Investor · Houston, TX · Member since 2014 · 79 posts · 118 votes
Hi all -
I've been a long time lurker on BP and am happy to say I've listened to every Podcast and read as many posts as I can. My passion for real estate started with rehabbing because I love turning old run down properties into updated homes that families can enjoy. I did a few rehabs back around 2002 as a hobby and then took a long hiatus from real estate.
This year I decided I wanted to get serious about investing. I hired a mentor in January to teach me how to wholesale off the MLS and quickly did two wholesale deals. I can definitely say that I don't love wholesaling but appreciate all those out there who do.
In April of this year, I was about to wholesale my third deal for a nifty $10k profit when my mentor recommended that I start building a rental portfolio. So I purchased the house for $56k and it currently rents for $1k a month. I quickly found a second house with very similar numbers a month later.
I continued to build relationships with realtors and was approached with a six house deal for $320k. All the houses have been completely remodeled and have tile throughout along with updated kitchen and bathrooms. The investor who owned them was moving to another city and didn't have the stomach to be a long distance landlord. I just closed on those six houses which each rent for $1k a month each to bring my total to eight houses.
Next month I'll be closing on my 9th house which is bringing me very close to my goal of buying 10 rentals this year. All houses are in Class C subdivisions and I purchased with 20% down loans.
Thanks to everyone who helped answer my questions along the way and to the BP folks who share knowledge and continue to motivate through podcasts and articles. I hope this motivates others to follow their dreams.
That really is great how well you are doing. My only advice to you is not to get caught up in a buying frenzy. My business partner and I bought 20 homes inside of a year and half and it was a huge mistake because we just wanted to keep buying and did not make sure that the homes fit our business model. In fact we did not even have a business model which is why we had some many failures and set backs along the way.
Definitely keep going but do not fall into the well buy anything because its a great deal and I found it trap like I did. In reality only about 8-10 of my 20 were properties I should have purchased for various reasons. But all I saw was a deal and thought I needed to get it.
Again just my thoughts and my personal experience of the other-side of buying too quickly
Very inspiring! I was thinking of going into wholesaling, but it seems like there are other ways to invest that seem more profitable. Thanks for sharing your story!
@Ehab Shoukry I did something similiar back in 06. I close on 4 properties in 3 months. Congrats!
@Cody L.Outstanding! The 1000 properties is a goal I recently decided to go after. I have no idea on how I will accomplish it, but I feel comfortable with it.
that is so awesome! I also took a hiatus from buying real estate. I have 4 rentals and I have spent the last years managing the business(hap hazardly or passively) and some grad school work. So I have been playing the sidelines! One thing for sure is that I was always educating myself and keeping up on real estate.
My Bigger pockets family continues to motivate and educate me to get in the game again.
I remembered someone asked me how did I know these were good investments. I think most people will tell you that a good investment is a subjective term and varies from investor to investor.
For my criteria the most important analysis I do is to figure out how much money I will be coming out of pocket and how much will I be getting back for that investment annually. That's a cash on cash return calculation and for me made the most sense.
For my first rental I put down $15k and estimated that I would make $6k a year in rental income after expenses and mortgage payments, etc. Thats a 40% return which I realize can decrease with unexpected expenses. So I felt if an investment will make me a 30% return or better that would be a good deal.
I am in the process of buying my 9th rental for $52k and it currently rents for $1100 a month. The tenant has been there since 2012 and wants to stay. I estimate it will cash flow $700 a month so when I calculate the return I will get on my 20% down payment it will be over 50% a year.
I would be happy to share as even though it shows how badly one can mis-judge their own abilities, I have been able to take those mistakes and turn them into a million dollar property management business so looking back I feel that was my Real Estate College education of hard knocks...People do seem to like it so much that I have given speaking presentations on this subjects and been guests on many podcasts discussing this issue (My mistakes :-) ) It feels good that I can help other people avoid the same pitfalls that I fell into when they are buying. I think this is why so many investors approach my company and me personally for some help and guidance so they dont fall into the same messes that I did.
Also I will stress this was my experience and looking back I would have done exactly what @Ehab Shoukry did which was buy them already ready to go with all the issues and problems resolved before taking them on. He is definitely doing it the right way and my hat is off to him. Heck he may even own some of the properties that I did at one time since they are in the same area.
I think I posted this somewhere before but I could not find it so I will re-post.. forgive me its a duplicate..
Here was my experience on the 70% of my portfolio at one point which was low income properties
I have experienced owning many low income properties over the years. I have come to learn is that it’s not that they are good; it’s not that they are bad, it’s just different.
When purchasing these types of properties make sure that you know what you are buying and the type of business model that you are buying into. What I have found is that people like the low-income/high cash-flow properties, because on paper, it appears that you are going to get great cash flow or a great cash return, and like I experienced first hand that is not always the case. This is exactly what I did, I bought properties 40 cents on the dollar and needed much more work then I anticipated
A lot of the lower income properties tend to have tenants who live a month-to-month lifestyle. Meaning, the eviction rate is normally going to be higher and you are going to have more issues with these tenants as opposed to higher income properties. Statistcally you will do more evictions in the lower income properties. Again, it’s just a different business model.
The majority of these houses are going to be older homes, so plan more maintenance issues/costs and probably more call outs with the tenants. Something we have seen is the tenants are normally a little bit harder on the properties. Plan to have a larger make ready or even a rehab many times. Even if they have been in the house for 9 months, 12 months or 18 months, there is probably going to be more damage than you may think as opposed to higher-end properties.
When many of my tenants vacated my lower income properties, they would tend to take parting gifts like electrical wiring, appliances and air conditioning units. We tried everyway to secure them but it’s just something we have never been able to successfully do. Also, when the property is vacant, you are going to have more of a chance of vandalism.
They do look good on paper, which is why everybody looks at them and they think it’s a great return. It’s just different and we see it’s not always as advertised. So, if you are going to buy low-income properties just make sure that you know what business you’re getting into. Make sure that you do have higher contingency funds for things like maintenance, higher tenant turnover and be ready to work more deals to keep the tenant in. We found that by doing that and being more prepared, you are going to be a lot better off. And, if it still looks good on paper with the higher reserves and the higher numbers, then I would say go ahead and continue with the process, but make sure you are going into it knowing what business you are getting into and what that business model entails.
If you want to find a bank to refi at current market value sooner than in 12 months, you need to call every bank in town and ask them for the seasoning time after which they can use an appraisal instead of your acquisition cost. Then call every bank in the county, then every bank in the state (you can find the names on regulator websites, to make sure that you don't miss one). If you speak to every single bank you are bound to find one that will do it in 6 months, 3 months or even within weeks. You just need to keep asking until you have spoken to every possible bank.
thanks a lot for sharing, I wish one day I can be there. today I am starting to look for Realtors so they can find me some houses at very discounted prices !
What advice/mentorship did you feel was most instrumental during your process of buying? Where you struggled the most and your mentor was really essential to helping you find success and make smart decisions?
@Paige Clarke I would say that having a mentor helped me in multiple ways along my journey.
First...where to invest? Houston is a big place and knowing what areas are good for investing and which ones to stay away from is important.
Second...how to find deals? My particular investor recommended farming MLS to start out. For those who aren't ready to spend a lot of money on direct mail, MLS can be a viable option depending on where you live. I hear many investors say that it's too competitive but there are deals out there if you are persistent. Really the worst thing that can happen trying MLS is that a bunch of realtors will tell you no!
Third...evaluating deals? My biggest hurdle was fear that I would buy a house that was a bad deal. I think that is many people's fear. Having someone just say the words, "this is a great deal" relieved so much pressure for me.
There are so many curve balls and speed bumps you run into when trying to find and put together a deal that it was a huge advantage to be able to call my mentor and say, "the sellers agent called me and said this...what do you think?" or "they countered back at $65k, what should I do?" In the end, I would get advice on how to handle these objections and pick up little strategies on how to overcome them.
@Ehab Shoukry - congrats. Your price point seems like it might be in the high tenant maintenance and turnover range for the Houston area (see Steve Rosenberg's post earlier in the thread). Are you going to manage the properties yourself? I'd be very curious to hear how the landlording goes.
@Doug McLeod I definitely understand where people are coming from on the lower price point houses but here are some of my thoughts.
The first two houses I purchased in the mid $50k range, the tenants I have are young couples who are making the step up from apartment living. They are computer savvy so they are all paying rent through my online service so I don't knock on doors or get checks in the mail.
Of the six houses I recently purchased in bulk, four have Housing Voucher (section 8) tenants where the city pays 75% to 95% of the rent. In two cases the city pays $950 and the tenant only pays $50! These tenants have lived in these houses for three to five years and are long term tenants. When I spoke to the investor who I bought the houses from his explanation was, "that the tenants cannot afford to move. It's too expensive." He had virtually no turnover and in one case, one of his elderly tenants passed away and their children took over leasing the house.
I'm sure others have had very different and negative experiences but this has been my experience so far.
@Ehab Shoukry Congratulations on your acquisitions! It's great to hear of a BP member doing so well early in the game. Please keep us posted on your next house.
@Steve Rozenberg Thank you for sharing your experience. I certainly gained from your posts and I'm sure other members have as well.
You closed a 6 house deal for $320k. The houses had been recently rehabbed and were 100% leased at north of a 20 cap. The owner didn't have "the stomach" to collect his 20 cap rents long distance so just made you this deal? Think not.
Yeah right. This is BS. What does anybody get out of this sort of false advertising??? Even if you believe it's true do not ever expect to get a similar result in your own transactions.
