I wanted to provide some of what I hope to be very educational content! I also would like to receive any feedback from tenured investors on the process that I took , maybe where potential improvements can be made!
My interest in real estate really did come out of no where! Although I have been involved in some flipping houses with my grandfather way back when I was 12 years old , I didn't truly understand the process.
I had a fantastic "Area Manager" position in the wireless sales industry earning in the 5% of people my age!(20 yrs old at the time) (According to credit karma) I one day decided that I didn't want to spend almost my whole life clocking in and clocking out of a job 45 hours a week, no matter how good it was! This mentality finally made sense to me after reading Rich Dad Poor Dad..
My brother was also in a very similar scenario with an even better job in CO. After he read the book as well , we decided to go into business together! My brother only acts as a Silent Investor to put Credit/Income backing down for loans at the moment.
From there on I really applied myself to learning everything that I possibly could about real estate, specifically with rentals. I was blessed to have a few clients that own a lot of real estate in Chicago, and the books are right folks , they love talking about it! I later found out that one of my clients whom provided me a ton of knowledge and processes , even reviewed a couple deals for me. Was/and is the biggest landlord in Chicago, having roughly 9,000 units. I knew I wanted to be in the renting sector of real estate because of the passive income potential. When I first started i thought that would mean Single Family homes rentals, which later turned into strictly multi-family .
Another notation about the process would have to be the location I chose and why. For me it was simple because Marion was my hometown , and it was cheap real estate! I mean like Detroit type of cheap! (No offense to people in or from Detroit) To give a good example of the market, we purchased a 3 - Unit building on March 1st 2016 100% occupied for $36,000. Surprisingly its not slum houses you're buying for that price either, this building is in really fair condition with great fundamentals.
I spent countless hours just binge listening to the BP podcasts , reading the blogs, reading other internet articles. Something that was my brothers idea is when reading books , take flash cards to take notes, then later study the flash cards. I really went ALL IN on the subject of real estate to one day work up the courage to leave my career in Chicago.
I followed Ken Mcelroy's team process pretty much to a T from the book ABC's of Real Estate Investing (Rich dad adviser series) Asking a local friend whom's family had some rentals about a realtor. That Realtor happened to own her own brokerage and personally own 200 units in the town. She is not actively pursuing more deals either which brought my competition down significantly for being a smaller town. My realtor then connected me with real estate versed accountant, and lawyer!
My banking relationship came from a distant family relation who informed me someone they know who specializes in investments. There couldn't be a better bank for what we are looking to do! They approve you up to a dollar amount instead of a number of loans that you can have under your name. In our case , after my brother and I filling out a personal financial statement and providing our business plan in person with the VP of this institution. They approved us for up to 2 million in loans as long as the deal made sense and we put 20% down. He also informed me of a refinance business model where we pay cash for the building and repairs then Refi to get our cash back. He then put us in touch with the local appraiser to make sure the refinance model would make sense. I would say one "Quick Tip" would be to tell everyone of these professionals your story with real estate. For me, I made it a point to always bring up the fact that we also view this as a great way to give back to the community. You'll be surprised on the good feedback you will receive just for being recognized as a landlord who is there to bring the image of the town up! At least for small- medium sized towns that is a good strategy I believe!
Our first deal we purchased a 3 - unit building for $17,900, only one unit occupied. The other two units were in terrible condition inside. After putting about $22,000 into those two units in floor to ceiling renovation, the building appraised for $50,000 . Giving us an 80% refinance amount of $40,000. We ended up only having invested like $500 dollars after the refinance came back. Note also that this was cash from an investor within the family whom we are giving a 10% interest paid over 12 months.
I knew this would be a safe investment because the only contingency I put on the original offer for the home was to be a Subject 2 appraisal done. This is where you provide of planned renovations list to the appraiser all the way down to specifics and the maximum potential cost for the renovation, the appraiser will tell you what your ARV is before you even do the work!
My biggest tribulation with the first deal was managing the construction project 200 miles away. Even me traveling back twice a month , it still took much longer and costed much more than I anticipated! My initial estimate was to be in a total of $33,000 , and be done in 2 months. We ended up in at $40,000 and were done in 5 months! I will honestly say that's the best $7,000 education i'll ever get though. What I learned through the process and just jumping into it after only 6 months of research and preparation is what propelled me to learn so fast, because I had to!
I ended up testing above market rent prices in an effort to squeeze more profit but also an idea to weed out as many bad tenants as possible. I thought to myself that people whom are willing to pay a little extra for safe and quality housing will be more likely to treat the place better. I tried $100 more than my competitors were, and rented them out fast! I found that by me paying an extra $85 per month landlord cost and including Wi-Fi for the entire tri-plex , I could charge an extra $50 per unit.
The final breakdown of my first deal____
Unit 1 - $650
Unit 2 - $450
Unit 3 - $550
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$1,650 gross income
-$275 P&I
-$50 Utiities
-$40 Taxes
-$85 Internet
-$85 Insurance
-$20 Lawn
-$150 Property management
-$75 CapEx (5%)
-$160 Repairs (10%)
-$75 Vacancy (5%)
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$1,015 expenses
A property cash flow of $635 conservatively and a 20% equity of $10,000!
I have the property management structured as a completely separate business and entity that gets 10% of total money collected. We use this 10% to pay for all advertising, paying a cell phone bill for our handyman/ slash property manager.
Because we just did major renovations and a capital expenditure (New roof) I don't expect our repairs to be anywhere close to 10% , but you never know!
I ended up resigning from my position in Chicago as of 04/07/2016 , and actually have my move scheduled back home for this Saturday! Still going to maintain a low stress / entry level sales position part time to cover personal expenses. I will be able to have a full time focus on building this business! My plan is to get up to 25 units by the end of this year, with this current 11 unit deal going through we only have 8 more to go!
Wrapping this up now , I hope to have provided some good actual real world content that other people can use to achieve success! I am excited to receive feedback from all of you on this!
