All Forum Posts by: Matt Jones

Since the market heated up down here it's harder to find a deal that matches my numbers than to complete the rehabs!  Haha

I have been a little distracted from growing my rental portfolio since I started actively selling real estate last year but I am finally adding some new property to my portfolio!  I reached out to the owner of a duplex within 200 yards of my  quadplex to see if he was interested in selling after I heard that his tenant had been put in jail. To my surprise and excitement he was, we met soon after and then negotiated a purchase over the next week. 

Purchase Price - $50k

*$42,500 cash and seller financing for the remaining $7500( I am trying to keep as much liquid cash as possible for an upcoming flip)

Renovation needed - $15 - 20k

Expected monthly gross rent after completed - $1550

ARV $120k

Timeframe for renovations - 60 days

@Jennifer Ross  I think @William Allen summed it up very well. We have a strong rental market and this is a good place to be a landlord. I have yet to have any trouble filling vacancies for my rentals, even in the winter. The market is hot so you can turn your flips pretty quick but not scorching like Nashville or Denver. MLS inventory is currently very low in this market and good on market deals go very quickly so if you are planning to flip full time down here I would recommend a marketing plan to get some of your own deals or getting to know a few wholesalers like @William Allen.  I had trouble buying enough deals in the later part of 2016 between the MLS and foreclosure auctions and will be adjusting my strategy for 2017 to include marketing and wholesalers.  Good luck with your move and don't hesitate to contact me if you need a realtor when you get here! 

@Tony Roddenberry

I personally use audible.com but don't forget to check your local library.  Many libraries have an online catalog of books you can listen to for free.

As far as my favorite audio book, if we are talking real estate , is not a book at all.  I listen to podcasts when it comes to real estate and if I hear a book mentioned enough on a real estate podcast like BP then I will pick up a hard copy that I can make notes in and mark pages to come back to later.  I have noticed that while I can remember clever ideas from podcasts I don't learn as much from audio books as I do from a hard copy that I can write in and highlight.  My favorite investing podcast is the BP Podcast and to help me as a real estate agent I listen to Super Agents Live. 

I think it is possible to get a commercial loan as long as you stay with 5 or more units but I'd recommend contacting a few lenders to learn more about the terms and requirements.  If you can get a loan then you could look for a partner to help with the down payment or you could ask for partial owner financing of the down payment.  Either of those would probably be easier to get than all owner financing.  

@Jeff Bisgier

Congrats!  Your first deal is really exciting and scary at the same time but it sounds like you got the most important part right...  Buy it cheap enough to afford some mistakes and still turn a profit.  That's how I did my first one.

As far as a book to help with the renovation - I recommend Flip: How to Find, Fix, and Sell Houses for Profit by Rick Villani and Clay Davis, you already have the property so you will just want to focus on the fix portion which is covered in detail and tells you what to fix when and why.

For learning about becoming a landlord I recommend listening to the buy and hold related episodes of the bigger pockets podcast.  I remember learning so much from the first 100 episodes that made me money on my first flip and first rental.  

For background and credit checks and even rent collection I have been using cozy.co  I doubt its the best but it works, it's free and applicants pay the site directly and it sends me their credit and background checks.  I've been using it about a year with no complaints.  Cozy.co also has a feature to make listings and then syndicates your ad out to other sites.  I have never advertised my rentals with an agent and I have had plenty of applicants but I think this would vary by location.  Cozy.co, Zillow, Craigslist and a sign out front have kept my phone ringing steadily. 

Finally, for forms - I always check my county websites for existing forms and if I cant find what I want I google it and look for a quality, recent form that is approved by my state bar. 

I thought it might be interesting to cover how I quickly analyze new properties that come on the market to determine their potential as rental property.  I'd love feedback from other BP members on how you do your basic analysis in order to pick the properties that you want to dig into further so please comment below!

Too many properties hit the market each day to analyze them all, some are obviously not good rental prospects but many look borderline until you run the numbers. My first eye test on these potential rental properties: is the monthly rent 1.4%(I use this number because it typically represents the minimum needed to achieve an acceptable rate of return) or greater of the price/value? I usually have an idea what a property will rent for based on size and location since I am a real estate agent and landlord already but there are plenty of ways to find out what a property might rent for if you don't know. If I get serious about a property I will do these anyway but a few options are check rentometer.com, search for rentals on Zillow or trulia in that area with the same number of bedrooms and bathrooms, check craigslist and check the website for 1 or 2 large local property management companies. When you are comfortable that you have enough rent to support further investigation the next step is to quickly figure your potential monthly cashflow based on rent and estimated expenses. I deduct 10% of the monthly rent for capital expenditures(initially this includes repairs and durable items), 10% for property management and 10% for vacancy. From the remaining 70% of monthly rent I deduct the monthly mortgage payment PITI(Principle, Interest, Taxes & Insurance) to determine the monthly cash flow. Finally, I multiply the monthly cash flow by 12 and then divide it by my expected initial investment. That's a lot of words to describe what takes me very little time to complete. See my example below.

Price: 75,000

Estimated Monthly Rent: $1100 

After deducting for PM, CapEx and Vac = ($1100 x .7) $770

Est Mortgage with 25% down = $515

*You'll need to figure your own based on cost of money, and taxes and insurance for your area!

Monthly cash flow: ($770 - $515) $255

Yearly Cash Flow: ($255 x 12) $3060

Cash needed to acquire property: $21,500(25% down + 3% closing costs)

Potential Cash on Cash Return: 14.2%

*I invest for cashflow so I use cash on cash return as my primary motivator.  I consider the tax, advantages, property appreciation and mortgage pay down as important but not my primary deciding factor

When the cash on cash returns meets my minimum acceptable return I go see the property and run the numbers in depth.  Usually, I'm going to want to buy the property at a discount and I typically want to get the property in shape to rent at a premium so the real numbers will always be different but this is a quick and easy starting point for me.  After running the numbers at a few different price points much of this is memorized and can be done in your head.

How do you perform your initial rental analysis? 

Where do you agree or disagree with how I start the process?

I bought this overgrown house in a very nice neighborhood that had been sitting vacant for about 4 years.  Somewhere in the process of the bank trying to sell the home the bank had a water issue that damaged drywall and ruined sections of the hardwood.  I stumbled onto this house when the price dropped from $249k to $225k, it had been originally priced at $325k 10 months earlier.  In the process of negotiating with the bank they decided not to make repairs and were so difficult to deal with that they ran off the other potential buyers.  After dropping the price to $225k there was a multiple offer situation but through the banks flip-flopping on terms and taking forever I was the only buyer that stayed interested and I picked the house up for $205k.  Immediately after close I started on sheetrock and floor repair, a contractor said he could sand it and make it all match and eliminated the warping "no problem"

Sheetrock repair went great.

But he ruined the flooring which resulted in having to rip out all of the hardwood.  Hardwood Glued to the subfloor is not fun to remove. To save money I decided to do the floor removal myself and after having a ton of trouble I came across a strategy that worked.  If you are removing stubborn hardwood that is glued to the subfloor and nothing else is working... set the blade depth on a circular saw to the depth of the flooring and cut the flooring into 1ft squares.  To make it even easier you can mix adhesive remover with water and pour it into the cracks.  If it comes to this, obviously, there is no salvaging the existing hardwood.

I used a hand scraped engineered hardwood for the new flooring, painted the entire interior and exterior of the house, landscaped, replaced the $500 range hood and a few appliances and the final result is in the pictures below.  Bought $205k, improvements $25k, sales price $288k less $19k seller concession and real estate commission.  The renovation took about 4 weeks and I lived there for 2 years so I am not including holding costs on this one.  While living there I pulled out cash to flip a home and buy my first rental property, a quadplex.  Both were $50k plus renovations and are detailed in my other posts.  Overall this made a great place to live and I made a few tax free bucks for my effort.

Thanks for reading!

I would recommend finding someone who communicates in the way that you want to communicate, if you only text don't hire an agent that always calls and never texts.  Before I was an agent I worked with several and it was a red flag to me when an agent spent all their time telling me about themselves, their company or anything else really instead of asking what my goals, budget, wants and needs were.  You want to find an agent that is focused on meeting your specific needs, that communicates well with you and that is knowledgeable about your market.  When looking for investment property I prefer working with an agent that invest for themselves as well.  That helps them speak my language and have the ability to vet the deals before bringing them to me. 

@Brent Coombs I Absolutely agree the 70% rule is a great guide.  According to tax records the house was almost 400 square feet bigger than what it actually was, that threw my numbers off significantly considering I had figured a per square foot price, and taught me an extremely valuable lesson about trusting anyone else's measurements.  As mentioned in the main post, this house came with an education!