All Forum Posts by: Drew Whitehead

Hey Kimberly!

Welcome to BP! I love Moab and we go there several times a year. I've always been wanting to get a property there to go to but you're right, prices have gotten so high it's really hard to make it cash flow. 

In this market, I have only been able to find deals off market. I've seen some wholesale deals come that aren't terrible but if you really want a deal, I would look off market. By this I mean driving for dollars and seeking out properties that are in disrepair or that have great potential for an ADU or up/down duplex or something else.

With just the two of you, you could really find and house hack a duplex or triplex and not have to really pay anything. I don't know what rental rates are in Moab but I imagine they mirror the real estate pricing? I also don't know how Moab city looks at ADU's but I'm guessing they may be more strict than other jurisdictions? Have you looked into that? I would definitely do your research there before going down that road. However, house hacking a small multi-family or converting a single family into two rentals may be the route to go.

My last suggestion would be to try and keep as much of your savings as you can. Moab could also be a great place for a short term rental and you can use your savings to furnish one of the units. With the tourism of Moab, you could probably make a lot more cash flow on a STR than a LTR. If it were me, that's what I would do. You may even be able to leverage a nicer property that will rent easier as a large, luxury STR. Just my two cents...

It's good to see actual statistics on this. I've noticed that some homes are doing price drops because they aren't moving. People think that they can list an absolute turd of a property for $500k and I'm glad people are no longer jumping on these dump properties. I have several non real estate friends and they just can't get into anything right now. Let's just hope it continues to stabilize to more reasonable transactions! The prices are whatever but the competitiveness is out of control...

@Account Closed I have not considered that. My knowledge on syndication deals is very limited so I wouldn't know where to start. I will be doing some research on this. Especially if the cash flow could be high enough to offset the initial investment!

@Frank Hinck that is an interesting idea. I'm not sure how to find someone that is selling their entire portfolio?? I can start the conversations with other investors and realtors though!

@Drew Sygit this is more of a private loan that he doesn't offer to just anybody I guess... If he branches out I will let you know!

@Duane Richards & @Evan Polaski, the loan is seeming a little less appealing as I have to pay interest and principal each month so the payments would be around $55k every month. I could essentially pay for the payments with the loan itself until I get the cash flow up but tackling $55k of cash flow per month is tough with todays home prices... The loan is essentially closing in on itself every month you have it. So unless I balance it out with income and cash flow it will slowly dwindle... 

I also have to put a pretty hefty downpayment so unless I could buy a portfolio up front for a great deal and remodel and bring the rents up quickly to stabilize the loan payments, I'm not sure it would work. Unless I use the loan money to ramp up my flipping game and purchase rentals with the income from the flips? Basically using the loan to fund my flips but I won't come out of the 7 year term with $5M of equity. 

It would help me get out of my day job and really focus on REI full time like I've wanted to for a while though...

Correct @Frank Hinck. There are some other details than that but the loan could really be any amount. My question is what would you do with it?

Long story short. I have a duplex rental and a single family house. Getting divorced and the wife gets the house, I get the duplex as far as assets.

I am an architect during the day and have been doing high end and deep remodel/additions at night. I typically aim to make at least $100k per flip.

I love flipping but it was an always a means to buy more rentals. Buying rentals in the Utah market right now is hard with the high purchase costs so I have yet to buy more than my duplex.

However, I found a loan with less than 1% interest that I will be closing on in about two months. My question is what would you do given my scenario? Right now I plan on doing a few flips simultaneously but I'm torn on what to do about the rentals and how to maximize my loan over the 7 year term.

Do I pay off my current properties and find good deal properties and pay cash up front? Or do I find the good rental deals and finance them with loans to keep my equity?

My ideal situation is to pay back the entire loan and interest over the 7 years as well as having a minimum of $20k/month in cash flow.

Curious to hear what you think I should do or what you would do if I were you! Go!

What is your time frame? Do you have a concept design or are you starting from scratch? 

Although there are some decent home designers out there, they are few and far between and I've seen pretty major mistakes that myself and other architects have to fix. Most cities do not require an architect stamp on single or small multifamily structures but you would still need a structural engineer stamp. I would highly recommend an architect if you are doing anything remotely custom. If you are doing basic cookie cutter stuff then you're probably ok to use generic plans (although from a design aspect, the downfall of American urbanism and urban design...)

You could always hire an architect to help develop the plans and you could save money by doing the permitting and construction administration stuff yourself (although there is great value in keeping them involved through construction)

Margins aren't huge and if you take 80% LTV for profit that puts you around $160k (profit around $40k) then you figure $10-15k in realtor costs = $150k. That leaves you with $15k in rehab budget. I have great respect for J Scott but with labor rates and availability in Utah right now that would be a real tight budget. The mold issues alone could easily eat up half that budget let alone putting it back together for resale.

Is it black mold? Has it been tested? If it is bad and you do it legally with abatement it will cost quite a bit. Being that old of a house,I would also go after the major inspection items that are bound to come up. 

It's possible and lower risk on a first deal but hiring a GC to manage the whole thing will hurt your profit and you really need someone knowledgeable to go in and look at the situation before you commit. All of this could be evaluated during your due diligence period which I always do even on cash offers closing in less than 2 weeks.

That's interesting that you bring this up because this is exactly why I started flipping. The money is a big portion of why obviously but I also pride myself into going above and beyond on each one. Obviously there is a limit to what you can do to make the deal work but when I tell other investors about the house and what I am doing to it they always ask why I don't just paint it and put new flooring in only. My wife will tell you that I am OCD in making sure everything is correct and she argues a lot about my choice of materials and decisions on things.

For example, the last flip I did had not been touched in over 40 years but it was still in great condition. I got the house off market for $330k after approaching the seller. My initial budget was $120k with an ARV of around $550k. After starting the project, the architect and OCD in me took over and I ended up changing the entire layout of the entire house and we went way over budget on electrical and plumbing because it was the right thing to do with the condition of things. I could have put a bandaid on as it still worked but I pride my houses in being higher end and good quality.

As we continued with the house, I ended up putting in over the top finishes such as heated tile floors in the master bath and sound insulation under the hardwood floors to reduce noise transmission to basement. These things cost me write a bit of money that to this day my wife argues about doing and other investors scratch their heads at. I put myself in a homeowner position as if I were going to love in the house and not just a flip and be done.

I ended up putting in $180k into the house but we were also able to sell the house for $730k. If you do the math I ended up making $120k MORE THAN MY INITIAL CALCULATION! And this is just because I went above and beyond in finishes and quality that didn't bring up hardly anything on the home inspection by the buyer. We also ended up selling it as a for sale by owner with both parties which kept an additional $30k plus in our pockets.

Lots of people we talk to think that we we're lucky and maybe we were on a few things like selling without an agent but I still think that you can put in more money to get more money out. The comps and the neighborhood have to support it also but I totally could have done a typical flip and made a generous profit as any flipper would but I couldn't live with the quality that it presented itself. Maybe it's because I have extensive construction experience and I did things that even my subcontractors saw as over the top and the buyers won't even notice but it's the peace of mind that it was done right.