All Forum Posts by: Andrew Ashby

@Robert Cantu, the lender was Ground Floor LLC out of Atlanta. They advertise on BP.

@Diane Menke, you're absolutely right about that oh-so-common mindset of valuing time over effort/completion. You're right about the skin-in-the-game as well. While my partner stood to lose the time value of his labor (really opportunity cost), it's not the same as losing already-earned post-tax dollars. 

Like others have said, I recommend the cheap Diamond cabinets from Lowe's for rental kitchens. However, I've had success with IKEA pre-fab bathroom vanities in a flip. IKEA is a great place for cost-effective design in fixtures like lighting and faucets as well.

I think you're on the right track here with your considerations. For people who desire a more passive approach and little-to-no headache, the REITs and syndicated apartment deals are probably the way to go. Owning and operating individual properties (whether SFR or multi-family) is definitely NOT for everyone, and is far riskier than most other investment vehicles. That being said, ALL of my personal assets are in individual properties that I manage myself. I've had 401k funds in REITs in the past (with a moderate return), but I haven't had much interest in investing passively in a syndication. I'd be interested in sponsoring/quarterbacking a syndication in the future and managing the property.

I think it all depends on where you fall in the spectrums for risk tolerance, interest in the subject matter of real estate itself, and of course your financial and personal goals. Some people are only interested in real estate to the extent that it makes them money, and so they treat it as any other investment vehicle. It's like those people who buy a Tesla only to later switch back to a Porsche/BMW/Mercedes/Land Rover because they felt the fit/finish didn't measure up. In a case like that, I'd say they weren't on board with the movement to start with.

However, I have a PASSION for real estate and a burning desire to build an empire of properties and I would still plow my money into real estate even if other alternatives offered better returns in the near term. 

You're right about price points in South Florida making it difficult for SFRs to make sense. You'll want to look further afield if you decide to go that route. In Orlando Metro, you can still find 1% deals within a 1-hr radius of downtown Orlando. Look toward the more rural (and less hurricane-prone) areas.

I see that you're in the Nashville market. I suggest you check out Clarksville TN/Hopkinsville KY and similar smaller metros within a 2-hr radius. You should easily be able to snag some 1% deals. I advise looking at properties that need significant rehab because that's your opportunity to build in cash flow and force equity.

This issue doesn't bother me personally. It's nice to have natural light in the bathroom. If you're unable to do the block glass like you mentioned, it shouldn't be a problem to have a brand few frosted glass window installed (which is standard practice for a privacy area like that anyway). Just make sure that it's tempered glass (greater resistance to shattering) so as to comply with code.

Congrats on getting that first Florida flip done. I got my first one done last year and it was a slim margin deal as well. Nothing beats hands-on school of hard knocks education, at least not for me. I learn best under pressure, and meeting a hard money deadline certainly did that for me. 

@Isaac S. As for the partnership, I began to question my labor partner's commitment to the project when he had several missed work days and short days when the project was already way behind schedule. Our arrangement called for him to do the vast majority of the work in exchange for 50% of the profit at the end. This problem was compounded when he took on additional outside time commitments during the project. My wife and I had to intervene with our own very significant labor contribution to rescue the timeline. That's about as specific as I want to be in a public forum because I still have tremendous respect for him and I hope to reconcile eventually.  

I completely agree on the Buffet reference. The bottom line is that I enjoyed doing the deal, the design, the renovation, the adventure, and the education. None of the challenges of the project stressed me out--it was ultimately the due date on the hard money that I feared the most. And that's why I'll definitely do it again. I feel the experience did more for me than any boot camp ever could have.

First flip & the death of a partnership: Metro Orlando

First flip in Metro Orlando with photos! For my purposes, I define Metro Orlando as everything within a 1-hr commute to downtown Orlando. I use this definition because the actual city limits of Orlando are quite small (at about 240,000 people) while the metro is about 2.5 million people. This story takes place Dec 2017-September 2018. I'm finally getting around to making this post a year later!

Purchase Price: $56,000

SFR: 3/2, 1232 SF, Wood frame on block foundation, Built 1986

Distance to downtown Orlando: 45 minutes

Rehab: $42,000

Realtor commission: 6%

Labor partner profit split: 50%

ARV/Sale Price: $129,900

Hard Money terms: 10.5% interest, 4.5 points, 9 month amortization (with no payments)

At the outset of this project, I had 4 rental units and I took this on as a starving Realtor with no clients and no business. I had quit my high-paying job in pharmaceutical sales, and relocated to Orlando to try to make it as a Realtor a few months earlier. I had to find a way to provide for my family, and my wife and I had always wanted to do a flip. I cashed out my 401k for the down payment and initial funding, and used the cash flow from my rentals to keep the project running between reimbursements from the hard money lender.

During one of my many days sitting at the brokerage office browsing through the MLS, I came across this deal. The price tag immediately caught my attention at $67,000 (it's uncommon to see SFRs in Metro Orlando under $100k on the MLS) and it had been on the market for 28 days. I immediately jumped in my car and drove out to see the property. I looked the place over and I figured that the ARV would be in the $130k-$140k range with possibly higher potential. I'd get the place rehabbed and relisted within 3-4 months. I made my initial offer with an inspection contingency and wrote in $0 commission for myself to help seal the deal. The listing agent confirmed with me that this move did indeed help me get the deal as they had received similarly priced offers from other "licensed investors" but they had also wanted a cut of the commission. With my own commission eliminated from the deal, the listing agent cut his commission to allow the owners additional wiggle room to accept my offer.

I thought it’d be a great idea to partner on this one with a handyman friend of mine who had done a lot of work for me previously on my personal residence as well as my rentals. I didn’t want to be swinging the hammers myself on this one. Instead, I wanted this labor partner to do nearly all of the work and receive 50% of the profit after closing. This again kept my operational costs low during the rehab (as was my intention since I had no income other than my rentals).

This property had been a rental-gone-wrong situation with a mom-and-pop landlord. The tenant went months without paying rent and wrecked the place. Apparently the lady was an animal hoarder as well, and even had free-ranging rats and an iguana roaming around the house.

The inspection found that the roof had been leaking (and would need to be replaced), some mold, and the septic system was original to the house as well (1986, ouch!). I used this information to ask for a few more thousand dollars to be knocked off the price. The owner assured me that the septic system had been recently pumped and was functional (more on that later). In hindsight here, I should have asked for that documentation and hired a separate septic inspector.

Our rehab included all the major big ticket items: new roof, all new flooring, new appliances, new cabinets and countertops, new windows, new A/C, all new paint inside and out, new septic system, etc. We closed on the deal and went to work on the rehab.

In the midst of the project, I finally (and thankfully) pulled the plug on my ill-fated Realtor experiment and got another stable W2 job as a construction manager for one of the nation’s largest homebuilders. I was forced to be a renter during said experiment, so immediately upon receiving my job offer I marched out and put a contract down on a new construction house for my family. I only needed to break even on the flip and finish on time in order to successfully close on my own new house.

Unfortunately, I would come to regret my partnership arrangement on this project. I had such a level of trust and respect in the relationship with my labor partner that I felt no need to put our arrangement in writing. In hindsight, this was foolish even in the best of circumstances and I should have had us both sign a detailed scope of work, construction schedule, and operating agreement. It would have provided us with an agreed-upon path forward when the project fell considerably behind schedule (which it did). However, the quality of his work and his ingenuity were always top-notch.

At about 60 days before the due date on the hard money (about 7 months in), the place was beautiful and we were finally able to get the project listed for sale at about 98% completion (minor punch list things remaining). Despite having a real estate license myself, I decided to go with a local listing agent who knew the local market better than I did (more than 30 minutes from my house). I knew I didn't want to drive to the project to do showings, etc. In hindsight, I should have listed the property myself and paid other agents to do any necessary showings. I needed the property to sell quickly to recover my equity and ward off the hard money lender from foreclosing. At the very end, the hard money lender began sending me threatening emails reminding me of the 10% late fee and 30% default interest rate (and at 30 days past the due date, they would move to foreclose on my LLC). If I had plenty of time to spare, I probably would have listed the property at $140k or higher but I had absolutely no time to lose so we listed at $5,000 below the listing agent's recommendation at $129,900. We received a full price offer within 12 hours of listing and went under contract. I sighed a breath of relief as I could now see the end, the recovery of my equity, and closing on a beautiful new house under construction for my family. The buyer's inspection brought me additional headaches to say the least. They came up with a typical punch out list that I expected, but the real kicker was the septic inspection. The buyer's septic inspector found that the tank was cracked and the entire system would have to be replaced. While I had budgeted $5,000 to replace the septic if needed, no indication had yet arisen to require a system replacement (other than being really old). I called a septic company and found out that a full system replacement would indeed be required, but additional equipment would likely be needed because of water table considerations. In short, the system replacement ran me about $8,000 and I had to get an exemption from the county on the location of the system because of the unique limitations on this property.

We finally closed on the deal with 1 week to spare on the hard money note. The total profit turned out to be $5,500 after all closing costs, commission, hard money fees, etc. Keep in mind this total profit still had to be split between the two partners in the deal. The stress of closing that deal with only 1 week to spare on the note with a very strict and severe hard money lender probably took years off of my life.

The silver lining in this story is that I did indeed finish my first flip profitably while learning a great deal about the game and myself during the process. Towards the end of the project, I even managed to acquire a triplex (50/50 with another partner) which increased my rental count to 7 units! I quickly cut my teeth as a construction manager at my new company and gained valuable experience in new construction, from bare dirt to completion. I was promoted and am now in the land development side of the company. On the side, I’m upgrading my real estate license to Broker and I plan to offer property management services to others soon thereafter. The first flip experience was stressful but still positive overall, and I look forward to doing more flips and tear-downs/new construction.

This is an excellent discussion topic. For those of us in the South, this is a pretty constant problem even in winter time. I've had similar cases pop up in my properties in both Tennessee (Chattanooga) and Florida (Jacksonville). While I keep my own central AC (in Orlando) set to a very economical 79 degrees during the day at 76 at night, I find that my tenants (including Section 8 tenants) like to keep theirs around 68-72 degrees. It is for this reason that I do not install or replace central A/C in my low income units especially. It's been my experience that the tenants don't maintain them and tend to put such demands on them that the lines freeze over and crack--leaking freon, etc. I try to set expectations and explain to them that any temperature reduction greater than 20 degrees should be treated as a bonus. Furthermore, they can purchase powerful box fans inexpensively to lower the need for A/C and to circulate the air in the home even more.