2011 Investor Wrap Up
The turning of the calendar from December to January is the perfect time to reflect on the past year and set goals for the upcoming year.
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In this article I will highlight deals we have closed, discuss lessons learned and mistakes we made. I will close by reviewing the growth of our reputation and personal brand. In a subsequent article I will highlight our goals for 2012.
2011 proved to be another great year for investing in distressed assets. We continued to grow our realtor relationships, we closed every deal we got in escrow ensuring our reputation as closers of distressed assets, and we bought some tremendous deals.
Specifically, we purchased 6 Single Family Homes for an average of $40,500 and the average repair cost was $8,000 with an average rent of $975. We executed our full 5 step process for each house and recycled 80%+ of our capital across each property. Our expected cash flow averages $375 per house after all expenses which exceeds our minimum margin of safety.
In addition in 2011 we recently closed on a distressed 10-unit apartment building. The apartment building purchase is a good example of our belief that real estate investing is a people business and that real money is made by solving problems or creating value.
Key Lessons Learned and Mistakes made:
I believe in the saying, “you learn more from your mistakes than from your wins,” so I thought I would share some things we learned in 2011.
Our first mistake actually constrained our business from growing because we were being too rigid and pig headed. We had heard and read about all the success many real estate teams were having by leveraging “Self Directed IRA’s” but we never looked into it. We were having success, but we flat out missed the boat on this. Lesson learned: If someone with a similar and respected business model highlights how they have grown, get off your butt and look into it.
I pride myself in being cheap in this business as I only go after screaming good deals. Our five step model only works if we can recycle most of our personal capital after each property is repaired and leased. Another goal I have is to try and make each deal better than the last one. This has caused me to miss a couple of deals that I should have gotten done.
I missed out on two properties this year that I should have paid up for; I was likely 3K light on one and 5k light on the other. Both properties would have easily fit in our model at these higher prices but I figured if I got that price point once, I should be able to get it again. Lesson learned: The market is getting more competitive as investors seek out higher returns. Real estate will come back into vogue shortly and prices will jump. The folks with the largest portfolio will be very happy. I should own two more properties this year, but my ego and cheapness got in the way.
The final lesson I want to share is this: The real estate investing business takes work and you always have to be paying attention as changes in the market can impact your decisions. Specifically, in my market, rental housing rates are getting soft. I would estimate that rates are down about $50/month and they might fall further.
Why is this important?
My business model keys in on maintaining a “Margin of Safety,” and if rental rates are getting soft I need to adjust my business model. I could either recycle less capital during our program or I could purchase properties at lower rates.
If you are an active investor, you need to watch all aspects of your market or you can get burned. If you work full time this can be especially hard, as you don’t have a lot of extra cycles in the day to stay on top of your market. I recommend that all new investors put in the work out of the gate, but as you get more comfortable, you can start leaning on team members. You need to maintain enough knowledge to ensure you are not being lied to. Lesson learned: This business takes continuous work.
Growing our Brand and Reputation:
Real Estate is first and foremost a people business and I want all my interactions to be extremely positive.
I want every real estate agent I work with or speak with to know that I close quickly on distressed assets. I want to be the first phone call they make when an escrow is blowing up or another buyer is trying to pull of the "Terrorist Offer". These are the offers that bid up the price only to renegotiate near the close. I call them "Terrorist Offers" as they will eventually blow up in the face of the investor. If you use this strategy, good luck to you; I believe it will not lead to long-term success.
In my market, the Fresno Bee is the daily paper and they have a couple of excellent writers that focus on Real Estate. I have taken the time to reach out to them and have shared my experience on multiple occasions. I have also helped them by introducing some of my personal contacts to help them with stories. One such introduction lead to a full article featuring a family friend and what they are doing in the real estate business.
BiggerPockets continues to be an extremely powerful platform to push our brand and reputation. Being a weekly contributor takes work, especially as I travel the globe for work and spend most of my waking hours on my day job.
BiggerPockets offers the single best platform to reach my market, which happens to be both new investors and investors that work full time. These investor types are the ones I want to help and guide along by sharing my experience, my opinions, as well as my current deals.
It has truly been a blessing to contribute to BiggerPockets, as I have learned so much from all the great contributors. It provides an excellent platform for me to watch the real estate investing landscape as it is ever changing. I would be remiss if I didn’t admit that I am a better investor, and I am running a better business thanks to BiggerPockets.
Photo: Great Valley Center