All Forum Posts by: Jason Turgeon

I just did the "sell and hope" method and while I did eventually locate 2 great properties and get them under contract, I found it was super stressful. 45 days is such a short period of time when you are trying to make a big investment decision. 

One key thing that I did to maximize my chances of finding a good property was to start shopping in my target area well before my sale closed. I made some key contacts, got the word out that I was looking for properties, and had several off-market deals sent to me by wholesalers and other investors. I also spent a ton of time trawling the MLS, Loopnet, and even Craigslist real estate ads. I did find a few lesser deals that would have worked out if I needed to dump the money somewhere, but I really wanted a specific mix of both forced appreciation and post-rehab cash flow.

The problem with identifying an exchange property first is that it puts you in the position of being a motivated seller and potentially needing to unload at a discount to make the deal work. It's one thing if you are sitting on a nicely rehabbed single family or duplex in a hot market and you can sell it in a weekend of open houses. It's another thing entirely if you are in a midwest class C 6-unit or own a specialty property that needs adequate marketing. It the other party in the deal wants to move quickly, this strategy has some real risk. 

I don't know enough about DSTs to comment on them, but if they are reasonably liquid they could be a nice place to stash cash while you continue to shop.

I've just finished my first of 2 exchanges with @Dave Foster and I've been very happy. He's patiently and quickly answered my endless questions, the response time is always within hours from the other members of his team, and so far everything has gone off without a hitch. Definitely spend some time on the phone with your potential QI before you select someone, but it seems like most of the people mentioned on this thread are very good at their jobs.

@Brandon Beatty It's in Beaumont, TX.

Call a few local credit unions and talk to their commercial lending staff to get a sense of what they will want from you. They're going to want to see current rent rolls and 2 years worth of income and expenses on the building, plus 2 years of tax returns from you. Plan on 20-25% down, 5 year term, 25 year amortization, and a requirement for some cash reserves. If the property needs repairs, they may require you to do a construction loan which adds a bit more paperwork, a bit more cost, and requires a 3rd party firm to come out and check on the repairs before each draw to the contractor.

Even if they don't add value to the appraisal, you don't really have much of a choice. You need to do these upgrades. 

As for the heat, consider efficiency if you are going to switch to electric. Your tenants won't be happy if they have $500 electric bills all winter. And since you are going to have the walls open, you might as well put in full central air to go with the new heat. It might not be the fastest payback but most tenants faced with a choice between two otherwise similar apartments will pick the one with central HVAC, good insulation, and updated plumbing and electric. You'll be more competitive and depending on your market may be able to charge a small premium. Make sure you list these features when you advertise.

You should also check with your local electric/gas utilities to see if they have any incentives to help out with insulation upgrades, more efficient HVAC, LED bulbs, etc.

I used to think that Interior Design was an easy job, not worth paying someone for until I gut renovated my house and suddenly my wife and I had to decide on 1000 little details that I didn't even know existed, all interdependent on each other.  Everything from cabinet height to which 3 shades of white we needed on walls and baseboard and ceiling (who knew there were so many variations of white?) Now we build in a design fee on higher end properties, because it's hard and a skilled designer will actually save us time and money and aggravation.

I used to think that wedding planning was a total BS job until I ran my own wedding and spent I don't know how many hundred hours making phone calls to vendors, researching venues, lining up bands, making hotel arrangements, figuring out table arrangements, figuring out how many staff to hire, picking out silverware, and trying to figure out where to put the tables and chairs. Now whenever I am talking to a young couple planning a wedding I advise them to hire someone to help them. It saves them time and aggravation, and they will likely break even on money saved by using a pro who knows what corners can be cut vs the pro's fee.

Likewise, I used to think being a real estate agent was an easy job and agent commissions were a racket. So I got my license to make some easy money on the side and save a few bucks on my own deals. Then I spent my first few years going to dozens of open houses with unqualified buyers who never closed a deal, figuring out which inspectors and photographers and structural engineers and lenders and home stagers were worth a d*&! and building relationships with them, learning that most of being an agent is actually being a shrink/couple's therapist, and generally not making very much money at all before I figured it out. Now I turn down 75% of the people who want to use me as an agent and only choose clients that I don't think will waste my time. If someone tells me they want a discount, I tell them to hire a discount agent. My time and experience and relationships are valuable, and if I am able to help close a deal in only 12-15 hours of work, it is only because I have a decade of experience (generally unpaid) that made that possible.

If you are a good, solid customer who is easy to work with and respects the agent and their advice and brings them money that is actually easy for them to earn, it's fine to ask for a volume discount. But be honest with yourself. If you are a demanding client and you don't respect the professional that you have hired to market your property for you and you are nickel and diming them and pricing too high and not letting them stage the property to save a few bucks and generally making their lives harder, be prepared to have them fire you as a client. 

And if you are at the point where you are selling so many properties that the 2-3% it costs you on the seller's agent side is a significant amount of money, go get licensed yourself and sell your own properties and stop paying anything (except for E&O insurance, staging and photography costs, MLS fees, gas, mileage, and all the other costs the agent is covering in that commission, of course). Many successful flippers and home builders do this. But if that sounds like a lot of work, well, that's why you pay someone else to do it for you.

Congrats! Those are some fantastic numbers.

I agree with the others here. You're at a good age for taking risks. You have a solid background on the flipping side. You're not (quite) ready to quit.

Before you quit, I'd urge you to do as others have said and do your first flip for yourself as a househack. Find someplace you know you can rehab, use your W2 job to qualify for a rehab loan with a small down payment, renovate it and get roommates in there to cover your expenses and give you more runway, then either refinance out or get a HELOC *before* you quit your job. Once you are at a place where you are living for free and have access to some capital and the ability to float for 12 months without income, then you can quit.

Yes it sucks to defer your plans for maybe 6 more months, but you will be learning important parts of the business the whole time and at the same time making sure that you have a better chance of success for those crucial first few deals.

Drop the price by 5% and see what happens. 

Well, if you sold it you'd end up with about $38k in your pocket after closing costs, commissions and 1031 exchange fees. Then you'd have 45 days to go find an exchange property.

If you put that $38k to work at 75% LTV, you could get yourself into a property worth ~$150k. If you can find something a little cheaper that needs rehab and you can either self fund the renovation or line up rehab funding, you could maybe force some appreciation.

Let's say you find a place that will offer you 15% cash on cash and you can force $20k of appreciation through some relatively modest upgrades. You will eventually have a property that brings you in ~$500 of cash flow and you'll have $20k more in equity. 

But to get that extra $200 a month and $20k in equity you will have to:

• ready the property for sale by fixing any little details and making it pretty inside and out, 
• potentially get rid of your tenants and lose out on some cashflow while it's for sale (depending on your target buyer), 
• get professional photographers in, 
• list it or otherwise market it and hope you actually get your $85k, 
• then go through the not-insignificant headaches of finding an exchange property that actually gets you the 15% cash on cash and $20k in forced appreciation, 
• close on that property and pay those costs, 
• either do renovation yourself or hire someone to do it, 
• get it listed for rent, and get new tenants in. 

It could easily be 6+ months before you get that first $500 in cash flow and find out if you actually succeeded in your quest to force the appreciation from the appraiser.

Is it worth it to you to do all that to get $200 more a month and maybe get $20k in appreciation?  Only you can answer that. 

Can you find a property that does better than $500 a month in cashflow and/or gets you more than $20k in appreciation? Possibly, but it's very hard to guarantee, especially in the tight timeframe of a 45-day exchange window.

If it were me, I'd wait for a while, but I might refinance to unlock some of that equity and help get another rental in the same price range (the 3rd and 4th Rs in BRRRR). Things that would trigger a sale on this property might be the loss of a stable long-term tenant, a major repair coming up that I didn't want to deal with, or a much bigger rise in appreciation that made it worth the headaches of doing an exchange. But if you are anxious to grow, you have enough equity to do a little bit better with some hard work.