Alright BP Nation, this is the start of Year 2 of the Real Life of the Real Estate Investor thread.
In the first year of the Real Life of a Real Estate Investor, without meaning to do so, it attracted and resulted in Joint Ventures that produce a low six-figure profit. I was thinking - what if I deliberately seek out JVs on Year 2 of this forum thread? Maybe it can result in 7-figure JVs. Hence, I am setting the goal and making it public: make $1M in the next 12 months (deadline: March 20, 2016). I will have a separate posting on HOW this could be achieved with the help of BP Nation.
OK - so here's Week #1 of year 2 of Real Life of a Real Estate Investor.
The Good
1) Marketing, Sales & Closing
Below is the list of properties now controlled by our Chicago team that I've decided to focus our marketing efforts on:
- a 6 bed home in Crestwood: $110K (new & under contract)
- a 3 bed townhome in Villa Park: $80K (under contract)
- a 5 bed home in Chicago Portage Park: $270K (reduced)
- a 3 bed home in Bishop St in Chicago: $6K
- a 3 bed home in Glen Ellyn (rehab project)
- a 2 bed condo in Country Club Hills: $20K (under contract)
- a 127 acre land in Washington state: for sale for $6M
Last Monday we got Crestwood. On Thursday, I found a buyer who is also a member of BP. Good deals sell quickly.
2) Acquisition, Offers, Leads and Renovation
We got 26 leads this week which is higher than what we got last week (22). Below is the breakdown:
16 leads from the MLS
4 pocket listings
3 HUD
3 other wholesalers
The other 2 leads from HUD are from southside Chicago. The numbers don't make sense so we're not doing these.
I saw the rehab work of my business partner Dale on our Antioch property. I like it. Below are some before and after pictures. We will stage it and then list it on the MLS. We acquired it for $141K, we put $40K to rehab it and we're thinking of selling it for $280K.
Before
After
Before
After
3) Raising Money, Organization, Systems, Training, Networking & Relationships
This Saturday two investors I talked with and they expressed interest in investing their IRAs with me and in my lending business. They said they can invest up to $250,000. Nice.
The NOT So Good
The house in Portage Park did not appraise for the $470K we're expecting. We got a disappointing $415K as the appraised value. With this lower than expected appraisal, we will have to shell out more money to buy and rehab the property. The risk is going to be too high with us needing to invest more money and the returns will be less too. We've decided NOT to do the deal.
LESSON OF THE WEEK: WHY THE PORTAGE PARK HOUSE DID NOT APPRAISE AND WHEN TO WALK AWAY
The Portage Park house is not the usual fix-n-flip. It's in an area where houses usually sell between $250K to $350K. Then in some parts of the area, there are houses sold for $430K, $463K and some are even listed for $500K to $550K. When we looked into it, we found out that in those parts of Portage Park, they are doing 2nd floor additions, they are opening the floor plan and they are doing high end finishes. By making the house look like a million dollar home and expanding the square footage with 2nd floor additions, they are increasing the value significantly. So we're thinking (really hoping) that the property can be resold for $470K.
However, that did NOT happen. Why? According to the appraisal, the most expensive comp sold for $450K but it's 0.63 miles from the property. The comps closer to the property (0.1-0.3 miles) sold anywhere between $370K to $400K. Granted some of those comps are not directly comparable (some are frame, some have only "half" 2nd floor additions) and so the appraiser correctly increased the value to $415K. My conclusion is that the whole 2nd floor addition strategy is working in some parts of Portage Park but not yet in the block where our house is at. We are ahead of the "movement" and I don't want to be the pioneer who lost his shirt with an unprofitable rehab. I care about my investors' money too much to take on unnecessary risk when there are other deals out there. SO I've decided to walk away. Yes - I will lose my earnest money but a few thousand dollars of loss is better than putting in $90K and then not making money out of it (or worse, even losing money).
