Top 8 Takeaways - Rookie Podcast 40 with Anam & Aamir

Rookie Podcast 40: Using the “AREA” System to Buy 21 Houses in Just a Few Years with Anam and Aamir

Hosts Ashley Kehr and Tony Robinson and Guests Anam & Aamir

1.SYSTEMS

• Look for Solutions to Pain Points. Every time we have a pain point, we try to figure out a solution and go from there.

• Home Depot Pro Desk. We just put in the bid and trust our contractors. They’re responsible to go to home Depot and grab the supplies. We select the finishing materials because we want a certain look, but we don’t need to look at the drywall they’re buying or what nails they’re using. And there’s a lot of other benefits because you can use your credit card and backup points. On top of that, there’s perks for the contractors too. Because we paid for all the supplies through the Pro Desk, it’s much easier for our contractors to price out labor only and they might give you a better pricing on that.

• for property management was probably one of the best decisions we made. We self-manage and lease our own properties.

• is a real time project management tool (not real estate specific) for organizing, coordinating, and tracking project tasks. We can see, okay, he said he was going to do this. Has he had a chance to do it? Or should I jump in and try to do it? So if there’s a maintenance tasks or just stuff that we need to buy or stuff for the property, if it’s done, we can erase it. And it’s live on both of our ends. So it’s not like while I’m doing a task she is going to coming back and do it too.

2.FINANCING

• And then we thought, okay, the acquisition side is really hard for us to scale out because of the money, so we just started talking to a lot of different people.

• Hard Money
• We figured out the hard money side. There's some hard money lenders that are very reasonable. I think the best thing is to just get on a phone call and just talk to them. Tell them what your plan is. Are you somebody that’s gonna be doing one deal a year? Or are you somebody that’s going to be doing a hundred deals a year? Talk to them and see how they can help you, how you can help them. Obviously they’re there because they want your business. So they’re going to try to figure out a way that makes sense. For the listeners, I’d encourage you all. Don’t stop at the first bank. Don’t stop at the first financing person you talk to. Exhaust as many options as you can. And eventually you will find something that works.

• There’s two different kinds of hard money lenders. Local hard money lenders provide financing in your immediate area. They’re going to know the market. They’re going to be able to move the fastest because they they’re local and they know the market. If you need speed or insight into you local market, you’re going to want a local hard money lender.

• And then there’s your national hard money lenders. Your national hard money, lenders are going to be your cheapest options because they’re doing this at volume across the us.

• Banks
• Then we talked about like 50 banks to figure out how our backend is going to work out because not every single bank is going to just be like, yeah, you guys can just keep adding to your rentals as much as you want.

• Miscellaneous
• Initially we used an assortment of credit cards, personal credit lines, business credit lines, home equity line, personal cash, and even lines of credit against stock. I’ve used 100% financing. There are so many different options. We use a little bit of everything just to get deals done. The credit cards were primarily used for materials and supplies. All the other lines of credits were mainly for acquisition. All of these financing structures have different like payback periods or interest rates, and you just have to keep everything organized.

3.BUYING SIGHT UNSEEN FROM WHOLESALERS

• We did so much research before we started in real estate that we were very comfortable jumping in because we knew the spread between our purchase price and the ARV. If you focus on the numbers and not emotion, that’s all you really need to look. My comps state that this house is worth 160,000 - 170,000 ARV. I’m purchasing it for 95,000. That’s a lot of spread. It’s $70,000 that you can completely mess up and still be able to walk away. Zero out of your pocket. I will say properties are not necessarily always home runs. This one is because the numbers work so well. We understand worst case scenario. We know a light rehab, a moderate rehab, and an extensive rehab will cost X amount per square foot. So by knowing that even for worst-case scenario, the numbers worked. When you actually verify the numbers, you know those numbers are correct. You can’t go wrong if you have your numbers.

• We know there are multiple exit strategies so we won’t lose the acquisition money. With multiple exit strategies, it’s not like your money is at risk. We could wholesale it, flip it, or just rent it out.

• You can negotiate with some of these wholesalers, but some have just a flat price and they’ll leave it out there for a couple of days, or usually it doesn’t last a couple of days, but they’ll leave it out there. And they’ll just say, whoever can get this price takes it basically.

• The very first wholesaler that we ever worked with posted his deal on bigger pockets.

4.AREA FILTER

• The AREA system we use is the number one reason we’re able to filter through a hundred emails a day because we are really occupied from seven to seven and our lives are just all over the place. And so if we don’t know in detail what we would actually want to buy, we would miss deals. We get lots of email offers from wholesalers. We’re probably on three wholesalers mailing list and you can get overwhelmed. If you don’t understand your criteria or know exactly what you’re looking for, you can start going down a rabbit hole and spending hours trying to analyze deals that has nothing to do with your market or your price point or what you would actually be willing to buy.

• AREA acronym stands for, Area (literally the physical area), Retail, Education, ARV.

• Area
• Area is a very good filter for us to eliminate properties that are not in our investment area. So knowing our neighborhoods and general pockets within the Dallas Fort worth metroplex has helped us understand when a deal comes in. Things we look at in our areas include investor activity. We try to see if there’s other investor activity up and down the streets, seeing dumpsters, all of that stuff really helps push us to think this area might have investment potential because there’s other investors in the market. I wouldn’t say that’s necessarily the always case. I don’t think that just because you see another investor, you should always invest because sometimes they may be a rookie too. They’re also trying something now. Another thing to look at is lawns in Texas, at least in Dallas, Fort worth. You can tell a not so great neighborhood because there’s a lot of trash up front. There’s like maybe a broken down cars sitting in front of their lawn. Just looking at the general cleanliness of the neighborhood. Are there sidewalks or is it the street that you walk on? If you’re willing to be in that area, then you know, it’s an area that you’re going to find a decent tenant. You’re going to have good ARVs. The areas where we are uncomfortable, maybe of getting out of our cars or at night, we don’t want that for sure. It’s just not our strategy. It’s other people’s, just not ours.

• Retail
• When it comes to the retail side of things. I always, almost always, we try to make sure there’s a Starbucks and a Chick-fil-A. We’re from Texas. So Chick-fil-A is a big deal. We’ll utilize some of these other retailers, who spend thousands, if not millions of dollars in just research for the area there, you’re not going to see a massive Walmart go up without the demand. There’s not going to be Home Depot if there’s no demand. For sure it won’t be a Starbucks or Chik-fil-A if there’s no demand because they look for high volume. So utilize others, other big box retailers.

• Education
• We want to be in a school district. People want to live in a school district. We’re big believers on that. So we try not to stray away from having at least an above par school district. And then a plus, and about 40% of our properties have this, we also look for a school within walking distance from the home. Then you’ll have a family. By having a school within your neighborhood, it tends to be cleaner, tends to have low crime. And a lot of other things come with that because it’s a school. There’s kids there. There is also more traffic near schools. Whenever your properties do come up for rent, you have more traffic, more eyeballs looking at that for rent sign.

• One of the best ways to find the ARV in your area/neighborhood is to utilize realtors that might charge you 20 bucks, 40 bucks, 50 bucks to run whether it's rental or actual purchase . It's so worth it for you to utilize that, to get hard facts and figures because MLS data is the most accurate. In our opinion, MLS has been pretty close to what we think our ARVs are. Your property management company might also run ARV comps for you. Propstream has also been used. It’s a pretty inexpensive monthly subscription, but it also pulls in all of that MLS data. And it’s really easy to kind of check and filter what those comps are.

5.OUR THIRD DEAL

• We purchased from a wholesaler at a flat price. I think this one just came through to our email and we probably underwrote it in about 10 or 15 minutes. We didn’t take a look at this property in person. We kind of, we knew the area because we had another one that was, I think probably like 10 minutes away. So we knew the area pretty well. We just called up the wholesaler and we’re like, yeah, we’ll take it. We didn’t even take a look at it. We just looked through the package of pictures and some other comp data and stuff that they send.

• The purchase price on that one was 95,000. All our rehab with labor and materials and everything was about $30,000, and there were holding costs. We also had multiple closing costs because our wholesalers will basically bill us for their closing cost. So it's like a double close. Sometimes these wholesalers do a double close. Basically they're just billing you back for their front end closing cost. And then our actual closing when we take ownership. Then we have a final layer of closing costs, which is our financing cost after we're done with the project when we're closing with the bank. So we have like three levels of closing costs and our holding costs which added up to 8,000. All together, we had 95,000 purchase, 30,000 rehab, and 8,000 new closing and holding costs. So that puts us at 133,000 invested in that project. It took us about a month and a half to finish up that project. And right after we finished up and had the lease signed, we took it to one of our local banks who gave us a great six and a half percent rate at 80% LTV. So that appraisal did end up coming back at 164,000 which put our loan right at 131,000 which only meant that we had about 2000 left into the deal after we were completely done. Basically, it was almost a free house after we were done with that. We didn’t have much left into the deal. The rent on that house was 1500, and after all the expenses and leaving a little bit for reserves, we cashflow about 300 on that house. And so, if you look at it $300 a month on only $2000 cash investment, that’s approximately 150% of returns a year.

6.PAIN MAKES YOU A GREAT INVESTOR

• You go through some of these things and you learn so much along the way on how to build these processes. We no longer are probably doing half the things we did on our first four properties. I think we realized that it’s just not scalable, but I also think some memories and pain points are what make you a great investor going forward because you know. You just know a lot more. What it takes to do something. So when someone comes to you and says, X, Y, Z, it’s going to cost this much. You’re like, well, I guess it took me 18 hours to do it, and it’s 200 bucks for someone else to do it. We hated it at the time, but I think it helped us become better at what we do. For anybody starting out, you definitely have to go through that because even when you were speaking with your contractors, you have to sound educated. You can’t just say “go there and do this” to your contractor when what you are saying doesn’t make sense. If you can go into fine details about “I want this done this way, this specific time, this is how long it should take you to do it”, you’re going to be more respected overall because they know that you’ve done it or that you know exactly what you’re talking about.

7.ACQUISITION

• I think during acquisition time, like when we’re full on trying to pick up properties, I think we’re doing at least two or three offers a day. You have to. This market is so hot right now that half your offers are not even going to be looked or considered.

• If we look at a prep property, we’ll always throw a number out there. Because, if you’re gonna spend 10 minutes just looking at the property, you might as well throw out a number out there even if it’s way under what they’re asking. I will reinforce that it does not hurt to put in an offer no matter what it is, no matter how low it is, because you never know. And some people, I mean, I was a person that was scared to put in that low ball offer because I didn’t want to insult anyone or I didn’t want to be that person putting in the low ball offer, but I guess you will never know. And maybe a little counter offer and it will still be a great deal for you.

8.THE END GOAL

• In the last six to eight months we started considering a next step. At some point, a goal of ours is to bring everything in house slowly. So yes. Hire someone to do property management under us. We don’t necessarily wan’t to outsource it. Bring in a general contractor under payroll, bringing in insurance, underwriting, a brokerage, like doing everything under one roof and actually building a massive one-stop shop. We think it would be a really cool goal, not end goal, but a goal. It’s everything to do with real estate.