New investor from San Diego

Thomas FranklinPro Member

Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes

10y

@Anand S. Since you are interested in fix and flips, I propose the following action plan. The first step would find an Investor Friendly Realtor assuming you do not have access, to the MLS. I would suggest that you interview several Realtors and ask them the following questions, to ascertain if they are truly Investor Friendly, or if they are throwing you a sales pitch.

1. How many investors do you currently work with and how many investors have you worked with, in the past?

2. How many transactions have you closed, with investors?

3. Do you currently own any Investment Properties? If so, what type do you own?

4. Are you a member of any REIAs?

The next step would be to work with the Realtor and determine the hot markets, in your County, with the greatest number of sales over the last 90 to 120 days. Personally, I would prefer 90 days because markets are always changing. This list would contain the zip code and corresponding name of the municipality, and a breakdown of the number of SFRs. This will be your Farming Area. From this data, you can utilize a website bestplaces.net that will give you a breakdown of the percentage of homes that sold, in various price ranges, for a given zip code. You can identify the two highest retail price ranges, in greatest demand, per zip code where you can list the rehabbed property.

You can use the Realtor to help you find deals and also use Wholesalers. If you acquire a property, from a Wholesaler, once the property is rehabbed and ready for the Retail Market, allow the Realtor that provided you the zip codes, to list the property for sale. This creates a WIN-WIN Situation and gives the Realtor incentive, to work harder on your behalf.

3 Reply

Thomas FranklinPro Member

Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes

10y

@Anand S. Many Investors that flip homes use the 70% Rule that says 0.7 x ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.

I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.

ARV – Desired Profit – Closing Costs to Buy – Repairs – 10% of Repairs – Holdings Costs – Concessions – Realtor Fees – Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).

ARV: After repaired value or what you think it will sell for once repaired.

Desired Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be. As a General Rule, my Desired Profit is $20,000 or 20% of ARV whichever is greater. To have an offer accepted, one may need to adjust their Desired Profit; however, it should not be below $20,000, or what one feels is acceptable.

Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.

Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.

Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, insurance premiums, property taxes, loan payments, etc.).

Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.

Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 6% of ARV.

Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.

This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.

OP

Investor · San Diego, CA · Member since 2014 · 36 posts · 8 votes

10y

Originally posted by @Shawn Couch:

@Anand S. Welcome to BP. I like your strategy choices. Always a tough decision for us San Diego folks. Reach out if you are curious about my investments.

Shawn

Thanks Shawn. I got lucky with my first rental here since I got it in 2010 which manages to cash flow - pretty rare in poway school district. The cashflow properties in outer San Diego county like Ramona or Alpine seem to not make much sense in either appreciation or COC. Definitely would like to connect and know more about your strategy.

OP

Investor · San Diego, CA · Member since 2014 · 36 posts · 8 votes

10y

Thanks for the warm welcome with fabulous insights, Thomas.

Ali Boone

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

10y

Hey Anand! I'm a former engineer...what kind do you do? I was aerospace. I also live in CA and invest out-of-state.

Well $30-40k isn't going to fund a flipper in San Diego, for sure (unless you have some seriously swanky hard money lender...). It will also be a stretch for an out-of-state flipper too...depending on the price point you are looking at (because you'd have to pay 20% down for a mortgage, then fund the rehab with some amount to a hard money lender...). But numbers aside on flip vs turnkey--those are just two totally different animals. The risk levels, the work/effort levels, the capital levels, and the skill levels required are on two totally different planes. So I'd think your decision on which of those to do would need to be based on figuring out how much time, effort, capital, and risk you are interested in taking on.

I've always gone the turnkey route... I say that not to sway you but to tell you that I am going to visit a Chicago turnkey provider I've worked with for years middle of next month and I plan to write up a report on my experience and findings. Happy to share it if you are still leaning towards Chicago!

OP

Investor · San Diego, CA · Member since 2014 · 36 posts · 8 votes

10y

Hi @Ali Boone

Nice to know you, I am in semiconductors...

I agree with you, $40k is not going to cut it for a San Diego flip. Maybe, I can raise upto $100k from friends, but need to have a good handle on the risk and margins. Else, it might jeopardize the journey before it even started. I am with you on mostly leaning towards out-of-state turnkey at least for starters. I am comfortable with $30-40k per year - and maybe this might make the best sense. Curious to know, where you are in your turnkey journey and how has it been so far?

I did some reading up on returns, providers, prices in various neighborhoods in the country including Indiana, Chicago, Texas (Austin, SA, DFW, Houston), Raleigh, Charlotte, Atlanta, Florida (few cities), SLC, Baltimore, Cleveland. I am leaning towards Chicago and Indiana, given the amount of providers, properties, COC etc.

Edward Rhoads

Rental Property Investor · Indianapolis, IN · Member since 2016 · 200 posts · 87 votes

10y

$40k can if you are careful buy you a house in an okay area in Indianapolis that has a market value of about $60k and cash flow about $400 a month.

Mark Nolan

Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes

10y

@Anand SRG

Welcome to Bigger Pockets. The Bigger Pockets book store if full of great books: https://www.biggerpockets.com/store

Ali Boone

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

10y

I'm 4 and 5 years into owning my own turnkeys, and then I've been working more on the seller side of turnkeys for 3 and 4 years (or more accurately, with sellers, not for them). So I've seen quite a bit, had learnings from my own properties, seen the good and bad, etc. Even with the challenges I've seen, I still love them and wouldn't trade them.

Of all the markets you mention, Chicago and Indy are the only ones I'd deal with personally. Atlanta is long-done in my opinion (lots of saturation and better returns elsewhere), the TX cities either don't have cash flow or it's minimal and little inventory left and the appreciation boom already happened, Cleveland and some of those I don't consider strong growth markets so that increases risk, etc. Chicago and Indy though I'm still working with both of those. Happy to share anything on those!

OP

Investor · San Diego, CA · Member since 2014 · 36 posts · 8 votes

10y

Originally posted by @Edward Rhoads:

$40k can if you are careful buy you a house in an okay area in Indianapolis that has a market value of about $60k and cash flow about $400 a month.

Hi Edwards

I would assume $40k should cover 25% down and closing for $150k duplex/triplex netting close to $600/mo CF. Am I being unrealistic here in my expectations?

Jonathan Blandino

Atlanta, GA · Member since 2014 · 39 posts · 5 votes

10y

@Ali Boone Hey Just relocated to ATL and do feel there is saturation but was wondering if you felt it was overall in the real estate game or just for turnkey properties?

OP

Investor · San Diego, CA · Member since 2014 · 36 posts · 8 votes

10y

Originally posted by @Ali Boone:

I'm 4 and 5 years into owning my own turnkeys, and then I've been working more on the seller side of turnkeys for 3 and 4 years (or more accurately, with sellers, not for them). So I've seen quite a bit, had learnings from my own properties, seen the good and bad, etc. Even with the challenges I've seen, I still love them and wouldn't trade them.

Of all the markets you mention, Chicago and Indy are the only ones I'd deal with personally. Atlanta is long-done in my opinion (lots of saturation and better returns elsewhere), the TX cities either don't have cash flow or it's minimal and little inventory left and the appreciation boom already happened, Cleveland and some of those I don't consider strong growth markets so that increases risk, etc. Chicago and Indy though I'm still working with both of those. Happy to share anything on those!

Would love to learn from your experience. I have a few questions, excuse my greed ;)

Please let me know if you prefer to answer over email or if you prefer not to answer some, if it is private.

1. What are the real returns you have seen in your own turnkeys in those areas in the past 4-5 years?2. Who do you recommend for turnkey providers?

3. What are the timelines - from initiating contact with certain providers to closing on the deal?

4, Have you ever worked with turnkey providers who also throw in additional incentive by helping you acquire a rehab and they would manage the rehab and subsequently rental.

Edward Rhoads

Rental Property Investor · Indianapolis, IN · Member since 2016 · 200 posts · 87 votes

10y

Well I meant the purchase + repair = $40k without borrowed money for a SFR.

If you want a duplex and borrow the money for about $80k all in before borrowing you should be able to get a $100k duplex in an okay area which gets about $800 cash flow.

If you put 25% down and finance then for $40k you can get two of those which each have cash flow of about $500 a month.

Ali Boone

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

10y

@Jonathan Blandino Overall. Turnkey is only a method of buying, not of owning. Once you buy one, it's just like any other rental property. Of which a ton exist in Atlanta. The saturation comes in when you are trying to find tenants to rent your house. They have so many choices, it typically takes much longer than it ever used to to find tenants...because they have so many options.

@Anand S. Not greedy at all! It's what I'm here for :)

1. What are the real returns you have seen in your own turnkeys in those areas in the past 4-5 years?

Honestly I haven't calculated mine in a long time to be able to give you an exact number. They are still worth owning from a cash flow perspective, if that helps :)

2. Who do you recommend for turnkey providers?

Email me or PM me on here (can't include email address in here, but it's in my profile)

3. What are the timelines - from initiating contact with certain providers to closing on the deal?

Depends on whether you are financing or not, and how long the construction will take. It used to be that all turnkey properties were already ready by the time they were listed, but the demand got so high that now they get listed before construction even starts and put under contract (usually). If financing is the only hold up, usually 30-45 days for the lender to do their thing. Construction, hopefully not more than a month or two (simultaneous to the lending, not in addition), but depends on the property and what they are doing to it.

4, Have you ever worked with turnkey providers who also throw in additional incentive by helping you acquire a rehab and they would manage the rehab and subsequently rental.

There are a lot of these companies, and while I haven't done any of them myself, there is only one I would recommend- it's a company I deal with their regular turnkeys on a regular basis, but they also offer this method. A lot of companies only offer the method you mention...and to me there's less proof in the process so the risk is higher. Versus this company, you can see a lot of completed properties already since they sell regular turnkeys too. It's a great way to force appreciation while still under a turnkey type of setup (regular turnkeys won't let you force it).

Dmitriy Fomichenko

Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes

10y

@Anand S.

Welcome to the BP family! You came to the right place to learn all about real estate investing! Here are some recommendations for you:

Find and connect with other BP members that are in your area: http://www.biggerpockets.com/meet
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If you wish to tag someone in the conversation on the forum, type @ followed by their name and then select the name of that person which should appear below the comments box. He or she will be notified of being tagged so that the conversation will continue.

Wishing you the best!

James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes

10y

Welcome to the site @Anand S.

Tom Ott

Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes

10y

Originally posted by @Anand S.:

Hello everyone,

I am Anand and live in San Diego. I have a background in engineering and MBA. My day job is to manage the engineering operations at a large technology company. I am really passionate about real estate and have spent a decent part of past 7-8 years reading here and there, than doing anything about it. I made the first jump this year, when I rented out my primary home in a good school district and moved up into a bigger place in the same zipcode. It has a decent cash-flow, but far less compared to the equity locked in that home when seen from mid-west or Florida kind of locations

I am still trying to refine my strategy as I get ready to make my next investment move by end of this year and hope to nail it through interaction with experts in this forum. At this point, I am prepared to invest $30-40k for a downpayment and torn between and still learning about 3 options - rehab/flip in San Diego, turnkey cashflow investment in Chicago/Indiana, Out of state rehab/flip.

This is really an incredible forum looking at the "ready to share knowledge" culture which further emphasizes in my mind that real estate is really not a zero sum game...

I look forward to connecting with folks here...

Hello Anand,

Turnkey properties are great options when you are investing into different markets, or want a more hands-off approach. Make sure you do your research into what provider you with. Make sure they are going to stick around and be a turn provider.

Good luck!

Timothy Murphy III

Real Estate Broker · Cleveland, OH · Member since 2012 · 771 posts · 252 votes

10y

@Anand S.

Welcome to BP.

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

10y

@Anand S. I live in Poway, am an engineer, and invest local. I can make great a logical case for investing local (actually you could simply look for many of my past posts). I do admit your entry point finance wise would be a significant challenge but there are virtually zero markets that have a better ROI than San Diego for buy and hold purchasers. You were able to experience this on your initial Poway purchase that is now a rental. My claim is easy to verify as you can look up the appreciation on San Diego real Estate for a wide range of years and compare the appreciation to other markets and compare just the appreciation to what could be expected in cash flow in a better cash flow locale. Add in the cash flow and San Diego becomes even a better choice. Note a San Diego property that barely cash flows today is likely to be cash flowing by about $50 to $100/month more for each year of ownership.

I do not do flips but I have been to local investor Meetups on places that are being flipped and include some creative ideas t increase profit margin. There is a group on BP that has nearly monthly Meetup in San Diego that you can learn quite a bit. Every one of these that I have been to has been a flip (I understand they have had some that have not been flips but i did not attend those) and I have learned something at each one and I would have learned more if I was flipper. There is no selling, just information exchange and donuts/coffee. The following people are associated with it:

G. @Parker Cox.

I think you can learn something from attending some of these Meetups whether you choose to invest locally or go out of area.

Good luck.

3 Reply

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

10y

Originally posted by @Anand S.:

Hello everyone,

I am Anand and live in San Diego. I have a background in engineering and MBA. My day job is to manage the engineering operations at a large technology company. I am really passionate about real estate and have spent a decent part of past 7-8 years reading here and there, than doing anything about it. I made the first jump this year, when I rented out my primary home in a good school district and moved up into a bigger place in the same zipcode. It has a decent cash-flow, but far less compared to the equity locked in that home when seen from mid-west or Florida kind of locations

I am still trying to refine my strategy as I get ready to make my next investment move by end of this year and hope to nail it through interaction with experts in this forum. At this point, I am prepared to invest $30-40k for a downpayment and torn between and still learning about 3 options - rehab/flip in San Diego, turnkey cashflow investment in Chicago/Indiana, Out of state rehab/flip.

This is really an incredible forum looking at the "ready to share knowledge" culture which further emphasizes in my mind that real estate is really not a zero sum game...

I look forward to connecting with folks here...

Welcome to BP. Of those 3 options one is absolutely wiser than the other two. Being that you have a MBA this should be easy to figure out. There are others who might disagree but they all have one thing in common...they make commissions on the other two options. Perhaps flipping a local condo or townie might be the wisest move here. Good luck with your search!

OP

Investor · San Diego, CA · Member since 2014 · 36 posts · 8 votes

10y

Thanks @Ali Boone for the detailed response. I will connect with you over email to learn about your recommendations.

Thanks @Dmitriy Fomichenko and @James Wise for the warm welcome.

OP

Investor · San Diego, CA · Member since 2014 · 36 posts · 8 votes

10y

Hi @Matt R.

It is true that max value is captured and realized in a flip, as opposed to other strategies. Maybe I need to educate myself better to gain more confidence, but it seems to be the least forgiving on a misstep especially in an expensive and competitive market like San Diego...

OP

Investor · San Diego, CA · Member since 2014 · 36 posts · 8 votes

10y

@Dan H.

Agree with you on strong rents in San Diego and the equity appreciation is not just an icing, but quite sizeable. I could either get it on $40k per year now in a cheaper market or sit on the sidelines for another 3 years before I get in another good rental SFH in San Diego which offers equity, cash-flow and strong rent growth opportunity

OP

Investor · San Diego, CA · Member since 2014 · 36 posts · 8 votes

10y

@Dan H.

Would love to attend the meetups you are referring to. Any advise how I can get plugged in?