David Greene: Long Distance REI Book Notes

[Ernesto Hernandez]

Disclaimer, not edited. May be riddled with typos. After all of the other books that i’ve read, this is a great way to cap my months of reading and makes me feel like I have enough “research” to move forward. 

Enjoy. 

Long Distance REI David Greene

Chapter 1:

Carnegie self made millionaire. Famous for quoting more money has been made in RE than all other investments combined. 90% of millionaires had done so through RE.

A huge problem for newbies is training your mind NOT to do something.

Don’t trust your gut. Most consumers buy out of emotion. You MUST rely on math. When you do that, you have less fear.

Zillow and technology have revolutionized REI.

Every market, like every crop, relies on different factors to succeed.

Don’t limit yourself to “your own backyard”.

You have to build a team and hire the right team and manage them well.

Chapter 2: The power of the internet.

You can google and e mail experts all day long. Lots of new apps REI easier.

With the MLS Zillow, Trulia, Movoto the alerts on new properties find YOU.

Property Taxes. Never assume and always check assessor site for accurate $$

Tip: Know tax rates for an area before looking for and offering on properties.

Homeowners Insurance. Use an agent or use a website for prices and reviews.

Ways to determine desirability:

School Rankings. Low schools equals lower appreciation.

Walk Score. Walkscore.com

Crime Stats: Trulia Crime Heat maps. Police Departments even list details online for you to know the nature of calls into the station.

Determine Rental Rates:

Rentometer.com his go to tool. Maps, comps, median, mean, etc.

Curious about vacancy length and rate? E mail people who own the homes. Ask for overall response and interest to gauge demand.

Use Craigslist and see how long Properties have been listed for.

Zillow provides rent data also.

As you progress, people, not websites, give you the best data.

Finding Past Permits:

County websites will tell you when Permits were pulled for jobs like a new roof.

Internet Cheat Sheet:

1. Use Trulia and Zillow to gauge pricing in an area.
2. Use websites such as county tax assessor to calculate property taxes
3. Use online quotes and agents to get insurance rates
4. Check for crime rates, walkability, schools, and more.
5. Use rentometer, Craigslist and Zillow for rent rates

Using your smartphone to be productive:

Use VIDEO!

The Big Picture - If your contractor doesn’t take pics or vids, something is up.

Good way to document and show anyone who may be interested, even renters.

Have your agent or wholesaler start from the sidewalk and then around and in.

1. The Flow. Look for underused areas or a wall that could come down.
2. Areas of house that are connected to each other. Kitchen to Den, etc.
3. Overall impression of the home.
4. Areas that need fixing and where in the house they are.
5. The ability to share with agent, pm, contractor in real time.

Learn to upload to YouTube and then share the link. No memory or size issues.

Texting is sometimes much better than phone calls because it’s faster.

Apps:

Mortgage Calculator Pro. Detailed amortization.

JotNot Pro. Converts paper files to pdf for easy e mail. You can print, wet sign, send back.

Docusign. Good for when a “wet” signature is not required.

Some notaries use Skype to watch you sign an important document.

Numbers (or google sheets) for quick analysis. Gets more detailed and granular to track all expenses and balances per each property he owns.

He can see:

Total Equity, which properties doing best, price paid for each, balance left on each property, ROI for each, how much extra paid towards principal each year, current value of each property.

REV - save audio notes to yourself and file by address.

Keller Williams free app to find prices of nearby homes.

The Cloud - back it all up.

Chapter 3 - Rules and Relationship

You make money when you buy. Find a great deal and rehab it for as little as possible.

You need a process in place with people who can find you great deals, Rehab for great prices, finance on great terms, manage efficiently and wisely.

Paying full price in a great area won’t build wealth as fast as getting a great deal in a good area.

Price to Rent Ratios: (What is a good way to research this?)

The better the price to Rent ratio, the stronger the buy and hold market. The worse, you should consider flipping. Analysis is similar, but different numbers. Historically the Midwest and South have had good price to Rent Ratios.

The 1 Percent Rule - He thinks 2 percent are normally in bad areas. (I should look for above 1% in at least B class neighborhoods)

The 70% Rule - Max Offer should be 70% ARV minus Rehab.

Be careful with 2% Rule. Don’t start there, if you do, need really good PM.

The 50% Rule. Half of your rent is normally expenses, not including mortgage.

Too general, still itemize.

Start with a great deal and then see if it’s a better buy and hold, or a flip.

Can wholesale, turnkey or live in for 2 years and sell tax free. Up to 5 years.

Vacation Rentals - Airbnb. Short term rentals.

How to Leverage Relationships:

Think about people that you know in different parts of the country and then use their local connections to find connections for good deals and lending.

The richest people in the world look for networks. Everyone else looks fo work.

Chapter 4: The First Members of your Team.

Your real estate business is that, a business, and you have to automate it.

The Deal Finder: Realtors and Wholesalers most effective. Could also use probate lawyers, turnkey providers.

He suggests you do deals with an agent first and then Wholesalers later on.

In order to get good deals, the owner will be in distress, you need a good agent to move quick.

Find High Producing Agents:

Www.zillow.com/agent-finder to find high volume agents in each area. Reviews.

A good agent is one who has a team due to volume. Ask about their teams.

A good agent with a team will likely out you in touch with their buyers agent, this is still advantageous because you have an eager assistant helping you.

This also gives you access to their preferred lenders and contractors. Top producing agents have top producing references as well.

Agents with Websites:

Look for Yelp reviews and specific feedback on how they have helped others looking for specifically rental type properties.

Ways to save on your search:

E Mail works best. Agents check e mail and they may not recognize CA number.

Include discourse that you are an investor, what specifically you are looking for, how you intend to purchase, how you heard of the agent.

Sample e mail on page 71.

Given that RE is so automated, OOS or at home, similar experience.

Ask The Right Questions to Find The Right Agent:

There is no substitute for experience. They will help you negotiate getting the property empty, will know what to look for or can be trained according to your numbers and parameters. Ask them if they have rental properties and ask Q’s

Ask them what can of support they can provide being that you’re OOS.

Good investors only analyze hot leads. Great investors are provided with them.

Question for David, who is his favorite agent in the Midwest? Or anywhere. Who has provided the best leads?

The agent you pick should have a specific plan for finding you the type of properties you are looking for. REO, Short Sales, networking, etc.

Be detailed about the types of properties you want them to send you.

His advice: Be mindful of the agent. Don’t waste their time if you have no intent in buying anything. They will eventually cut you off if they provide you what you asked and you do nothing with it. The deal finder is THE most important person on your team.

The Lender:

You need to understand what lenders look for. No point in looking for deals if you don’t have funding. (Should I get lending in or out of California?)

DTI - Pay Down all your expenses. DTI should be no higher than 3-6 percent. (Typo? 30-60?)

LTV - Lower LTV means lower risk means lower interest. Most Value based off appraisal but some based off purchase price plus repairs. Banks want low LTV.

Credit Scores - 720 plus does the trick.

Govt Rules - Freddy Mac and Fannie May buy up conforming Mortgages. You are better off having one 500k Loan than 10 50k Loans.

First 4 Loans easiest, next 6 not too bad. After that, portfolio lenders.

After 10 deals your rates won’t be as good and it gets way harder to lend.

Mortgage Brokers are not the cheapest but they are helpful when you are having a hard time finding lending.

Credit Unions and Saving and Loan Institutions are GREAT options also.

They value relationships such as banking with them so make to have an account and keep money there. If you can bring referrals, even better.

How to Reach Out to Lenders:

Your goal should be to be detailed enough that they approve you even without a loan app, which you may eventually still fill out.

Sample E Mail to Lender Page 90.

Google search for: Investor Friendly Banks, credit union, savings and loan institution, portfolio lender.

If you get denied, simply respond by asking for a referral.

Alternative Lending Options:

Other investors. Network and ask for referrals.

Payment Processing:

He was rent collection and mortgage payments 100% automated.

Mathematically, paying one extra mortgage payment a year for 30 years offers significant savings.

Look for a PM that can pay you electronically, if not, mobile deposits bank app.

Venmo and PayPal.

Always monitor your DTI.

Keep LTV under 70%

Accurately Reporting Rental Income:

Some people repair as much as possible to expense as much as possible, in order to reduce their tax burden.

Other people want to run as efficiently as possible even if that means more taxes in order to minimize rehab and continuing to buy more properties.

Some people don’t want to pay taxes at all and continue to collect in cash and not property their actual earnings.

Which one should you do? Depends where in your career you are and how bad you need the cash.

It may work against you to save and keep every penny because the bank will issue a loan depending on how much you reported to the IRS.

To maximize cash flow, you might want to minimize what you report to the IRS.

If you’re at the stage where growth isn’t as important to you, you shouldn’t pass on the opportunity to claim as many write offs as possible.

Know the lending rules, play by them and capitalize on how they work in order to max out your lending potential and continue to grow your empire.

Chapter 5: The Rest of Your Team

The next critical member of your team is a good property manager. He pays about 7% as an average. They make or break your investment and are a necessity, not a luxury, especially for those of us out of state. It’s not a matter of IF you will have an eviction, but WHEN.

Finding Referrals:

BiggerPockets - Other investors are a great source of referrals for good PM and once you find a good one, make sure hang on to them. You can either create a post or search for Property Management and City and get results that way with an activity indicator for how often someone has searched for a company. Click the “people” tab to see what others say about some of these companies.

Find someone who has used them and reach out to them.

You can also click on Education, Topics, Property Management.

RE Agents - Top Producing Agents can refer you to GOOD performing PM’s

Other Investors - REIA's, REI Associations. You may not find deals through REIA's but you can ALWAYS get referrals for other pieces of your team.

Just Google REIA and the city, show up, start networking.

What to ask before hiring a property manager:

Start with getting referred to someone with a GOOD reputation.

Get the basics like Experience, # of doors, years in biz, strengths.

Other Good Questions:

Monthly Percentage they collect?

All of their other fees for certain services?

How often will the property be inspected annually?

How are maintenance calls handled? What’s the flow like?

How will Evictions be handled?

Average turnaround time for vacancies?

The elite property managers are proactive with little input.

They should be able to demonstrate comfort and experience in diff scenarios, especially maintenance requests.

They should be able to demonstrate the ability to troubleshoot, solve problems themselves, call a cheaper handyman, before calling in expensive experts.

They should be able to explain how their experience will save YOU money.

Going with the cheapest PM is risky. They may not have a good marketing plan and budget, they will only be able to offer free inspections for so long. Marketing is not a few cell phone pictures plus a Zillow and Craigslist post.

Ask them what their plan is for managing properties in war zones. They answer you’re looking for is that they WON’T do it. Sign they are desperate for business

You want a PM who has your best interest in mind and will prevent you wanting to invest in war zones to begin with.

How to Negotiate better terms:

Typo on Page 117. Mangers.

Your job is to find out HOW the PM will help increase your revenue.

Once you have determined how they will help yo make more money, you need to consider YOUR OWN playing field. Why should a PM give you a cut of any kind? Are there certain services you don’t need for them? Is there something you can offer them to deserve the rate decrease? Think of THEIR needs.

Leveraging Your PM’s knowledge:

One way to get your PM’s attention and favor is to ask if it’s ok for them to approve your property you are considering. They have a vast amount of knowledge and you want to tap into that. They know what is worth what, block by block. What tenants are looking for and demanding. Size, design, etc.

You can save $75/month by self managing or you can invest in that knowledge.

Note to self: Once you have established relationship with high performing agent and have lending options in place, consult with PM for specifically strategic neighborhoods.

The Contractor:

While they may not be the most important, they are the hardest piece to find.

You must always ask for the scope of work to be itemized.

Keep in mind you will likely go through a lot of contractors.

Little regulation and oversight in the Contractor world and industry.

Where to find good contractors?

Word of mouth is critical. You need somebody to vouch for them. While this is the most accurate way, its the most difficult. People don’t like to share good GC

Be sure to establish good relationships before asking for their referrals.

Use REIA's, BP, BP Search feature for contractors in the city you need em in.

Between your agent, lender and PM, you should be able to find a solid GC.

Contractors are good at different things. Some are better for rental rehabs, while others are better for flips.

Communicate specifically what your project entails before asking for referral.

The bidding process:

1. Contractors will communicate different depending on how busy they are and how bad they want the job.
2. They are used to working “their way”, expect pushback when questioning.
3. They will either understand and ease your concerns or blow you off. Ignore.
4. They all have different exp. for what timeliness, liberties, fair prices are.
5. Some will say something and honor their word, for others its just a guide.

You can tell a lot by how soon and well they communicate, give you options and explain costs. They know what they are doing and have done it before, it shows

Keep the ones who're mindful how your money can be spent to add value. Dump the ones who always want high end or can't justify ROI

Contact via e mail or phone

Explain the type of property, types of materials, level of rehab you need.

Explain how they will be paid and how you want them to communicate with you (pictures, videos, apps, frequency, etc). If you get push back, dump them.

If you have a property under contract, send them to it and have them write bid.

You do this to:

Confirm they understood what you wanted in a rehab, to what level.

Confirm how they think. You don’t want them to put crown molding in rental.

If they point out things you missed, that could be helpful to you.

Avoid the ones who want to be general. If they refuse itemizing, walk away.

Detailed itemization will help educate you and scrutinize competing offers.

When you compile the itemized bids, you can pick and choose specific tasks when you end up going with your one GC based off the advice given by all.

You can then send a final wish list to your remaining contractors and make sure you get the bid broken down by materials and labor.

Make sure they don’t over buy and return for a refund after the job is done.

He advises you pay for materials first until a future job where you learn to trust the GC. (How do you do this remotely though?)

Researching the Contractors:

The most expensive bid is usually an outlier and you can toss it out. Of the 3 or so remaining bids you should do some investigating on them. Check Google and Yelp for reviews on the contractors. (What about Angie’s List?)

Ask for references of past work and you should be able to tell in their tone of voice whether or not they would be excited to work with them again.

If you get a bad review for one of them, dig deep and get specific. Could be the investor had poor expectations or maybe they did a bad job.

Negotiating Your bids:

With an itemized bid and a timeline, this leaves you to serve as a project mngr.

Ask them if they have any flexibility on price, how long each item will take.

Once you select a GC, ask them for a CONSERVATIVE estimate of how long it will take. If they end on time, offer 2 to 5% bonus. If they end late, 5% penalty with an additional 5% penalty for each week they are late.

You need to hold up your end of the bargain and provide materials on time.

Use the itemized and timelined bid as a contract and have them sign it.

Partner with them on materials, they may be able to find better prices.

He typically starts with a picture sample of how he wants a kitchen or bath remodeled with pictures of specific materials and fixtures. The contractor can then suggest where to get those materials from. He calls a local store for an associate to arrange for the items and haves the delivery scheduled on a day he knows the GC or someone can sign off on the delivery to reduce theft.

Chapter 6: Understanding Your Market

As an investor, you want to invest in places with demand for housing. Increase rents, equity, decreases vacancy.

Tracking Property Values:

Use Zillow and your agent to see what value will be for what you’re searching

What to do when prices are rising:

Opportunity to refi into better terms or a fixed rate rather than variable.

Also opportunity to pull a HELOC which offers a lot of flexibility

Take advantage of your equity and turn it into cash flow.

Never BET on appreciation. It’s just the icing on the cake.

What to do when property values are dropping:

It’s important for you to know WHY prices are dropping

You’re in a safe place even when prices drop as long as you cash flow.

You only lose money if you sell in a down market.

Investing in Down Markets, Wherever they may be:

Do flips in hot markets, buy up more property in cold markets.

Investing out of state enables you to tap into different markets besides yours.

Your goal is to sell high and buy low. Having teams in place across the country will allow you to take advantage of those opportunities.

Rental Rates:

Good property managers are better resources than the internet because they have a pulse on actual neighborhoods and know what the pro’s and cons to each area are, what tenants want, what they don’t like, etc. Might be similar to online, but better detail.

Need to know WHY rents are fluctuating. Tells a story of rents rising and falling in a town 40 minutes outside of Phoenix because of change in gas prices.

Anticipating Rental Rate Increases:

Indiana is popular in 2017. Good rent to own ratios. You would also need to look into job growth, school districts, where tenant demand is greatest. A good PM should be able to have detailed info to support your research.

Imagine if you could find out where jobs are going up, narrow down best schools, and check county records for low property taxes. PM’s can help. You can then have your agent hone in on those areas.

You could start your own mail campaign.

Ask the PM what upgrades tenants are paying for, level of materials used, level being used by competitors, you can give that to your GC.

Don’t try to map out areas yourself, find the people good at doing the mapping.

Following Employment Trends:

Don’t need Census data. Unemployment Rate and job development news.

What kind of jobs are moving in? Tech jobs with younger hipsters?

Or mature companies who will attract middle aged executives?

Two different types of tenants who want completely different amenities.

The only house he ever sold he did because rents were not going up and he learned there was a lot of new building being approved. He sold and bailed.

Simply put, go where the jobs are going.

Chapter 7: Working with the market.

Creating an Apples to Apples comparison. Before deciding whether or not to transfer your equity to a new market, you need to make an A to A comparison

There are other benefits like loan pay down, appreciation, taxes. Cash on Cash aka ROI.

However, ROI can't be the only measure you use when comparing whether or not to make an investment or not.

Over time some investors fail to account for the ROE as your equity grows through appreciation and low pay down. Return on Equity.

ROE = Annual Cash Flow / Equity

Simplified, his ROI is 17% a year so it sounds like selling in order to get 12% doesn't make sense. However, if he sold and cashed out the $225000 and got 12% ROI, that's $2250 a month in cash flow. Less ROI, much higher cash flow.

So when you have a lot of equity, don't be afraid to pull out and get a lower ROI in a different market. Many investors want to re invest in the same market.

Timing The Market:

Signs the market is cooling:

Homes taking a long time to sell.

Abnormal lending practices like ARM, interest only payment periods, etc.

A pattern of companies leaving the area.

Sellers having to offer significant concessions to buyers.

Compare the ROE to ROI in different markets.

Opportunity Cost:

Don't trade high ROI like 2% Rule for headaches from war zone properties.

As you have issues with your properties and flips, there are lost opportunities in closing other deals so you have to be thorough yet efficient.

Quality of Life matters just as much as cash flow.

Selling a house is time consuming.

Cash Flow is great but building equity through value purchases and strategic rehabs is better for long term wealth.

Buying in bad areas is a major cause of headaches in REI.

How to determine the headache factor of a area:

Do your research and get good honest information from your agent, Prop Manager, Contractor about which areas to avoid. The entire team will be better off because of it.

Improving Your Portfolios performance:

Sometimes you may want to keep a good tenant even if that means more modest returns on your money being that it’s safe and steady rather than higher but risky.

Example: Do you take 500k and buy 10 duplexes at $50k Down each in Texas? Brand new, little building permits, new jobs coming in, good landlord laws.

Or do you buy 10 houses in Indiana for cash and get 20% ROI rather than 10% in Texas? Houses are older and need work. $4166 cash flow in Texas, $8332 cash Flow in Indiana. Monthly.

8 things to consider.

1. Most lenders won’t let you finance anything under 62k. Cash eaten up.
2. CapEx in Texas will be minimal. CapEx in Indiana 15% a year.
3. Pride of Ownership in Texas much higher, less headaches.
4. Rental demand in Texas very high, much lower in Indiana.
5. Average tenant stays 3 years in Texas, 9 months in Indiana.
6. In addition to vacancy, more turning of units, more rehab.
7. Indiana weather beats up roof and pipes.
8. Texas expecting 5% a year equity increase, Indiana 1%

Timing your leases correctly:

Different ways to handle selling while still having a tenant.

1. You want to sell in summer and therefore end the lease at the start of summer because there will be less push back for rent raises.
2. If tenants decide not to renew, it’s vacant at peak market conditions.
3. Rents usually rise with home value, this happens during the summer.

Winter has less moving, but better prices on real estate.

Another strategy is cash for keys.

If you HAVE to invest in tough areas for whatever reason, you should:

Get a GOOD property manager with experience with these types of renters.

Write up an AIR TIGHT lease so there are less headaches and room for error.

Ultimately, you want to build up equity and get out. You have t make sure moving your equity makes sense.

Reasons you should want to move your equity:

1. Some states have much friendlier laws for you and tenants know they will face an uphill battle in court.
2. Some areas have a much higher pride of ownership from tenants
3. Some areas are known for businesses who want to retain their employees
4. Many cities limit annual building which is a good thing for investors
5. Rough areas mean older buildings mean more repairs
6. Newer homes are better built with updated technology
7. More expensive houses will have smaller CapEx ratios, a $30000 roof is still a $30000 roof
8. Better markets tend to have better support staff

Business benefits of decreasing your headache factor:

High maintenance properties ultimately cost you more time and time is money.

Two ways to manage your managers:

You give them autonomy to approve expenses under a certain amount

You make them run ALL expenses past you

Free up your time to free up your mind.

1031 Like Exchanges

45 days to identify 3 properties.

180 days to close.

Intermediary has to hold funds.

Chapter 8: Managing Out of State Properties

Is turnkey really safer? When you buy turnkey what they may say is a good neighborhood may not meet your standards. The rehab may not be to your standards, they need to make a profit to pay themselves. It’s a safe place for the already wealthy to park their money.

Starting the Process.

The Contract:

Use the itemized bid as the contract, add some deadlines and notes, have them sign it.

Ensuring your projects finish on time:

The two main problems with rehabs are unforeseen costs, and going over time.

This will cause:

Extended costs due to hard money payments

Vacancy periods are extended for a rental

Holding costs extended for a flip

Your velocity of money is slowed

Opportunity Costs increase because you miss out on other deals

The people Managing your project get worn down as time drags on

How do you motivate contractors? Bonuses and penalties. He gives. Them 5% bonus for ending on time, 5% penalty for being one week late, an additional 5% penalty for anything after that.

Create Accountability through paying a bonus:

This works because it creates urgency and it also gives the contractor a chance to revise their commitments before agreeing to them. Thirdly, creates an incentive for them.

Create Accountability through advertising:

The contractor needs to know the rehab work will be highly photographed and advertised online including social media.

Paying for Materials Yourself:

Allows you to not get ripped off. Contractors can overcharge you for Materials or simply buy more than they need and keep them for the next job or return them for a refund. You learn the true cost of materials and can find better pricing. You learn the world of materials. By using your card you rack up all sorts of perks like miles.

Adding value by adding your own time:

The goal is not necessarily to stay under budget exclusively. The goal should be to add value with smart decisions. This means maybe finding $7 tile that is half off rather than settling for your budget of $3 tile.

Over time, as you shop more and more with some smaller specialty shops they will call YOU with promos, you’ll develop a pattern for materials you like and re ordering them becomes very easy.

The hardest time is the first time.

Using Your Contractors house accounts to save you money:

Contractors may get discounts because of the volume they buy, leverage that benefit. The Pro Desk may call you with promos and clearance items too.

Always ask for free delivery.

If there is a product you really love and one store is out, e mail a picture to other vendors. Don’t give up. Develop the persistence to buy good deals.

How to Manage paying your contractor:

Don’t threaten or intimidate them. They are human too. Keep in touch with them and try to connect with them on a personal level. They shouldn’t be stressed out working for you.

How to pay your contractors:

Pay them in phases, also known as “draws”. Find out what will be done in week one or the first 2 weeks, and pay out after that part has been completed.

Verifying your Contractors work:

As each phase is complete, check in to ensure things are done as asked and then pay them to cover the next phase. Set up a checking account that is linked to their with their bank info and you can pay them quickly and electronically as you go.

Have them send you pictures and videos and save these in an organized folder of the property as the rehab moves along.

Safely Paying Your Contractor:

He pays them out in 3 to 4 draws generally.

Hold on to the last draw until you have verified the project is totally complete and take out the penalty if needed.

The partnership mentality:

Partner with your PM to inspect work periodically if it will be a rental.

Partner with your agent and have them drop in if it’s going to be a flip they sell.

You actually want people stopping by because it fends off thieves. Make store you install al ok with a combination that your team members have access to if needed.

When someone goes over to take pictures and videos, ask for their opinion, makes them feel important and a part of them team. Don’t make them feel like your employees, makes them feel like your partners.

Chapter 9: Finding Materials.

Houzz, Tumblr and Pinterest great places to get design ideas. What works design wise in Florida won’t work in SF and won’t work in Montana. Styles diff.

R and D. Rip off and Duplicate:

When you stand on the shoulders of people who came before you, you’ll see much further than you ever thought.

Browse these websites to get design ideas and look at rehabbed pictures of houses already sold.

Finding Design Inspiration:

Social Media: You could post a picture on FB and have a contest where the winner with a great design idea or suggestion gets it implemented. Free.

When you network and build your team of professionals, they will all chime in and see what you’re doing and further builds your reputation and helps bring in more referrals of all sorts.

Start with 10 to 20 ideas, narrow it down to four, and have the public provide their input.

You can also start with the before video, a walk through from your contractor. This video will get people thinking creatively about how to maximize the space.

E-Mail:

You can either write a mass e mail, a custom one to each person, or use mail chimp.

Send out an email with pictures, soliciting feedback. Get your network involved.

You may however, run into issues with spam blockers. Shouldn’t deter you.

Using Mailchimp:

Their forever free plan will allow for up to 12,000 emails per month so long as you have less than 2000 contacts. Can be integrated with your website to automatically build out your Rolodex.

You can manage specific contact lists and even control what time of day message go out.

Use common sense, going to get less hits when people are at work.

Personal Blog:

Www.greeneincome.com is where he posts his projects where he shows people HOW he does WHAT he does along with other content like posts & podcasts.

BiggerPockets:

Can solicit feedback from a wide audience while having access to a large pool of experts.

Getting Samples from your Contractor:

Typo Page 219.

Getting ideas from your contractor is super valuable and they likely already have pictures of jobs they have completed which they use to earn more jobs.

Contractors flat out have way more experience than them and this is another way to engage with them with a partnership mentality.

Once the Design is formed:

Start reaching out to stores, send them an e-mail with photo samples of what you want and get quotes. Big stores use SKU’s so save the SKU’s if you want to re use certain parts or supplies. This allows you to shop the competition and either get the cheaper products from a different store or ask the store more convenient to you to price match.

Always ask for a discount and/or free delivery. Doesn’t hurt to ask. Just be nice.

Determining the Value of Upgrades:

You have to consider the type of renter you want to target. He stays in C+ to B+ neighborhoods and has yet to have anyone destroy one of his properties.

The key is to rehab to the point where it looks really nice but you didn't overspend/ When you overspend don a really nice rehab, there comes a point where your ROI starts to diminish because not much more will push the price up.

For example, what if one project all in will return you 10% on your money at 100k? Would you pass that up for a project that will return 17% but require you to spend 130k? You shouldn’t.

You may want to do tile countertops because they are cheapest, but what if granite is on sale and it only costs 12% more to do tile?

You should probably always see what 5-10% more money might be able to upgrade you to.

That 12% more might cut down your vacancy because your units are a bit nicer.

Where is your money going?

Which parts of the rehab do I NEED?

Which parts of the rehab would be NICE TO HAVE but not needed.

It rarely makes sense to tear something out if it still works. If it’s functional you can almost always spruce it up, like dated cabinets.

Focus on Value, Value, Value.

Is the juice worth the squeeze?

Anybody can work with a contractor to stay under budget. The trick is making it look GOOD.

How to HACK your contractor.

All contractors have strengths and weaknesses and they sub out some work. You need to know what their strengths are and capitalize on them.

They too have referrals so ask them who they know that does killer work at good prices.

DO ask how they got their start and what they specialize at, DON’T sound like you’re interrogating or doubting them.

By asking for referrals, he found someone to do a nice stone wall on the fireplace for $600 rather than $1000. Great focal point in home.

The Upgrade Hack:

Do this only when you NEED to replace something anyway. Instead of paying $1500 for basic white appliances, if there is a sale and you get stainless steel for $300 more, do it.

Paint:

Paint is awesome because it makes everything look new and covers up smells. Get a contrasting color along the baseboard and make the room pop for cheap.

Flooring:

Small bathrooms are perfect. Cheap tile is $100, but really nice stone is $300. For $200 you add a ton of value for not much money.

Showers:

Upgrading to really nice tile is a small difference. The other thing he really likes is a rainfall shower head if you have the need to rip out pipes anyway.

Cabinets:

Not impossible to find someone to repaint the cabinets for $500-$1k. The other trick is to just replace the doors and paint the existing frames. Always go darker, and use matching fixtures and handles with the appliances.

Countertops:

Look for sales on granite and if you catch a good deal, take advantage. The key is to have a good granite guy.

Adding Extra Bedrooms:

No brainer. Large Sq. Footage with room for more is always a good idea.

Four Simple Ways to Determine Value:

1. Location?
2. Square Feet?
3. Number of Rooms?
4. Is it already updated?

There comes a point where adding a 5th bedroom to a 4 bedroom house or maybe even a 4th bedroom to a 3rd bedroom, may not have the returns that would give you a good ROI. Adding a 3rd bed to a 2, or a 2nd to a 1 almost always has a huge impact. 2nd bathroom is great too.

You should check comps and ask your realtor if it would be worth it and ask your contractor what it would cost to make a wise decision.

The layout has to make sense. Can’t be in a really awkward space or create a really bad flow. Ideally you want an unused space away from the kitchen that is already within the square footage with insulated walls.

Good candidates for an extra room:

A large storage area added to the sq ft of the house attached to laundry room

An unused den with sufficient space

A bonus room with no door

A large playroom

An unused family or living room

An unfinished attic

An unfinished basement

A large mud room

An unused California room (indoor/outdoor room)

An unused Florida room (aka Sunroom)

The third car space in a 3 car garage

Adding rooms when it makes sense is a powerful way to increase value

Exterior Room Additions:

1. You can increase square footage
2. You can cure whatever is preventing property from reaching max potential

Make sure you go through the permit process and have the county add the square footage to the size of the house so it comes up in public records.

With one house in Arizona, he added a bedroom on a concrete slab that already had an extended roof covering so that he wouldn’t have to re do the roof, all he had to do was put up walls, a French door, some windows and run electrical. With another house, the bathroom had two showers, a toilet and a urinal. He split it, put up a door, and replaced the urinal with another toilet. He created 2 bathrooms.

Raised foundations make it much easier to re direct electrical and plumbing. Concrete slab foundations make this harder to do.

Sometimes he borrows space from a walk in closet or maybe a living room that is just too big and doesn’t need to be that large.

You need to communicate with your contractor that you want to add value and rooms but only if logistics and value make sense.

Finance Hacking:

BRRRR. You want to make investments that will increase appraisal. If new countertops cost 5K but will raise the appraisal by 10k, when it comes time to refi and pull out 80% out, you're pulling 8k out. 5K in, 8k out. More cash.

Chapter 10: Maximize ROI

1. Raised foundations create more opportunities for creativity
2. Big Backyards do the same

He has narrowed his searches to houses with raised foundations and large lots.

Additional Detached Units:

If zoned correctly, you can consider either building a new rental or taking an existing structure like a studio or in law and adding a room or maybe making the bath and kitchen better. This is easier with the right zoning and electrical and water already being present.

Walls:

Tearing down walls can be a smart way to make a little money go a long way. Most common when opening up the kitchen. Should also be considered when you have a master bedroom up against a hallway closet, good way to make the master bedroom larger. The compartmentalized look is outdated.

Sometimes ADDING a wall makes sense. For example, when you have both a living and a family room, it’s rare that they both get used.

Buying Bad Houses in Nice Areas:

Old advice is to buy the smallest house on the block or the ugliest house in the best neighborhood.

Increase success with bad houses:

Of the 3 Types of Distress (Market, Physical, Owner), you are more likely to find the second and third factors when targeting an ugly house in a good neighborhood.

Target houses that WON’T qualify for lending because they are so damaged. Cash is King. Drastically less competition in the Cash Only housing market.

Look for “investor friendly”, “cash only”, “needs work”, “fixer”.

Areas with Lack of Inventory that buyers want:

If you can buy a house that only an investor would buy, but a family would want, you’ll be set up for success.

Once upon a time a lot of houses were built as starter homes and today most people are looking for 3/1 and 3/2.

“Over-Upgrading”

Don't assume that each house you rehab needs high end work. Learn about the market, communicate with your contractor and ask for advice. Look at your ARV, look at other homes in that ARV range, how well are they rehabbed?

If others are doing white appliances, not granite, tile, laminate, etc. that gives you a playbook. If the market has been rising in that area based off of MLS numbers, you may be able to justify the nicer rehabs.

Partner with your high performing realtor and ask which specific neighborhoods are seeing the highest demand increases.

Once you narrow down those neighborhoods, have your agent or wholesaler focus there.

You don’t want to get killed on holding costs. How can you get your home to sell for the best price, on the smartest rehab decisions, in least time.

Chapter 11: Tricks to find more deals out of state

1. REO aka completed foreclosure. Realtor access on MLS.
2. Short Sale. These move REALLY slow.
3. NOD. Notice of default. Great way to target motivated sellers.
4. Half Finished Projects. Can be gold mines or money pits.

REO things to consider:

Are there any city/county/govt/mechanic liens that the seller will have to pay? Make sure this is disclosed up front, if not, the bank is unlikely to budge on offer.

What is the age and condition of the roof? Every area has different concerns. In the South, humidity with AC that hasn’t been used in a while can cause humidity in the walls, in the Northeast Pipes can freeze if the house sat vacant through the winter, in Florida they get wind driven rain which is bad for roofs. As your PM and Contractors what building concerns you should be on alert for.

Is there Wood Destroying Organisms and how bad is the damage? Dry rot damage, fungus. In many states, if an agent knows about this, they must disclose it.

How many other offers have been made on the property? He recently found a neighborhood with good schools and appreciation but not a lot of inventory or offers on existing inventory, he decided to start sending mailers and create inventory.

Will you be allowed an inspection period if your offer is chosen? Always ask about an inspection period. If the seller will be selecting an offer soon, may not make sense to pay for an inspection at that point. If the house doesn’t have offers in yet, may make sense to order inspection and submit it along with repair estimates when you submit your offer.

Homepath: Homepath.com is where Freddie Mac and Fannie Mae put their REO's on clearance. Available in all 50 states.

Short Sales: They take a long time to get approved but the good news is as you wait to hear back, your offer stays the same and the value of the house has gone up in the meantime. The opposite is true and the value could drop in the meantime. However, you can call off the offer at any point before acceptance.

NOD - Owner's are under a lot of pressure a this point and if you can find them via public records you can approach them and find a way to help them and get a good deal in doing so. Much better for seller because they salvage their credit and may be able to get a little bit of cash to start a new life in doing so.

Half Finished Homes:

For a home to qualify for conventional financing it needs to be considered livable and it’s missing things like carpet, drywall, plumbing, a stove, it is NOT considered livable.

Have your realtor target half finished homes. Can you save you money on rehab because someone else already started.

Buying a property that doesn’t count for financing and has already started rehab can be a great opportunity for a cash buyer.

Make sure you a get very careful full inspection.

Very possible costly electrical, pool, plumbing or FOUNDATION issues is why the last person gave up.

Leveraging the Listing Agent:

Glossed over this. For seasoned investors, not something you would do early on.

Paying Your Real Estate Agent a Bonus:

Offering $1,000 for agents to bring you deals that they can then represent you on can be a great way to be a priority to agents. Pay the top person in that office the $1,000 if anyone in that office can bring a deal to him that he will then use one of those agents to represent him on. Also nicely ask them to post of Facebook/Twitter etc. that they have you as a buyer who is looking for properties that meet a certain criteria and you’ll build a funnel of leads coming to you.

Chapter 12: The Long Distance Investor

It’s all in your mind and working from a distance will challenge and force you to learn how to build relationships and manage them effectively in order to ensure you are successful. You can’t micro manage and change locks from and you will be forced to master the correct behaviors.