Don't Listen to Josh, How I bought 50 Units in One Year

26 Replies

Well it's not really 50... My Brother and I bought 8 units around 2006 and didn't make any money because we bought too high.  And it's really not one year, it's probably closer to 13 months.  So really the headline should be 8 to 58 units in 13 months. I wrote, "Don't Listen to Josh" because I buy in South St. Louis City, I leverage Virtual Assistants and Professional Inspectors so I don't have to do much of the work, and I definitely bought way to fast.

I found a neighborhood in South St. Louis where properties are available at the "2% rule".  I call this rule the "50 times Rent" rule, same rule, I'm sure there are many rules of thumb that work, I just chose the 50x rule.  For instance I buy Duplexes for 30k, put another 25k into them, and I am all in with the cost of money and closing at 60k.  A 2/1 - 2/1 duplex rents at the low end for $650 a month, so my Gross Rent is $1,300 a month.  $1,300 times 50 equals 65,000.  So I know am good because 60k is less than 65k, so I am under my rule.  In this example I am buying at 46 times rent (46 x 1300 = 59,800). Which is good because twice I have paid more in renovations than I expected due to underground plumbing issues.  It took a long time to find a good contractor I could work with, we lost a lot of money working with expensive or bad contractors.  A good property Manager is essential, my PM helped me find a good contractor, more properties, and is focused on what matters most: Occupancy.

I dabbled in wholesaling for a few months and did not make any real money, but I gained and education. I found my neighborhood where the numbers work and I found my first HML. Immediately after I bought my first SFR, because I had the HML connection, I was able to buy 2 more duplexes and another SFR. Following the BRRRR strategy (I didn't know I was BRRRRing until after I did it) I Renovated, Rented, and Refinanced my first duplex. Unfortunately I was not able to Refinance the SFRs with my Lender, due to minimum loan amounts, so I still hold those with my own money. Then I started repeating and bought a few more duplexes and used Groundfloor.us as my HML. In the meantime I bought another 6-plex under 40 times rent with my Brother near Branson Missouri, then we came across an amazing opportunity in NorthWest Arkansas. Last month we closed on an 18 unit Apartment complex for $375,000. Today, I closed on a 6 property package in St. Louis for a total of 14 units, with the HML my Brother found on Bigger Pockets.

My strategy is not without faults. Because the properties in St. Louis don't appraise high enough, I usually have to put in money to meet the refinance LTV and closing costs, instead of taking out money like most people do when the refi.... But I CASHFLOW, and I am surrounded by nice neighborhoods (the icing on top).

My next goal is to pay off all my St. Louis properties in five years when I retire from my full time W2 job and then cashflow without or with low LTV debit service. I'll maintain my 26 St. Louis properties as my base cashflow so I can retire, and then focus on partnering with investors to buy more properties in my small neighborhood. I also want to buy more apartment complexes in the Ozarks and NW Arkansas with partners/banks.

To summarize:  Buy - less than 50 times rent.  Rehab - include the rehab numbers in the Buy number, and good Contractors are important.  Rent - Use a self-employed Property Manager that focuses on high occupancy and collecting rents, not a firm with fancy extras.  Refinance - I refinance with a lender that offers 30 year fixed non-recourse, but higher interest rates than Fannie/Freddie.  Repeat - Scale up as quickly as possible so you can focus on the second stage, Hold (stabilize and pay off), keep the goal of the third stage Own (high cashflow) in your sights.  But none of this possible without the first stage, Buy.

Originally posted by @Kurt McDowell :

Well it's not really 50... My Brother and I bought 8 units around 2006 and didn't make any money because we bought too high.  And it's really not one year, it's probably closer to 13 months.  So really the headline should be 8 to 58 units in 13 months. I wrote, "Don't Listen to Josh" because I buy in South St. Louis City, I leverage Virtual Assistants and Professional Inspectors so I don't have to do much of the work, and I definitely bought way to fast.

I found a neighborhood in South St. Louis where properties are available at the "2% rule".  I call this rule the "50 times Rent" rule, same rule, I'm sure there are many rules of thumb that work, I just chose the 50x rule.  For instance I buy Duplexes for 30k, put another 25k into them, and I am all in with the cost of money and closing at 60k.  A 2/1 - 2/1 duplex rents at the low end for $650 a month, so my Gross Rent is $1,300 a month.  $1,300 times 50 equals 65,000.  So I know am good because 60k is less than 65k, so I am under my rule.  In this example I am buying at 46 times rent (46 x 1300 = 59,800). Which is good because twice I have paid more in renovations than I expected due to underground plumbing issues.  It took a long time to find a good contractor I could work with, we lost a lot of money working with expensive or bad contractors.  A good property Manager is essential, my PM helped me find a good contractor, more properties, and is focused on what matters most: Occupancy.

I dabbled in wholesaling for a few months and did not make any real money, but I gained and education. I found my neighborhood where the numbers work and I found my first HML. Immediately after I bought my first SFR, because I had the HML connection, I was able to buy 2 more duplexes and another SFR. Following the BRRRR strategy (I didn't know I was BRRRRing until after I did it) I Renovated, Rented, and Refinanced my first duplex. Unfortunately I was not able to Refinance the SFRs with my Lender, due to minimum loan amounts, so I still hold those with my own money. Then I started repeating and bought a few more duplexes and used Groundfloor.us as my HML. In the meantime I bought another 6-plex under 40 times rent with my Brother near Branson Missouri, then we came across an amazing opportunity in NorthWest Arkansas. Last month we closed on an 18 unit Apartment complex for $375,000. Today, I closed on a 6 property package in St. Louis for a total of 14 units, with the HML my Brother found on Bigger Pockets.

My strategy is not without faults. Because the properties in St. Louis don't appraise high enough, I usually have to put in money to meet the refinance LTV and closing costs, instead of taking out money like most people do when the refi.... But I CASHFLOW, and I am surrounded by nice neighborhoods (the icing on top).

My next goal is to pay off all my St. Louis properties in five years when I retire from my full time W2 job and then cashflow without or with low LTV debit service. I'll maintain my 26 St. Louis properties as my base cashflow so I can retire, and then focus on partnering with investors to buy more properties in my small neighborhood. I also want to buy more apartment complexes in the Ozarks and NW Arkansas with partners/banks.

To summarize:  Buy - less than 50 times rent.  Rehab - include the rehab numbers in the Buy number, and good Contractors are important.  Rent - Use a self-employed Property Manager that focuses on high occupancy and collecting rents, not a firm with fancy extras.  Refinance - I refinance with a lender that offers 30 year fixed non-recourse, but higher interest rates than Fannie/Freddie.  Repeat - Scale up as quickly as possible so you can focus on the second stage, Hold (stabilize and pay off), keep the goal of the third stage Own (high cashflow) in your sights.  But none of this possible without the first stage, Buy.

 Interesting story Kurt. It certainly is more risky, but I am not risk averse so I like it.

A couple of things I like. You are buying distressed properties at a discount that can get you good cash flow. Also you are utilizing property managers and looking at multiple markets. It seems like you have a good plan.

Keeping that in mind, I already had similar plans for my investing strategy.

great Job !! Question though ,u acquired the 18 unit Via a HML as well ?

Originally posted by @Stephen Moore :

great Job !! Question though ,u acquired the 18 unit Via a HML as well ?

Yes, my first 4 were with my first HML I knew from Wholesaling, three with Groundfloor.us, and then the 6,18, and 14 with the HML found on Bigger Pockets.

Great stuff. I’m in St. Louis as well!

@Kurt McDowell , thank you for sharing your success! My wife and I looking to start in St. Louis as well. The city offers a great variety of property classes within each area. You mention a specific neighborhood, were you trying to saturate a very specific area with your footprint? Even down to the block(s)? Did you pick properties as they became available? Or did you proactively approach owners knowing you wanted a specific area? Curious your strategy as we are trying to find our way and build a path for growth. 

Awesome.  Love this strategy!

Great job, Kurt!

Question: I’ve been interviewing a few HML to do my first deal I hope to dive into soon. How was your experience with Groundfloor?

@Jared Sanderson Groundfloor is great, can't beat the interest rate, but points are alot. I would prefer draws upfront, but I understand why they transfer draws after an inspector verifies work completed

Good story until you ended by saying you intended to pay them off. Shame, real shame you intend to kill your cash flow with dead equity.

You could be making twice as much if not more if you understood the value of your money.

@Thomas S. I agree, I'll keep the debt between 30 and 60 percent of value. Having a little equity to cross collaterize the purchase of future properties is always nice though.

We are looking at one property but there is great opportunity on the same block and adjacent. Did you find HML for cash offers a key in your growth to ensure you were purchasing at a price to maximize equity?

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@Kurt McDowell great success story!  Thanks for sharing.  I'm curious as to what marketing strategy you used that allowed you to ramp up so quickly?  Did you have to send a lot of direct mail?  

@David Ounanian @Joshua Tikal I sent 800 postcards last year but after but now most of my sellers come from the local Facebook group, distressed landlords trying to manage on their own. And as far as HML goes, it's essential, I don't know of any other way to BRRRR besides partering

Very well done Kurt! Congrats on your successful investing.....and thanks for the tips

@Kurt McDowell Do you still send postcards? If so, what's your cost per PC with postage?

@Ray Lai yes, we target apartment owners in northwest Arkansas and southwest Missouri with our postcards campaigns. Postcards with postage cost around forty cents each

Excellent strategy. I’ve made so many mistakes over the years. It’s important to see a “plain talk plan” like yours. I will try to use going forward.

@Kurt McDowell

Cool, that's a good cost. Do you use a CRM for deal flow as well with your DM campaign?

What neighborhood are you in and what about it led you to take the plunge there? Was it strictly the numbers, i.e. maybe C- or D area but it's a strict cash flow play, or do you see upside from job growth, gentrification, etc.?

@Max Householder I'm in 63111, 63118, and parts of 63116.  I took the plunge because of the numbers, availability of deals, and potential upside/gentrification, i.e. the growth of the Tower Grove East neighborhood.  

@Mindy Jensen just listened to your recent podcast episode. I don't connect with many other investors because I am out of state / virtual most of the time. If there are any new investors out there looking to connect with a mentor, etc., please let me know if I can help anyone via phone, Skype, etc.

Great job utilizing the BRRRR strategy to scale quickly and effectively!

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