Step 1 -- Determining My Farm Area & Assembling My Dream Team

[Nick Barreto]

So, here we go... I have saved up enough and I want to put it into my first investment property. After discussing with my girlfriend, we discussed a more local approach would be a safer move than trying our luck out of state as a “newbie” as I had originally planned. Let me just say, I’ve learned several different approaches for scaling Real Estate and I believe the saying is true; there is no perfect way to do it. So this gives me some room to get creative with my initial plans and gain some hands-on experience.

*Guidance, criticism, questions curiosities? Please feel to comment here or PM me*

How about I share the initial plans I had to get my toes wet with REI and then we can dip into the new strategy I'm currently working on. Starting early last year, I researched a community near Dallas/Fort Worth, TX. I had some family connections in that area so I was introduced to an agent, a contractor, and an old-timer handyman who claimed he knew the area better than anyone in town. Because I was not ready to pull the trigger at the time, I realized my inquiries were not nearly as important as the leads coming across their desks each day. For this reason, I shortened my conversations and followed up every month or so, so I wouldn't be a bother. I simply requested some specific property criteria and asked to be notified if something came up for a newbie like me. Because of my ‘Analysis Paralysis', I was not seen as a priority… Word of advice - know what you want out of the relationship and don’t be flakey with communication. If you need more time to analyze the property, simply express your concerns. Respect their time as you’d want them to respect yours!

Anyway, the properties we’re going to be BRRRRs and my property criteria were as listed:

General Property Criteria -- Dallas/Fort Worth, TX [Delayed]

1. Single Family Residence (SFR) → 3+ Bed, 2+ Bath
2. Listing Price- $60k-$175K (Distressed, mostly cosmetic)
3. Location - Decent Schools, High Walk Rating, Retail within 30miles.
4. Repairs - 10% Forced Appreciation in 1st year, 20% of the sales price is rehab budget
5. Expenses - Aim for <50% of Income
6. Cash Flow - $300+/Month

Enter: COVID-19. The pandemic struck a nerve in the global economy and when that happens, the housing market flinches too. “Uncertainty” became a motto of coping and with little hope of an end in sight, I too hesitated. This is when my girlfriend and I decided that in order to reduce travel expenses and time away, I’d look into another approach to get my toes wet. It may not be my preferred approach, but again, there’s no perfect way to do this, guys. So I made some changes...

On to my new strategy for the meantime and to establish some experience) -- *Local Fix and Flips. Ideally, seller-financed but next in line would be a low down payment and low-interest loan and quick rehab. The locations I am scoping out are areas bordering the “heavily competitive” Bay Area markets, which has been proven rather difficult; (Suggestions welcome). The goal is to put no more than $50k down with a ~$20k rehab with an ending $30k in profit. SOW would ideally take 1 ½ months and listed on the market for no longer than 1 ½ months = 3-month turnaround. My monthly expenses (and holding costs) calculation will take into account the property taxes, insurance, and mortgage payments, inspections, permits, utilities, possible delays, etc..

*Local = California, Bay Area outskirts & Beyond!

New Property Criteria -- Location [TBD]

1. Single Family Residence → 3+Bed/ 2+ Bath, Built in the 2000s, in Sellers Market
2. Listing Price → $300k - $500k (Distressed, Mostly Cosmetic, an eyesore for the community)
3. Location → Great School District, Good Neighborhood, Retail ~20miles (Seller’s Market)
4. Repairs → Forced appreciation for at least $30k Profit on the flip. Short SOW,
5. Expenses → Aim for quick close because of Taxes, Insurance, Utilities, Mortgage, Etc.

I got in touch will an old pal I knew back when I worked as a residential lender. He’s a young, hungry agent with years of experience and if all goes well will be the first addition to my Dream Team. We caught up and laughed while reminiscing and then we transitioned into some questions about his experience, goals, and a few nifty deals he's been able to surface over the years. He’s a good guy and we’ve had plenty of good times with, so I felt comfortable putting a bit of pressure on him. I let him know that this will ideally be an ongoing venture for me and that I plan to stick with the agent that understands the potential we could create as a team. I think it’s powerful to surround yourself with those that have similar interests in mind and I wanted that to be established. After working out a deal that would make us both happy, we virtually “shook hands” and agreed to circle back a week or two out. 

Agent’s homework:

• - Research some potential Farm Area, and up and coming neighborhoods,
• - Forward some properties that fit the given criteria,
• - Regather some previous knowledge from Investor clients,
• - Possible Financing options
• - Sharpen knowledge of Foreclosure procedures.

My Homework:

• - Research potential Farm Areas and analyze a few properties as examples.
• - Go over finances and organize documentation for the loan approval process.
• - Establish Property Criteria for local Fix & Flips
• - Ask the contractor (old mentor) for advice for my next steps when walking a property.

Summary --

With enough cash for the down payment, expenses, and rehab to spend on a flip, I am formulating a Property Criteria for a Farm Area in California that my agent and I will discuss after we each do some of our own research. My agent and I share a mutual interest; money! For his time and effort, I promised to help in any way I could, whether that be referrals or marketing. I shared my plans to scale and when I asked for his commitment to a long term business relationship to accomplish this he obviously couldn’t refuse.

What worked? --

Build rapport, establish mutual goals, delegate responsibility, offer continuous work for long term scale. Not only extract value from your agent but also present your value in return. It would be difficult to turn down a well-thought-out proposal that makes both parties wealthy, right?

I look forward to hearing your thoughts!

Nick B