All Forum Posts by: Ozzy Smith

I agree with @James Wachob for the most part. You have to do lots of these to make any real money but it's apples to apples. It's the same philosophy as why investors buy multi unit buildings. If you have a vacancy on a 100K SFR you lose 100% of your income. If you have a vacancy in one of your 25K houses (that are all on the same street) you still have 75% of your income. Either scenario you still spent 100K so it's not like having a bunch is an issue. Nobody dreams of owning 1 or 2 rentals and calling it quits. Let's say they did... they spent 200K and got 2 houses. That seems risky to me (all your eggs in 2 baskets and liquidity is basically all or nothing) or buy 8 25K houses that will generate more rental income than the 2 "nicer" houses.

Typical Example In my area

100K house 3/2 in C neighborhood rents for about 1000/m.  Total rent = 2K/m

or

Same house plan in D neighborhood worth 25K rents for 650/m x 8 = 5200/m and diversity

Even if you assume that your repairs are going to be higher (I would argue they are similar because I'm not using high end materials due to less picky tenants) most property managers will give discounts for having more units under management so my expenses actually get lower the more I buy.  If I need quick cash I now have multiple properties that I can offer to a turnkey provider or hedge fund buyer that wants the "pig" and they will do it because there is no Cap X in the near future because of how I just did a complete rehab in the last 5 years or so.

Doing this type of strategy does a couple of things.

1. Even if the market as a whole doesn't have much appreciation I probably forced a little value add simply by rehabbing an entire street which raised my rents and community value.

2. I got 5 years worth of depreciation on my taxes which nobody calculates as income

3. My pig paid for itself in that 5 yr time because of higher ROI which now gives me options

4. If I want to sell to my tenant on land contract for top dollar I can because he doesn't qualify for traditional financing where the guy paying 1000/m probably does

5. My rent is guaranteed through subsidy, inspections are easy, the other isn't 

I can rattle more off but you get the idea.  It's all relative.  I don't believe anyone should be a slum lord but if you believe you spend the same amount for same quality you are asking to lose money and this is where most go wrong IMO.  C class tenants DEMAND central air, garages, and landscaping. My tenants WANT window units, off street parking, and left alone.  With the rising demand for low income housing because the majority of investors (evidence by threads on BP) are shying away from these types of houses I have tenants trying to convince me to choose them but you all are fighting to find that perfect tenant to choose you....please keep fighting over the "GOOD DEALS" - I'LL GLADLY TAKE WHAT YOU DON'T WANT  

@Christopher Winkler

That's just what the going rate is here for work that needs done.  Just like houses cost less so is our labor costs because the cost of living is lower.  Material costs are set so that's easy to figure out.  As a contractor (my previous life) if material can be purchased at 12K and I can pay 8K to my help and that leaves me 5-10K profit in 1 month I'm a happy camper.  That means I'm making 50-80K per year which is a decent job here.

Example my window guy charges me $200/window installed.  That's him buying all the material and everything.  Roof costs about 4-5K installed including materials.  Rental grade kitchen and bath about about 2K each.  Plumming, electrical, HVAC is cheap and they love me because it's all open work so they give me really good prices.  All that's left is drywall, carpet, and paint.  Again it's basically new construction type work to the contractor at this point and if done in the right order they can fly through it because they not worried about messing up the floors or have to "patch" things in.

These are proven contractors that I use (and many of us local pros) so we have great relationships with them.  We don't have to baby sit them and they always get paid so we get special treatment.

I love this debate!  I personally buy these all day and twice on Sunday for the exact reasons that @Jeffery Waicak pointed out.  Just because the neighborhood isn't in a good school district doesn't mean that good people don't live there.  Nobody ever sees themselves as lower than the next guy. The tenants that I have in these neighborhoods live there because they want to live there or that's simply all they can afford.  They are trying to hustle to get a better life and do take care of things (to their standard of living) or they are "comfortable" and the same for them holds true.  Either way as long as I can identify my tenant as 1 of these 2 groups then I'm good.  My biggest problem I have with them is I have to drive to pick up their rent because they don't have a bank account and pay cash.  I've recently established that as a good thing because that's when I discover the issues that I have.  They invite me in each and every month so I can do an unofficial inspection of the property which is good because most times they don't call me for repairs because they are afraid I won't re rent them the property for being a headache.  I don't fix things nice but my properties are nicer than they are accustomed to.  I know also that a lot of cap x issues can be managed if you address them up front.  If everything is new it's quite a while till you need to replace it.  Drywall and paint is cheap and I never use carpet.  If my roof, furnace, electric, and plumbing is new it will last for about 20 years.  I buy houses for 5-10K gut them to the studs and rebuild basically a new house.  I can do this at about 20-25K every single time and rent for 650 - 700/m.  Lets do the math

vacancy 10%

repairs 10%

Cap X 10%

Taxes/INS 25%

Prop MGR 10%

Setting aside $130/m for 20 years = $31,200... I can COMPLETELY rebuild that house again if I have to!! That is still using a property manager and factoring 10% for vacancy (which I'm nowhere near). That leaves me $225/m profit for 20 years = $54,000. Even if I have to sell it then for $20,000 I can do it easy for a total profit of $74,000 in 20 years on a $30K investment which after factoring depreciation and all of the other tax benefits is well over 10% ROI (not counting appreciation of the property) which is my worst case scenario. These are the numbers on one of my SFR in my portfolio currently. I can get close to 20% ROI on my duplex and even higher on 3 and 4 units.

The other thing I saw in this post was referring to a C neighborhood as "The Hood".  This makes me laugh.  I define my neighborhoods as

A - best school where everyone wants to live

B - Upper middle class where most of us live (mostly homeowners or working pros that rent)

C - Lower middle class (about a 50/50 mix of owners and renters maybe 40/60)

D - Low income (mostly sec 8 rentals but not afraid of getting shot usually)

F - Don't go there unless you are packing heat

Just because I don't want to live in a C or D neighborhood doesn't mean I won't invest there or feel unsafe.  For some that is where they were born and raised and where they will die because it is home.  That's where my workers live... that's why they are workers and not the business owner. If they are good enough to work for us are they not good enough to rent from us? - JUST A THOUGHT

I agree with all of you so far.  I do believe there is plenty of misconception being taught by the gurus that wholesaling is easy.  I know what I've put into it and the struggles I've faced as a seasoned investor.  I really like what @Jeff B. wrote about out marketing the agent.  I never thought about it that way before, but I do know that IMO most realtors are lazy (probably not going to make friends with that comment).  That is the sole reason why I got my RE license to begin with.  In the past I was actively searching for properties to buy personally and half the time can't get a response for days when I'm trying to write an offer or see a house.  The common marketing strategy is price and a few still pictures that don't tell much of the story, not to mention the homeowner and agent have NO IDEA what rehab costs are in many cases.  That's where the whole philosophy of "boots on the ground" comes from.  It's necessary because price and pics don't tell the whole story most times. Pics only show what you want to show and can hide everything else not to mention photo shop.  For this reason I do believe you can sometimes out market the agent if you truly do the homework and hustle.

Just for the record I don't blame the buyer in many cases because there is plenty naive newbie's trying to wholesale the wrong way.  I also agree with @David Dachtera about filling orders and building a buyers list.  It is relatively easy if your willing to put in a little bit of work.  I think as @Andrew Johnson stated about rookie buyers backing out was where I was going with this from the start.  I believe just like newbie wholesalers being told it's easy to do it, newbie buyers are being told the same thing.  They think they just need to call a wholesaler and never consider all of the extra costs and steps that are necessary to purchase a property.  They are told about owner financing and then bank on that when making their offer.  A lot of "cash buyers" pay cash only if the owner carries back the rest usually for long period of time.  I know it happens because I've done that also, but I've never tried to do that to a wholesaler because I know the answer.  Just playing a little bit of Devil's Advocate here... I enjoy the responses and look forward to more

So I want to throw something out there to see if it's just me or if anyone else notices the same thing.  I see posts all the time where people are hating on wholesalers that tie up a property and then never close because they can't find an end buyer.  I also notice that there are TONS of supposed cash buyers looking for deals that can't find them.  How many of you have been contacted either by phone, email, or even on BP from someone that says they want you to send them your list that never buy anything?

Maybe they do buy 1 or 2 but then all of a sudden the funds dry up and they can't actually buy the volume that they said they could?  This gives wholesalers and especially Newbie's a lot of false hope and perpetuates the problem.  So the question is who is really to blame?

How many times have you experienced this?  I understand that it goes both ways... many times the wholesaler DOES contract a bad deal that doesn't deserve to be bought.  Many times however the wholesaler is given a list of criteria that the "Buyer" wants so he puts it under contract and then can't move it to no fault of his/her own.  What about the other side?  Have you given your criteria to a wholesaler that says "sure I can get you lots of those" and then can't fill the order?

I'm an investor and a wholesaler so I've seen both sides.  I work in Dayton, Cincinnati, and Cleveland Ohio markets which get plenty of publicity on BP and has plenty of deals to be had and plenty of investors that operate in these markets.  I think there is more to the problem than the deal.... I think it is more of an integrity issue and people doing what they say they will.

OPEN FOR DISCUSSION - WHAT'S YOUR THOUGHTS OR EXPERIENCE WITH THIS? 

@Dom Jones

I'm located in Dayton OH and this is the greatest place in the world to invest.  We have a bunch of these types of properties and the cash flow is tremendous.  The price points are low and rents are strong.  I specialize in assisting out of state investors with similar interests and would be willing to help you anyway I can.  I'm a RE investor myself that does buy and holds in the area as well as a licensed RE agent that only works with investors.

@TJ Thompson

I'm not sure where Danville is but I'm in Dayton OH and do some investing in Cincinnati.  That might be close enough to you and would be willing to help anyway I can.  I do a lot of things online and virtually so distance isn't nearly as big a problem in today's tech age as it was even 10 years ago.  If you would like to talk or email give me a shout.  I love talking shop and have a fairly good knowledge base.

I'm going to echo what @Mindy Jensen said.  I'm from Ohio but not originally.  I moved here just for the summer and that was 14 summers ago.  I stay because of the RE.  The cash flow is tremendous, the point of entry is really low, and we are in a big enough market to sustain but not to big to be unmanageable.  I truly believe you can't make more money anywhere else in the country as right here. 

@Alex Get

I'm in the same boat.  I'm finding it difficult to get anyone to do a blanket loan on rental properties.  If you find the answer please let me know.

@Russell Brazil

The first problem is that newbies are calling an agent looking for 70% ARV deals. Your job (as a good agent) is to accurately value the sale price for your client. If we investors could get that property at 70 cents on the dollar than that means you are not a very good agent. Now on the flip side that's not to say it doesn't happen from MLS listings but almost always involves lots of rehab and work and that's why you can get the good deals... because you still have to work for it. Like some of the others have stated above we are in an upward trend and the newbies are coming out of the wood work and it's not just on BP. Competition is getting tighter and some still focus on the

ARVx70%-repairs formula which is a great mark to shoot for but realistically there is someone willing to make a "quick" 20K on a 100K property and beat you to the punch and then you think the other guy over paid.  If he made 20K on a flip did he really over pay?  It's a matter of time vs money approach.  If he has a crew and does volume than he probably got a good deal that wouldn't make sense for the first guy that needed 30K.  

The last part of the equation is the newbie (and many others) don't have money out of pocket to spend on their own deal.  This requires them to use hard money which almost never goes over 70% and due to the high cost of the money the borrower can't understand how anyone can make a profit paying those high prices.... it's easy - don't use HARD MONEY!  That's how a guy can pay more for a property than you is because he doesn't have that high holding cost, but that's the only way many can get started.  So they listen to the guru and drink the cool aid and think it's easy.  It does happen but it still involves a lot of work.  You as the realtor just happen to be the one to brake it to them many times that it's not like that on EVERY deal.