All Forum Posts by: Darrin Gross

Hey Bigger Pocket members!

Technically, I'm not new to Bigger Pockets, but there is so much information, buttons, drop downs, that I just found the New Member Introduction.  

I've been an investor for over 20 years.  Primarily single family, but we recently purchased our first multifamily property, and are excited to do more.  

I can't believe the power of leverage and time.  For years, the only money we made was when we filed our taxes!  Slow and steady, the rents have risen, and positive cash flow has developed over time, not to mention the equity built through appreciation & loan balance reduction.  

I'm also an insurance agent focused on working with real estate investors.  

If anyone has a question about how we have invested, or an insurance questions, I will gladly do what I can to help. 

All the best,

Darrin

It happened, our First Deal! We listened and learned. We asked questions, listened some more, took notes and did the exercises. Today, I am happy to report, we bought a 12 unit apartment building.

Since 1997, my wife and I have been real estate investors. We have always looked at real estate investing as our pension plan. Something for the future.

Listen: http://bit.ly/2hSAhHtCREPN73

The very first deal

The first deal was an unconventional duplex we purchased borrowing from a line of credit for the downpayment. The seller carried a note for the balance. In seven months, we sold, flipped, the property for a gain of $20,000 and I was hooked on real estate.

Since then we have slowly accumulated six additional properties. Most properties lost money in the beginning, $20 here, $100 there, and so on. The focus was always on the future value. If the market never appreciated, we would still benefit from the tenants rent paying down our mortgage.

The last two properties we purchased are rented to an operator of an adult group home. These two properties are the first to produce positive monthly income. Enough that we have been able to save and reinvest in more property.

Why did these two homes make money?

I found a tool, which you can download for FREE. The DEAL WORKBOOK is a four page spreadsheet that shows you all of the cost and income potential of a property. It has a built in mortgage calculator, so you know EXACTLY how the numbers work. You can’t make money if you don’t buy right.

The First Apartment Building

In December 2016, we purchased our first 12 unit apartment building. The property is an older, well maintained two story block building that is not in a flood zone! The rents are well below market, and we have a strategy in place to increase the rents to market and reduce a couple of expenses to improve the cash flow. The property is a few blocks from the beach, and we are very excited.

Goldilocks and the four properties

This was the fourth property we had under contract, so if you are hunting for a property, don’t give up too soon!

• The first property we had under contract, the seller sold out from under the listing broker.
• The second property under contract, our broker walked through, and told us it was a piece of junk, thank you.
• The third property was a four unit vacation rental with less than two years of rental history. We went through inspection, and all the way through due diligence. The seller added some noise about a cash offer, which felt like pressure. The deal breaker was financing. As a four unit property it qualified for residential financing, but due to another property we have had an accounting irregularity that required additional explanation. A commercial lender offered a quarterly adjustable rate loan, which was no good.
• The fourth property was just right. The Seller had a prior sale fail due to financing. So, before we made our offer, we engaged a lender and included a commitment letter with our offer. It helped.

Lessons learned from guest on CREPN Radio

The property provided an opportunity to practice all we have learned from the guest on the show including:

• Jake & Gino with Wheelbarrow Profits: Buy Right, Finance Right & Manage Right
• RUBS; rational utility billing systems CREPN #41 & CREPN #49
• Michael Blank: The benefit of multiple units and go through many deals as an exercise to learn the ins and outs so that you recognize a deal when it appears. CREPN #60
• Joe Fairless: Joe has a daily podcast, The Best Ever Real Estate Investing Advice Show, one of my favorite podcast. CREPN #52
• Brandon Turner: Brandon is the co-host of the weekly Bigger Pockets Podcast and does a job informing listeners and site members on how to do real estate investing. CREPN #70
• Timmi Ryerson: Smart Property Systems is a property management software system with scalable pricing, that our property manager is going to use. CREPN #54
• Bill Smith: The benefits of a Cost Segregation Study and how it accelerates the depreciation of a building. CREPN #57
• John Wilhoit: Taught me about markets & asset class. CREPN #26 & CREPN #64
• Jonathan McGuire: The IRS Repair Regulations, which go along with the Cost Segregation Study. CREPN # 61
• Jonathan Twombly shared his story about his first deal. CREPN #36
• Steven Gill: Flood insurance and how you can minimize the cost and exposure. CREPN #35

If you are looking for your first deal, I’m here to cheer you on.

For more information go to:

http://commercialrealestatepronetwork.com

Write your post

FL BP members,

Q: Does FL charge Sales Tax on Rent?

I appreciate your input.

Darrin

Thanks for your input.  We have invested in single family for over 20 years, and have looked at this from all sides.  I have always held the long term view, buy and hold for retirement.  For simple easy to understand retirement math my plan is: buy, pay off, and expect to keep 1/2  of rents collected after expenses, taxes, etc.

For the traditional single family property, purchased at or near market price, it is tough to make them cash flow.  The reason we have held onto them has always been for appreciation and equity build over time.  

However this wait for appreciation & equity changed due to some recent success.  A few years ago, I was introduced to the "group home" marketplace.  In smaller communities, there is a need for housing for mentally challenged residents.  You can learn about by contacting the county mental health offices.   I found that the state has a need for landlords and care providers.  We do not provide the care, but rent to a care provider.  The rents are substantially greater than the traditional single family rental. 

I have tried to find similar opportunities in larger metro areas, but have had no success.  Most of these opportunities are controlled by non profit care organizations that provide the care.  

The positive cash flow opened my eyes to larger properties and the opportunity to scale.

Multifamily numbers are definitely bigger, but bigger risk also provides bigger reward.  

The differences I have found:

The numbers:  Multifamily by nature considers all of the expense numbers up front, repairs, management, etc.  My original single family purchases were purchased on the hope that it would all worked out.  

Lending: If you are working with conventional financing, single family will look at you and your ability to pay the loan back.  Multifamily, more than 5 units, looks at the property's performance and only your ability to provide the down payment.  In both cases, I have had more success working with a community lender.

In all cases, I think the greatest lesson I have learned above all others is the importance of finding a deal and a willing seller.  This takes a lot of time and patience.  If the seller numbers do not work, be sure to provide an indication of a number that works for you and let them know you are interested.  Also, I think you can improve your chance of a lower offer being accepted if you can provide proof of your ability to finance the deal with your contract offer.  

I had the chance to speak with Michael Blank on my podcast about just this.  If you are interested, please give it a listen, and let me know what you think.

http://commercialrealestatepronetwork.com/podcasts...

Does anyone have experience on Ft Myers Beach?  Looking at my seasonal / vacation rental.  What are the seasons?  How much does it matter if you don't have a pool?  How much does it matter if you are not on the beach or a water way?

I get a little nervous looking at pro forma numbers.  

Any input is greatly appreciated.

Profitable Real Estate Investing requires strategy and discipline. Jake & Gino have grown from zero to $32M portfolio in just three years.

iTunes: https://itunes.apple.com/ug/podcast/commercial-real-estate-pro/id989572322

Stitcher: http://www.stitcher.com/podcast/commercial-real-estate-pro-network

Most beginners struggle to get out of the gate. It took two years of rejection before they landed the first deal, and from there, they have never looked back.

Along the way they were methodical, kept notes, learned what not to do, and what worked. The result is they have developed a system.

• Buy Right.
• Manage Right,
• Finance Right.

In order to Buy Right, you have to know what works for you and be prepared to walk away from the deal. Every deal.

Once you have a the deal, you have to Manage Right. Make certain the property has curb appeal so that it attracts tenants willing to pay market rents. This can be as simple as landscaping and paint, keep the grounds picked up and free from trash.

Additional strategies can include RUBS, Ratio Utility Billing Systems which allow utilities such as water to be billed to the tenants instead of paid for by the landlord.

Finance Right. This relies on your ability to actively market your property to local community based lenders. To do this, you have to be able to present your numbers is the standard format the bank needs in order to evaluate your property and the opportunity, including: Rents, Expenses, Net Operating Income, and Cap Rate. Typically a bank will look for a 1.25 debt service cover ratio.

If you want to follow the model that Jake and Gino, a pizza boy and a drug rep, developed to go from zero to a $32 million in in portfolio assets, check out their Wheelbarrow Profits Academy.

http://jakeandgino.com/wheelbarrow-profits-launch-dg/

If you are looking for some direction from experienced investors, I encourage you to get with Jake and Gino.

JR - looking forward to it. Randy Johnston - thanks for the invite.

Darrin

This weekend is the official start of Summer and BBQ Season.

Right or wrong, we have more insurance companies looking to specifically disqualifying an apartment complex that allows charcoal grills on wood decks or balconies.

To counter this, I see more communities providing a common area, "designated grilling area" on a slab away from the building.

It never hurts to remind residents of the risk associated with the BBQ.

Some safety basics:
Keep a safe distance between the grill and the building. Many newer buildings have vinyl siding that melts very easily or can catch fire.

Do not apply starter fluid after the fire has been lit.

Keep children away from the hot grill.

Dispose of ashes only after coals are completely extinguished.

For more, the NFPA site provides some good reminders for all types of grilling safety.

http://www.nfpa.org/safety-information/for-consumers/outdoors/grilling/grilling-safety-tips

Brandon,

That's unfortunate.

Per your #ThisIsWhyWeBuyInsurance, I assume you are in good shape with coverage.  Fire is a standard covered peril & Loss of Rents should be covered in your policy.  Your issues should be limited to your deductible.

If you have any questions that you are not getting answered by your carrier, agent or restoration contractor, I would be happy to talk you through it.

J Darrin Gross