Posted over 8 years ago

The Start Up

I’ve been on this real estate trip for over two years now. Self-education through books, blogs and podcasts for most of the first year.

Really got into it around year 2 with a direct mail marketing campaign sending 1000 letters a month to homeowners in specific areas of Palm Beach County, Florida. Pretty much looking for needles in a haystack, people willing to sell their house well below market value for a quick cash offer. Since I’ve started, I’ve been taking calls and making offers every day trying to work out deals while working a full time job.

Home Office

Landed one after a couple months into the first campaign. Bought a 1100 sq ft single family home in West Palm Beach. Closed on the purchase and sold it the same day. No rehab, just a quick wholesale deal. I found the house/seller, another real estate investor found the buyer and the profits were split.

The guy I partnered with on that first deal brought me a house he got through a short sale. Short sales can be a long, drawn out process but they can bring in some nice margins. The Dude bought it and passed it off to me for $87,900.

I don't exactly have $88k hidden under the mattress so I had to consider my options. I could rob a bank but that seemed like a project in itself. I ended up making the purchase with a loan from a private money lender. A private money lender could be anyone. They might have money set aside they actively invest with or maybe they just have money in savings, possibly a retirement fund (IRA, 401k) or a lower earning investment (CD), and they want a better return on some of that money.

I put 10% down and make 8% interest only payments for the duration of the loan. Loans like this are the life blood of real estate investment and vary greatly in terms of interest rates, fees, down payments, and amortization depending on the lender. Private money gives the ability to fund more deals as they pop up and provides the lender with a specified return guaranteed by property.

The place could work well as a flip or a rental. Comparable homes, post rehab, in a ½ mile radius are retailing around $180k. It’s also in a good neighborhood and a solid rental market. Fixed up it should rent for about $1400-1500. My goal here is cash flow.

Whatever's in that jar probably won't cut it

I love to travel. I’ve moved through Australia, Central America, South East Asia and some other scattered spots, mostly hugging the coast and chasing surf. The unfortunate reality of travel is that it costs money.

The way I see it, the question boils down to...

What can you do for money that allows the flexibility for frequent and extended travel?

I’ve decided to use real estate investing as a way to create a balance between flexibility and financial stability. I’ve never been motivated to pursue money for money’s sake. Freedom is what motivates me. Money means NOTHING without the ability to use it flexibly. Profits from a fix and flip and monthly cash flow from rental properties can go a long way in inexpensive countries like El Salvador or Indonesia.

The house is 1370 sq ft, 2 beds/2 bath with a nice sized den I’ll make into a 3rd bedroom/master suite. Rehab estimate is around $30k to get it in rent-ready shape. What gets you a better retail sales price won’t always get you more for rent so the estimate is a little lower than if I was going to flip it. I've tried to be as conservative as possible with this estimate but determining rehab costs is notoriously one of the most difficult aspects of real estate investing.

Purchase Price- $87,900

'Rent Ready' Rehab Estimate- $30k

Total Estimated Project Cost- $120k

Estimated After Repair Value (ARV)- $160k

Rent Estimate- $1400-1500

At some point I’ll break down the details to show projected cash flow and how I evaluate the numbers on a rental deal but for now it’s enough to know that it should cash flow well with very conservative monthly expense estimates.

I’ve tried to be conservative on my numbers but there is risk in any investment. Getting an accurate rehab estimate and staying within that budget, hiring and managing the right contractors, determining the after repair value and placing quality tenants, are just a few of those risks. I’ve done everything I can to plan for the X factors but things can always go wrong. I plan on renting it out but I have multiple exit strategies available if the plan needs changing. This is my first rehab project so I’m expecting things to go wrong at points but I’m in it for the knowledge that only comes from experience.

Let's see how it goes...

The Start Up

Comments