Diary of a Bulk Buy

[Brie Schmidt]

I am looking to do another bulk buy and wanted to document my experiences here. I already have a commercial lender in place who did our previous loan.  The challenge is that I am looking to buy 6 - 10 properties that for the most part are 2-4 units, so valued as residential.  But my loan is commercial and valued on Cap Rate and DSCR so I need to look at them both ways and make sure the numbers work all around.  

I used www.rentometer.com to determine the market rents based on the bedroom make up and location.

I saw all these properties about 2 weeks ago:

The first one is a good property. It is a 4 bedroom top unit and a 2 bedroom basement unit. The basement unit has mold on the drywall and the bathroom layout requires you to squeeze by the sink to get to the toilet. The numbers work on this with just the top unit so I made an offer. This is a short sale and they are negotiating with the bank right now on the price, so technically they are not accepting offers, so I made an open ended offer at $28k assuming $10k of work.

The second one is in a great area and the units are rentable, but there is a huge foundation crack along the side wall and the top floor unit in back has a bad slope (but not the unit below, weird) I offered $45k because of the amount of work and they countered at $60k and I walked.

The third one my PM said was in a bad area so we did not see it.

The fourth one was in good condition. It is a 5 bedroom front building and a 2 bedroom (easily converted to a 3) back cottage. It does not need any immediate work and we are under contract for $59k with a 1 year home warranty. I have a $10k reno budget to add laminate when the tenants move out and create the third bedroom in the coach house.

The fifth one had a huge updated upper unit but the lower is what they call a "Polish Flat" where the bottom of the window sills are right at grade and cause water to constantly come in. My PM had actually seen the property a few months ago and said there was mold everywhere. They had just painted right over it. Yikes! Between that and the fact that the basement unit had the furnace in the middle of the living room, we passed.

The sixth one was in a great area. It had a duplex front and coach house in the back. Apparently the previous owner illegally converted the attic to a unit and it is currently condemned. The property is bank owned so they have little information but after talking to the inspector it seems it was condemned because the only form of egress is a staircase that is not built to code. We did make an offer and plan to move the staircase and duplex it up, but I either need to get it at a low price or see the attic unit so I know how much the rehab will cost. My reno budget right now is $15k without seeing the unit and we are awaiting word from the bank.

The seventh property I did not get to see as the agent had the wrong lockbox code and it took a few days for him to get it. But I trust his judgement to look at it without me. This was a big 4 unit in front with a back cottage. It needs a lot of work and I think I can make the numbers work... but I am looking to buy 6-10 properties right now and don't think I can handle it all with a major rehab included, so I might come back to this one later.

The eighth property went under contract that day so we did not get to see it.

The ninth property was an ok duplex. The units needed paint and carpet but it is fully occupied right now so we can do that later. The front wall in the basement had some cracks between the cinder blocks. We did go under contract for this one at $31k and are waiting on the inspection and contractor bids to do the work on it. I have a $15k reno budget on it.

The tenth one is a duplex, then a shared parking lot for 14 cars, then a large property with 2 vacant commercial units on the first floor and four 1 bedroom units above. The duplex was in pretty good condition and the one 1 bedroom we saw was in good condition, but the outside was a disaster. In Milwaukee when you transfer title you pay for a mandatory code inspection. Having already been through this before I know they will hit is for missing siding, the whole said of the front building needs to be re-graded, the roof needed replacement and is causing water damage. I estimated at least $70k of work so I offered $30k and they rejected it, so I walked

Here is where I am at with the four I am hoping to get (2 under contract and 2 pending)

I have identified some more properties but the cap rates are nothing too exciting so I have decided to do a Direct Mail campaign first to see if I get any good leads. Our loan is a commercial loan and they prefer to do multiple properties at one time so we set a closing date 6 weeks out so I have time to find more properties and add them to the loan.  So I am going to give it a week or two before scheduling showings for these if nothing comes from the direct mail campaign.

[Brie Schmidt]

The first property we are still not under contract for. No word on our offer as they were figuring out the approved short sale price.

The fourth property has been a dream! The seller is so easy to work with and I really wish he had more so I could buy them. This property is ready to go and if the bank would allow us we could close tomorrow.

The sixth one we got the bank to agree on a price but after inspection it was determined that the basement wall had to be torn down and rebuilt. We did see the attic unit and it is in good condition and rent ready but the staircase is the big problem. At the end of the day we did not move forward because of all the possible unknown fixes needed.

The ninth one also had bad basement issues that were uncovered. The whole side wall of the house needs to be rebuilt and then re-graded. The seller agreed to drop the price to $30k and with rents of $1,275 the numbers still work with a $20k rehab. The issue for me is that $20k in cash post closing is equal to $20k down on a $100k house with our loan. So I backed out but may come back to it if we buy less than we are planning and have the money left over.

So now I only have 1 house, and my bank strongly suggested pushing the closing so I can get more. I did do my first ever direct mail campaign and got 1 lead! It was an old lady who has owned the home for 40 years. I ran the numbers and offered her a price range which she agreed to. But then I was on vacation and when I got back she told me it was listed and they were accepting an offer on it.

I went up another time and looked at 5 properties, they were all ok…. But the numbers were below the 13 cap minimum that I look for and I had to remind myself to stick to my min ROI. It is hard sometimes as you get so excited for a deal and so excited to reach your goals but then you have to remember that you set minimums for yourself for a reason. I invest out of state to get a better return than in my home market and if I am going to spend outside my market it better be worth it.

Last week a BP member approached me with what seemed a promising off market portfolio. I only had the addresses for the first few days so I ran my numbers based on the tax assessment. The portfolio could be broken up and was 8 properties and 29 units. The rent on it was $16,000 with a market rent of $21,000 and a tax assessment of $640k so I was very excited at the possibilities this portfolio had but then we got the prices he wanted and it was $1 mil for the whole portfolio and with current rents at $16,000 it is about half of my min ROI. Two of the properties we were somewhat close on in terms of price so I am waiting to hear if we can make a deal on those.

A few days ago I went back up and looked at 4 properties from one agent. I made offers on three of them and we are doing inspections tomorrow but I visually inspected them and did not notice any issues like I had on the original ones with basement problems. So now we have these four under contract including the one from the original deal.

I am seeing two more tomorrow and hoping to get word back on the other two off market ones and then we will be ready to move forward with the bank. It has been hard balancing it all as I have six active clients with my brokerage business in Chicago, so my days have been jam packed with showings. This weekend alone I showing 18 properties with two more last night and two more today. It is a ton of work but life is so much different working doing something I love than working doing something that pays the bills. These past few months as a full time investor have been life altering… being able to set my own hours and not being told what to do has such an impact on my outlook even though I am working just as many hours as before, if not more.   

[Brie Schmidt]

So inspections went well and we finally got all the P&L statements from the sellers and submitted the file to the bank.  This deal is a lot smaller than I wanted but I need to be picky with my numbers and the properties I choose.  Here is what we ended up with based on the costs provided by the sellers.  Based on my rental analysis I can increase rents by $10k per year over what they are currently getting (but then I need to add in vacancy which in not included in the actual rent reported)

[Brie Schmidt]

So, we finally closed everything.  5 properties, 5 sellers, and 11 new units (plus 2 basement units)  These are current rents and I plan on doing increases on certain units in spring/summer when everything settles down.  Now the fun part... transitioning everything over to my PM

[Ramon Jenkins]

Midwest...midwest congrats

[J. Martin]

Originally posted by @Brie Schmidt:

So, we finally closed everything.  5 properties, 5 sellers, and 11 new units (plus 2 basement units)  These are current rents and I plan on doing increases on certain units in spring/summer when everything settles down.  Now the fun part... transitioning everything over to my PM

 Awesome Brie! That's great you were able to close all 5 together. I was surprised when you told me your plan in SF. CONGRATS!! I like those numbers too ;) I had to pay almost $400K to get that kind of cash flow in the Bay!

40% cash on cash..? If you hit that, its a phenomenal yield! The 20% down is a nice kicker for the ROI too, especially at these pre-leveraged yields..

[Jay Hinrichs]

a good lesson... for those wanting to get into the business... to do deals like these @Brie Schmidt 

one needs good credit to great credit and proof that they actually make some money in their lives and some REAL cash..

the no money no credit no cash does not pull off these types of deals with REAL lenders

Good Job Brie here's to starting your empire !!

[Brie Schmidt]

@j martin - 4 we closed on in a hour and the 5th we had to wait 2 days, but it was on their end not mine.  We bought 5 but really wanted to buy 10 but could find enough properties that brought in the numbers we wanted.  

@Jay Hinrichs you are exactly right.  I have spent years building my credit and net worth to the point where a lender has no reason not to lend to me.  Life is much easier when you have a good track record of making money and paying your bills

[Jay Hinrichs]

@Brie Schmidt 

  correction  I know you already started your empire congrats on expanding it.

I just wanted to illustrate how important it is to have the three C's if your going to succeed and build a portfolio using the best rates and terms.. you Need Character ( banks look at this these days don't think they don't) Credit ( obvious and you need stellar credit ( walk from bank loan and your toast) and Capacity ( need to prove that you Actually make money in the industry have reserves and can weather some storms which we all know every day is not sunny).

[Brie Schmidt]

@Jay Hinrichs I got you,  I totally understood, and you make an excellent point.  We went through a lot with the bank up front establishing the relationship and proving our capabilities,.  It came from experience and smart decisions.  They wanted to examine our history, our growth trajectory, to know who we had as PM, to understand how we pay our bills, ect.  

They told us as long as we have the DP then we can buy up to a million... now I just need the inventory to do so.