All Forum Posts by: David S.

@Marlon Long

I think it may be too soon to determine that. Normally, we get a lot of requests via the internet on the first few days of a listing. Also, one issue that I see is that a lot of people will click the "I'm interested button on 20 or 30 properties. Then if you get them on the phone they will tell you "Oh I clicked on so many properties, which one was it?"

Then that brings up the point that when you try to contact many of them, they never respond back. I think the anonymity of the internet has caused this as well as the overall flakiness of people. On my last vacancy, I had over 50 contacts. Due to the aforementioned issues, after reaching out to each one 3 times each, we converted these leads to about 8 appointments, where we had 4 no shows. So it was only about 8 percent conversion to appointment. We ended up renting to someone who called off the yard sign. A lot of other landlords confirmed that this is the norm for them. Further, real estate agents told me they have the same issue when listing a house.

Try doing a rent survey in the meantime to actually determine if you are under market on rental amount.

@Collin Schwartz

Thanks for posting this and congratulations on your success!

You 2 bullet points on sacrifice sums up what a REI must do in order to achieve success. It will take a lot of evenings, nights, and weekends of sacrifice and hard work. While your coworkers are at Happy Hour or football games, the REI may be knee deep in it. It may even eat into your vacation. I have burned up texts and calls from the other side of the world because of the crises du jour in my rental and flipping businesses.

I was wondering if you wouldn't mind sharing the makeup of your team?  Do you have a full time handyman? Assistant? In my opinion, one needs at least 75 to 100 units to support a FT handyman and a FT PM (or assistant PM). Do you think that is accurate?

I really think a newbie can take your instruction guide above (and one posted by @Frank Wolter recently) and achieve success.

I am not a wholesaler, but have bought some houses from a few.

I think the "excessive profits" that @Will Barnard described is largely because there are people so hungry for a deal that they drive up the costs of the wholesale price.  Also, there is definitely a component of greed with some of the wholesalers.

Now, I have paid an AF at a much higher percentage than was proposed to @Nina Graysonand I didn't mind paying it because there was enough meat on the bone for a good profit. There are maybe 2 or 3 guys that can get properties under contract at obscene prices in my market, therefore giving them these abnormally high AFs.  It is a tough pill to swallow that they get so much.  However, for the rest of the wholesalers, they can't secure houses for these prices, so yes, if they were to ask for the same amount, it would not fly. Well, maybe.  People get crazy in the bidding process, not realizing that the meat on the bone was consumed by that wholesaler.

I do understand that wholesalers have large marketing costs.  I have learned that one of them in my market spends about 10k a month on marketing and staff for his wholesaling business.  One in another market told me marketing costs alone were 15k monthly.   However, as Will said, the flipper will be taking a great risk, so we have to be careful what we pay for a wholesale deal.

In the last year, compression of margins is occurring in my market because prices of retail houses are falling and prices of wholesale houses have not.  We must be cautious if this continues. A lot of flippers will be getting burned because they paid to much for the houses.

Originally posted by @Eli Frederick:

@David S. First thanks for that timeline of your experience. so in less words youre saying Im in a great position. This is month 1 basically . And reality is set in by this time and decisions have to be made by sellers. 

Absolutely. Most sellers will be highly emotional and will just want to get rid of the problem, that is, sell the house.  You will help them get rid of the stress and they will help you make money.

@Eli Frederick

As to your question as to if other areas have experienced this.  The Baton Rouge flood of 2016 flooded over 20,000 houses. Hurricane Katrina in 2005 flooded tens of thousands.  In my experience of 2016, here is what happened:

Month 1 and 2- A lot of uncertainty due to local regulation, FEMA, flood insurance. Will the local authority make you raise an entire house? Will flood insurance be too high in certain areas? The house raising or demolition is usually mandated when a house has substantial damage, or some similar term they use, which basically means over 50% damaged. This is highly subjective and determined by local government. You can even appeal based on a contractor's quote. Here is where you will secure the best deals. You can probably secure properties for less than 35 cents of ARV or less if the flood was 3 ft. or less. We had people buying for as low as 5 to 10 cents on the dollar.

Months 3 and 4- Outside investors will flood the area driving up prices. You can still find deals during this period.  By this time, flippers would have some inventory on the market.  In my area, they got a 10 to 15 percent premium of before flood prices because of lack of inventory.

Months 5-12 - Deals are there, but with increased competition. At this juncture, everybody is an investor, your dentist (no kidding!), contractors in the area, teachers, landlords who were on the sidelines, etc. We had people from all over the country mobilized and setting up shop. Professional flippers from different states were prevalent. Most deals of damaged homes was around 50% of ARV, squeezing margins of the flippers. Finished houses continued to sell at a premium.

Months 13+ - Not many deals at this point. You really have to work to get them.  Also, the prices of the finished houses are starting to come down as the inventory has flooded the market.  The market is starting to return to normal.  Compression of margins are at a maximum.  Investors who shunned flood zones (many initially ONLY invested in Flood Zone X) are now flipping in Flood Zones, such A and AE.  Some flippers did not do due diligence at this point and were getting stuck with houses that had $2000+ a year flood insurance costs.  It is much more difficult to sell a house with high flood insurance.

And of course, as mentioned, during this whole timeline, shortage of materials and qualified contractors will be an issue.  Prices will be higher on everything.

My advice: hit the ground running.  Many who had the "wait and see" approach missed out on some great deals.

@Douglas Spence Yes and many other inspection items such as cracked window pane, paint the outside, changing a perfectly fine toilet supply line, changing a perfectly fine p-trap, trimming trees, etc. All of these items needed to be fixed in 2 or 3 weeks or the policies would be canceled. It is fairly standard that you have an insurance inspection for new property insurance. In addition, you may have one after a year or more of the policy being established. Some carriers may allow you a delay of 3 months or so while you renovate. What I have an issue with is the tight timelines. When I got the roof rejection, I had 2 weeks to get it done. When I had the supply line, I only had 2 or 3 days. I had sent my plumber to change out the p-trap, they said nothing about the supply line. When I sent in the picture of the new p-trap, they said by the way you have 2 days to change out out the supply line. Apparently the painters left some paint on it. Since my plumber was booked, I did it myself. It just seems like these inspections are entirely subjective and definitely come up with some BS. I don't like a 3rd party telling me how to run my business, more specifically, telling me to repair things that don't need to be repaired. Therefore, if not absolutely necessary, I do not change existing policies, and if I do decide to do so, I do only a few at a time. I made the mistake of doing several at one time and just got swamped with these BS inspections.

@Federico L. Yes I have seen it. There will be a 25 percent increase January 1st. It is my understanding that because if this, certain items, like cabinets and granite will be imported from different countries, such as Vietnam. It is probable that the real origin of these products is China. Of course China can just deflate their currency by 25 percent, making the tariff a moot point.

I don't think anyone here is demonizing leverage.  What many of us are saying here is responsible use of leverage.  Further many of us are actively deleveraging our portfolios in order to reduce risk. 

When I first started out, 100% leverage loans were available for 2 to 4 units. I did not qualify for 100%, but I did qualify for 90% leverage on my first 6 buildings.  Then it started to get harder and harder to get those deals and now we are at a maximum of 80%. However, as the banks found out the hard way, too much leverage will sink you eventually. Therefore as time goes on, a seasoned investor realizes that there is a ton a risk with too much leverage and then we actively try to reduce it or even eliminate it.

If all rents were to drop 25%, could you keep your portfolio?  If overleveraged, I think not.  If vacancy rates doubled in your city, could you survive?  Could you slash rent 35% in bad times to keep your places rented?    Do you have enough reserves for 6 months of down time?  

If you could not pass these stress tests, then you should reevaluate your portfolio.

And as @Steve Vaughan stated, risky loans such as balloons, ARM's, commercial, and owner financed loans, called loans, etc. really throws a big risky monkey wrench into the overall equations.

Another theme that Frank brought up is his ability to sniff out great deals.  This is truly a HUGE advantage in growing one's portfolio. This is how I grew mine as well. That is why seasoned investors thrive in up and down markets. Do you have a reputation of closing deals with no BS?  Just this quality alone has gotten me many deals even though I wasn't the highest offer. 

Here's a confession: I did, in fact, roll the dice early on by leveraging to the absolutely maximum. I had no choice. I was broke. Then there is the "great deals" theory. By getting great deals, my 90% loan to purchase (and technically 100% at times because I sometimes borrowed the down payment money) was something like 70% loan value. Then, I added value, bringing my loan to value down to 55-60%. Do great deals grow on trees? Do they pop into your MLS drip emails every day? No, they obtained at the street level. Hard work. School of hard knocks.

Here is another tip that Frank shared that I use: reinvest your investment income.  This becomes a snowball effect, and will grow your portfolio by leaps and bounds.

@Frank Wolter 

Great example of the American dream i.e. what fruits of your labor can produce. I am on a similar path as you. No debt is absolutely wonderful. There is no doubt that investors with a light debt load will prevail in the upcoming correction. Most investors on BP have not been through a full life cycle of investment that includes a correction. I have seen firsthand where overleveraged investors lost it all. Also, I have seen some bonehead moves on that subject. I have seen an investor pay 8k in closing costs to pull out 20k equity, so he only netted 12k and a $700 a month increase in payment. He lost all of his properties in the last downturn, including his personal home. I know that many of us, including me, started out overleveraged in our early RE careers, but it must quickly be reversed to have long term stability or even long term REI careers. One game changer is reserves. If you are leveraged, one should have adequate reserves.

I can reassure the BP community that Frank is quite genuine. As he has generously offered to help up and coming investors, he has gave me valuable advice. I have seen some other members give him a hard time on some other posts, which gives way to a point that I have brought up before: if we consistently troll or slam successful people on BP, why would they want to stay? I keep seeing the request for more experienced investors here instead of too many newbies. For once, let most of us listen and learn (and maybe ask some quality questions).

@Account Closed and you will see hundreds of posts with useful information on buying properties from worn out, soon to be retired investors.  I have purchased about 80 percent of mine through these methods and have bought at substantial discounts.  Many were extremely savvy, more so than myself, but as I said didn't want to deal with BS and BS hot air wannabes. One of them even sold to me for a lessor amount offered by another investor because he knew that I could close the deal.  The investor doesn't want to sell NOW?  Keep calling and networking with him/her, letting that person know that you want to purchase RE.  I have gotten calls years later because the investor remembered those conversations.

If you do insist on some MLS activity, it is my opinion that the investor will do the heavy lifting. You can't expect the realtor to monitor the MLS drip he/she sends to your email. You will be the one checking the area out and whatever PRELIMINARY comp information you can find before wasting his time. The post about the realtor on this thread doing a ton of research and driving out to the property and the investor not wanting to exit the car because the area is bad is unacceptable. That investor should have checked out the area before wasting everyone's time.