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REAL ESTATE Risky RE Growth Opportunity

TurtleSprint

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Oct 25, 2017
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Greetings.

I am a real estate investor currently working an OK paying 9-5 to supplement building my portfolio. I’m approaching my one year mark on the first property November 1 of this year. Property 2 will reach the year mark in April. Both cash flowing well. I was wanting to hold off until spring 2018 to shop for another but a new opportunity was brought to my attention recently.

Pros
  • 2 Properties under a single deal. 4 units total
  • Strong occupancy history & projections
  • Solid cashflow (~$20k/yr net)
  • Newly renovated interiors
  • Privately financed
Cons
  • Largely out of my price range- Low personal capital available
  • Would require investor contributions (Don’t have any committed yet)- This could be moved to pros if I was able to gather enough investors = little/no personal funds needed upfront
  • Leaves me in a very volatile financial state for 2+ months (Pending investor contributions)
Risky but high risk = high reward, right? What do you guys think I should do? Any similar experiences?
 

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C-Jay

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Imo, these are the crucial questions (aside from the actual real-estate oriented ones which you likely have locked down):

1. How BIG is the opportunity? i.e. are you getting a huge discount in price? If you pass on it, is it that big of a deal?
2. How confident are you that you can get investors and how does this effect your cashflow analysis?
3. Can you envision a possibility of your family getting left on the street if it goes south (I know this is likely extreme but I have no idea just how far out of your price range this is)?

All in all, risk is relative. You already have RE experience so it seems you're qualified to assess the circumstance. It's then up to you to determine how much risk you're comfortable with. If it's going to keep you awake at night, it might not be worth it.
 

levijean

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Is it that great of a deal, what is the price?
 
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TurtleSprint

TurtleSprint

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FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
37
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Illinois
Imo, these are the crucial questions (aside from the actual real-estate oriented ones which you likely have locked down):

1. How BIG is the opportunity? i.e. are you getting a huge discount in price? If you pass on it, is it that big of a deal?
2. How confident are you that you can get investors and how does this effect your cashflow analysis?
3. Can you envision a possibility of your family getting left on the street if it goes south (I know this is likely extreme but I have no idea just how far out of your price range this is)?

All in all, risk is relative. You already have RE experience so it seems you're qualified to assess the circumstance. It's then up to you to determine how much risk you're comfortable with. If it's going to keep you awake at night, it might not be worth it.
1. It's not once in a lifetime but it's a solid deal. Will there be more like it next year? Possibly. The real draw is that all renovations are done, motivated seller who lives far away, great location to rent, and desirable cashflow.

2. Still in discussions w/ investors. I don't currently have enough lined up but pending that happens I want to be able to move on it. The investors are there, now I just need to convince them. If I decide it's worthy.

3. Luckily I am a bachelor with no one directly depending on me. Trying to build this empire before I get there!
 
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TurtleSprint

TurtleSprint

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Oct 25, 2017
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Is it that great of a deal, what is the price?
In the grand scheme it's not a HUGE deal. It would be a good win but nothing I'd lose sleep over passing up on. Given I had the money to freely spend I would jump on it. Looking at just under $200k expecting about $20k/yr net income.
 

EvanOkanagan

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What are you using to calculate the 20k/yr cash flow?

If that’s “true” cash flow that’s an amazing deal and I would borrow, beg, or steal (joking ;) ) to get the cash to come up with it. That means (with 20% down) you’re getting nearly a 50% cash-on-cash return if you’re paying 200k or less.

I just bought a place over $700,000 to achieve approximately 20k/yr cashflow in my city, and even at that price there are investors frothing over finding a deal like I did.
 
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TurtleSprint

TurtleSprint

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FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
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Illinois
What are you using to calculate the 20k/yr cash flow?

If that’s “true” cash flow that’s an amazing deal and I would borrow, beg, or steal (joking ;) ) to get the cash to come up with it. That means (with 20% down) you’re getting nearly a 50% cash-on-cash return if you’re paying 200k or less.

I just bought a place over $700,000 to achieve approximately 20k/yr cashflow in my city, and even at that price there are investors frothing over finding a deal like I did.
The housing market is definitely affordable here. Fingers crossed but I think I'm going to be able to make this deal work. Based on rents and schedule E's for rental income and after taxes, insurance, etc net ends up being just under $20k barring any lengthy vacancies. It helps that I do my own maintenance too aside from major projects. My first close was actually solid as well. Purchased at under $50k and had about a 13% cash-on-cash return the first year. Had I not lived in one unit the whole time, returns look like closer to 25%.

A $700k property is no joke! I look forward to closing some deals of that magnitude in the future. How long have you been in real estate? I can imagine it took some time to work up to nearly quarter million dollar deals.
 

SteveO

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@SteveO I believe this is the MJ DeMarco of rei
I am fixed to a program for real estate. Buy low, sell high. I will accept a high cashflow deal if it is REALLY, HONESTLY high cashflow. That is usually elusive though.

All expenses, including time must be included. Most people really miscalculate the actual costs and do not account for capital expenses. Another piece that is usually missed is the cost of actual rent loss. Everybody selling shows cashflow on paper. This is where the buyer must do an extreme level of due diligence.

I used to use a model in Arizona that allowed for $300 per unit per year for capital improvements. That is for future needs. Any current needs need to be addressed at purchase. If you ever get behind on capital needs, it will end up coming out of your cashflow and pocket. Roofs, parking, landscaping, windows, appliances, flooring, etc... Don't ever fail to include them in your expense needs.

I also counted a fairly large amount for rent loss. If the area is at 7% vacancy, you will need to also account for other rent loss. Sometimes people don't pay and you need to evict. Sometimes it take a while to get units ready for the next renter. If the apartment is in good shape it should be able to be turned in 5 days. If not in good shape, there will be time while you refurbish. Some areas also have move-in specials that should be accounted for in rent loss. In some markets, I have used 20% instead of the advertised 7%.

Absentee owners are usually the best sellers. They allow the place to run down and sell with lousy tenants and vacancy. I like to use cost per unit to do my calculations. Example: Buy at 30K per unit. Put 15K into each unit for upgrades. Sell for 90K per unit. I look closely at what I could sell them for when fixed up. This usually includes a large rent bump!

I don't always finish the upgrades before selling. If I can get one interior completed and get a high rent, the buyers can usually get a picture of the upside and think they are getting a deal to finish the work. Buyers like to see that there is still meat on the bone.

Just cashflow deals will not get you anywhere near this in returns. For most people the cashflow model is folly.
 

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Last edited:

EvanOkanagan

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The housing market is definitely affordable here. Fingers crossed but I think I'm going to be able to make this deal work. Based on rents and schedule E's for rental income and after taxes, insurance, etc net ends up being just under $20k barring any lengthy vacancies. It helps that I do my own maintenance too aside from major projects. My first close was actually solid as well. Purchased at under $50k and had about a 13% cash-on-cash return the first year. Had I not lived in one unit the whole time, returns look like closer to 25%.

A $700k property is no joke! I look forward to closing some deals of that magnitude in the future. How long have you been in real estate? I can imagine it took some time to work up to nearly quarter million dollar deals.
It'll be 5 years as of next February when I bought my first property. I always buy with cashflow as #1 priority followed by "options" I have with the actual property (can I subdivide it? is there development potential ie: building a carriage house? Can I stratify it?). The more options the more flexibility you have and more buyers you'll appeal to if you have to sell.

One thing I've done over the years is get more and more realistic with my "true" cashflow numbers, similar to what SteveO's pointed out. When I first started out I only calculated mortgage, taxes, and insurance which is a rookie move.

Now my criteria is pretty strict when I'm buying, and I've added much more to the equation:
- Vacancy rate (in my city it's at 0.6% right now... I'll use 7.5-10%)
- Property management (only about 20% of my units are property managed right now, but I still factor in the management cost-- 8% of rents)
- At least $2,250/year in repair/maintenance
- Utility loss (all my tenants pay their own utilities, but if I have a vacancy ultimately I'll have to be the one paying the bills for a month or two)
- Rents calculated on the "conservative" side (lower end)

Once all this is calculated, I can see the ACTUAL cashflow that I can expect. Some people THINK they're making money because they pocket $200/mo after the mortgage, taxes, and insurance--but what about that new furnace that cost you $3-4g's last year? That ate up nearly 2 years of the money you pocketed. At least this way that I do it now, I know that it's ACTUALLY making cashflow even when I have to pay for a new roof, or the hot water tank goes, etc because I've done all of those calculations beforehand. I take home MUCH more than what the calculation is, so it's a worse-case-scenario type cashflow which I think is the way to go.

As far as my deals go, they've slowly progressed both based on the number of units and also market going up. I started with 20k and zero assets before property #1 and from scratch (I just became a Realtor, and no previous experience with Real Estate--didn't even know how a mortgage worked lol) so anything is possible! Here's the chronology as far as my residential purchases went:

1. $375k
2. $675k (had a partner & sold after 3 years)
3. $275k (had a partner & sold after 2 years)
4. $450k
5. $550k
6. $650k
7. $635k (plus $60-70k reno)
 

SteveO

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Greetings.

I am a real estate investor currently working an OK paying 9-5 to supplement building my portfolio. I’m approaching my one year mark on the first property November 1 of this year. Property 2 will reach the year mark in April. Both cash flowing well. I was wanting to hold off until spring 2018 to shop for another but a new opportunity was brought to my attention recently.

Pros
  • 2 Properties under a single deal. 4 units total
  • Strong occupancy history & projections
  • Solid cashflow (~$20k/yr net)
  • Newly renovated interiors
  • Privately financed
Cons
  • Largely out of my price range- Low personal capital available
  • Would require investor contributions (Don’t have any committed yet)- This could be moved to pros if I was able to gather enough investors = little/no personal funds needed upfront
  • Leaves me in a very volatile financial state for 2+ months (Pending investor contributions)
Risky but high risk = high reward, right? What do you guys think I should do? Any similar experiences?
You have some experience here. If you are confident in the cashflow numbers, where is the risk? Why get investors?
 

SteveO

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Speedway Pass
Jul 24, 2007
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Risky but high risk = high reward, right? What do you guys think I should do? Any similar experiences?
Maybe. The real way to look at the equation is whether the high risk has the high reward potential. In this case, the renovations are completed. Where is the upside?

Perhaps you posted this to garner attention from potential investors? Nothing wrong with that but what makes this a great deal? Is it the 20% return? Investors are going to want 12% annually or better with low risk to them.
 
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TurtleSprint

TurtleSprint

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
37
35
56
Illinois
I am fixed to a program for real estate. Buy low, sell high. I will accept a high cashflow deal if it is REALLY, HONESTLY high cashflow. That is usually elusive though.

All expenses, including time must be included. Most people really miscalculate the actual costs and do not account for capital expenses. Another piece that is usually missed is the cost of actual rent loss. Everybody selling shows cashflow on paper. This is where the buyer must do an extreme level of due diligence.

I used to use a model in Arizona that allowed for $300 per unit per year for capital improvements. That is for future needs. Any current needs need to be addressed at purchase. If you ever get behind on capital needs, it will end up coming out of your cashflow and pocket. Roofs, parking, landscaping, windows, appliances, flooring, etc... Don't ever fail to include them in your expense needs.

I also counted a fairly large amount for rent loss. If the area is at 7% vacancy, you will need to also account for other rent loss. Sometimes people don't pay and you need to evict. Sometimes it take a while to get units ready for the next renter. If the apartment is in good shape it should be able to be turned in 5 days. If not in good shape, there will be time while you refurbish. Some areas also have move-in specials that should be accounted for in rent loss. In some markets, I have used 20% instead of the advertised 7%.

Absentee owners are usually the best sellers. They allow the place to run down and sell with lousy tenants and vacancy. I like to use cost per unit to do my calculations. Example: Buy at 30K per unit. Put 15K into each unit for upgrades. Sell for 90K per unit. I look closely at what I could sell them for when fixed up. This usually includes a large rent bump!

I don't always finish the upgrades before selling. If I can get one interior completed and get a high rent, the buyers can usually get a picture of the upside and think they are getting a deal to finish the work. Buyers like to see that there is still meat on the bone.

Just cashflow deals will not get you anywhere near this in returns. For most people the cashflow model is folly.
I didn't approach the properties that I have now with buying low/selling high for the most part (something to focus on more moving forward). Although I did get them for under the assessed value, I went for cashflow vs. expenses and planned on holding them for the foreseeable future. You're right though, just cashflow deals don't have the magnitude of returns.

I can take from this that I definitely need to intensify my due diligence. Definitely got bit with property #2 on capital investment. We ended up completely renovating one unit and I just recently renovated the bathroom on the other side. It'll take some time to pay for itself but the property value increased (potential to sell higher?) and I was able to raise the rent $100 between tenants.

Property #1 and this potential property #3 are both absentee owners. Operating from afar and just trying to unload their distance investments quickly. Mismanaged exactly as you describe. Although, with the sub par due diligence that I did, I bought in to existing quality tenants. Ironically, property #2 was locally managed and had a terrible tenant. Luckily they left with the old owner.

All good info. Takeaways: Don't slack on the due diligence and consider buying/selling at a quicker rate to realize larger gains. Thanks for the feedback.
 
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TurtleSprint

TurtleSprint

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Oct 25, 2017
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You have some experience here. If you are confident in the cashflow numbers, where is the risk? Why get investors?
The risk that has me anxious arises from taking into account those capital investments and unforeseen expenses that you mentioned above. If this deal goes through I'd just be in a very volatile spot for a few months (if a furnace went out for example). From the due diligence that I have done I don't expect it, but things happen. The cashflow numbers look good but my upfront cash reserves isn't where I feel it should be. Investors would allow me to retain contingency funds and still get through the first few months (all the while still saving $ from my 9-5).
 
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TurtleSprint

TurtleSprint

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Read Millionaire Fastlane
Oct 25, 2017
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Maybe. The real way to look at the equation is whether the high risk has the high reward potential. In this case, the renovations are completed. Where is the upside?

Perhaps you posted this to garner attention from potential investors? Nothing wrong with that but what makes this a great deal? Is it the 20% return? Investors are going to want 12% annually or better with low risk to them.
I think this goes back to our buying low and selling high conversation. Originally, I didn't approach this deal other than to cashflow on top of paying down the mortgage and selling later on. Feel free to let me know if this is a novice approach and advise on how to redirect my sights. Upside is cashflow on a monthly basis. There is relatively little room for a large gain from selling off later except that the absentee seller is just looking to get it out of their hands (from what I can see for less than it is worth). Who am I to argue with that?

I actually had no intention to bring attention from investors. Kind of makes me feel foolish for not considering something with great potential to such a large audience. My genuine goal was to get advice like this ^^^^^ from people who think the right way as opposed to everyone I'm surrounded by on a daily basis who keep telling me I'll have a solid 401k to retire with at 65. I can't have these discussions with most of my local peers.
 
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TurtleSprint

TurtleSprint

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
37
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Illinois
It'll be 5 years as of next February when I bought my first property. I always buy with cashflow as #1 priority followed by "options" I have with the actual property (can I subdivide it? is there development potential ie: building a carriage house? Can I stratify it?). The more options the more flexibility you have and more buyers you'll appeal to if you have to sell.

One thing I've done over the years is get more and more realistic with my "true" cashflow numbers, similar to what SteveO's pointed out. When I first started out I only calculated mortgage, taxes, and insurance which is a rookie move.

Now my criteria is pretty strict when I'm buying, and I've added much more to the equation:
- Vacancy rate (in my city it's at 0.6% right now... I'll use 7.5-10%)
- Property management (only about 20% of my units are property managed right now, but I still factor in the management cost-- 8% of rents)
- At least $2,250/year in repair/maintenance
- Utility loss (all my tenants pay their own utilities, but if I have a vacancy ultimately I'll have to be the one paying the bills for a month or two)
- Rents calculated on the "conservative" side (lower end)

Once all this is calculated, I can see the ACTUAL cashflow that I can expect. Some people THINK they're making money because they pocket $200/mo after the mortgage, taxes, and insurance--but what about that new furnace that cost you $3-4g's last year? That ate up nearly 2 years of the money you pocketed. At least this way that I do it now, I know that it's ACTUALLY making cashflow even when I have to pay for a new roof, or the hot water tank goes, etc because I've done all of those calculations beforehand. I take home MUCH more than what the calculation is, so it's a worse-case-scenario type cashflow which I think is the way to go.

As far as my deals go, they've slowly progressed both based on the number of units and also market going up. I started with 20k and zero assets before property #1 and from scratch (I just became a Realtor, and no previous experience with Real Estate--didn't even know how a mortgage worked lol) so anything is possible! Here's the chronology as far as my residential purchases went:

1. $375k
2. $675k (had a partner & sold after 3 years)
3. $275k (had a partner & sold after 2 years)
4. $450k
5. $550k
6. $650k
7. $635k (plus $60-70k reno)
This goes back to what I noted to @SteveO. It's clear that I need to add some more criteria to my upfront investigations. Not that I've been completely oblivious but I clearly have some shortcomings. What you say is correct about "true" cashflow. While I've still been able to cashflow, each time so far it has been less than originally calculated.

I'll definitely use this post for reference moving forward. Congratulations on what appears to be some solid investments. Judging by your advice on the standards above I'm sure you're seeing good things out of them. Like I said before, I'm excited to one day be doing deals of that magnitude. Thanks for the advice.
 

WJK

Gold Contributor
Speedway Pass
Oct 9, 2017
867
1,991
542
Nikiski, Alaska
Greetings.

I am a real estate investor currently working an OK paying 9-5 to supplement building my portfolio. I’m approaching my one year mark on the first property November 1 of this year. Property 2 will reach the year mark in April. Both cash flowing well. I was wanting to hold off until spring 2018 to shop for another but a new opportunity was brought to my attention recently.
Risky but high risk = high reward, right? What do you guys think I should do? Any similar experiences?
There's always another deal out there. I know it's hard to pass up a good deal, BUT you've bought 2 properties during the last year. That's a lot of financial exposure. Make sure you have a pile of money in your savings account to cover anything that comes up. Trust me, it will. That's the nature of the beast. We long time investors have weathered many storms and financial markets. You're playing Monopoly with real money in the big boys league, which can be brutal. Our mantra is to take it slowly, thoughtfully, carefully -- all with a steady hand and a clear mind. In our world, high risk equals going down in flames, AKA bankruptcy. Now that I've said all that, if it's really good deal, can you sell it as a pass through deal? You could make a few bucks on setting it up for another investor, and take that money that you gain to make a principal payment or improvement on your present properties.
 

Tiago

Silver Contributor
Read Millionaire Fastlane
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Mar 22, 2014
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Greetings.

I am a real estate investor currently working an OK paying 9-5 to supplement building my portfolio. I’m approaching my one year mark on the first property November 1 of this year. Property 2 will reach the year mark in April. Both cash flowing well. I was wanting to hold off until spring 2018 to shop for another but a new opportunity was brought to my attention recently.

Pros
  • 2 Properties under a single deal. 4 units total
  • Strong occupancy history & projections
  • Solid cashflow (~$20k/yr net)
  • Newly renovated interiors
  • Privately financed
Cons
  • Largely out of my price range- Low personal capital available
  • Would require investor contributions (Don’t have any committed yet)- This could be moved to pros if I was able to gather enough investors = little/no personal funds needed upfront
  • Leaves me in a very volatile financial state for 2+ months (Pending investor contributions)
Risky but high risk = high reward, right? What do you guys think I should do? Any similar experiences?
Not directly related to your question, but much more a way of BEing. This video will help you.
View: https://www.youtube.com/watch?v=oFdFHn17ARk&feature=youtu.be
 
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TurtleSprint

TurtleSprint

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
37
35
56
Illinois
*OVERDUE UPDATE TIME*

Slid back into ghosting on the forum for while but decided to suck it up and continue posting. I think it'll help get my sh*t together and focus.

Catching up up to speed:
  • Bought those two properties as mentioned above in December of '17. Private lending went well and was able to refinance to traditional banking mid-year '18. Monthly payments are affordable and covered by 1/4 units.
  • Started necessary renovations on property #1 fall '18 and should be finished in April. Once fully rented it will add $475/mo income. Looking at doing gutters and (hopefully not) foundation work this summer. It's been expensive but should be value-added improvements.
  • Sold my Jeep January of '19 (brand new in '15- huge mistake but we live and learn) freeing up ~$750/month. Major win here.
  • Hired a management company for the two new properties to start in April. This will add to costs but frees up time spent managing/maintaining/collecting. We're going to try for a year then decide to continue or not from there. Still personally managing the first two places.

Current Status:
  • 4 buildings/8 units total. With vacancies cashflowing ~$1500/mo after all is said and done (Clearly the previous projections were inflated, more on that later)
  • 9-5 job pays alright and doesn't drain me. Allows for plenty of side hustle time and effort.

Plan: No more BS'ing. Only real plans, results, and failures. Please call me out as necessary.
  • Buy another property this year.
  • Saving up has been a waiting game. I want to start another side biz with the extra time to speed up income. Rolling with web design but more to follow later.
  • Actively contribute to the forum
Happy Monday
 

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TurtleSprint

TurtleSprint

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Read Millionaire Fastlane
Oct 25, 2017
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Illinois
Last week's learning...

On Tuesday I got word of a repossessed house in a great area that needed a TON of work (Value add potential). Bidding started at $31k and the house last sold a few years back at $148k! Went to view it on Wednesday and it was clear why the price tag was so low. It was basically a shell that didn't even have plumbing, duct work, or electrical service to the structure any more. We estimated about $70k-$80k in renovations were required. Bids were due Friday at noon which was a stretch for me to make in its own. Long story short, the house sold for $73.5k and I realized I was not ready for this type of opportunity yet. At that price though I think profit margins will be very low, if any at all, and I'm glad I didn't bid high.

Takeaways:
  • I requested to be on the list for notifications on these types of listings in the area. Too late to the party last time.
  • Need to get familiar with local, residential construction companies to ease the process of getting pricing on renovations next time. Would have gone into this property bidding "blind" to the costs that loomed ahead. A mistake I was absolutely aware of and didn't place a bid as a result.
  • I was able to meet and work with 3 new bankers in the process which will come in handy next time. Their feedback was encouraging as far as we progressed.
  • Compiled a spreadsheet for renovations and costs that will be ready next time.
  • A mentor/fellow investor showed interested in partnering on this deal until we dove further into the financials and decided to no-bid. Showed their confidence with me and hopefully will materialize on a future project.
  • Re-thinking starting the web design business. Had I been rolling with that I would have been completely overspent balancing it all.

Overall, I was NOT prepared to take on any project of this magnitude. I think a bullet was dodged.

Feedback from anyone with experience doing rehabs and flips would be greatly appreciated!
 

WJK

Gold Contributor
Speedway Pass
Oct 9, 2017
867
1,991
542
Nikiski, Alaska
Last week's learning...

On Tuesday I got word of a repossessed house in a great area that needed a TON of work (Value add potential). Bidding started at $31k and the house last sold a few years back at $148k! Went to view it on Wednesday and it was clear why the price tag was so low. It was basically a shell that didn't even have plumbing, duct work, or electrical service to the structure any more. We estimated about $70k-$80k in renovations were required. Bids were due Friday at noon which was a stretch for me to make in its own. Long story short, the house sold for $73.5k and I realized I was not ready for this type of opportunity yet. At that price though I think profit margins will be very low, if any at all, and I'm glad I didn't bid high.

Takeaways:
  • I requested to be on the list for notifications on these types of listings in the area. Too late to the party last time.
  • Need to get familiar with local, residential construction companies to ease the process of getting pricing on renovations next time. Would have gone into this property bidding "blind" to the costs that loomed ahead. A mistake I was absolutely aware of and didn't place a bid as a result.
  • I was able to meet and work with 3 new bankers in the process which will come in handy next time. Their feedback was encouraging as far as we progressed.
  • Compiled a spreadsheet for renovations and costs that will be ready next time.
  • A mentor/fellow investor showed interested in partnering on this deal until we dove further into the financials and decided to no-bid. Showed their confidence with me and hopefully will materialize on a future project.
  • Re-thinking starting the web design business. Had I been rolling with that I would have been completely overspent balancing it all.

Overall, I was NOT prepared to take on any project of this magnitude. I think a bullet was dodged.

Feedback from anyone with experience doing rehabs and flips would be greatly appreciated!
Good decision. I've seen people get buried on these projects. You have to really know what you are doing BEFORE you take on this type of rehab. You probably saved yourself a bunch of money and prevented horrible headaches. The guys who come out on big projects are contractors or those who have their own crews. It also takes a lot of cash on hand to make them work.
 
OP
OP
TurtleSprint

TurtleSprint

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
37
35
56
Illinois
Good decision. I've seen people get buried on these projects. You have to really know what you are doing BEFORE you take on this type of rehab. You probably saved yourself a bunch of money and prevented horrible headaches. The guys who come out on big projects are contractors or those who have their own crews. It also takes a lot of cash on hand to make them work.
@WJK Thanks for the feedback. My mentors also had similar comments. Like I said, I'd hoped to get it much cheaper than it sold for where I think I could have made it work. I'm interested to see what the new owner can do with it and if they will turn a profit. I have somewhat solid resources but with such little volume for now its hard to have them readily available.

Nearly secured some pretty cool financing though that would finance as appraised with renovations for 10% down. Also, with that investor we would have been fine I believe. No harm done though. Back to saving and will be better suited to fund the next project!
 

WJK

Gold Contributor
Speedway Pass
Oct 9, 2017
867
1,991
542
Nikiski, Alaska
Last week's learning...

On Tuesday I got word of a repossessed house in a great area that needed a TON of work (Value add potential). Bidding started at $31k and the house last sold a few years back at $148k! Went to view it on Wednesday and it was clear why the price tag was so low. It was basically a shell that didn't even have plumbing, duct work, or electrical service to the structure any more. We estimated about $70k-$80k in renovations were required. Bids were due Friday at noon which was a stretch for me to make in its own. Long story short, the house sold for $73.5k and I realized I was not ready for this type of opportunity yet. At that price though I think profit margins will be very low, if any at all, and I'm glad I didn't bid high.

Takeaways:
  • I requested to be on the list for notifications on these types of listings in the area. Too late to the party last time.
  • Need to get familiar with local, residential construction companies to ease the process of getting pricing on renovations next time. Would have gone into this property bidding "blind" to the costs that loomed ahead. A mistake I was absolutely aware of and didn't place a bid as a result.
  • I was able to meet and work with 3 new bankers in the process which will come in handy next time. Their feedback was encouraging as far as we progressed.
  • Compiled a spreadsheet for renovations and costs that will be ready next time.
  • A mentor/fellow investor showed interested in partnering on this deal until we dove further into the financials and decided to no-bid. Showed their confidence with me and hopefully will materialize on a future project.
  • Re-thinking starting the web design business. Had I been rolling with that I would have been completely overspent balancing it all.

Overall, I was NOT prepared to take on any project of this magnitude. I think a bullet was dodged.

Feedback from anyone with experience doing rehabs and flips would be greatly appreciated!
Good decision. I've seen people get buried on these projects. You have to really know what you are doing BEFORE you take on this type of rehab. You probably saved yourself a bunch of money and prevented horrible headaches. The guys who come out on big projects are contractors or those who have their own crews. It also takes a lot of cash on hand to make them work.
@WJK Thanks for the feedback. My mentors also had similar comments. Like I said, I'd hoped to get it much cheaper than it sold for where I think I could have made it work. I'm interested to see what the new owner can do with it and if they will turn a profit. I have somewhat solid resources but with such little volume for now its hard to have them readily available.

Nearly secured some pretty cool financing though that would finance as appraised with renovations for 10% down. Also, with that investor we would have been fine I believe. No harm done though. Back to saving and will be better suited to fund the next project!
SKIM THE CREAM! You only need one "killer" deal at a time. The trick is to choose the right deal at the right time. I walk away from most deals and only say yes when the stars line up in my favor. There's always another deal out there IF you just keep looking.
 
OP
OP
TurtleSprint

TurtleSprint

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
37
35
56
Illinois
Good decision. I've seen people get buried on these projects. You have to really know what you are doing BEFORE you take on this type of rehab. You probably saved yourself a bunch of money and prevented horrible headaches. The guys who come out on big projects are contractors or those who have their own crews. It also takes a lot of cash on hand to make them work.

SKIM THE CREAM! You only need one "killer" deal at a time. The trick is to choose the right deal at the right time. I walk away from most deals and only say yes when the stars line up in my favor. There's always another deal out there IF you just keep looking.
@WJK Very true. If you don't mind me asking, what are your metrics for "the right deal"? I've heard 20% profit minimum. Just curious. Obviously location is important but do you decide on profit margin? Cost of renovations not to exceed $X?

Thanks!
 

WJK

Gold Contributor
Speedway Pass
Oct 9, 2017
867
1,991
542
Nikiski, Alaska
@WJK Very true. If you don't mind me asking, what are your metrics for "the right deal"? I've heard 20% profit minimum. Just curious. Obviously location is important but do you decide on profit margin? Cost of renovations not to exceed $X?

Thanks!
Like all answers -- it depends... Are you going to hold and rent the property? Are you going to flip it? And is your market going up or down, or is it flat? You must to know where you are going to end up before you can answer any of those questions. Only having a 20% profit within a flip can bury you with one misstep. It can be a big advantage on a rental property.

What repairs and upgrades do you need to make? A rental property and a flip have a completely different list of work to be done. And for properties held as rentals, that list depends on the holding period. It's a matter of knowing your customer and your market. It's all based on risk analysis skills. We, in the real estate business, play monopoly with real money. It's a game that takes a lot of time and applied knowledge to create consistent wining streaks.
 
OP
OP
TurtleSprint

TurtleSprint

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
37
35
56
Illinois
Update time...

Last week I put in a bid on another single fam property located in the best area of town. Less renovations needed than last time and still would have profited once complete. The seller was asking $85k and the surrounding houses all appraised around $150k-$180k. We estimated ~$20k max for renovations. I didn't end up winning the bid but it was worth a shot at that price.

No harm done though and I'll keep my eyes out for other killer deals. In the mean time I plan to fill vacancies, pay down debt, and purge unnecessary items around the house.
 
OP
OP
TurtleSprint

TurtleSprint

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
37
35
56
Illinois
Like all answers -- it depends... Are you going to hold and rent the property? Are you going to flip it? And is your market going up or down, or is it flat? You must to know where you are going to end up before you can answer any of those questions. Only having a 20% profit within a flip can bury you with one misstep. It can be a big advantage on a rental property.

What repairs and upgrades do you need to make? A rental property and a flip have a completely different list of work to be done. And for properties held as rentals, that list depends on the holding period. It's a matter of knowing your customer and your market. It's all based on risk analysis skills. We, in the real estate business, play monopoly with real money. It's a game that takes a lot of time and applied knowledge to create consistent wining streaks.
Noted! I'm primarily in rentals for the foreseeable future. I wanted to do a single family flip in the meantime to try and gain some capital and in turn buy larger/nicer multifamily units. I find myself playing the waiting game in between properties while saving up for another. Aside from reading, etc. I feel like there's more to be done with my time. It'll be nice when it's sustainable and I'm out of the corporate grind but until then I could be doing more for sure.
 

WJK

Gold Contributor
Speedway Pass
Oct 9, 2017
867
1,991
542
Nikiski, Alaska
Update time...

Last week I put in a bid on another single fam property located in the best area of town. Less renovations needed than last time and still would have profited once complete. The seller was asking $85k and the surrounding houses all appraised around $150k-$180k. We estimated ~$20k max for renovations. I didn't end up winning the bid but it was worth a shot at that price.

No harm done though and I'll keep my eyes out for other killer deals. In the mean time I plan to fill vacancies, pay down debt, and purge unnecessary items around the house.
Good for you -- I LOVE the idea of paying down your debt and purging around your house. Run lean and mean. Get your debt down to 0 and hoard your cash for that perfect deal. You can make more money on one "stud-card" deal than you can make a bunch of so-so deals. And the key to buying those killer deals is having a pile of cash on hand when everyone else is running on OMP (other people's money).
 

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