All Forum Posts by: Gabriel Graumann

@Account Closed I'll start by saying congrats on door knocking, call around or whatever activities you took to find your first deal. That is hurdle that most real estate investors fail to complete, so regardless the outcome, you're making progress. Now for the deal itself.

It's hard to truly comment on whether it's a deal or not unless all of the terms and conditions and requirements are known. You've referenced a few and glossed over others. For instance, your comments for the renovation suggest it's a full gut and rebuild plus a higher than average demo and haul/dump. In the NW where I live, a "rough" but accurate rule of thumb for remodel costs are $50/sf for a starting benchmark if you're not removing a bunch of walls and a reconfiguration of the layout, etc. So just on that metric your budget is $20K off. Permits or no permits? Designs, architect fees, etc? How much time will this take? If the house is deemed historic there are preservation requirements in many communities that require you to show the renovation designs to a separate review committee before permits for work will be issued, and this additional layer can add months in some cases, plus additional design and build costs as certain materials and craftsmanship may be required.

I also did not see holding costs or resale costs, two elements that nearly all flippers will face. Unless they are truly all cash (no hard or borrowed money) and also a real estate broker intending to sell themselves and not pay themselves a commission, they'll still have to pay the other side 2-3%, plus excise tax, title/escrow fees, and attorney fees in some states. These are pretty fixed costs that need to be factored into the potential wholesale terms.

If all of the above can be resolved and there is still a profit of 15%-25% to the buyer, and you can pay yourself a fee you believe is worth the effort, then and only then do you truly have a deal.

Investment Info:

Single-family residence wholesale investment in Everett.

Purchase price: $263,000
Sale price: $275,000

MLS listed property I put under contract w/intention of renovating. Found an investor willing to take the deal w/an assignment fee plus I retained the scheduled commission. Result was a 10 day wholesale deal for a listed property.

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

I was looking to add a project that I could start work on in January 2020, and this property had just came back to market after failing to close for the 5th time in 2.5 months.

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

It was a MLS listed property that had failed to close on the previous 5 occasions. Listed price was $289,000, so I used the likely frustration and fatigue element of the sellers numerous failed closings as my leverage and presented an all cash, zero contingencies, and a 10 day close at $255K, which was countered to $263K which I accepted.

How did you finance this deal?

All cash was the offer, and those were the required terms of the buyer I assigned it to.

How did you add value to the deal?

My value was securing the deal below market value and still leaving enough value on the purchase for an investor to take it over.

What was the outcome?

I was approached by another investor who's offer had not been accepted and we agreed to an assignment of the deal with a $12,000 assignment fee, plus I retained the commission earned as the buyer side broker.

Lessons learned? Challenges?

Be creative and open to any outcome. I liked the deal going in but knowing it was fire damage I ran my numbers far more conservative than other investors. While my spreadsheet showed a possible net profit at $55-60K in 5 months on resale, I was willing to take 21% of that profit on the front end and shop for a different deal. There was plenty of risk for a deal like this one, delays at the city for permitting, new code issues to address, costs running higher than anticipated, etc.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I represented myself on the initial offer and then the represented the buyer as the buy side broker.

@Derek Schlaht Welcome to the BP community and Washington State. I'm focused around Seattle Metro and heaviest in the South Snohomish County marketplace myself as that's where I live. Personally I prefer to look for investments where I'm located (Western Washington) since I know the land and market the best, though I have been looking for an investment in Scottsdale for about a year. I do a lot more in the commercial value-add categories with residential fix-and-flips adding a little flavor a few times each year if the deals make sense. So even though I'm biased, I don't recommend something I have successfully done yet, so that being the case I would look for every opportunity in a radius that close to you or that you understand the entirety of the market for. Considering your unique employment you should have or be aware of additional development opportunities that others may not see as quickly.

Happy to connect if you are interested in looking further north from your current locale, or simply want to bounce ideas around. Cheers! 

@Andrew Ralston as the other two members have posted, use the network tab within BP and go to Events to search for local meetups. FYI, I have hosted 2 local BP meetups in October and November, and we will be having another in early January and monthly thereafter. Next location TBD though we typically meet in the Mill Creek/Silver Lake/Everett corridor somewhere. I'd be happy to connect with you and hear how you are looking to grow your investment knowledge.

@Charles D. Unfortunately there are far more BAD (read "Lazy") property management companies than truly excellent (read proactive, honest & employs great systems) ones.

As a commercial broker and owner of a commercial property management company for 17+ years the best recommendations I can make are as follow:

1. Review your contract and hold the company accountable to the agreement. All roles should be clearly identified along with the process for addressing all issues from maintenance to rent collection to bill pay and inspections among plenty of other items.

2. Prior to firing a management company request a written copy of all receipts, work orders, tenant correspondence, accounting financials, bank statements, etc. to make sure you have everything necessary to hand off to a new management company. Often when we are taking over management of a property account what we receive is a disorganized box of papers at best which we have to spend hours sifting through, organizing, and often rebuilding 1+ years of records in order to truly analyze the performance of a property. Most company's will charge an additional fee for this service and depending on the size of the account or portfolio, this may be several thousands of dollars simply because an owner didn't keep or receive organized or current records for their properties.

Ultimately, find fellow investors in your LOCAL market and get referrals...then actually call and interview each and request contact info for their CURRENT and PAST clients to confirm their story and service record. If they aren't willing to provide you with this info, chances are they are a very good company so move on.

Finally, I don't work residential rentals in South Seattle, Tacoma or Olympia so I don't have any good referrals on the south end. If your properties happen to be on the north end I do have a great contact for you that I'll PM you if needed.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $350,000
Cash invested: $10,000
Sale price: $376,500

Fixer Turned Wholesale Deal

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

Always looking for single-family fix and flip opportunities, and this one met several parameters.

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

A wholesaler sourced the deal, price was negotiated down to $340 plus a small fee to the dealer as his clock was expiring to execute.

How did you finance this deal?

10% down payment, hard money for the balance.

How did you add value to the deal?

Removed all personal items & performed demo/debris removal.

What was the outcome?

Resold to buyer looking for a buy/hold opportunity.

Lessons learned? Challenges?

The deal penciled really well on our initial intake. A few surprises with the basement that increased the job costs and ARV, but overall it still would've been a great fix and flip. The contractor I partnered with wasn't able to dedicate the time necessary to complete the project within my desired timeline and my other contractors who tied up on projects for several months, so when provided the opportunity to resell for a very small but quick profit, I pulled the trigger on the resale.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I self represented for the purchase and resale; second buyer was also a licensed broker.

@Grant Liddle As others have mentioned if you have faith that money will resolve he temporary issues enough to get him to show up, complete the job on YOUR timeline, and to a point that allows you to move on with the rest of the work with or without him, then do it. Otherwise, I count it up as a sunk cost and reach out to 5-10 structural engineers in the areas and ask who they've been supplying designs to. Call each of the referrals you get from the engineers and select the one that matches your timeline and financial goals the best. Of course, do all of the other due diligence work necessary to vet them, but that's the idea.

Then, once this project is over and regardless if you make a profit or not, make a promise to only use vetted contractors who've been doing it long enough to know their numbers AND "the" numbers for any given job. If this is an issue the contractor continually faces then history will repeat itself on your next project with him. Learn your lesson, get a handful of bids for the same scope of work, and don't go the guy who isn't able to to control both his time and resources.

@TK Agrawal Several good points already made. I would add the following:

1. Actual vs. proforma financials are important to determine when analysis deals. Remember that most sellers will paint the "best case scenario" in the financials while most buyers/investors will need to know the "most likely scenario" and to a lessor degree, the "worst case scenario." Ask for 5-yrs income and expense financials, 3-5 years tax returns for the selling entity, and other info related to the property.

2. Physical features. How much life does the building have if this tenant is removed? Roof, exterior, curb appeal, interiors, electrical, HVAC, parking lot, etc. Effectively, how much will it cost you to either retain a good tenant or attract one?

3. Market. How well will this property lease if you lose the tenant or want to replace them at the end of the current lease? What's the vacancy rate in the local commercial market? How about barrier to entry for that type of business? How many other similar businesses within the trade area? Employment leads everything, so who are the major employers in the trade area and what happens if the top 5 all downsize or leave, will your property be okay. What else could you buy in that same market for a similar price? Better or worse opportunity?

@Ken C. Check and verify EVERYTHING. Even after 17+ years in commercial leasing and brokerage, for our properties and clients, I check everything there is to check when screening prospective tenants. Credit, background, SOS for corporations & entity searches, bond, insurance, and references from clients and past landlords (2-3 deep if possible...because the most recent one will give a good reference just to get rid of a trouble tenant). Also, if it's a sole member LLC or similar entity, I'm checking the spouse and partner background and tenant as I may end up working with these people and want to know who I'm dealing with. Cost for all of this is on the tenant, and make it high enough to assist in the screening process to weed out tenants you don't want. Finally, before you sign them up go see their current facility to get an idea of how well they keep a space.

@Nate Falconer One additional note regarding setbacks is determining the zoning of adjacent properties, as most municipalities have "buffer" requirements or overlays. For instance, there may be a standard 5'-10' setback from a rear or side property line, but if that adjacent parcel has a different zoning, then there may be an additional setback requirement, or limit on items such as height, use, access, etc. Check it all to make sure you can use the subject property in the way you intend. Good luck!