All Forum Posts by: Jonathan Williams

Are you wholesaling this deal? Looking for a partner? The suspense is killing me...

Stefan,

I'm thinking we met a while back at a BP meetup. I'm an investor/Builder and have worked a good deal within historic districts. Its not an easy process, and each neighborhood is different on their HOA approval of the plans before they even go to the commission for review/approval. If you really want to build townhomes, then you're sure to piss off those who serve on the board that hold your pass for approval. It can be done, but historic districts often have minimum lot size requirements, etc. that preclude such development.

I've got a few lots that I'm building on early next year in Historic district areas (but not designated as contributing) and would entertain your wholesale or partner idea depending on the lot. I've got three townhomes projects going right now and just said no to another, and I don't get super excited about them as investments at current conditions.

Shoot me a message if you'd like to chat.

@Greg H. Its my experience that just because you are Quit Claiming, etc. then you are not creating a lifetime of title issues (while I do agree Quit Claims are frowned...). Obviously, clear/clean title itself needs to be understood for the property in the begining. Title companies use both Texas Tax Code provisions and case law to support their positions on title insurance underwriting. But homestead/non-homestead is an important distinction, also if agricultural use or not....all factoring into a homeowner's right of redemption. Additionally, the validity of the tax suit (in @Gavin Snyder's case, Linebarger) can be challenged for a time frame of 2x the right of redemption. 

All said, the most conservative of title companies usually will grant you title insurance at 4 yrs of your ownership as statute of limitations but others can/will be more aggressive depending case-by- case given the above variables. So the only way to have a lifetime of unmarketable title as Greg puts it would be if the whole of the property itself was not deeded over to you. Get on the Harris county clerk and you'll find plenty of quit claims that legally convey ownership...its just how you go about it.

Just my experience. I'm no attorney.

@Tony Castronovo no I haven't considered PERT. I've considered using a Monte Carlo Simulation method to assign a probability to each variable ( building sq.ft, lot size, finish quality, garage type, time of year sold, etc., etc) in order to mathematically understand the risk/reward of a project and contributions of each variable to such. But there's a point of diminishing returns when it comes to this stuff depending on your scale of business, and my little 1-2 projects at a time don't merit anything more complex than my simple matrix IMO.

If I wanted to build some software for flippers out there to use in their ARV estimates, then I'd think about something more complex. I'll leave that to somebody else.

@Kevin Itima the payoff for high ARV flips very often works "on paper". But it takes a keen sense of supply and demand for your end product, and the different variables at play. One example that comes to mind: does the average buyer putting down the average 20% have to get a jumbo loan to buy my product? How might that limit my buyers pool? OR, how often does a my end product not appraise for the contract sales price? The list goes on...

@Judson Heartsill, nothing too complicated really. I pull a great deal of comps and know my local market pretty well to account for the different variables at play. Then based on how variable the sales price might be (e.g. 10% lowside to 10% upside), I then compare that to my own idea of rehab budget variance (e.g. old abandoned house...I could have to fumigate for termites, the project could take longer and thus more holding cost, etc....I could come under by -10%, but I could go over by +20%). Then just build a matrix function in excel like this:

So the middle orange number is my target profit, and surrounding numbers show sensitivity of that profit to ARV and rehab/holding cost budget.

Oh, and I like to apply conditional formatting that turns red at or below zero profit to really give myself a scare if I'm trying to push a skinny deal :)

As for exterior/landscape, yeah just look to your right and left on that one. Decide what exterior stuff can show up on an inspection and address those proactively. Aesthetically, it is to each his own. But you have to know the expectation of the average buyer for your product in your localized area, and just do your best.

A) I don't see too many 70% ARV deals after repairs

B) Many wholesalers use the same repair values on these homes as they might on a lower-end flip. I've gotta put glass-front cabs, marble counters, nice interior/exterior solid doors, real wood floors, no-texture drywalling, etc. in my flips in this category and believe me, my estimates don't look like the ones often attached to a wholesale deal.

C) Some areas in Houston that offer these 350k+ purchase prices have undergone significant flooding in the past few years (Meyerland, Energy corridor, etc.) that has anybody not familiar on a street-by-street, house-by-house basis more skiddish than before.

D) I completely agree w/ @Ryan Zomorodi. I don't mind getting stuck w/ a $250k ARV flip for a rental, but I sure don't want to get stuck w/ the $625k ARV house I'm flipping now as a rental....therefore I build in proper margin.

I'm amazed at the lack of risk estimation out there, and people not running sensitivity analysis of their deals to rehab overages or sales price deviations from target. You get into these higher-end flips requiring more cash outlay and longer projects, your ROI reflects that. Looking at profit alone isn't enough.

I'm with @Randy G.. Cash-out refi's do carry some additional scrutiny by the lender. This being your first investment in real estate, a lender of conventional (re)financing won't be able to credit your rental income toward your debt-to-income ratio BUT they'll certainly factor in the debt and obligations to property taxes, insurance, etc. Having a detailed conversation with lenders now will better guide your decision-making.

The BRRRR strategy works in almost any market....barring an '08/09-type crisis. Its not a vehicle as much as an efficient deployment of capital IF you are finding good deals. Your good deals need to provide that cushion if there were a market correction you could still comfortably get into long-term financing and maybe even start looking for those fire sales at the bottom.

Good luck to you.

@Jennifer Walne it sounds like you are half way there already! I suggest you take your analyses that you've done for each property and put them side-by-side to understand the differences between investing in different neighborhoods (cash flow, CoC returns, etc.). I trust you've factored in to your maintenance reserve a higher number in rougher neighborhoods, and a more standard number for quieter ones, or you might want to use property mgmt in one neighborhood but self-manage a house in your own neighborhood (for example). I also suggest adding an input for each property on your matrix called "potential to appreciate" and give each property an A, B, or C grade. This is subjective and speculative (which is why I don't suggest factoring this into your pro forma), but should be on the mind of ANY investor intending to buy a property. One doesn't have to buy for appreciation and may focus strictly on cash flow, but the investor not understanding appreciation trends in the different neighborhoods targeted is a foolhardy one. 

Good luck to you!

@Sharon Tzib Thanks for this! I'm really encouraged to see some buyer optimism here in Houston.

I have a question on an observation of the graphs in the HAR report: In following the seasonal trend over the last few years, home prices appear to trend down in November(s), bump up in December(s), then trend back down to its trough in Jan/Feb(s).  The difference between months looks around $20k. Are you really seeing this single month disparity on the street? I'm hypothesizing that people might rush to close before the year end for tax benefits and might pay a bit more? We've got a house to sale in Jan/Feb in that +$500k "luxury" sector, so just curious!

I'm also interested to see leases of SFH's up but leases of townhomes/condo's down.

@Tyron McDaniel I'm mid-reno on a bungalow expansion in the Heights right now, and the nature of our project required an architect/engineer to produce professional drawings that we took to the city for permitting - fairly straight-forward. But rehabs inside of the original footprint and/or lower value projects might not merit bringing on an architect to give you a shiny set of plans because of the associated cost. So how did you take this house in the state it was in and get it through city permitting to a shovel-ready (or sledge-hammer ready) state? What did the city ask of you?

I'm familiar with the Near Northside. I've been studying it vs. the East End with the intent of getting into some lower cost neighborhoods in the path of gentrification. There are many out there that do unpermitted work for various reasons, but I'm interested in learning how to permit a rehab such as yours efficiently (both time and cost). 

I'll be anxious to hear how yours turns out. Good luck w/ the sale!