All Forum Posts by: Gabriel Graumann

@Dean Murray I've completed investment purchases with both cash in hand and hard money loans. This said, I would advise AGAINST starting off your investment career with a HML. We've read the same books and heard the same advantages to using "other peoples money" to invest. Yes, it allows investors into the market more quickly and/or scale more quickly. However, there are huge drawbacks to utilizing HML's beyond the fees, high interest rates, and often tight timelines. There are lessons to be learned for investors that only come taking it slower.

The most overlooked and underdiscussed problem with HML's or similar debt is the compounding effect that they bring into the investment equation and outcome. One main effect is borrowed money actually LIMITS your exit options, not increase them. For instance, I purchased a property with cash on hand in mid-July of this year for use as a daily rental. The intention going in was to purchase the property for cash, make improvements and furnish the property, then refinance it into a permanent long-term loan. Fast forward 2 months and rates continued to rise very quickly for all loans, but especially so for investment loans with the average quotes coming in at upper 7-8% range. Had we held a HML for the acquisition costs with a timeline running out in a 3-6 month window, we would have been forced to refinance with a high interest loan with terms that were not advantageous across the board. Then we'd need to refinance again down the road 12-18 months, or whenever rates were more advantageous and pay another round of fees for the privilege. Instead we have kept the property in cash, and tapped some of the equity via a HELOC with a 5% year 1 interest rate. If another deal comes we'll have the HELOC funds to use, and if not, we aren't losing 7-8% having a note out there.

@Account Closed interesting note. We haven't owned long enough to see if that is the case for our property. More bookings for sure off VRBO. We do have a booking that came from VRBO for the entire month of April, which is more than 4 months out. We'll see if the guest keeps the booking leading up to that date. Overall we are very happy with the outcome of the property, wouldn't change much of anything. Already looking for the next property in the area. What do you invest in?

@Account Closed To date we have somewhere around 13-14 separate bookings, with all but 4 coming in from VRBO. There are 3 from Airbnb and one was a referral/repeat customer of the management company who was looking for a new house on their return visit. We'll see if these percentages remain consistent long-term. I have noticed that the VRBO booking fee is a little lower than Airbnb, which guests may be influenced by if they check properties on each site prior to booking.   

Investment Info:

Single-family residence buy & hold investment in Paramus.

Purchase price: $450,000
Cash invested: $85,000

Purchased a single-family residential property not located in a HOA controlled community in eastern Mesa, AZ. Planned to use the property as a daily vacation rental from the start, so all improvements and amenities were made according to that plan.

What made you interested in investing in this type of deal?

I've invested in every other type of residential property, and based on the local returns for comparable properties, we couldn't beat the ROI potential for the price. Our family had stayed at dozens of this type of property over the years and we had already assembled a list of things we'd want in a property, preferred finishes, amenities expected, and what elements pushed a property over the top for us with the "wow factor". We wanted to replicate this on a property close to us.

How did you find this deal and how did you negotiate it?

Found the property sitting on the local MLS for over 30 days. Offered $50K below market at the time the offer was written knowing our local market was dropping not increasing. Effectively we wanted to buy no higher than where we'd anticipate the market would be 6-8 months in the future. Seller agreed to the offer and we went mutual within a few days of original offer.

How did you finance this deal?

We opted to use cash on hand for the purchase, improvements and furnishings. Our estimated budget for the improvements and furnishings was $85,000 with an additional $15K in reserves. Long term we will refinance this property once the income is stabilized and the rate and terms are advantageous. Right now it would not make sense to give up 7-9% in interest just to free up the initial capital invested. There are cheaper ways to recapture that capital while letting this property cashflow nicely.

How did you add value to the deal?

Completed a full facelift. New flooring, cabinets, fixtures, paint inside & out, resurfaced the cool deck, and updated the landscaping. We also added a pool heater, a hot tub and large putting green. The goal was to make it a turn-key vacation rental without the need to return in the future to enhance or fix it. This avoids future down time for the property. You only get to be "NEW" to the market once, so we wanted it to hit the ground lacking nothing and able to collect 5 star reviews.

What was the outcome?

The pictures speak well to the quality of the property and professionalism we were targeting. We utilized a professional management company that specializes in vacation rentals in our local market, not a national chain like Vacasa or Evolve (both of which we interviewed). Our bookings started coming in within 2 weeks of going live on VRBO and Airbnb. We currently are booked almost solid through April, with a few weeks here or there still available. Very good for a new property w/o many reviews.

Lessons learned? Challenges?

Opted to PM this one myself due to proximity, which was fine but drained a lot of time that could've been better spent on other deals. Unless you want a part to full time job, hire a property manager who is hands on and local. The national chains are decent, but for the large fee they all take, you are still left with tasks to oversee. A local manager can do more than most national ones for the same or less money w/o losing any income. Buy higher end furniture, it's lasts much longer.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I worked with local contractors that came through referral relationships as my first two choices were booked when I needed them.

@Matthew Ford Great question to be considering. My career started in PM for my grandfather's commercial development company, managing properties they had already built and retained equity in. Now 20 years later I'm 100% out of the PM business but continue to invest. What I found is quality PM is a full-time job (at least in the commercial RE realm). My goal wasn't to take on another job when investing, performing endless "low dollar tasks" instead of pursuing "high dollar tasks" (something only I could do) such as analyzing new deals. Decide what you enjoy doing, determine if you will continue enjoying it when you scale your investments (if that is your goal), and that will likely answer whether you need to start with PM yourself or hirer it out from the start. Happy to connect on this more if that is helpful to you. 

@Kerry Noble Jr Yah, this was a fun deal to work on. Took a few trips to Boise over a 3 months period, met several great vendors I'll be using in the future, and ultimately was just a solid deal. The market also played heavily in my decision to both purchase it and to assign it. Boise doesn't have many large employers and their growth exceeds local income, so it's transplant growth reliant on workers using a home office. Not sure how many $1M houses Boise can afford to keep building, and when things shift, markets without strong local jobs get hit hard and recover more slowly.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $345,000
Cash invested: $120,500
Sale price: $530,000

Off-Market Fix & Flip Opportunity

What made you interested in investing in this type of deal?

I've flipped several properties, and this one came to me off-market directly from the owner who saw my name on a sign in the community. Despite trying to convince the seller to simply clean it up and bring it to market for a much higher profit, the seller chose to sell direct for cash on a quick closing and no repairs made by the seller.

How did you find this deal and how did you negotiate it?

The seller needed some cash upfront to cover moving expenses as they were leaving the state. I was able to accommodate this and assist with providing moving supplies, help deal with an impound issue for a non-operable hauling trailer that was onsite, and simply acted as a resource for the seller.

How did you finance this deal?

I had money I needed to place somewhere, so this one I opted for all cash to removing all funding fees, ultimately netting me $10-12K more profit. I get many like to leverage everything to the max, but not me. When I have cash sitting outside of a deal earning next to no interest, and without a better deal to place those funds into at the moment a deal is presented, I'll utilize cash and save/make thousands from the lack of financing charges, fees, and holding costs. This also saves time.

How did you add value to the deal?

Hired my go-to contractor and he performed a full interior renovation, plus cleaned up the outside. Nothing too unique on this fixer, it was simply well worn and needed an update.

What was the outcome?

Considered holding this one as a long-term rental since I liked the area it was and the job growth in the local community. However, as I was finishing this one there were a couple of new deals in another state that had better initial and long-term upside on a buy/hold basis, so I cashed out of this one and reinvested out of state.

Lessons learned? Challenges?

The seller had several unique circumstances that would have made a traditional sale very challenging, but I still advised a traditional sale. GIVE THEM OPTIONS! While they may know what they want the outcome to be, there are multiple ways to exceed their expectations. I see so many wholesalers/investor taking advantage of sellers by not educating sellers and presenting them with options. I sleep better at night knowing the sellers I work are shown every option from traditional sale to discount.

Investment Info:

Other other investment in Meridian.

Purchase price: $2,050,000
Cash invested: $35,000
Sale price: $2,400,000

Started as a two property assemblage deal, tying up two adjacent parcels each with a single-family house plus acreage. Initially I planned to take the property through the approval process and then sell the approved site plan to a builder.

What made you interested in investing in this type of deal?

I like any deal that has multiple exit strategies. One of the two parcels had a gorgeous 5,000 sf custom built house with mountain views, and from my comps could be sold without the land for $1.1-1.2M after subdividing the remainder of the land. Another major factor was the rapid growth in the Boise, ID market with scarce build ready lots weighed heavily in a land owners favor.

How did you find this deal and how did you negotiate it?

Initially saw the larger property on the MLS, but the smaller adjacent property wasn't listed for sale. I worked through a local real estate to put an offer together, but after a bit of back and forth between brokers that went nowhere, I requested all parties meet in person. When possible, I believe more gets accomplished if a buyer and seller can sit down together and talk through what's most important to each side and work towards an agreement. As broker myself, I can attest to this.

How did you finance this deal?

The contract provided for a short feasibility contingency period to review the most critical items, and then an extended closing of around 9 months. This was a benefit to both the seller, who needed time to relocate in better weather, and for me it allowed additional due diligence and planning for the project. The only money out of pocket was for the earnest money of around $30K.

How did you add value to the deal?

I hired an engineering firm to figure out the best site plan for a small single-family subdivision. We ended up with a layout that could accommodate between 25-30 lots in the 7,000-12,000 sf range each. Various builders in the area were looking for lots like this, so we felt it was a good size to go after. A conceptual site plan was created, and a preliminary meeting with the city confirmed that necessary utilities and services could accommodate this project if it went forward.

What was the outcome?

Once the site plan was completed and the initial feedback from the city was received, I floated the opportunity of an assignment of contract for both parcels on a local social media platform. The platform was real estate and builder focused, and the response was very high. I had two offers within 48 hours from developers who wanted to take over the project and put their own touches on the site plan before the city signed off on what we were creating. The net return made sense, so we accepted.

Lessons learned? Challenges?

Be open to big deals, even with unknowns. This was my first deal in the Boise market and I lived out of state. I had to source a new team of real estate brokers, builders, engineers, planners, etc. Those I hired helped cut the learning curve by years, and I was able to rely on them for most of the planning elements of the project. Also, being able to identify value where others overlook it. The largest portion of this deal was a listed property that others failed see the value in.

@Heather Thuli pretty sure the law requires you to send me all wholesale opportunities first, and then the rest of the state's investors can have a look :-) Seriously though, there are no specific laws that apply to wholesaling in the RCW's, but there are disclosure laws tied to licensed real estate agents/brokers to be aware of. As a licensed broker in WA, if I choose to assign a deal I an language to the assignment form or an addendum stating "I'm a licensed broker in WA state that may make a profit off the assignment of this contract" or something to that effect depending on the deal. Good luck, and if you have more questions feel free to reach out. 

@Tony Matyas I would replace them due to ceiling height and general room aesthetics. Install a nice looking, low profile light in it's place and call it good. I flip 2-3 houses a year and unless we have tall ceilings to work with in a large room, we always remove the fans.