I closed on a duplex I bought at auction for $9,000 today.

[ZCP]

Tip..... Hold the property in an entity. Make sure anyone you meet in relation to this unit knows that you work for that company.... NOT that you are the owner...... Helps with collections, getting stuff done, less grief, etc.

 

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[BrandonS85]

I figured it might be something that would be of use to the forum. This really isn't intended to be a AMA thread, but if you have questions I'll be more than happy to answer about what I do with real estate.

I operate in what in my mind is a interesting area, right outside of a major metro city (Columbus Ohio). Far enough for hedge funds not to be overly interested in property, but close enough to get the benefits of the metro's trend towards higher prices.

Most of the properties I buy are in B & C class neighborhoods, although I wouldn't call them C class, I'd call them C+ as they're all low income, but you're not going to get shot or stabbed in the middle of the night most likely. Sure, your house might get vandalized if left empty for a long time, or you might find someone squatting in it, but those occurrences are somewhat rare, and are greatly offset by the amount of money you can make. I've read through several threads and see some of the bigger guys are put off by smaller deals, but in my mind if I can buy a property and make $500-$600 per month off it for less than one hour of management a month, I might as well do it.

So, in this case I bid on a online auction, and for the most part was the only serious bidder who was interested in the property. The auction firm was Williams & Williams, who does a great deal of foreclosure auctions in the mid-west. They typically only advertise through postcards to local residents (And in this case the post cards were sent to a 70% tenant occupied housing area) and through yard signs. The established investors I know in the area don't want the headache of dealing with properties like this, but for me it has been quite a profitable en-devour.

So, in the end I won the auction for $9,000. The second highest bidder bid a whopping $2,700 on the house, however due to my cell phone messing up during the bidding process, I bid against myself at $2,800 when I increased my max bid from $9,000 to $20,000 which was my max spend on this one.

Not surprisingly enough, they charged me all sorts of BS buyer premiums as well as over-priced title work, so the end amount I've got into it is a little over $9,000 but $9k sounds much nicer for a 2,700 square foot duplex.

Here's how the metrics look
$11,500 purchase price
$16,000 repair allowance
$27,500 total investment

$13,200/yr rent revenues
$2,000/yr repair reserves
$2,200/yr tax & insurance allowance
$600/yr vacancy reserves
$8,400/yr net income

So , $8.4k / 27.5k = 30% ROI on investment, clearing $700 a month in net operating income.

Now, investors and people LOVE to make fun of slumlords, investing in bad neighborhoods, dealing with residential tenants/HUD over commercial clients, however as I said above, I figure I have 1 hour per month in actual work I'll do to keep up with the tenant headaches.

Mind you, I have not included debt service, as this is a private partner deal and 100% cash, but here's to show you what it would look like with a cashout refianance strategy, which I absolute LOVE because it's effectively having your cake (Keeping the property) and eating it too (Putting a lump sum of cash in your pocket).

$27,500 total investment
70% LTV @ $65,000 after rehab value
$45,500 total cashout value, putting $18,000 in my pocket
Interest would run 5.25% or so on a commercial-style loan, or right around $2,400 per year of interest. So, the property would *only* clear $6,000 per year, reducing my net income to $500 a month, but putting that $18,000 in my pocket along with the $27.5k initial investment that could be rolled forward.

Sure, I could flip it as-is, since the price I've paid for it is quite low over what it's worth as-is, but with the buy-rehab-rent-refi strategy, I feel I get the best of all worlds.

Now, here's what a $9,000 property looks like.

 

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[BrandonS85]

Update 1 year later :

Duplex is now fully rehabbed. Had to gut the electrical on one side of it which cost a bit more money. We had one side occupied since October last year, the other side took till I think April or May of this year to get ready and rent out. Since that time it's been making decent money on both sides. Some of the typical landlord problems.

One fun fact talked to a section 8 admin and they informed me the region the rental is in just had a pretty substantial rental price increase as per October the first. In some cases , rent vouchers are going up 20%! Now, in our case neither side is occupied by a section 8 tenant, however it will have a very positive effect on rent rates due to the fact that sec8 tends to set price floors on rentals, causing a increase across the market.

Since last October I've bought 13 or 14 more rentals and am hoping to buy more.

One thing I had happen last week that was kind of odd was a new guy showed up to our local REIA meeting. He asked a few guys (Including me) "How to get rich in real estate".

The biggest landlord said this - "Figure a way to save up $5,000 or $10,000. Take that money and go out and buy the worst dump you can find, then put money into it and make it nice, then you'll either have some equity in the house or be able to rent it out and put an extra $500 or so per month in your pocket for the rest of your life."

The guy's response "But I don't want to buy properties in XXXXX part of town, tell me how I can get rich in real estate buying nice houses!" Both of us shook our heads and said it would be difficult to explain.

The moral of the story is that 'get rich quick' isn't very real most of the time, but 'get rich at some point' is a very valid thing. It isn't wise to put stipulations and want to do it all your own way, especially if someone who has been there before gives you advice on how to do it.

 

[BrandonS85]

You know this is about as passive income as it gets.

I am assuming you started another business and used the proceeds of those profits to start this property investment thing?

If you buy one property a year you could make $80,000 in a perfect world,

but than that would be 10 hours of management a day, and that WOULD suck lol.

One hour a month per rental. For me to have a normal workload, I figure I could personally handle 200 units. At $300 profit a unit thats $60k/mo , not year.

 

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[BrandonS85]

Front porches could look really nice with some paint.

Mind PM'ing me roughly where you are operating? I'm in Bexley - have considered doing something like this, but tough to find time. I do get some of the local wholesaler's emails, it's interesting what is out there, but some of the neighborhoods I do find intimidating.

I feel kind of dumb but can't figure out how to PM you.

I'm 20mi south of Columbus if that helps you figure things out.

As for finding property, I have absolutely no problem finding properties, it's always finding a source of money to do it. Banks aren't too keen on lending to landlords/investors, they want to lend to 'stable' channels like owner-occupants. Contacting wholesalers CAN be good, but you have to realize that all they do is mark up a pre-existing contract or property. Granted, Realtors do the same thing with their commission, however the difference on a low end property is usually something like $5,000 for a wholesaler vs $1,000 for a Realtor, so for me I really do like MLS and on-market deals (This property I believe is the 3rd or 4th one I've bought at an auction).

There isn't a single thing a wholesaler is doing that you can't easily do. One of my more favorite methods, and has worked GREAT for me is just being out every day when I'm wanting to buy a property, look at a dozen properties, quickly come up with a rehab estimate and make a lowball on you 1st favorite, 2nd, ect till you get something accepted. Don't get too worried about finding the deals, they're certainly out there, do worry about learning more about investing, the neighborhoods you're in, estimating repairs and market value.

I'm HUGE on source, income and as much data tracking as possible, so finding out what is working and what is not is much easier. Many business people fail due to poor tracking, it's horrendous in the agent arena (I am still a licensed RE agent). Most don't know, nor care how they get sales, just that they get them, the truly good agents track their sources so they can allocate better.

Here's my deal breakdown of the 16 I've bought.

 

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[BrandonS85]

in my experience (5 years), one hour per month per rental seems high. It's more like 10 min/month or less

This includes me physically going to a tenant and collecting rent on all our non-HUD properties, which is the vast majority. When I get more properties I will go to automated rent collection (Either having the deposit it to our bank or via western union/store billpay). I am collecting rent in person so I can visit each property a minimum of once a month as well as talk to the tenant to try and be more involved with the rentals.

This will cut 20-30 minutes off a month on average. Even more can be outsourced than I do now. Our marketing on properties works really well IMO and I usually end up with 10-20 renters per property, so instead of doing showings, I do one, maybe two open houses, have them do the application online and then process from there. The open houses also could easily be outsourced to a house sitter, then a fee collected for applicants to pay for it I have plenty of plans in place to continue to grow while not increasing my personal workload severely.

My goal is to build a nice rental company, then use the cash/capital to do guides or like youtube series on how various businesses operate. I've been offered MANY opportunities to buy restaurants, gas stations, C-stores, and other brick-and-mortar places but been unable to due to capital. Some went on to make their new owners severe amounts of money with very little management. For most people, those kinds of businesses (And rentals as well) are a mystery.

 

[BrandonS85]

what type or marketing do you do that works best?

I do craiglist and postlets mainly. YouTube has landed a few.

what type or marketing do you do that works best?

I do craiglist and postlets mainly. YouTube has landed a few.

Facebook 70%, Craigslist 30%. Craigslist has better quality applicants, facebook provides significantly more. Some of our FB posts are getting 100-200 organic shares with 15,000-20,000 image views. It's hard to quantify the look/view data for Craigslist, but it does provide many leads as well. Our FB page is beyond 1,500 likes currently, with a total population of 125k between the two counties we service.

 

[BrandonS85]

I am going to have to disagree with this advice about not letting them know you are the owner (the entity comment I 100% agree with). If you are not a confrontational person or have problems setting boundaries, then you should strongly consider out sourcing your property management.

For my professional real estate business, I try and set up rules and processes so I don't have to worry about how to react to problems. A few examples:

1. Rent is due on the 1st, Late on the 3rd (with a 10% penalty), and I post a 3 day notice on the 5th.
2. If your kid drops a toy in the toilet and causes a back up, it is your responsibility to get it fixed or I will bill you back. I have it written in to my lease and I go over it in the on boarding process.

To the OP, well done on your acquisition. Looks like it is going to generate some great cash flow.

What kind of appreciation has that area seen historically vs the Columbus market?

Both are within a close margin of Franklin county. It's hard to say exactly what the rate is compared to 'columbus' as columbus includes places like Linden and Hilltop along with downtown which is on fire.

FYI for everyone, I'm starting to do streams of looking at properties, talking about real estate. My goal is once a week to go and view 3-4 foreclosure/abandoned/ect homes and stream the process.

First YT video is at

Periscope is periscope.tv/investmentjoy

 

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[Fox]

Congratulations. Looks like a great bargain for 9k.

Lick of paint on the outside and trim the bushes round back and it will look even better. Do you have to do any work to provide services or is it good to rent as is?

 

[danoodle]

This sounds awfully similar to some of my deals, except I don't deal with section 8. I congratulate you because I generally shoot for a minimum 20% cash-on-cash return for my properties with a couple deals in the 30%+ range. I'm curious how you figure you will spend 1 hour per month per property when you don't hire out management. I only have a few properties myself, and simply to get a tenant in the unit you have advertising/screening/schedule showing/do showing/verify rental app/background check/sign lease. That process alone is at least a few hours probably more to get a "good" tenant. That doesn't include any repairs if you do them yourself, prepping the unit inbetween tenants, etc. Now that I think about it I would say I might spend an hour or so per month per property when everything is running smoothly (which we all know doesn't always happen ), but it seems like it may be more all things included.

 

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[BrandonS85]

That's awesome, thanks for this thread. I'm currently searching for a duplex or 4plex to buy. Excited.

Just remember, you make the money at the purchase moreso than any other period of the process. It makes much more sense to wait for a good or great deal than take a medicore deal and deal with the consequences later on. The great thing with real estate is that for the most part you can grow out of a bad deal, but I'd much rather prefer have good equity from day #1 than have to wait years to get equity.

 

[BrandonS85]

No real changes with traditional ban financing. The new complaint was that they don't like my corporate structure. So, I have had our articles of organization updated and moved my investor down on equity requirements and replaced it with debt. The bank seems to want more debt in regards to investor, less equity, so hopefully on next tax season they are better about it. They also made complaints about an apartment my brother and I owned, this month I'm buying him out so it will be in both our names.

 

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[BrandonS85]

Great work man! That's some awesome progress.

What is the average price of these? Are you financing?

It was 32k last time I checked, unsure where it is now. Have closed quite a few recently under 20k a piece.

 

[BrandonS85]

Will you be using a property manager to lease out the property or will you be doing it yourself?

Doing it myself, no real reason not to as I said earlier - It takes me about an hour a month on average to do what I need to per unit I add to my company.

Tip..... Hold the property in an entity. Make sure anyone you meet in relation to this unit knows that you work for that company.... NOT that you are the owner...... Helps with collections, getting stuff done, less grief, etc.

Yep, everything I have is in an LLC, I have multiple LLCs depending on what investor/partner/lender I've taken on. Everything I do "has to be approved by the investor".

Congratulations. Looks like a great bargain for 9k.

Lick of paint on the outside and trim the bushes round back and it will look even better. Do you have to do any work to provide services or is it good to rent as is?

it looks straightforward but it's hard to say what's all going to need done till we go through and do a section 8 list on repairs. At this point it's carpeting, painting, and windows.

 

[BrandonS85]

Congratulations. Looks like a great bargain for 9k.

Lick of paint on the outside and trim the bushes round back and it will look even better. Do you have to do any work to provide services or is it good to rent as is?

So this is something you're doing right now? Still have yet to rehab it and what not, correct?
edit: Answered in above post while i posted. Interesting. That'll be a lot of work!

Closed on it today, waiting on my rehab team to be done with a flip they're working on now so we can work on it. Still have to run an assessment on the HUD viability as-is.

 

[therealneek0la]

That is such great news. Im shocked just how cheap some property is in the states.
The average property price in Sydney PASSED $1M a few months back. Maybe i should sell me investment properties and invest in the states

 

[BrandonS85]

That is such great news. Im shocked just how cheap some property is in the states.
The average property price in Sydney PASSED $1M a few months back. Maybe i should sell me investment properties and invest in the states

Several investors I work with are from Australia, they feel the same way, unfortunately I agree with them that AU might be in a bubble. Granted I don't think the foundation is nearly as bad as the US was in 2008.

The US is a pretty amazing place for real estate. Granted we have many areas similar to other international metros (NY,LA, Seattle, SF all compare pretty decently against Toronto, Sidney, Vancouver, ect). The thing here in Ohio that I like is that the cost of living is so low and median wages keep going up. Many of my properties rent for $500-$600 and are 1200-1400 square feet on average. As neighborhoods get better and crime continues to go down, you're looking at giving the ability to ALOT of people to have affordable housing with a overall low cost of living.

 

[Travispassiveinc]

One hour a month per rental

in my experience (5 years), one hour per month per rental seems high. It's more like 10 min/month or less

 

[ChasingPaper]

That's awesome, thanks for this thread. I'm currently searching for a duplex or 4plex to buy. Excited.

 

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[BrandonS85]

I live in the UK, where as a general rule of thumb, bargain properties are in difficult to rent areas (This is a very rough rule, you can find brilliant offers if you hunt around, but it requires a lot of work and often lots of repairs).

Is it different in the US? From a UK perspective, this $9000 property seems to good to be true!

Yes, many areas of the US do not have extraordinarily restrictive laws on building homes. In my area it's quite possible to build a new, energy efficient home with all regular amenities for an American home for right about $40,000 , 120sqm 3 bedroom 1 bath ranch-style home on a concrete foundation, then maybe $5,000 for a 600-800 square meter lot in a average area.

Now, price a $40,000 new home and what it offers in terms of amenities and energy efficiency vs a old home and it makes some sense why things can be so cheap. Granted the $9,000 house is a mindblowingly good deal, BUT I really don't have a problem finding a 2-3 bedroom, 1 bath home in the areas I work for $25,000 or so in good enough shape that I won't have to put much money into.

 

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[Ubermensch]

@ChasingPaper Check out, bro.

 

[BrandonS85]

What grade of neighborhood is that in generally? Ranch style or old 2 stories? and how much do you get for rent?

Mostly 2 stories with some ranches mixed in, usually 50/50 in terms of tenant/owner occupant mix, maybe higher on the tenant side.

I'm getting ~$600ish for a 3br apartment, $650-$700 for 3 bedroom home, $525 or so for a 2br apartment.

I'd consider it a C+ neighborhood in terms of what most investors use. These are the tougher neighborhoods in smaller towns, not large metro areas. The difference between these neighborhoods and ones in a big city is that people don't get robbed in the streets, stabbed, shot or killed every day, the whole city of a population of 25,000 had 4 murders in the past 10 years. While I wouldn't run around telling everyone I had pockets full of cash, I'm not in fear for my life by any means, and I can't say that when I'm in a bad neighborhood of Columbus.

 

[iAmTrade]

Tip..... Hold the property in an entity. Make sure anyone you meet in relation to this unit knows that you work for that company.... NOT that you are the owner...... Helps with collections, getting stuff done, less grief, etc.

Thats about the best advice you can get. Keep the fact that you own it away from EVERYTHING.

 

[andviv]

Thanks for the update. Have you revisited the refinancing with a bank tongget equity out? How has the mortgages market changed since last year?

 

[BrandonS85]

Unreal. It's about 350-400k minumum for a dump around where I live. My avg rental prop costs about 450k.

Should move some of my money to Ohio!

Give me a call if you do, I have two entities that have 506 filings and work with private money way more than I do banks.

 

[BrandonS85]

Interesting. Definitely want to hear more about this.

My various legal entities can accept direct investment from accredited investment as we've filed with the SEC to be able to do that.

Additionally we can also take loans from private individuals who want to give us money at a rate well above average of the market.

It works well for me with private investors because they're way more flexible than dealing with banks, although banks DO offer very low interest rates, they're also hard to work with. They want 'sure fire deals' and don't like taking on loans that present any sort of risk, that is unless their loan department hasn't been issuing many at all, then they tend to get a little better, but from what I've seen its hit and miss.

 

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[jon.a]

@JustAskBenWhy this is just begging for you.

 

[Fendaril]

You know this is about as passive income as it gets.

I am assuming you started another business and used the proceeds of those profits to start this property investment thing?

If you buy one property a year you could make $80,000 in a perfect world,

but than that would be 10 hours of management a day, and that WOULD suck lol.

 

[therealneek0la]

Will you be using a property manager to lease out the property or will you be doing it yourself?

 

[Oztrepreneur]

Wow property is affordable in the USA. Sound like you got a good plan Brandon.