All Forum Posts by: Richard Mercado

Thanks for taking a look @Dmitriy Fomichenko 

Thanks for the feedback Jake, lesson learned. I've found that even if you have a contractor inspect the property, a lot of them simply don't want to crawl around under the foundation to see what is truly going on.The contractor who performed the rehab admitted later that he was afraid of snakes and never actually looked underneath the subfloor before doing the work. After that incident I am now incorporating inspections into all of my deals.

Investment Info:

Small multi-family (2-4 units) fix & flip investment in Durham.

Purchase price: $136,000
Cash invested: $35,195
Sale price: $274,335

This Duplex was purchased at the tail end of 2019 with one unit occupied and the other recently remodeled and vacant. Located in a flood zone, the property was ultimately destroyed by a large tree which crashed down onto the roof during a storm, practically dissecting both units. After paying Loss of Rents for a year, the insurance company finally settled considering it a total loss. Originally intended as a Buy & Hold this ended being a flip.

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

As an out of state investor, Durham was very interesting to me for its lower price entry point, great universities, and growing population. This duplex, less than a mile from city center and in the path of progress, seemed to be a good value.

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

Found this one on the MLS. Ended up paying full asking price as it seemed like a fair price for a duplex at the time.

How did you finance this deal?

Conventional Loan. 25% Down

How did you add value to the deal?

Rehabbed 2nd Unit ($20,000) Mainly the Bathroom, kitchen and addressed plumbing issues. The other unit had been rehabbed prior to us buying the property.

What was the outcome?

Located in a flood zone, the property was ultimately destroyed by a large 100' tall tree which crashed down onto the roof during a storm, essentially dissecting both units. After paying Loss of Rents for a year, the insurance company finally settled at full replacement value considering it a total loss. Between the insurance payout and the sale of the damaged property we were able to net $103,140 in the end.

Lessons learned? Challenges?

Lesson learned: Don't buy in a flood zone unless you have great insurance and are willing to deal with a lot of headaches! The main challenge was in dealing with the insurance company after the loss. It took over a year to settle but it all worked out in the end.

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

Philip Kennedy of Kennedy Contracting Services was hugely helpful in navigating the requests of the Insurance Adjuster.

Investment Info:

Small multi-family (2-4 units) fix & flip investment in Durham.

Purchase price: $136,000
Cash invested: $35,195
Sale price: $274,335

This Duplex was purchased at the tail end of 2019 with one unit remodeled and vacant. Located in a flood zone, the property was ultimately destroyed by a large 100' tall tree which crashed down onto the roof during a storm, practically dissecting both units. After paying Loss of Rents for a year, the insurance company finally settled considering it a total loss. Between the insurance payout and the sale of the damaged property we were able to net $103,140 on this one. Originally intended as a Buy & Hold this ended being an accidental flip. Lesson learned: Don't buy in a flood zone unless you have great insurance and are willing to deal with a lot of headaches!

Hi Tim, thanks for your input. Hopefully my response to @Steven S. explains my reasoning for holding that property. I have several properties out of state, mostly in North Carolina, where I have enjoyed great cashflow and tremendous appreciation over the last several years. I will continue to invest in other markets. I do like the stability of CA as a counter balance to my out of state portfolio. If you find any 12% CoC return deals out of state that you want to discuss please feel free to send me a DM ... I'm finding they are harder to come by nowadays.

Quote from @Steven S.:

Brad Gilboe didn't rep you on the buy or sale on this one, the listing agent Jayme Colon repped the seller and you. Why mention Brad on a deal he didn't partake in?

https://www.zillow.com/homedetails/5907-Yarmouth-Ave-Encino-...

Anyways, yes you got great appreciation on this one! But so did everyone who bought in the 2010's... As for how it currently performs as a rental, I ran my numbers for fun:

With my estimated $4,200/mo rent, you seem to be holding this at a 5% cap, but your Cash-on-Cash is rather low, only 2.6% CoC return after paying your mortgage (doesn't beat current inflation).

Looks like you should capture the appreciation now by selling it, and either 1031 those funds into a more-profitable project (something 5%+ CoC), or just put the money in a 5%-yielding money market account because values are basically at their all-time peak:

Are you yielding much more than $400-500/mo in CF after paying the mortgage, taxes, insurance, & utilities/maintenance? Curious why you'd hold this when you can capture the value from the appreciation and use those funds to make 2x as much CF return. Heck even $190k (your equity-in) in a 5% Money market account would yield you ~$800/mo without any work or risk on your end.

Hi Steven, Thanks for your interest.   Brad Gilboe was the agent who helped me look at all of the angles and work the numbers when considering Selling vs Renting ... and to his credit he wasn't after the the quick commission by pushing the sell. He offered tremendous value with his guidance and resources in getting the Encino property rent ready, and he did get the commission for the new Primary purchase, which had its own challenges and considerations. 

We had the good fortune of a high appraisal at the height of the market (values settled downward a bit after that), historically low interest rates on the refi, and high market rent ($4,700). This tipped the scale towards holding the property vs selling. ROE (Return on Equity) is currently at nearly 15%. CoC is infinite.

Investment Info:

Office Space other investment.

Rental Arbitrage of Recording Studio Space in North Hollywood, CA

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

I had already invested in building out the studio and was leasing it for my own purposes. Once I decided to relocate arbitrage made sense considering all of the value add I had done.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $1,560,000

Current development project adding two 2BR /2BA ADUs to an exiting Duplex in South Pasadena, CA. Will also add two bedrooms to the existing Duplex making them 2/1 on each side.

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

Opportunity to have 4 cash flowing units in the highly sought after area of South Pasadena. Great schools and conveneitn location close to Metro Line, and nearby hospital.

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

Found it on the MLS. Realtor negotiated.

How did you finance this deal?

Conventional financing 20% down.

How did you add value to the deal?

In process adding two 2BR /2BA ADUs to the exiting Duplex two additional bedrooms to the existing Duplex.

What was the outcome?

I'll be able to answer that better in 6 months when the project is complete.

Lessons learned? Challenges?

Getting approval from the City has been very challenging due to the historical considerations.

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

I highly recommend my Realtor Brad Gilboe at BWG and my lender Elijah Aldinger at Cross Country Mortgage.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $600,000
Cash invested: $5,000

Purchased this 3/2 SFH in 2014 as our Primary residence. 7 1/2 years later the value had doubled and we were ready to relocate. Fortunately having great tenants and low maintenance costs has allowed It to stay cashflow positive, which in CA can be a real challenge.

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

This was originally purchased as our Primary residence.

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

Our Real Estate agent found this as a pocket listing fro a prior seller She had worked with. This allowed us to avoid having to compete with other offers.

How did you finance this deal?

Conventional financing.

How did you add value to the deal?

Time. 7 1/2 years of appreciation and regular maintenance added tons of value to this property.

What was the outcome?

Being that rents had increased greatly over time and interest rates were at an all time low we decided to refi and keep this as a cash flowing rental property.

Lessons learned? Challenges?

The challenge was in relocating and finding a quality tenant quickly, to be able to use the new lease as income towards my DTI ratio. The timing was tricky on this one but it all worked out in the end.

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

My Realtor Brad Gilboe at BWG in Los Angeles did a tremendous job of pulling it all together for us.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $92,000
Cash invested: $6,569

Large 4/2 Manufactured home in Parkton, NC just South of Fayetteville. The challenge with this one was obtaining a conventional loan as we could not obtain a Fannie/Freddie loan on a manufactured home, unless it was our Primary residence and of course this was intended as a rental. We ended up going with a DSCR interest only loan and left about $12k in the deal. This property is still cash flowing nicely and has had great appreciation as well.

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

Property was in great condition and needed a simple cosmetic rehab to get it rent ready. The large floor plan included a Living room, Den, mud room, & laundry room which allowed us to secure higher rent making this a great cashflow opportunity.

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

This deal was found on the MLS. We were able to negotiate with the seller to replace the roof before closing.

How did you finance this deal?

This property was purchased with cash then we refinanced 6 months later into a DSCR loan.

How did you add value to the deal?

Cosmetic rehab of $6K was all that was needed.

What was the outcome?

This property is still cash flowing nicely and has shown great appreciation as well.

Lessons learned? Challenges?

This property is still cash flowing nicely and has had great appreciation as well.

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

Our agent Carly Hansen did a tremendous job pulling this deal together.