Mike's Month - Thoughts on my day to day as a full time investor.

Lets see if we can bring this blog back a bit. I kinda lost track of it there but I think this is a good way to share what an investor is juggling at any given time. The issues we run into and some of the thoughts of how we come up with the solutions to overcome those issues.

A quick background. As of last year february (2/2018), I officially became a full time investor. I had a good job in IT that allowed me to work from home. But they simply ran out of work for our group when they bought an off the shelf software product to replace our custom developed solution. I toyed with the idea of finding something else but realized that IT was just not for me anymore and there was no way I was going to do the commute again. So full time investor I am now.

I own 79 single family home rentals. I also pay child support and a portion of the profits on certain homes as part of the divorce settlement. While you think the rental income would provide enough income, the reality is that would be true but then I would be limited in buying any more rentals going forward as I wouldn't have the extra capital I needed to come out of pocket the 6k to 10k each deal typically takes.

So my model now is to sell 2 to 3 properties a year so I can continue buying 6 to 8 houses a year - or more. I enjoy doing this too much to stop. But without my full time income, I saw how quickly i was becoming equity rich and cash poor. :-)

Thats enough background for now. I'm sure if you read more of these, you'll get some more. But lets jump into the meat of what I'm doing so you can see what kinds of things a simple investor like myself is actually working thru.

I. CURRENT RENTALS

First thing we need to look at is whats going on with my current rentals. These are the houses that have been rehabbed and rented and are now being managed by myself. I currently have zero houses listed for rent. I do have a couple of vacancies for houses that had tenants move out. But they're all spoken for right now and locked down with hold deposits.

I recently had a tenant move from one house to another to get smaller and so they could lower the rent. She was a great renter though so I was glad to keep her. I put in new kitchen cabinets and the house she moved into is now near new construction as everything has been updated now that the kitchen was redone.

I did get a notice from someone renting one of my houses in manteno. They just had an offer accepted and they're supposed to be closing next month and will be moving out June 30. Plenty of time for notice.

The house will need some minor updates but its actually pretty good. She's been there five years and I haven't raised the rent since she went in. I should be good for an increase of at least 125/mo to 150/mo - from 1300 to 1450 or so.

Its amazing how the rents have jumped over the last couple of years here. I used to say you could bump the rents 25 a month after turnover. But now I'm seeing more like 25 to 50 a month depending on the house. There is literally nothing available at times in the small towns that I'm in.

But I also see the tenants' expectations getting higher now too. They're expecting a decent size master with an "on suite" as one just pointed out to me recently. I can tell they're watching a ton of HGTV shows these days. :-)

And I would add that leasing the houses myself definitely gives me some insight as to what types of houses and finishes I should be targeting in my acquisition phase. The vinyl plank (5.5 width or better) is huge and if you can do it throughout the house, even better.

As of late, I've been fairly lucky on my repairs lately. A roof here, an hvac there, and a sewer line dig up to round out the month. But no big run on anything so thats always key. I came in about 2k or 3k under budget for the month which is always nice.

This months is going to be busy for move ins. Two of the turnovers are moving in this month and two of the rehabs are completing and renters moving in. So four move ins come June 1. That also means I need to go through the houses and make sure all the little piddly things are done.

As part of the new business model of selling 2 to 3 a year, I have one house up for sale now and another going up soon. Hoping they can sell quick as I'm counting on that cash to help fund some more deals and some of my land deals (discuss later).

Lastly, once I wrap up a couple more of the outstanding rehabs, I plan on refinancing those homes out of the hard money loans plus doing a couple of existing homes as cash out refi's so I can raise some more cash. Again, for me, equity is not an issue. I want to boost my cash reserves at all costs.

I know that sounds counterintuitive to most people to see an investor do a cash out refi as if that starting over is a loss. But on paper, I have over 4.3 million in equity. And by adding 6 to 8 houses a year, I'm getting 250k to 350k a year more in equity just from those purchases. Not to mention the appreciation (2% a year would be 250k but lets say 1% or 125k) and the principal paydown (200k/yr) that I'm adding to my equity base as well - thats 600k a year even if I use 1% appreciation.

So by selling off 2 to 3 houses and pulling out another 80k to 100k this year, what am I really doing to my equity base? I'm giving up 300k in equity but gaining 600k to 750k?

Going forward I don't plan on doing cash out refi's like that if I'm selling 2 to 3 houses. But I'm really trying to make a push to build my capital reserves this year.

II. REHABS

As of right now, I have four houses currently in some stage of the rehab process.

1) Manteno - Maple. This one has a renter locked in and the rehab is essentially done. I think its missing a mirror that they forgot to install and I'll hit the hardwood floors one more time with some finisher but thats about it.

2) Bradley - Fulton. This one has a renter locked in as well. Rehab should be wrapped up by the end of the week. Just a few odds and ends. Painting will be done tomorrow. Only thing left is the flooring and replacing a window in the garage.

On a brighter side for this rental, I got a tip from another investor in my area about getting cheaper flood insurance. We have some homes in our area that are near these creeks or streams but that would never get any serious water yet we're getting killed by fema. Well, this company has private flood insurance you can get provided they meet certain criteria. And this house did. I should save myself 300/mo (yep, thats the savings) on this house because of this tip. If you're interested, shoot me a message about the company name. I'm not sure I can post it on here. The flood policy is thru Lloyds of London though so its reputable. I pulled my other house out too and that will save me another 200/mo as well. So that tip was a 5k little nugget for me and will also help me look at acquiring some of these properties in the future now that I know my monthly costs can be reduced. I just need to run the address by this company to see if they can bypass the fema policies or not.

3) Wilmington - Baltimore st. This one has a salon building next to it as well. Its been a nightmare getting moving because of the plumbing I needed done and the limitation of this crazy cistern in the basement that was blocking any way to get the lines to the other side of the house. So I did what we sometimes have to do - and got creative. I reconfigure the kitchen and two bathrooms and moved them all to the other side of the house so I could get the plumbing going. Rehab is finally back on track after being stuck in the mud for four months.

Salon is done and I'm not going to put that up for rent. I actually had a tenant for it as a tatoo salon. I went down to the village months ago and asked if that was zoned for a tatoo shop. Talked with the city administrator for over a half hour. She went thru all the zoning books and said yes. Tatoo guy put in his business license app and of course the village rejected it.

I was furious. I went in and was yelling at the lady. It was ridiculous. I told her she explicitly told me that it was zoned for that use. She claimed she made a mistake. But I told her we built it out with the understand that she had the authority to decide if that zoning was permissible for that use. Didn't matter. I think the real issue was that some of the neighbors complained and the mayor stepped in and denied the application. Its a busy highway with lots of commercial but it also has the residential mixed in with it. Still, great example of how these villages can outright lie and there's nothing you can do.

4) Manteno - Adams. This one is moving along well. New contractor. And I had to expand the scope a little to really make this place pop. This one is already rented though. Had an applicant that applied for another house but he couldn't get out of his lease til july 1. I told him I couldn't hold it that long but had this one. This one worked better for them anyway.

That is another tip I would add that is really helping me. When I list a property, if someone comes and I get the idea they're not interested, I'll ask them if they think the house is a fit or if they're looking for something a little different and, if so, what. A lot of times, I either have something I'm rehabbing that might fit OR something that might be coming vacant soon OR something that I might be acquiring soon that might fit.

Its been amazing how many times I am able to cross sell a tenant from something they're looking at to something else I have or that I will have coming soon. Its a huge benefit of scale that I rarely see mentioned.

III. ACQUISITIONS

So I've picked up the two Manteno houses this year which means I'm definitely off my pace of getting 5 or 6 to 8 or 9 a year. However, I do have a house in Beecher under contract. The listing agent was told that one of the relatives had the right to sign. Turns out that wasn't the case. We are going thru the courts now to have the judge and fiduciary rep approve the purchase. The relatives still want it to go through so I'm thinking that eventually we'll get this one. Hopefully, before July 1 as I'd like to get 4 deals done in the first half of this year to be on pace for 8.

And as luck would have it, my realtor has a client whose parent is being moved down by them. The parent has a home that the client just wants to move on from without a whole lot of effort. They seemed more than ok with a discount provided it was a quick sale and no contingencies. Guess what kind of buyer that leaves? Me. :-)

House has some issues from what we could see from the outside. But it has good size and should make for a great long term rental. Better still is that the client's price range for selling is about where I could be at based on some basic assumptions of what I'd need to rehab. Obviously, I'd need to get in for a quick peek but I think this one is a no brainer. This one will close in mid June so if the beecher one can hit, then I'd be at my pace and would have picked up four houses in the first half of the year. Not bad given how incredibly tough this market is right now. Just nothing there.

And of course, I have one house that I'm going back and forth on with a bank to see if we can find a price to both agree on. We're not that far off but not close enough for me to pull the trigger. If it sits another month or so they should do a price reduction and, when they do, they should be very close to my number. So we'll see if the house makes it out til then. Typically its about 25/75 that they make it out to that final price reduction I need to get a deal.

IV. LAND INVESTING

I'll close out with my land investing. I've been dabbling in it for about two years now. Trying to learn my way and figure out a niche that works for me and that I can duplicate. I think I've found a nice price point and am starting to pick up on some key traits for land to make the right deals. The last 3 deals I've done have combined purchase price of 30,200 and a total combined profit of 58k - thats after all title fees, etc, but not including the mailing costs.

I just recently closed on a 5acre lot in Texas that backs up to a national forest. I'm all in at 14,700 and have just listed it a few days ago for 39,700. The cheapest 5 acre parcel in the entire county is 49k and the cheap ones don't have the road access, the proximity to the river, or the access to utilities (this one has electric to it) that this lot has.

I've had a few promising bites on it but no purchase agreement yet. Had a lowball offer of 30k that I considered as it would have still doubled my money in a matter of weeks by the time it would have closed. But I think 40k is a great deal and will give it some time.

I also mailed out another 3600 mailers and have another 4k about ready to go. I'm really kicking myself now though for failing to mail. As the last 3 deals plus this current deal were all from one 10k unit mailer back in december. I had told myself to mail another 10k each month but just didn't have enough faith that I could find these deals. Now i'm convinced. So lets see if I can stick to 7k to 8k mailers a month or more and lets see how many deals and profits those actually bring.

Thats it for my blog. I hope this helps share some of the things an investor has to work thru the investing cycle. And maybe gives off a few nuggets of value to someone else looking to do the same thing. The flood insurance tip might be huge to an investor in certain areas.