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Wai Fung

Alhambra, California

Nov 10 '12, 09:11 AM


Has anyone heard of http://www.dpwproperty.com?

I did a search on this forum, but it didn't come up with anything.

I am looking to purchase 4 plexes through this company.

Any feedback would be appreciated.



Steve M.

Landlord from Hendersonville, Tennessee

Nov 10 '12, 05:19 PM
1 vote


Wai ...

Are you new to investing? If so, seeing as you are in Cali & DPW is in St Louis, I'd highly recommend starting with an area reasonably close to you. Investing with a company 1500 miles away allows you little to no control. If you have them PM the property as well, you hands are pretty much tied.

I started with "Investment Groups" when I got started. I wish I hadn't. I felt like I had zero control and was taken for a ride SEVERAL times. Luckily, I made it out relatively unscathed. If I could rewind and start over, I'd do all the ground work myself, head to your local RE events & meetings, and learn the ropes yourself :)

I'd only recommend out of state (non local) investing to seasoned investors. It doesn't take much for you to get overwhelmed and upside down quickly.

Just my $.02 cents :)



Wai Fung

Alhambra, California

Nov 10 '12, 08:02 PM


Thanks Steve! Finding deals in Los Angeles seems to be almost impossible as the prices are too high and I wouldn't be able to cash flow. My only options which aren't too far are Phoenix and Las Vegas. The cash flow in St Louis is what really attracts me though. I feel I can get a return on money faster than I can bet on appreciation in LV and PHX. Can you tell me a bit more about your experiences with out of state investments? I see you are in TN, there seems to be a lot of deals out there right now where you don't have to put anything down and the properties will still cash flow. Have you heard of these?



Tim Delp

Real Estate Investor from Jacksonville, Florida

Nov 11 '12, 08:30 AM
1 vote


I agree that if you can find deals close by that would be great even if you plan to hire a PM it is nice to be close by to check on your PM and or fire/hire new PM if things don't go as planned. At the same time if you live in an expensive area I wouldn't advocate investing in cash flowing properties in an area like that. There are definitely areas that are ideal for investing in cash flowing rentals.

Have you ever been to St Louis? Have you walked around downtown St Louis? This is just my opinion but this is an old big city that appears to be slowly dying. I was there about 6 or 7 years ago for a wedding and I couldn't find much going on and much of reason anyone would be looking to move there. I think this is important for your long term prospects for tenants as well as any appreciation.

I would much rather look for a growing city, you might give up a little on current ROI but long term a city that is losing population is not going to see rents increase and most likely will see little appreciation.

I live in jacksonville, fl and invest in florida but there are other cities across the country that might be good as well but I would do a little more due diligence. St Louis might be the right place after your additional due diligence.



Tim Delp

Real Estate Investor from Jacksonville, Florida

Nov 11 '12, 08:32 AM
1 vote


Article referencing population growth:

http://www.stltoday.com/news/local/metro/st-louis-region-s-population-growth-lagging-that-of-nation/article_5d588480-a6fb-51d9-acf7-7d821cd8337b.html



Wai Fung

Alhambra, California

Nov 12 '12, 09:52 PM


Thanks Tim. I was actually looking at St. John's County in Jacksonville for investments, but notice home prices are higher than what I want. The appreciation might be there in the coming years but cash flow is certainly not. I will be taking a trip to St. Louis at the end of this month to see the different pockets of the this city and the suburbs, the homes that are being rehabbed, current, and past projects as well. You have myself second guessing myself now...

I will heed your advice and invest closer to home between Las Vegas and Phoenix. I really do like the market in Dallas right now. Any leads you might be able to provide me in anyone of these markets?

Thanks.



Pete Nater

Real Estate Investor from The Bronx, New York

Dec 04 '12, 08:53 PM


with numbers like this, would you still advise against investing in St Louis?

Turnkey Duplex $931 Monthly Cash Flow

Excellent cash flow with this spacious duplex. Each unit
is 3 bedrooms and 2 baths. Property has just been fully
renovated with new kitchens, baths, plumbing, electrical
HVAC system and many updates. Each unit is leased
at $900 per month with property management in place.
Property comes with a 1 year home warranty.

Sales Price $85,000
ARV $105,000
Down Payment $17,000
Rental Income $1,800.00
P&I Payment(30yr @5%) $365.04
Taxes Monthly $105.00
Property Management(8%) $144.00
Insurance $110.00
Vacancy Rate Allowance(5%) $90.00
Maintenance Allowance(3%) $54.00
Total Monthly Debt Service $868.04
Monthly Cash Flow $931.96
Net Annual Cash Flow $11,183.52
Cash on Cash Return 65%
*Principal and Interest payment based on 20% down payment amortized over 30 years at 5%. Total monthly debt service includes P&I payment, taxes, insurance, property management, vacancy and maintenance allowances. Every effort has been made to ensure accuracy of figures. Investors are encouraged to perform their own due diligence.



Russell Monson

Multi-family Investor from Lehi, Utah

Dec 05 '12, 09:21 AM


Wai,

I am working with DPW right now in St. Louis. My brother has closed on two multi-family deals with them there as well (one duplex and one fourplex). I am closing on a duplex there this Friday and have another one under contract that I will be closing on in January. I did fly out to St. Louis and inspect the properties, meet with the property management company, etc, and found the quality of the work DPW does to be acceptable. Keep in mind they are rehabbing in B and below neighborhoods, so set your expectations accordingly and make sure your cash flow numbers are tempered with appropriate assumptions. (There will be higher vacancy, higher maintenance costs, higher insurance costs, etc, think "50% rule" here.) My brother's properties in St. Louis are performing pretty close to the pro-forma he completed in advance of the purchase. I agree with some of the previous comments that it is not likely that you will see significant appreciation in St. Louis, so you would need to think of St. Louis as a cash flow play. The only thing I would warn you about with DPW is that their turnaround times on the rehab will be much longer than advertised, so don't expect to close on a property quickly unless they have already completed the rehab before you sign the contract. You can PM me if you'd like to discuss further or want me to send you my pro-formas for the properties I'm purchasing there.

Russ



James H.

SFR Investor from Texas

Dec 05 '12, 09:46 AM


Originally posted by Pete Nater:
with numbers like this, would you still advise against investing in St Louis?

ARV $105,000

Rental Income $1,800.00

No way this flows at 900+ a month. Historical data indicates that your cashflow would be rent/2 - PITI. That would be closer to 900-700 = 200/month cash floww.

This would only be suitable for local investment. I wouild also be hesitant to invest in a duplex with COC return of 11 percent (2400 annual rents / 21,500 DP *100).

This would be a good deal for a SFH locally, but then, in my area, you will not find an SFH with an ARV of 105,000 that would rent for 1800/month. Nor would you find a duplex with an ARV of 105,000 for 18500/month.

So, Mr. First Poster for DPW, I'd say there's some smoke in that speach.



Pete Nater

Real Estate Investor from The Bronx, New York

Dec 05 '12, 10:23 AM


Hi Brian, thanks for your input. I'm afraid you went over my head with those abbreviations. I'm new and learning and not yet fluent with rent/2 - PITI, SFH and this: COC return of 11 percent (2400 annual rents / 21,500 DP *100). I don't expect you'd care to and have time to explain? Thanks either way.



Joel Owens Moderator

Real Estate Broker from Canton, Georgia

Dec 05 '12, 10:27 AM


Projections are just that. Companies that rehab and load tenants in there is no income stream model that is proven over time.

If a company can show investors that over a span of years investors have bought from them and here are actual and not stated returns from case studies and you can show those returns than you have something.



Medium_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


Pete Nater

Real Estate Investor from The Bronx, New York

Dec 05 '12, 10:27 AM


Russell, thanks for your post. It doesn't sound like DPW is perfect but it doesn't sound like it's a scam either. I don't have MP access at this time but I'd love to see your pro-formas for the properties you are purchasing???


Edited Dec 5 2012, 10:44 by Moderator


Chris Clothier Verified Donor

Real Estate Investor from memphis, Tennessee

Dec 05 '12, 10:56 AM


@Joel OwensHi @Wai Fung -

Smart move on your part to come to BP and post a forum question. I can give you a couple of pointers when buying out of area, but nothing concrete on the actual company you are asking about.
1. Always remember that due diligence and time are your friends when buying away from home. It may seem like all the "hot deals" are going to disappear, but they are not. Be patient and educate yourself on the market you are wanting to invest in (economy, growth in jobs, growth in population, demand for multi-unit housing).
2. Only when you know that St Louis is the right market do you move forward with a team that can assist you. You may find that St. Louis is not the right market for your goals when buying investments.
3. There are a lot of factors that come into play with a good team in a far away city and most of them you will have to dig out for yourself. And, most importantly, until you have a history with a company, you cannot take anything they say (marketing, promotions, spreadsheets) on faith.
I run two turn-key companies in two cities and this is the same advice I would give any investor wanting to find out about one of my companies. Until you have a high comfort level, you have to dig deep and investigate a market and a company before you can invest. And you never, ever start with the property. That is the last thing you look at. Look at the city and the team first, then look at properties if you feel it makes sense.

Last note - hit up @joel owens before you buy multi-family or commercial or triple-net lease stuff. He has a world of knowledge and experience and may be willing to give you some advice on what to ask and look for before you buy.



Medium_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: http://www.memphisinvest.com
www.MemphisInvest.com 1(877)-773-9998 Chris D Clothier


James H.

SFR Investor from Texas

Dec 05 '12, 10:56 AM
1 vote


Originally posted by Pete Nater:
Hi Brian, thanks for your input. I'm afraid you went over my head with those abbreviations. I'm new and learning and not yet fluent with rent/2 - PITI, SFH and this: COC return of 11 percent (2400 annual rents / 21,500 DP *100). I don't expect you'd care to and have time to explain? Thanks either way.

First I need to correct one of my errors: Cash flow should be rent/2 - PI, not PITI, thus improving your return significantly

Second, why assume I would not care to explain terms?

COC = cash on cash
PITI = principal interest tax and insurance components of your mortgage payment
SFH = Single familiy home

In any case, I believe the numbers you have are unrealistic, particularly projected rent, but if that is the real deal, than it is a good deal. I would still not invest out of state for that, though. Since you are new and looking to learn,I would advise that you invest locally to cut your teeth before making out of state/area investments. It is hard enough to make it work within arm's length, let alone several hours away - particularly if you don't have trusted team members for your remote help.



Wai Fung

Alhambra, California

Dec 05 '12, 11:09 AM


Thank you all for your candid responses. I actually had the chance to go out to Saint Louis this past weekend and to meet the team. Victor and Giro were the two individuals I had the opportunity to meet. At the same time before going out there they gave me three references to call who have bought property in the past and one who just bought a duplex and a 4 plex recently. I was able to get the pros/cons about their experiences. I guess more pros than cons since they both have bought more than one property from them so far. One individual has bought 7 4 plexes from them. One of the three investors I spoke to said they did quote him a higher rent than expected at $475 but got it rented for $425 in both downstairs units costing him $100/month in rent. I asked Giro about this and he said in his defense that the property came in at $10,000 less than appraised ($95,000) and so he either broke even or took a small loss here. He even agreed to offer the investor a concession of free management for 6 months. My gut feeling is that these guys will try to do everything in their power to make things right if they have in any way make a mistake. Speaking to those references really did help, since they were not completely one sided. Hope this helps.



Chris Clothier Verified Donor

Real Estate Investor from memphis, Tennessee

Dec 05 '12, 11:19 AM


@Wai Fung -

Excellent - if you feel comfortable and have the data and info you feel you need, then regardless of what anyone else says about investing away from home or DPW in particular, go for it. The best thing you can do is research and ask the tough questions. No one else is going to do it for you. It is your money, your future and your investment - so investigate and prepare, then either get stated or keep looking.

Best of luck on your investments -

Chris



Medium_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: http://www.memphisinvest.com
www.MemphisInvest.com 1(877)-773-9998 Chris D Clothier


Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Dec 05 '12, 11:25 AM


@Pete Nater, Brian Hoyt is using the 50% rule. That simple says that over the long term for a portfolio of properties, vacancy, capital and expenses will eat 50% of the gross scheduled market rent. What's left is NOI. From that you have to make you P&I payment.

So, for rents of $1,800, $900 goes to vacancy, capital and expenses, leaving $900 for NOI. That is $10,8000 per year. Vs. the $85K sales price that's a 12.7% cap rate.

From that $900 you make your $365.04 payment leaving $534.96 in cash flow or $6,419 per year. Vs. your down payment of $17K, that's a cash on cash return of 38%. That's outstanding. Too outstanding,in my book.

Some of the quoted numbers dont' make sense:


P&I Payment(30yr @5%) $365.04
Taxes Monthly $105.00
Property Management(8%) $144.00
Insurance $110.00
Vacancy Rate Allowance(5%) $90.00
Maintenance Allowance(3%) $54.00
Total Monthly Debt Service $868.04

That last number isn't "total monthly debt service". Its the grand total estimated outlay. So, if someone has that one their web site they lose credibility for just being confusing (or, I'm really thinking, confused. Or worse.) What they're claiming is that all expenses, vacancy and capitly are about $500 when most of us here would assume $900 is a more accurate number. So the total cash flow isn't $931 as they claim but rather closer to $535 like I estimate.

I know nothing about this company. I assume that, Pete, you don't work for them, which Brian implies he suspects. If you do, please state that as our rules require relationships be disclosed. But what I have seen from these turnkey outfits is that you're getting much less of a deal than you think:

1) The real ARV is less than quoted. Perhaps much less.
2) The rehab is shoddily done. So you are hit again and again with repair requests. $600 a year for a $100K property isn't a very realisitic estimate in any case.
3) The rent your quoted is above market. A year from now this tenant moves out and you discover the market rent is lower than you planned.
4) Demand isn't really there. You struggle to get a replacement. Or, you have ongoing turnover. Fine with the PM, since they're charging you for every turnover.

Before investing with a turnkey outfit, or doing any long distance investing, YOU MUST DO YOUR OWN DUE DILIGENCE. When I've looked at these deals in deal, 30 minutes of searching on the MLS, rentometer and craigslist often reveals the truth about the four items I list above. Even if my quick investigation looked like a good deal, I'd be in the car or on a plane before investing. Pictures can tell a much different story than a drive by.

Lets please keep this conversation focused on the company being asked about. Please use the Landlording and Rental Property forum for discussion about expenses and such. They are a number of sticky threads that debate and discuss this 50% rule and other topics.



Jon Holdman, Flying Phoenix LLC


Dion DePaoli

Note Investor from Fort Lauderdale, Florida

Dec 05 '12, 12:33 PM
1 vote


I have a pretty good knowledge of this business model and am fairly confident I know of these folks and some others like them.

Do they have some good deals? Yea, sure from time to time. That said, in the past I have noticed that these types of models are attempting to sell based on the cash flow of the asset and a bit of high pressure sales. This tends to result in trying to pull a higher value for the asset than market value. A method that this type of model takes is providing all of the material and targeting the passive investor who will not do their own due diligence to an extent and you can see it in the sales pitch presentation like was posted.

In layman's terms, I would ensure you get your own appraisal and do not over pay for the home. I would even go look and see how much they paid for the home and how long ago. There is no magic equity in the market place. Bringing any needed repairs to the property only increases how close to market value the home comes, it does not set a new high. I would also bet, the repairs that were conducted were nothing major, so the price they paid for is much closer to the real market value and they are inflating the value to you.

And most importantly do your own financials. As was pointed out, at a glimpse the numbers already look a little inflated. You have to think a bit long term as well. If in fact they have an above market renter in there (they say rent at $1,800), (I am using the example from the site posted above) who is to say that tenant does not just walk away and you have to resort to market rent. That is, if that is even a real number and not some crazy pie in the sky assumption with no actual lease in place.

Also, as suggested, the expenses in reality will likely be far ahead of what they are projecting. For instance, they have an annual Maintenance Allowance of $54 per month, so that is $648 per year, not sure you can even turn the property over when the tenant leaves for that little money. Further, the Vacancy Factor of 5% is pretty aggressive. They list 5% or $90 per month, which is $1.080 per year or 60% of one month's rent. So to turn your unit over it will only take 18 days? Look great if you can do it, but I would not plan on it. Remember, you just budgeted only $648 to turn the property over and now you have to do it in 18 days or less.

I think the market interest rate they are using at 5% for an investment property is a bit aggressive too, some other folks can chime in if that is in the ball park. I would question just how finance ready these homes are. These are flips by the company selling the property, so flip underwriting for loans will apply. They are not going to simply grant magic equity.

Then there is the actual rental estimate, $1,800 per month for an $85,000 home? If that was the case, that market would have no inventory as all the local investors would buy all that inventory right up not to mention, prices would not be depressed. You can see this in their P&I illustration which is 1/3 of the rent. Let's also not forget, they are just going to 'give' you $20k in equity (ARV = $105k; Purchase Price = $85k), that is pretty nice of them.

For the record, Debt Service as they list it is not the proper definition of debt service, which is scary in its own right. Try and act sophisticated using a term, at least look the term up and make sure you have it right. Debt Service is the series of principal and interest payments, so if it is monthly, it simply your mortgage payment. You don't add your property expenses to it, those are debt, they are expenses. But hey, let's not split hairs.

Next let's pick on the 65% Cash on Cash Return. This is really what they are saying the yield for the investment is, provided all their numbers are true. Cash on Cash Return would need to include the gain or loss on sale of the asset to be considered a Cash on Cash Return or ROI. That said, so the yield on this investment is 65%!!!! Say that one more time 65%. For the record, the Risk Free Rate of Return for today's market is 1.5%. If these guys have assets that just print money like that, why the hell are they selling it, let alone selling and leaving so much opportunity on the table for equity and cash flow?? These guys would be the most profitable and most invested investment fund in the world if they can duplicate those levels of yield on a regular basis. Lookout Goldman Sachs and Fortress...here comes DPW!!!

So I hate to be a bit of a drag with the above sarcasm but hope it illustrates the point. The sales pitch here is that investing in real property, being a land lord is easy and with a little help from them, you can roll in the money. Yet, we have seen them on the cover of Forbes magazine and have not heard of them as one of top investment funds in the nation. That should be a little bit of a red flag itself.

What is that saying.....Quack like a Duck, Walk Like a Duck.....your just a sales pitch?



Pete Nater

Real Estate Investor from The Bronx, New York

Dec 05 '12, 12:37 PM


Hi Jon Holdman, I don't work for DPW, the company that the initial post was about and who's website I got the info from on that deal I posted is from. It does sound to good to be true. I was researching them (Google) when one of the results was this forum topic.

Brian Hoyt, I tend to assume people are busy and not necessarily have time to educate someone new, like me for free. I do appreciate all of the comments, wisdom and expertise from you and the others.
Btw Jon, Thanks for rentometer!! I also looked up the property in freeflood.com and the zip code in city-data.com. trying to do my due diligence.



Pete Nater

Real Estate Investor from The Bronx, New York

Dec 05 '12, 12:43 PM


Hi Dion, is it possible you missed that it's a 2 unit property/duplex? Thanks for the class :), everyone!!!



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