All Forum Posts by: Darrell Lee

I've bought 14 properties this year and paid cash for all of them, so I guess I must be a cash buyer. But I require a minimum of 100% ROI but much prefer to shoot for 200% ROI and usually get knocked back as I usually have to buy sight unseen. Several houses have needed new roofs, heating systems, entire replumb and or rewiring. But I still make at least a 100% ROI because I buy right. I buy crappy bank REO's that are un-financeable as rates are so low, most buyers are using leverage to raise their ROI's. I usually pay around 20-25 cents on the dollar i.e. comps indicate a ARV of around $150k I will only pay $30k.

Your deal would cost about $85k to make a share of about $25k is way too skinny for me. It would make sense for you if you bought it on high leverage. If you buy it for 10% dp and use your tenant's money for the DP... oh wait, Vt you are required to put the tenants deposits into a separate account for them, so you can't use that money... VT is better for long term hold than fix and flip, though I know a couple that do exactly that... fast fix and flips in Vt...

That sounds a little similar to my original Vermont investment strategy. However, my atty advised against Vermont rent to own/lease option plans because in the event the deal goes awry, you have to foreclose... not evict the tenants in possession. But in your case it is probably worth the risk as you are getting a substantial up front money. Also, there's the Vt Land Gains Tax in addition to ordinary income taxes.

Are you applying any of the rent towards the option? Are you buying and closing the deal and then selling to them? If so, then you have closing costs on the buy and closing costs on the sale. Still if you are leveraging the deal, then your ROI should be good with acceptable risk. I'm not too thrilled with Vt tenant/landlord laws... to me, they seem to favor the tenants too much.

One property I bought in Springfield Vt, paid $19k spent about $16k on repairs so I have about $35k into it with an ARV of around $75-90k. I had planned to do a rent to own until my lawyer torpedo'ed my plan. I cancelled a signed lease deal for $1,200/mo and had the deposit in hand. The town had me jump thru incredible hoops to bring it up to code... When you have a rental property, it becomes classified as a "Public Building" and is subject to a bunch of code requirements. I had to replace a 2nd floor window that had been there for 100 years... modify all the stairways and deck railings... hard wire smoke detectors and on and on... I'm probably the only idiot that applied for permits and did all the work to code...

Next year, I plan to acquire more NH properties and less Vt properties, though I bought a couple of high profile Vt properties in town, (both made the newspapers, the school was the front page headline story) so I probably won't realize my plan to make NH my primary residence as they hove no state income tax... I bought a 12,000s.f. school that I will convert into my residence and company HQ. Should I ever sell, I'll convert the top floor to 3 units and that way it would be eligible for favorable 1-4 unit FNMA/FHA/VA conforming financing...

Good luck on your deal!

I also forsee a lot of remodeling in my future... I've bought about a dozen properties this year and all save one will require extensive renovation. 

I also just put a 12,000 s.f. obsolete 3 story school under contract that I will convert into my 4k s.f. personal residence and a 4k s.f. construction workshop for my company. The top floor my plan is to build 3 units. This way, conventional 1-4 financing will be available to this property. I want my carpenters to build our cabinets for our houses as I think we can save about $1k per house and build a higher quality product.

It is already commercial/residential/multifamily zoned and would make a good 2 unit property or an AirBNB rental for the servants quarters. To make it into a long term rental would be tough. My ideal tenant would be a professional live/work tenant/buyer.

I first looked at a Rutland, Vt 7br/2ba 3,100s.f. 1/4 acre corner lot, slate roof Victorian home with all it's original architectural features intact about 7-8 months ago I first bid on it. It was a bank reo auction deal and my stop limit back then was about $57k, they wanted over $71k which I refused. Every couple of months, I'd look at it as they lowered their reserve price, I'd lower my bid price. I bid $44k, rejected. I bid $41k rejected. I bid $35k rejected. Then finally they put it on the market for $33k and I offered $29k and surprise! They accepted the offer!

http://on.fb.me/1RpkBdl

Typical bank reo, not financeable so only cash buyers. So obviously I was stoked to get the house at such a bargain. I think it is assessed for around $141k and previously sold for $145 in 2004. I plan to update the kitchen and add a master en suite and a 2nd upstairs bath sacrificing 2 bedrooms making it into a 5br 3.5ba home. Probably $30-40k in renovation and remodeling costs, I think that should bring the house up to the $175k value.

http://www.zillow.com/homedetails/375-West-St-Rutl...

Your thoughts?

Mitchell, can teach you about the "true cost of ownership".

No, not live there that long... there might be some term requirement by the lender, if not, once the project is done, when you have found your next project you might see what the value is of your first project and if you've added enough equity, you might even be able to refi and pull your cash out and then do it again. Keep in mind that renting might be more than owning, so use the BP tools to analyze your proposed deal.

Congrats on having your head on straight. Starting at your age, if you play your cards right, you should reach financial security before you hit 40.

Forget the LLC right now, that is more of an asset protection move which is not yet needed as you are just starting out.

If I were you, I'd plan to move in so you'd get more favorable owner occupied financing and you might even try to get one of those FHA 203(K) purchase/remodel loans to fund your repairs.

After you live there awhile, then consider renting it out when you've found your next project to buy/renovate... Then, rinse and repeat... Do that 10 times and you will be well on your way to financial security.

WHERE IS YOUR BROKER? He's suppose to train and guide you. Vermont seems to have different rules than the Los Angeles market where I was a broker many years ago. How I found success is I held open house every chance I got. When I was a newbie, I asked the top producer in the office if I could hold open houses on her listings. She was delighted and we became good friends. Before that, she wouldn't give me the time of day, lol. Once I achieved some success, I focused on brand new houses and got permission of the owners to setup office in their vacant house and would hold open house every day and work out of the office. I'd turn on the utilities in my name and have a phone line installed into the house. This was the 80's before cell phones. Stick in a desk and my portable computer was a svelte 41 lbs (pre IBM PC).

If I was a Realtor today, in an office with lots of listings, I'd pick a high traffic location to do a similar thing. Buy 3 folding chairs and a 6-8 foot folding table, my 3lb notebook pc and my cell phone. A dozen flags and A frame open house signs and I'd be in business. You don't meet prospects, sitting in your office wondering what to do next. I would buy a 24 pack of bottled waters and few packages of cookies. I'd pick houses with power and water so you have a working bathroom/kitchen. If you are a cook, buy some cookie dough and make fresh cookies so the house smells great and get some great coffee and all the fixins. Don't skimp. Hot coffee and fresh baked cookies, buyers will love the smell and feel obligated to talk to you... In Vt, are you allowed to hold other companies open houses with their permission?

I've bought over 10 properties in the last 6 month and the agents in general have been pretty terrible. I'd usually find my own deals, make the deal and email an agent that I've never had contact with before and email them congrats, you just sold me a house. LOL. That's because I usually buy properties without seeing them... I had been choosing top agents in the past... Realtors of the year... 20+ yrs experience or agents who have either construction or investment experience. But some of them have been so busy, they don't have time for me as I buy bank REO's and usually under $50k. So the commissions are small. But they fail to realize that I'll be selling after 12 months and the properties are usually 3-4x what I paid for them so they should be decent priced listings worth having. Especially since I pay cash and can carry a second or be creative with the financing.

If I was to become a new agent, I'd be holding open house every day and pouring over all the MLS listings and finding the bargains in various price points. Run cost of ownership in those price points so if you found some great deals on $150k houses you can tell them how much will be the mo payment and the after tax mo pmt. I guarantee, it will be less than renting a comparable home! Find the deals in the ski areas, million dollar estates, starter homes, REO deals, Super Deals, 2-4 units. Run the numbers on everything until you can guesstimate them pretty close without needing to use a computer to figure it out.

There's a ton of super bargains in Vt right now and sellers will become desperate once the snow hits and the prospect of heating a vacant house is not very appealing. You won't make money sitting in your office waiting for the phone to ring on floor time. You gotta get out there and make it happen. I just wish I had a few extra million to keep buying but I have so many renovations going on right now, I'm super picky on what I will buy...

Cold calling? Yuck... 99% rejection... not many people can handle such a high rejection rate. People entering open houses are either buyers or neighbors who might be possible listing prospects. Zero rejection!

 I have a similar investment strategy to Darron... I researched the entire country looking for markets to invest in and after spending over 3 months, I decided on New England... more specifically Vermont and New Hampshire. My rough criteria is very strict and I think it pretty much guarantees a profitable criteria. 

1) Pay 20-35% of the 2006 peak price of the property. A typical deal for me is to buy a bank REO where the buyer paid $150k-$190k and I will buy it for about $30k or less but of course it has been abused or neglected and requires a cash purchase as it is non-financeable.

2) Low $/s.f. I've bought properties as low a $3-5/s.f. small commercial (10k s.f.) and former mansions. No zeros are missing... $20k for a 9,300s.f. building... $5k for a 4,000s.f. house.

3) Where my risk/gamble is, is that I like changing use of properties... converting bootlegged 2 units back into SFR. The gross rent is less, but it is less headaches with Vt state inspections and rental codes. Or sfr's that have commercial zoning market to business owner live in usage.

4) Buy at historical lows. A recent deal is I paid $17k for a house that previously sold for $130k. Have it rented for $1,200/mo. I have about $33k into it after renovation costs. I expect to sell it next year for $90k. It's worth $85k today. These smaller deals I find very lucrative. I cannot find any risk it this type of investment... But they are not easy to find... I'll look at hundreds of properties to find one like this...

5) Get property taxes lowered. I try to lower my fixed costs as much as possible. Little changes can make a BIG difference. The $5k house I bought was assessed at $190k and I got it reassessed down to $75k. I'll save about $3k/year on taxes, so lower taxes means higher cash flow, which means higher resale value because of lower expenses. By the time I finish the renovations, I will likely have $65-75k into it and project a ARV of $150k-175k. With a little luck and appreciation over the next 10 months, ARV could easily go up another $10-30k. That 7br/4ba house should rent for $1500-1800/mo. So I should see a 10% ROI from rent, plus the added value from the renovations of an additional 100-125% profit. And that is cash investment, if I used leverage, the profit numbers would soar off the charts.

6) Hold for at least 1 year so that I can 1031 Exchange the properties to defer paying most income taxes. This is where flippers lose so much value... paying taxes on their profits.

7) I try to only rent to tenants who will qualify  for new loans so I can cash out for my exchange and I find my own tenants without brokers (I used to be one for 30 years) and so I avoid paying commissions when I sell to the tenants. Fees saved is profits made.

8-20) I have many more criteria for my investment (but I'm stopping here) and I also have to like the properties I buy. I turned down a 4 unit building for $10k (would need to spend 70k reno) because I didn't like the building and thought it was too unsafe... I was on the deck of the top floor when my foot when through the floor board and for a few nanoseconds, I thought I was gonna fall through the deck... lol... scary... lol It would have been a huge cash cow as all units were 2-3 bedrooms and could go Section 8 at an average of about $1k rent each unit. My competitor has an even more profitable rental plan... he rents to convicts just released and gets ridiculous rents as he loads up properties like this renting rooms and gets paid by the government for housing the ex-cons...  So I'm guessing he gets double or triple the normal rents... Not my cup of tea...

I went to the free seminar and then I did drop the $1,500 for their 3 day workshop which did provide some info and little did I know until the workshop was over that I was sitting next to and chatting with Monte, the mentor of the speaker...

Basically the 3 day workshop is spent 30% of the time trying to sell you a $35k-$50k membership... and I'm sure if you sign up for that, there will be even more expensive memberships to spend your money.

So did I get my $1.5k money's worth...? I'd say yes... Thursday I bought 4 tax deeds that yields 1% interest per month or 12% interest per annum. I want the properties and the high interest is merely icing on the cake for me. It was a live auction and I paid the minimum bids on all of them. One that I did not win was overbid which I bid $21k and they bid $25k and I let them have it... It is a large mixed use historical property and I can't imagine the owners would let it go for the price of the past due taxes as it is about a 30k s.f. building. There is a one year redemption period and if it looks like they won't redeem, I'd contact the owners and offer them $5k to quit claim the property to me and I'd redeem. 

The state housing authority wants to renovate the building so I'd partner with them as it will cost millions to renovate...