Over the last three years we have bought and renovated around 150 homes in the Montgomery, AL market doing high levels of renovation, screening and placing tenants through professional property management companies and providing these renovated properties in A- to C class neighborhoods to investors seeking high returns. Typically we purchase properties from $28,000-$100,000 and do renovations ranging from $15,000 to $40,000.

What made you interested in investing in this type of deal?

When all of the major hedge funds started gobbling up the deals in Atlanta it no longer made sense to compete with $30 Billion dollar funds that were willing to accept lower returns than what I and my investors were used to. Alabama had better cash flow and higher returns as well as some of the lowest property taxes in the country.

How did you find this deal and how did you negotiate it?

We found deals through estate sales, probate attorneys, fsbo's, auctions, Fannie Mae, Freddie Mac and HUD sales as well as wholesalers occasionally, retiring investors, people going through divorce, unwanted inheritances, and landlords who had poor management, bank REO sources were excellent until about 6-10 months ago. We are now using auto dialers, bandit signs, door hangers and other sources to get off market properties.

How did you finance this deal?

We were able to use commercial funding and used a mixture of private funding as well numerous private and public lenders. Often using cash allowed us to get very good deals as well.

How did you add value to the deal?

The biggest value was the bump from buying the distressed assets and doing a very nice job renovating, as well as putting well screened tenants in place. Taking the hassle out of the process for our investors provided a lot of value.

What was the outcome?

The outcome was that we were able to get properties rented at the top of the market, we saw significant increases in values over the three years as inventory fell and prices went up as a result. We were able to help many small investors get properties that cash flowed very well, sold packages through 1031 exchanges and people who used self directed IRA's as well.

Lessons learned? Challenges?

Property management was a big hurdle at times, some managers would fill properties quickly, but they didn't screen the tenants well and there was a lot of damage at tenant move out. Other property managers were too thorough in screening and properties could sit vacant for longer than they should. We found that it was very important to do quarterly inspections to make sure damage didn't get out of hand and we could hold tenants accountable and make them pay for their damages.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We built a team of very professional realtors that we used in acquisition, ended up forming our own construction company and got very strong lenders with flexible programs and an excellent property management team. It took a lot of work to put the teams together but we are glad to recommend great sources to anyone interested in building their team.