All Forum Posts by: John K.

@Brian Lucier

There is no way any company can survive on 10% margins, the expenses would collapse them, within months. Even at scale, it would not matter. Having seen 100s of P&Ls and having extensive experience in construction and service repair, some of the charges I have seen, should be criminal. $300 for entry door lock replacements. $1200 for 40 gal water heaters $300 for kitchen faucet replacements. Shall I continue?

Screening from afar. Not sure why this is complicated. You see the common routine for realtors, is empty the house and run as many people through there, as possible. It's not relevant if they are even remotely qualified, but hey we had a showing. They duplicate this across selling of a home or renting a home. Screening is just a series of questions, followed by documentation verification, not sure how showing a house assists in "qualifying" them. 

Your doom and gloom examples, are just defensive mechanisms. The exact same outcomes, can be created with running countless tenants through a property, whether they are qualified or not. The liability laws do not separate a student from a prospective tenant, it's universal protection. 

Not an attorney and I won't pretend to be. However, I'm guessing the state will not make a big issue out of paying a student to take 30 pictures, for a fee, and not call them an employee. This happens 1000s of times per day. If you hire a VA to perform a variety of tasks, you're not taking out WC policies on any of them.

Ok. So let's use your numbers, of $1020 per door per year. 

100 Doors managed = $102,000 in revenue.

Let's say conservative 30% Income Tax = $30,000

Let's say conservative 20% Operational Expenses = $20,000

Let's say conservative 5 employees to professionally manage those 100 units...hmmm..that's 50K left for 5 employees...pretty sure that would violate minimum wage law. See...There is no way a PM companies can survive on 10%, the real money comes from maintenance, property inspections, evictions and renovations. The 10% sounds really nice, but it's nothing more than a loss leader. The PM knows they will mostly likely get the renovation if necessary, they will certainly get the repairs, placement fees and any other "fee" they can sneak in. Kinda like the cell phone bill. 

The statement, "If they don't pay, we don't get paid", is a false qualifier. The PM makes more money, with evictions, than with those tenants that pay on time. If a PM is solely aligned with the investor and promises to only place the very best tenants, then I have a solution. GUARANTEE YOUR tenant, for 6 months. Shouldn't be an issue, right? I know, life happens. However, PM's expect the investor to buy that excuse, why can't pm's?  NOTE: I am not referring to the current state we are in. This "life happens" has been going around for ever and a day, or two. 

All of your examples, rely on people do these tasks. 

Why does it seem unreasonable, that "other" people beside PMs, could not do that? I mean, they already are. There are entire industries built around these people. 

When a system is created and then tweaked, it is absolutely no different than what a PM does. They have a system of PEOPLE to take on these tasks, this can be duplicated, rather easily.

In my experience, my guess, as much as 85-90% of realtors, have zero construction experience. This is why they default to, bring an inspector or contractor. I want an experienced person, looking over a renovation. I mean, Would you take my advice on car repairs, because I read about it online and watched a YT video? I hope not! How would you keep a contractor honest, if you yourself, had no clue on it being done right or not? How is having zero experience in construction, having your client's best interest in mind? Then again, if something fails in 6 months, well there is only a 30 day warranty, so we are so sorry. Is that about how that conversation goes?

The costs would be justified, when you look at the details. Whether or not your estimate of self manage would reach those numbers, is entirely your opinion. There is nothing factual about that. The truth is, the tighter the system is, the cheaper it costs. But let's run with it....

My bet is even using your number...it would be tremendously cheaper. 

Renovation - 30-50% markup  bet I'm close, hopefully not low by a bunch. 

Repairs - Min 200% markup  bet I'm close

Eviction - Min 50% markup (can't get crazy with this one, easily discovered)

Materials - Min 200%, but I have personally seen 500%

I'm not calling any one in particular out, never would. But what cannot be denied, is in general, the PM industry needs serious regulation from the overlord themselves, the REC. This of course will never happen, despite the countless stories of PM fraud, the REC just turns their back. Can't give up those yearly fees now.

This won't land well, but it comes from an unbiased opinion.

In my view, the value of a property manager is drastically decreasing. The mere fact that you are likely to find an honest one, is probably comparable to hitting it big at a casino. With technology making communication, payments and locating vendors so easy, what else is left. 

Neighborhood Expertise - Few have better information than Trulia or Zillow can provide you. Crime ratings, school ratings, median income...

Property Marketing - Let's face it, 99% of them advertise on Zillow or CL. 

Maintenance/Inspections - Sure, makes it a bit easier, but that efficiency is wiped out by the massive markups taken. Let's be real. What company can survive on 10%? The rest comes from somewhere. 

Notifications - There are companies that do this for a fee, already.

Screening - Who best to determine your tenant, than you. Remember, the interests are not aligned properly. The PM cannot survive on 10% fees, so the placement fees certainly help. If a questionable tenant is interested in a trouble property, it is no loss to them if it results in an eviction. In fact, it is quite profitable. Markup on attorney, damage to property means some repairs, new placement fee...rinse and repeat

Showings - Let technology show you the way. Bluetooth entry locks or hire a service oriented company to show it for you. There is an app that you can hire those odd ball jobs. Anyway, this will ensure you are showing only qualified tenants. If you don't have time to screen, hire a VA and train them to screen for you. VA = $5 hour

Pictures - call the local college and ask for a recommendation on a student in photography. What college student wouldn't want to make extra money and get real experience, to boot. 

I have a client that has self managed for 10 years, coast to coast. Once you establish a system and get through the speed bumps, it becomes a breeze. 

If you are a systems oriented individual, then create your system. It only means more profits and no one will care more for your property, than you. 

When I am dealing with a default lead of any type I frame my questions as if it could and probably is an accounting error on "Xs" side. So instead of saying, why are you behind on payments? I would say something like, The bank is stating that you have missed 2 payments, this is probably a mistake, correct? 

This way I am not confronting that person and making them feel worse, about a bad situation. This puts them at ease and removes any embarrassment, because I want to put the blame on the bank. They will now open up and talk to me, and yes, admit that it is not a bank mistake. 

I would first identify the type of investor I would be pursuing

If you are going to pursue B&H investors, then focus on those areas that lend themselves to that strategy. This way you won't be going after the wrong type of property.

When you start to develop contacts with real buyers, they will tell you precisely what they are interested in, helping you narrow down your search. 

Best of Luck

Investment Info:

Single-family residence wholesale investment in Dallas.

Purchase price: $11,000,000

This is a very complex deal involving over 113 SFR, in one portfolio. The owner of this very impressive portfolio, is retiring.
This transaction will take approx. 10 months to fully execute, as it involves a lot of moving parts to get this done.
From the owner to my clients, this deal was possible because of their patience and their willingness to open their minds up to some creativity.

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

Wholesale deal with tremendous upside, for both.

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

script trigger

How did you finance this deal?

Owner Financing
Delayed Cash Funding

How did you add value to the deal?

Orchestrated the deal, from start to finish.
Organized the closing sequence to coincide with expiration of existing leases.
Organized estimate of repairs and scheduling of those repairs.

What was the outcome?

Pleased seller, buyers and wholesaler

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

no

Investment Info:

Single-family residence wholesale investment in Dallas.

Purchase price: $11,000,000

This is a very complex deal involving over 113 SFR, in one portfolio. The owner of this very impressive portfolio, is retiring.
This transaction will take approx. 10 months to fully execute, as it involves a lot of moving parts to get this done.
The primary strategy used in this deal is owner financing, however there are some other strategies involved.

From the owner to my clients, this deal was possible because of their patience and their willingness to open their minds up to some creativity.

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

Wholesale deal with tremendous upside, for both.

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

script trigger

How did you finance this deal?

Owner Financing
Delayed Cash Funding

How did you add value to the deal?

Orchestrated the deal, from start to finish.
Organized the closing sequence to coincide with expiration of existing leases.
Organized estimate of repairs and scheduling of those repairs.

What was the outcome?

Pleased seller, buyers and wholesaler

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

no

@Chad Griffin

I can give you some insight as to why this wholesaler does not flip. The reason is simple, ROI.

Wholesaling is about volume, so you can't compare on a 1:1 ratio. 

Currently my H.A.C is approx. $275, give or take. If we run the numbers side by side, to your project, this is how it would look.

1. FLIP - 211K invested to net 200K.  Great return, no doubt. 

2. Wholesale - Given my current HAC, that same 211K invested would get me 767 Houses. Let's say I average 7K on each assignment, that is 5.369mm. Granted this would take a few years to hit, currently.

Let's break this down, even further.

If all is above board with that offer, let's say it takes you 90 days to complete, 60 for rehab and 30 to sell it. 

Let's say that a wholesaler is doing 15 deals per month, at 7K each, that would be 105K per month, or 315K for 90 days. That flip would end up costing the wholesaler, about 100K. A wholesaler that is motivated and has their systems in place, this is not hard to hit in 99% of markets. 

At this time the only properties I am sourcing south of Killeen-ish are MHPs. 

Sorry.

@Thomas Garza

Good wholesalers do exist, in every market. 

I believe the frustration you are experiencing is that you are only seeing those that have nothing better to do than to ask for email addresses. These tend to be the individuals that try to wholesale MLS/Zillow deals, which stand little to no chance of succeeding. The numbers tend to be outrageously wrong, as there are probably a dozen other "wholesalers" in the chain, thus they have to manufacture the ARV, to cover the spread.

The irony here is that a wholesaler that has their network built, has no need to constantly ask for email addresses, if ever. Our buyers are already in line, and we only need one buyer, per property. We have no need for 1000 "buyers", unless of course,  we had a 1000 properties. Therefore, we don't need to blow up social media outlets, for email addresses. 

As far as the 70% rule, not sure why this is a problem. Just because a market is hot, like Dallas, does not automatically mean that every house in the city has kept up with repairs and upgrades to warrant the higher prices that are being achieved by those houses, that have kept up. This sounds like realtor talk, to justify just about every house being priced at 80-90%, regardless of the repairs/upgrades needed. One must ask, where the motivation lies. One outfit gets paid commissions, the other gets paid a fee...hmmm?

@Chris Carter

No. Purchase/Sell agreements, do not need to be notarized.