All Forum Posts by: Joseph England

I was very successful in doing over 20 rehabs in my first year. For the first 12 rental rehabs I completed, I chose to go the route of refinancing these through a portfolio loan from a local bank. This ended up being harder than I originally expected due to a number of factors, but probably the biggest one was that I had built my business up so quickly and had completed so many properties before I ever filed my business' first tax return. I am writing this post so I can help illuminate other investors of issues I experienced through this whole process. Hopefully everyone can learn from my experience and be better prepared for issues that can arise. I will list below the biggest issues I ran into and how I was able to get around it. 

Getting a local bank to do a 12 property portfolio loan in your first year before you even filed your 1st tax return. 

This was a issue because when I started meeting with local banks about this portfolio loan, almost every bank told me to come back after I had been in business for 2 years (2 tax returns). I was now afraid I had chosen the wrong strategy but refused to stop, and I kept calling and meeting with local banks. Until, one day I found a local Baltimore bank that would work with me despite my lack of business tax returns. They also didn't believe in the 1 year seasoning rule(The property has to be rented for one year) that a number of other lenders hold as policy. The bank I used believed this rule wasn't applicable because once most leases were up after 1 year a number of tenants would be moving out. So it would be pretty common for you to wait the one year only to find yourself looking for anther tenant anyways. The lesson here is that Every bank has its own personality,  investment strategies, and risk mitigation levels. You just have to keep searching till you find a lender who's investment strategies align with yours.

Be prepared for your first portfolio loan to take a while

At this point I had done a single BRRRR property refinance through a bank and it took almost two months. I had an expectation for this portfolio loan to take 3 months. Unfortunately, it took almost 6 months. I will explain some of the issues that delayed our closing but some of them were due to extra steps the bank had to take to mitigate their risk since we were such a new company. Obviously this isn't ideal but be prepared to have enough money in reserve just encase a delay like this was ever to happen. So, you are prepared and still able to close with the appropriate funds if need be.

Appraisals can make or break your investments and appraisers are they key

Real Estate Investment, like many other things forces you to deal with a varying multitude of people and the their "Human Condition", appraisers are no exception to this. My 12 property refinance consisted of two sets of properties from 2 different LLC's I had started that year. One I owned by myself and the other I owned with a partner. During the appraisal process I somehow had angered the appraiser and he ended up appraising all the properties who he knew I was the sole owner of well below the estimated ARVs. All the properties in the other LLC(the LLC I owned with a partner) all appraised at or above the estimated ARVs. This was devastating news at first because the appraisals were so low on other properties that the deal wouldn't have worked. Fortunately I had two properties right next to each other with the exact same rehab done by the exact same contractor at the exact same time. One was in one LLC and the second in the other LLC, and the appraiser appraised the first at $155K (which was the estimated ARV) and the second at $135K. I use this as well as other disparities in the other appraisals and was successful in convincing the bank do redo these appraisals with a different appraiser. It worked! The second appraiser appraised all the properties at or above the estimated ARVs. Moral of this story for me is never take no for an answer. When I first approached the bank about using another appraiser they told me no. I continued to push the issue and gathered evidence to support my case. Fortunately for me the bank eventually listened to reason.

I do not consider myself a subject matter expert nor do I pretend to know all the best ways to solve these problems. But, I have made many mistakes and I want everyone (especially those starting out) to learn from my mistakes and the obstacles I encountered throughout this process. If anyone has a another way to get around some of these issues or has a story of their own, PLEASE SHARE!

@Tim Youse it is full risk reduction 

@Tae C. The tenants have been pretty good. I haven't had do an eviction in this area yet. All tenants generally pay on time. Out of the 6 properties only 1 is section 8 and the rest are market tenants. The secret to success in these properties is location. This particular area is a nice quiet pocket in a low income area. Doing the block to block analysis is very important in properties like these. If you are successful these will be your highest cash flowing properties.

Here is one of my low income rental rehabs (I have 6 in this neighborhood), that I purchased for $9K, rehab $27K, rents for $1100 a month

Brick row home, 1106 sqft, 3 beds/ 1 bath

Purchase price: $9,000.00

Purchase Closing Costs: $2,505.52

Estimated rehab costs: $25,000.00

Estimated ARV: $50,000.00

Actual Rehab costs: $26,971.23

Actual Appraised Value: $35,000.00 (appraisers dont like this area)

Rent: $1,100.00 a month 

Cash flow: $770.00 a month (Rent minus 30% of the rent(10% for vacancies, 10% for maintenance, 10% for property management))

Pre-Rehab Photos:

Repairs Completed:

Replaced furnace, added condenser, and installed additional duct work to complete HVAC system

Kitchen renovation to include all new floor, appliances, laminate counter top, and additional cabinets with new handles.

Complete 2nd floor bathroom remodel

Painted entire house

Installed Allure vinyl planks for flooring both 1st and 2nd floors

Installed all new ceiling fans

Replaced all doors

Decided to keep wood paneling and not finish 2nd half of basement.

Replaced ceiling with recessed lighting and new carpet in 1st half of basement.

Finished basement by installing tile floor and all new paint

Replaced water heater

Installed washer and dryer

Replaced roof

Post Rehab Photos:

I believe that is everything and all the pertinent information. If you have any questions or I missed something let me know! I will try put up another one of low income rental rehabs with better photos and lessons learned/implemented sometime soon.

@Yoni R. & @Doe Song its all about finding the right lender who will do the deal. Every bank and lender is different. It took me a while to find a local bank that would lend a property with out needing a one year seasoning and being pretty new to Real Estate Investing. You have to keep shopping around with local banks until you find a bank that is interested in the type of deals you're doing and the time frame you want. Every bank has its own investment strategy and risk tolerance. I did my first portfolio loan of 12 properties through a local bank here at 5%. I had to go through a number of banks before I this particular bank. I also occasionally use Hard Money Lenders for their long term loans around 7-8%. It all depends on the situation. The local banks depending on the terms you want may not give you the max LTV. The HMLs charge higher interest but can usually provide a higher LTV. It all depends on your situation and if you want a higher LTV or higher interest rate for a few years depending on the loan's pre payment penalty. The important thing is never stop searching for a lender that will meet your particular needs. It may take a while.

I hope this helped.

@Ken Shipp Thank you! That is a very good suggestion. Know any good landscapers?

@Daniel Jimenez Absolutely! I use Homeland Title & Escrow. They are located in Severn Park, MD. I tried a number of Title companies until I found them. Carolyn Broseker and her team know what they are doing.

That is a very good question. Yes, a few people have brought me deals but the most valuable resources I have gotten as a result of this post and my podcast has been the networking and new partners. For example a property manager reached out to me after the podcast and offered his services. I tried him on my first eviction and he was great. He has been so good ever since that he now manages 90% of my entire portfolio. 

My momentum did increase but as I continued to expand the flaws in my systems started to become visible. Deficiencies start to become apparent when you are doing 4-5 rehabs at a time with 3-4 different General Contractors. In 2016 I did 30 deals. In 2017 I only did about 20 deals because I decided to concentrate on improving my systems and the members of my team. I have a very different looking team then when I first started. I was still able to a number deals in 2017 but my business has become more effective. I have also started a number of partnerships helping new investors start their investing careers with the help of my team and my systems.

I hope this helped to answer your questions.

@Michelle D.Thank you for the kind words and I'm glad my rambling helps someone. Let me know if I can be of any more help.

@William Pope Great! How is that first deal coming?

I apologize of the delay in all the responses to this thread. I have been traveling for work again. I will respond to all the above questions shortly. I will also be posting the renovation details and pictures of one of my low income rentals, that I purchased for $9K, rehabbed for 20K, and now rents for $1100.

Great opportunity for this Baltimore rowhome as a rental. House was recently updated with granite and stainless steel appliances with sink and dishwasher located in the island. Two master bedrooms each with full baths and a half bath located in the basement. The rest of the basement can easily be finished for a third bedroom making the property a 3/2.5. There are two sump pumps located on either corner of the house. Hardwood floors in good condition on the first floor. New flooring will be needed on the second floor for all areas except bathrooms. Recent modified bitumen roof and electrical service(2016). HVAC system in good condition with metal cage protecting the condenser. Rear back yard includes brick grill with awning and off street parking wide enough for two cars. Close to John Hopkins University, Morgan State University, Loyola, Notre Dame, Good Samaritan Hospital.

My main GC has estimated the repairs around $20K-25K to make rental ready(depending on your choice of materials and finishes. This includes painting the whole house, dry wall patching, finishing the basement into a third bedroom, water heater replacement, new flooring on stairs and second floor, new refrigerator, and other small miscellaneous repairs around the house.

I have included my google drive link with all the pictures I took myself in the link below. A property inspection was completed as well. If interested I will provide the inspection report upon request.

Property Evaluation:

Asking Price: $60,000

Estimated Rehab Costs: $20,000-$25,000 (Depending on what materials and finishes you want to use)

Closing Costs est. (purchase): $4,000

Estimated Project Duration: 1 months

Estimated After Repair Value (ARV): $115,000-$120,000

Estimated Monthly Rent: $1,300

https://drive.google.com/drive/u/0/folders/1W1UqbcniAJoR1mejDV3HVTRrR95aSl9H

If you are interested contact me at [email protected] 

@Lance Van BurenToo easy. The first rehab I posted which was my first flip took 9 weeks to rehab. The second rehab i posted which was another flip took 8 weeks. This normally would have take 6 weeks but my General Contractor split his crews to do two properties at the same time for me. The Third rehab I posted which was my second BRRRR took about 5 weeks to rehab. I will include this metric in all future rehabs that I post.

@Reginald Cruz Absolutely,I would say that is the biggest upside to investing in Baltimore City.