All Forum Posts by: Benjamin Riehle

Value-add in real estate is one of the most common strategies when it comes to investing in real estate. The concept is simple but if you’re not familiar, it’s going into a property that’s underperforming (rundown or neglected) and identifying ways to increase the value of a property. It could be as simple as “Neutralizing” the paint colors (gray, tan, white, etc.), to as large as doing a complete remodel or addition with the intention of increasing rents and/or resell value.

The benefit of doing this is that the investor can now introduce bank financing (I.e. Leverage). The goal in value add investing is to increase the value enough to return the investors initial capital invested when the property is re-financed. As a result, the investor can propel the capital received from the re-fi and do the same strategy over and over and over again. This strategy is very common for investors who want to maximize their purchasing power. With this strategy the investor can get their initial investment back while also adding strong performing assets to their portfolio. The common acronym for this type of investing is the BRRR Strategy (Buy, Rehab, Refinance, Repeat).

Recently, we ran into a great value add opportunity. The property is a 61-unit apartment complex that has had the same owner for over 30 years and was very mismanaged. Right away, we were able to raise rents (VALUE ADD #1). Second, although the units were in decent shape, they lacked central air, a must in Tucson, Az. By adding central air to the units we will be able to increase rents another $125-$150 per month (VALUE ADD #2) Lastly, although the units were in decent shape, the location of the property lends itself very well to higher end tenants. As a result we are planning on modernizing the units (installing bar tops, granite countertops, etc.), and doing exterior updates that supports a cleaner/sleeker look (VALUE ADD #3).

By doing this renovation we expect to greatly increase the monthly rental income and as a result, substantially increase the value of the property. Making these improvements and managing the property at a high level, we expect to be able to return our entire capital outlay.

Keep in mind; the updates I mentioned above will take time. While updating the exterior can happen quickly, it’ll take around two years to get the property where it needs to be in terms of finishing the entire remodel and increasing rents. Once that happens, we are able to refinance. With our current market and its suggested appreciation, the financials suggest that we can pull out our entire initial investment into the property with a refinance. Because of this, we’ll be able to take that same capital used for the 61-units and apply it to another property.

Many may read this and think that this is possible solely because it’s a 61 unit complex but that’s simply not the case. This strategy can be used in single-family homes, 2-4 units, and 5+ units. This strategy is very powerful and it allows an investor to build their portfolio!

Question: How have your experiences been with value-add investing? What has worked? What hasn’t? 

I know a few commercial guys in Phoenix that do those type of deals. Shoot me a PM and I am happy to connect you!

Hey BP Community, 

Wanted to discuss business planning and goal setting and see what is working for everyone??

I recently went to a conference where David Osborn (Author of Wealth Can' Wait) spoke about goal setting and business planning. My biggest take away from the event was how little time he feels you need to spend working on your goals and that just a simple quarterly strategy session on your personal and professional goals results in substantial results. 

He called the long term planning and goal setting his "Air Game" and recommended you spend 1/4 of a day every quarter and one full day every year mapping out your goals. Once you have the goals mapped out you can visit your "Air Game" playbook weekly to make sure you are staying on track and holding yourself accountable. 

What made this concept so interesting to me is that I always have felt I did not have enough time in my day to purposefully map out my "Air Game" so I would make excuses and not dedicate any time. Since this conference, I have added the quarterly and yearly dedicated time in my calendar and plan to stay accountable to this committed time. 

With that, I would like to ask everyone on BP what have you found that works well for you??

One of my all time favorite books, and a book I reference almost daily in my real estate career is "Never Split The Difference" by Chris Voss. After reading this book my approach to communication and negotiation changed dramatically and the results have been outstanding. 

I would love to hear from the Bigger Pockets community about non-real estate books that have had a substantial impact on how you approach real estate and real estate investing.

Nearly everyone (yes everyone, not just you), in the infancy of becoming a real estate investor has the same coming to Jesus moment, which typically goes something like this, "Sure I can buy one house, maybe even two... but how am I every going to generate enough capital to become a serious real estate investor? Is it even worth starting?" Obviously, there are a lucky few that belong to wealthy families, but for everyone else it's like standing at the base of Everest and being told, "Here is the mountain you need to climb, good luck!."  

I was in that exact spot 9 years ago; standing at base-camp with no climbing experience. Luckily, I decide to start the climb. What I did not realize at the time was that the first step you take as a real estate investor is the first push on a flywheel, that with every burst of energy becomes increasingly easier to move. Getting the first house is hard, very hard. The second is not much easier. By the third or maybe the fourth you start to understand what is going on. You keep your head down and push harder and harder and the flywheel begins moving faster and faster. By the time you look up you have created a real estate portfolio larger than you ever imagined and the flywheel is nearly spinning itself. Looking back it all makes sense, but at the start of the journey the climb looks impossible. I want to share a part of my story here to hopefully encourage you to take that first step.  

When I purchased my first property at 18 years old I had never heard the term "House Hacking", but that is exactly what I did. With the help of my parents co-signing (I was very lucky they were in a position to help me get started) I was able to purchase a four bedroom house near the University of Arizona. There was a $1,200 per month mortgage and I rented out three rooms for $500 each. I was now living for free and making enough each month to cover my grocery bills. Rather than spending $500 per month on rent, I was able to save around $800 per month by successfully "House Hacking". I started the climb and the flywheel was now moving, $9,600 going into the bank every year that would have otherwise gone to rent and groceries. 

Almost exactly 2 years later, I was  a Junior at the UofA and had saved up $30,000. $20,000 from "House Hacking" and $10,000 from working side jobs. An opportunity presented itself and I purchased my second property. A 4 bedroom 2 bath short-sell near the UofA that needed some love. This time my grandparents co-signed the loan (again extremely lucky I had this resource available). $15,000 down-payment and $15,000 in materials for the remodel work that I did mostly myself and the house was ready to rent. The mortgage on this property was $1,050 per month and I rented it out for $1,800 per month. The flywheel is starting to move a little easier now and the climb starts to feel a little less impossible. Still living rent free in my first property and now cash-flow positive on my second. At this point I am saving $18,000 per year and covering my mortgage payments.  

A year later, I find a property for sale by owner for $50,000. I have $20,000 saved up and he agrees to carry the note for 3 years at a low interest rate. The property needed $10,000 of work so I put $10,000 down on the property and used my other $10,000 for materials and again did most of the remodel work myself. This property rented for $900 per month and I paid the seller $1,000 per month. Now the flywheel is really moving and I was able to fully pay off this property in under 2 years. 

After this it was off to the races. I graduated from the UofA with a BS Degree in Accounting and was accepted into  the Law School at UofA. During my time there I started a full service real estate investment team that consists of Real Estate Sales, Licensed Construction, Property Management and Real Estate Investments. The flywheel became even easier to push and we began flipping properties and purchasing more investments. I am not writing this story to brag about my success but rather to hopefully encourage those standing at base-camp afraid to to take the first step to begin the journey! 

Real estate investing is not easy, and everyone has their own challenges, I was extremely lucky to have family that helped me get started. I also timed the market about as perfectly as possibly, simply due to luck. I tell everyone, if I was 3 years older I would have started investing in real estate in the boom of 2004 and been bankrupt by 2008. Starting in 2008 was an extremely lucky break. Everyone's circumstances are different, but once you begin the climb the flywheel starts moving and although it feels like an impossible journey if you stay purposeful and focus as much energy as possible on moving your flywheel you will look up 10 years later and be amazed at how far you have come. 

Stay purposeful and attack fear. 

Good luck on your journey!

Major employers moving to town, a pro-business local government and a reasonable cost of living has the Tucson investment market heating up. The once dangerous and lackadaisical downtown area is now vibrant and growing at a rapid pace. Developments across town are breaking ground, amazing restaurants are opening almost daily and the Tucson night life has greatly improved.  Over the past 12 months and especially the last six, my investment team has seen a surge in the level of interest of out of state investors in the Tucson market. I was recently ask to present to a group of real estate agents about the reasoning behind this high level of interest and wanted to share 5 key points why I believe the Tucson market has reached the tipping point for accelerated growth:

1. The national association of realtors named Tucson a top 10 real estate market. 2016 saw an 8.2% increase in the median home value and a 6.1% increase is anticipated for 2017. Link

2. The Tucson real estate market median home price is still 19% below the 2007 market highs. While the majority of the country has recovered to near 2007 prices, Tucson still has a lot of room to appreciate (See attached Photo).

3. Forbes recently ranked Tucson as the #5 city for annual job growth, projecting 3.3% growth in 2017. This past year Raytheon announced they are adding 2,000 jobs, Caterpillar relocated its engineering team to Downtown Tucson adding 500 jobs, Comcast and Home Goods announced adding hundreds of jobs each and there are more announcements happening every month. This rapid increase of jobs in Tucson has the local economy buzzing. In addition, many of these are higher level positions which in turn will each produce 2-3 additional service jobs in the local economy. Link

4. The cost of living in Tucson is 8% below the national average and housing prices are 22% lower than the national average. Tucson is still a comparatively cheap place to live with an increasing opportunity for growth. A recent Forbes article on population growth in Arizona stated: 

5. People in the community are excited and positive about the direction of Tucson. I recognize this is not quantifiable, however it is very apparent in the community. I recently met with a large investment group from Seattle looking at purchasing apartment complexes in Tucson and they remarked that the general feeling from business owners and local government officials was one of excitement and anticipation. The individuals involved in the community feel the change happening on a daily basis. 

The past two years have been fantastic for the Tucson real estate market and economy. It is becoming apparent that this growth was simply the first spins in a flywheel that has the potential to propel Tucson from a sleepy old-western town into a thriving economic center. 

Thank you for reading! 

@Evan Bell, would love to connect. If you shoot me a pm with your phone number I will make sure someone on my team reaches out. Would love to learn about your real estate goals and how my team may be able to help you reach them. 

@Carlos Gonzalez

Yes we do. Personally, I invest in more single family rentals than multi-family but my team invests and works with investment clients on everything from duplexes to larger complexes. Currently looking at a 61 Unit and 325 Unit off market deals for clients out of California. 

If you would like to connect with one of the investment specialists on my team shoot me a PM with your phone number and I will make sure one of my guys reaches out to you.

Best,

I would get another bid or two but sounds reasonable. Tough to know for sure without more specifics. When my construction and management teams bid out ac installs from subcontractors we get price variations of as much as 3-4K. Typically there is a middle ground price that meets the cost/quality trade off. You always get what you pay for, especially in the case of construction. Couple notes on improving the lifespan of the AC unit: 1. Change the ac filters regularly. We have found tenants just don't do this. We have a specific AC addendum in our leases and my management team changes the filters every quarter (tenants are suppose to change monthly) and use this as an opportunity to get eyes on the unit. 2. cleaning the coils every couple of years prevents major damage. The key is maintenance and upkeep. Ac units get abused and overworked in Arizona and if you don't maintain and service them they will not last long. Good luck!

"I review over 1,000 potential deals every year."

I was recently at a conference and one of the presenters ($100 Mil+ Net Worth Real Estate Investor) grabbed my attention with this statement. His point was simple, if you want to invest in real estate and be successful you have to review A LOT of deals. Even before you can actually afford to buy your first property, you have to begin studying and learning how to spot opportunity. One of the best ways to do this is by tracking deals and watching how they perform. The idea is similar to someone investing in the stock market and building a "fake" portfolio and tracking their investment performance before they begin purchasing shares. 

By reviewing investment deals before you are ready/able to buy you can gain substantial knowledge. For example, if you find a potential flip property you can track how quick the property goes under contract, how long the remodel takes, what type of remodel work the investor performed, how long it takes to sell once remodeled and what it sales for. This is all extremely valuable information that can help save you a lot of money when you are ready to purchase your first deal. 

By reviewing deals and watching how other investors are doing deals you can greatly reduce the learning curve and save yourself tens of thousands of dollars on beginner mistakes. I have been investing in the Tucson, Az market for 10 years and it took me 6-7 years and involvement in 150+ deals to begin feeling confident in my knowledge. You have to review and be involved in deals to be successful in this business. Fastest way to get started is by reviewing deals today!

Good luck to everyone out there looking to get started! 

Stay Purposeful