My 2015 Goal : 50 Units by end-of-year
Current portfolio metrics :
10 Properties
15 Units
17.15% Un-levered ROI average per home
56% Average equity increase per rehab
This is a hybrid kind of portfolio. Our plan is to buy SFD & Multi-Family properties from now till around 2016-2017, at which time we plan on liquidating SOME of the SFDs to pay off some of the underlying debt that we will accumulate through the process. This is of course if the market sees appreciation. If we don't see large amounts of appreciation (And are unable to purchase properties that don't hit our minimum of 14% ROI).
In 2014 we added 8 properties for a total of 13 units.
Unlike many rehabbers, we "Do all our own work" in a sense that I don't contract all the labor out myself. My goal has been to try and do all the work internally on our properties so we can add even more equity to each deal via wholesale labor. This has worked out AWESOME as we've increased our net equity in each deal by 56% over each purchase. Many people ask us "Why not just flip them", however at the time we can refinance the property for 80% LTV based on the post-rehab value. This allows us to cash them out for more than what we paid, pay that money forward on the next property while still collecting fantastic residual returns.
Right now we're in contract for 2 properties, they are expected to close the first part of January 2015, so these will be added to the 2015 goal. This will bring us to a total of 12 properties @ 17 units.
With a rate of 1.5 units per property in 2014, we will need to raise this significantly in order to hit the 50 unit goal. If we are able to purchase & rehab a total of 15 properties at an average of 2.33 units per property we can hit this goal. This would best be achieved by getting a few quads or higher unit count properties (Commercial rather than MF residential). We do have a 4plex and 5plex we are looking at purchasing next year, which would take us to 26 total owned units.
The hurdles we expect to deal with will be primarily on the financial side, dealing with taking out equity on properties we already own for cash. Even though we have fantastic equity in our properties, banks are still somewhat slow to lend. We will need roughly $750k-$1.25m to hit our unit goal over the next year. This is a good deal of debt to take on in our area.
In this post I'll be detailing what kind of deals we look at, purchase and the various problems we encounter to hit our 2015 goal!
Totally didn't realize they didn't allow post edits after 15m to the original one. Oh well. Took me more than 15m to make this bad boy :D
Good luck, awesome goal to set! You mentioned the financial issues you have to hurdle with the bank. Any other financial issues that you're able and willing to discuss in detail?
@Brandon Schlichter good luck on the 50!
@Brandon Schlichter .Go for it!!
Originally posted by @Joe Bushman:
Good luck, awesome goal to set! You mentioned the financial issues you have to hurdle with the bank. Any other financial issues that you're able and willing to discuss in detail?
Our hurdle is the fact that even though we have tons of equity (All our properties less one is owned by cash) we have only 1yr of track record behind us. Virtually all banks less this one have wanted to see 2yrs of cashflow before they would lend to us. The bank we're working with is great in terms of loans themselves (80% LTV, 5.25% on 20yr amortization) however since they're a portfolio lender they're looking at every single deal rather closely. Not that I mind it, however even using FNMA guidelines (25% gross rent as repairs + Taxes + insurance) for debt service, they're still wanting to see us cash flow strong enough to pay the properties off in 10yrs even though the loans are for 20 years. It puts me in a somewhat uncomfortable position as I want to expand as rapidly as possible while property is still rather affordable.
@Brandon Schlichter Wow! Great job so far! Very impressive! If you wouldn't mind, would you explain more in detail how you are able to achieve this level of growth with very little conventional financing? If I'm understanding this correctly, you buy a distressed property on the cheap (presumably with cash), rehab it and average 50% increase in equity, rent it out, then do a cash-out refi. Then rinse and repeat. Is that right?
How did you get started on your first proprety? Conventional loan? How long do you have to wait before a bank will allow you to refi?
This is really good stuff and I'd love to hear more from you.
I was able to attract several unconventional investors. They were able to fund me up to around 8 properties total with the understanding from that point onward, I would leverage the portfolio via traditional banks so they could increase their yield.
As for your plan, that is correct. We buy properties that would make good rentals, but also would have a good deal of equity in them post-rehab. So far all our appraisals have come in well over what we have in the properties, so the cashout amount is higher or equal to what we have in it. This *should* create a lather-rinse-repeat type of setup as long as we maintain similar margins on each property. It's similar to what 3-4 investors I know of locally are doing with cash from their retirement (Granted they're staying in one county, doing one property every quarter, and going only for class A neighborhoods).
So far there's been no seasoning requirement since we've gone in with cash.
Good luck!!! Keep us posted on your progress.
Good job so far, my compliments.
May I just ask which financial institution is actually facilitating you in financing the properties on the after-rehab evaluation? I am a convinced fan of the buy and hold strategy, of course with this financing strategy implemented which is essential.
So far I had problems in financing that way as I have been proposed to get a certain % of the value, intended as the lower between the purchase price and the appraised value. Which of course does not work. Otherwise, I was supposed to wait for one year to base the evaluation on the appraiser only, which is not my intention.
Therefore I am currently reselling but I guess tax impact will be not so nice in the future.
Thanks for any info and good luck for your target
F
this is a very small portfolio lender that operates in south east Ohio. If you're in the area you can message me and I'll get you in touch, otherwise they only lend in 6-7 counties.
The purchase price or Arv, whichever is lowest is common it seems among large lenders who sell their loans. However there are at least 4 lenders in my are that will loan on Arv without seasoning, IF the purchase and rehab are done with cash or via line of credit.
I see thanks for info, I need to dedicate some time to this search, I am based in Florida therefore I need to find the equivalent in the area.
I will find a way or another…
Keep in touch
#2 General Real Estate Investing Contributor
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- Toledo, OH
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#2 General Real Estate Investing Contributor
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Originally posted by @Brandon Schlichter:
Current portfolio metrics :
10 Properties
15 Units
17.15% Un-levered ROI average per home
56% Average equity increase per rehab
This is a hybrid kind of portfolio. Our plan is to buy SFD & Multi-Family properties from now till around 2016-2017, at which time we plan on liquidating SOME of the SFDs to pay off some of the underlying debt that we will accumulate through the process. This is of course if the market sees appreciation. If we don't see large amounts of appreciation (And are unable to purchase properties that don't hit our minimum of 14% ROI).
In 2014 we added 8 properties for a total of 13 units.
Unlike many rehabbers, we "Do all our own work" in a sense that I don't contract all the labor out myself. My goal has been to try and do all the work internally on our properties so we can add even more equity to each deal via wholesale labor. This has worked out AWESOME as we've increased our net equity in each deal by 56% over each purchase. Many people ask us "Why not just flip them", however at the time we can refinance the property for 80% LTV based on the post-rehab value. This allows us to cash them out for more than what we paid, pay that money forward on the next property while still collecting fantastic residual returns.
Right now we're in contract for 2 properties, they are expected to close the first part of January 2015, so these will be added to the 2015 goal. This will bring us to a total of 12 properties @ 17 units.
With a rate of 1.5 units per property in 2014, we will need to raise this significantly in order to hit the 50 unit goal. If we are able to purchase & rehab a total of 15 properties at an average of 2.33 units per property we can hit this goal. This would best be achieved by getting a few quads or higher unit count properties (Commercial rather than MF residential). We do have a 4plex and 5plex we are looking at purchasing next year, which would take us to 26 total owned units.
The hurdles we expect to deal with will be primarily on the financial side, dealing with taking out equity on properties we already own for cash. Even though we have fantastic equity in our properties, banks are still somewhat slow to lend. We will need roughly $750k-$1.25m to hit our unit goal over the next year. This is a good deal of debt to take on in our area.
In this post I'll be detailing what kind of deals we look at, purchase and the various problems we encounter to hit our 2015 goal!
Awesome stuff Brandon,
Love your end goal for 2015.
We are looking at doing 100+ flip in 2015 and I would like to buy with cash and hold 1-2 multifamily or commercial complexes.
Thanks and have a great day.
The toledo area is pretty interesting. Even though we're less than 2 hours away, our market is quite different.
The county I reside in had around 550 residential sales in 2013, the second county I'm in was around 800. Of these, maybe 5% were possible investments.
To update, we've got the 2nd property in contract (officially).
Here's how the deals look :
Property #1 - Purchase Price : $20k
Rehab : ~$20k
ARV - $65k
Potential rent - $950
Taxes - $76/mo
Insurance - $85/mo
Repair escrow (15% of gross rents) - $142.50
**********************************************************
Net income without leverage - $7763/yr
Net Income with 100% LTV cashout (5.25% @ 20yr) - $4523/yr
19.4% COCROI
Property #2 - Purchase price $15.5k
Rehab - <$7500
ARV - $40k
Potential rent - $600/mo
Taxes - $40/mo
Insurance - $50/mo
Repair escrow - $90/mo
************************************************************
Net income without leverage - $5040/yr
Net income with 100% LTV cashout (5.25% @ 20yr) - $3180
21.9% COCROI
#2 General Real Estate Investing Contributor
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#2 General Real Estate Investing Contributor
- Investor
- Toledo, OH
Originally posted by @Brandon Schlichter:
The toledo area is pretty interesting. Even though we're less than 2 hours away, our market is quite different.
The county I reside in had around 550 residential sales in 2013, the second county I'm in was around 800. Of these, maybe 5% were possible investments.
To update, we've got the 2nd property in contract (officially).
Here's how the deals look :
Property #1 - Purchase Price : $20k
Rehab : ~$20k
ARV - $65k
Potential rent - $950
Taxes - $76/mo
Insurance - $85/mo
Repair escrow (15% of gross rents) - $142.50
**********************************************************
Net income without leverage - $7763/yr
Net Income with 100% LTV cashout (5.25% @ 20yr) - $4523/yr
19.4% COCROIProperty #2 - Purchase price $15.5k
Rehab - <$7500
ARV - $40k
Potential rent - $600/mo
Taxes - $40/mo
Insurance - $50/mo
Repair escrow - $90/mo
************************************************************
Net income without leverage - $5040/yr
Net income with 100% LTV cashout (5.25% @ 20yr) - $3180
21.9% COCROI
Nice figures Brandon,
We have similar numbers all day long here in Toledo.
Thanks and have a great day.
Subscribed!
Awesome work! Can't wait for future updates! Good luck!
That's great Brandon! I have a goal of 10 properties in Toledo by end of 2015. Best of luck in your pursuits!
First issue to show up with #17 - Someone went in and stripped out the copper between the time of us making the offer and to today.
Guy went in with bolt cutters from the look of it and cut out the main water line that was copper as well as the wiring from the service pannel. Hopefully we can re-negotiate pricing with bank a bit to compensate it. We had planned on doing a good deal of the plumbing anyway, but the wiring is a whole different issue as most of it was rather newly done. They pulled it out in such a way that we'll need to get in the attic and feed it back down to the old switches/lights.
Great Job So far! Good luck on your goals!
Closed on #11 last week. Title fees were really high, but it wasn't too bad as HUD let me close with a local company rather than their statewide title company. $21k or so into it for purchase, still a $20k estimate.
Had to go take photos of #12's copper damage, bank and agent did admit it was since our offer. Took $2750 off purchase, and my contractor quote was well under that. My hope is that we can still get it rehabbed under $10k. Total price would be $12,750+$10,000 to complete #12.
Bank called me this morning and reported to me the triplex we own has a finished appraisal. Appraiser came in at $2k under my own estimate. Very good news as I didn't have much contact with him at all, good to know that my valuations are decently accurate. Using this refinance to buy more property. Now will have enough capital to buy 2-3 more houses.
Very excited, will likely look at a candidate this week, maybe two. One is a small 2br sfd I could maybe get for $15k and put $12k into it. Very high growth area and by far worst house on block. Another candidate is a duplex bringing in about $900/mo in good shape for $39k. Other is a duplex that needs work. Asking $39k with maybe $10k in repairs, potential rent of $1100/mo. All good money makers.
One thing I'd like to mention here now that I have the appraisal in hand is that I feel it's very, very important to build a good valuation model into rentals.
On our first property, we sunk a great deal of money into it. Purchase was $27k, rehab put us up to $62k or so in the property total for a return of $1k/mo with around $600 of that being NOI. The return is low overall for our portfolio, however the reasoning behind it was that the property had a ton of equity that we could later cash out (My internal estimate was $100k-$120k after rehab). A year later, we used the property for a line-of-credit, and the valuation came in right at $100k. This allows us to cash-out roughly $20,000 over what we put in it. A model like this is somewhat less profitable than buying a bunch of duplex/multi-family high-income properties.
As a comparison, this new triplex came in at a value of $78k. We bought it at $67k, put $4k in the vacant unit which we then quickly rented out for $360/mo putting the property to a total of $1360/month with NOI being a little over $850/month. The property is a GREAT money maker, however the value was never really there. So if we did it the 'conventional way' (meaning purchase via mortgage, rehab it with cash reserves) we would have had a total out of pocket cost of $17,400 with a remaining mortgage of $53.6k, and a NOI (After mortgage) of $500/month. Not a bad return for $6k/yr on a $17,400 cash investment (If you're wondering it's a 34.4% yearly ROI). However those cash reserves have to come from somewhere, and without a good deal of money coming in, you quickly run out of cash and have to wait a while, maybe years, for it to build back up.
@Brandon Schlichter I had to double check your purchase prices on your two deals, 20k, and 15.5k....you couldn't buy a burnt down shed for that amount out my way. I know your putting in more money after the fact for rehab but its still crazy to see the price differences.
Either way it was a great read, good luck in 2015.
Property #11 is still awaiting rehab. We have a few projects from this year that need to be finished up before we get it started (3 units total need work before they can be rented out). The team working on them is a bit slow but a significant amount of progress has been made.
For #12 we took on a new contractor (my cousin) who has a ton of experience in these kinds of renovations. So far he's blown through the work and has a great deal of it done. Hoping to maybe have it done within 2 weeks from today.
Now for the problems............
The bank we originally had everything through was purchased a few months ago by a larger, yet regional bank. I had been told that there would be few or no effects to my account & our loans. However I was called this week and told they want to put a hold on any subsequent loans and utilization of our line-of-credit till we file 2014 taxes. They also want us to pay the balance of the LOC down to $0 before we utilize it again. This year we have not maxed utilization out ,and used refinances to pay off the LOC, however it seems the new bank may take issue with the LOC not being paid down fully between purchase rounds.
This would be OK normally but i'm kind of bummed about not being able to get a new house in contract to keep the rehabber on property #2 busy since he's great and I want to lock him up for us in terms of work.
So, my hope is to get taxes filed and it processed all, however we may start looking for a new bank if they take further issues with the way we're running things, or don't like our 2014 taxes.
Side note : I'm doing a live rehab blog at : http://investmentjoy.com
No progress on the new property front. So far this month we've been wrapping up outstanding jobs to try and get us down to just the one big SFD we bought that needs boatloads of work.
Two weeks prior have been pretty good, however today was pretty tough. Got a call from a bank early on whom we had delt with in the past. I had applied to cashout a few of our un-mortgaged properties. They turned the loans down to wanting 'more managerial experience' and were worried as we bought so many properties so quick. Maybe I'll be able to answer and fix it, I don't know but we'll have to see.
Other bad news today was that one of our properties got broken into and supplies/materials I had inside were stolen, to the tune of $1,000 worth. Sucks greatly, should have installed a alarm system.
Good luck on hitting your goal this year @Brandon Schlichter My goal is 10 rentals in the Baltimore area.