So last Wednesday we closed on our second multifamily property. It's a 3-unit vacant property in need of some work. We bought for a great deal as it was a bank owned property. We are putting some money into it to renovate and produce maximum rent. While we've done similar things before, this is our first real BRRRR as they call it. Our goal is to renovate one of the units and get it rented immediately while we focus on the other 2 units. The top 2 units are accessed differently than the bottom one so it should be easy to renovate the top 2 without much (if any) disturbance to the tenant on the bottom unit.
We recently partnered with another individual and are doing this entire project with all cash. The goal once all 3 units are rented is to refinance with the bank, pull all the money out that we put into it, and create an "infinite return" scenario since we'll have no money into it. It should be a fun project that creates cash flow for life without having to keep any money in it after the renovation.
I'll post again once we've refinanced and let everyone know how the project went. We're looking forward to doing many more just like this. Now, to find more of them!
Sunday, December 4, 2016
Saturday, October 22, 2016
A Revelation - Kind of....
So our most recent purchase was our 5-unit apartment complex. Yes, it had a couple of hiccups but it's gone further in making me realize that MFR's are the way to go. But make no mistake, the learning we obtained while doing SFR's has been invaluable and we would not be where we are today without having gone through it. It has allowed us to take chances, risks, and learn in a way we wouldn't have felt comfortable doing with bigger properties.
The SFR's that we've been dealing with have been sub-$100k purchases. All things considered, we weren't really risking a lot there. With the first few, our worst case was we had to float them personally. With 3 of us, it would have been pretty easy to handle them not being rented. As time moved on we had more money in the bank, other properties to help carry others that weren't being rented, etc. We then figured out that the more of these we had, the less risk we seemed to take on. When we got to 13 SFR's we realized that we were pretty well protected from complete disaster and the risk was about as low as it could possibly be.
So what do you do when the risk you have is way below your tolerance level? You raise your risk of course back up near your tolerance level. How? Well, we decide to try our hand with a small apartment. We purchased a 5-unit apartment complex which was over double the most expensive SFR we had ever bought. We were raising our risk level back up a little bit. I still don't believe we've come anywhere near our tolerance level yet. 3 years ago, a 30-50 unit apartment complex would have scared the %$#& out of us. Now, I could see us more than doubling our unit count in our next purchase. Will we? Maybe. maybe not. We would only do that if the deal was right. No matter the risk level we have, we will never buy something that we don't deem a good deal. If I ran across another SFR I could buy for $30k that I could rent out for $750/month, you better believe I'd do it.
So now, more and more every day, our attention is turning toward apartment buildings. Our comfort level with risk has been raised to apartment complex's without fancy amenities. A 50-unit complex that is just a few buildings at most and no real amenities (maybe there is a coke machine and a laundry room or something) is within our tolerance level for risk at this point. It may mean we partner with someone to make a purchase like that, but the point is we feel comfortable with a purchase of that size now. After a couple of those, perhaps we will feel comfortable with an apartment community. Think 100+ units where you have on-site dedicated staff, amenities like a pool, tennis courts, main building with common areas, etc. Right now, that type of property exceeds our tolerance level for risk, but 2-3 years from now, maybe not. Our acceptance for risk certainly seems to change often based on the properties we purchase.
With that being said we are now looking for our next MFR. Are we done with SFR's? Maybe, maybe not. If we are able to start purchasing apartments anywhere near as easily as we have SFR's, I believe so, otherwise I hate letting too much cash sit unused. We may need to fill some gaps between purchases and that's an easy way to do it. Hopefully over the next 6-12 months, I'm blogging about our 30-50 unit apartment complex that we've purchased. Stay tuned, it could get interesting! In the meantime, I should have plenty of other posts to keep you entertained :)
The SFR's that we've been dealing with have been sub-$100k purchases. All things considered, we weren't really risking a lot there. With the first few, our worst case was we had to float them personally. With 3 of us, it would have been pretty easy to handle them not being rented. As time moved on we had more money in the bank, other properties to help carry others that weren't being rented, etc. We then figured out that the more of these we had, the less risk we seemed to take on. When we got to 13 SFR's we realized that we were pretty well protected from complete disaster and the risk was about as low as it could possibly be.
So what do you do when the risk you have is way below your tolerance level? You raise your risk of course back up near your tolerance level. How? Well, we decide to try our hand with a small apartment. We purchased a 5-unit apartment complex which was over double the most expensive SFR we had ever bought. We were raising our risk level back up a little bit. I still don't believe we've come anywhere near our tolerance level yet. 3 years ago, a 30-50 unit apartment complex would have scared the %$#& out of us. Now, I could see us more than doubling our unit count in our next purchase. Will we? Maybe. maybe not. We would only do that if the deal was right. No matter the risk level we have, we will never buy something that we don't deem a good deal. If I ran across another SFR I could buy for $30k that I could rent out for $750/month, you better believe I'd do it.
So now, more and more every day, our attention is turning toward apartment buildings. Our comfort level with risk has been raised to apartment complex's without fancy amenities. A 50-unit complex that is just a few buildings at most and no real amenities (maybe there is a coke machine and a laundry room or something) is within our tolerance level for risk at this point. It may mean we partner with someone to make a purchase like that, but the point is we feel comfortable with a purchase of that size now. After a couple of those, perhaps we will feel comfortable with an apartment community. Think 100+ units where you have on-site dedicated staff, amenities like a pool, tennis courts, main building with common areas, etc. Right now, that type of property exceeds our tolerance level for risk, but 2-3 years from now, maybe not. Our acceptance for risk certainly seems to change often based on the properties we purchase.
With that being said we are now looking for our next MFR. Are we done with SFR's? Maybe, maybe not. If we are able to start purchasing apartments anywhere near as easily as we have SFR's, I believe so, otherwise I hate letting too much cash sit unused. We may need to fill some gaps between purchases and that's an easy way to do it. Hopefully over the next 6-12 months, I'm blogging about our 30-50 unit apartment complex that we've purchased. Stay tuned, it could get interesting! In the meantime, I should have plenty of other posts to keep you entertained :)
Wednesday, September 14, 2016
When It Rains, It Pours!
So far in the years I've been writing this blog, it's been 95% positive. Sure there have been some unexpected expenses, 1 almost eviction, and a couple of deals we didn't move forward on, but it's all been what I'd consider normal. This post will be long but probably one of the more important ones I've written. It will help to keep you grounded on your real estate journey plus go to show you how preparation is so key! We were prepared for what you're about to read but that doesn't make it any less disheartening. So without further ado, here is basically what has happened in the last ~45 days.
Let's start first with what was going to be our 3 newest properties. This would have taken us to 21, but alas we are still at 18. Not too shabby though being at 18 units after just 6 years. Our first 2 properties that we will discuss were through our turnkey firm that we've purchased 3 previous properties with. We offered on the 2 properties an amount that based on our calculations was the correct amount based on the rental income. The properties were actually rented for the amount promised. However, we had an appraisal that was $16k less on one and *$36k* less on the other. You read that right. These are sub-$100k properties as well. Appraisals on SFR's aren't done on the income approach. They are on the comparable approach. The mistake we made was we ordered the inspections before the appraisals came in. We had success in the past so we could argue we had our basis covered. The bank we used had also had some issues with flipped properties being returned to them via foreclosure. So instead of going with an in-house evaluation, they decided to stand by the appraisal even though it was an appraiser has consistently been incompetent. I say that because 2 years ago the bank threw out an appraisal from this person because it was so low and did an in-house evaluation which allowed us to close that deal. They would not do that for these 2 and we were stuck. We had to foot the bill for the appraisal and the inspection ($650 each) and we had to back out. We could have at least save $250 by not ordering the inspection. Lesson learned.
The 3rd property was an REO at the bank where we made an offer based on the numbers and it was accepted. The offer was a good 35% below market value. Having learned our lesson on the previous 2, we went by the property before going under contract and we found a tree laying on the house, mattresses in the backyard and a tenant telling us the hallway had flooded 6 months ago. There was all kinds of damage in this house and the tenant was just rattling off all the stuff that needed to be fixed. This was a pretty easy decision and we walked away. So inside of 10 days we walked away from 3 deals (2 of which was under contract). Fortunately, this one didn't cost us anything to walk away from.
Next, let's talk about the apartment we just purchased and what happened. It turns out that one of the units was basically destroyed upon move out. Holes in the walls, destroyed carpet, you name it, it happened. What it boils down to is ~$6k in unexpected repairs and cleanup. We are going after the tenant for the money and if anything comes of that, I'll be sure to let you know.
Now, let's talk about the bevy of unexpected expenses. Below is a list of unexpected expenses that occurred across our properties in the past ~45 days that resulted in about $4k more on top of the already $6k from the apartment unit:
-- *2* Hot Water heaters went out
-- An AC unit went out
-- Flooring needed to be replaced (just old)
-- Other Misc Expenses.
Maybe we've been lucky, but these 2 hot water heaters are the first in 6 years and the AC unit was the first in 6 years as well.
We also just received word that a tenant filed bankruptcy so there is that to attend to. Perhaps I'll write a post about that when it's all said and done and it's our first one.
WHEN IT RAINS IT POURS!
So there is a brief synopsis of the last 45 days. 3 properties that we walked away from, $10k in unexpected (more than normal) expenses, and a tenant in bankruptcy. Merry Christmas! :)
Let's start first with what was going to be our 3 newest properties. This would have taken us to 21, but alas we are still at 18. Not too shabby though being at 18 units after just 6 years. Our first 2 properties that we will discuss were through our turnkey firm that we've purchased 3 previous properties with. We offered on the 2 properties an amount that based on our calculations was the correct amount based on the rental income. The properties were actually rented for the amount promised. However, we had an appraisal that was $16k less on one and *$36k* less on the other. You read that right. These are sub-$100k properties as well. Appraisals on SFR's aren't done on the income approach. They are on the comparable approach. The mistake we made was we ordered the inspections before the appraisals came in. We had success in the past so we could argue we had our basis covered. The bank we used had also had some issues with flipped properties being returned to them via foreclosure. So instead of going with an in-house evaluation, they decided to stand by the appraisal even though it was an appraiser has consistently been incompetent. I say that because 2 years ago the bank threw out an appraisal from this person because it was so low and did an in-house evaluation which allowed us to close that deal. They would not do that for these 2 and we were stuck. We had to foot the bill for the appraisal and the inspection ($650 each) and we had to back out. We could have at least save $250 by not ordering the inspection. Lesson learned.
The 3rd property was an REO at the bank where we made an offer based on the numbers and it was accepted. The offer was a good 35% below market value. Having learned our lesson on the previous 2, we went by the property before going under contract and we found a tree laying on the house, mattresses in the backyard and a tenant telling us the hallway had flooded 6 months ago. There was all kinds of damage in this house and the tenant was just rattling off all the stuff that needed to be fixed. This was a pretty easy decision and we walked away. So inside of 10 days we walked away from 3 deals (2 of which was under contract). Fortunately, this one didn't cost us anything to walk away from.
Next, let's talk about the apartment we just purchased and what happened. It turns out that one of the units was basically destroyed upon move out. Holes in the walls, destroyed carpet, you name it, it happened. What it boils down to is ~$6k in unexpected repairs and cleanup. We are going after the tenant for the money and if anything comes of that, I'll be sure to let you know.
Now, let's talk about the bevy of unexpected expenses. Below is a list of unexpected expenses that occurred across our properties in the past ~45 days that resulted in about $4k more on top of the already $6k from the apartment unit:
-- *2* Hot Water heaters went out
-- An AC unit went out
-- Flooring needed to be replaced (just old)
-- Other Misc Expenses.
Maybe we've been lucky, but these 2 hot water heaters are the first in 6 years and the AC unit was the first in 6 years as well.
We also just received word that a tenant filed bankruptcy so there is that to attend to. Perhaps I'll write a post about that when it's all said and done and it's our first one.
WHEN IT RAINS IT POURS!
So there is a brief synopsis of the last 45 days. 3 properties that we walked away from, $10k in unexpected (more than normal) expenses, and a tenant in bankruptcy. Merry Christmas! :)
Wednesday, July 13, 2016
Our First Multi-Family (Commercial) Property!
So we are closing on our first Multi-Family tomorrow which means there could be potentially an edit to this post :). It is our first multi-family and more importantly our first commercial property. Yes, 5+ units are commercial properties, not residential properties and therefore a 4-unit and a 5+-unit are very different.
There were some lessons learned along the way that I'd like to share. Fortunately, none of them were huge, but all important nonetheless.
-- Insurance: It will be a little higher than you expect. If you think a $100k SFR that insures for $500/year means your 5-plex that you buy for $200k will be $1,000/year, think again. It would seem to make sense, but underwriting on a commercial property is much different and the insurance can vary widely. There are minimums per Sq foot, more underwriting, and different timelines. The advice here is don't guess (or be extremely conservative, like double what you think it will be for your analysis). Also turn around for a policy could take longer (weeks) whereas an SFR policy could be written in days or less.
-- Closing: It will take longer than those SFR's and most likely because it's commercial, it has to go through different approval channels. Which means you get in line to go through a committee or maybe a couple of people (one of whom might be on vacation, etc). So plan for an extra few weeks to be safe. Closing costs on a $200k SFR and a $200k MFR could vary widely as well depending on a multitude of factors. Check with the bank for an estimate.
-- Additional expenses: There are things you will need to pay for (water, lawn care, etc) with a commercial property that tenants pay for in an SFR rental. This varies widely as well depending on the setup, so do your research and put those costs in accordingly to your analysis.
-- Inspections: Depending on the state/local laws there may be additional inspections (no to mention that inspection will cost more than an SFR) that you need to get when ownership changes hands. Do your research.
There may be more to add to this post over the coming days, but I just wanted to get some lessons out there (Those are in no way all inclusive, just items we experienced) while they were fresh.
Sunday, June 5, 2016
Revisiting the purpose of this blog
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.
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.
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!
Saturday, April 9, 2016
Property #13
We've officially closed on property #13. This is our second owner financing deal but unlike the first one we did, this one is for a longer term. There is a 7-year balloon payment on this one but it could go longer if both parties decide to do it. I have a feeling if we did anything we'd be refinancing with a bank, pulling out some cash for more properties, and paying off the seller financed loan. There isn't anything really special about this one. It's part of the 6 property group we were looking at, but we only came out with this one due to the foundation issues at most of the other properties.
This property gets us closer to our first Million goal of "Own A Million". We're only 2-3 properties away from that goal and we're pretty excited about it. I can't imagine we won't hit that goal this year.
In case you were wondering, the other "Million" goals are:
-- Revenue a Million
-- Cash Flow a Million
-- Profit a Million
I have no idea when we'll reach either of those. I assume the next one is a few years out but the first one sure will be special.
This property gets us closer to our first Million goal of "Own A Million". We're only 2-3 properties away from that goal and we're pretty excited about it. I can't imagine we won't hit that goal this year.
In case you were wondering, the other "Million" goals are:
-- Revenue a Million
-- Cash Flow a Million
-- Profit a Million
I have no idea when we'll reach either of those. I assume the next one is a few years out but the first one sure will be special.
Saturday, March 5, 2016
Various Updates
There are some various updates I had mentioned before and just wanted to give some status:
- 2 refinances: 1 is complete and the other is underway. We're looking at a large chunk of cash coming from this one to help buy future properties. I probably won't bother posting about it other than this. To keep some level of privacy, I won't say exactly how much, but it's enough to purchase 2-3 more properties at our current level alone. Pretty exciting.
- Property #11 and #12: I posted about them in separate posts, so no need to mention them again.
- Property #13-#17/18: Turned into just property #13. We drove by the properties and noticed most of them had what looked like serious foundation issues (Huge cracks on multiple sides). He is going to have a really hard time selling them for more than about half of what he wants. As I've mentioned before, our model is more turnkey type investments. We don't want anything more than carpet, locks, paint, etc, type stuff ($1k-$2k tops). Dealing with any type of foundation work (even if we got a good enough deal) is just not in our interest right now. One of the locations was an SFR that we are purchasing. So instead of a possible 6, it's just 1 out of this lot.
- Downed Tree: Again, pretty uneventful like we like it. the neighbor offered to split the tree removal (even though he didn't have to), proving that good people are out there. Cleanup and repair was only ~$500, so we dodged a bullet with that one. We have insurance of course, but who wants to deal with that whole process? If that tree would have fallen a few feet further to one side, we would have had a duplex (and not the good kind) :)
- Foundation Issue: Still an open issue that I'll post more about later. Still unsure if it's a big or little item.
Property #12
So we recently went under contract on Property #12. It's another turn key property in Memphis. Having done 2 of these already the comfort level is there. We went under contract and have completed inspection. The appraisal cam back above what we offered so that's always good.
We closed recently on this property and they actually had found a renter BEFORE we closed. So we're now at 12 properties with them ALL rented. Still at 100% capacity which blows my mind. The first turnkey we bought they had it rented within ~30 days of closing. The second one was rented within 3 days of closing. The third one (this one) was rented prior to closing. This turnkey thing just keeps looking better and better.
Sorry for the short post, but these turnkey properties just seem so uneventful. Doesn't make for very interesting reading, but when your on the investing side, uneventful is a beautiful thing :)
We closed recently on this property and they actually had found a renter BEFORE we closed. So we're now at 12 properties with them ALL rented. Still at 100% capacity which blows my mind. The first turnkey we bought they had it rented within ~30 days of closing. The second one was rented within 3 days of closing. The third one (this one) was rented prior to closing. This turnkey thing just keeps looking better and better.
Sorry for the short post, but these turnkey properties just seem so uneventful. Doesn't make for very interesting reading, but when your on the investing side, uneventful is a beautiful thing :)
Sunday, January 17, 2016
Property #11
After an ~8 month real estate drought, we finally found property #11.
It all started by getting an e-mail from the REO department at the bank. I sorted through it and saw 3 properties that met our criteria (first glance). A little digging and only 1 remained. When we inquired with the bank, we found out it was already rented out (same person that was renting it when they foreclosed on it a few years back). We've already got 3 REO's in the same manner that were already rented so this process is very comfortable for us. The interesting thing is that the current renter is paying about $250-$300 below market rent. The full disclosure here is that to get market rent we have to do a little work inside. However we can easily get $200/month more.
Upon closing, our plan is to raise the rent to an amount we can easily get if the renter decides to move out. We plan to have the PM raise the rent between $100-$150 next month and sign a new 1-year lease. If the renter moves out, that's fine, our PM is confident they can rent it out quickly for that amount. It's hard to say the plan beyond that as the property is pretty profitable at that level and if we raised it to true market rent, we're 99% sure they'd move out and the time vacant plus losing the first month's rent to the new would be a lot less than our current plan.
After the 1st year, we will most likely have a significant raise in rent to get it at or close to true market rent. If the renter moves out at that point, we're prepared for it and have already gotten all our money back plus some, so a little vacancy won't hurt us too much. The renter situation could prove to be an interesting story at some point and if it becomes interesting beyond what I've posted here, I'll be sure to write about it.
UPDATE (3/5/16):
Another uneventful situation. We asked the PM to raise the rent by $150/month. She gave more than 30 days notice to the tenant for a rent increase starting 3/1/16. The tenant excepted the rent increase and signed a new 1-year lease. A few weeks went by before the tenant let the PM know he accepted and signed the lease. My guess is the tenant looked for a similar property at the same rent he was paying and realized he couldn't even find a similar property at the level we were raising it to. He had been paying the same rent for almost 6 years with no increases and even back then he was getting a great deal. Once the year lease is up, we'll increase at least another $50, perhaps more depending on where the market is. If we put about $2,000 into it, we could get another ~$150/more than we're charging, but with a new tenant and the PM taking the first month's rent and potentially a month or two of vacancy, even if we got $150/more, with vacancy, PM fee, and $2k (maybe more) rehab costs, it would be years before we broke even based on what we're getting now. I just thought I'd laid that out there if people are thinking why I didn't just raise it all the way to market, let the tenant move out, do the rehab and get full market rent. Instead of a potential ~$4k-5k with all I mentioned, we're going to cash flow $2.5k this year on it. It's a no brainer :)
It all started by getting an e-mail from the REO department at the bank. I sorted through it and saw 3 properties that met our criteria (first glance). A little digging and only 1 remained. When we inquired with the bank, we found out it was already rented out (same person that was renting it when they foreclosed on it a few years back). We've already got 3 REO's in the same manner that were already rented so this process is very comfortable for us. The interesting thing is that the current renter is paying about $250-$300 below market rent. The full disclosure here is that to get market rent we have to do a little work inside. However we can easily get $200/month more.
Upon closing, our plan is to raise the rent to an amount we can easily get if the renter decides to move out. We plan to have the PM raise the rent between $100-$150 next month and sign a new 1-year lease. If the renter moves out, that's fine, our PM is confident they can rent it out quickly for that amount. It's hard to say the plan beyond that as the property is pretty profitable at that level and if we raised it to true market rent, we're 99% sure they'd move out and the time vacant plus losing the first month's rent to the new would be a lot less than our current plan.
After the 1st year, we will most likely have a significant raise in rent to get it at or close to true market rent. If the renter moves out at that point, we're prepared for it and have already gotten all our money back plus some, so a little vacancy won't hurt us too much. The renter situation could prove to be an interesting story at some point and if it becomes interesting beyond what I've posted here, I'll be sure to write about it.
UPDATE (3/5/16):
Another uneventful situation. We asked the PM to raise the rent by $150/month. She gave more than 30 days notice to the tenant for a rent increase starting 3/1/16. The tenant excepted the rent increase and signed a new 1-year lease. A few weeks went by before the tenant let the PM know he accepted and signed the lease. My guess is the tenant looked for a similar property at the same rent he was paying and realized he couldn't even find a similar property at the level we were raising it to. He had been paying the same rent for almost 6 years with no increases and even back then he was getting a great deal. Once the year lease is up, we'll increase at least another $50, perhaps more depending on where the market is. If we put about $2,000 into it, we could get another ~$150/more than we're charging, but with a new tenant and the PM taking the first month's rent and potentially a month or two of vacancy, even if we got $150/more, with vacancy, PM fee, and $2k (maybe more) rehab costs, it would be years before we broke even based on what we're getting now. I just thought I'd laid that out there if people are thinking why I didn't just raise it all the way to market, let the tenant move out, do the rehab and get full market rent. Instead of a potential ~$4k-5k with all I mentioned, we're going to cash flow $2.5k this year on it. It's a no brainer :)
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