All Forum Posts by: Gregory Childs

We think it is a valid model. In fact, we are changing our focus to buy distressed RE, rehab the property for rentals, and once the tennant is in place, sell to investors for cash-flow with some equity.

It's a way of tapping a needed market (good quality rentals), providing a simple investing platform for hands-off landlords, and also keeping our exposure short term (under four months).

So far it seems to be a decent approach in the "unusual" market conditions we are experiencing. As for your question.. find a market that has decent findementals (employment, income, home prices), find a product that people want to buy - make it easy for them to buy - and make a reasonable profit that is in line with the risk you have undertaken. Then do it again, and again.
Off to find another distressed property that could make a nice home for someone. Let me know when we hit bottom.. just so I can say I was there.

TTFN,

Greg

We do pretty much all of our projects out of State. I would say we have a 75% success rate of hitting/exceeding our profit projections on projects, 20% we still make money (just not as much as we had expected), and occassionally we end up on the wrong side of the equation (but not drastically).

It's all about validation and confirmation and execution.
We decide on a local representative (usually a realtor) - and we do one or two initial deals to see how they perform (limit our risk exposure).
We closely monitor the deals and apply project management principals throughout. The contracts and bids have to be very tight - otherwise scope creep will kill you.

We always have an independant home inspection and desktop appraisal done in adition to the normal validation (CMA, Comps, etc). And before any draw requests we have a construction consultant verify the work.

The process is pretty simple:
Validate the properties that they meet a minimum criteria (basic spreadsheet)
Make offers (contingent)
Any accepted offers we then get a firm construction bid, desktop apprasial, comps, etc
Negotiate/Close
Engage the contractor - phased draw approach
Validate work with construction consultant
Realtor acts as a local eyes/ears (make sure contractor is not leaving site a mess, etc)
Market the property
Negotiate/Close.

We've done 40+ properties this way in the past 18 months and it seems to be working well. Average ROI is around 25-28%.

TTFN,
Greg

I hate to use the "it depends" mentra - but it does.
We don't want to hold onto properties very long, so select SFH 98% of the time (especially in this economy) because they are a much more of a liquid asset.
However, my good friend buys longer-term and 98% of the time buys MF because of the greater cash-flow pottential and ease of management (as you mentioned). Plus, if he has a vacancy the other tennants will keep an eye on the property or often have pottential renters for him to market to.
For us though SFH are our preference.
TTFN,
Greg

Buy cash - use a GC - work "on" your business and not "in" it. Reinvest your profits.

Have the take-out buyer lined up before you finish rehab. Time is your biggest cost and exponentially adds to your risk.

TTFN,
Greg

This all looks very neat - it just doesn't provide a compelling call to action. WIFM (what's in it for me). You need to build an "emotional" attachment to the process not just a logical accounting of the facts.

What does this program look like if I invested in X properties per year for the next five years. What about compunding that return by reinvesting the profits rather than taking a distribution. Talk about IRR and ROI.

What's my risk/reward. How does the flip spreadsheet translate to my $150K investment? Make it real, lead me down the path to want to talk to you. Make it impactful.

You want to be careful not to be too "pitch" oriented. But just remember that people justify the emotional decision with logic - not the otherway round.

You could also incorporate some "green" technologies in your rehab to get the attention of the eco-crowd. Some green elements are not overly expensive and add a distintion to your marketing.

Also, don't forget that some might want to gain cash-flow rather than take the capital gain.. so maybe they can simply pay you your 30% and retain ownership.

Also, give me a $75K entry point (plan A), $150k (plan B), $300K (plan C), and $500K (plan D). Who knows what type of investor will be looking at your plan.

Finally, your call to action could be a copy of a full business plan for the fund or you could have a "dinner" seminar at a local hotel
if they register. That way you can build your "list" by incenting them to take the next step. You could offset the cost by "co-branding" with an Entrust type company (as they may also gain business opportunities for self-direcetd IRA's).

Food for thought.
TTFN,

Greg

Decide what you want to pay for it X. See what he says - if he says no then ask him what his bottom line is Y. Take X-Y and have him write a note for the difference that he agrees to carry back with a five year baloon (2nd position). You can pay him out of the cash-flow.
TTFN,
Greg

We are just starting to create notes for some of our residential properties. If the buyers have great credit and decent DTI ratios will you waive the 90 day seasoning? Also, What terms do you look for on the notes to make them of interest?

As we have the ability to
"pre-qualify" the owner of each note with you, how long does a typical sale process take before we get the cash back in our account?

Our average note is $50-80k and we project a volume of 8-12 per month in 2011.

TTFN, Greg

Here's an idea. Find four mature business owners that are looking for space (current lease is running out, or changing need upgrade/downgrade). You can do this by going to Chamber events or networking events (Comm RE agents) to get to know the leaders in your community.

Arrange a partnership where you go as a "entity" to a strip mall owner (who is motivated to sell - check out Loopnet, etc). Then what you have to offer is four established businesses that are willing to sign a five year lease.. as the General Partner you can then gain a share of the ownership for doing the legwork for the other businesses. With that clout you may be able to get significant owner financing.

So let's say you need $800K to buy and rennovate - you could gain financing of the remaining sum by the "entity" credit worthiness and ballance sheet of the ownership consortium.

It would take some leg work - but that's free. Anyway, as far as your own business needs maybe part of your "reward" for managing the project is a rent-free period to get you on your feet or even that you could co-locate with one of the exiting businesses.

Who knows.
TTFN,
Greg

I agree with Will. Don't buy cheap - buy value! The basic principles still apply to flipping props - find a ugly house in a nice neignborhood. Also, Will's point is key; with the appraisals being as messed up as they are, you need to make sure you have a handle on the active (future comps) in your neighborhood.

The other thing is to get in and out quickly - dont wait for a perfect deal, take the one that will close the quickest. In this market time is your enemy. Get a big deposit; it makes it harder for them to walk.

TTFN,
Greg

In my opinion a college degree teaches critical thinking more than anything and helps with the ability to susinctly address a subject - a degree in business would be of benefit; especially as most people in the industry treat it as a hobby. However, don't go into debt for the degree, have your RE profits pay for the classes.

All you need to learn about RE you can pick up here on BP or at your local REIA - and by taking action! Doing "something" is the best class you can take.. that's the real learning environment.

TTFN,

Greg