How BiggerPockets created 100k in net worth in 4 months

Real Estate Deal Analysis & Advice
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How BiggerPockets created 100k in net worth in 4 months

David J.
Investor · Houston, TX · Member since 2009 · 210 posts · 261 votes

This is a long overdue thanks to the BP community as a whole and the mentors and friends I have met through BP.

By way of background, my core investing strategy is buy and hold. I have a full-time job and consider real estate investing to be a solid hobby of mine. Some guys like sports, cars, legos... etc. While I like those things, I choose real estate. I have been trolling BP for almost 7 years now and for many years I have read and listened to conversations about whatever was discussed in the forums and podcasts.

I bought my first rental in 2007 and was hooked.

Enter BiggerPockets.

After slowly growing my portfolio to what I thought was a critical mass, I felt I would benefit from obtaining a RE license. Once I got the license finding deals became easier, but I was still limited by what was listed on the MLS, however, I was getting better deals and saving commissions. Happy investing.

I have been trolling BP for almost 7 years now and for many years I have read and listened to conversations about direct mail. I always thought it would be too time intensive for me with a full-time job. After hearing @Jerry Puckett and @Sam Craven podcasts (as well as all the others), I thought I might give it a try. I was quite skeptical at first as I have a full time job and thought engaging in a direct mail campaign would be time and capital intensive.

After a quick email to Jerry we set up a call. One call with Jerry and we were ready to go (skeptical, but ready to go). We engaged Jerry to help us with a very small direct mail campaign (500 letters a month at a total cost of $3,000 for a 6 month campaign).

Since it was our first campaign we opted to do as much as we could to keep the cost down so we chose to stuff and stamp the letters ourselves and knew we were taking a considerable risk with a small campaign.

We committed to a $3k campaign for a 6 month period and never thought we would see the $3k again (but we were excited for our expensive experiment). Since my partner and I have full time jobs (and manage our growing rental portfolio) time was our biggest constraint (and money). We set up a google voice number and started mailing letters. As the calls came in we let every one go to voicemail. Never answered a single call. We called back each individual and fumbled though the many scripts that can be found on BP. Low and behold, our 500 letters to the same 500 individuals a month got the phone ringing.

Let's talk results.......................

Remember I am a buy and hold investor with a RE license and a full time job. I was just hoping to get better deals than I could find on the MLS.

After 4 months of letters (500 a month to the same 500 people) My partner and I have COMPLETED the following deals solely from our direct mail compain (these results do not include current leads we are working or deals purchased on the MLS).

House 1 - Purchase price 48k, 12k rehab, rents for $1,100 a month. ARV = 90k (Net 30k equity and cash flowing rental)

House 2 - Purchase price 31k. Wholesaled (closed and relisted on MLS) for 59k two weeks after purchase. Netted 24k after holding/closing costs. House required 25k rehab and had an ARV of 110k.

House 3 - Purchase price 61k. Partnered with a local wholesaler (met on BP) who found a buyer at 73k and double closed it. We split the spread with the wholesaler and netted 5k.

House 4 - Purchase price 70k, $0 rehab, rents for $1,100 a month. ARV = 90k (Net 20k equity and cash flowing rental).

House 5 - Purchase price 70k, $0 rehab, rents for $1,100 a month. ARV = 95k (Net 25k equity and cash flowing rental).

Net Net Net.........

The value I place on the education and training that can be found on BPockets can not be calculated by a simple cost benefit analysis, but if you want one here you go.

My partner and I have increased our net worth by the following amounts solely from the 5 completed deals in the first 4 months of our direct mail compaign. These does not include the 7 other rental properties purchase directly from the MLS in 2013 that we used knowledge learned on BPockets to acquire.

Cash - 29k (properties sold)
Equity - 75k (properties held)
Total - 104k
Plus the net present value of the 3 cash flowing properties we held.

Subtract the 3k for our small direct mail campaign and we are still over 100k in net worth increase. Not a bad result from our 3k experiment with direct mail through contacts made on BPockets.

In the last 6 months, I have used the knowledge gained from BPockets to find, analyze, acquire, finance, rehab, advertise, lease and manage 10 additional properties. My modest portfolio continues to grow and my simple hobby has turned into a passion.

Thanks for the community @Joshua D. and @Brandon Turner and all the moderators and contributors.

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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
12y

Great post. Very motivating. I have not used direct mail before but after reading this i think I'm going to have to start.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y
    Originally posted by @David J.:
    @Bill Gulley

    I agree with Bill. We finance every property we hold and most of the lenders we have experience with calculate allowable LTV using the lower of the purchase price and the appraised value. With that said, the FMV I represented in my original post represents the appraisal value of the properties based on the actual appraisal provided to the lender, who then calculates the LTV based on the purchase price of the property (not the appraised value).

    I also agree that "equity" has no accounting value until it becomes realized upon the sale of a property. With that said, when we apply for financing, every lender we use requires us to disclose the purchase price of each home in our portfolio and the "estimated FMV" of each home in our portfolio. Our lenders also calculate, among other things (like DSCR), the "loan to cost" and the "loan to value" (our estimated FMV) of each property in out portfolio based on our disclosures to the lender.

    Conclusion........

    Based on Bill's post above, I hereby amend my original post by inserting the word "estimated" before each occurance of the words "ARV" and "equity" and "net worth".

    Luckily I did not use the terms "FMV" or "fair market value" in my post. If I had I would most certainly have been "puffing". And... per Bill's request I have placed all estimated equity accrued in the making of this post on the shelf in my garage next to the weed wacker and agree not to retrieve said equity until 12 months following the date such equity was placed there. Once retrieved, however I will then and only then begin referring to such estimated equity as "equity" without the heretofore qualifier known as the word "estimated".

    LOL!!! That's a good one David, keep the gas tank empty in that weed wacker over the winter so the carb doesn't get gummed up, bring it out buzzing when the time is right.

    I really wasn't making any request, didn't mean to imply you were puffing either but that such practices can be. I can also see you are aware of the point, you weren't trying to mislead anyone. Great story and well done! Do it all again! :)

    0Reply
  • David J.
    OP
    Investor · Houston, TX · Member since 2009 · 210 posts · 261 votes
    12y

    @Bill Gulley

    For avoidance of all doubt, and for the benefit of anyone else that reads this thread, I have read many of Bill's some 13,000 posts for over 4 years now as they came up in threads I have followed and have agreat respect for his opinion and his contribution to this community. It is funny how a sence of friendship can be created over time simply from reading comments from certain individuals on the board over time. It is even funnier when you sit back and realize your "trusted advisors" do not even know you exist...... sometimes.

    3Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y
    Originally posted by @David J.:
    @Bill Gulley

    For avoidance of all doubt, and for the benefit of anyone else that reads this thread, I have read many of Bill's some 13,000 posts for over 4 years now as they came up in threads I have followed and have agreat respect for his opinion and his contribution to this community. It is funny how a sence of friendship can be created over time simply from reading comments from certain individuals on the board over time. It is even funnier when you sit back and realize your "trusted advisors" do not even know you exist...... sometimes.

    Thank you David, actually, you have not been very active and I have been aware of your presence and contributions, all pretty well thought out with mature judgment. You'd be surprised of all those I remember here, you're included. Again, good job and good luck! :)

    0Reply
  • James Kandasamy
    Real Estate Investor / Syndicator · Austin, TX · Member since 2013 · 210 posts · 135 votes
    12y

    Great Job David. very motivating story.

    I am starting the yellow letters campaign this week and will learn a lot soon.

    0Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by @Bill Gulley:
    Claiming you buy under market value can only be accomplished under certain conditions. Regardless, you can't really claim that you earned equity buying a good price, this is guru accounting. You can't claim such equity on any financial statement nor provide it to a lender or other investor.

    You can get a great deal, but you do not build instant equity after closing for financing or accounting purposes, gurus use these claims to add sensationalism to their claims. Most sales are at market value by definition.

    At risk of this going down a road I don't care to travel on long, I will have to disagree to some extent. Before I do, I will state that in Bills post, I also agree with quite a bit and so we are likely on the same page for the most part. The par I disagree with is in the paragraphs quoted herein. I claim, and stand by the claim(s) that I purchase under market value, if I did not, I would not be making money in what I do. Now, perhaps using the words "under market value" is not the exact or proper wording as far as accounting or any other practice is concerned, however, my thought is not on what the proper words are, but the intent and what is actually accomplished.

    Secondly, I have purchased under market value on every flip I have purchased and after closing and before closing, used this to present to lenders, backed by reliable and public information, to establish loan to values, equity positions, and safety nets for lenders. They have all used this as a basis for their loans to me. Most hard money lenders I know also use ARV calculations to base determinations of loans for borrowers. I will state that as Bill pointed out, gurus love to I use these words and phrases as fluff and sensationalism and nothing more, I am disgusted with the gurus as much as anyone, but it don't believe for one second that what I, or others like me do this for that same reason.

    Lastly, I fully agree that as far as accounting is concerned, the equity can not be realized until the property is sold, very similar to a stock, however, if that stock was purchased today for $1 and one month later, it is worth $2, many lenders will base that current valuation as a basis to lend against it, similar to what hard money lenders do when we buy "under market value" or whatever term is appropriate. One last item, and this is a question, if two identical homes n identical condition sit next to each other, and Sam buys the one on the left for $100k, and I buy the one on the right for $65k, and the closing of each transaction occurs on the same day, what is the current market value of my home and Sam's? I personally don't believe that mine is worth $65k and his is worth $100k, I believe they are both worth $100k and I got mine for a deal.

    Podcast Guest on Show #130
    1Reply
  • David J.
    OP
    Investor · Houston, TX · Member since 2009 · 210 posts · 261 votes
    12y

    @Bill Gulley

    @Will Barnard

    What if they are both worth 65K and "his wife fell in love with the drapes."

    4Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    David, I've seen drapes worth much more than 35K, just not in a 65K house, LOL.

    Will, what I said was that you can buy a property at a better price that won't meet the definition of market value, it's rather long so folks can just look it up on any appraisal site, the accepted legal definition. Just one aspect of that definition is where both buyer and seller have equal knowledge without undue disadvantages or dealing from an inferior position (basically, not a quote).

    Next, no two parcels are identical, even if they are the same house by the same builder and there can be different prices. Your 65K house may not be at market, but it's the cost of acquisition as well, so legally you're at 65K without drapes I guess.

    Nothing says you can't get a good deal.

    I'm totally aware of how all this works, how investors or dealers acquire a property and borrow more than what it's original purchase price was or at full value showing higher values based on repairs made or other comparable properties, how partnerships can be formed, how interests can be pledged and the justifications given, so I won't go down that long road either.

    I'd expect you to stick by your opinion, I've never known you to admit even being slightly off on your opinion since I've been here, that's not saying you're right, but I understand that when your business model is touched upon you are very protective of the basis of operations and that's fine.

    What I stated stands in court, gurus have been nailed over such claims. So have mortgage brokers pooling funds and assigning collateral. Such increased values are not taken by insured lenders.

    I can't change what the rules are, lower of cost or market, 12 months in RE valuations (marketable assets are different, they go at current book value, a horse of a different color, but I'd also say in reality, that any security that jumped in a very short period to double it's value probably wouldn't be taken at current book as collateral as it would be considered a very volatile security).

    The rules and regulations as well as definitions are what they are, opinions won't change them, I didn't make this stuff up, they have been effective for decades longer than I've been in business.

    As I mentioned, there are folks on BP who disagree, some for the opportunity to disagree, some to validate what they do, some have other motives, but it is what it is, you'll do better my understand the how valuations are treated.

    Point made on accounting matters, we are getting off topic in David's success story as the topic. :)

    0Reply
  • Mary Hart
    Asheville, NC · Member since 2013 · 11 posts · 4 votes
    12y

    Very inspiring! Thanks so much for sharing! Mary Hart

    0Reply
  • Wendell De Guzman
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    12y

    @David J. , awesome! BP works indeed.

    0Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y

    I will take one more stab at this in an attempt to explain. Again, I agree with your principles of accounting and such. However, such points explained by you are way off basis and topic. Nobody here on BP in this discussion is attempting to meet appraisal guidelines, accounting measure and such. When any of us refer to buying under market, we are trying to stress to others who may not have our experience that it is so very important to get a good deal when you buy, that is where most of your margins will come from in flipping. it seems pointless to me for any of us to worry about or discuss proper definitions of market value or what a conventional lender would consider equity. The whole point here is to discuss and describe how us successful investors make money in the rehab flip biz and that is by finding good deals and buying (what we generalize as) under market value. In technical terms, and according to the actual principles you are referring to (again, not sure how it really serves a purpose here) we buy at market value, force appreciation and realize a profit at sale.

    But to use that as an explanation to teach newbies really does not capture what we really do and that is, buy under what we consider, market value.

    Podcast Guest on Show #130
    1Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    So, you're saying newbies are to shallow to understand the concept of buying distressed properties? Part of the issue to learning RE is that there are so many out there using jargon instead of real terms. The learning curve would be much shorter if they learned things properly the first time. If everyone got on the same sheet of music the concert would play much better.

    Distressed property + Rehab = FMV (ARV)

    FMV-costs=profit

    Not tough.

    But we do agree Will, the concept is certainly the same! :)

    0Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by @Bill Gulley:

    So, you're saying newbies are to shallow to understand the concept of buying distressed properties? Part of the issue to learning RE is that there are so many out there using jargon instead of real terms.

    That is not what I said at all, I am saying that while you are correct in what you have stated, the technicalities are of less importance here than the big picture and talking about accounting principles just confuses many. You must understand that while you and others with enough experience can easily grasp what you have stated, I believe it takes away from the intent of teaching those much newer, the concept of buying at discounts and how we make profits.

    Time and again, I see people paying prices for homes to flip here in So Cal and for the life of me, I am trying to figure out how the hell they will not lose money much less make any money.

    Again, I am not on disagreement with the principles you have stated, I just felt it was more confusing than helpful to most readers.

    Podcast Guest on Show #130
    2Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    I see your point Will, I agree, there seems to be a micro process involved in exchanging "discount" with "distressed" transactions. "Distressed" is a longer word too!

    "Distressed" could be confusing, it's a word we might use with a 3 year old crying for a blanket or a guy pounding on his steering wheel in traffic. Some here may get distressed with Wheel of Fortune solving a phrase like "G O S L W".

    Buying at a discount has been used by gurus for decades, they know how to make RE simple so that anyone can understand. Anyone with an IQ of less than three figures can relate to a better price like "Discount Furniture".

    For the advanced learners we might compromise introducing the term "distressed" as eventually, if they hang around in RE they will be exposed to it.

    We could do that by saying "Buy distressed houses at a discount" or "We get discounts by buying in distressed situations" there are many ways to say it.

    The issue I see is the contradiction to another term newbies need to understand which is "market value". The problem is that "market value" is the basis for other concepts, factors and the root for understanding other terms in theory.

    If the student of RE is to move on and mingle with real professional types like RE brokers and agents or especially appraisers and bankers they need to understand correct terms and their use in the industry.

    I suppose it's the teacher side of me that really objects, imagine if a math teacher referred to the denominator as the bottom number and when the student gets to the 7th grade they see numbers written on the same line with a slanted line! Then what, there's no bottom number? Need to back up and relearn.

    I just can't support using and teaching improper concepts that contradict basic real estate theory or acceptable terms for the sake of introducing a niche topic just because it might be easier to introduce.

    But, I understand the dilemma having to relate to guru educated investors which is why I suggested the compromise of simply adding the word "distressed" making it easier for them to grasp the basics as they advance in RE..

    Distressed properties, distressed sellers, distressed transactions can mean getting a discounted price. Not difficult.

    It's been fun, I do think we are clogging David's great story getting off topic, if this has to go on, let's take it to a new thread. :))

    0Reply
  • David J.
    OP
    Investor · Houston, TX · Member since 2009 · 210 posts · 261 votes
    12y

    @Will Barnard

    @Bill Gulley

    For the record, I blame both of you for losing the "sticky" status of this post. It must now battle the rest of the recent posts for the right to remain relevant and on the top of the stack. lol

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Here, I'll put it back up there for you. :)

    Blame Will, he's a mod, he can probably put it back up there.

    0Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y

    Bill, excellent points in your last post, that was the most eloquent one yet. I could not agree more, in fact, I get totally perturbed when RE investors mix or butcher RE terminology. I am guilty of this by using the words market value as it was the easiest and most common term to explain the process.

    As far as distressed, although proper, it does not necessarily mean discount so you must then use both words in conjunction to deliver the message of buying at a discount. Again, we are fully in agreement this entire time.

    Sorry to David for getting a bit off topic, however, I do believe this exercise did yield benefits to readers. I know Bill and I had fun doing it.

    Podcast Guest on Show #130
    0Reply
  • Chris Cook
    Investor · New Orleans, LA · Member since 2013 · 19 posts · 0 votes
    12y

    Great post @David J.

    0Reply
  • Jerilyn D.
    Real Estate Agent · Peachtree City, GA · Member since 2013 · 34 posts · 12 votes
    12y

    Congratulations, David! What a true inspiration you are. Thanks for sharing!!

    0Reply
  • Andrew Herrig
    Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
    12y

    @David J. Great story. I have just started my own direct mail campaign - 1000 letters once a month over 6 months. If I have half the success you have had, I will be extremely pleased.

    One questions - when you are talking to potential sellers, how do you explain the benefits of what you provide (cash, quick close, etc.)? I always seem to stumble over my words trying to explain, and I'm not sure the seller understands the value. Though perhaps only the sellers in truly distressed situations will see a cash sale and quick close as a benefit...

    0Reply
  • Douglas B.
    Buffalo, NY · Member since 2014 · 82 posts · 75 votes
    12y
    Originally posted by @David J.:
    Brad Chandler
    Criteria was absentee owner with more than 6 or so years on title. 3+ bedrooms. 2+ baths. In addition, in the area we mailed the houses were built in the late 70s early 80s with a few exceptions.

    How do you go about finding the contact information for these individuals?

    0Reply
  • David J.
    OP
    Investor · Houston, TX · Member since 2009 · 210 posts · 261 votes
    12y

    @Douglas B.

    Listsource.com or someone with the tax records associated with your local MLS.

    0Reply
  • Michael Slabitcher
    Specialist · Miami, FL · Member since 2013 · 56 posts · 20 votes
    12y

    Hi David,

    First off, congratulations on your success. After reading your initial post I am curious to know exactly what your voicemail greeting says. Are you personally recording the greeting? 

    Thanks,

    Michael Slabitcher

    0Reply
  • Raymond B.
    FL · Member since 2009 · 2k+ posts · 357 votes
    12y

    @Michael Slabitcher 

    I'll summon @David J. for you. Hopefully, he will answer your question.

    Raymond

    0Reply
  • Michael Slabitcher
    Specialist · Miami, FL · Member since 2013 · 56 posts · 20 votes
    12y

    Hi Raymond,

    I am assuming he monitors this topic. Thank you.

    0Reply
  • David J.
    OP
    Investor · Houston, TX · Member since 2009 · 210 posts · 261 votes
    12y

    i will grab it and post it tomorrow, but I can assure you that there are no secret words in it. Prepare to be disappointed. I have found that you just need to build a relationship with the seller and help them solve their problem. 

    0Reply
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