All Forum Posts by: Arron Paulino

Given the recent market trends, I'd say we're currently in a seller's market. Strong demand and limited inventory are driving prices up.

@Arron Paulino I've posted on this many times over the last year and my advice normally falls on deaf ears. Most haven't taken their properties acquired through the BRRRR method full cycle and gone through the sale process you are experiencing. I am not anti-BRRRR, or believe its a bad strategy. The problem most encounter is placing too great of an emphasis on the return of capital at the end of the renovation process. In fact most new BRRRR investors prioritize whether they can receive 100% of their capital back through a refinance over all other deal metrics and being laser focused on that particular objective often leads to investing in the lowest tier neighborhood where it is easier to complete the BRRRR process.

The reason why you're struggling is quite simple, all you have to do is ask yourself who the buyer is if and when you sell. As you've found out based on the portfolio sale, its another investor. Makes sense, why would an investor like yourself pay the same amount as you when there's a ton of inventory in a low barrier of entry neighborhood. They can simply replicate exactly what you did in the first place. This is the part most miss. 

If you are going to complete the BRRRR method in a lower tier neighborhood, select a neighborhood with the fundamentals that indicate the neighborhood will transition to a neighborhood where home ownership will become more prevalent. When that shift occurs you will experience appreciation that can actually be realized in a sale because you are no longer limited to selling your real estate to other investors. These neighborhoods exist and aren't difficult to spot but most ignore the characteristics because they are hyper focused on whether they can achieve their BRRRR refinance and ignore everything else.

Most begin by purchasing lower tier real estate because the price points align with capabilities. There's nothing wrong with that and It's often impossible to jump from the lower tier properties to more expensive real estate after the first round trip because most fail to make a profit. Don't be afraid to purchase the lower tier real estate the second go around if you are focused on the correct fundamentals. Perhaps you have to leave some of your money in the deal, but if you hit it correct and the neighborhood appreciates you will do quite well. Investors ask how do I scale....well that's how you scale. You acquire real estate that has meaningful appreciation that can be realized, not merely buying a bunch of doors in stagnant markets with appraised equity that's can't be realized when the property is sold. 

@Arron Paulino   Once sold, my goal is to have these mortgages paid off from the BRRRR method that I did and move on to different investing opportunities. That sentence sums it up.  My guess is these are properties in lower tier neighborhoods. Why else are you breaking even when there was purportedly 20%-25% equity in these when you refinanced to complete the BRRRR method? I am arriving at this conclusion because the appraisals relied upon for the BRRRR method in these lower tier neighborhoods rarely equate to actual results in an arms length transaction.

You say the investor got the better of you in terms of gaining equity but the equity you thought you had was only paper equity and not equity that would be realized. What you experienced is the norm, so don't feel as if the buyer got the better of you.  After experiencing first hand how difficult it is to handle lower tier neighborhood sales, why even consider renovating the remaining properties? Move on, cut your losses, learn from it and invest in better markets next time. Hopefully you at least built some good industry relationships while going through this exercise.  I made the same mistake with my first purchase 12 years ago when I bought a duplex in a C/D Philadelphia neighborhood. 

This can be a good lesson for others who complete BRRRR transactions in lower tier neighborhoods and believe they are sitting on equity they can realize when they go to sell their properties. Unfortunately you will rarely see it materialize as Arron just learned. I am sure many would consider other investment strategies besides continually recycling their capital collecting homes that are propped up with appraised values that are not attainable if the properties were marketed for sale. Unfortunately this is not the narrative the coaches, mentors and gurus share when they push you towards this strategy.
 

where are these properties

Be aware of the current market trends in your area, which can influence selling times and prices.

@Arron Paulino, its hard to give detailed advice, but here are a few thoughts:

1. How did you end up in this situation? It sounds like you started investing, but didn't follow all the way through. You have mortgaged properties sitting vacant and properties in need to rehab. So, it does not sound like to maximized the potential with what you already have.

2. Maybe you already own your next deal! Selling is expensive! Buying is expensive! Mortgage rates are higher than they were! So, a deal you have in your portfolio might be more lucrative when you consider those facts than something else you could buy right now!

So, I would start by analyzing properties I own as potential "deals". As I said in #1, it does not sound like they are maximized.

3. There is probably a reason why you feel you want to sell these. I suggest examining that carefully. Since these deals have not gone to plan for you so far, there should be a LOT you could learn from that experience.

Adam I bet dollars to donuts this is not CA property sounds like D class rust belt or mid west.
Chicago etc.

OP Google Dwags  security systems for houses.. only way to keep folks out.
Also as @Drew Sygit Drew suggests in D class or deep hood areas which is what your describing no one puts in mechanicals until the day the tenant moves in or MAYBE the day before .. This is a classic case of buying in an area you probably should not have and only appropriate for locals who will go to the property the moment tenant moves out remove all the mechanicals themselves and then re install upon tenant move in

why anyone wants to own this type of asset is a mystery to me.. But most get sucked in by cash flow on paper.. when in fact its TRASHFLOW

Easy... GET OUT OF CALIFORNIA!

@Arron Paulino where are the properties located?

Why are you re-installing mechanicals on vacant properties - after they've been stolen?
-- We put in our ads that mechanicals will be installed for inspection and/or for MoveIn.

Boards are useless! They actually tell criminals the property is vacant.

Alarms only work if the police show up quickly, otherwise the thieves are already gone.

Appears you have properties in Class C/D areas, there are several other options that we use to minimize breakins & squatters.

Do you have someone who can stay in it (or yourself) while it is vacant? Also look at having a security alarm and cameras put in.