All Forum Posts by: John Upperman

 Ariel - it was just a local, conventional lender.  But it was a bank that is investor friendly and know the market well.  In order to secure the loan I basically put together a business plan that included market data, recent comps, a detailed budget of the repair costs, and a "low, medium, high" scenario of what we projected to get on the sale side.  With all of the data we were able to demonstrate that worse case scenario was still profitable, which helped with the approval and underwriting process.   

 Prelim - I like your MFH experience.  PM and let's trade notes.  

 Jerry - thanks...those are really inspiring words.  I appreciate it.  

 Dmitriy - The Solo 401k purchases the Triplex I mentioned.  There will be a separate post on that soon.  

 Dawn - we contracted out the majority of the work (painting, floors, landscaping, tile, plumbing, electrical), but my business partner did almost all of the trim work.  Additionally, he was the creative arm of the deal that came up with most of the color and design ideas.  This is a perfect example of how partnering allows you to augment your weaknesses with someone else's strengths.  I was the numbers guy...finding the deal, doing the upfront analytics, managing the budget, etc. Whereas my partner has a background in construction and was able to develop the design plan, manage the subs, and do some of the work himself.

 Chris - you're 100% correct.  The neighborhood we bought in is on the fringe of a really hot market where in some cases, older homes are being bought only to be demolished and replaced with a much more expensive home.  We were able to purchase a distressed home on the outer wave of this market and rehab it to a point that was in a price point below those new expensive homes, but still in a price point and level of finish that buyers are willing to pay a premium relative to non-rehabbed homes in the area.

Yes - my business partner and I were able to secure financing through a local bank (i.e. not a national conglomerate).  We were able to qualify based on our personal incomes and assets, and secured a first lien on the purchase as well as a construction draw based on the repair budget (both at 75%).  

I borrowed from my Solo 401k for the down payment.  This is a different vehicle than a typical employer sponsored 401k and can only be established if you are small business owner.  Regardless - many employer sponsored plans offer personal loans as a plan benefit.  You'll have to check with your benefits department to see if this is an option for you.  

Hey BP Community,

I became a BP Pro member in December of 2015.  After years of talking about investing in Real Estate I decided it was time to take some action.  I started using my hour commute to work to listen to the BP Podcasts, learning all I could from the forums, and connecting with other BP members.  Since that time I have successfully closed on my first Triplex and just sold my first flip for over $75K in profit!  Below is a summary of the flip.

The Numbers:

Purchase price:  $185,000

Buying Costs: $4,475

Holding Costs: $2,875

Repair Costs: $57,000

Sales Price:  $342,000 (listed at $339,000 and sold in two days with competing offers)

Net Profit after Commissions:  $75,550

Pictures:

Exterior before

Exterior After

Kitchen Before

Kitchen After

Entry Before

Entry After

Master Bath Before & After

Master Bath After

Master Bed After

Hall Bath After

Living Room Before

Living Room After

Dining Room After

How I found it:  

I started working with an Agent that I know and trust and we set up some MLS search parameters that sends me emails daily. This is not the best way to find discounted deals (especially in Raleigh), but this one hit my radar in late January. I had already lost out on other MLS deals due to the competitive market, and I knew it had potential as soon as I saw it. We moved quickly and had it under contract in less than a week.

Lessons learned: 1) You have to analyze a lot of deals to make offers on a few to close on the one 2) Do not suffer from analysis paralysis...you have to act!

How I funded the deal:

I partnered with someone I trust and I also took a personal loan from my Solo 401k to help fund the downpayment. The remainder of the funding came through traditional financing (75% LTV of the purchase price and repair budget).

Lessons learned: 1)Sharing the risk with someone you know and trust makes the process a lot less daunting.  2) Banks loan to people!  Network with local bankers until you find one that wants to work with you (but don't waste their time by bringing them money losing deals).

The rehab process:

We literally started the demo process the day after we closed on the sale and were able to complete all renovations in about 7 weeks.  We budgeted $50K and came in at roughly $57K.  As you can see from the pictures we decided to go on the higher end of finishes, but we knew what the market was demanding.  

Lessons learned:  1) Make sure to build in a buffer for your project budget (you will go over it).  2) Know your market and give it what it wants.  You can't do Class C finishes in a Class A neighborhood or visa versa.    

The sale process:

We listed on a Friday, had our initial offer within four hours and then accepted the best offer that Sunday afternoon.  I realize selling this quickly is highly unusual, but we knew our market and priced it at a level we knew would drive demand and hopefully create a competitive bid environment.

Lessons learned:  1) Go where the people want to be.  Yes - it's more competitive, but competition equals demand, which is what you want on the sell side of the deal.  2) Build your business plan so you can list slightly below market.  This enables you to sell quickly so you can redeploy your capital to the next project.

I know we were very blessed on this first deal and I don't take that for granted.  But we were not "lucky".  In the four months since we started this journey I have used every spare moment to educate myself through podcasts, books, forums, networking and research.  I've become a Facebook orphan and I can count on one hand the number of hours I've watched television.  I analyzed a lot of deals, and I KNEW we were going to make money on this deal going into it.  I did this while working a full time job, raising a family and undergoing surgery due to a sports related injury.  

So if I can do it...anyone can.  

A special thanks to @Dmitriy Fomichenko for helping to educate me on the beauty of a Solo 401k.  @Brandon Turner and @Josh Dorkin for putting together this forum. And @Adam Ward, @Adam Schneider, and @Justin Hackney for just being generally good guys and taking the time to listen to a newbie.  

I'll post about the Triplex in a separate thread.  

John

@Alex Corvin

I think your estimates are pretty spot on, and the results don't surprise me. It is difficult to find good Cap Rates in the Raleigh-Durham metro if you're paying retail since the upward trending real estate values are outpacing rent increases. You can still find the occasional gem on the MLS, but those opportunities are becoming increasingly rare.

In order to find a good cash flowing property you will either have to find a deal where you are able to acquire the asset at significant discount to the surrounding market (especially Cary), or pivot to a market where property values have not accelerated past the rental rates for a decent cap rate(i.e Durham).  

@Jeremy Sanders - I just closed on my first Triplex in Raleigh, but MFH deals are hard to find in this area.