how to jump in to the deep end...

Question

I've listened to quite a few podcasts and have been intrigued with most of them. The ones that really get the blood flowing are the ones like "298" where the purchase happens to be a large number of units.

I still feel like a newbie but I'm a 100 mph type of person. Currently my partner and I have acquired 45 units (just shy of a million in total real estate) in less than 2 years and we're building solid systems and allowing the dust to settle.

I guess I have a multi-faceted question... where do I find the listings that are more than 10-15+ units? I'd prefer to stay somewhat local vs investing in an unfamiliar area of the country. Or should we branch out and look for properties that are long distance? And finally, should we keep up this pace or should we relax?

Jim Goebel · Answer

@Andrew Pfleger

There's been multiple threads about goal setting, and I'm picking up you're in that mindset where you're thinking about units.  That's how you're framing stuff.  I'd encourage you to shift more towards more tangible 'bottom line' type of goals, or value/meaning type of stuff.

I'm a little confused by the statement that you're at 1 million in real estate with 45 units.  That's, $22,000 per unit?  It's hard for me to wrap my head around that.  How much are they producing in income?  Just seems a little wacky!

I think it's going to be hard for people here to provide meaningful recommendations or thoughts with the info you've provided.  Can you give everyone a feel of what you're dealing with?  What are your biggest challenges?  Do you need any kind of lifestyle change(s)?  Are you learning what you want to be learning?

Jim Goebel · Answer

@Andrew Pfleger

Hey Andrew, I'll do my best here.  Hopefully someone else weighs in, as all I can do is try to provide something coming from what we've done.

So - firstly, it does seem like time is one of your biggest constraints.  Do you have succession plan in place or is it possible to make the funeral business more passive?  Can you step away?

Regarding the strategy piece, here's my initial take: you probably have some 'general' business chops that comes with running/managing any business (If I'm understanding what you've got going).  That, along with the piece of real estate you have going.  Kudos to what you've got going.  I think the general converting some capital into some cash flow/money is what you've done if I'm understanding your numbers a bit.  You mention value ad, but that's probably the basics, if I had to assume.  I mean, we are talking about 22,000/door here.  I'm assuming you are using basic finishes.  You probably are just cranking through them.  When you get into a higher end product/market, it becomes like every design decision is its own independent 'deal' or house.  The analysis is actually very much the same (ROI, payback, etc) as if you're looking at a deal - but, you might be deciding on counters etc.

When you write things like 'jump in the deep end' perhaps what you're really looking for is some sort of a step function.  Having extra time can help that, however, part of the constraint is simply where you are, it sounds like.  So, you have a few options:

• Take on substantially more challenging projects, both in size/scope
• Take on projects that involve a different asset class
• Deal with challenges related to different geography (I'd think you'd want to move 'up' market)

These are the things that you can do one or more of - you may want to think about your options and be realistic too about your capabilities.

There's a lot of people doing a lot of different things on these forums, but the above gets you moving 'up' the value chain with regards to developing capabilities, and working towards furthering your 'build' skill-set.

All this said, I have a friend that operates in a smaller market in Iowa that's probably a bit closer to what you are doing.  He's doing mostly SFHs but they are cheaper, and turn quickly.  He just shoots to make $200-300/unit, just like you.  His background is different, meaning - he's not a building/contractor guy by education or professional training.  He has picked it up and does well with it.  I'm an engineer, trained and licensed so that lets me kind of 'lean' in to the more challenging projects.  I'm actually looking for large value ad stuff where the house is a pretty light rehab EXCEPT for major structural or foundation items, because most of those kinds of items now don't scare me away and I can differentiate and compete with less people when finding them.

It takes baby steps though, if that makes sense.  If your base skill-set is more of a general business, then you may want to 'lean' in to something a little differently - for instance, I know plenty of people on these forums do well doing high volume, perhaps wholesaling, etc.

For me, I just personally find the 'building' and solving problems a lot more interesting/rewarding.

Of course, there's always doing something completely different, as well.  Nothing wrong with that!

Andrew Pfleger · Answer

@Jim Goebel First... Thanks for the reply!

Yes, that is correct, roughly 22K per unit. I know, insane... I'll try to dissect your response. Since my partner and I are fairly new to investing and owning property we are in the process of a few things...

So far we've gotten right around the 2% rule on about everything we have purchased. I'm currently working a W-2 job that I could probably retire from after 30+ years or so of just doing the norm (my partner is a CPA but is a stay at home dad). I'm late 30's, and constantly being pulled away from my family. Funeral service is great, I love the aspect of what I do but I hate that it comes with the price tag of always being there for someone elses family before my own.

We bring in roughly $250-300/mo cash flow per door so to this point we've bought value-add properties. The worst property on the best street with rents that are considerably low. My partner and I are both from this area (born and raised) so we know the areas that are worth investing in etc.

We have purchased a 4 unit just a week ago that we paid 50K for the property but added 20K for improvements flipped a unit the week after close and raised rent $125/mo. We'll prob need to flip 2 more of the units and we'll raise those rents as well. We bought a duplex a year ago for 35K that was headed to auction before we made an offer. It needed new carpet and paint in one of the units. There's a current tenant who is paying $200 below market value and we raised the 2nd unit rent to now get $700/mo rent. We just landed a 5 unit building for $110K, 4 of those units have been remodeled. a 3 BR unit needs small improvements. All this to say that we are in a 50% rental area. Prob what some would consider lower income with a lot of potential. Pockets of bad but for the most part good.

This area is right on the Mississippi river about 20 mins from downtown STL. So we're essentially a bedroom community to STL. A lot of commuter traffic to and from for work. Its a little deceiving to call us the "Alton" area because Alton-Godfrey are essentially the same. They both share the same schools, you aren't sure at times if you're in Alton or Godfrey. Alton was a booming city back in the hay-day. More millionaires per ca pita than anywhere else in the country (or so I've been told). We're home to Winchester ammunition, a couple of Steel Mills, a glass factory, the box company, all of which are gone. The one thing that remains is a shadow of the Steel Mill. About 10 years ago a local attorney who's done quite well (John Simmons)revived it. (hopefully this isnt too wordy)

On the flip side of the down-side we're a tight community. We were just featured on Hulu's season 3 (airs October 4) Small Business Revolution, named top 10 places to retire by AARP and another large publication that is slipping my mind at the moment.

To this point we've focused on X number of doors to get to a specific cash flow number in order for me to have the option of walking away from my W-2...

specific challenges have just been

*finding that sweet spot of property and location and getting the bad inherited tenants out

*getting improvements done that needs to be done. We have a great team but trying to get the amount of work done we have can be complicated logistically.

*having enough time to do it all in general

*local PM company is not up to our standard so we have to self manage.

positives

* we've got some really good systems in place that help things go smoothly

*in 2 years we've never had to evict anyone and we've collected roughly 97% of rent in that same time.

*we added my college roommate and best friend who has committed to investing 1.2 million after seeing Ryan and I work this market for a year and saw potential in both our LLC and the area we are investing in.

Life style changes? I prob need to make a decision sooner than later to go all-in and walk away from my W-2 or hire help.

Learning what I want to learn or need to be learning? I feel like Ryan and I are learning as much as we can in the time we have to learn. We've learned on our own, we've learned a ton from BP, and we've been able to discuss topics with people in the area (local experts) who we've been able to get in front of.

Outside of that, I just hear a lot of the "all-in" mind set and I get excited and am ready to dive right in. We've gotten this far. I feel like the only thing holding us back is time.

Be Gentle!!! Ha! again, thanks...