All Forum Posts by: Drew Y.

Definitely can utilize other PM for some of our projects as well. DM his contact info. 

Investment Info:

Single-family residence fix & flip investment in Bay Point.

Purchase price: $365,000
Cash invested: $75,000
Sale price: $492,000

Major fix and flip, hoarder house turned into dream house.

What made you interested in investing in this type of deal?

We were brought this by another investor that didnt have capacity to complete deal or vision to what it might become. We turned a lemon into lemonade and made a 21% profit in less than 3 months

How did you find this deal and how did you negotiate it?

Networking with wholesales and investors.

How did you finance this deal?

All Cash

How did you add value to the deal?

Repairing and updating

What was the outcome?

21% return on capital invested in 3 month time frame, annualized return of 85%

Lessons learned? Challenges?

Makes sure you wear gloves and get large dumpsters when dealing with hoarder houses. Bomb for fleas and other pest before you go in, wife and kids dont appreciate you bring home fleas no matter how much money you make.

@Eduardo Zepeda Sorry buddy, was out of town on this one. Next time. 

Looking for advice. I am contract on a mixed used apartment complex and we are currently in the inspection phase. We are deciding whether or not to pursue the deal based off the condition of the unit. However we have been given to very different estimates and scope of work. 

One was from a licensed inspector whom basically told us that it would be 500-600 thousand to conduct repairs and that buildings foundation and walls could collapse at any moment. The other was from a licensed contractor that comes highly recommended and has done work for our partner prior. He quoted repair cost around 300 thousand , more or less and said the foundation and structure was pretty sound. 

I am torn between going with the inspector and the general contractor? Which should I give more weight to as one guy job is to identify risk and the other is to actually get the work completed? 

@Angela Yan We were planning on converting one of our rentals in the city into an Airbnb before the rules went into effect last year, as a long-term tenant gave us notice. After the law change, we just decided to put it up as a rental again. 

I am currently looking manly for buy and holds, and fix and flips/value add plays. But definitely interesting the added income diversification that an Airbnb rental might produce. I am wondering if there are any out of state rental plays that could be "tahoe" of there respective area.

@Angela Yan , I am looking into other real estate ventures out side of the buy and hold portfolio. The Airbnb model seems interesting in some of these smaller markets. What is your experience in buying in markets outside of your location to setup Airbnb's? 

When the good times are rolling we often forget to think about the negatives. That said I decided it might be a good time to Stress Test my real estate portfolio, before I went on another expansion/acquisition round in a new market. I want to understand my personal and portfolio debt to income ratio. How much a lost of income I could withstand and for how long before my portfolio collapsed. It was an amazingly humbling exercise that I would recommend to every investor, given we are at the top of Markets again in many markets.

Here is how I analyzed things. First I broke things out into fixed and variable expenses in my business and also my personal expenses. Then I broke down my income streams to understand where all the flows were coming from. That allowed me to quickly see where my income was coming from and where my expenses were going out. From that I determined that debt to income ratio of 2.61 that is my every dollar of expense I had 2.61 dollars coming in to service that expense.

So if I had 1,000 dollars of expense, I had 2,610 dollars of income coming in. This allowed me to understand how strong my income streams were in the event of a collapse in my various income streams. By understanding this I could adjust my income and see the probability of me losing one or more income streams and how it changed my ability to service my expenses. In my particular situation, I could lose 58% of my income and I would still be able to service my total expenses. So based off this calculation I determined that my portfolio is strong enough to move on with my expansion plan into a new market.

Business expenses as % of total expenses : 70%

1) Fixed Expenses:

a)Monthly Mortgages: 45%

b)Property Taxes: 18.7%

c)Utilities Expenses: 14.8%

d)Licenses & Insurance: 5.4%

2) Variable expense - Water bills + repair expense : 16%

Personal Expense as % of total expenses: 30%

My monthly living expenses

a)Housing: 39.7%

b)Child Care: 25.4%

c)Living expense: 22.2%

d) Food: 7.9 %

e) Insurance: 4.8

Income

1) Total Income - 100%

A) Rental Income: 42%

B) Wage income (W-2) : 26 %

C) House Flipping Revenue: 23%

D) Property Management Revenue: 5%

E) Stocks/Dividends: 4%

Please let me know if you would like help walking through this process as it has been super helpful to understand my financial situation or send you the spread sheet I used.

Cheers

@Angela Smith you are very welcome. Hopefully it is help. I know it was a little bit of a read, but the process I took has helpful in understanding where I stood in this time in the economy. 

@Drew Cameron First off great name Drew . I have used the BRRR method to a certain extent, but honestly I haven't really needed to given this strategy of flipping and using the cash from those flips to deliberately purchase buy & holds all cash.

Yes, the cash expended is a little more than people that enjoy leveraging would suggest, but for me its a what allows me to sleep at night.I have also set up Lines of credit against a few buildings that are fully paid off in the event that I need to tap the equity in the future. In the meanwhile paying off the buildings in cash allows me to get good pricing, have a solid cash flow , reduce interest expense and allow me to grow at a rate that I am comfortable with. I discussed in another post about understanding one's debt/income ratio and "stress testing" your portfolio given the market conditions.  This is part of the reason I haven't pulled out maximum cash out of every project, as I don't want to build a house of straw , rather one of bricks less the big bad wolf comes a blowing. 

This basically was derived out of the 2009 meltdown.  I was too young to be fully involved invested, but I was old enough to see the damage it inflicted and the lives it crushed. Personally I would rather learn from those lessons via a third party than have to experience it myself. Hopefully that was helpful.