Progress thread: My first two deals and beyond

[danoodle]

I know this is an old thread, but I wanted to update it in my attempt to contribute more to this forum. As of right now, I have 11 houses and am closing on a 4-plex early december which will be my first dive into multifamily. I have sold all my attempted flips at a profit. Three were good but one was barely profitable and not worth the time and effort involved. I have only had to kick out 1 renter so far and she even moved out on her own accord. I have learned so much in regard to property management and have a pretty good system setup at the moment - I do all the managing myself.

One of the biggest issues I have is switching from a handyman mindset to an investor mindset. I still do all the work myself for the most part and I know it is not the best use of my time, but it is hard to give up control in this area for some reason.

I moved back to the town where all the houses are back in May of this year. For three years I lived in a town over 1.5 hours away and had to go back and forth for those 3 years which really impacted how much work I could get done. I have started using my realtor license for other people instead of just my own purchases now that I have moved back, and it has definitely taken away from the amount of work I can get done. It has been a nice boost of income, but I really need to start hiring out the work now that my attention is divided.

Also I had a kid in the meantime who is now 14 months old so that has been a huge factor on how I spend my time. Not trying to make excuses, but if you are single and/or childless, you don't realize the amount of freedom and time you have because it is 100% your own. Don't let it go to waste!!!!

If anyone has any questions or anything, I am more than happy to offer advice in any way I can!

edit: It so funny reading some of my earlier posts. I really didn't know what the hell I was doing, but I dove right in and now what seemed scary is just another day for me. Goes to show how important taking action is!

 

[danoodle]

I put in 2 offers for houses that I plan on renting out and should hear back tomorrow. One will be a short sale that I am fairly certain they will accept. Here is a link to the estimates I figured.

The second is also a bank owned home but I'm not sure if they'll accept. We've gone back and forth a few times, I started at 22k, they countered at 25k, I said 22.5k, they said 24k, I said that's it. I'm thinking they might accept 23k, should I just give in and go with that price? Deal is probably worth it even if I pay that much and wouldn't want to miss out on a good one for a measly $500. Here are the estimates.

The bad thing is I was planning on just paying cash, then, if I needed to tap the houses for the equity, I could do so. May not be fastlane, but seems to be decent returns. Any opinions would be appreciated and I will update with what happens if people are interested!

 

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[MonTexan]

First off, good job on looking in the "right" price range for your first couple deals. They look very similar to my first couple. Best to start with low priced properties that won't break you if things don't work out! A few observations:

Your insurance estimates look fairly low, at least compared to what I'm used to paying on similarly price homes. I'm on the Gulf Coast and am carrying for fire, wind, AND flood so that very well could be the difference. Just be sure you get actual quotes from an insurance agent and not ballpark figures from a guru's book.

For variable expenses, I would calculate off of "gross rent" rather than "net rent" so as to not underestimate them. A 10% maintenance reserve doesn't care if the house is occupied or not and would probably be even higher for a un-occupied house. Right now you're calculating 10% of net rent.

As long as you are ballparking your expenses, I'd suggest playing it safe all calling them 50% of gross rent. You're assuming around 30%, and I think that is optimistic. I would also increase your rehab estimate by 50% since these are your first deals. Especially since these are low-priced bank-owned properties. Just believe me on this one.

Even if your cash-on-cash ROI isn't great, these deals are probably still worth DOING. They'll get you in the game, most likely without breaking the bank, and you will learn a TON which you can apply to future deals. They get much easier after the first couple.

Best of luck!

 

[danoodle]

They accepted my offer on the second home for 21k plus closing costs! They must have been afraid of losing me because we actually went down from 22.5k without closing costs. lol Will find out about the other house on Monday, but hopefully it will go through!

 

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[MonTexan]

One other point on making offers that get accepted by banks:

-- All cash
-- $5,000 earnest money (yes, even on a $20k home)
-- No option period
-- Close in two weeks

This is the recipe I have used to buy several homes, some of which I was not necessarily the highest bidder on. Meet your inspector at the house before making your offer to confirm that you WILL buy the house if your offer is accepted and the rest falls into place.

 

[roc]

The worse the smell of the property the better lol.

Quick tip after you rip out the carpet and if the subfloor is in good shape, hit the whole floor with a primer to seal in the dog urine smell.

Great thread BTW, my only advice is to make sure you have enough reserves in case tenants decided to roll and something else I recommend is to make all your units the same, i.e. same faucets, same carpet, same title or vct, etc. THIS will make your life alot easier.

 

[danoodle]

I figured I would post an update to this thread since it has been awhile. I still have yet to sell the yellow house. I recently completed all the requirements for my realtor license so I hope that listing the house (with myself of course) will help to sell it and I won't have to give up the entire commission. I didn't think it would take this long to sell, but there are a lot of foreclosures on the market and it seems people aren't able to get financing like they used to...

I did take possession of the "Brown house" about a month ago. I personally haven't done hardly any work on it and am practicing my delegation skills and let me tell you, it is quite nice. I am hoping to have it fixed up by August 1st and have a renter lined up already. They are actually the renters I have in my first house I fixed up, and we are going to move into that house.

I am also in discussion with a guy selling a mobile home park. It has 17 lots, 10 currently owner occupied, with 1 ready to rent and another that can be fixed up. He wants 100k, the gross income is 27k, net I'd say 10-15k. He's willing to do 25k down and seller finance the rest. We'll see if the deal goes through, it will be my first experience in commercial real estate if so! I really need the yellow house to sell for the down payment though. That's about it for now, other rentals are still going well. I was able to rent out the college house for next school year and they are paying upfront for the year like the last students.

 

[danoodle]

We closed on the 4-plex today! Final price came out to be $14,949.85. The units should rent for $450 each and I expect to have to put in around 30-40k to get it fixed up. This will be my first multifamily property so we will see how it goes! If people are interested I will post the progress/end results and final numbers and whatnot. I have included a few pics as well.

Edit: I misread the settlement statement, it didn't include the earnest money so final total purchase price was $15,449.85

 

[danoodle]

I just closed on the second house a few hours ago! I ended up paying 21750 total with closing costs, so 250 less than I had planned. There is a tax rebate program in my county where improvements of at least $5000, you get to deduct what the increased insurance would be, since you increased the value of the house. The deductions go like 95%, 95%, 95%, 80%, 70% etc for 10 years. Thought that it was a nice unexpected bonus as well! The house is technically livable right now, I just want to make it as nice as possible (without going overboard) so I'm not a slumlord with crappy properties and crappier tenants. I am also considering adding an attached garage which I'm sure would increase its appeal. We start on the roof on Monday! Hope it goes well as I venture further down the rabbit hole...

 

[bflbob]

Nice work! I've had so much poor luck with my RE lately that I'd be gun-shy.

 

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[hatterasguy]

Congrats on your first deals! They look pretty good, I know people who have made a fortune doing what your doing. Buy, fix, rent, refi, and continue.

Its not sexy but its a good way to build a solid income and seven figure net worth. Keep at it nice and steady and in 10-15 years you will be set for life.

My only word of caution to you, as someone who builds houses for a living insurance on contractors is CRITICAL. I cannot emphasis this enough, a drunk guy who was hired for cash, with no insurance, shooting his eye out with a nail gun is exactly how someone I know got sued for $200k, + $50k in medical expenses, +$90k to reinstate there insurance again, + attorney's fees of probably $50k.

Don't hire bums off the street its not cheaper!:eusa_naughty: I know its tempting and money is tight, but just don't do it. When I hire a new guy I tell them they have to have proof of insurance before they start, and I have sent guys off the job site who failed to produce it.

 

[danoodle]

Thanks for the advice hatterasguy! I will definitely never do that again, we were just under pressure as it was supposed to rain that evening and had a completely open roof!

I closed on the college house a couple weeks ago and I have already had a lot of interest in it. I think I will be able to get my max asking of $1200 a month; will probably do an all inclusive deal with utilities/internet for $1700. This house looks like a real winner!

I have showed my first house a few times, but it seems like there isn't much interest. Maybe my price is too high? It actually is not quite finished with some minor cleaning to do still. Not sure if that's turning people off. Two of them said they don't like how there is no offstreet parking. I am considering putting in a covered car port or garage as I am about 5k under budget on that house so far. Also, I have joined the LPA and have been using their application form, but I am thinking it might be intimidating for some of these people. In my town, apparently most landlords don't do extensive screening, and one said he doesn't even have an application (does have a lease though)! I am learning so much everyday and trying to do the right thing without getting burned.

One more thing, I might be getting a house for free! It is in very bad shape (would literally almost be just a frame) but think it would be worth it. Who knows where this crazy adventure will lead next!?

I thought I'd add the updated numbers for the first house (be sure to check the tabs at the bottom). I have included every single expense incurred and the true tax/insurance numbers. Have a plumber coming tomorrow to blow air through the gas line and fix a leak. As you can see I am still way under budget, which is why I might add the garage/car port. If I can get it rented without, it may be an upgrade to get a good tenant to stay longer!

 

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[danoodle]

I am following the process of intentional iteration through real estate, as stated in MJ's book. I am currently in the process of getting my third house and have an offer written out, just waiting to hear back from the bank. If this one falls through I am ready to make an offer on a couple other houses as well.

My friend's friend is looking to sell his half duplex and was wondering if anyone had any experience with that? I could see all the negatives if you have a bad owner on the other half but was hoping to get some other thoughts on the issue. The price is right at 15k and it's a 1 bed 1 bath, guy says he gets $320 rent. I'm thinking I wouldn't want to deal with the potential issues unless I can get both sides though.

I'm very fortunate in that I'm good friends with my local banker. I can basically go in there anytime and shoot the breeze and I've practically got an open line of credit with him! Especially since he's seen my success with these first two houses, he knows I am relatively low-risk. Doesn't hurt that I have a pretty high credit score as well.

Every book I have read on real estate emphasizes the importance of a "team" you put together to make it all work. I never truly realized how important it is to be able to work with people you trust who are on your side, helping you in your journey to success. I highly recommend finding a banker and making him your best friend, as well as a good real estate agent. I wouldn't have found the amazing deal on the college house if my agent hadn't referred me to it. I also have a good friend who is a true "handyman" and I have worked alongside of him learning as we go. I highly recommend either knowing construction, or having someone you trust who can help you, when you're first starting off.

 

[danoodle]

This would cost $225k where I live. The cheapest house on the MLS here is $50k and it's a mobile home in the sticks! Congratulations on your deals! Don't you also take into account what the house is worth after repaired?

I personally only go off how much rent I can bring in and the grand total of how much it will cost me. I do not count on future price appreciation. If you look at my latest numbers, that is literally how I calculate my deals.

Maybe I'm being too conservative, but to me, any appreciation is just icing on the cake. I plan to hold these long term and figure they will at least keep up with the rate of inflation. Of course if there is another real estate bubble I would most likely take advantage of the market conditions at that time...

 

[danoodle]

I have considered section 8 tenants, but it is generally not for "newbie" landlords not well versed in landlord/tenant law. It is also not for "nice" houses. From what I've read, section 8 can work, but more often then not, they have "entitlement" attitudes and can be PITA tenants. It is something I don't want to deal with right now if I don't have to.

Thanks for the tips, roc! That is a nice tip with sealing in the smell and will most likely use some kilz to get the job done. Also I can see how ideally all houses would have the same fixtures and materials. It would be great because you could buy things in bulk and have it ready when something needs to be replaced. I tend to just go with the most economical on most things, or at least "lower-end" fixtures that still look decent or get the job done without spending triple the cost.

As for an update on the house, I had a very unpleasant surprise today with the plumbing. I turned on an outside faucet where you connect a hose, and the pipe somehow burst and was spewing water in the house. We had to shut it off at the city connection, as there is no shut off valve to this particular pipe. Also, it appears previous owners cut out a sewage vent pipe and hid it under the flooring. When I ripped out the vinyl, the wood was all rotted and it looks like it had been leaking for quite sometime. It is literally just an open pipe, there must be a clog somewhere that is causing it to back up, but I cannot believe someone would just cut out a vent pipe like that and leave it completely exposed under the flooring........insanity! I am quite fortunate, however, as it would have been much, much worse if I had not discovered this and already had all the flooring installed and whatnot. So it will work out in the end, even though it will add to the cost.

Here are some before pictures for your viewing pleasure: here As you can see there was quite a bit of mold; we have cut out all the mold and put up new sheet rock in its place. We are so close, and yet so far. All that's left is to fix the plumbing, spray the walls with knockdown texture, paint all the interior walls, put in the flooring, then do all the tile work in the bathroom. Then paint the exterior of the house....and all the little things like install blinds and whatnot. I'm thinking it will still be a couple weeks until it's finished. I still estimate around a total of 15k in this house and $450 month rent. Planned for 20k, but if it's less all the better!

I also close on my fourth house tomorrow! Kinda bad timing because I was hoping we would have this one done by then. I may need to take a break from these houses for a bit after this. They are a lot of work when you are putting in a lot of sweat equity. I'll be happy when I get to the point of hiring most, if not all, of the work out.

I will keep updating this thread if people are interested. Also, if a mod reads this and wants to change the thread title to something like: "My first two deals and beyond: progress thread" it might make for a better thread title.

 

[danoodle]

Just thought I'd add, something did come up today! Apparently I need a whole new gas line but hopefully it will be $500 or less. They just have to connect the furnace and water heater and should only be about 20 feet of pipe.

I also discovered an amazing product called GARDZ which helps seal wallpaper to walls. Instead of spending hours/days scraping or steaming wallpaper, we just applied the GARDZ and voila! Paper feels very tight against the walls/ceilings now. We are going over it with oil-based kilz, however, just to be safe. Then knockdown then paint. Knockdown hides a lot of imperfections! Glad we didn't have to take down all that paper!

 

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[danoodle]

I have a tentative accepted offer of 75k on the park. She is willing to sell me a small vacant lot and a gutted house with a new roof for 5k. Would be a LOT of work but I may have to pick that up as well. Have a meeting with my banker on Wednesday, we'll see how it goes!

 

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[danoodle]

WOW is all I have to say. Here's a lesson on why you should always DYODD and not trust someone else's word, even a banker. I talked with my banker and he said he'd lend me the money and we discussed the terms. I asked him about zoning and he thought it was fine since it had been a mobile home park for over 30 years. LUCKILY, I met with my other mentor today and he's the one that rementioned zoning and that it is actually a residential non-conforming use. Which basically means I CANNOT add anymore homes to the park. I called a few people and, sure enough, he was right. He also doesn't think it will ever be approved to be a mobile home park. The seller and I are going to talk with the zoning people tomorrow, but I think it will fall through. Just wanted to share because it goes to show why you must DYODD.

Also I felt really bad because after I got off the phone with the seller (who is a recently widowed elderly lady) I did my phone trick and I heard her say "Oh no no no no, God please..." before she hung up. Which means I am definitely the only person interested and she is highly motivated. I would just feel terrible taking advantage of a little old lady although I know this is the perfect chance to strike some kind of a deal. There is just so much risk involved, I'd probably cut my offer in half at this point. Any thoughts on the matter are appreciated!

 

[danoodle]

Actually a couple things have happened. I am signing a contract to buy the MHP, a fixer upper house and a random lot on Monday for 70k. I am actually gonna partner just on the fixer upper house with my mentor since he wants half of the garage for storage. I don't care too much about the house or garage, but I know partnering with him would be a smart move and possibly open the door to bigger future deals with him. The MHP will be my first adventure into commercial real estate and there is a lot of work to do. I know if I can get the park fixed up and to full capacity and running smoothly, it will be a great investment!

The only thing I am concerned about is my reputation. The town is divided between the good landlords and true slumlords. I am trying to make a good name for myself. If I can get the park turned around and looking good, people may look good upon me although I know I may always be known as "that mobile home park guy"...

 

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[andviv]

Very nice thread.

I am renaming it to "Progress thread: My first two deals and beyond" as you had requested long ago (sorry, just saw this one today thanks to you).

About the MHP, find out what zoning is accepted.

For example, have you considered taking the MHP and re-develop half of it in some other way? Is a self-storage a possibility and is there a need for that?

If a self-storage property is a real opportunity, you must contact "Around the World" and discuss details, but that usually makes sense in areas where people have a lot of crap and no place to keep it.

About the house for sell.... How would the rents be? What if you rent it and sell it as an investment to some local investor? It would be a perfect turn-key solution for them, they simply close on it, and it comes with a renter, so no headaches for the new buyer.

 

[andviv]

Also, forgot to ask... any multi-units in your area? if so, have you looked at the price per door? rents?

It would be a good time to keep those figures in mind, so you can spot the opportunity when it appears.

 

[NJRealEstate]

How far away?

Remote land-lording is a common challenge for most people (actually, can't recall too many people that have made it work...)

David Lindahl who now is also a guru but owns over 7000 units across the country, Rickson9 on this forum, and i am sure some plenty of others. the key seems to me to be strong PM, maybe some who rent remotely could enlighten us on the pros/cons of remote ownership and how they select their pm, what sort of interviews they conduct?

 

[danoodle]

Hey Dan, when do you charge a late fee for rent. Roc

Ummm, when they are late in paying the rent? lol I usually give a couple days grace period and even have given a week extension if they are keeping in good communication with me and not trying to avoid me.

I've been hesitant to give an update but here goes. I still have not sold the damn yellow house! I must be the worst "flipper" ever! If it doesn't sell in another couple months, I will, unfortunately, rent it out.

We fixed up the garage that came with the 5k house I mentioned before and even have someone renting out half of it for $50 a month. We sold a bunch of the crap in it and made $500+ bucks. We are still not moving on fixing up the house just yet. Would probably be a 20-25k project and isn't a priority right now.

I acquired another house with a partner back in November, call it the "shed house". It is actually not that great of a purchase and we are holding off on it as well. 22.5k purchase, 10-15k repairs and will rent for $600-650 when we get around to it.

Bought a cheap, crap house in December for just over 6k that I call the "Cat house". It is in a pretty nice neighborhood with mostly "older" folk as the neighbors. Very quiet. My partner and I are currently working on it and it needs quite a bit of work. I am expecting around 10-15k in repairs and will rent it out for around $450.

Also am closing on another house in February with my partner and will attempt to fix and flip it. Considering I still haven't sold the first fix and flip attempt, we'll see how it goes. I think it is a winner, though, and may even have a buyer lined up already. Bought for 19.9k, expect around 10k repairs, and hope to sell it for 60k. I am gonna say for the record if it does not sell fast at a price of 50k, I will probably go crazy. House prices are crazy in this town though.

Has been a wild ride! I don't really want to keep purchasing these cheap-o houses long term and am looking toward the future to apartments or other commercial RE/low maintenance businesses. My goal is still 50k net cash flow per year and am getting there! We'll see what the future holds!

 

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[Mac]

We closed on the 4-plex today! Final price came out to be $14,949.85. The units should rent for $450 each and I expect to have to put in around 30-40k to get it fixed up. This will be my first multifamily property so we will see how it goes! If people are interested I will post the progress/end results and final numbers and whatnot. I have included a few pics as well.

Edit: I misread the settlement statement, it didn't include the earnest money so final total purchase price was $15,449.85

Jesus, only $14,949? In Canada a house like that costs at least 500k. Lol.

 

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[D.J.]

Great way to take your income into your own hands. Maybe not fast lane, but once repairs and things are finished and its all paid up it becomes passive income, plus the "extra" money is a great tool to help you in your fast lane. Sure you don't absolutely have to have money to make money. But it sure as hell wont hurt.

I think it's a step in the right direction. Now use these steps to step into a 700-Horsepower super car and get GOIN!

 

[Rickson9]

If an investor pays 5x gross annual rental income or less they should be fine unless they really messed up on the location.

Best regards.

 

[danoodle]

Thanks for the great advice MonTexan! I am actually meeting with a banker tomorrow for lunch to pick his brain. He owns a lot of properties in the area and will be a great source of info for me, not to mention we have a pretty good relationship already so future financing will be easier!

I have a friend who has rehabed and flipped several houses and he will help me with a lot of the "dirty work" for a very good price. The estimated 5k for the roof we already are almost certain it won't cost more than 2.5-3k. This house is a strange bank-owned home in that it is in quite good condition, I could get renters in immediately with no work. I just wanted to make it a little nicer and possibly convert a basement room into another bedroom and add another bath, how nice or how much extra I do, I will ask my banker friend his opinion on the matter.

 

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[phlgirl]

Congrats on your first deals! Montexan is dead on. Bump your estimates, just to be safe. Properties at that price point tend to have tenants who live a little bit harder. Set up a separate reserve account, specifically for the houses.

There is no better way to learn. Way to take advantage of the current economy! Making deals with banks presents enormous opportunity these days.

Best of luck!

 

[danoodle]

I have no clue if that is a good deal or not Jeremiah. I would have to have more information on the specifics of the property like its condition, location, etc. And even then it would be my best guess since I'm new at this myself!

The freaking roof has a layer of shakes with 3 layers of asphalt shingles on that! Every muscle in my body is sore after tearing them off yesterday for 9 hours. We still have another fourth of the roof to tear off too! :smxE: It's just me and a friend doing the whole roof!

Funny story, today my friend said we would need help with sheeting and wrapping since it is supposed to rain tonight. I hired two guys and apparently one was drunk! I didn't realize it and my friend is the one who told him to leave. He also broke the nail gun we were using (it's my other friend's!) so I had to rent one and buy a different set of nails. So lame. Such a waste of money. But, on a lighter note, while we were at the dump, we found some lumber that someone had thrown away and a couple vents I could use for the house. It's all probably around $300 in materials! So that ended up covering the crap that happened today and a little extra!

I have literally ZERO construction experience, so it has been a major adventure for me so far! Even backed up a trailer for the first time today. It is much harder than it looks! I also used a nail gun and stapler for the first time. We should have the house completely finished in a couple weeks or so and hopefully the other house will be ready to close by then. Still waiting to hear from the bank about doing the short sale. I am also looking at a two houses on friday that could be good deals as well. One is strictly word of mouth and not even listed anywhere! Shows the power of networking and knowing the right people. When I am finished with all this I plan on posting a spreadsheet with every single cost and will post how much rent I am able to pull from this house and the ROI I end up achieving. Hopefully it's quite positive...:smxB:

PS: I meant to say a rebate on the increased taxes in my last post, not insurance :smx4:

 

[Jeremiah]

You were warned a few days ago not to spam. :banned:


Sparlin (Mod.)