All Forum Posts by: Drew C Grossman

Hi @Phyo Ko - I understand you have some decisions to make on this Duplex deal and it may feel overwhelming! Lets tackle this with data and you can logically assess what the best route is..for you! 

What is best case? What is worst case? If worst case is selling to break even or even lose some money....you can use this as a valuable learning lesson (as long as you dont lose your shirt). 

The fact that rent does not even cover the mortgage tells me that this might of been a deal to avoid from the start and may want to cut your losses..always need multiple exit strategies Rule #1. Where is this Duplex, price point, what was the strategy, what is the dynamics of the market? 

Feel free to PM me and we can chat off the forum if you to go in more detail 

Hey @Irvin Nguyen - I operate in Florida, mostly Tampa, Orlando, Jacksonville, lakeland and Central Florida (everything in between).

As you noted, many markets in Florida are already saturated and have higher prices leading to lower yield in many cases. Not to say you can’t find a deal but it typically requires alot of money and returns are low IMO (4-6%). A lot of the resales under 600k you will find around the “good areas”, #1 - won’t even be in a nice area, are going to be old and built in early to mid 1900’s, require a lot of maintenance/renovations/ a mobile home, be in a location you wouldn’t want to invest in. A new construction basic duplex in a GOOD part Jacksonville, Orlando or Tampa is going to cost a minimum $600k, I am not as confident that you will be able to get at-least $6k in monthly revenues (location specific) compared to the alternative. This seems a little riskier being that prices are higher and yield is lower for the product you are getting. 

Migration to Florida has seen population growth almost everywhere, and in that people had to start moving inland. Ocala is the main city in the Central Florida portion of the state, that is north of Orlando and has the infrastructure to support growth. You have seen a lot of companies such as Amazon, Lockheed Martin, dollar general and Orlando health expand major operations out here. Cost of land and build isn’t bad out here and you don’t sacrifice growth / yield. The goal would be to find a 1% deal as I have done multiple times and am doing now. 

I would look into duplexes out here in Ocala. Yield and appreciation much higher. You can expect 10%+ unleveled cash flow. Although we never bank in appreciation, we feel well positioned in this market for the long run and any appreciation will be icing on the cake. 

Hi @Chandler Williams… welcome to the real estate world!

There is a million ways this question can be answered and it really comes down to your goals and expectations on what you want out of this? Find out what is realistic, what fires you up and formulate a strategy based on the resources you already have. 

It’s sounds like you have limited capital at $10,000 but may have the time/energy to put a deal together? Assuming you have the drive, capability and desire to be more of active investor/player this is what I would do if I had $10,000 to start out.

I would first get really really good at underwriting deals …and then find a property that has a 25% amount of equity upside in the deal day one and also a combination of healthy cash flow that can support the property DAY 1!!!. This is where you can go down the rabbit hole of where to find these deals…different philosophies and what is even realistic ect…this is super market specific and a whole conversation of itself….however still very possible as this is how I started out. Most important thing is to build a base of education to know what even exist out there? Don’t be a tire kicker that doesn’t know what’s realistic and looking for a fairy tale. This knowledge is essential 

Assuming you source a good deal (with multiple potential exit strategies), I would then bring in a capital partner to fund the down payment or Property acquisition…and get some sort of sweat equity (depending on your experience and value brought to table) and then invest the $10,000 you do have into the deal itself to add your stake, add some skin to the game and align your interest with your capital partner. Although it won’t super easy to find a capital partner, it will be easier than finding a good deal! Once you have a good deal, everything else will fall into place. Hard work will pay off. 

Here is a realistic example of what's achievable in my market for your situation. You could find (with good amount of work) a new construction build for under 200k using cash and source a good deal…bring in a capital partner with $190k…you add $10k of your own money and get 5% equity + 5% equity for sourcing the deal for a total of 10%. Now you have a brand new property that has no mortgage, rents for $2,000 a month with $300 a month in taxes, insurance ect…profit $1,700 a month. You're investor makes close to 10% cash on cash if you keep all your money in the deal…however if you do this process right you will have equity upside after closing on the property snd then can decide if you want to refinance ect based on your business plan. Again…multiple exit strategies. Using this example, with an ARV of $250k you could refinance out 65% …get close to 160k out of the deal recovering most of your partners capital while still having 35% equity in the property and having positive cash flow.

I hope this example helps and best of luck on your journey!

@Gavin Beard - I am also 24 and in the storage game…I graduated from college with a degree in finance and although I did learn some things, I learned WAY more from mentors/people in the business. I’m not advocating against college, I just think you can accelerate your learning by working with the right people! At this point I think getting valuable experience should be your #1 goal, whether that is working corporate real estate, residential real estate sales or working for an investor on the side part time to find deals…that will be for you to decide!

You may want to start with your why? Why real estate? Why self storage? What are your goals? What do you want to accomplish? You already have something many don’t have (especially at our age) and that is a significant amount of capital. Be very wise and smart with it and you can use it as your nest egg to grow and build enough passive income to not have to work! There are so many opportunities ….get really good at one avenue and make your move. 

You will have to compare cost of capital but it may be worth looking into a Heloc or another line of credit. Generally a refinance will carry an higher amount of closing costs vs a Heloc however it will probably be harder to find someone that will do it on investment property. 

It was an interesting time when the i-buyers borrowed 100’s of millions of dollars at 3% rates and could make any number work. 2400 alone in Florida from open dooor..!!! That’s crazy..and you know that overpaid. I do think that they will be able to sit on a lot of these single family properties even if they lose money in short term, especially when you have huge companies/ funds saying they have committed massive amounts of money to single family houses in markets across the US. I think a lot of markets have a lot more downside and some other markets are a little more shielded but it will be interesting to see the dynamic! In the end I’m just here for the ride!

Let me know what you guys find out. 

@Wayne Hayward - include your holding cost / cost of capital in your rehab budget and aim to keep everything in total under 70% so you have a 30% true margin. 

@Wayne Hayward

The "70% rule" mostly applies to flippers and builders but really can apply to any real estate investor including long term / build to rent. It just means the total project cost goal needs to be under 70% of ARV (After Repair Value) or Market Value. For example.. working backwards.. you come across a cookie cutter 3/2 single family house in a neighborhood that needs some work. Fixed up its worth 300k....it needs about 50k of work to get it to that value...with the 70% rule you know you cannot pay more than $160k for the property itself. ($160k+$50k / $300k = 70%) The reason behind this (especially for flippers and builders) is you need at least 30% margin because that money is considered earned income when you sell short term and by the time you pay taxes you really are not making as much as you thought. You need to make sure you have a healthy margin for volatility in the market and also potential for increased holding costs if you are using short term leverage. Anything under 30% margin is considered skinny deal. I am using the 70% rule now for a build to rent / long term rental project.