All Forum Posts by: Tyler Madden

@Max Creasy

Depending on how rapidly (or NOT rapidly) you’re hoping to grow a portfolio, buying a primary with value add opportunities is a great way to get started (somewhat slowly though). And ultimately you can force equity as well as benefit from appreciation over time before “housing up” into a better primary and keeping your first property as a rental

My wife and I used a similar method:

-bought a primary and did a lot of upgrades over the course of 3 years (though, we intermittently house hacked with roommates here and there to fund some of them). We gained a ton of equity by doing this

-got a HELOC on that property (while it was still a primary residence) to assist in buying our next property and funding the upgrades and renovations on that.

-did a cash out refi on the new primary after forcing a ton of equity and used it to pay off the balance on the HELOC.

-Now we have a cash-flowing rental, we can reinvest the initial HELOC, and we still have a bunch of equity in both properties and can continue to rinse and repeat.

The benefit for me was that by slow rolling into this, it made my wife much more comfortable in the initial couple of years and now she is fully on board with scaling and continuing to grow our portfolio.

It’s exciting, it’s scary, it’s important to have a partner who supports the moves. Good luck and have some fun!

@Jonathan Perez I felt just like you when my rental was damaged by my renters (fire) back in November. It took some time to adjust to the fact that insurance companies are in no rush to complete the job as quickly as you, the homeowner, would like. 

It was easier for me to come to terms with this due to the fact that my insurance company was writing me checks for missed rental income every month that passed without missing a beat. If there was a financial hardship for me and they weren't doing this, it would be a very different story. The estimated time to complete repairs also exceeded my renter's lease agreement, so I have the ability to take as long as it takes. Are your tenants expecting to move back into the property? Or are you now tasked with finding new tenants?

Often times it feels like if I weren't facilitating between the insurance, contractor, tenants, and tenant's insurance, then this whole thing would fall apart. So I definitely feel you there. But with a little bit of effort, I'm able to manage things in a way where there's a major silver lining and I can cut costs on repairs and get some extra work done for minimal out of pocket expense to myself. 

Are you receiving rental income reimbursement during the time it is vacant? If your insurance is the source of slowing things down and they are still paying you monthly, then I'd say to take a breather and use the time to look for another rental! As long as it isn't costing you money...

Do they make money?

Greetings! I'm a GC in Colorado and I am very eager to start opening some doors to bigger and better real estate investments. I have one rental and would love more. I've got some really great relationships across the industry because of my job as a contractor; and I'm on the verge of creating a partnership with the key roles stated in the title to start taking on flips to generate some capital. Just wanted to get some insight from those who have been doing this more than myself.

I'm meeting with a real estate agent/friend and another friend who has links to private lending with better terms than standard hard money (rates TBD after said meeting). In my eyes, this seems like a great trifecta that could really cut down on costs involved in a fix and flip investment and maximize profits. I just don't want to get ahead of myself and fail to see beyond the rainbows and benefits and acknowledge the potential downside. Happy to hear any gaps in my thinking that you're seeing.

I have so many questions, and honestly just want to make sure I get off on the right foot with partners. I'm a skeptical optimist, I like to think big and dream, but often times I don't trust that other people can/will do what they say. At the end of the day, I can only control myself... so I usually don't rely on other people much. But I'd like to change that to start getting into better investments; you cant do everything yourself! (right?)

Obviously it's important that everybody brings something vital to the table in terms of saving money on the flip to entertain a partnership. Here are what I see as the benefits each brings to the table...

REA- has an investor mindset when searching for and evaluating potential flips, cuts out the agent fees associated with the flip. Also actively works in the residential construction industry and can supply labor and materials for certain trades at deep discounts, well below retail. Would help manage the job from time to time since we all have other things going on with our businesses. 

GC (me)- Bringing everybody together. Have subcontractors for all trades, teams and relationships to complete work and get materials at discounted rates. Pull any necessary permits, run crews, self performs where able. Cut out GC fees, overhead etc for the project (we're expensive!) I wouldn't be on the job daily, as I have a business that is actively moving in the background of this. 

Friend with $ contacts- I don't want to downplay his role, but I don't know how better to describe him. The money is pretty important though. He has worked in commercial construction for over a decade as a project manager and has loads of construction experience. Much more importantly, he has personal connections with some very wealthy individuals that are willing to invest in his pursuits, primarily as a favor to help him get off the ground, but also to make a little more than they lend. My wife also knows these investors personally after working for them for several years, so I'm connected by association? Hopefully we can talk one of them into some favorable terms where we're getting a great rate, they're getting more money back than they lend, and they're not involved in the profit share as a partner. 

This all sounds fine and well, it practically can't fail, right?! (sarcasm!). Like I said, I'm skeptical of everything; but I don't want that to make me miss out on a great opportunity. 

All three of us are very competent in the construction realm, we wold essentially create a schedule where we each manage the flip on different days allowing us to focus on our actual jobs that pay us as well as pursue the flip. I feel like everybody has a lot to bring to the table and there are a lot of things going in our favor. But, what do you see that could pose a speed bump to this plan?

Also worth noting, we're not hoping to do small-scale or "flip quality". We all do luxury and high end work outside of the flips. We'd be looking at getting into a higher price-point to buy, performing high end renovations, and selling at the upper end of comps because the quality will support it. We're not trying to get involved with bad neighborhoods, or low priced flips. 

I'm sure there are not enough specifics and far too many variables to really evaluate whether this is off to a good start. I just want to have some potential issues on my radar for this meeting next week so that I can present them and see how we would plan to navigate them. 

Sorry if I was a bit ramble-y, just excited! Thanks for any input!

Tyler

Investment Info:

Single-family residence buy & hold investment in Englewood.

Purchase price: $215,000

Cash invested: $50,000

Mine and my wife's first house purchase, was our primary for 4.5 years. Spent those years remodeling and upgrading all aspects of the house extensively. Borrowed against our equity on this house to purchase and remodel another house before turning this one into a rental that we rent for a cashflow of about $600/month after making interest payments to the HELOC.

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

Kind of fell into the concept after remodeling the house for myself and my wife's own enjoyment. After realizing that we could upgrade and leverage the first house to acquire another I became very interested in the extrapolated opportunities available by continuing to do what I had already begun.

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

My wife and I found the house by searching the MLS religiously, we just wanted to buy our first house... there was no element of it being an "investment" beyond just gaining equity by owning vs renting. We hired a real estate agent out of necessity because we just needed them to unlock the doors of the houses we were finding. Really, they were minimally beneficial during the process; but we closed the deal.

How did you finance this deal?

FHA

How did you add value to the deal?

Extensively remodeling the interior: changing layout, remodeling bathrooms, refinishing existing hardwoods, new baseboards, door/window casing, paint throughout. Exterior upgrades: remove and reallocate fence line to create a more private backyard, install modern 7' horizontal fencing, add large concrete patio in backyard, sprinkler system, sod, firepit, planters, etc. Lots and lots of small things over time, the goal was to essentially modernize and upgrade every aspect of the house for us.

What was the outcome?

Massive increase in equity, allowing us to eventually tap into with a HELOC to purchase and fund renovations on our new house. This house is now highly rentable and returns a generous monthly cashflow with minimal maintenance or upkeep.

Lessons learned? Challenges?

Don't overspend on things that will ultimately be for renters. It's nice to have nice things for yourself, but knowing when to say when is key while deciding how fancy to make things. There's a time and a place for luxury.

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

Negative.