Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
So I just posted my first article for the BiggerPockets blog. After hitting what I'd call a Grand Slam flip that produced a net profit of over $800,000, and at the risk of sounding boastful or as a braggart, I was conflicted whether or not to tell this story.
At the end of the day, I decided to write it because I read a lot of questions from people curious about how deals are found and financed, and what the numbers look like. I also read a lot of comments on this website from people who struggle to build their real estate businesses. In times of doubt, an occasional reminder of why the struggle is worth it can be enormously helpful, or so I'm told. :)
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
13y
Hey Brian Burke - You can call yourself Josh Dorkin if I can split the proceeds of the flip with you. ;)
Guys -- Brian is actually our next guest on the BiggerPockets Podcast and this Thursday, you're going to learn a ton from him. Make sure to check it out!
Great job! I agree with Sean, you should be bragging. How long does the average person have to work to make $800k? Average income where I live is 40k a year. That's 20 years. You did it in 22 months. Congrats!
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
13y
Hey Brian Burke - You can call yourself Josh Dorkin if I can split the proceeds of the flip with you. ;)
Guys -- Brian is actually our next guest on the BiggerPockets Podcast and this Thursday, you're going to learn a ton from him. Make sure to check it out!
Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
13y
Brian Burke Awesome job!
I'm curious on a couple of numbers:
Why was the payroll over $180K? What all did it include?
The appreciation that you created is great. I see that the income from rents was $9,802 for 22 months. I'm guessing this is because there was high vacancy and low rents at the beginning. What kind of money do you think this would have netted per year if you had kept it?
Real Estate Broker · Fort Washington, MD · Member since 2012 · 83 posts · 9 votes
13y
Amazing. Thank you for sharing and the encouragement. We do tend to give up when we stumble and fall. Thanks for the honesty and stressing the communication piece. Congrats.
Rental Property Investor · Atlanta, GA · Member since 2013 · 67 posts · 26 votes
13y
I enjoyed your article. It's eye-opening to me how important base hits are, in gaining experience, establishing relationships, and building a reputation. Your quote below gave me an "aha!" moment:
"Even though I had none of my own money in this deal, I cannot overemphasize that this financing structure is only possible with experience, relationships, and a track record (remember all of those base hits you are using as building blocks?)."
Thanks for your story. Gives me a good goal to aim for!
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
But, But, But.....the Gurus say you can do this and all you have to do is an assignment, or at worst a double close. You mean you actually have to put a plan together, and do some Work??
Great job Brian, good plan, good execution and obviously good management.
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
13y
Thanks everyone for the awesome feedback! This makes me glad that I made the decision to share this story.
Joshua Dorkin, I would have been more than happy to have split this with you, all you had to do was supply the $540K raised in the offering! Maybe next time... :)
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
13y
Originally posted by ROB K:
Why was the payroll over $180K? What all did it include?
Rob K, awesome questions! An apartment complex of this size requires an on-site staff, here is the breakdown (this is salaries & benefits for the entire 22-month ownership period):
The income from rents was actually $723,191.65, but after subtracting out all operating expenses (property management, G&A, marketing, payroll, R&M, utilities, contract services, insurance, property taxes, and loan interest) the NET was $9,802 (but I guess it's really the net that matters, right?!). This is primarily because of the low occupancy in the beginning (which produced negative income for the first year) and the ultra-high interest expense on the hard money loan.
If we hadn't decided to sell it after month 14 or so, I would have refinanced out of the HML and into an agency loan (Fannie/Freddie), which would have dropped our interest from 12.5% down to less than 4.5%. Toward the end, the property was throwing off over $20K/ month net after expenses. Subtract interest on the new loan of $7K or so, the positive cash flow would have been around $13K/mo, maybe a little less or more. Another alternative would have been to refi all of the contributed cash out also, making the loan payment closer to $11K/mo, giving $9K/mo net cash without any money left in the deal.
Someone will ask...why didn't you get your cash out and take the $9K/mo? Because we'll take the equity along with the gain, perhaps add in a few more investors, and reinvest in the next deal that will be even larger, produce even more, and allow us to do the value-add component again. We can't value-add to this deal any more than we already did.
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
13y
Great stuff Brian and great writing. Thanks for sharing!
Joshua Dorkin - what time is the podcast tomorrow (no experience with podcast, I know I'm behind....)? EST? I did subscribe via RSS feed if that means anything.
Residential Real Estate Broker · Pensacola, FL · Member since 2012 · 221 posts · 49 votes
13y
Congrats! Great deal. It looks like you made roughly a 50% return (total investment 1.6m, 800K profit). The most I ever made on a flip was a 100% profit, but I've never had one with a net of over $150K.
I read somewhere that the average investor net on a flip last year was $30K. You made 27x the average on that one. Damn!
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
13y
Ibrahim S - It'll come out first thing in the morning, and you'll find it on the podcast page. If you check out our show on iTunes, you can actually subscribe to it on any Apple product. We're also listed on the other major podcast directories.
Rental Property Investor · Manchester, NH · Member since 2013 · 447 posts · 81 votes
13y
Thanks for sharing. I like how you describe what is possible but also toss in a little realism by saying it took many years to build up to it. And even though you made this killer deal you were still looking for ways to improve! Reminds me that you have to enjoy the process, take it step by step, continuously learn and improve, have fun and success is sure to follow!!
Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
13y
Hey Brian Burke! With deals this large (and the 100% financing), the front end numbers become ultra important.
How did you go about calculating the ARV on this one? I know about increasing rents, decreasing expenses and calculating the cap rate and ARV from that number... but this takes it to another level with what seems to be a half dozen other factors to account for.
How close were you to your original ARV number when you finally sold?
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
13y
Thank you for sharing. Great you were able to do the deal without your own money, but I agree it was because you had a track record being in the business for so long.
I like the fact that you actually improved the building while at the same time creating a great profit.
Looking forward to the podcast and to your other stories.
P.S Was the property in the Santa Rosa area? Just wonder, that's a beautiful area along with all of Sonoma County.
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
13y
Brian Burke
Thanks for sharing your great story and congrats on your success. I also used the Baseball analogy in my book. "Babe Ruth and Hank Aaron struck out 1.8 times more than they hit homeruns. Barry bonds struck out 2.1 times more than he hit homeruns. Real estate gurus and authors would have you believe that they never or very rarely struck out."
Clemson, SC · Member since 2012 · 82 posts · 19 votes
13y
Thanks for sharing! Also, I don't believe you're bragging at all. Potential investors need to read a success story about this, and not even because an $800,000 profit can be inspirational to some ;).
They need to understand the big profits can only be achieved after years of experience, hard work, and solid decisions that make it possible for "grand slams" such as this. Success comes when you can add value, like you've said, to a deal.
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
13y
Originally posted by Glenn Espinosa:
How did you go about calculating the ARV on this one? I know about increasing rents, decreasing expenses and calculating the cap rate and ARV from that number... but this takes it to another level with what seems to be a half dozen other factors to account for.
How close were you to your original ARV number when you finally sold?
Good question, Glenn Espinosa. I originally bought this as a 5-year hold. Nevertheless I calculated two ARVs in advance of the purchase, a year-2 stabilized ARV, and a 5-year exit ARV. I calculated it using a 7.5% cap rate and projected year 2 stabilized Net Operating Income (the exit ARV was calculated using subsequent-year projected NOI, in other words pro-forma year 6 income). The year-2 ARV was $2,325,000, it did considerably better than that!
You are right, there were a lot of variables. I know from experience what it costs to run a multifamily property, so the expense part was easy, the second variable is rental rates and vacancy. I totally blew that one. Well...kinda...I like to project conservatively. The income exceeded projections because the tolerance for rent was higher than I forecast, and vacancy ended up lower than forecast (oh, darn!). The combination of those factors resulted in a higher Y2 ARV than expected. I wish they all worked that way! Maybe it's the start of a trend...
Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
13y
Originally posted by Brian Burke:
I totally blew that one. Well...kinda...I like to project conservatively. The income exceeded projections because the tolerance for rent was higher than I forecast, and vacancy ended up lower than forecast (oh, darn!).
Well if you're gonna mess something up, thats the way to go!