All Forum Posts by: Pavel Sakurets

ROI=NI/Invested amount. Of course, every economist will tell you that ROI is what matters and negative cash flow is OK if you have enough reserves.

Now let me ask you a question: You invested in a property and hoping to get 15% return, but the property is not cash flowing. Your principal balance is reduced every month but now cash flow. (The trap that I fall in from 2001 through 2006).

Now, after a year of operation, your mechanical system or plumbing system or roof needs to be replaced and you do not have money to do that or tenant moves out. What will you do if you didn't get any cash flow (only income on paper)?

Second example: assuming that nothing brakes (which never happens btw) real estate market goes down, rents decrease, you will have negative cash flow. Try to calculate NOI with negative cash flow.

I learned my lessons not from St Thomas MBA finance school that I graduated from but from the ''Hard Nocks University'' and I would never buy a property that would not cash flow when it is ready for rent. 

Also I have an example of not cashflowing property that I bought in 2004 where I have negative cash flow of $900/month... For 10 years!!! Check out this video, I'm loosing 120k on this property because I was listening to the experts from the Economics :)

https://www.youtube.com/watch?v=bP7Awhg3-jQ

Start an eviction and get her out. Contact her Sec 8 worker and explain the situation. Most likely she will be kicked off the Sec 8. Don't fall that she will give you the keys herself.

We stopped excepting Sec 8 2 years ago and our R&M expenses decreased from 18% of total rent to 9%, which increased the net income by almost 30%

It is very important to stop running, doing deals, etc. and stop for several hours and analyze what you have done wrong and learn from your mistakes.

I have been doing rehabs, flips, wholesales for 14 years.

I  wanted to give you an update on 6547 Berkshire Ln Maple Grove. I though that I lost 10k on it, but after spending 4 hours investigating I found that I lost $1980 plus my time on buying and managing the project.

Here is the video of the house after it was fixed up where I lost money on first time this year:

https://www.youtube.com/watch?v=CSlQbR-Lz6Q

My rehab and holding expenses were 50k

Closing costs and commissions were 13k

I sold for $210,370 and bought for 150k

Mistake #1: I estimated ARV for 230k, but it only sold for 210k. If it would sell for 230k the Co would of made 18k

Mistake #2:Underestimating rehab and making changes that you didn't plan for.                  (I estimated rehab at 35K, but then decided to build an extra bath that cost me additional 15K) Thus, do what your originally planned, otherwise you will loose $.

Mistake #3: Paying too much for the property. If ARV was 230k and projected rehab was 35k, I needed to by that property for 126k, I broke the rule thinking what would happen, and lost 2k plus my time.

Thus I'm very happy that it was only a small monetary loss plus my time for finding, managing and selling.

I don't believe in equity. The ''true'' equity is when you need to make a fast sale discounted by 40% then this is the ''true'' equity. I had a lot of equity before 2008 and have less now, but my cash flow is better.

The true wealth is not the equity, the true wealth is the future cash flow that you will be generating discounted at the desired rate of return.

To make 1m net per year, you will need to turn 100 properties per year, and make 20k on each, pay overhead and taxes and you will get 1m.

Or you can buy a distressed apartment building, fix it up, rent it out and refinance at CAP of 6% and pull the cash out. You will not need to pay taxes on refi and you will have your million.

Now, to get 1 million at refi, you will need to get a building which will produce 90k net per year. At 6% CAP the value of the building will be 1.5m.

The bank will refi the loan at 75% LTV and you will get $1,125,000 at closing minus closing cost. Now calculate for how much you need to buy the building and how much you need to spend to get a future value of the building at 1.5M. Next find this building.

Thank you every one for your comments. Just wanted to give you and updated about my conversation with the investigator form the Department of Commerce and hiring people to locate abandoned houses.

-He has never called me back to answer my questions. But, I don't give up that easy :-)

I emailed to general real estate office from the department of commerce yesterday and hoping to get an answer this coming week.

Also how to locate abandoned houses besides driving for dollars: I liked an idea of talking to postal workers that several people suggested.

Also I contacted 2 companies today that deliver 20,000 flyers from us to sfh  and offered to buy a list of abandoned houses from them. 

Why didn't I think about it before? 

In addition I also offered to tape my letter on the abandoned house's door which has a ''sheriff's star on it. (looks like an eviction notice from the sheriff)

 Today is Sunday, will get an answer from them tomorrow. I'm sure these guys that deliver flyers will be willing to make extra $ by doing the same job and taping flyers to doors.

 Josh, NOBODY could build a house cheaper than National Builders. Nationals' target profit margin is 17%. From that 17% they pay a production manager who manages construction and pay for overhead, etc. Nationals get best prices on labor, land and materials and they make higher margins only on selling options. That's why after all expenses are paid Nationals who are in S&P 500 show average net income of only 4-7%

I suggest when you finish your new construction project, calculate your total cost per sq. ft and add the time of the person managing construction and overhead, then you will know the true cost to build per sq. ft. 

I'll be paying builders $105/sq ft all day long of they could build for $90 and make $15 off me, but don't know anybody who can do it. And I completed over 500 projects within last 14 years. Maybe prices are lower where you are at, but I think you are in the Midwest where I'm.

If builders would of making 50% GPM on their houses like you mentioned, everybody would be a builder. If you don't know. the average life span of a builder is 6.7 years according to National Association of Builders, because they make very little $.

Wendell, 2 years ago I created a REIT and registered with SEC to raise 20m, because I wanted to buy 500 houses from FNMA and Freedie Mac. The margin for you should be 30%, so you could make 10% on a wholesale and leave 20% for flippers. Because if you buy that many houses it will take a lot of time to sell them and carrying expenses will kill your profits. I was not able to get a tape discounted even by 15%. You probably understand that banks want to get top dollar for their properties and they will only get it if they list them with re agents on mls. I spoke to top execs at Wells and US bank and they told me that they didn't do tapes anymore and US Bank was sued 2 years ago for selling a tape and all banks stopped doing that. Maybe rules have changed since 2 years ago. I receive bulk packages from Freedie and Fannie every 2 weeks, but they do not allow to cherry pick, plus there is not enough margin. They only could discount properties by 5%-7% because they will save on re commissions and holding costs.

If somebody has different info please share.

I only know one developer in CA that has purchased 182 houses in CA with restrictions that builder will rehab them and sell them to 1st time buyers.

 Builder is the one you hire to build, GC could be you or a builder. Developer is the one that develops land and sells it or builds on it. Listen to what other guys have told you, hire a builder. Builders make 10-18% gross profit from new homes if they lucky, but they carry overhead as well. Builders get things done cheaper than you would, because they have subs that they hire who knows the builder and give them better pricing than they would give you, builders also buy materials cheaper then you would. Maybe you can buy tile, cabinets, carpet, hardware, etc (finishing materials) to save $.

Yes, you will need a survey done and then find out what is the maximum foundation and impreviuus surface should be, then choose a blue print that will fit these requirements. 

 Cathy, I'm a fourth generation builder and built my first house 2800 sq ft plus basement in 2005, before I built it I was running a remodeling Co for 5 years. I lost on that house over 100k plus worked for free, the house was beautiful (949 Trellis St, Jordan MN)

But I didn't give up and built a second house in 2007, 2000 sq. ft two story inside of the City, address 4238 20th Ave S, Minneapolis, MN. And market crashed, I lost 80k on it :)

Then I built 3m house and made money on it, and do not build houses any more (too much work and too much competition). But I flip a lot of houses still

What I'm trying to tell you, that you will never be able to build cheaper than other builders. Builders when they build try to get 15-17% gross profit margin, but from that profit they pay for overhead (licensing, insurance, phones, office, etc) Plus builders buy materials cheaper and have cheaper labor. 

Somebody mentioned, hire a builder and follow him. It will save you a lot of problems

 In RE everything is negotiable. The % depends on the motivation of the seller. Some sellers will sell a property at 0%. You need to find out from them what is more important for them: sale price, monthly payment, term of the loan or %, and then structure the offer based on this info