My First Deal = 6 Doors!
My First Deal = 6 doors!
This story begins as many other stories that heard told on the podcast: I started listening to the BiggerPockets Podcasts to and from work trying to figure out a way to exit the corporate world and wondering if there was anything out there that could help create a “passive” income to allow me to do just that. After 2 years of listening to podcasts, buying every single book that BP had to offer and listening to all 300 podcasts about 3 times each, sometimes more, I took @Brandon Turner’s advise and TOOK ACTION (finally).
It started with trying to network. My wife and I joined the local REIA and she joined their WIRE (Women In Real Estate) group, trying to get involved once a month by networking with people. Unfortunately, we found ourselves wanting more. We met with a friend that was also a part-time realtor. We signed the realtor non-compete with her and proceeded with the search. A couple of months went by and only 1 horrifying walkthrough later, I decided it was best for both our interests if I fire her [learned lesson #1: newbies shouldn't work with agents who have no investor experience]. At the time, it was a difficult decision, since she was a family friend, but I kept hearing @David Green in the back of my head saying, "Are you running a business or not?" She seemed to understood that we needed more agent experience, which helped when we parted "professional" ways.
Another few months passed hunting on my own, when I saw there was a BP meetup in our area put on by @Dawn Brenengen from episode 101! Talk about an awesome opportunity! I met Dawn and a few other people there at the beginning and after a few times going was wanting still more. We took to heart @David Green and Brandon’s advice to offer value to people, so we offered to take over the organization of the local BP meetups. We offered to create the BP postings on the website every month, create & circulate a sign-in sheet of contact information to everyone who attends the meetups in our area. This was a great way to get to know all the amazing people there as well as become a contributing factor to the meetup itself.
As luck would have it, or opportunity meets planning, it was at one of these BP meet-ups that my wife met our mentor. It was actually her first BP meetup and she refused to sit near me in hopes that between the 2 of us, we would meet more people. Near the end of the evening, after questioning him for nearly 2 hours, she ushered me over to hear him repeat the numbers on the deals he had been making in Rocky Mount. That night our mentor told my wife about his experience managing multiple doors across several different states. He encouraged us to attend a sub-group meeting of the local REIA being held in Rocky Mount, so we met up with him again the following week. Between the Rocky Mount sub-group, the Raleigh REIA, and the BP meet-ups, we network almost weekly! Needless to say, we like to talk to people.
Over the course of the next few months we developed the relationship with our mentor and he was gracious enough to introduce us to a Broker in Rocky Mount. The Broker, himself, is a very well established Investor with close to 400 residential doors and a Commercial property in downtown Rocky Mount. After only a few conversations and a couple of days, the Broker came back to us with 2 multi-property off-market packages, each from a different seller! One package was a 4 plex and 2 duplexes and the other package was 2 SFHs and a duplex. Was this luck, or opportunity meeting preparation? During analysis of the properties we were in the process of taking out a HELOC on our primary residence, with the plan to use it for investing.
After running the numbers on all of the properties in the 2 packages, we decided to make an offer on 1 property from one of the packages and all but one property from the other package. I offered $90,000 for 2 SFHs and 1 duplex and $30,000 cash on 1 duplex from the other package. One seller countered the $90K with $100K and the other seller accepted our $30K cash offer. We could not believe it! I re-ran the numbers with the new offer and it still worked!! Blew our minds!
Now onto the nitty-gritty… how do we pay for this?!?! We did not have $130K cash in our HELOC, but this is the part that rings so true when @Brandon Turner and @David Green always say, "Rockstars Know Rockstars!" Our Broker put us in contact with a local lender who could help us structure a deal for the 4 properties with two separate sellers under 1 loan. Ahh, the power of a local bank! The lendor structured the deal into a Commercial loan as the total for the 4 properties is 6 doors. If, of course, we could come up with closing costs and 20% down ($3,800 in closing costs and $26K downpayment). Now where do we find the $26K? HELOC?? We certainly could have, but then I recalled what @Brandon Turner said in "How to Invest with No or Low Money Down," and my wife and I went to her parents for some private money lending. Luckily for us, my wife's father has recently taken an interest in real estate investing and loved the idea of being a PML. Plus, as it says in the book, "if the deal is good, the money will find you." We drew up the terms and he cut us a check. Could it really be that easy? Yes, yes it can!! And we did it with only the $3,800 for closing costs out of our own pocket, WOW!!
Details on the numbers follow:
SFH
Purchase price = $55K
Current rent = $615/mo
Appraisal = $74K
ARV = $95-$105K
Projected Increase in rent to meet Market Rates after repairs = $850
1st Duplex
Purchase price = $22.5K
Current rent per side = $245/mo ($490/mo total)
Appraisal = $33K
ARV = $45-$55K
Projected Increase in rent to meet Market Rates after repairs = $450/side ($900 total)
2nd Duplex
Purchase price = $22.5K
Current Rent per side = $285/mo ($570/mo total)
Appraisal = $31K
ARV = $45-$55K
Projected Increase in rent to meet Market Rates after repairs = $450/side ($900 total)
2nd SFH
Purchase price = $30K
Current rent = $450/month
Appraisal = $30K
ARV = $45-$55K
Projected Increase in rent to meet Market Rates after repairs = $450/side ($900 total)
Wait --- How can a SFH be $450 per side ARV?? Here is the kicker on this house. Upon inspection, this house has 2 front doors! I went inside and low and behold it had been originally built as a duplex and had already been wired with 2 electrical sub meters, but at the time it was built the city zoned it as a SFH. So, I called the city and they said they just have to assign another address to the lot to make a Duplex! I fix it up, turn it into a duplex, and raise rents … BAM, I just doubled the cash flow on a single property!
Unfortunately, the owners and Property Managers absolutely neglected the properties AND the tenants. Since I could recognize value-add opportunity, these were a no brainer. Old Money sometimes equals neglect from the owners, which allows me to up the rents after the repairs and capture all the profit that was missed previously. My background is in construction: building condos, townhomes, apartment buildings, and custom homes. So the walkthroughs came a little easier for me. With the help of a local contractor, we determined the cost of repair and what the increased rent raises could be. It is always a good idea to bring a contractor (or multiple) with you even if you think you know what you are doing. I may have tons of construction experience, but did not know the local market as well as the local contractor did. Be humble, it will go far.
All together, I plan to cash out refinance 80% LTV (no seasoning period); allowing me to pay off my Private money lender, all of the repairs (totalling $35-$40K), and put around $15-$20K in my pocket. I plan to reinvest all of the profit in the next BRRRR!
As another side hustle, I built a Treehouse for my 4 & 6-year old daughters in my backyard. After listening to the podcast with Zeona McIntyre (#229), my wife convinced me we could pay off he cost of the materials by Airbnbing it! And I thought, why CAN’T I make money on this?? Now we have a backyard camping experience for all to enjoy!
In summary, there are key takeaways that every new investor should know. I am not special, just an average guy with a drive and focus to change my life. 1) Surround yourself with people who are smarter than you and be humble enough to admit it. 2) Do not wait like I did to take action. You need to be pounding the pavement every day and always pushing the ball forward even if it is only a little bit every day. Progress is Progress. Do you want to change your life or not? There are hard days that you will have to push through in order to succeed, but remember you are not the first one to go down this path. Thousands have gone before you. Don’t expect handouts. 3) Let the relationships you build happen organically through your network. Always follow up and offer value where you can. 4) Don’t be afraid to take on as many properties as you can from the start if your end goal is to do this full time. Bring on the fire, I say. As gold is refined through the fire, so is your success. You win or you learn. We have made mistakes through the process but they were small due to the fact we had bumpers in place in the bowling alley of Investing. Those bumpers are the experienced people that you meet and can bounce ideas off of and glean information from. Set goals and reverse engineer them to find out where you need to start, then take action! Read, plan, execute. I still view myself as a newbie and honestly, I hope to always have the newbie mindset in regards to continuous learning and the hunger to succeed.
Looking ahead, my wife wants to start a Property Management company in Rocky Mount that will actually care about the Investor and Tenant. As in many places, there is a large gap in that market, and we hope to fill it. I will be starting a small Handyman business that can serve the local investors as well. Create multiple streams of income right? With the goal of getting 12 units or more in this (my second) year, I will do everything in my power to make these dreams come true. Will you?