My 2015 Goal : 50 Units by end-of-year
Current portfolio metrics :
10 Properties
15 Units
17.15% Un-levered ROI average per home
56% Average equity increase per rehab
This is a hybrid kind of portfolio. Our plan is to buy SFD & Multi-Family properties from now till around 2016-2017, at which time we plan on liquidating SOME of the SFDs to pay off some of the underlying debt that we will accumulate through the process. This is of course if the market sees appreciation. If we don't see large amounts of appreciation (And are unable to purchase properties that don't hit our minimum of 14% ROI).
In 2014 we added 8 properties for a total of 13 units.
Unlike many rehabbers, we "Do all our own work" in a sense that I don't contract all the labor out myself. My goal has been to try and do all the work internally on our properties so we can add even more equity to each deal via wholesale labor. This has worked out AWESOME as we've increased our net equity in each deal by 56% over each purchase. Many people ask us "Why not just flip them", however at the time we can refinance the property for 80% LTV based on the post-rehab value. This allows us to cash them out for more than what we paid, pay that money forward on the next property while still collecting fantastic residual returns.
Right now we're in contract for 2 properties, they are expected to close the first part of January 2015, so these will be added to the 2015 goal. This will bring us to a total of 12 properties @ 17 units.
With a rate of 1.5 units per property in 2014, we will need to raise this significantly in order to hit the 50 unit goal. If we are able to purchase & rehab a total of 15 properties at an average of 2.33 units per property we can hit this goal. This would best be achieved by getting a few quads or higher unit count properties (Commercial rather than MF residential). We do have a 4plex and 5plex we are looking at purchasing next year, which would take us to 26 total owned units.
The hurdles we expect to deal with will be primarily on the financial side, dealing with taking out equity on properties we already own for cash. Even though we have fantastic equity in our properties, banks are still somewhat slow to lend. We will need roughly $750k-$1.25m to hit our unit goal over the next year. This is a good deal of debt to take on in our area.
In this post I'll be detailing what kind of deals we look at, purchase and the various problems we encounter to hit our 2015 goal!
So far there hasn't been much to report outside of us making another offer on a property. It would be decently profitable if we were able to get it, granted we've got a good chance as we're within 10% of asking on a sub $20k house.
Working with the bank has been relatively difficult. As of 3 months ago we had the all clear to buy more properties, refinance them and continue on. However the bank we're working with wants us to slow down, and the other bank we talked to wasn't to apt to lend to us due to 'being too new' (I guess having rentals since 2007 is a short time?) and 'growing too quick'.
i feel your pain on the break in, where im at its not uncommon to have things "walk off". we had the entry line for the power hit twice in one house, in 3 days, we almost caught them the second time. have had ac's and water treatment systems disappear too. usually about 3 to 5k a pop.
@Brandon Schlichter Thanks for sharing your ongoing story for 2015. Lots to take in. One of your posts mentions the copper taken from #17 (but then it became apparent that you meant #12) - and now, this latest incident. I think THIS might be the major reason why your Bank/s are asking you to slow down; it is not only you that is affected by these thefts, but them too! All the best...
Great job!
Going forward we're putting security systems in the properties under rehab (We're using simplisafe) and I'm working on personally putting together something more landlord-centric (A security system designed for rehabbers/landlords).
@Brent Coombs I don't really know why it would effect them. Banks in general want to see us to keep back 15% of gross rents for repair expenditures. We ended 2014 with 5.8% of gross rents as repairs. This year so far the only repair expenses I have have been a broken window from kids playing and weatherstripping a few doors. Our repair escrow covered the tools a few times over. I HAD the choice to have insurance cover the tools, but the agent agreed with me that it wouldn't be worth the hit.
Our properties are so cash positive it's amazing. I did talk with a lender last week and they seem very, very positive on lending a larger sum of money to us that would enable us to hit the goals we have for this year (The 50 properties).
Originally posted by @Brandon Schlichter:@Brent Coombs I don't really know why it would effect the (banks)...
All I know is that if I had lent out money hand over fist for the building of the Titanic MkII, I'd be getting jittery come Iceberg season. But as long as your cash flow keeps far outweighing your repayments schedule, and you have provably significant instant equity in any new purchases, then fine, yes, they should indeed continue a courtin'. "Keep on keeping on"...
Our DSCR is above 7 right now.
Been pretty bumed about how slow things have been this year.
Happy to make note that we're in contract on unit #18, a single family detached house.
Here's how it looks.....
Purchase of $15.5k
Rehab of <$10k
Rental income of $650/mo or $7,800.
Taxes + Insurance + 15% Repair escrow will run $2,500/yr. This will put us at a cash ROI of 20.7%.
On another front we MAY have finally found a lender and setup that will allow us to continue to endlessly refinance properties to build the portfolio quicker. We'd have to deal with expensive money, but the scalability would be quite good.
Glad to read that you have found a different source of funding.
I have a relative that buys SFH that he turns into rentals in the Toledo for under $40K. Where I am, you can not even go into C neighborhoods for less than $150K. I am still considering doing a house hack with a duplex but my w-2 income has been all over the place so Banks do not like that. Seller finance might be my only option.
Where are you looking to invest? I am in real estate investment in Denver CO area.
In the SW suburbs but the entry prices are north of $300K in the zips that I know , 80120.
What I'd like to do some day, when we have say $10m under management would be to grow it into a SFD/Multi-fam mixed purpose fund. We're doing great on cashflow, and once we get some leverage it will be even better.
It'd be nice to offer west coast and foreign investors access to these kinds of markets, professionally managed and with as much risk mitigation as possible.
Nice job! Keep posting your progress, it's inspiring. How are you buying properties (ie your own marketing, private sellers, tax liens, all of the above) and are you staying in your local market? I've been working on some strategies with a partner in Ohio and the numbers work really nicely.
Mostly MLS sales and private sellers. Lots of inventory, not enough people buying properties for rentals to keep up with the market.
Right now we're only in two counties in Ohio, no desire to expand at this moment due to both counties having a yearly supply of quality rental conversions of maybe $5-$8 million a year.
Talked to bank today, really, really disappointed in their statements to me. The bank we work with (And I'm in the process of talking to others) Has made the decision to not lend to us till we file 2015 taxes in 2016.
Their auditors or whomever at the bank have made the decision to use our Actual revenues for 2014 (Which were effectively from 8 units), and take projected 2015 expenses (based on 18 units) leaving us with a DSCR too low to satisfy any further loans.
Kind of blows my mind that they expect the increased expenses from the properties but don't consider all the new revenue sources.
Still at 18 units, finishing rehab, unfortunately I haven't been able to hire any new workers in the mean time to streamline rehab due to the fact that i don't know how much capital we're gonna have to invest this year.
Originally posted by @Account Closed:
This is extremely inspiring. I have several questions for you guys:
- How did you attract those unconventional buyers? What techniques would you recommend me to look up and how can I do it similar to you?
- What kind of unconventional buyers do you mean?
- How much emphasis should I as a teen that envisions myself doing real estate investing put on formal education? Do connections care about your degree at all, or is expertise and helping them out more beneficial?
- I took my state mandated college course when I was 21, it was for a total of 3 weeks as I was doing 10 hour days. I have no further formal education outside of working as a real estate agent. In 9 years of being in real estate, I think I've been asked about college maybe half a dozen times. Most only care about what my track record is.
- How did your team look when starting out?
- If you're talking about my team for this phase (buying, rehabbing, renting) properties. It is mostly me + my rehab team. Finding them was a bit difficult as I had to end up picking up guys who had worked with other landlords, but were burnt out on doing bare minimum repairs on properties that needed more. They're great at rehab and maintaining properties.
Well done Brandon.
I am totally new here and like to learn more on how to start on flip & fix. I certainly could learn from you something. What kinda a money I need to have to start into buying real estate. Learning RE 101 here...
Originally posted by @Tan Janjua:
Well done Brandon.
I am totally new here and like to learn more on how to start on flip & fix. I certainly could learn from you something. What kinda a money I need to have to start into buying real estate. Learning RE 101 here...
Really depends on your area. Around here I could buy a house for $12k and potentially rehab it for <$10k and have it produce a net profit of $300 or so per month.
Some areas have a minimum entry point of 10x what my area is, maybe 20x. So it all varies by your location.
Great job.all the best to the year end
Sorry about the bump in the road but I think you're doing great! This is so inspiring.
Finally an update :
In contract for a house to flip ($30k purchase, hoping <$30k in repairs, ARV of $100k resulting in a $30k-$40k sales price depending on holding costs).
Then I'm also in contract on a duplex which will bring us up to 20 total rental units. Hoping to get on track to get at least close to the 50 unit goal.
@Brandon Schlichter When you said "In contract for a house to flip ($30k purchase, hoping <$30k in repairs, ARV of $100k resulting in a $30k-$40k sales price depending on holding costs)", you meant "...resulting in a $30k-$40k sales PROFIT..."?
Well done!...
yes profit!
Closed on the duplex today along with the flip house.
Here's the financials :
- $52,500 purchase price
- ~$0 rehab cost
- $615 monthly NOI
- 14.35% ROI
Right now the rents are a bit low, one tenant has been in the property for 37 years! We will be her SEVENTH landlord since she's lived there. Fixed income and on HUD, hoping to work with hud to see if we can get rents up a little. Market rents are about 30% higher for this area for the unit she lives in. Won't raise it if they can't fully subsidize it since she keeps such good care of the unit she's in.
