!

As the legendary Wayne Gretzky said, “You miss 100% of the shots you don’t take” and this rings true in real estate as well.

4. Rehabs will always cost more than you think 

Rehabs almost always go over budget, because unforeseen circumstances always pop up.  You could discover termite damage once you pull back some sheet rock, or that vanity you thought looked fine looks out of place after every thing around it was replaced for something new.

How do you counter this? Buy buying at the right price.  You always hear, the money is made on the purchase, and that is true.  You cant bump your sales price up to make up for running the rehab over budget, as comps are comps and that doesn’t change too much.  However, if you buy with a large enough margin, you are hedged against those unexpected repairs. Therefore always underwrite rehab costs conservatively.

Also, really take the time to find a great contractor.  I went through so many contractors my first 5 flips, but finally landed a solid one that I have been running with the past year.  Using the same contractor also helps when estimating rehab costs as you can accurately put together budgets knowing what they will charge.

5. Reputation is everything

Real Estate is filled with a lot of shady investors.  A lot of people sacrifice integrity to make a quick book.  But the thing is, that isn’t sustainable in the long term.  Build relationships with your team and treat them right so it’s a win-win for everyone.  Two escrow officers at a title company went above and beyond to close a difficult probate wholesale for me and a partner, and afterwards we sent them an Edible Arrangements bouquet to show our appreciation.  It was so unexpected that it lit up their day.

I bring all my flips to my realtor to sell even when I have been tempted to sell them myself to save on commission.  He’s been able to help fight for me when one flip had issues with the city zoning, and he also ended up bringing me an off-market 8-plex deal.

I remember in the beginning, my mentor told me to pass on a deal so we wouldn’t kick someone out who was trying to pay his bills and make an honest living when we could have.

Don’t sacrifice integrity or morals for a deal.  It’s a long term game, and your reputation plays a big part in whether you sustain success or not.

 

Progress Update #3 – 6-month, $200k challenge.

image1Time for an update!

It’s been a very busy last few weeks with a big effort thrown towards finishing up Property #3 as well as finally making progress on getting additional properties under contract – #4 and #5 are now in hand and progressing.

Progress update #3 shown below:

 

  • Property #1 is completed, rented and refinanced.  I made $83k in equity and it’s rented now at $1,800/mo.
  • Property #2 is completed, rented and refinanced.  I made $42k in equity and it’s rented now at $1650/mo.
  • Property #3 rehab is nearly completed, only finishing touches, landscaping and the master vanity installation outstanding.  Progress photos shown below.
  • Property #4 came on the popped up on the market a couple weeks ago.  Within the day, I had it under contract and six days later it was closed.  Rough numbers shown below:
    • Purchase Price:  $76k
    • Estimated Rehab:  $65k
    • Estimated After Repair Value: $236k ($107 sq ft)
    • Estimated Monthly Rent:  $2000
    • Source:  MLS
    • Funding:  Purchasing cash via personal funds
    • Schedule:  4 weeks (start date approx. 15-Nov)
  • Property #5 came under contract a couple days after Property #4.  This 2400 sq ft cape cod is a time capsule, very similar to Property #2 but in better condition.  I’m working to close it by the end of the year but this is the first property that I’ll be performing financing on the front end for, so we’ll have to see how that goes.  I’m leasing it back to the owner until May 2019 prior to starting rehab.
    • Purchase Price:  $150k
      Estimated Rehab:  $30k
      Estimated After Repair Value: $252k ($105 sq ft)
      Estimated Monthly Rent:  $2000
      Source:  Off-market
      Funding:  Financing w/local credit union.
      Schedule:  Unknown.

Progress photos shown below of the rehab on Property #3

Progress Update #2 – 6-month, $200k challenge.

Time for a quick progress update:

  • Property #1 is completed, rented and refinanced.  I made $83k in equity and it’s rented now at $1,800/mo.
  • Property #2 is completed, rented and refinanced.  I made $42k in equity and it’s rented now at $1650/mo.
  • Property #3 has been purchased and rehab is currently underway.  This was another flood house in the same neighborhood as Property #1 but was never gutted post Harvey and sat festering mold for more than a year.  It took about two weeks to gut, clean, dry out and certify the property as mold free.  Drywall is underway now (see progress photos below).
  • I’m actively searching and writing offers every week to get property #4 & #5 under contract.  I’ve been very close with a few offers but the local market is competitive and I’ve been beat out a few times.  We’ll keep at it.

Progress photos shown below of the rehab on Property #3

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Progress Update #1 – 6-month, $200k challenge.

It’s been an incredibly busy few months and a progress update is long overdue.

Since June, I’ve made the following progress on the 6-month, $200k challenge…

  • Purchased, rehab’d and refi’d single family property #1, a Hurricane Harvey flood house.  I made a little more than $83k in equity on this property.
  • Purchased, rehab’d and am processing the refi now on single family property #2, an older house in a great neighborhood, purchased from a local wholesaler.  I’m expecting to clear about $35k in equity on this property.
  • Under contract to purchase single family #3, another Hurricane Harvey flood property, located just around the corner from property #1.  I’m expecting to clear about $35k on this property.
  • I’m actively searching and writing offers every week to get property #4 & #5 moving by the end of the year.

I’m on my way from Mexico to Washington State now in order to meet with notaries and close on a couple refis.  I’ll put together some details on the individual deals posted above during this time, including detailed cost breakdown, lessons learned and pre/post photos.

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6-month, $200k challenge – let’s do this.

A fun challenge that I’ll update as I progress throughout the remainder of this year…

Goals

1)   Buy (5) single family properties in 2018 and get them cashed out into long term mortgages

2)   Purchase under market and achieve a minimum of $40k in equity per property after all repairs are completed ($200k total)

3)   Cashflow $250-400/mo after expenses & debt service per property

Funding

1)  A single line of credit established on an existing single family property

2)  Private money from existing private money lenders that I’ve worked with over the years

3)  New lines of credit that I’m currently in the process of setting up on existing properties – probably will not be established until late August

Background

I work in oil & gas and I’m currently on assignment in Mexico and will be here for another 10 months.  The area I’m focused on purchasing in is Southeast Texas, where I know the market, rents are strong and rising, housing supply is limited and there is major capex expenditure committed to the area over the next 10 years.

The Team

1)   Project coordinator – my boots on the ground.  This is our first project together but we’ve built a relationship over the last few months and he’s an active investor in the area.  Solid guy, organized, communicative.

2)   Various contractors, some that I’ve worked with before, others only via reference.  Despite not being in a HCOL, contractor prices tend to be higher in Southeast Texas due to labor demand in the area.  A high school graduate that wants to work 60-70 hours a week can make $80k+ and those with further aspirations can make much more in supervision.  So trying to find a decent contractor at a reasonable rate is difficult.  Hurricane Harvey has further compounded this problem as rates have skyrocketed.

Let’s do it.

10 things I learned from being a real estate investor (while already an established working professional)

While I was an experienced professional working extensively in project & construction management by the time I dove into the world of real estate investing, there was still so much to learn!  Below is my top 10 list of things I learned from becoming a real estate investor.

  1. Get over yourself.  No matter what your accomplishments are outside of real estate, enter real estate with an open mind and not a chip on your shoulder.  Don’t be afraid to ask any and all questions – especially the stupid ones.  Have no shame in understanding and building a strong foundation of knowledge (starting from the bottom) and working up from there.
  2. Become comfortable with rejection.  Embrace it as a natural step on the path to success.
  3. Meet other investors.  IN REAL LIFE.  Go to REIA events, reach out to fellow, local investors online and meet for coffee/lunch/beers, take them to your properties and ask to walk through their projects.  Offer up your time, whether watching over their project while they’re vacation or helping demo out a kitchen.  Good help, no matter how simple the task, is always hard to find.  
  4. Tell people about what you’re doing.  No need for a sales pitch but be vocal and open.  You never know where you’re next deal is coming from or who might be looking to be a private money investor.
  5. Ask for help.
  6. Do some of the work yourself – even if you’re not good at it.  Even having a basic understandings into what goes into a roofing install or new flooring will pay dividends in collecting bids and managing this work later on.  
  7. Stay paranoid.
  8. Continue education.  While I’m a big believer in finding a niche and really sticking with it – avoiding the shiny object syndrome – continue learning.  Learn what/why your private investors are doing what they do.  Dive deep into your contractors profit margins and understand how they bid a job, where they make money, where they lose money.  If you’re working with property management, do ride alongs with them, observe how they interact with both good tenants & bad.  
  9. Treat other investors with respect – even on deals gone bad.  Often times, I’ll disagree with forum posters on RE websites or even have to fire RE agents or project managers.  That’s fine – be direct with your action.  But be respectful as well.
  10. Keep your team tight.  Folks who have acted as private lenders, even if they haven’t been involved in awhile – keep in touch with them.  Remember birthdays, be aware of significant events (job change/promotion/family status/etc).  Your good contractors?  All the same.  Pay your bills on time, even early if you can.  Asking how someone is doing, when genuine, goes a long way.

FIVE reasons why you shouldn’t own multi-family properties from a distance

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Multi-family properties!  Duplexes!  Triplexes!  FOURPLEXES!  Four for the price of one…well…almost.

Multi-family properties (for the sake of this article, we’re discussing 2-4 unit properties aka properties that can be financed with standard residential financing, such as conventional, FHA, VA, etc) attract a lot of attention due to the fact that you can control more units (thus higher gross rents) with generally less money down for a perceived higher rate of return.  I say perceived higher rate of return because when it comes down to the true rate of return, owning these properties from a distance often proves returns received are far less than expected.

This is why:

  • Managing TENANTS. Multi-family properties, when compared to single family, are a struggle to manage from a distance as you have several tenants living very close to each and as such, tenant vs tenant disputes will not only cause management headaches but ultimately higher turnover and thus higher vacancy (see point #5).
  • Increased REPAIRS. That roof that just started leaking?  Yeah, that’s going to impact four families in a fourplex.  The upstairs tenant left the water running?  You better believe you’ll be dealing with 2+ units with water damage, if not more!  Multi-family opens you up to more risk in terms of repairs and the impact can be huge!
  • Good tenants are HARDER to find. Single family properties have always been the premier property type for tenants and this is likely to continue.  Who would opt for an apartment when you can have much more space, quiet & privacy with a single family property?
  • Less UTILITY costs. Generally, when it comes to multi-family properties, the landlord will be paying for some utility costs (namely water, sometimes more!).  With single-family properties, these expenses are usually passed onto the tenant.  Add in the fact that you’re managing your property from afar; you won’t be able to easily encourage any sort of conservatism directly with your tenants.
  • MORE VACANCY. It’s no surprise that tenant turnover in multi-family is going to be higher than single-family.  This may not be such an issue when you’re managing properties down the street…but when your properties are 2,000 miles away (or 9,000 miles away!), it’s a different story.  Property managers are slow (not to mention expensive) to turnover units and your vacancy (and ultimately your bottom line) will be negatively impacted.