With 50 posts on this blog and a few years under my belt I figured it's time to revisit the purpose of this blog as I'm sure many folks aren't going back to the beginning to read it. We (My Dad, Brother, and I) bought our first property in 2010. Throughout my real estate journey, I've read many books, forum posts, articles, etc on real estate. Almost all of them were from people who were established investors (did it full time). I have a full time job outside of real estate and just do it in my spare time. What I failed to find was someone just like me who was going down the investing road and experiencing the same things I was. So in 2013, when I had ~5 properties, I decided to be that person for others. I'm what you'd consider an "Average Joe". I'm married, have a couple of kids, both myself and my wife work full time W-2 jobs. I did not come from money. I do well for myself but like most folks, I graduated college with student loan debt and no money. I scored a good job and would have been considered middle class when I first started my real estate journey. It took us 2 years to save enough to buy our first property (a sub-$100k SFR). The point of being that detailed is I want everyone to understand I didn't come from any money. I didn't grow up "poor" either but I earned everything I have in my life just like the majority of folks will have to do.
We've all read about how "easy" it is to invest in real estate. There are those out there who preach no/low money down, buying a $1M+ property as your first property, etc etc. But let's be honest, while all of what you read *IS* possible and some have done it with great success, that's just not reality for most people and it wasn't my reality. I'd love to create a snapchat, facebook, myspace, etc and make billions in just a few years but I'm also a realist (a very optimistic one). I love dreaming big and do so every day. I don't make all or nothing decisions when it comes to my money, but I'm not a tightwad either. I'm right in the middle. I'm also not a best selling author (maybe one day), nor have I written a book or anything outside of forum posts and this blog. I'm not a "guru". I didn't even have a mentor for real estate. I don't endorse anything (maybe one day) and I'm not paid anything by anyone for what I do in real estate (again, one day that's the goal, I do dream big remember?)
So if you haven't gathered by now, the whole purpose of this blog is to show the average person's journey with real estate so that those folks who are starting out, doing it on the side, and that only own a few properties (or 1 or none, etc) can at least have somewhere to go to see someone just like them. If you aren't into real estate, I'm sure this blog is boring, but hopefully someone somewhere will get something out of it. And also, I do keep this for myself as well. It's also a record of my journey that I can reflect back on as well. I just happened to make it public for others to see as well.
The last piece of all this is that since this blog is public, you won't often see personal details, company names, individuals names, or specific details in this blog. So if you see anything that is vague or not very detailed, don't think I'm leaving anything out that is crucial to the situation, I'm just leaving those personal details out. If there is something you want to know more about, just leave a comment and I can elaborate more if you feel I don't cover something in the detail you wanted. I also don't have all the time in the world to just write, so sometimes posts are just shorter because I'm short on time. No one pays me to do this :)
I hope you enjoy the blog and feel free to let me know if you have any questions.
Sunday, June 5, 2016
Our First Multi Family Property!
I find it funny that our first multi family property comes in my 50th post. It seems significant. Our goal when we first started investing has always been to get here at some point. In fact, our long term goals take us even farther than that (overseas investing as well as large building investing), but let's not get ahead of ourselves :). The property itself is a true commercial property, but barely. It's a 5-unit apartment complex. I always figured our first MFR would be a "plex" of some kind (4 units or less), but we'll take this.
We've been open to and somewhat actively looking for a multifamily property in the areas we invest in. We've been letting folks know that we're interested, checking our loopnet occasionally, and other looking. I think it's funny that the way we found this property was using the last method I thought we would find it through. Our bank sends us their REO list every month. I've always sorted through it and narrowed it down to SFR's in the price range we want. I never thought to look at the commercial section. I had missed it entirely. My Dad was actually the one who spotted a couple of apartments on the list. He reached out to me and asked to do a quick analysis on the property. I did our "5 minute check" on it and the numbers looked pretty good by themselves. On top of that, we discovered that the rents are about 20% below market and need to be raised. I'm a big advocate of never analyzing based on anything pro forma. However, with rents where they are, it's still a good deal. With rents where they are supposed to be, it's a phenomenal deal. If it was a case where it was a bad deal with current rents and just a good deal at market rate, there is no telling what we would have done. But long story short, it passed the quick test and was destined for further analysis.
We reached out to the bank to get all the financials (last 2 years) and did as good an inspection as we could to make sure there were no major repairs needed or deferred maintenance. So far so good. We put in an offer which was basically accepted (we went up 1% on our initial offer by the time it was all said and done) and we are now under contract. Believe it or not, we purchased it for a little less than the appraisal 3 years ago. The NOI is higher now than it was then so we know we're getting a good deal. The bank is even doing an evaluation as opposed to an appraisal which saves us money. Keep in mind, the bank owns it and has an appraisal from 3 years ago that is above the purchase price, so it's a win all around. We are currently in the process of sending our property inspector out there for the full inspection. Further negotiations may ensue after that, but we don't think anything major will result.
So there is some discussion to be had around moving from SFR's to a 5-unit apartment complex. This is new territory for us so I'm sure there will be some lessons that come of it but hopefully they will be minor. If there are, I'm sure they will find there way here in future posts. So far in our investing, we've had no "huge" lessons that I would consider detrimental or extreme setbacks. I do think that comes from educating ourselves. When it comes to apartment complexes, I've read lots of books, articles, blog posts, forum posts, etc on the topic. I've also had conversations in my investor's group around them as well as spoke to people who own them. I've listened to podcasts and such along the way too. BY NO MEANS, do I consider myself an expert. However, I do feel that I've educated myself enough to jump in. Enough is the key word. I could do more, but I'm at the point where I think further education is no longer necessary and I'm ready to jump in. Do I feel educated enough to buy a 220-unit? Hell no. But a 12-unit or less, yes, I believe I'm ready.
We've all heard the term analysis paralysis. We've all heard about people buying a 20-unit as their first property ever. We've also seen people talk for 10 years about doing something and they never do. Their is no black and white line here. We've gotten to the point where we think we've learned enough to jump in and experience first hand. The other key point is we're also buying in a price range we are comfortable with. We're only spending about the equivalent of 2 or 3 SFR's (depending on which SFR's you use). So again, it's not a purchase that equal's our entire portfolio. We've educated ourselves to the point where we felt ready for a purchase anywhere in the neighborhood of $150k - $350k. Even if we learn some hard lessons, in that range we've minimized the risk of a detrimental situation to our business.
We're still in the early stages and probably ~30 days out from close but we're excited and I wanted to post about it sooner rather than later. If anything interesting comes of it I'm sure I'll post more.
And yes, this brings our total # of units to *20* which is super exciting by itself.
We've been open to and somewhat actively looking for a multifamily property in the areas we invest in. We've been letting folks know that we're interested, checking our loopnet occasionally, and other looking. I think it's funny that the way we found this property was using the last method I thought we would find it through. Our bank sends us their REO list every month. I've always sorted through it and narrowed it down to SFR's in the price range we want. I never thought to look at the commercial section. I had missed it entirely. My Dad was actually the one who spotted a couple of apartments on the list. He reached out to me and asked to do a quick analysis on the property. I did our "5 minute check" on it and the numbers looked pretty good by themselves. On top of that, we discovered that the rents are about 20% below market and need to be raised. I'm a big advocate of never analyzing based on anything pro forma. However, with rents where they are, it's still a good deal. With rents where they are supposed to be, it's a phenomenal deal. If it was a case where it was a bad deal with current rents and just a good deal at market rate, there is no telling what we would have done. But long story short, it passed the quick test and was destined for further analysis.
We reached out to the bank to get all the financials (last 2 years) and did as good an inspection as we could to make sure there were no major repairs needed or deferred maintenance. So far so good. We put in an offer which was basically accepted (we went up 1% on our initial offer by the time it was all said and done) and we are now under contract. Believe it or not, we purchased it for a little less than the appraisal 3 years ago. The NOI is higher now than it was then so we know we're getting a good deal. The bank is even doing an evaluation as opposed to an appraisal which saves us money. Keep in mind, the bank owns it and has an appraisal from 3 years ago that is above the purchase price, so it's a win all around. We are currently in the process of sending our property inspector out there for the full inspection. Further negotiations may ensue after that, but we don't think anything major will result.
So there is some discussion to be had around moving from SFR's to a 5-unit apartment complex. This is new territory for us so I'm sure there will be some lessons that come of it but hopefully they will be minor. If there are, I'm sure they will find there way here in future posts. So far in our investing, we've had no "huge" lessons that I would consider detrimental or extreme setbacks. I do think that comes from educating ourselves. When it comes to apartment complexes, I've read lots of books, articles, blog posts, forum posts, etc on the topic. I've also had conversations in my investor's group around them as well as spoke to people who own them. I've listened to podcasts and such along the way too. BY NO MEANS, do I consider myself an expert. However, I do feel that I've educated myself enough to jump in. Enough is the key word. I could do more, but I'm at the point where I think further education is no longer necessary and I'm ready to jump in. Do I feel educated enough to buy a 220-unit? Hell no. But a 12-unit or less, yes, I believe I'm ready.
We've all heard the term analysis paralysis. We've all heard about people buying a 20-unit as their first property ever. We've also seen people talk for 10 years about doing something and they never do. Their is no black and white line here. We've gotten to the point where we think we've learned enough to jump in and experience first hand. The other key point is we're also buying in a price range we are comfortable with. We're only spending about the equivalent of 2 or 3 SFR's (depending on which SFR's you use). So again, it's not a purchase that equal's our entire portfolio. We've educated ourselves to the point where we felt ready for a purchase anywhere in the neighborhood of $150k - $350k. Even if we learn some hard lessons, in that range we've minimized the risk of a detrimental situation to our business.
We're still in the early stages and probably ~30 days out from close but we're excited and I wanted to post about it sooner rather than later. If anything interesting comes of it I'm sure I'll post more.
And yes, this brings our total # of units to *20* which is super exciting by itself.
Property #14 and #15
So we haven't been buying a ton of properties lately and now that we have 13 of them (all rented), Cash is flowing in nicely and we can't seem to spend it as fast as we'd like. Sounds like a good problem to have, I know, and I'd agree. We never have stopped contributing monthly either so that helps as well. I recently reached out to our turnkey company in Memphis and said we were looking to buy some more property and to let us know what they can find. Fortunately, they had a couple they were about to buy. Because we've done business with them, we're going under contract before the renovations even start.
For those of you that scares, here is the kicker and where we keep risk low. In those contracts we have an inspection period AFTER the renovations are complete so we don't fully commit until we are at the point where we've seen the renovations and had it inspected properly by a property inspector that we use. The key lesson here (and this is a lesson I've never had to learn the hard way as I've read about others who have), no matter how comfortable you get with something or someone, always keep your risk mitigated. Yes, we are going under contract before they even start renovations. Yes, we sent earnest money in to hold it. *YES*, we are going to have all the normal items in the contract in regards to financing, inspection, etc. *YES*, we are going to close using the bank and have all the same insurance and checks that we would normally have to ensure our risk is as low as if we did it any other way.
So currently as I write this, we have these 2 properties with them under contract taking us to 15 total once they close. Exciting stuff!
For those of you that scares, here is the kicker and where we keep risk low. In those contracts we have an inspection period AFTER the renovations are complete so we don't fully commit until we are at the point where we've seen the renovations and had it inspected properly by a property inspector that we use. The key lesson here (and this is a lesson I've never had to learn the hard way as I've read about others who have), no matter how comfortable you get with something or someone, always keep your risk mitigated. Yes, we are going under contract before they even start renovations. Yes, we sent earnest money in to hold it. *YES*, we are going to have all the normal items in the contract in regards to financing, inspection, etc. *YES*, we are going to close using the bank and have all the same insurance and checks that we would normally have to ensure our risk is as low as if we did it any other way.
So currently as I write this, we have these 2 properties with them under contract taking us to 15 total once they close. Exciting stuff!
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