$200k in six months - long distance RE challenge

$200k in six months - long distance RE challenge

Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes

I day traded currency futures in a past life and always kept an online journal to keep me accountable, share what I was doing with the community and have a little bit of fun.  

Even 10+ years later, I enjoy reading back over it, reliving the sweaty palm wins, the heart sinking losses and more importantly, seeing the evolution of my mentality and how I dealt with the highs and lows of risk, wins and losses.

With that said, I've set a challenge for myself to make $200k in equity over a six month period, June-Dec 2018, investing in a market that I know well but am not physically located in.

Details are below - enjoy.


Goals


1) Buy (5) single family properties in 2018 and get them refinanced into long term mortgages

2) Purchase under market and achieve a minimum of $40k in equity per property after all repairs are completed

3) Cashflow $250-400/mo after expenses & debt service per property

Funding

1) A single line of credit established on an existing single family property

2) Private money from existing private money lenders that I've worked with over the years

3) New lines of credit that I'm currently in the process of setting up on existing properties - probably will not be established until late August

Background

I work in oil & gas and I’m currently on assignment in Mexico and will be here for another 10 months. The area I’m focused on is Southeast Texas, where I know the market, rents are strong and rising, housing supply is limited and there is major industrial capital expenditure committed to the area over the next 10 years.

I'm an experienced investor, having built my portfolio almost entirely while abroad and avoiding turnkey companies.  I focus on building quality teams, finding decent opportunities and most certainly over-communicating. 

The Team

1) Project coordinator – my boots on the ground. This is our first project together but we’ve built a relationship over the last few months and he’s an active investor in the area. 

2) Various contractors, some that I’ve worked with before, others only via reference. Despite not being in a HCOL, contractor prices tend to be higher in Southeast Texas due to labor demand in the area. A high school graduate that wants to work 60-70 hours a week can make $80k+ and those with further aspirations can make much more in supervision. So trying to find a decent contractor at a reasonable rate is difficult. Hurricane Harvey has further compounded this problem as rates have skyrocketed.

3)  Agent - young, hungry, willing to write a lot of offers.

Let's get started!

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Sean H.Pro Member
Flipper/Rehabber · Pittsburgh, PA · Member since 2010 · 224 posts · 75 votes
8y

Great job so far. It looks like you may have set your goal a little low if you have two deals and over 60% of the way to your goal and it's not even August!

How are you compensating your boots on the ground? 

See this reply in the discussion

229 Replies

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  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    @Aaron Rowzee  Yes but first a vacation.

    @Milton Marcelin  Good comments.  The single family vs multi-family debate is valid but it's also a very personal decision.  

    I prefer single family because it almost manages itself and works well for long distance investors.  In addition, my competition is less sophisticated, my ability to build equity is strong and my exit options are many (seller-fi, seller-fi direct to note season and sell, sell to retail buyers, seller-fi to another investor, lease option, sell as a performing asset to another investor, get lucky and sell the whole portfolio above market to a hedge fund that's one a buying mandate (lol), etc)

    I think the cashflow achieved is very strong, considering I left very little cash in the deal (none, really, considering the refis where I pulled out 30-40k+ more than I put in, eg Property #1 & #5).  

    In 6 months (okay, maybe more like 9 months), I created $3k/mo in cashflow or $36k/year with none of my own money left in the properties.

    $36k/year that should essentially be tax free after depreciation, interest write-offs, etc.  So I like to consider that $36k/year really has a pre-tax value closer to $43k-44k/year.

    Now, your point is that this could have been done with (1) good multi-family deal.  Yeah, maybe.  I'd like to think that a multi-fam deal that was large enough to yield the same results would take a lot of time to re-position.  I couldn't just go buy a 30-unit, kick everyone out and do a huge rehab all at once.  It would more likely be a 12-18-24month plan where I slowly rehab the property as tenants turnover, etc.  It wouldn't be a 6 to 9 month project.

    All of the above is debatable though...but it works for me.

    *Re: building teams, I rely heavily on my references.  Other good investor friends that I trust a lot - when they recommend a good contractor, I know they will be a good contractor.

    **Pay these contractors on time, communicate constantly, provide feedback and ask for feedback.

    ***Build upon these relationships.  All you need is one good contractor and you'll usually be able to get them to pull in their network.  Good contractors work with other good contractors.

    I haven't read David's book and I don't have any reading recommendations specific to long distance investing.

  • Nuremberg, Germany · Member since 2019 · 26 posts · 18 votes
    7y

    @Sam B. Thank you for breaking that down and sharing the knowledge. I see why you're into SFR now. It makes more sense! I've been debating which path I should take and have been back and forth with myself about it.  Though lately I've been leaning more towards SFR and your breakdown has helped me to realize what I need to focus on.

    Also, it's awesome that you're able to BRRRR and leave no money in the deal. Reading other threads on BP would have one believe it's nearly impossible nowadays.

    How are you able to continuously pull this off? 

    What is your secret sauce? 

    Also, what would you say to those who believe the BRRRR method is obsolete?

  • Rental Property Investor · Boulder, CO · Member since 2017 · 36 posts · 36 votes
    7y

    Hey Sam,

    I think you covered this in previous post, but what kind of lender and terms are you getting on these?  It seems like your lender doesn't give a hoot about title seasoning.

    Thanks

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    @Milton Marcelin No secret sauce, just buying properties under market value and in a market where rents are commonly 1.2%+ of the ARV.

    I think the BRRRR strategy has become over marketed, similar to the cycle wholesaling went through. Wholesaling houses has classically been the cheap and easy (lol) way to get into real estate. Courses/seminars costing hundreds to thousands of dollars are being sold to teach folks how to do this. And I would argue that 95% of wholesalers FAIL.

    Does that mean that wholesaling is dead?  My good friend that sold me Property #7 texted me yesterday saying he had another property down the street that he's got under contract.  He made $10k selling me property #7 and he'll probably make another $10k when he wholesales this next property.

    Wholesaling isn't dead...just like BRRRR isn't dead. But with the hype and people slowly realizing the truth that this **** isn't necessarily easy or straight forward or quick, they like to write it off and say it's dead. It can't be done.

    I would agree that it's very market specific and it is indeed difficult and/or impossible to perform in most markets. 

    @Teague Anderson  I went commercial for all of my refis and the terms I'm getting:

    - No seasoning aka I send the loan paperwork as soon as I buy the property to ensure that once it's rehab'd, I can have it appraised and get my money back

    - 80% LTV based on appraisal

    - 25 year amortization

    - 5 year fixed

    - I was getting prime +0% and reduced loan origination fees based on our relationship

    Hope this helps!

  • Nuremberg, Germany · Member since 2019 · 26 posts · 18 votes
    7y

    @Sam B.

    Great! Sounds like the snake oil is prevalent in the REI world as well.

    Also, it sounds like you have the right kind of friends. lol

    Thanks for the clarity! 

  • Member since 2019 · 1 post · 1 vote
    7y

    What were the financing terms like before you refi'd on these properties (initial purchase and during reno)?

  • Seabrook/Galveston · Member since 2018 · 274 posts · 178 votes
    7y

    What % do you set aside for maintenance?  Or do you go along with the view of making the money work for you, put the maintenance on credit when it comes up, and pay the credit off a

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    @Michael Stewart Before refi, I was using my own cash and occasionally drew down on a LOC at 6 or 7%, can't recall. For a couple of the deals, I also pulled in a private lender I've worked with for years at 10% but very short term, only used him for a few weeks in between refis.

    @Bruce C.  Hey Bruce, how's it going?  % for maintenance, I don't set aside a specific % amount for maintenance (although I account for 5%/mo in cash flow analysis).  But yes, I keep cash reserves and as you mentioned, credit is always there as a last resort.

  • Developer · Covington, LA · Member since 2017 · 224 posts · 124 votes
    7y

    @Sam B. loads of thanks for this epic tour. It takes a lot of work to document these projects, and your writing style is pleasant, helpful, and encouraging.

    Would you be comfortable sharing with use the fee arrangement you have with your GC? Is he also the project coordinator? I ask this because I am considering engaging the same type of professional for my spec and rehab projects.  This will relieve me of many headaches and allow me to focus on strategies rather than tactics.

    Again, thanks.

  • Seabrook/Galveston · Member since 2018 · 274 posts · 178 votes
    7y

    @Rogers Smith since he’s supposed to be gong into debt pay down mode, I’d prefer he just share his GC and rest of his team!  :D  Make my life easier 

    @Sam B. Going ok here. Trying to get property 3, but it's taken longer than expected. Cash flow on most SFR I've seen pop up hasn't been great, and the ones that looked OK went under contract before we could even get a hold of sellers. Haven't seen any good MFs

  • Developer · Covington, LA · Member since 2017 · 224 posts · 124 votes
    7y

    Cute @Bruce C..

    But I've seen a plethora  of Investor/GC arrangements, and was actually curious of @Sam B.'s, considering his incredible success.

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    Thanks @Rogers Smith

    No true GC, although my contractor has sort of turned into a GC (he'll pull in contractors that he knows for some disciplines - electrical, plumbing primarily).  In reality, he's just passing on his network to me and I usually use them as they work well together.  The electrician I pay directly, the plumber is paid by my prime contractor and I reimburse him.

    The project coordinator was involved on the first two projects for a flat rate $1800, distributed in two payments, first payment at the kick-off of the project and the second payment at project completion.  

    My arrangement is overly simple and is benefited by a good team that works well together.  If I was embarking on a project with a new team, I would probably install a more robust payment schedule tied to key completion milestones and there would be a project coordinator to verify.  Especially if you're talking about doing larger spec projects with fixed margins and a lot on the line.

    Hope this helps but I don't think it will provide much value given the scale of projects you're likely embarking on.

    @Bruce C.  Haha, debt pay down mode is right!

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    Update


    Property #1 Rented at $1800/mo

    Property #2 Rented at $1595/mo

    Property #3 Rented at $1700/mo.

    Property #4 This had been on the rental market for $2200/mo for a couple of weeks with only one bite.  Dropped the rental price to $1950/mo on Thursday last week and the response was strong.  Then we got a (good) call from an insurance company on Friday.

    A family had lost their home to a fire last week.  They had quality insurance coverage and my property was about the only one on the rental market that would keep the kids in the great local school and had the 4 bedrooms they needed.  The insurance company offered $2300/mo for a six month lease, month to month afterwards at the $2300/mo rate.

    Done.  We're scrambling now to wrap up a few make ready items.  The family came in with a deposit on Friday afternoon, moving in on Tuesday.  My hope is to negotiate a lease extension after the six months but we'll see what happens.

    Deposit and rents are paid for by the insurance company, direct deposit every month.  Love it.

    Still waiting for the $189k refi to hit my account.

    Property #5 It's rented back to the sellers until May when I can get in and perform a cosmetic rehab. No change.

    Property #6  Property has been turned over to property management.  We have a solid make ready punchlist but overall the property looks great.  No updated photos but I'll have the final pro pictures ready in a couple of weeks.

    Thinking this will rent for $1500/mo.  Will be on the rental market in another week.

    Property #7 Rented at $1600/mo.

  • Investor · Lincoln, NE · Member since 2015 · 27 posts · 48 votes
    7y

    Awesome! Love it

  • Rental Property Investor · American Fork, UT · Member since 2017 · 11 posts · 10 votes
    7y

    @Sam B. Brother, I spent 40 minutes last night and 45 today going through these posts, just so inspired! Can't thank you enough for having the discipline and care to update us and bring us along on your journey! My only question is how you learned to do all this? Are there books that I can read to go out and apply like you have or has it been purely experience as your teacher?

  • Rental Property Investor · HI · Member since 2018 · 19 posts · 3 votes
    7y

    @Sam B. This is a great thread that you have shared with all of us here. Educated and inspired by the effort you have put into articulating some of the finer points of your particular experiences, I am grateful for the selfless encouragement you give all of us. 

    If you don't mind I will be commandeering your success blueprint, fine tuning it to my situation as I go hard on my own journey. Aloha nui man.

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    Thanks @Chinda David I'm glad you got something out of it.

    Thanks @Andrew Baker it's good to hear this thread inspired you.  It's been a lot of fun and keeping this thread helps keep me accountable. 

    J Scott's book on estimating rehab costs was a starting point for me back in the day.  But really, just going out and doing it will teach you so much.  I know that's difficult to hang onto, especially as the first deal can be tough...but go do it and you'll be set.  I saw on your BP profile you're willing to work for free on Saturdays - that's another approach and one I can't recommend enough.  If you're at your local BP meetup, offer that up and try to walk through as many rehabs as you can.

    Before you know it, you'll be able to look at a property in a few minutes and get a rough order of magnitude - you know floors cost $2.5/sq ft to install, you know a 1600 sq ft house costs $3k to paint, you know a kitchen w/granite is about $6k, HVAC is another $6k and then you add in a healthy 20% for cost overruns and unseen items that always pop up.  And when in doubt, bounce your estimates off of your local BP network.  If your feedback is +/- 15%, you're in the ballpark.  It's now time to execute.

    Thanks for the feedback @Derwin Villanueva

    Please don't just blueprint this thread...revise it and make it better - I made a ton of mistakes that you can learn from (at my expense, ha!).

    Which reminds me, I'll need to assemble a list of key lessons learned and post up here.  

  • Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    7y

    @Sam B. Thank you so much for this thread, it’s been really inspiring to follow it and see all the great progress you’ve made since the beginning. Keep it up!

    You mentioned that you pay your project coordinator a flat fee half upfront and half upon completion. How do you determine the amount of the flat fee?

    Also you mentioned that if they bring in their own contractors you pay them differently. How would you structures payments in this situation?

    Thanks again and looking forward to seeing more posts!

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    @Alexi Schreier  Thanks for the feedback, I'm glad you enjoyed the thread.  

    Re: fee for the project coordinator, I estimated the amount of hours I thought he would be working on the project and then assigned an hourly rate and came up with the fee.  At 40hrs spent on a project *$45/hr = $1800/flat rate.  

    If he can get it done in less than 40hrs spent, good for him, his hourly rate goes up.  If he spends more, well, that's on him.

    Your second question is where I would go from implementing a project coordinator level person to a straight up general contractor that brings in his own trades and is 100% responsible for the project.  In my market, for rehabs in the $20-50k range, I'd expect the GC fee to be 15-20%.  The fee will reduce as the project grows/becomes more complex.

    In addition, I would break out a $50k rehab into 20-25% milestones (with payments) and probably also establish a small cash bonus tied to completion dates.  This can be overkill on small rehabs or an excellent tool to keep larger projects on schedule.

    And everything is negotiable :)

  • Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    7y

    @Sam B. Thanks so much for the detailed answer. Just to make sure I’m understanding what you’re saying when it comes to choosing a GC that is 100% responsible for the project, you’re saying that on top of the $20-50K in rehab costs you pay them a fee that amounts to 15-20% of the total rehab cost? Is that because you’re giving them full control in terms of making the decisions on what needs rehab, what materials to use, who the sub contractors are, etc?

    Vs. a project coordinator who would basically just make sure that your instructions to the GC are being executed?

    I guess I’m confused on what the difference is between the two situations...

    In any case, thanks for your answer and for this amazing thread!

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    @Alexi Schreier  You're understanding correctly.  Please note that usually, the GC will roll his mark-up into the rehab cost - so if he tells you it's going to cost $50k all-in, you can work his numbers backwards and usually find he'll have a mark-up of 15-20% (sometimes more).

    And yes, because he's taking full control and usually full risk - if he missed a piece of scope and it costs more, usually that's on him.  Again, if he nailed his scope and put a little fudge into his numbers, he can make a little more money.

    Your understanding of a project coordinator is also correct - essentially just my boots on the ground, advising me of what's going on and helping me ensure contractors are doing what they say they are, assisting with material deliveries, payments, etc.

  • Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    7y

    @Sam B. Thanks so much for clarifying, really appreciate you taking the time to answer everyone's questions. Can't wait of the next update! Best of luck on negotiating that lease extension on Property #4 :)

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    @Alexi Schreier  Anytime, it's been fun.  Always feel free to post up here or shoot me a PM.

    And thanks, I hope they stay put for awhile.

  • Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    7y

    @Sam B. I'll keep that in mind, thanks again for your help!

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    Update

    Property #1 Rented at $1800/mo

    Property #2 Rented at $1595/mo

    Property #3 Rented at $1700/mo. 

    Property #4 Rented at $2300/mo.  Refi cleared in early April.

    Property #5 It's rented back to the sellers until the end of this month when I can get in and perform a cosmetic rehab. No change.

    Property #6 Punchlist activities dragged out, now complete and on the market at $1500/mo.  Final photos are below.

    Property #7 Rented at $1600/mo.

    Property #6 Final Photos Below

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