All Forum Posts by: Rob Young

@Ashleigh Rosinbaum, I had mixed results. I ended up assigning the contracts on the houses, which gave me a decent assignment fee. After six months, the assignee called me, said he was moving out of town for work, and didn't want to be an investor any more. He gave the properties back to me without asking for his assignment fee back. So that was good. 

The downside was that he had put a terrible tenant in one of the houses. I think the tenant was dealing drugs. He eventually just left the house after skipping out on rent. When I got back into the house I found out that he trashed it to the point where I had to rehab the entire house. 

I held on to both the houses and rented them, but recently decided to sell all my SFRs so I can focus on apartment complexes. When I sold them, the title company didn't think that my original contract with the seller was adequate so we had to create a new contract. Fortunately the seller and I had a good relationship, so he was willing to do this.

There were several lessons in this experience. 1) If you assign a contract, vet the person you're assigning your contract to so you know that he knows what he's doing. If I had vetted the assignee, I would have saved myself a lot of trouble. I never imagined that I would have to take the houses over again or spend money to make extensive repairs. 2) Have an attorney create or at least review your contracts. I was fortunate that the seller was willing to let me revise our original contract. If he had not, then I may not have been able to sell the houses. 3) Always keep good relationships with all the people involved in this type of transaction. You never know when you will need their help. 

In your situation, I would definitely make the investment to have an attorney draw up the contract. Good luck. 

I talked with a pretty desperate seller yesterday. He is willing to let me use his existing financing to purchase his home so he can stop worrying about it. However, I'm not sure that this deal can work. I'd appreciate any ideas on how to pull this off. 

Here is the situation. The seller has an empty property that he was renting. The previous tenants moved out three months ago and the seller has not made a mortgage payment on the property since the tenants moved out. To make the house rent-ready would require about $3,000; to make it sale-ready would require about $10,000. 

The house is generally in good shape. HVAC, water heater, and electric are all new. The roof has about three years left in it. The house could rent for a few years without replacing the roof, but could not be sold with the existing roof. The big expense required to make the house rent-ready is having a large tree removed. 

The seller has a 30-year fixed mortgage on the property. Unfortunately, he refinanced three years ago, so there is little equity in the house. 

The  monthly mortgage payment, which includes taxes and insurance, is $475 per month. The house was renting for $700 per month. The seller said that he had planned to raise rent to $725 per month. I talked to some experience local landlords about the house. They said that the numbers just don't work as I should budget about 50% of the monthly rent for contingencies. 

Based on what I see on rentometer.com, I think I could easily raise rent to $825 per month. Assuming I can increase rent to $825 or more, the numbers are still tight, given that the roof will need to be replaced in the next few years. 

I was hoping to wholesale the property, but I'm not sure there is much room for profit. I know that seller financing is very valuable to investors, but I don't know that the numbers are going to work. 

Any thoughts for how to make this work? 

@Damien Buchanan, if I get to the point where I'm doing significant customization for the buyer, I'm less concerned with providing outs for the buyer. I'd be very concerned about getting stuck with a highly customized property that does not have general market appeal. 

I think this all relates to the level of customization. If the buyer is asking me to use things (paint colors, fixtures) that are highly customized but can easily be changed, I would include something in the addendum making the buyer responsible for paying to change those things if he backs out. I would also include something to cover the extra time the property will sit on the market while making those changes. That would be a relatively easy out for the buyer. (And I think that is the level of customization related to the original post in this thread.) 

If the buyer is asking me to do things that cannot be reversed easily, quickly, or inexpensively, I would not give the buyer much room to back out. (This is beyond the level of customization in this thread.)

The bigger issue is determining why I would be willing to customize things at all. Will I make more money by selling a highly customized property? If not, I don't know that it's worth the risk of offering to do significant customization. It all comes down to a risk/reward balance. 

The first thing I would do is define success. What does it look like for you? Do you want to flip X number of houses? Do you want to acquire X number of rentals? Do you want to wholesale X number of properties? Define your goals using the SMART goal approach (Specific, Measurable, Attainable, Realistic, Timely). For instance, "I want to flip five houses at an average profit of $25,000 by December 1, 2016." 

Once you have defined your goals, then determine the steps you need to achieve them. Create processes and workflows to support the goals. 

Once you have determined the steps, put measurement systems in place to track your success in following those steps. For instance, if you want to wholesale, define the steps you need to follow in order to market for properties. This might include sending 100 direct mail letters per week to a specific target audience. Measure and record your mailing statistics, comparing your target to your actual mailings. Keep this information in a spreadsheet and graph it so you can determine whether you are taking the steps you're supposed to be taking. Reviewing the numbers daily or weekly is a great way to hold yourself accountable. If you hold yourself accountable for following the right steps, your chances of meeting your goals are much better, 

I've had very good experiences with both Terry Monnie and Mattingly Ford. Ronnia Gittinger from Mattingly Ford has been especially good to work with for both Ohio and Kentucky properties. 

There are two financing issues: getting the financing to purchase the property and getting the financing to repair and maintain it. It seems that you may be able to get financing to purchase the property, which is great. As others have commented, though, there are potentially significant costs to repair and maintain the building due to its age. 

I think your best bet is to invest a few hundred dollars in a professional inspection so you know what costs you are likely to incur to repair and maintain the building. That way you can make a good decision based on data rather than speculation. 

Thanks for the input, everyone. I am sending 100 letters per week. I'm trying to ramp that up to at least 200 per week. 

@Braden C., how are you doing your DM marketing? Are your mailings branded (company name/logo) or do they come from you as an individual? Do the letters you send after the initial mailing look and feel similar to the initial letter or are they significantly different? 

In 2013 and 2014 I used direct mail to find fix-and-flip opportunities. I focused on recently inherited properties and properties with out of state owners. I got a response rate a little greater than 10% and was able to find some good deals. 

I just started direct mailing again a few weeks ago, having not done any during most of 2015. The letter is essentially the same as the one I used in 2013 and 2014. It's on plain white paper and done in Word. The verbiage is the same too. 

So far, the only responses I've received are from angry homeowners, telling me that they are not interested in selling and telling me not to send them any more letters. 

Is direct mailing no longer a good method of finding leads? Are other people seeing similar results? 

Either they have a dog or a very determined toddler with strong fingernails. I'm betting on the dog. 

Before taking on this kind of project, make sure you have a good chance of selling the house quickly. You have a much smaller pool of potential buyers at that price point. And they are going to be much more demanding. You don't want to get stuck holding the property, especially at the interest rates mentioned in the replies. I understand that a potential $300,000 profit is appealing, but I would have a couple of realtors do a complete market analysis for you before pursuing this. Can you really sell it quickly? What data support it? 

In terms of financing the deal, I have several investors who are willing to lend at 8 to 10% annualized without points. There is no way I would even consider 20%. (Honestly, as someone who trades his own stocks, I seriously doubt your potential lender is making 20% in the market if he is using an advisor rather than doing his own trading. Those kinds of returns require some pretty sophisticated trading strategies. I don't know of any financial advisors who do those types of strategies. Sounds like BS to me.) Do you know anyone who recently sold a business? If so, they can be great sources for loans. 

Best of luck.