The Entrepreneur Forum | Startups | Entrepreneurship | Starting a Business | Motivation | Success

NOTABLE! AMA: Rehabbing & Flipping - Ask Me Anything

Remove ads while supporting the Unscripted philosophy...become an INSIDER.

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,027
2,451
Maybe I've missed it in replies but curious opinions on taking out a home warranty on rental property for self managed? I haven't had any luck selling my last house after 5 months on the market and decided to offer it up for rent and just signed a 1yr corporate lease with the option to extend up to 3 years (or more I suppose). This is my first rental and my agent suggested since I'll be self managing to get a home warranty to make contractors etc easier as needed for major repairs. I've read good and bad and debating so was curious if others have a strong opinion or suggestion. On a positive note the house is now about $500 income a month vs $2000 a month expense sitting there....

Personally, I'm not a fan of home warranties. They tend to be more trouble than they're worth -- they don't cover everything, you sometimes have to fight to get a claim paid, etc.

Just my preference, though...
 

Don't like ads? Remove them while supporting the forum. Subscribe.

steelandchrome

Author of The Retail Leader Book.
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
Summit Attendee
Speedway Pass
Nov 6, 2016
440
681
283
Goodyear Az
Personally, I'm not a fan of home warranties. They tend to be more trouble than they're worth -- they don't cover everything, you sometimes have to fight to get a claim paid, etc.

Just my preference, though...

Thanks.
The house is just 5yrs old so hopefully not much to worry about anyways. I will keep the $600 and hope for the best ;)
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,027
2,451
Figured I'd update the thread, and use it as an opportunity to thank @SteveO, who originally got me thinking about the idea of value-add multifamily and syndications about 12 years ago...

For the past 12 years we've been talking about syndicating a large project, but the timing was never right, the deal wasn't there, or I didn't have a team that I felt could handle it. But, in a couple weeks, we're closing on our first apartment complex -- 152 units in Houston for just under $20M.

Total cost -- purchase plus renovations -- is about $23M. We're using $14M in FMAC debt and raised the other $9M through private/passive investors. Expecting a 4-6 year hold.

I'll write more about this deal once we close and as we start to execute our business plan.

But again, thanks to @SteveO for the inspiration a long time ago!
 

MetalGear

Gold Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
Summit Attendee
Speedway Pass
Jan 24, 2017
545
1,389
430
Narnia
Figured I'd update the thread, and use it as an opportunity to thank @SteveO, who originally got me thinking about the idea of value-add multifamily and syndications about 12 years ago...

For the past 12 years we've been talking about syndicating a large project, but the timing was never right, the deal wasn't there, or I didn't have a team that I felt could handle it. But, in a couple weeks, we're closing on our first apartment complex -- 152 units in Houston for just under $20M.

Total cost -- purchase plus renovations -- is about $23M. We're using $14M in FMAC debt and raised the other $9M through private/passive investors. Expecting a 4-6 year hold.

I'll write more about this deal once we close and as we start to execute our business plan.

But again, thanks to @SteveO for the inspiration a long time ago!

  1. @SteveO is the man for sure
  2. Congratulations on the syndication
  3. Was that 4-6 year time frame to hold something you came up with through gut intuition or quantitative data?
  4. Maybe a mix of both?
 
Last edited:

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,027
2,451
  1. @SteveO is the man for sure
  2. Congratulations on the syndication
  3. Was that 4-6 year time frame to hold something you came up with through gut intuition or quantitative data?
  4. Maybe a mix of both?

4-6 year hold is pretty typical on a value-add multi-family syndication.

A good rule of thumb is that about 50% of units turn over every 12 months. Which means that to renovate every unit (without kicking tenants out) will take about 2 years. Add about a year to stabilize the property, and you're looking at about 3 years from purchase to stabilization.

Buyers like to see 1-2 years of stabilized income in order to purchase based on the NOI, so a sale in year 4 or 5 is pretty typical.

Given Covid constraints right now, we are baking in an extra 12 months in the business plan before we start on the interior renovations, so 5-6 years is our realistic target.

That said, we do pro-forma numbers for everything from 3 years to 10 years, so that our investors know what to expect should something impact the business plan along the way (like a market shift or black swan event).
 

Determined2012

Silver Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Jun 22, 2012
755
803
342
Chicago, IL
Figured I'd update the thread, and use it as an opportunity to thank @SteveO, who originally got me thinking about the idea of value-add multifamily and syndications about 12 years ago...

For the past 12 years we've been talking about syndicating a large project, but the timing was never right, the deal wasn't there, or I didn't have a team that I felt could handle it. But, in a couple weeks, we're closing on our first apartment complex -- 152 units in Houston for just under $20M.

Total cost -- purchase plus renovations -- is about $23M. We're using $14M in FMAC debt and raised the other $9M through private/passive investors. Expecting a 4-6 year hold.

I'll write more about this deal once we close and as we start to execute our business plan.

But again, thanks to @SteveO for the inspiration a long time ago!
I can't wait to follow your journey with this!!! Salute and congrats!!!
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,027
2,451
I can't wait to follow your journey with this!!! Salute and congrats!!!

Thanks... Closed about two weeks ago, and the asset management and property management team are starting to execute.

If we hit our pro-forma on this one, we should have about $10M gain over 5 years! So, definitely huge potential here...

Heading back to Houston today to make offers on a few more properties. Goal is to get another one or two of these in the next few months... Covid is providing some decent opportunities...
 

Outdoorlife2005

Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Oct 10, 2020
21
27
20
Illinois
Hey J

I have both your books and I love them! I'm also a pro member over at biggerpockets.

Who is a good hard money lender to use these days?
I've spoken to a few but they want $25-30,000 cash down. I hate saying this but I want to get started with 'less' cash down.

For example, house is $50,000. It needs $20-25,000 worth of work. ARV is $105,000-115,000. Those are the type of deals you can find in my area. Rent for a 3 bedroom home is currently around $900-1,100.
Are there any HML's who would lend with $12-15,000 cash down? (that you know of based of your experience that is)

Here in my hometown there's ONE real estate investor. He's buying around 12 houses per year. He's using the brrrr method. He has zero competition. He's up to 50 single family homes and he built a 40 unit apartment complex here in town. He's getting the houses off market for the most part. Banks call him before they are even listed. BUT there's 20 houses I've driven by that need some major repairs. Once I get cash saved up I want to start knocking on doors to try and buy one. Its a small town. 20 minutes from a major city. Population is around 5,500. The nearest city population is around 150,000 people. I've approached the local investor and he laughed me out of his house as soon as i told him I want to buy houses, fix them up, rent, refi, and repeat. He promised me I would never break into my hometown market because he dominates it..
 

Alleghenyman

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Nov 18, 2019
29
24
20
J, any tips for finding a good general contractor? I have trouble finding a non-flaky company to do more bespoke work than just windows/siding/roof replacements and am reluctant to stake the success of my project on whether a GC I’ve never worked with is going to flake out. The most reputable companies seem to be building custom homes or doing high end work.
 

Outdoorlife2005

Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Oct 10, 2020
21
27
20
Illinois
J, any tips for finding a good general contractor? I have trouble finding a non-flaky company to do more bespoke work than just windows/siding/roof replacements and am reluctant to stake the success of my project on whether a GC I’ve never worked with is going to flake out. The most reputable companies seem to be building custom homes or doing high end work.
The most reputable ones around my area are building custom homes as well. One thing I’ve learned is it’s hard to find good reliable contractors
 

Sethamus

Bronze Contributor
FASTLANE INSIDER
I've Read UNSCRIPTED
Summit Attendee
Speedway Pass
Sep 13, 2019
266
484
223
Northshore area, New Orleans
Should I tell the owners that took over the home that I am flipping it? I think I made the impression I was moving in on an offer I just made...not sure if I should tell them. @SteveO @JScott

For clarity: I mentioned repairs I would need to make and my wife would like to see. In my head I was talking about what is needed to make it modern, but outloud I can easily see how they took it for us moving in. Plus they met my 11 mo old when I looked at it because I couldn't find a sitter....:clench:
 

Don't like ads? Remove them while supporting the forum. Subscribe.

Last edited:

iridegt3

PARKED
May 11, 2020
1
0
1
Cincinnati OH
Thanks... Closed about two weeks ago, and the asset management and property management team are starting to execute.

If we hit our pro-forma on this one, we should have about $10M gain over 5 years! So, definitely huge potential here...

Heading back to Houston today to make offers on a few more properties. Goal is to get another one or two of these in the next few months... Covid is providing some decent opportunities...
J- It looks like Houston is a favorable market for commercial RE. Are you willing to discuss how you're finding deals (loopnet, etc.) and any of the criteria you're buying under? I started flipping cars when I was young, have done multiple residential homes, and now wanting to learn about commercial RE flipping. Thanks in advance!
 

Determined2012

Silver Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Jun 22, 2012
755
803
342
Chicago, IL
Besides saving the interest from a loan (high interest from a hard money loan in particular) is there any other reason(s) to fully self fund a fix and flip (acquisition, labor, and materials) project?

Is leveraging someone else's money (OPM) always the best option? Why? Why not?

I understand not tying your liquid money up if you don't have too (its just sitting and not being used for anything else), but I'm just wondering if eliminating a lender would serve you more/ better than using one.

Anyone ever heard of or use Patch of Land for their fix and flip projects? How was your experience?
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,027
2,451
Hey J

I have both your books and I love them! I'm also a pro member over at biggerpockets.

Who is a good hard money lender to use these days?
I've spoken to a few but they want $25-30,000 cash down. I hate saying this but I want to get started with 'less' cash down.

For example, house is $50,000. It needs $20-25,000 worth of work. ARV is $105,000-115,000. Those are the type of deals you can find in my area. Rent for a 3 bedroom home is currently around $900-1,100.
Are there any HML's who would lend with $12-15,000 cash down? (that you know of based of your experience that is)

Here in my hometown there's ONE real estate investor. He's buying around 12 houses per year. He's using the brrrr method. He has zero competition. He's up to 50 single family homes and he built a 40 unit apartment complex here in town. He's getting the houses off market for the most part. Banks call him before they are even listed. BUT there's 20 houses I've driven by that need some major repairs. Once I get cash saved up I want to start knocking on doors to try and buy one. Its a small town. 20 minutes from a major city. Population is around 5,500. The nearest city population is around 150,000 people. I've approached the local investor and he laughed me out of his house as soon as i told him I want to buy houses, fix them up, rent, refi, and repeat. He promised me I would never break into my hometown market because he dominates it..

First, expect that with a hard money lender, you'll put 25-30% down -- there's not much way around this, especially when first starting out.

If you can't go that route, perhaps ask that one real estate investor in your area to lunch. Tell him you're interested in investing, and you'd love to figure out a way to work with him. What can you bring to the table? Do you have the time to help him manage his projects? Do you have the ability to find deals for him? Do you have design skills? Can you do his accounting?

Figure out how you can provide value, offer it, and then start building the relationship. When the time is right, suggest partnering on a deal -- you find the deal, you do the work, he brings/finds the money.

That way, you can build the relationship and be able to get into deals with no money...
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,027
2,451
J, any tips for finding a good general contractor? I have trouble finding a non-flaky company to do more bespoke work than just windows/siding/roof replacements and am reluctant to stake the success of my project on whether a GC I’ve never worked with is going to flake out. The most reputable companies seem to be building custom homes or doing high end work.

The absolute best way to find contractors is to ask other investors (or other good contractors) who they recommend. I very, very rarely use a contractor that didn't come from a referral.
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,027
2,451
Should I tell the owners that took over the home that I am flipping it? I think I made the impression I was moving in on an offer I just made...not sure if I should tell them. @SteveO @JScott

For clarity: I mentioned repairs I would need to make and my wife would like to see. In my head I was talking about what is needed to make it modern, but outloud I can easily see how they took it for us moving in. Plus they met my 11 mo old when I looked at it because I couldn't find a sitter....:clench:

You have no legal or ethical (in my opinion) obligation to tell the sellers what you plan to do with the property. I wouldn't lie to them, but there's no reason they need to know your plans.

One caveat -- if you or your wife is a licensed agent, then you should disclose. (Happy to give more info there, if that's the case.)
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,027
2,451
J- It looks like Houston is a favorable market for commercial RE. Are you willing to discuss how you're finding deals (loopnet, etc.) and any of the criteria you're buying under? I started flipping cars when I was young, have done multiple residential homes, and now wanting to learn about commercial RE flipping. Thanks in advance!

In the multi-family space, almost all good deals come from two sources these days:

1. Off-market marketing. Basically, finding owners who aren't currently selling and convincing them to sell. This could include call calling, direct mailing, working through other real estate professionals, etc. There's a lot of competition out there these days, and off market is really the only way to avoid that competition.

2. Local brokers. Unless it's a big city, there are likely a couple local brokers who control the bulk of the off-market properties. They don't list these properties anywhere -- they send them out to their network of buyers. Because large multi-family deals are more complex and difficult to close (complex due diligence, raising capital, working with big lenders, etc), brokers don't like to work with buyers who have never bought these types of deals before -- there is too great a risk of the deal never getting to the closing table. So, you need to figure out how to get that first deal under your belt, and then the brokers will be willing to talk to you and bring you deals. (Note, I got around this by partnering with someone who has done these deals before, so I immediately had some credibility.)

It's unlikely you're going to find any good deals on Loopnet or any other public listing services. There are so many investors out there these days that the good deals go quickly, and the stuff that is left is probably not very good.

Focus on either getting REALLY good at off market acquisitions or focus on getting REALLY good at networking with local brokers who are getting good deals.
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,027
2,451
Besides saving the interest from a loan (high interest from a hard money loan in particular) is there any other reason(s) to fully self fund a fix and flip (acquisition, labor, and materials) project?

Is leveraging someone else's money (OPM) always the best option? Why? Why not?

I understand not tying your liquid money up if you don't have too (its just sitting and not being used for anything else), but I'm just wondering if eliminating a lender would serve you more/ better than using one.

Anyone ever heard of or use Patch of Land for their fix and flip projects? How was your experience?

There are a couple reasons to use your own cash if you have it:

- Save on interest
- Close quickly
- Reduce your credit risk (if a deal goes bad)
- Less headache having to deal with lenders

Personally, I like to use private lenders. These are people who are not professional lenders, but who have money in their IRA or personal funds and don't have a good place to put it. I will pay 8-10% annualized interest, which is better than they can get in any traditional low-risk investment, and their investment is collateralized with real estate, so it's relatively low risk.

I would suggest you start networking with everyone you know/meet, and you'll find that there are plenty of people who would be thrilled with a reasonable and low-risk return like that.
 

DCDeuce

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
Dec 3, 2016
50
91
127
Washington DC
Hi @JScott

Thanks for doing an AMA. I'm a real estate agent and fix and flip investor in the Washington DC area, I know most people/investors do not like flipping homes as there are little to no tax benefits but I am flipping until I can buy a few multi-family properties and apartments.

I wanted to ask you if you were trying to break into multi-family investing in 2020/2021 what market would you be looking at?

Also, how would you go about approaching an HML or angel/private capital investors to lend you money for your first MF purchase?

I thought of the whole BRRRR method but would like to see what your thoughts are.

Thanks again
 

Sponsored Offers

  • Sticky
MARKETPLACE You Are One Call Away From Living Your Dream Life - LightHouse’s Accountability Program ⚡
This program helped me to triple my revenue over 7 months while also moving to a new city in the...
  • Sticky
MARKETPLACE Fox Web School "Legend" Group Coaching Program 2020
Hi Fox, After reading your threat and watching some of your youtube I have several query ? 1...
  • Sticky
MARKETPLACE Lex DeVille's - Advanced Freelance Udemy Courses!
If you read the last message then you know I'm removing my courses from Udemy next month. You...
  • Sticky
MARKETPLACE Grow Your Business With a Book (An Unorthodox Marketing Strategy That Built One of the Largest...
PS. what do you think about the idea of setting up live Busking experiences on Air BNB? I could...
  • Sticky
FEATURED! Introducing... WEALTH EXPO$ED, A Short Story By MJ DeMarco
Hi Mj, I just bought it. And reading it. I think is a great idea to write using the stories to...
  • Sticky
MARKETPLACE Kill Bigger Incubator
@Kak Thanks for the reply. Whats interesting is that I have an idea that's been cooking which...



Forum Sponsor

sponsor

Fastlane Insiders

View the forum AD FREE.
Private, unindexed content
Detailed process/execution threads
Monthly conference calls with doers
Ideas needing execution, more!

Join Fastlane Insiders.

Top Bottom