First Long Distance BRRRR

[Amie Gray]

Hi BP! 

My husband and I are in are 50s. We are looking forward to retirement but concerned about our ability to weather the stock market swings over the next 25 years and maybe more. We have two kids; our son is just about to finish college and he's very excited about real estate. Last October, his excitement led us to dig into Rich Dad, Poor Dad -- Long Distance Real Estate Investing -- and countless other books, articles, podcasts, forum posts, etc. We live in Silicon Valley California and it's lovely. We have grown up with traditional W2 jobs and we are not expecting any inheritance. Through years of 50+ hour weeks, lots of travel, and raising 2 kids, we actually managed to save money, most of it invested in the market. With our limited knowledge, a sketch of a plan, and about $500k in cash, we decided Florida (our future home state) was a good place to start. Our goal is to have 15 houses by the end of 2019.

Between January and March of 2019, we bought 2 homes in St. Petersburg and 6 homes in Jacksonville. They are grouped into an LLC structure. Although we strayed a little bit over our budget, by July 2019 all but one was renovated and rented. That one house that still isn't renovated 8 months later -- many lessons learned about general contractors and prepayments. Ugh!

In April, we started looking for non-recourse refinancing options. While we have been successful business people during our careers, that didn't help much with real estate investing. Banks wanted us to put up personal collateral, guarantees and like, to reduce their risk. I get that, but it wasn't want we wanted. My husband did a lot of calling and calling, until we found a lender. 

Meanwhile, the rented units had stabilization issues. Even after the renovations, we replaced multiple A/C units, we complied when tenants asked for small items like a doorbell and back porch light, we sent one tenant to a hotel on a Sunday night because the septic tank was backing up - yuck! 

Lessons learned: 1. we are very thankful to our dutiful property managers and local real estate agents that care, 2. we need to set up additional funds (which was a LoC) for the few months following move-in to see what happens when someone is living in a house we thought was completely A-Okay, 3. we need a better renovation construction plan / checklist / punch list inspection process. 

Rents in aggregate are just over 1% of our all in costs for this tranche, so we felt confident that we would have the cash flow to sustain a loan. After $20k(!!!) of refi legal fees and more, we closed the loan last Friday and cashed out 75% of our capital after all fees, plus prepaid taxes and insurance. 

We are already moving on the second tranche. We have one house ready to rent in New Port Richey, FL, and under contract for a house in Jacksonville, and moving the last unfinished house from Jacksonville into the second tranche since it wasn't part of the first refi. Looking to buy 2-3 more homes in the next few weeks in the New Port Richey / Tampa Bay area, so we can kick off the refi on the second tranche asap! 

It's been tough getting this business off the ground, including legal, bookkeeping, acquisitions, creating the team, managing through problems, and keeping cash in the right places. But now, the first of the month has a whole new feeling! 

Happy to answer any questions. Look forward to meeting folks at the Bigger Pockets Conference in a few weeks! I would love to get to know more people in the community. 

Best, 

Amie

[Jay Hinrichs]

so bottom line what is your net cash flow after all of this and how much debt are we talking million plus ?

[Amie Gray]

ARV is $703k, Debt is $527k, Cash flow is $1k/mo positive

[Jay Hinrichs]

Originally posted by @Amie Gray:

ARV is $703k, Debt is $527k, Cash flow is $1k/mo positive

must be nice places that you expect appreciation to bring your IRR up to make It worth all this effort and being that far from home.

i know insurance can be a killer there on cash flow.. 

best of luck to you. !!!  

[Amie Gray]

@Jay Hinrichs

Thanks for the comments. The bigger kicker than appreciation is taxes. Looking for depreciation loss against W2 income in the next two years.

[Jay Hinrichs]

Originally posted by @Amie Gray:

@Jay Hinrichs

Thanks for the comments. The bigger kicker than appreciation is taxes. Looking for depreciation loss against W2 income in the next two years. 

I hear ya.. basis is 530k  / 27.5  gives you about 20k of write off and saves you probably 7 to 8k in tax.. so yhttps://www.douglaslake.com/la..   

[Leslie Alessandra]

Congratulations Amie! You and your husband really dove into the investing world. I just recently purchased two multi-family properties in the St. Pete area and am working to renovate them. I bought a quadplex in historic uptown for 205K and am currently renovating it. The apartments were getting approximately $900 each before renovations, so I'm hoping to increase this by at least $100 to $200 when done. I also bought a duplex for 164K and am running it as an airbnb. I've just now started to look for a third property and was considering looking into the Jacksonville area. Any pointers for where to start? Or things to consider? Are there neighborhoods I should avoid?

[Amie Gray]

Hi Leslie, 

I would be happy to introduce you to the Jacksonville local experts I have been working with closely. Please message me with your contact info if that would be helpful. 

Amie

[Caroline C.]

@Amie Gray Congrats! Having a pool of properties is great so that you have a few others to back you up when a big repair is needed or you have a costly turnover. 

You said you were happy with your property management, but keep a close eye on that and how they respond when there are issues, because poor property management is what can kill you in the end with poor tenant placement, poor communication when tenant falls behind on rent, or passing on costly repair costs. Don't hesitate to change pm if you find issues with current PM. I'd recommend researching backup pm's, so you are ready to make a move if it ever becomes necessary. And don't sign a contract with a PM that doesn't allow cancellation with 30 days notice.

[Adit S.]

@Amie Gray

Do you have any good recommendations for realtors/contractors/property managers/lenders in the Jacksonville Area.

What areas would you say to avoid? 

Thanks so much for taking the time to share this with us, it's very helpful and I'm super excited for you!

[Simon Collins]

I’ll throw this one out there for a property manager.  Owners name is Eric and I meet him at church at a men’s breakfast.  I don’t personally have any properties managed by him but he is a very nice family man and I would definitely look into him if I ever needed that.

Google red rooster property management for his website.

goodluck!

[Mark Fries]

@Amie Gray

@Jay Hinrichs

That was a really great story and it's exciting to see other people's experience in Jacksonville but it's hard for me to grasp doing all of what you did just to gain a $1000 a month in cash flow? Appreciation is nice and there's a multitude tax breaks but seems like a really hard way to make a $1000 a month..