Skip to content
Welcome! Are you part of the community? Sign up now.
x

Posted almost 5 years ago

Mike's Month - An inside look at investor's day to day (80+ houses)

I. CURRENT RENTALS

So this was a tricky month for my current rentals. As part of my new model, I intend to continue buying 6 to 8 houses a year. I also intend to sell roughly 3 houses a year as well. To that end, I had listed a house in a town that I don't like dealing with the village inspections. That one is now under contract. I should make about 25k in profit on that one. It was on the low end for profit but I wanted out of that town and the house turned over.

My second house is one that turned over and also in a town I don't like. But that one has a profit potential of 60k or so. My goal in selling 3 a year is to make 120k a year. And given these will all be houses I've owned over 2 years, I'll only be stuck paying the long term capital gains taxes on them so fairly nominal in comparison to flipping.

As for my other rentals, I got some great news on the insurance claims that were made on four roofs. I got all four roofs approved for payout. These were easily the four worst roofs of the homes I had and to get the insurance company to cover them was huge. Easily about a 30k cap ex savings for me this year. All because I responded to a bandit sign "Free Roof". In reality, the roofing company was using a public adjuster and if they could prove the damage was done by a storm, thats how they were working the free roof angle. Everyone was skeptical (myself the most, my insurance agent, fellow investors). But I'm getting four new roofs this year.

Not something I would probably do again any time soon as I don't want to milk the claims. But it was a nice free boost to my cap ex funds for sure. For roofs added up.

On the negative side, I had to do 3 evictions this month. One wasn't that far behind and they were able to work it out and are getting caught up. The other one was someone I never wanted to rent to in the first place. Was my plumber's niece. My plumber's wife guilted me into accepting her and, of course, it went sidewise. Not only was I stiffed on close to 8k in back rent, but she left the house and garage full of garbage, a broken door, and they even stole my extra nice shower head. Believe me, I let the plumbers wife know every single they damaged and how bad it was. Again, this goes back to the age old lesson - don't do business with friends and relatives.

The last eviction turned out to be a simple one. I lost money in back rent. But the tenants didn't fight the eviction. They agreed on the amount and even said they would make payments (they obviously aren't professional scammers because they don't realize its impossible for me to collect). Now that doesn't mean they'll pay but they might. And they agreed to be out by the 5th which means they likely will be. So hopefully, I don't have to schedule the sheriff to come out (more money) and pay a move out company (even more money). If you can avoid that stuff, its a huge headache and financial savings both.

Overall, though, the repairs weren't too bad this past month. A couple of minor plumbing leaks. Couple of hvac issues that were fixed at reasonable cost.

What I do have this month is turnover. I have three tenants moving out (1 buying a house and 2 moving out of state). So I'm going to have to gear up the make ready. Plus I have the plumber's niece who moved out AND i'll have the july 5 eviction move out as well. So gonna have to jam this stuff in and really hit them quick.

On the brighter side, I should be able to get some decent rent increases from each of the 3 move outs. I'm looking at $100 a month bumps in each of the 3 as they've all been there over 3 years without an increase and thats pretty much where that market has gone. About a $50 bump in the july 5 eviction move out. And probably $25 for the plumber's niece house increase in rent.

Overally, I should be getting $375 a month more in rent from the 5 move outs. So thats a nice jump and the next nine or ten months of that increase should easily cover the make ready costs for all. I'm guessing 1500 for the plumber's niece's house because of all the trash. And then painting of all 5 (make ready painting is 200) and cleaning (150). Plus a handful of nominal repairs (1k total)

Lastly, added a couple of new houses to the rent roll. Maple st in Manteno. And the fulton house in Bradley. The fulton house rehab got real ugly at the end with the village. But I argued long enough where I think he finally just gave in and said ok.

II. REHABS

So as I stated above. Maple house in Manteno was wrapped up as was the Fulton house in Bradley. It always feels good to get a rehab wrapped up and a new house on the rent roll making money.

But I also closed on a couple of houses this past month too and still have two rehabs ongoing.

1) Baltimore st in Wilmington. This is the money pit house for sure. We're finally getting rough in inspections passed and just about ready to start being able to close everything up. I found a drywaller that gave me a good deal and he is strictly a drywalling company. I need someone to go to town on this house so I can finally start getting some money coming in from here.

2) Adams in Manteno. This house is also just wrapping up the rough in phase. Framing and electrical were passed. Plumbing inspection is tomorrow. They started drywalling some of the areas they could (i.e. non plumbing walls) yesterday. Once the plumbing passes, we should be able to move.

The plumber on this one (who is a different plumber than the plumber with the niece renter above) is actually going to be moving into this rental. Its always nice when you have a renter before the rehab is done. But that also means that every week its not done its costing me money that the tenant would be paying in rent.

3) Heritage in bourbonnais. This was the estate sale that went super quick. The tenants family took over half the stuff that was in here and yet I'm already on my fourth dumpster although this should be it. The best part of this house is that its mostly cosmetic stuff with some bathroom (tile, etc) and kitchen updates (countertop and appliances) and then a lot of wallpaper/border removal for painting. A few minor things but mostly thats it.

I'm hoping for a 4 to 6 week rehab on this one tops. This contractor on this one is kind of a one man show with a laborer. But thats all this needs and his pricing is excellent.

4) Meadow ln in beecher. This was the other estate deal that finally went thru. Closed on it friday. Contractor actually lives in one of my rentals in beecher on this same block. He is about 5 houses down from here so he can literally walk to the rehab. He does excellent work. A little slow though as he has a full time job and only does this on the side. But again, this is a perfect rehab for that. Need to update the bathrooms and kitchen and thats about it.

This one too should be a 4 to 6 week rehab - if not less. 70 percent of the hardwood floors are great. And usually I always have to replace all the flooring throughout. Now that I'm using the 3 buck a sq ft vinyl plank throughout, its costing me about 7,500 to 10k a house in flooring (1500 sq ft to 2000 sq ft typically size houses for me).

III. ACQUISITIONS

In terms of acquisitions, I was able to get this manteno house under contract on fifth st. This is the one where the seller was playing silly games in their counter offers. They finally gave in though. They had dropped the price again down to 78k. I offered 72k. They came down 77k. I came up to 72,500. They came down 76. I went up to 72,999. They stated at 76k and said that was their best. I came back at 72,999 again and told them that was my best and highest. They accepted. :-)

Gotta love it. Sometimes I don't think they realize that when they're dealing with investors, we have our numbers and they either have to meet our numbers or go fish. Its not a negotiating tactic. Its just where the numbers come in at.

Its a solid deal but not a great house. Its in manteno which is great for rent because of the schools and I live in manteno so I love the convenience factor of it. Plus the village is easy to work with in terms of code, etc.

Its actually the perfect rental house. 3/2, 1400 sq ft. Average yard. Deck. Budget to put in a brand new kitchen and update both bathrooms. Good size family/living rooms. Bedrooms ok.

The one downside to the house is NO garage. And there's no room on the lot to add a garage either. That being said, I just factor that in to my appraisal numbers (i minus 15k from 1 car garages and 20kto 25k for 2 car garages) and the rent. I subtract 75/mo for no garage and that typically gets it.

Again, it should be a solid rental but the lack of the garage is a bit of drawback both in the short term and long term.

However, sometimes, those are exactly the type of things that allow us to pick up houses at these discounts. At the end of the day, I'm buying for 73k and have a 25k rehab budget. It should appraise out around 140k to 145k once its done.

In terms of other houses, I'm still watching mls but with four rehabs going and 5 make readies this month, now is a good month to step back a bit. I need to stay focused on wrap this stuff up. Once its all back in line, then I can come back at the acquisition effort again.

As it stands, I will have added 5 houses thru the first six months of this year and only need 1 to 3 more to hit my goal of 6 to 8. I'm pretty sure I'll hit that.

One new thing thats come up that may not be related to acquisition but I'll put it here anyway. Refinancing. The rates have plummeted over the past few months and a lender that I currently have 9 loans with asked me if I wanted to refi. Terms I had with the 9 loans were, on average, 5.5% interest rate, amortized over 30 with rates that reset every year (no balloon).

Not only are they willing to do the 9 existing loan refi's but they're also doing another 6 cash out refi's on houses I've owned for several years and have some equity in AND another 6 loans on houses I currently have hard money loans that I either just finished the rehab or am finishing the rehab on soon.

All in all, once all 21 loans are done, I'll be pocketing roughly 170k to 200k from the cash out refi's. And I'll be gaining $4,200 a month in cash flow too. A big chunk of the cash flow savings is coming from the refi of the hard money loans. And the rest is coming from the better terms on the 9 existing loans.

Still, thats a good reshuffle of my loans to gaining a nice chunk of cash PLUS a big bump in cash flow. And for me, this goes back to what I believed when I started in terms of scalability. Rentals in this area are not a get rich quick deal for sure. But now that I've scaled up to over 80 homes, these types of deals can really boost my numbers and my cash.


IV. LAND

So in looking at my land and seeing how capital intensive it can be, I have put together a new business model that I'm going to see if its workable or not. Basically, I'm seeing a couple of these land investors that you can bring a deal to and will fund the entire thing. They will then split the profits.

Thats one way to overcome the capital intensive issue. However, they typically only like to do the deals where you can triple your money (i.e. buy for 10k and sell for 30k, buy for 20k and sell for 60k). They sometimes will go down to 2.5x but that seems to be about it. Those types of deals are hard to come by. I did a couple with them and it turned out great. But I was seeing several deals at 2x the investment that were just going to waste.

So I decided to see if I could put something together that would help me grab income from those 2x deals as well. And this is what I just started. I was able to pull about 5 solid deals out of the last set of mailers. Of those, they are all 2x deals or greater. All five have been funded by outside investors. The investors are getting 15% of the profit and 12% interest on their investment. I'm getting roughly 40%. And my contractor who is bringing in the money (they're friends and relatives) is getting the rest.

My goal is to generate 100k to 150k in profits a month from these deals in total. Of that, if I could get 40% of that, that would be huge. Is it sustainable at that rate? Thats the part we're going to have to see. And even more importantly is how long does it take to realize that profit? Not everything is going to sell in 30 days. Does it take an average of 3 mos? 6 mos? A year?

Not sure if the investors will continue to invest if they have to wait a year to get their 15%. That would still be a return of 12% interest plus 15% of profit if it took a year. So 27%? They seem on board now. But a year is still a long time to wait for something to sell. Overcoming the doubt/uncertainty is going to be key.

The other thing I told them is that my intent is not to let these deals sit for a year. After 3 months, I intend to discount them heavily. Even to the point of, if sitting for 6 months, breaking even or taking a loss. One of the selling points I added was that the investor is guaranteed the return of their investment in full and interest - but not a profit. I'd much rather take a loser and get it off the books faster to get them and their money into deals that are selling faster so the velocity of their money (specifically the profits) grows that much quicker.

It looks like in this last mailer I hit 5 or so deals so far with investment of roughly 70k and potential profit of 95k. And there will probably be a straggler seller or two to bump that up.

Last week I sent out another set a mailers with a total offer count of just over 12k so I'm all in. I just know that I have to keep the deal flow coming. I've tweaked my targeting criteria even further to where I think I'm right in the sweet spot of the types of property owners that will sell at the discounts I need but are in the areas and/or have the attributes I'm looking for so the properties will sell reasonably fast. Thats the part that only experience of doing more of this will help improve.

Its kind of an interesting business model and one that I'm sure will need to be tweaked over time. But finding deals in land is all about sending out the offers (assuming you're pricing, attributes, etc, etc are right too).

Even if I have to reign in my numbers as I tweak the model, If I can do 4 deals a month with an average profit of 15k a month, that would still equate to my share being just under 25k a month?

What I can say is I'm hearing actual numbers of other investors and they'd easily be able to hit these goals with access to enough capital. Several are already there and more. Finding the deals isn't the issue. The difference in selling the lots on an average of 3 mos versus 6 mos verus a year is everything.

I don't know that I'd really care if they averaged a year to be honest. I'm just not sure the investors would be as interested - even though that would still give them a return of 27% (12% for the interest and 15% of the profit).

So thats the new model I'm pursuing for my land investing. Its definitely fun and a lot less headache than SFH rentals and all the village/tenant drama that comes along with that. But at the end of the day, I enjoy that too.

We'll see how this month goes. :-)

My goal is to have all four rehabs wrapped up by this time next month. And to have another 150k in land deal profits from these 12k offers - with another 10k to 12k offers going out next month as well. Wish me luck. I'm going to need it!



Comments (1)

  1. Hi Mike,  Thanks for taking the time to write these articles.  I have learned a lot and really appreciate them. I noticed in one of your articles 4 years ago, you made a comment about acquiring properties and how long you would do it. You basically said you would do as many as you can before the music stops playing? 4 years ago I bet it was easier to get deals than it is now, is that the case for you? Do you think you will eventually stop, or do you think you will always be able to get deals and as long as you can get them for 70% ARV it doesn't really matter as long as they cash flow and hit your numbers.  Thanks again