All Forum Posts by: David Coombes

Hey BP Community,

I became a BP Pro member in December of 2015.  After years of talking about investing in Real Estate I decided it was time to take some action.  I started using my hour commute to work to listen to the BP Podcasts, learning all I could from the forums, and connecting with other BP members.  Since that time I have successfully closed on my first Triplex and just sold my first flip for over $75K in profit!  Below is a summary of the flip.

The Numbers:

Purchase price:  $185,000

Buying Costs: $4,475

Holding Costs: $2,875

Repair Costs: $57,000

Sales Price:  $342,000 (listed at $339,000 and sold in two days with competing offers)

Net Profit after Commissions:  $75,550

Pictures:

Exterior before

Exterior After

Kitchen Before

Kitchen After

Entry Before

Entry After

Master Bath Before & After

Master Bath After

Master Bed After

Hall Bath After

Living Room Before

Living Room After

Dining Room After

How I found it:  

I started working with an Agent that I know and trust and we set up some MLS search parameters that sends me emails daily. This is not the best way to find discounted deals (especially in Raleigh), but this one hit my radar in late January. I had already lost out on other MLS deals due to the competitive market, and I knew it had potential as soon as I saw it. We moved quickly and had it under contract in less than a week.

Lessons learned: 1) You have to analyze a lot of deals to make offers on a few to close on the one 2) Do not suffer from analysis paralysis...you have to act!

How I funded the deal:

I partnered with someone I trust and I also took a personal loan from my Solo 401k to help fund the downpayment. The remainder of the funding came through traditional financing (75% LTV of the purchase price and repair budget).

Lessons learned: 1)Sharing the risk with someone you know and trust makes the process a lot less daunting.  2) Banks loan to people!  Network with local bankers until you find one that wants to work with you (but don't waste their time by bringing them money losing deals).

The rehab process:

We literally started the demo process the day after we closed on the sale and were able to complete all renovations in about 7 weeks.  We budgeted $50K and came in at roughly $57K.  As you can see from the pictures we decided to go on the higher end of finishes, but we knew what the market was demanding.  

Lessons learned:  1) Make sure to build in a buffer for your project budget (you will go over it).  2) Know your market and give it what it wants.  You can't do Class C finishes in a Class A neighborhood or visa versa.    

The sale process:

We listed on a Friday, had our initial offer within four hours and then accepted the best offer that Sunday afternoon.  I realize selling this quickly is highly unusual, but we knew our market and priced it at a level we knew would drive demand and hopefully create a competitive bid environment.

Lessons learned:  1) Go where the people want to be.  Yes - it's more competitive, but competition equals demand, which is what you want on the sell side of the deal.  2) Build your business plan so you can list slightly below market.  This enables you to sell quickly so you can redeploy your capital to the next project.

I know we were very blessed on this first deal and I don't take that for granted.  But we were not "lucky".  In the four months since we started this journey I have used every spare moment to educate myself through podcasts, books, forums, networking and research.  I've become a Facebook orphan and I can count on one hand the number of hours I've watched television.  I analyzed a lot of deals, and I KNEW we were going to make money on this deal going into it.  I did this while working a full time job, raising a family and undergoing surgery due to a sports related injury.  

So if I can do it...anyone can.  

A special thanks to @Dmitriy Fomichenko for helping to educate me on the beauty of a Solo 401k.  @Brandon Turner and @Josh Dorkin for putting together this forum. And @Adam Ward, @Adam Schneider, and @Justin Hackney for just being generally good guys and taking the time to listen to a newbie.  

I'll post about the Triplex in a separate thread.  

John

@David Coombes    The biggest "pitfalls" around Tower Grove Park are location and tenant screening. Yes the areas you think of as 'Tower Grove'-Tower Grove South (near the park), Shaw, Tower Grove East (right by Grand) are all great areas and you won't find too many properties to buy based on returns as most of those sell based on owner occupied. If you go a bit further away, especially TGS or TGE, some people still call it by that neighborhood name but it's a completely different world. There are lots of properties, especially multis, that offer great returns on paper but the areas are sketchy so you won't find good tenants willing to rent there and you will suffer from high vacancies and repairs.

The other thing in that area is that, even if you are in the good areas, you are close enough to some bad areas to get plenty of bad tenants applying to rent your property so you have to have a good system to pick the best prospects.

@David Coombes

Are you sure you're speaking to a commercial lender and making it clear you're not seeking a secondary market loan? That's what commercial lenders do, make loans to businesses, but then your qualifying process is different too. :)

Hey David, @Maggie L. is right, there are any number of reasons but in my experience with the properties I have picked up, one of the reasons I see that owners sell is because they have owned the property for a number of years, didn't put CAPEX money back to keep the property up and have just ridden it down to the point that it's going to take some money to get it back producing again. In most cases, I can get a property back up producing without having to invest huge sums of money. Sometimes it's a roof, sometimes it's a compressor (or 2) that were stolen. Sometimes it's a heating unit/boiler, sometimes it's just all the deferred maintenance that gets to seem overwhelming. For me, I can usually pick it up under market, do maybe 10 to 15K in deferred maintenance, new paint, sheetrock, tuckponting and be right back on market rents. There's more to be made (I especially like some of the REOs around the Benton Park area) but until I quit working full time, it's hard to get spun up for more than 10 to 20K in repairs.

Another reason I have run into is that current owners are looking to leverage their equity and get into some bigger (or at least different deals). Some want to move into more B or B+ neighborhoods and are willing to take a lower cap rate to get there. I have seen quite a few bundled deals where this is the case. What I usually see in those deals is one or two pretty sweet properties bundled in with a couple of dogs...

@David Coombes you're right, the reasons are varied - from divorce to debt to deferred maintenance that they can't afford to address. I think St Louis is a lot like other markets - the most common reason is the current owner doesn't want to deal with that property anymore. Unless it's extenuating circumstances like divorce, it'd be challenging to turn it into a competitive advantage. You may have someone who's sick of being on call to tenants 24/7, but more likely there's work that needs to be done and it's too challenging to rent in its current shape. In the markets you've mentioned the properties that seem like the best "deals" usually have some work to be done in at least one of the units (assuming multifamily) before they can be rented out. Or, they're going to be a challenge to fill, so the vacancy rate drops the ROI once reality sets in.

I'd also want to echo @Peter MacKercher's comment about turnover of current tenants.  Sometimes tenants are in at a rent you like with no desire to move, and they're fine.  But, especially if you're planning to do work in their unit, assume high turnover rates for anyone that comes with the purchase.  You're likely to manage the property rather differently than the previous landlord, and since you didn't get to screen these tenants you're not going to have a good feel for the type of tenant you're getting beforehand.  If you're a good landlord, that should make you a little uncomfortable, and the current tenants will probably pick up on that.  
I'm fairly small time, but manage my own properties and still have plenty of stories and thoughts on the neighborhoods you're considering.  We're both in St Louis so I'd be happy to chat a bit more in person.

@David Coombes it sounds like you've gotten a lot of good advise here, but I just wanted to add in my two cents as a fellow investor in the Tower Grove area. This is a hot section of South City, and you're going to pay that premium in your purchase price. For some of my clients (I'm an investor-friendly agent as well) they add in appreciation when calculating their ROI to get to numbers they like. Personally, I don't include appreciation (only added value from major improvements I make), but then I'd also never expect 2% around here. St Louis is a block by block market (to a degree that often surprises my out of state investors) but there are lots of great opportunities if you do your due diligence and recognize there's an important reason the seller is trying to unload their property.

@Josh Davis

Welcome. Thanks for your service. We do free MultiFamily investing training for veterans shoot me an EMAIL for info. Fill in the foundation below.

Check out the Start Here page http://www.biggerpockets.com/starthere

Check out BiggerPockets Ultimate Beginner's Guide - A fantastic free book that walks through many of the key topics of real estate investing.

Check out the free BiggerPockets Podcast - A weekly podcast with interviews and a ton of great advice. And you get the benefit of having over 100 past ones to catch up on.

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and rehabbers (cash buyers). Find them through Google and meetup.com

Two Great reads, I bought both J. Scott The Book on Flipping Houses, The Book on Estimating ReHab Costs http://www.biggerpockets.com/flippingbook

Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over

http://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-book

Good Luck

Paul 

Welcome Josh! 

Hi everyone... I officially have my first deal under contract! Its a buy and hold duplex with the potential to become a triplex with some work.  Purchased it fully rented with 25% down and conventional financing at 4.75%.  The building is a few hours away but I've hired a trusted family member as my property manager.  I'm closing on the deal in just a few weeks... and I have to admit its a rush!  I'm so excited to keep going!  I am ready to dive into the next one but like I should be cautious and learn the business a little more. Also, I'm struggling a little to locate deals.  Its all fun, exciting and scary!  

Just want to thank everyone at BP - including this amazing community in the forums. For the last 8 months I just kept reading the posts, listening to podcasts, reading blog posts, etc.  I am so lucky to have come across this site!    

Stick with the 50% rule over the 2% rule. 50% will guide you well where the 2% can lead you off track and into bad investments reaching for a higher on-paper yield. St. Louis offers many deals over 1.5% and even a good number over 2% but you need to analyze each property and know your area to make sure those numbers can actually be attained. The Tower Grove area offers lots of opportunity and lots of pitfalls, do your homework and you will do fine.

Hey @David Coombes, I invest in the same area. @Peter MacKercher is right. There usually is a reason landlords are selling (and while the 2% rule does come into play, in my experience 1.3 to 1.6 is much more common.) To be honest with you I have found on a few of the properties that I have bought, it has been a mom & pop operation where they use the same insurance agent they use for their primary residence. That can be a fatal mistake. I'm closing on a 4 family next week that has been owned by the same family since 1980. When I looked at their expenses I was floored by the fact that they are paying 3,400/yr for insurance. On all my properties I'm paying more like 300 to 600. A mistake like that can kill ANY cash flow an owner could see...