Reasonable built in equity in Providence RI?

Question

Hi everyone, one of my main search criteria i have to find my first few triplex in Providence or close by is - buy with a 10 to 20% built in equity (off market), my question is;

is this reasonable for providence? Can i stand firm for 20% or am i pushing it?

Thanks in advance for anyone

Brandon Ingegneri · Answer

All depends on whether this is an off market or retail deal. I am consistently buying property with equity in and around the city. Every deal has been off market.

Brandon Ingegneri · Answer

So to answer your question, within the last 45 days, I have done 4 transactions. I will provide you basic numbers on all of them. Every single one was an organic off market deal.

Central Falls: Industrial Building, SFH, 4 unit package. Acquisition $450k. Appraisal $572 before value ad.

Providence. SFH. Acquisition $50k. ARV $180-200k. EST rehab cost $60k sold as is

Narragansett:  SFH  4 bed 1 bath  acquisition $235k  Appraisal $417k. rehab $60k

North Providence: Brick Duplex.  Acquisition $230k.  Tons of value ad opportunity and ability to ad a legal 3rd unit  rehab @70k.  ARV $392k.

Doing all of these metrics out, I would have paid more on taxes on the SFH in Prov had I kept it than I would have individually for Narragansett, and NP.  CF property is taxed commercially and really isn’t a comparable as it is 3 combined parcels.  However, it is worth much more if I were to subdivide and sell off individually which I would not do

Brandon Ingegneri · Answer

All long term holds with the exception of the one. Thank you, but killing it is relative. Heavy cash reinvestments into the business are required to purchase all of these properties.  We make a hit on a deal, and it immediately gets invested into a buy and hold.  I see monthly cash flow, the equity factor isn’t realized for a minimum of 2 years following the purchase. It’s nice knowing if something were to go wrong that I could pull the rip cord, but that equity doesn’t translate directly into money in my pocket right away. It gets continually reinvested.  I don’t plan on selling until I am about 55-60, so the equity factor isn’t as much of a concern for me. I won’t sell a property unless it carries zero debt or if  I was forced to for some reason. It’s like Grant Cardone said and I’m paraphrasing, “ Every time I get money, I go broke again because I reinvest it”.  It’s the only way to grow without overlevering

Nelson Taylor · Answer

That’s a difficult question. Impossible in the top neighborhoods. Market still too hot. And difficult with nicer updated properties.  You’re probably looking at properties to BRRRR. If you can do cash, I think 10% at the lower price ranges is def possible. I’ve been having luck with motivated sellers, properties with extended DOM and adding equity by adding value.

Anthony Thompson · Answer

@Eladio Perez it’s not impossible, but it’s going to be very difficult in this market environment.

Keep in mind that when you say “20% built-in equity” you are basically saying, “I want to buy this for 20% below market value”.

To be honest, that’s extremely unlikely to happen buying from the MLS today, and is difficult to do in any market because the real estate agent’s job is to try to get market value and the MLS is essentially the market.

What you’re trying to do is exploit some kind of market inefficiency where you know the “true” value but the seller and agent don’t, so you are able to buy below market value. (Rehabs are the classic example of this because you’re hoping you know the true cost of the rehab better than the seller.) Or, where the seller and agent might know the value but because of special circumstances (e.g., job transfer) the seller is willing to take less than market value anyway.

These days, word has gotten around that values are back up, so it’s very difficult to find that kind of inefficiency, at least buying from the MLS.

It’s still possible that if you contact sellers directly, you can negotiate a good deal with them one-on-one. This is the classic “find the motivated seller” through direct marketing strategy that is the basis for wholesaling, but in this case rather than sell it to someone else you’re looking to keep it.

In general this can still work, in fact one of my real estate mantras is “the best deals are the ones you make yourself”. However the hunt for such deals is a grind which will likely involve a lot of time and possibly money, as you will need to put out a lot of direct marketing effort consistently over time to find a seller who is motivated enough to make it a deal.

There are two factors that make it more difficult to do this than it was, say, ten years ago. The first, as I mentioned, is that word has gotten around in general that prices are high again. So the chances of finding someone willing to take a steep discount on the property value are less (not impossible, just a little harder). Also, related, many people these days seem to start at Zillow and assume that’s what they can get for their property, which also wasn’t really a thing ten years ago.

The second is, well, competition. Attendance at my last REIA meeting was literally “standing room only”, and I’m starting to see telephone poles with multiple “we buy houses” signs on them, just like I did in 2006. Word has once again gotten around that you can make a lot of money in real estate, and average folks are getting the real estate bug, guru seminars are coming through town (there was one in our are last month and I’m told there’s another this month), people are signing up for Bigger Pockets in droves, everyone’s sending out yellow letters and buying Google AdWord campaigns, etc.

And of course, every one of those people ALSO wants to buy real estate far below market value. I mean, who doesn’t?

I’m not trying to dissuade you or instill hopelessness, just a sense of realistic expectations. Yes, it is still definitely possible to buy real estate below market value, maybe even 20% below market value. But if you’re set on that number then you’re going to have to commit to doing multiple marketing methods consistently over (probably) many months at the cost of a lot of time and money, with no guarantee of results.

You may luck out and find a gem in the first month, or you may spend six months on it with nothing to show for it besides a phone log of sellers who all wanted way too much. I can’t tell you which will happen, but if you insist on buying 20% below market value I can say that is likely the road you will need to go down to find it.

You also need to ask yourself the value of action now vs. the possibility of “analysis paralysis”, or “letting the perfect be the enemy of the good”. In other words, would it be so awful to pay market value or close to it, buy a 2F or 3F, live in one of the units and maybe even upgrade them over time, and learn the landlording side of the business - versus holding out for the definitely 20% below market value deal which may take a while to find. (In other words, the BRRRR strategy.)

Again, I’m not trying to tell you what to do, but I’m trying to say that if you find yourself floundering and unable to find the 20% deal you’ve been insisting on, you might consider that it could be better to buy something closer to market value just to “get a piece on the board”, get in the game and start learning about owning a property now.

Hope this helps, and keep us updated on your thoughts/progress of course :)

Nelson Taylor · Answer

Congrats on those deals. You sound like you’re killing it.

Eladio P. · Answer

Thank you @Nelson Taylor. Im planning financed residential or financed commercial multi family. 10% is ok i guess if the market is hot. That’s a good way to go extended DOM. good luck!🍀

Eladio P. · Answer

@Brandon Ingegneri, thank you. Im planning to strictly stay off market. On average, about how much built in equity have you been doing? If you dont mind me asking. Have you done deal outside of providence recently? And how would that compare to providence deals regarding taxes?

Thank you in advance.

Eladio P. · Answer

Thank you @Anthony Thompson this has been the most complete answer to one of my main search criteria, i have read it twice.

Reasonable built in equity in Providence RI?

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