Well, remember how I started last post by talking about FOCUS?
My business partner is a smart man and really decided to follow that mantra. And I admire him for that. Because I need to improve my focus. I've got the classic "shiny object" syndrome that plague the entrepreneur type.
So, after we lost out on three deals together (Partnership Leads #1, #2, and #3), my business partner decided to bow out of working together (just for the time being)...
He just closed on a duplex in Forth Worth, Texas.
Like I said, he's a smart man, and he now must shift his focus on getting this new duplex in Texas turned around, renovated, stabilized, and rented. Which, pretty much leaves me back at square one. Sitting here with some cash, but no deal.
But guess what? Out of nowhere...sorta...
Something caught my eye.
What is it???
How'd I find it?
My business partner found it while looking at sold and listed comps for Partnership Lead #3. Introducing...
This duplex is listed at $165,000 and should rent for about $850 per unit (so $1,700 total). Each unit is a 2 bedroom/1 bathroom, each unit is right around 1,000 square feet, and each unit has an attached garage space. It's in a good neighborhood with great schools and little crime.
FIRST IMPRESSIONS OF LEAD #4: HECK NO! I don't want this thing. The marketing photos make it look great, but on Google Street View it's on an odd block. There's an old couch just sitting on the sidewalk, it's at the end of cul-de-sac and surrounded by shabby looking multi-family units. BUT, there's still a lot going for it too. Rents are pretty high, it beats the 1% rule, and it's in a safe neighborhood with GREAT schools. It definitely warrants further research.
So, I get to work on my analysis.
The more and more I uncover, the more and more I like the property:
-It was recently renovated
-There's a tenant in the bottom unit on a 12-month lease paying $850 a month. This is great to know because now I can really see what market value for the top would be when projecting rental income.
-It's part of an HOA (which I'm not a fan of), but it's only $30 a month and it covers lawn care and maintenance on common property
-It's surrounded by two amazing parks with running/bike paths
-Even at asking price ($165,000) it beats the 1% rule ($1,700 per month in rent is >1% of purchase price)
-I love the appeal of getting a small-multi unit property instead of a single family. This will help scale my portfolio faster than expected.
I like this place a lot. A LOT. AAAAAA LOOOOOTTTTTT.
You know what that means...time to be aggressive and go after it!
I find it ironic that I tell myself to FOCUS (Follow One Course Until Success) ALL THE TIME, when in reality, my investing strategies are still all over the place right now. Let's take a minute to recap where I'm at right now:
1. I'm looking for a single family property for myself
2. I'm looking to partner with my friend on a buy-and-hold dupex (Partnership Leads #1 and#3)
3. I'm looking to partner with my friend on a single family value-add property (Partnership Lead #2)
We'll, either way, I've got to tackle things one at a time. Seeing as I already lost out on three single family properties just a couple weeks ago, my business partner and I are going to be aggressive:
We take a big look at Partnership Lead #1
Remember, it's listed for $105,000, each unit is a 3bed/2bath, total gross rents are $1,525, and it's in Warren (a pretty decent neighborhood we like). Crunching the numbers, and we're talking more than a 15% Cash on Cash return!
Yeah, we've got to hop on this thing quick. So, I ask my agent to get out there as soon as possible to do some recon. Definitely want to get photos, videos, and her take on the property/neighborhood. According to the listing agent and her impression of the place:
-1 Tenant has been there for a year
-The other Tenant just moved in, but it's a couple making over $60k combined and they haven't had issues paying.
-Property is being sold AS IS.
-Roof is about 12 years old
-HVAC systems are 17 years old (YIKES! That's an upcoming expense)
-There were a few cracked tiles inside, but overall, things looked "real good" according to my agent
My partner and I go real deep into the analysis of the property and finally around midnight, I send my agent a few last questions....everything from yard maintenance responsibilities, to replacement roof cost estimates. We're literally 12 hours away from putting in an offer...
I knock out for the night, exhausted. And the next morning at 6am, get the following email from my agent:
Just talked with the list agent - unfortunately they accepted an offer last night. They had an offer come in with a midnight response time (!!) and went ahead and accepted it. I let the list agent know to keep me in the loop. Sorry!! Knew this one would go quick, but midnight offers is crazy!
WOW. Seriously. WOW.
I know, investing shouldn't be emotional. But, I was upset. And it lingered for days. Dang it. We wanted that one! BAD! But, I'll repeat this lesson: you've got to get OVER IT! And move on!
We take a look at Partnership Lead #2
Remember, I literally found this lead on my phone while walking through Target on my lunch break. This would be a HUGE departure from what my partner and I have experience in. This single family property is a For Sale By Owner listed at $60,000 and it's a value-add investment. All fixed up, it should be worth around $95,000. Basically, my partner and I would buy it all cash, renovate it so it'll appraise for $95k, rent it out at $950 per month, then refinance it and pull most of our money back out. At the end of the day, we'd have VERY little money in property, it would cash flow, PLUS we'd have most of our money back and ready for the next investment!
Breaking down the numbers to determine our offer price:
After Repair Value: $95,000
Renovations: about $15,000
Agent Commission: $1,800 (because it's a For Sale By Owner, we offered to pay commission)
General rule of thumb on flips or value add investments, you want to be "ALL IN" for 75% of ARV. So, if our ARV is $95,000 we have to be ALL IN for....
Which doesn't give us a ton of wiggle room. Especially since the list price is $60,000. We go for it anyway, and offer: $52,000
Andddddd, we get a quick response:
There's already another offer in at $63K cash - buyer is paying all closing costs and commissions, So total out of pocket to the buyer is higher than $63K, I would assume somewhere in the $67-$68K range. I told him I'd talk with you and see what you want to, but it sounds like we're quite a bit apart.
My partner and I definitely can't go that high. ANOTHER ONE BITES THE DUST! Damnnnnn.
We take a look at Partnership Lead #3
Here's another attempt to go in on a duplex with my partner. A couple interesting things about this property:
-it's outside of the neighborhoods we generally look at and not very close to downtown.
-the owner is late on their taxes and owes over $4,000. We've never dealt with anything like this...
-Rents are currently at $750 per side, but there's a strong case for being able to raise them to $850.
Things check out after running the numbers and even though we don't know this neighborhood AT ALL, it looks very safe and clean so we're very comfortable Jumping IN.
We go for it and offer $143,000 with a little wiggle room to negotiate up if needed.
We're hit with a "multiple offer notification" meaning, the sellers are asking for every buyer to submit their "highest and best" offer by tomorrow 10:00am.
This is always a tricky situation. You never know where you stand in terms of your offer amount compared to others. You could VERY WELL already be the highest offer and getting emotional now can hurt you in the end. Ultimately, as an investor, it comes down to what number are you still comfortable buying the asset for and what returns do you want. In our case...
We offered our HIGHEST AND BEST at $146,000. That's the absolute HIGHEST! And we're not moving up from there.
SAD FACE :(
The next morning we're hit with an email: "I heard back from the agent on the duplex - they went with another offer."
This is where frustration REALLY hits you. All the hours of work put into researching properties, looking up expenses, running spreadsheets, reading disclosures, putting in offers....
It's TOUGH. It HURTS when you fail and lose out on a deal, or two, or three, or six. But, to really make it in this business, it's going to take hundreds of hours to master. It'll take WAY more offers than you'd ever want to submit.
All you can say is:
ON TO THE NEXT ONE.
Let me tell you a little story about a guy named Tom.
Tom was hyper-focused on increasing his wealth, quickly jumped into real estate investing, and bought his first single family rental property...thousands of miles away from his hometown.
One day, Tom received a random message from someone named Alex. They'd connected on the real estate social network, Biggerpockets, and both happened to work for the same company.
"Let's meet up and grab coffee," Alex wrote to Tom.
Little did they know, that one sentence would be the start of an amazingly strong friendship. After all, Alex ALSO just bought his first single family rental property...halfway across the country too! Monthly dinners were arranged to chat real estate, finances, and business. Hanging out on weekends...became a thing!
Snapping back to reality...Tom is actually me (Tyler), Alex is one of my good friends (Ake), and that first "coffee business-date" was in 2016. Oh by the way, neither of us drink coffee....hahaha!
I'll admit...I sometimes (often!) find my mind pulling me in WAY too many directions, but you probably know that by now.
Remember when I said in the last post that I had a laser-focused investing plan:
BUY ANOTHER SINGLE FAMILY HOME.
Well, that laser had a little break in it. I'm now exploring another option I never thought I'd pursue at this stage: partnering on a bigger deal.
Now, we're not talking about partnering on a massive deal. We're talking about looking at properties under $200,000. Why even partner? For us, there are a number of reasons:
1. Less cash invested from both of us, but potentially higher returns on a small multi-family property
2. Expense risk reduced as they are split 50/50
3. Shared responsibilities in acquiring, renovating, and managing the property
4. We get to share best practices on how to analyze properties and utilize various tools
5. A chance for my friend to JUMP IN to the Indianapolis market and diversify. He already has property in California, Texas, and Tennessee.
6. An opportunity for us both to TRY out being in our first partnership. We both realize, as our cash starts to dry up with every purchase, we'll have to be more creative in the future when it comes to funding investments.
SO, as I continue to look for a single family rental property, I'm SIMULTANEOUSLY looking for a small multi-family in a partnership deal. Through the help of my agent, leads have already found their way to us :)
Partnership Lead #1
This duplex is listed at $105,000 and both units are occupied. Each unit is 3 beds/2 baths. One side is renting for $750 per month and the other side is renting for $775 per month. $1,525 gross rents per month. It's on a nice little dead-end street in Warren, which is a pretty decent neighborhood that we like.
FIRST IMPRESSIONS OF PARTNERSHIP LEAD #1: I like this duplex A LOT! The sliding doors in the front are a little unique, but I like the brick siding, dual driveways, maintained landscaping, and neighborhood. The acquisition price is amazingly low for a place renting for $1,500+. The numbers are ridiculously amazing. We're talking more than 15% cash-on-cash return....uhhhhhh WOW.
Partnership Lead #2
I literally found this lead on my phone while walking through Target. This single family property is a For Sale By Owner listed at $60,000, but if fixed up, should be worth around $95,000. This would be a buy, rehab, rent, and refinance project. Basically, my partner and I would buy it all cash, renovate it so it'll appraise for $95k, then rent it out at $950 per month.
Now the really cool part: we'd eventually refinance the property by putting it on a conventional mortgage, and pull most of our money back out. At the end of the day, we'd have VERY little money in property, it would cash flow, PLUS we'd have most of our money back and ready for the next investment!
FIRST IMPRESSIONS OF PARTNERSHIP LEAD #2: The property doesn't look great. It needs some work and updating for sure. But, my partner and I have learned...the uglier the property, the better for potential returns. Built in equity is key to pull off this strategy! Now, I will say, we don't want a complete gut job though...nope, that would be quite the task especially being out-of-state. But, the bones of this property look decent enough so it's worth a further look. If we can get this place for a little under $60,000 and keep our rehab cost under $20,000, this could be a great investment!
Partnership Lead #3
This duplex is listed at $155,000 and it's in a suburb outside of Indianapolis (about 25 minutes away). Each unit is a 2 bed/1 bath and both sides are currently renting at $650 per side. BUT, looking at data in this neighborhood, there's a strong case for being able to raise rent to $750 per side. This would be huge!!!
FIRST IMPRESSIONS OF PARTNERSHIP LEAD #3: This is what I'm talking about! We really like the single level duplex layout. Each unit has it's own garage and driveway. Brick siding is a plus. Definitely one of the newer properties we've looked at. And there's definite potential to raise rents. Now, it's in a suburb of Indy I know NOTHING about so there are some unknowns. BUT, here's the most unique part of it all:
See that BLUE arrow? That's the duplex.
See that RED arrow? That's a single family house with an estimated value of $572,000 only a block and a half away. WHAT?? A duplex going for $155k surrounded by properties in the $300k, $400k, and $500k range??
This is sorta strange, right? Well, it's a super unique opportunity. And, we like it. We like it a lot!
Three great leads. Three great properties. And potential for a strong partnership opportunity. But, at the same time, I'm STILL keeping my eyes open and looking for a single-family home for myself. What's next??
My mind is racing...I’ve got 6 million ideas on how to best invest the cash I got from the sale of My First Property. Thankfully, I narrowed it down to my (current) top 5 investing strategies:
But, enough of the games...
I think you already know what strategy I’m going with...this IS a real estate website after-all.
BUY ANOTHER SINGLE FAMILY HOME.
So, the strategy has been decided! Time to get to work!
This time, I’m not even considering going with a TURNKEY provider. Ideally, I’ll find an off-market deal on my own, from a wholesaler, or something on the MLS through my agent. I’m saying BYE BYE to turnkey. Why?
Because buying a property the “turnkey route” is essentially buying a flip at retail price (ie: you’re paying top dollar for a freshly renovated property). Yes, the cash flow numbers may still add up nicely on a turnkey property, but I want to get something with built in equity and improve my return on investment.
I'm definitely going to be more selective with properties now that my confidence and experience has built up over the past year. And I don’t mind picking up a property that needs a little rehab work (just, nothing TOO extensive). But first, I had to get pre-approved for a mortgage again. It was a pretty straight-forward process (again) and if you want a refresher on getting pre-approved, you can rewind to when I was acquiring My Second Property HERE.
Next up? Actually FINDING the deal. So, I reached out to my network of wholesalers, investor connections, and agents letting them know I was in the market for my next investment. I cast a wide net and gave them the same property criteria as My Second Property:
-Rents for close to $1,000 per month
-Single story brick ranch, in a B-Class neighborhood
Basically, I'd LOVE to replicate My Second Property. Good numbers, good neighborhood, good bones. Immediately, my agent shoots over a lead. She's quick!
This property is listed at $85,000 and has a tenant lined up to move-in on June 1st at $900 a month.
FIRST IMPRESSIONS OF LEAD #1: Curb appeal not the greatest, but I do like the brick siding and that it's a single-story property. The acquisition price lines up with my budget and a tenant is moving in at $900/month, providing immediate cash flow. The downside? A quick google search of the property places it in a neighborhood I'm not a huge fan of. Definitely not a war zone, there are decent houses around, but I don't see a super positive future for the area. Also, I noticed it was purchased for $38,600 just 6 months ago...and with it being listed at $85,000 that's a HUGE increase in half a year. I can't help but think I'm getting a bad deal. I PASS on this one.
My agent then scoured 100+ homes, and only 3 popped up around my price range with estimated rents being $1,000+:
Checking each neighborhood...NOPE, NOPE, NOPE. Again, they aren't in war zones, but I really am consciously trying to get in GOOD neighborhoods that are stable and have a BRIGHT future. I'm trying to capture a little appreciation too!
SO I KEEP LOOKING! Make sure to sign up for Zillow, Trulia, Redfin, and Realtor.com emails and get leads forwarded your way every day. My morning routine: wake up and look at all new inventory on the MLS.
Another lead comes to me by way of email.
This property is listed at $95,000 and should rent right around $950 per month. 3 bed/1.5 bath, 1,050 square feet with single car garage.
FIRST IMPRESSIONS OF LEAD #2: Curb appeal is pretty decent as the property looks well-maintained. The acquisition price lines up with my budget and rent is close to my goal of $1,000. Interior looks dated, but also seems in great condition. Could be a pretty low-maintenance turnkey rental! Decent neighborhood too...I'd say probably "B" Class. I LIKE IT A LOT!
I think it's time to put in an off.....
This property is also listed at $95,000 and should rent right around $950 per month. 3 bed/1.5 bath, 1,144 square feet and has a single-car garage. Recent updates include: kitchen, bathroom, flooring, paint, HVAC, water heater, windows, trim, and siding.
FIRST IMPRESSIONS OF LEAD #3: Probably the best looking property I've seen so far. Best curb appeal, good neighborhood, lots of updates. Big backyard, nice master bedroom with sliding door. Not the biggest place, but I like it. I like it a lot! TIME TO PURSUE!
I run the numbers on LEAD #3 and after factoring in all expenses (property taxes, mortgage, insurance, vacancy, maintenance), I definitely can't offer near asking price. So, I'm a little pessimistic. But, if you don't ask, you'll never get. It's all part of the game! Running your numbers, seeing what WORKS FOR YOU, and trying to negotiate with the seller.
I submit an offer on LEAD #3 for $82,000. This gives me a little wiggle room to work up, but not a ton.
I immediately get a response from the seller: "Thank you for your offer, but you're $13k away from my asking price and I have 4 showings already set up."
OK. Not surprised by that response. But, I give this property ONE LAST effort and go back to him with my highest and best. I offer $88,000. My absolute highest.
"That might work."
Well, I guess he was short and sweet. But, what the hell does that mean?? He needs the weekend to think it over and wait for additional offers. So...I go into a 3-day waiting mode and anxiously wait for the weekend to pass.
Monday finally rolls around and....DRUMROLL PLEASE....
The seller accepted an all-cash offer. As in...not mine. Damn. OK. Well, on to the next one. So, I go to my backup property. I re-run the numbers on LEAD #2 and go for it!
Now, I'll start by saying: ALWAYS TAKE A LOOK AT DISCLOSURES! Lead #2 checked the box next to having "Hazardous Conditions." It turned out they had mold in the home, but it was treated and they provided a receipt for the treatment, so it wasn't too bad.
I offer $82,000 on LEAD #2. Fingers crossed!
Literally, didn't hear back from the selling agent about my offer. Nothing. No response. No counter. LITERALLY NOTHING.
WHAT THE HELL! The search for My Third Property is proving to already be frustrating. Beyond frustrating, actually. It's not going to be easy. It hasn't been easy so far. It's tough when you just want to put your money to work, find a great investment, and close on something ASAP.
I've got to keep telling myself THERE ARE DEALS OUT THERE, but I just need to be patient.
The search continues.
If you're just jumping into my investing story now, I highly recommend catching up on the detailed accounts of My First Property and My Second Property.
For the rest of you...let's get started and #JumpIn to My Third Property.
If you recall, I JUST SOLD My First Property and rid myself of all the stress and headaches that came with it. BOOM! On to better and brighter things!
Because I bought that property all cash, literally had 100% equity in it, and SURPRISINGLY didn't sell for a loss...I got a nice injection of cash. Well, I've got a few options, and if you know me, my brain is pulling me in 47 different directions. What's the next move???
I've narrowed it down to a few ideas and strategies, but I'm not sure which direction to go just yet...
Sit on It
The most conservative route would be to keep my cash in a high-yield savings account. Thankfully, I get a pretty damn good 1.75% interest rate on my Ally Savings account. I've heard you can get up to 2% some places, but I've been with Ally for awhile and am loyal. If you're sitting here reading this and getting 0.01% on your savings account, go move your money RIGHT NOW! If you're not beating the inflation rate on your savings account (2%-3% annually)...you're literally losing money. Be smart.
With "talks" of a recession "coming soon" it may not be a bad idea to sit on my cash like Scrooge McDuck. If, and when, a correction in the market hits....I'd be better prepared to jump on opportunities and take advantage of having cash on hand.
I'm a bad investor. I have no money in index funds. I know, I know....what the hell. I promise you, it's been on my TO DO list for awhile now, but I just never pulled the trigger (and jumped in). This could be my chance to throw some money at the famous Vanguard VTSMX or VTSAX funds and collect a solid 7%-8% return over the long-run.
Investing in notes sounds amazing. Because it's SO PASSIVE! This will have to be it's own dedicated post at some point, but let me break it down in a simple summarized version. Basically, I'd become the bank on someone's mortgage and collect their monthly interest payments. Expected returns are are 8%-11% annually.
The downside? If the borrower defaults (doesn't pay), then I'm not getting my monthly cash flow (interest payment). But, as long as you invest in first position notes, you could foreclose and take control of the house. So, worst case scenario, you've got yourself a property (make sure it's a property you'd actually want). Sounds like a good deal, right?
Lend for Rehab Projects
Along the lines of becoming a lender (for passive reasons), I've looked into various online platforms. A friend of mine texted me one day about the company called Groundfloor, which allows an investor to lend on renovation projects. It seems very intriguing...on their site, you can see various loans, expected returns, term lengths, and an overall grade of the loan. A-rated loans are the safest, but returns are the lowest. F-rated loans are super risky, but have the highest returns.
There's a very low entry point to use this platform, because Groundfloor is essentially syndicating rehab projects. I've heard you can throw in as little as $60. So, this could be an interesting move and experiment!
Buy Another Single Family
You already know where I'm going with this. Having closed on My Second Property a few months ago, I'd love to pick up another similar type of property. Something under $100,000, rents for $1,000, in a B/A Class neighborhood, without many repairs/maintenance issues. I'd take that in a heartbeat! Cash flow baby!
Decisions....decisions. What's the next move?
What would you do if you suddenly had some extra cash?? Leave your response in the comments below!