All Forum Posts by: Christopher Erwin

@Joseph Druther Hi, when is the next meetup? My brother is local to SoPi and may be able to attend. I'm based on the west coast and we're looking to invest in the local Sand Hills area. Would be great to meet other investors and share notes!

@Matt Buckles @Brandon Purdeu I am also looking to learn more and potentially invest in the Sand Hills area. My brother is military and recently bought a SFH in Southern Pines, and I'm impressed by the potential based on my recent visits. I'll ping you both directly. I would like to find small MFUs to start (duplex to quadplex) that require a little work to be rent ready, but no major reno.

@Max Fleissner Per my mgmt re photos..."We use a guy named Alan Dasenbrock. He turns photos next day (given he has access that soon) and is usually a flat $60, but will charge less for apartments if he is shooting multiple units on the same trip.

@Caleb Heimsoth All work, incl all final cleaning, mgmt inspection and mktg photos and listing prep, wrapped mid to late February, so a little over a month since then. Renting out by early April to a fantastic-profiled tenant is my target win for mgmt. Ideally would have been rented already but we are patient to find the optimal tenant fit, and hopefully that is in the near future!

@Max Fleissner Good question. My property mgmt, Wistar, coordinates the photos. I believe Wistar has a preferred vendor and I'm not sure who, though it could also be an on-staff resource as well...I will ask! 

Re-Post from my BP Blog --> My recent tenant mishap led to burst pipes and thousands of $$ in plumbing, carpet, paint & cleaning. Worth it? 100% IMO...read on for why! 

All feedback is welcomed and encouraged.

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Read Time = 5 min

BURST PIPES

When I acquired my Omaha duplex in May 2017, my rents were ~30% under market. I therefore set a strategy with my property mgmt to let my two tenant leases go month-to-month in October, and see if one of the tenants rolled off.

In mid December my downstairs tenant gave 30 days notice, and scheduled a walk-though and key turnover for mid January. Unbeknownst to my mgmt, the unit was prematurely vacated in late December, and the furnace was “accidentally” shut off during the move-out.

• LESSON: Double confirm the tenant move out date. Vacant dwellings pose a variety of risks (vandalism, fire, water leaks, etc)

During the next few days Omaha temps dipped to -20. With no heat nor running water in the unit, the water in the pipes cooled drastically, causing the water to expand and severely increase pressure inside the pipes. They soon burst.

I woke up on Jan 4th to an email from my property mgmt that an emergency tech had been dispatched. Fortunately, my tenant upstairs heard water running and immediately called it in, and my property mgmt emergency protocol kicked in.

First, the tech shut off the water main to stop the water flow, and then a plumber assessed the damage…

The water meter to the unit froze and cracked. After removing the meter, the plumber temporarily turned on the water to assess leak sources. In the kitchen, water leaked from behind the sink, through electrical outlets, from cabinets and from the ceiling. The flowing water spread throughout the entire apartment, damaging all carpet and pad.

Oy.

In short order, mgmt placed commercial fans throughout the unit to dry the carpet / pad and prevent mold and rot while the plumber got to work. Numerous wall sections had to be cut to access the broken pipes, and then the broken pipe sections were cut out and rebuilt. My kitchen faucet also had to be replaced.

My final plumbing bill was $2,022.61. Labor was $1,633.50 (81%), and parts were $389.11 (19%). The work was completed within four days of the incident.

• LESSON: Keep sufficient funds in your mgmt’s dedicated account for your property. Mine ran low and I had to make an emergency deposit to keep the work on schedule. Best to be proactive here vs reactive.

A few days later, we had all the carpet, tack strips and pad hauled away. It was not salvageable, and with plans to place a new tenant and raise rents, it was time for new carpet anyway. Total cost: $472.37

My mgmt then got an estimate for new interior paint, as there was some water damage to the walls, but we also knew a fresh coat of paint would go a long way in helping to place a premium tenant at higher rents. We made sure to consolidate turnover and reno work with the water damage repair, as every additional day of vacancy reduces my annual CoC return.

• LESSON: Prudent owners will pay a premium for a trustworthy crew that can work fast…better to spend a few hundred dollars more if it can prevent a month of vacancy, which could result in thousands of lost income.

I shared the paint estimate with my Omaha mentors, one of whom owns a painting business. He beat the bid and had his team repaint the entire unit interior: walls, ceiling, doors, trim and closets. They did fantastic work and finished in under a couple days. Total cost: $2,000. For size reference, my downstairs unit is 1,076 sq ft, and is a 3 BR / 1 BA.

• LESSON: Since my chosen paint vendor was my contact, I paid him direct and avoided the 10% project mgr fee by my mgmt. I have no problem paying fees since it saves me time (and time is $), but I appreciated this carve out.

Shortly after painting we had the new carpet and pad installed (813 sq ft). We ensured to have the paint work done prior to installation of new carpet to prevent premature wear and tear. Total cost: $1,156.74. On a sq ft basis, wicker carpet was $0.83, 3/8 6lb pad was $0.21 and installation was $0.31.

Now that the reno work was done, it was time to prep the unit for marketing. My mgmt had the place “construction cleaned” ($280) and professionally photographed ($60). My peer Omaha investors specifically called out the quality of the “vacuum lines” in my listing photos ;)

• LESSON: High quality photos are worth every penny, as they’ll help your for-rent listings drive more tenant leads, and conversions to unit tours and applications. Overall, more prospects in less time (remember, vacancy costs?!). Get a professional camera or hire someone. It’s the same reason why Airbnb used to provide free photography services…it’s good for business ;)

The last thing to assess prior to listing was the new monthly rent. My mgmt and I decided that while the place could rent for $950+, it could take a few months to find a willing tenant with the appropriate credit profile. We listed at $895. Due the smart pricing and great timing (spring!), the prospect funnel metrics are strong. To date, 190+ leads, 80+ pre-qualified, 45+ viewings.

• LESSON: Another consideration we had in pricing was reno payback period. The paint, carpet, cleaning and photography costs came out to ~$4,000, or the unit turnover costs to support raised rents (excl the water damage). With the new rent at a ~$200 monthly premium ($895 vs $700), the payback period was 20 months. Keeping it under two years was a gut check my mgmt and investor peers used. Another POV is the CoC return. The $4,000 one-time spend will bring in an additional $2,400 of annual rental income, or a 60% annual CoC return. Of course, there are more costs here. 2.5 months of vacancy = $1,750 ($700 x 2.5) of lost income, my mgmt charges ¾ of 1st months rent as a placement fee, or $672 ($895 x 0.75), I’ve paid the utility bills for the past couple months ($200) and some miscellaneous listing costs. Adding in these costs makes the CoC return = 36% ($2,400 / $6,700). Still a good investment for my target return threshold.

The unit remains un-rented, but I expect it to be filled in the next couple weeks (nudge nudge Wistar mgmt!). Smartly, mgmt has not rushed to rent it to the first set of applicants, as upholding credit standards and other tenant criteria can prevent a lot of future headache and costs that can far outweigh the pain of short term vacancies.

The wildcard upside?

My insurance claim.

I notified my provider, Berkshire Hathaway Homestate, immediately after the incident. That whole process is a separate post, and includes filing the claim, coordinating with the adjustor and my mgmt, providing the adjustor receipts and documentation, catching that my claim reward accidentally excluded a material part of the plumbing repair, receiving two separate claim checks, depositing them without realizing they required endorsements by my mortgage servicer, having the checks rejected by my bank while incurring fees, having the insurance company re-issue the checks directly to my loan servicer, finally depositing the checks this past weekend…and while I write this I’m realizing I may have coverage for lost rental income to follow up on!

Total insurance payout: $6,663 ($7,663 less my $1,000 deductible). NOTE: this is nearly the exact sum of all my repair and tenant turnover costs!!

• LESSON: I used short term pain to pursue long term opportunity. Burst pipes and filing a claim was a pain in the a*s, but the timing was actually fortuitous. We remained positive and took advantage…because what other options really exist?!

Here’s to getting a new (and great) tenant in ASAP!!

#realestate #realestateinvesting #renovation #insurance #leadership #positivity #investing #inspiration

Re-post from my BP blog. Hoping it provides some positive motivation and guidance as you kick off 2018 and re-set! 

All feedback is welcome and encouraged ;)

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READ TIME = 4 min

MARATHON INVESTING

The Pursuit of Wealth, Not Money

There’s an accelerating phenomenon across my peer group…we’re going cuckoo for crypto.

It’s exciting, intellectually stimulating, financially rewarding…and it’s scaring the cr*p out of me.

With incredible short-term wins, crypto hysteria is teaching extraordinarily bad investor habits at an accelerating rate. The result? The beginning of our long-term demise.

Investors need to adopt a winning long-term strategy, even when facing unprecedented short-term opportunity. I call this “marathon investing”.

If you’re after real wealth, a win much more broadly defined than money, then a “back to basics” mindset needs to be reinforced.

Let’s re-set.

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Since first investing via Vanguard mutual funds 17 years ago, my favorite investor adage remains “set it and forget it”. This phrase underpins my core investor values:

• Market timing is exhausting and fails most.
• Time over money.
• Money is not wealth.
• Time leads to wisdom.
• Wisdom leads to wealth.

Allow me to quickly break this down.

MARKET TIMING IS EXHAUSTING AND FAILS MOST.

The 2018 global economy is highly-tech enabled and real-time connected. An overwhelming array of variables influence our financial markets. No more are the days of stock price movements based solely on earnings reports…today stock prices are driven by CEO tweets, foreign political victories, threats of terrorist attack, rumored product launches, customer PR backlash, insider information and more.

Keeping up is exhausting.

Therefore, investing based on long term fundamentals is a more prudent and reliable strategy than betting on a singular info bit…only a rare few (if any) know what’s truly driving the market each day. As a retail investor, you don’t want to compete with the pros, who are advantaged by greater resources and market-moving financial scale.

TIME OVER MONEY.

I’ve received collegial feedback that I maintain a strong work-life balance; working hard but always taking time for personal pursuits (int’l travel, Malibu surf in the AM). My balance isn’t a result of personal riches, but a steadfast commitment to what matters most.

Contrast this to my early career as a NYC investment banker.

I sacrificed my entire waking life to work, nearly killing myself in the process (I fell asleep at the wheel during diligence tours in Wyoming, Puerto Rico, and Kansas…shout-out to highway rumble strips).

All this in exchange for my first Wall Street bonus. I’ll never forget what I felt while downing a beer in Chelsea after being told “my number”…

Fear.

Fear at how it changed nothing. No happy switch flipped. No less stress. No feeling of control.

My values shifted quickly.

MONEY IS NOT WEALTH.

Wealth is when money works for you, providing abundance of what matters most (time for family, friendships, health).

Therefore, money is means to an end (and a small part at that), because money without time and wisdom is a sucker’s game.

TIME LEADS TO WISDOM.

Books. White papers. Blogs. Observation. Writing. Analysis. Debate.

Time creates space to absorb and reflect, which leads to experience, knowledge and good judgment. We exist in a “do” culture, often leapfrogging the thinking process.

Overly “do-ing” cuts us off at the knees.

WISDOM LEADS TO WEALTH.

Soundness in judgment allows one to make fewer decisions of greater financial impact, and confidence in letting those decisions “ride”.

Fewer decisions reduce time waste and mental scatter, and confidence provides peace of mind…collectively, allowing one to be in the moment for what matters most.

True wealth achieved.

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Back to crypto.

Late millennials are riding the crypto bandwagon like woah (more on why in another newsletter), and I’ve been officially swept up. I’ve made good money, and quickly. But, at what cost?

Time. And lots of it.

Over the past 6 months it was the 1st thing I did when I woke up and the last thing I did before bed. In between were countless texts, email threads, cold storage wallets, exchange sign-ups and blockfolio check-ins. All on top of founding a new company, bidding on real estate…and life.

Ethos violated. This was not “set it and forget it”.

As I learned from my investment banker days, the end didn’t justify the means. So, I’m re-setting. Less doing. More thinking.

The best part?

I’m confident I’ll make more money across my overall investment portfolio (multifamily real estate, crypto, stocks, bonds, angel investments, equity in my newco). AND, I’ll be back on the path to true “wealth”…time for what matters most.

Back to that winning feeling.

New year, fresh start. Are you setting yourself up for a “marathon” win?

#realestate #realestateinvesting #leadership #positivity #newyear #crypto #cryptocurrency #investing #inspiration

Below are some learnings by our Omaha investor group from when we bid on a larger commercial property. Unfortunately our bid wasn't accepted but we learned a tremendous amount.

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LEARNINGS FROM BIDDING ON A 12-PLEX

WHAT WORKED WELL:

• A COVER LETTER: It's difficult for buyers to stand out in today's market. High prices, few contingencies, all cash bids, etc. So, a personal touch can go a long way in helping get your bid accepted. We used a simple one-page cover letter that included (1) brief bios of our investor principals (2) our investment & business partner values (3) our intent for the local community. We'll use this same form for other bids, though we'll always customize...think about what personal touch you can add to your next transaction.
• TRUSTED FINANCIAL MODELS: We used Bigger Pockets' online calculators to do quick yet thoughtful analysis. I've assessed 50+ properties with their ROI tools, so I'm very well versed on what model inputs I need upfront & my target return thresholds, & can perform my financial diligence very quickly.
• TIMELINESS: We saw the lead on Thursdsay night & immediately carved out 5 hrs on Friday to do diligence, call commercial lenders, etc. We also had a 7:30am Saturday investor call to prep the final bid (FYI less buyers work on weekends = less competition). Further, our agent worked through the weekend (a trait I highly value) & had good intel from real time convos with the seller group.
• COLLABORATIVE & HONEST PARTNERSHIP CONVOS: Our investment principals were candid about current capital & time avails (prudency is optimal in this mkt). With this info, our investor group was able to think creatively & found a way to make a large bid with just a small portion of the investment group.
• DOWNSIDE PROTECTION: This was our largest value bid to date, so we did a thorough assessment of downside scenarios & exit options. We ensured we had the requisite bid contingencies, diligence follow-up & backup capital sources to protect our interests.

WHAT CAN BE IMPROVED:

• BID RANGE IN COVER LETTER: In the standard PA form, only the base bid is featured, NOT the upside range. If the seller is skimming fast (likely), they may assume this base bid is the max value offered & quickly dismiss. Also, even if the seller eventually sees the escalator clause in the addendum, their initial emotional reaction to the offer is already biased. As buyers participating in a very competitive process, we want to best control all emotional reactions...missteps here can cause a seller to quickly move on to the next bidder.
• ENGAGING CLO'S EARLIER: Commercial Loan Officers are more conservative than conventional lenders, have a lot more questions, & prefer a track record / longstanding relationship with clients. Our investor group is now officially on the radar of many lenders in Omaha, & regular follow up with group updates & further guidance on our investment plan will be prudent to strengthen our lender relationships.
• DILIGENCE LEAD TIME: The listing came up early in the week but we only caught it on Thursday. Our investor group should be tracking large MFUs better so we can have more time for diligence / site visits. It wasn't ideal to request that one of our local principals do an exterior-only site visit late on a Friday. I emailed my property mgr but he was on vacay that day, which was unfortunate since his input is always helpful (shout-out to Andrew!). Solution = better filters in Zillow / Trulia, & advise our agent these are a priority for our group.
• EXISTING BID TEMPLATE: We realized it'd be helpful to create a bid template for our agent & investor group so we can more quickly prepare our next bid (e.g. escrow is XX% of base bid range, requisite contingencies, etc).
• PARTNERSHIP BRANDING: Establish a group name for mktg purposes when we're talking to sellers, buyers, etc. Will position us with more legitimacy & polish for external convos.
• LEADGEN: We need more leads! We've setup systems & processes to accelerate discovery, though regular review & group feedback will help us optimize our constant search.

#realestate #realestateinvesting #multifamilyinvesting

(Re-posting this from my BP blog in case it's helpful to any of the forum readers. This is far from an exhaustive analysis into the mechanics of 1031 exchanges, but the high level thinking may be helpful to those looking to understand one of many dynamics impacting the current buying landscape. As always, open to all feedback)

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READ TIME: 2 min

Having a hard time getting your bids accepted? Wondering how buyers are rationalizing offers way above asking? The tax code may be the answer.

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One main reason, particularly for those of you bidding on mid to larger commercial properties, is 1031 exchanges. In short, a 1031 exchange refers to a portion of the tax code that allows a seller to re-deploy their sale proceeds, tax free, in a like-kind exchange.

By way of the most simplest of examples, let's assume I'm selling a property and expect gross proceeds of $1mm, with a total tax liability of $350k. That means I'd have $650k left to invest in another property, and at 25% down, that equates to $2.6mm of purchasing power ($650k / 0.25). BUT, if I did a 1031 exchange, I could re-invest my entire gross proceeds ($1mm) into another property, and at 25% down, I'd have $4mm of purchasing power ($1mm / 0.25). With greater scale comes potential for greater returns (more leverage, cash flow, appreciation, etc), so the latter option here is quite appealing...right?

Yes, except for those of us bidding against 1031 investors. Allow me to explain.

While you may be bidding on the direct merits of a property (e.g. how much it cash flows after PITI and OPEX), where a bid above listing price makes zero economic sense, a 1031 investor is evaluating the investment from the POV of their OVERALL exchange. What may be a breakeven or even negative direct ROI at that inflated purchase price for you is actually a major economic win for the other investor when the 1031 tax savings from their recent sale are factored in.

This is happening A LOT in the midwest, where investors with recent asset sales in CA and CO are seeking to re-deploy their exit proceeds in new acquisition targets. And, since there's a ticking clock on identifying a new property to purchase, a 1031 investor could get very aggressive on price (and overall deal terms) to get a deal done quickly.

How's that for a competitive bid process? Eek is right!

After your initial grumblings, realize that this is yet ANOTHER reason (of many) to invest in real estate...the tax advantages are numerous and give RE investors a big advantage compared to those focused on other asset classes (pending any legislation changes). Further, it's also a reason why you should start buying RE sooner rather than later --> the 1031 exchange is at your disposal when you have something to sell...and buy.

(NOTE: If you want to nerd out on the details of 1031 exchanges, and there are many, here is one article that summarizes it well and has links to additional FAQs). 

@Scott Meyers Thanks for your note here Scott. I'll make sure to check out your website and online resources, definitely want to read and absorb as much as possible during my learning process, as my investor group is definitely new to the space. I see lots of opportunity, particularly in the deal I'm assessing, but of course want to be prudent before diving in. I prioritize education before all else, as there will always be opportunity...patience is a strong virtue in RE ;)