Quote from propertymanager.

Rehabbing, Fix and Flip, Rental Properties
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Yes, it is absolutely possible to do this in 90% of the United States (except those hot markets on the coasts). About 18 months ago, I started on a plan to acquire 50 rental properties at the pace of 10 per year. My goal was for each property to have a positive cash flow of $200 per month and at least 30% equity. Under this plan, at the end of the five years, I’d have $10,000 per month positive cash flow and $1,000,000 in equity. Now, eighteen months later, I have 23 rental units with a positive cash flow of nearly $5,000 per month and nearly $500K in equity.

All of this depends on buying the property well below market value. This is relatively easy to do in most of the US although it does require working at least half the day (12 hours). If you buy at a big enough discount to market, you not only do this no money down, but get cash back at just about every closing (buy at 50% market value and finance at 70%).

I do all the management myself and work like a dog every day, but I can do this for another year or two to meet my goal.

I know a lot of other investors who have done the same thing. However, if you are asking if you can spend 3 to 4 hours per week like the gurus say on late night TV, let someone else manage the properties, and retire rich in a year or two - dream on!

Mike
From days gone by .Excellent post ,My questions are . Are you simply renting these with a net lease?Are you rent to owning any of them?Are they all single family ? I have had bad luck renting SFH’s as one or two months empty and it seems to dump the whole years pos.cash flow for the year.How are you finding prop at 70% value that are fundable and rentable with out repair?(not HML)If they are in need of rehab are you using your own money or are you levereging HML?If you are using HML wouldnt you need to get your properties at basicly 50% ARV or better?If you are getting them at 50% or better are they REO?HUD?Wholesale?Result of Bandit sign? Do you think these properties still exist in todays market?Do you think this scenerio is exclusive to your area or are these deals just about everywhere If you look hard enough? You mentioned you wanted to get 10 a year and it seems you are on track , actually ahead of schedule,Why do you think others have not found your secret for the rates you are purchasing at in your area? Lack of competition? Just an abundance of properties?It seems Like a lot of great deals for one individulal for one area.Whats your take on this?Hats off to your success!! Insight to your success would be appreciated by all Im sure.

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Are you simply renting these with a net lease?Are you rent to owning any of them?Are they all single family ?

I am simply renting almost all of them. The utilities are paid by the tenants (except water/sewer/trash in the some of the apartment buildings) and I pay taxes and insurance. I have many SFHs and 2, 3, 4, and 6 unit buildings. I have done a few lease options and have found that the tenants almost never buy the property.

I have had bad luck renting SFH's as one or two months empty and it seems to dump the whole years pos.cash flow for the year.

The answer is ensuring that you have adequate cash flow. In this old post, I said that my goal was to have $200 positive cash flow per month per unit. However, I now only buy if the positive cash flow is at least 1/2 of the mortgage payment (P & I) and a minimum of $200/month. Obviously, vacancies always affect your bottom line, but you should still have a profit on any given house even with three or four months vacant. Fortunately, once you build a larger portfolio, any single vacancy has a much smaller effect on your profit.

How are you finding prop at 70% value that are fundable and rentable with out repair?(not HML)If they are in need of rehab are you using your own money or are you levereging HML?If you are using HML wouldnt you need to get your properties at basicly 50% ARV or better?

I find the properties in many different ways. I use a realtor to find REOs. I have a very small ad in the paper that markets to pre-foreclosures. I network at the REIA meetings and other investors call me when they have deals. I personally manage my properties, so I keep my eyes open as I’m driving around. Finally, as you get established and people know that you can get things done, people will simply call you.

Here are examples of a couple of “deals” that I was offered this week:

  1. I was in the plumbing supply store and was standing in line with an odd looking faucet hose in hand. Another guy made some comment about the hose and I mumbled something about never knowing what you would find in a rental. As it turns out, the guy was a disgruntled landlord and offered to sell me his rentals right there on the spot. I took the info and will drive by the properties in the next couple of days.

  2. I went to my attorney’s office yesterday to drop off an eviction for her to file. She said that she was glad I stopped by because she had a property that she wanted me to take a look at. The property is in an estate. The mother had died and the kids didn’t want the property. It looks to me like it can be bought at 50% of market value and needs very little work. I may flip it and the best part is that the property isn’t on the market and I’m the only one that knows about it at this point.

Just being in business and having people know that you can close deals will bring you a lot of business.

As for funding, I almost always use a small local bank. These are portfolio lenders meaning that they keep their loans in-house. I normally borrow 100% of the money to do the deal, including rehab, and often get cash back at closing. I can do this because I buy at a big enough discount that I can cover the whole deal with the bank loaning 70% of the APPRAISED VALUE (they pick the appraiser).

Do you think these properties still exist in todays market?Do you think this scenerio is exclusive to your area or are these deals just about everywhere If you look hard enough?

Yes, these properties still exist in today’s market in 90% of the US, although I’m sure that they are much harder to find in the boom markets. If I were in a boom market with explosive appreciation, I’d just tape the real estate classifieds on the wall and throw a dart to determine which property to buy. EASY! (just like on TV) Here in the midwest, we have to work a little harder to make money.

You mentioned you wanted to get 10 a year and it seems you are on track , actually ahead of schedule,Why do you think others have not found your secret for the rates you are purchasing at in your area? Lack of competition? Just an abundance of properties?It seems Like a lot of great deals for one individulal for one area.Whats your take on this?

Most will never be successful because they don’t know the SECRET to achieving success. I’m going to tell YOU, but please don’t tell anyone else - we don’t want just ANYONE to have this information. The secret is that it takes hard work and persistence to succeed in just about everything. My first year, I worked very hard (10 to 12 hours per day, 6 days a week). Now, a little over 2 years into this adventure, I still work 8-10 hours a day, 6 days per week (with some breaks for mini-vacations). I will keep this up for another couple of years, at which point I really will be able to work a LOT less and still live well.

Good Luck,

Mike

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Again another steller insight on how to make it :DThank you ,One thing IM having difficult with understanding is in 5 years and holding 50 units and the goal has been met .who is going to manage these things without hiring a prop manager to chew up profit or us to chew up our retirement?

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Yeah, or would you sell off (taking advantage of the appreciation)(while the gov’t is taking advantage of you) and retire on the cash??

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Once I reach my goal, I will still manage the properties myself. I have absolutely no plans to ever “retire” which is 20th century industrial age thinking in my opinion. My goal never has been to work for a company for 30 years and then sit on my rear for the next 30. What would I do if I did retire - watch soap operas??? Although I work hard now, I have complete freedom to do whatever I want (except the first 4 days of the month when I collect rent). I’ve taken several mini-vacations during the winter (ski trips) and can set my own schedule (going skiing today). Laziness is not one of my faults and I get very bored quickly if I don’t have something to do. In addition, I enjoy running my business and look forward each day to getting into something new.

After your business is stabilized, very little effort is needed to manage the buildings. That’s why I believe that propertymanagers are too expensive. The real work is growing the business, doing the initial rehabs, and getting the initial tenants in. After that, it’s very easy.

The problem with selling out, is that you have to pay the taxes on the gain (there goes half of your money) and then you’re left with a one time lump of money which probably wouldn’t last long. Then what?

Good Luck,

Mike

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Most people enter the RE world as a way to get rich quick. If there were ways to get rich quick without much work we’d all be rich already. The only way is Powerball ($250 mil jackpot tomorrow). At this point I don’t care if I make one dime off a rental I buy. Obviously I want positive cashflow but I’d gladly get stuck with one that breaks even, as long as I don’t have to dig into my own pocket every month. Even breaking even you’re holding onto something that WILL appreciate in value regardless of where you are or what the market is doing, eventually it WILL go up…it has to. You’re also building equity in something that you can eventually cash out, it’s not cash in your pocket instantaneously but it will be cash in your pocket at some point. I’d be happy knowing that I have money building up somewhere and happy knowing I am doing something positive for my future. I know I won’t be pulling down 6 figures a year from this thing by the end of the month and I’m fine with that. :slight_smile:

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Does your protfolio have a particular focus on lower end homes, higher end homes or a good mix of the two? I suppose that you have more maintenance issues and paint / carpet replacement costs but longer term tenants with lower end rentals but shorter term tenants and more vacancies with higher end rentals. What is your experience with this subject and what things do you look for in your rentals?

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I personally have sold out of cracktown for the simple fact that those people are just down right angry. And when they dont pay their rent which they normally dont they get pissed at you for chasing them to the store and tear your stuff up.STAY OUT OF THE HOOD!!!Yes middle class has problems too but in general nothing like the hood.2 different worlds.We dont and wont accept sec 8 housing.Yeah the check is there on the first but is the tenent?or your refridgerator?

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I currently have about half of my rentals in low income housing (apartments) and half in lower middle income SFHs. The low income apartments are only 1 step above war zones with the vast majority of these tenants not working. They typically have section 8 and receive SSDI, ADC, alimony, etc for their income. Many of these tenants have payees handling their money for them. These tenants are more labor intensive than those in SFHs and their life often resembles a soap opera. Drug abuse, alcoholism, and mental illness are very prevalent in this group.

The good thing about these rentals is that they generate excellent cash flow and there is a constant demand for the units. Also, since most of these tenants have Section 8, the rent arrives on time with little hassle. The bad thing is that they are more prone to damage things and when they get mad at you, they frequently call the health department, building department, and Section 8 claiming that you are a slumlord. In our area, these rentals go for $300 to $400 per month and we put in VERY few frills. In most cases, we paint the wood floors and don’t even include carpet! I only do month to month leases with these folks unless they are on Section 8.

Tenants in my single family houses are much more stable and typically stay longer than the low income houses. They do far less damage and take better care of the property. I normally do not hear from SFH residents during the month and spend much less time dealing with them.

I do not have any upper-middle or upper class houses. In our area, almost everyone in these economic brackets owns their own house.

Good Luck,

Mike