Hey Guys,

I wanted to post a win here and see what other people thought. 

A couple years ago I had bought a property in the Chicago area. It was meant to be a flip and connected myself with a broker. We ended up purchasing a property at $145,000 with a $45,000 rehab budget. The ARV was expected to be about $250,000. We felt fairly comfortable since the broker was doing flips himself in the same neighborhood we were in.

Long story short, the rehab went $3,000 over budget which didn't seem to be a big deal. We used a hard money lender and credit card builders in order to float the rehab costs. The lender financed the purchase price and then gave out distributions for completion of the project in a 4 phase approach. We used the credit cards to pay the contractor up front and then reimbursed ourselves with the distributions. 

The last distribution we received, but the rehab was done and was expecting 45-60 days on the market before we received an offer, so we kept the cash from the distribution, kept $13k in credit cards since they would be paid off at closing. To our dismay, a year went by and we lowered the price from $250k down to $225k which would be breaking even. We have over 30 showings and no offers. So we decided to rent the property. 

This was very scary for us, since our hard money loan was coming due and if we weren't able to refinance we wouldn't be able to sell the property with a renter inside. So a lot of networking happened, and in the end we refinanced the hard money loan but held on to the credit card debt.

The success comes after. We learned of a placement company for insurance companies that need housing for people displaced due to flooding, fires etc. Their leases are normally 6 months, with a first right to go month to month for a total of 1 year. The great thing about it is, since it is short term rental, and furniture is provided by the placement company, we are getting approximately $800-$1000 more per month than we would on the open market. We are receiving $2700/month with a mortgage of approximately $1700/month. It hasn't come without its challenges and repairs from a lot of turn over in the house but we have been doing this for 18 months and has worked out wonderfully. 

This project has slowed our growth since we do have some debt and didn't get the lump sum of cash we were expecting to get from selling it, but through hard work and determination we were able to find a solution that still put cash in our pocket and salvaged the equity we have in the property.

I write this not to brag, but our investment career has been somewhat of a challenge while my business parter / brother and I are both in the military and work on average 10-12 hours per day. I hope this can be an inspiration to other people to keep pressing and solve the problems in order to add value to whatever you are doing. You will be rewarded in the end!

Cheers!

-Doug

@Douglas Vogel thanks for sharing.   When will you plan to sell and get all your cash out?   We have used the insurance companies many times and it has always paid off for us.  We ask for 30-40% more in rent and payments is never an issue.  

Good luck. 

@Douglas Vogel also thank you for yours and your teams service.  

@Mark Ainley our pleasure! We aren’t sure yet. We are looking at breaking even with all the loans we accrued on the property for floating it for a year. We estimate we need to sell it for about $280k to break even with closing costs etc. I’d say we will likely hold onto it for 3-5 years get some good cash flow out of it pay down some debt so we see some profit at the sale. Where are your properties? Do you work directly with insurance companies? The placement company I’m working with is the only one I’ve found that offers this service for their insurees.

great story. Thanks for sharing. Never thought about the insurance companies.

@Linda Carretero I didn’t think about or even know that was a possibility. I stumbled across it and wanted to see if it would be a viable game plan for my rental. So far it’s only been successful in Chicago so far. The company I’m using only handles chicago and I haven’t found anything other companies yet.

@Douglas Vogel how did you find the company? I’m in a different market but have never heard of this before. I think it may come in handy for the future and would love to know how to find out more about it or where to look.

@Douglas Vogel That’s great!!! What’s the program name? I may run into this issue on my current project.

@James Canoy ALE solutions. Found them through networking but only in chicago.

@Douglas Vogel Way to go and thank you for sharing!

@Grant Rothenburger no problem. I figure people can learn from my mistakes!

@Douglas Vogel Thanks for sharing your experience and wonderful advice.  I'm in the Chicago area and I'm definitely going to check out ALE solutions!!