Step by step is proving fruitful

[Craig Barnthouse]

Hello to all,

I just recently introduced myself to the forum and decided that I’ll take a moment to provide some background and forward looking information as to my involvement in the R/E investing world. Perhaps it may be useful to someone else with a similar position in life.

I am 49 years old. Once I arrived in my 20’s I entered the world of retail management and spent many years moving through the ranks of various retail companies, mostly apparel. In about 1998 when I was about 34 I made my way to the world of corporate Convenience Store / Retail Gasoline management with a large regional chain here in FL. After a time I progressed, changed companies and ultimately bought my own group of 11 locations in early 2011. I rehabbed the operations and sold them late in 2012.

It was then that I decided that I could either invest my cash in one of many markets, start a new enterprise or take control of my investments by actively managing them myself. My wife and I agreed that we were exhausted with “high risk” situations that demand a ton of capital and that we would much prefer to manage and control our own investments. Hence the beginning of my research into real estate investing.

Through my business experience I had been involved in 40 or 50 buy and/or sell transactions of retail locations totaling just over $16 million so I had a good sense of deals and terminology but these were mostly deals done with other peoples’ money to the benefit of other people. We decided that this endeavor would be handled with the same amount of preparation, research, trepidation and care that I would have used in any former business.

So I began reading and talking with other’s who were involved in the residential real estate world. Not realtors...only investors who were using their own money and overseeing their own projects. I soon began talking with a guy who was doing just that. Except he owns and rents 19 apartments. All in very low end neighborhoods with very high tenant turnover. My wife and I were pretty sure we wanted nothing to do with being landlords but this guy had done several deals including his own rehab on everything and there was a lot to learn from him. Due to the nature of his properties, he had good monthly cash flow but not enough to amass any operating profit. In order for him to do new deals he needed to source funding. I had cash. It was a match made in heaven.

So to get started I agreed that I would do a 50/50 partnership on one house and I would also provide 50% of the labor on the rehab along with handling all of the administrative work on the project. Specifically all budgeting, tracking and record-keeping. My goal was to get completely immersed in all aspects of a property so as to get a “hands-on” education with very little risk. The catch........I agreed to do this on a vacant, boarded up foreclosure that had been vandalized and left for dead. We bought the house online at an astounding price of $11,650. After liens and wire fees the total purchase price was $13,160.90. My share was 50%.

We immediately began the rehab and literally did everything possible by ourselves. We only outsourced the roof, (which was a simple torch down), some general electrical work to get things safe and passable and the installation of the HVAC system. The previous system had long ago vanished.

Rehab was very involved with having to tear out the bathroom down to the floor joists, building new supports for the joists, running all new hot and cold water lined into the house to all points of distribution, all sheetrock work including ceiling repairs as a result of serious roof leaks, new sub-floor in kitchen, all new cabinets and appliances and of course all normal lights, fixtures and other cosmetic requirements. We also installed new landscaping in the front yard and painted the full interior and exterior of the house. This was a ton of work and luckily we are both pretty well versed in such things.

Because we did almost all of the work on this ourselves, carefully sourced the labor for those things we needed help on and purchased materials in the most penny pinching method you can imagine, our total rehab costs were $14,568.36 making our total investment $27,729.26.

This was a very tough neighborhood but one that did have a good number of owner/occupants scattered among a fair number of renters. We engaged a realtor who had specific experience in the area and soon sold the house for $52,000. After closing costs our proceeds were $47,071.24 for a profit of $19,341.98 or an ROI before taxes of nearly 69.8%. That will get ANYONE'S attention. This was an amazing and invaluable learning experience for me and encouraged me to continue my learning.

About 2 months after closing on the first deal I moved on to a solo deal for about twice the price of the first one which was brought to me by the realtor who sold the listing mentioned above. She had a client who was approved for a HUD loan and a semi-rural property whose seller refused to take a HUD loan. I stepped in, reached an agreement, bought the property, rehabbed to conform to HUD, (a story in and of itself), and sold to the couple resulting in a profit before taxes of $18,408.31 or 28.9%. The lessons learned on this one were again worth more than I could have imagined. One of which was the realization that I could handle this without a partner.

With these two deals under my belt I have concluded that I will keep on trucking with a couple of serious modifications. I will no longer provide a significant amount of labor on the rehabs. After these two houses I needed two should operations and just can’t weather any more injuries. Additionally, it is clear that with intelligent decision making there is plenty of money to be made and still engage professional contractors. Not to mention the amount of time I will save in the turn-around of properties.

I now have the third unit under contract and this is yet again a bigger project with a more involved rehab. Thanks to “The Book on Flipping Houses”, I have refined a bit of my methodology and feel like I’m positioned for a successful project. This will involve a GC, formal SOW, a proper schedule and a little labor from me. It will be really interesting to see how affected the numbers are from one approach to the other.

So that’s my place in the business as of now. Hope it provides some sort of assistance for someone.

[Elizabeth Colegrove]

Baby steps have been the name of our game from the very beginning. We started off buy a personal property that was a foreclosure cosmetic dump. We finished it right before we moved out. My husband was than transferred to California. During that time we had such a great experience we bought two more pure investments. When we were transferred to California we bought another house. Self management became a huge part of our business model. I learned how to handle that long distance. Now we have 5 houses and I am started a blog/website about our experience to help others. We certainly don't flow the model but by doing the southwest airline model. We have been very succesful in building baskets for early retirement.