Small deal, but 100%+ financing

[Cody L.]

I don't normally buy small deals, but if they're in my area of Montrose (the hip area of Houston), I'll snatch them up. This was a 10 unit that was actually on the MLS (so no 'off market' know-a-guy type deal). Lucky for me the lady selling had no leases, no financials, and all offers had to have no financing contingencies. That rules out most buyers. Doesn't rule out me as I don't rely on seller financials and I know how much per door it should be worth.

I wasn't the highest bidder but I was willing to do $200k hard day 1 and close in 7 days, so I got the deal (they only did one day of showings and had 21 people show up and 11 offers)

I paid $815k.  Before I even closed I was offered $1.1m (I countered at $1.2m, they passed).   Point being, it was a good deal.  Right after I closed I started the refinance process, which just concluded.  It was appraised for $1.1m as is and $1.3m 'as repaired' (as we're upgrading some items).  A bank just did a loan for $900k.  Meaning I now own this property with $0 out of pocket, and in fact, extra $ in my pocket (so I can rinse/wash/repeat)

The property easily cash flows with this debt, and it's in a hip area so I can count on good appreciation.  This is the forth deal this year to be closed cash, then refinanced where nearly all or more than all my cash has been returned.  I posted about my downtown deal where I paid ~$2.1m, put in about $300k, and 2 months after buying had a $2.5m loan. 

Moral of the story:  If you can get yourself in a position to buy something quick and aggressive using cash (admittedly easier said then done -- maybe F&F?  Investors?) it's not that hard to get a deal that you can refinance and get all your cash back to do the same thing over and over and end up with a nice collection of cash flowing properties with infinite returns. 

[Cody L.]

Originally posted by @Mike H.:

It is some great stuff. But I wonder about some of the details

... How do you manage these types of "smaller" properties? Hiring a PM? If so, what kind of rental profits are you seeing with a PM?

... You passed on a quick flip of making about 300k less closing costs. So again, I wonder what type of cash flow you're seeing once you refi all your money back out. 300k seems like a nice win to pass on.

.. As a SFH buy and hold investor, I won't part with any of my houses but 300k would be tough to pass on. I'm assuming your goal is to build up as much passive income as possible and when you're adding in chunks of income like that with no money out of pocket, there's no reason to sell.

But I would be interested in seeing your numbers once you refi and understanding how much is left once you do.  I know with sfh, I try to be little to no out of pocket but my net rental income at that amount tends to be between 150 to 200/mo per house.

--- Lastly, I would add that the smaller mf is probably a good niche as you aren't having to compete with a bunch of deeper pocket investors who only want the big stuff. That and the fact that you can pay all cash and close quick has to be a huge differentiator in getting the deals or not.

But most of us don't have 800k that we can throw in the pot. If we did, I'm guessing many of us wouldn't have gotten into real estate investing to begin with. :-)

I love the idea of what you're doing. Its basically the big boy's game of what I'm trying to do. Grow my income with as little money out of pocket as possible. I'm just curious as to how much income you're gaining in those size properties with that much leverage. And envious that you have the capital to take deals down that someone like me could only "what if" to death. :-)

Great share though! I love seeing people picking up free money like that. Effort and analysis go a long way to building wealth. 

 How to manage:  I have a property management company that I own, our HQ is near by.  They manage, from that HQ, all our smaller properties in that area.  Larger properties outside this $ area normally have onsite management offices or are managed by whatever manager is at a large property near by.

Quick flip:  The reason I turned it down is that would be about what I'd need ($ per door) to buy another property like the one I bought.  So while it would seem like a win, I'd end up taking that $1.1 and likley finding another 10 unit at the same $1.1m price.  In fact, there is a 10 unit 2 doors down that they want $1.3m for.   Rather than take a $300k profit I'd rather refi and get 100% of my $ back and keep the property.  

Goals:  Yes, I hate selling. I normally only do so if the price is so crazy I can't pass it up (in this case, $1.2m would have been the "I can't pass it up" price where as $1.1m was the 'eh, that's likley market).  I don't look at what I'd make, I look at what I can do with taht same $ and if I can at best roll that $ into a like property at a like price then did I really make anything?

Rest:  I'd like to think if I didn't have the $ in my bank to get it, I could have convinced F&F to loan me the money.  You have to be ready to pitch yourself and your deal to people you might know looking for a return.  In this case, if that's what I had done, I'd likely have taken the $300k, paid my investors back with a nice kicker, and went on to the next deal.  Paying all cash is easier said than done till you have a track record.   I've been doing this for 11 years now.  I started by buying the $24k house that I pt $18k in and sold for $75k.   Then moved up and up.   I'd never claim it's an overnight thing or something easy to do day 1.

Best of luck!!