All Forum Posts by: Stephen Dispensa

Hi Joseph,

One of the first things I would say to consider is what is your plan for the property? Obviously a rehab is in order, but are you looking to flip it? BRRR it and rent it out? I'd start by trying to figure out a primary strategy and then a backup plan in the event things don't work out. Figure out a rough budget for the project, and back your way into what your max offer price can be. (Obviously don't start at your max, but know where your limits are.)

Also important in your strategy is how you plan to finance this transaction? Conventional loan in your own name? HELOC on your primary? Since the property needs a massive rehab, you need to consider the funds needed to accomplish the renovation post-closing. You could also consider hard money where the rehab budget will be included in the loan, but interest is obviously always a factor here. However, this would allow you to purchase with an LLC, and possibly offer you some anonymity while negotiating with a neighbor. Personally if you're going to be investing more, I'd recommend forming an umbrella LLC / holding company and then place individual investments into their own LLC for each property.

Next you need to look at the strategy for getting to the owner. Is the property owner occupied or are there tenants living there? If owner occupied and they're clearly facing financial issues, why haven't they sold yet? Are there mortgages or liens against the property currently? (As a real estate agent I have easy access to this information from the services I subscribe to buy you may not be able to access it as easily). Ideally you want to find a motivation for them to sell and get out quickly. I definitely understand the issue of not wanting to create an awkward situation with a neighbor, so you may want to hire a realtor to present the offer for you. Form an LLC and give someone else signing privileges in your operating agreement so your name doesn't appear on the offer or any other paperwork. Hire a real estate agent to represent the LLC and negotiate on your behalf. Build the real estate commission into the purchase price and make it part of the offer.

Finally the goal is to get that offer accepted. Ideally you want to create a situation where the seller realizes he can get the property and the current issues off his plate quickly and walk with cash. Understanding their financial situation through looking at mortgage / lien balances will provide a much better picture. If they own this house free and clear and can walk with a couple hundred thousand in their pocket it may be an attractive situation for them. If they owe 400k on a house that's falling apart, there may not really be any upside for them to sell as they're certainly not going to bring cash to closing to close out a loan. 

You've definitely started down the right path though. I'm a broker and property manager based out of Tampa but I work the St Pete side of the bridge as well. If you need any help or even just have some questions, send me a DM I'd be happy to help.

Out of State will be your best option for a number of reasons:

- California Tenant/Landlord Laws are not favorable, can lead to real volatility in your investment.

- So Cal prices are insanely high and it is tempting to think they will continue to rise, HOWEVER bear in mind that real estate prices are directly tied to what people can afford to pay. There are numerous factors that affect monthly housing payments beyond just the price of the house. We think about mortgage interest alot but property taxes in a state like California are a MASSIVE expenditure. Look at how the state of California spends money, and ask yourself if property taxes are going up or down in the future? Look at migration flows, 2022 had California show the largest migration outflow in the entire country as 328,000 people left the state. Less people = lower tax base. Less people = less demand. Any long term bet on California real estate should be on prices going down unless something drastic changes.-

- You said you don't have the time to manage the property yourself and will be working with a property manager. This is definitely a wise move, and therefor should really open you up to the entire country in terms of where you're able to invest. I would recommend looking at area that show stability, higher returns, and INTEREST you on SOME level. You will need to do some research on the way in and you should invest in an area where the opportunity excites you on some level. If you're charmed by college towns in the North East, consider investing there. If you like the idea of Florida sunshine and endless summer, consider investing there (and call me if you do!)

- Lastly, remember that no one is going to HAND you the value you are seeking right out the gate. You need to create it. Biggerpockets is a great tool and has excellent metrics and calculators to judge an investment by, HOWEVER the likelihood of finding a property that is going to cashflow 10% out the gate is extremely rare. You need to set aside some of your capital for Value-Add improvements to drive up rents and allow you to get the returns you're seeking. And don't discount properties that don't look like winners on the surface, where's there's a mess there's money, and deals aren't found they're made. Look for motivation in sellers and go after it to make a deal happen that makes sense. 

If you look at what has gone on recently with long term low-yield MBS you can see EXACTLY why SVB failed. The worst part is that the suggestion being made in most media articles is that the bank is somehow failing because it backed startups and tech companies. The bank failed because the price of low-yield 10 year plus mortgage backed securities is getting crushed in the open market precisely because the fed keeps raising rates. Rate increases were heavy handed, too much, too soon, and now too prolonged. The economic issues that caused inflation in our economy have little correlation to interest rates and the availability of capital. The fact is the fed should behave like a scalpel but often behaves like a sledge hammer. 

I could see a situation where AI takes over underwriting for titles and mortgages, maybe even conducting closing operations. As far as Agent's being replaced by an AI . . . it's an interesting take. Let's try to think of what that would like like from the client's point of view.

As a buyer, you hire an AI agent that you interact with, letting them know your criteria for homes you're looking for. The AI proposes some houses based on this criteria. You give it feedback, it refines it's search etc. You pick a house you want to see, you visit with AI still interacting with you on your smart phone. You swipe a lockbox and the AI lets you enter the house and proceeds to give you a tour.

As a seller, you hire an AI agent that draws up descriptions of your house, maybe it can even remotely pilot a drone to take photos and videos for your listing. The AI even organizes an open house and interacts with potential buyers through a screen or their smartphones

All this surface level work can probably EVENTUALLY be accomplished by AI. However, spend some time playing on AI platforms like chatGPT and Dall-E and you'll start to see where AI falls short: it can't read between the lines. 

I've had clients tell me a million times what the "WANT" but you need to listen deeply to understand what they "NEED". That's what being an agent is. It's not understanding a checklist of wants, or sending someone properties, or hosting an open house or marketing a property. It's figuring out what is actually important to them, and figuring out a way to fulfill that need. As of right now, I don't see any AI or Machine Learning models that are able to come close to that. 

A few things:

I would definitely check the zoning / future land use of the property. Make sure it's a legal triplex. The fact that there's only 2 meters on property is a huge hint that the third unit may not be legal or may be a legal non-conforming use.

My guess is the property has a main house and an ADU that was once a shed or a barn in the back. Likely the ADU was supposed to be a single unit hence the single meter. Perhaps the second story was the apartment and ground floor was supposed to be storage but then got illegally converted, etc. It's not that big of a problem if the zoning allows for 3 units on a property of that size, however in most cases like this the conversion would have been done illegally or at the very least is no longer a conforming use.

The shared water meter is pretty typical for multifamily here in Tampa. I recommend to all my property management clients to institute RUBS/Sense etc, there's really great tools nowadays to put systems in place to measure these items, be it water or electric. 

Yup it's just a simple personal guarantee for the LLC lease.

Sure but there is competition for all of those properties. Every investor is out there looking at them, and they sell at prices similar to what they would achieve on the market. Furthermore, foreclosure properties that are priced well below market often get bought out by the banks holding the note at auction and added to their REO portfolio, which means the property is then going on market with an agent.

The truth is, the main way to find deals below market value is to do the door knocking, cold calling, bandit sign placing, flyer mailing, hard work necessary to connect directly with sellers. But the amount of work that goes into that, often means you don't have time to do the work necessary to rehab the properties to bring them up to value. If you're investing that kind of energy, you're better off wholeselling the deals. 

The second way to find deals is to find the hidden value in them. Get creative with what these properties can become. Set a plan in place and execute it. Renovate units, add square footage by enclosing porches / florida rooms etc. Get rents up by not renewing leases and moving new tenants in after renovation. 

Deals aren't found, they're made. The idea that anyone is going to sell you a property with great cashflow right from the outset without a TON of work on your part is a fantasy. Because there are MUCH bigger players in the game with MUCH deeper pockets than you with a higher risk tolerance and a need to hit much lower returns for that portion of their portfolio (reit's, hedgefunds, etc.)

 Why would a seller just give you a stabilized cash flowing asset? Why wouldn't they just hold on to it for themselves?

This is an area that maybe frustrates me the most when working with investors, especially new investors.

Do you think someone is just going to HAND you a cash flowing asset? 

Even if you have a ton of money to invest, do you understand that the cap rate is essentially the same as your cash on cash return at that point? Do you realize how low cap rates are in general across the country?

I don't care if you have infinite money to invest or are just getting started, the ONLY way to really get assets to cash flow at a level where they become sustainable income is through VALUE ADD.

Yes, that means purchasing assets that are cash flowing little, nothing, or negative.

Yes, that means investing further cash to renovate the property.

Yes, that means investing time in finding the right tenants and property managers to raise your rent roll.

However, the upside is almost always HUGE and largely predictable if you're willing to put the effort in. The question of whether you're going to succeed or fail comes back to the VALUE ADD. What VALUE do you have to ADD? Answer that question and you might find money for investment much easier to come by, and the road to cash flow a lot shorter than it looks.

Dillon, 

I'm an agent here in Tampa and have sold many a home at an open house. Here are the key factors:

1. Competition - You want to get AS MANY buyers and looky loos in the property at the same time. You want buyers to feel like everyone is in competition for the property. They'll feel like any one of these people might buy the house and they need to make an offer fast to not miss out. 

2. Timing - You ideally want to launch your property as follows: On market Tuesday, Broker's Open/Caravan on Wednesday, Public Open House on Saturday. When your house hits the market on Tuesday, agents will generally call you that afternoon to ask questions. Tell them you're holding a brokers open on caravan on Wednesday, and tell them to come have some lunch. Bring any agents from your office that are available as well to fill in the broker's open. Let agent's show the house from Tuesday to Saturday, and then Saturday hit with the big Public Open. I recommend keeping the open house short, I personally like 11 am - 1 pm (although 10 am to 12 pm works fine too) I don't love later in the afternoon open houses because buyers have usually been out looking at houses all day and are a bit fatigued. Some may give up and not show. Remember the #1 thing is competition, you want them all there at the same time. Also be aware of sport schedules. On Saturdays in Tampa college football can be very big so get the schedules for teams that are big locally (Florida, Florida State, and USF to a lessor extent) and nationally (Alabama, Georgia, LSU, Notre Dame, etc.) and make sure your open house doesn't conflict with any marquee matchups or local games. I don't like Sundays for open houses. Too many people go to Church, and in the fall there's NFL to contend with. 

3. Sign In Sheet/Follow Up - It's important to have all open house visitors sign in both for security purposes, and for marketing. I like to have a branded video tour of all my listings. I tell every visitor to my open house that I need to collect their email, because I know they're looking at a lot of houses and they all blend into one. But I'm going to send you a video tour of the property, feel free to share it with family and friends. I also promise them that this is the ONLY email they will ever receive from me. (We all hate spam, and let's face it most Realtors/Loan Officer's mailing lists don't really have anything interesting to say)

4. Refreshments - Keep it simple, but do put out some beverages and light food. If it's a morning open house coffee and pastrys/bagels is always great, maybe some fresh fruit. Always have some bottled water. (I know agents that put their contact info on water bottles but let's be honest, these are getting thrown out.)

5. Neighbors - Others have said it but I always door knock the entire block and invite them. Usually try to do this the day before but can be done the morning of. Try to get as many people there at the same time. Use the refreshments as a bribe "Come down have a cup of coffee and check out the house."

6. Engage - Try to engage everyone who comes through, but try to not make it be about the house. Ask them what they're up to this morning, if they have kids with them talk about that, if they're new to the area find out where they're from/what brought them here. People love to talk about themselves, give them the opportunity to tell you what they want/need without directly asking. You'll often find buyers here. Also, while talking to the neighbors that came to take a look, you may find sellers as well. I had an open house a few years ago where a neighbor came by and I got three deals out of it. She let me list her house, her boyfriend's condo, and sell them the new house they bought together. And now her sister is going to buy a house with me too. Don't discount anyone you meet, open houses are a huge opportunity to expand your business.

Bottom line, open houses are great. Before the pandemic, my entire business model was based on flipping houses with investors, and then meeting the surrounding neighbors at the open house. The pandemic REALLY put a hurt on my real estate business because of the inability to hold true open houses for a while. (I switched majority of my business to multifamily value add after that but still take the time to do listings and open houses today when they come to me). Put the time into it and you'll do well.