All Forum Posts by: Zander Kempf

@Melanie Stephens

I had a HUGE lessoned learned in dealing with contractors and relying on other people in your business. 

I was introduced to a local contractor to help with some multifamily rehabs. He seemed very legitimate, knowledgable and experienced. I started him on renovating two duplexs and a single family. Things were progressing, a little slower than planned, but coming along at very inexpensive rates. Trusting the contractor, I bought two more triplexs in the area, all in need of extensive rehab. We discussed the idea of hiring more workers for him to oversee, and having "in-house" crews that could fly through renovations on properties. This would lead to cheap, quality, and fast work that I could leverage to rehab more and more properties in the area. 

What actually ended up happening was the contractor was not as experienced in the management side of things. His quality of work was great, but he didn't hire the best workers, and many of them were simply not producing. This led to the pace of work remaining the same, while the labor costs grew and grew as more people joined. Cost overruns and extensive delays eventually led me to have to switch to an entirely separate, more legitimate (and more expensive) contracting company to finish the job. 

My top lessons learned from this experience are: 

-Always have redundancies built in to your team so you can easily switch if someone isn't working out, is on vacation, or the workload increases

-Written and extensive contracts are essential when describing scope of work, timeline and responsibilities

-Fail forward. Not everything went perfectly during these projects, but I learned essential pitfalls to avoid that I will take with me as I continue to growth and build my business and they will make me a more efficient and effective real estate developer

@Kiet Ho

You certainly will have higher cash flow per property buying in cash, but you will be able to purchase far fewer properties putting 100% down instead of 20-25%. 

So, the answer to your questions goes to your overall goal. 

If your goal is to play it safe, not have any debt, and have a lower risk place to store your cash, then buying in cash is the move. 

If your goal is to acquire as much real estate as possible, maximize cash flow, appreciation benefits, and tax benefits, then you are far better off using leverage. You can buy roughly 4 properties with leverage for every one property you would buy in cash. Your overall cashflow would be higher (message me if you want to see the math on this), you have 4 properties appreciating instead of one, AND you have 4 properties worth of depreciation for tax benefits instead of one. 

Company's grow using leverage. Without leverage you can still grow, but your growth curve will be far slower.

Investment Info:

Industrial industrial investment investment in Phoenix.

Off market warehouse and industrial lot.
Current warehouse tenant has a gross rent lease. Revenue can be doubled by releasing with a market rate NNN lease.
Warehouse can also be demised into two spaces to allow for tenant mix and higher rates.

Additionally, 1 acre is undeveloped and has potential for an 8,000 SF warehouse or self storage to be built.

Projected project IRR is 24% with a 4 year investment horizon.

What made you interested in investing in this type of deal?

Massive value add opportunity through redevelopment.

How did you find this deal and how did you negotiate it?

Off market deal brought through my network.

How did you finance this deal?

Seller finance combined with capital raised from investors in a syndication done using SEC Reg D, Rule 504.

Lessons learned? Challenges?

You make money when you buy, plain and simple. Finding deals with upside potential from the start is absolutely essential. Then you simply follow through with your value-add plan.

@Tinwin Wang

I currently live in Honolulu and have done several development projects here.

Short-term rentals are restricted to resort districts, mainly Ko Olina and Waikiki. In 2019 the city past an ordinance to begin stricter enforcement of STRs due to local outcry. This year the city actually partnered with Airbnb so the platform will no longer allow illegal rentals.

Waikiki is a great area for STRs though. I know several people who do it with good cash flow. One consideration is condo maintenance fees can be rather high. Typically on the order of 500 to 900 per month.

My recommendation would be going the multifamily route. There are two to four unit properties available that you could purchase, keep one for yourself and use the others as long-term rentals. The cash flow is lower than an STR but you have easier management, no condo maintenance fees, and have greater flexibility on location. You also would be owning your own building and land which will appreciate faster than a condo.

A lower cost option would be buying a flex unit condo. Many buildings have apartments that are divided, typically a two bedroom and a one bedroom each with their own kitchen, but legally the same condo unit. You can short-term or long-term rent one of the units and use the other for yourself.

I'm a licensed agent here and have helped others purchase similar properties as well as purchase some for myself. If you have any questions or I'd like to discuss things further, feel free to reach out.

@Joe Splitrock  

Great idea on the maid service breakfast. I can see how a communal kitchen may provide more issues than value. A simple continental breakfast is certainly feasible though. Then the kitchen could be closed off and only open to large groups that rent the entire inn. 

@Luke Carl This would be more of a repositioning away from a "Bed and Breakfast" and more to a small hotel / vacation rental building. Removing the communal kitchen part of the plan may make this a bit more simplified though. 

Does anyone have experience converting old Bed and Breakfasts into vacation rentals? 

I am seeing a few opportunities to pursue this strategy and wondering if anyone else has done it. 

My thought is: buy an old B&B, renovate, rent the individual rooms on Airbnb, VRBO etc. Guests get a private room and communal kitchen and living/game room. No onsite staff needed, just a daily cleaning service. 

Let me know your thoughts...

@Lauren Keen Aumond How did this turn out? 

I am considering a similar strategy in other markets. Buy an old B&B, renovate, and simply rent the individual rooms on Airbnb, VRBO etc. Guests get a private room and communal kitchen and living/game room. No onsite staff needed, just a daily cleaning service. Is this similar to your model?

@Dmitry Prosvi Yes it is legal. This is very common practice, particularly in larger multifamily buildings and other commercial buildings. It's also common to do RUBS (ratio utility billing system) where you don't even submeter, just charge tenants a percentage of the water bill based on their share of the square footage of the building / # of occupants / any other way you see fit to divide it, as long as it's detailed in the lease that the tenants sign. 

@Cameron Rafford the FHA loan requires that, at the time of closing, you "intend" to live in the house for a year. No one is checking a timer on the exact number of days that you're living there. There is no prepay penalty so you could do a refi whenever you wanted. On the other hand, a rental property type loan will have a higher interest rate, so depending on how much cash you can pull out and how long you intent to hold the property, it may make more sense to keep the loan.