11 Doors, 13% Stabilized Yield, Town of 13,000?

Question

I'm nervous to post here because I'm new to this forum and don't know exactly where to start...

So, I'll just layout my thesis & some numbers and let you pro's shoot holes in it. I'm looking for you advice with my overall strategy and garner any experience you might have to save me from learning the hard way.

I've started, grown & sold 4 companies over the last 15 years (two PE exits). This has created a cash position and freedom that's allowed me to start my journey into RE.

Currently, I have 11 doors under contract.

Deal 1: 4 Plex (it's stripped down to studs, a guy ran out of money on the rehab)

Purchase price 160k, Rehab 80k, Total all in: 240k

Expected Rent: $4,000/month to $4,400/month depending on how quickly we want to rent the units out.

Deal 2: Duplex (older home that needs TLC in good location)

Purchase price: 120k, Rehab 40k, Total all in: 180k

Expected Rent: $2,400/month to $2,700/month

Deal 3: 5 Plex (is that even a word? lol)

Purchase Price: 115k, Rehab 150k, Total all in: 265k

Expected Rent: $4,000/month to $4,400

I hired a real estate investing coach to help us build out the budgets for these 11 doors.

I'll save you the details but...

Per door cost: $63,300

All in Cost: 700k

Total Revenue: 137k(ish) annually

NOI: 65-73% (in the expenses we included: insurance, taxes, $75/month per door repair expense, management fee 8%, grass cutting, & a misc fund for random crap business license, etc.)

Now... Here are my questions:

1: this market is a middle georgia small town.  The management companies & local investors usually lease places up within 1-2 weeks max (depending on if you want to hold out of higher rents) How would you think about leasing these out?  Would you rather maintain a higher price for 4-8 weeks and look for a premium or would you rent it quicker with a lower price?  What's the strategies on this?

2: bigger picture, I could probably find 100 doors like this in this same market. The current status of the market is low end rentals land lords that let the houses look like crap. If I could find 100 doors and put together as a group, what do you feel the exit potential is on this? This town is growing and probably 10 years out from being fantastic. They just got chickfila, aldi, walmart, home depot, etc etc within last 7 years. Have you seen anyone do a strategy like this in a smaller town and exit the entire portfolio? Or, should I focus on just holding these forever type deal and build a cashflow monster?

3: I have no idea how to determine how much to borrow verses pay cash? I have a few banks and family offices I've worked with for years that will definately do the deals with me. How should I think about cash vs. equity?

Overall: The thesis is... Enter a strong rental town with lower cost housing, fix it up nicer than most stuff in town & lease (and repeat over and over).

I know I talked a lot but I'm geniunely looking for any advice or blind spots in my strategy. Any thoughts?

Corey Conklin · Answer

This is almost an exact match to how I'm investing.

This strategy isn't talked about on BP forums as it goes against what many investors believe when it comes to good markets. I am convinced that these markets are the hidden gold mine in RE investing today.

I had the same question when it came to my exit strategy. Will someone buy the entire portfolio when I want to exit? Who knows, but what I do know is that they will be cash flow cows when I decide to exit so that helps mitigate that risk. Another thing I'm doing which is against the grain is only investing in SFH. It gives me another exit strategy by having the option to sell off individual properties to retail buyers if needed. I am also a huge believer that with massive affordability issues in cities people will start to migrate to smaller towns that they can afford. (I'm already seeing this in the towns I am currently invested)

I know this hasn't really answered your question but I've been doing this for almost 5 years and it's working out well for me. (I've also seen some older investors in my area do really well with a similar strategy).

My advice would be to keep leaning in on this strategy and let the other investors battle over investing in Cleveland and Detroit.

Travis Timmons · Answer

Stabilize this one and go slow. Nothing fails like success. I have sold a couple of businesses as well, and speaking from experience, you are never more vulnerable to make a mistake than when you are sitting on a giant pile of cash.

Also, I agree with @Corey Conklin - I'm a big fan of "overflow cities/towns" in the sun belt. Go where the population is growing 5-10% per year (even though it is a small denominator) over chasing year 1 cash flow in a stagnant/declining market.

Jaycee Greene · Answer

Hey @Casey Graham, welcome to the BP Forum! Great detailed description of your deals - I wish I got this level of detail from my CFO clients. One thing I didn't see was the ARVs. Is $800k a good estimate (~ $73k door)? Here are my responses to your questions

1) Not my area of expertise, but the numbers on this are very strong

2) I'd generally lean towards building the CFM, but strategically selling some properties when someone gives you a offer you can't refuse.

3) Most HMLs would lend you 75%-85% of your purchases prices plus up to 100% of the rehab costs (though some HMLs like to see the rehab costs at or below the purchase price). Then after the units are stabilized (perhaps with some seasoning), you could get a bank/HML to refi this up for 75%-80% of the ARV.

Jake Baker · Answer

@Casey Graham

Aggregating 100 doors in a growing market could create significant value for an institutional buyer. The key is to standardize property quality and management systems, which would appeal to buyers seeking scale.

If you’re thinking long-term, holding these properties for cash flow while leveraging local appreciation is also a strong play. A mix of short- and long-term strategies could hedge against market shifts.

Borrowing allows you to scale faster, especially if you can secure favorable terms. For example, using 70-80% leverage could preserve your cash for more deals while maintaining strong returns.

A blended approach might work: pay cash for smaller deals to avoid delays and borrow on more significant properties to spread risk.

Casey Graham · Answer

Thank you for this.  Your model is awesome.  I believe ARV will be higher than this but starting at 800k is a safe and conservative number.  I appreciate you feedback.  Quick question... When you say "perhaps with some seasoning"... I am assuming that means... After time of showing quality rents and low vacancy rates?

thx again for helping with my first post lol

Corey Conklin · Answer

@Casey Graham I have used traditional lending for my properties. My wife and I have good W2 jobs currently so we get better terms with traditional lending in comparison to DSCR lending.

Casey Graham · Answer

@Travis Timmons good word.  I appreciate your feedback.  I agree, in the entreprenuer world... speed matters.  I'll heed your advice and stabilize these 11 before taking on more.

Casey Graham · Answer

@Ericka Parrott interesting.  I will reach out today! Thank you.

Casey Graham · Answer

@Corey Conklin thanks for the follow up on this and the confirmation it's workin.  I agree that some of these smaller towns have great buys and strong rents.  question for ya... Do you use traditional financing or do you us DSCR loans? thx

Drew Sygit · Answer

@Casey Graham

1) Your #1 goal with tenants is consistently, smooth cashflow. Thus it's often more profitable to find long-term tenant than squeezing out every rental dollar you can. - RentReady repairs & vacancies between tenants can blow any projected ROIs.

2) Warren Buffet - go where others aren't. You may also be able to "make your market" if you can hit a critical mass. Dan Gilbert did that by snapping up a large part of Downtown Detroit.- If you build a good/great portfolio, you will have multiple exit options you can evaluate annually or whenever.

3) Don't overleverage beyond your risk tolerence. Be sure to have funds you can tap in case of emergency or inevitable market dips. - Most Fortune 5000 (and others) companies do this. They always make sure to have line(s) of credit to get them through challenging periods.

11 Doors, 13% Stabilized Yield, Town of 13,000?

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