All Forum Posts by: Liam Goble

I learned a few things from my first property:

1) Patience - Eventually a property will come on the market that meets my criteria.

2) Don't underestimate the cunning of fools - residents can say/do the darndest things

3) Banks don't like small loans - My first property was purchased for $18,5k. I went to a few banks and was informed that there are no loans for less than $50k. That forced me to look for some smaller investors interested in making some money. I purchased in 2012, when rates were still falling, so when I offered 5% for 10 years, I had a few investors quite interested.

4) Fear is something you can push through - No one in my family owns investment properties. My family doesn't really understand REI. I actually had to have two beers before I told my dad that I had spent $18k, not on a new car, but on a house that needed some work before I could rent it. It's taken about 18 months, but my family is starting to SLOWLY come around to understand that REI isn't for some mysterious person called a "Landlord" but that REI can be done by regular people.

5) Honest numbers tell the truth, dishonest numbers lie - Develop your projection templates and TRUST those templates. Don't force the numbers to look good. If it looks like a duck and quacks like a duck...

I'm going to start on my first flip on Monday. I want to post all of my pre-flip numbers here so they are etched in digital stone so I can refer back to them when all is said and done. I'll explain my methods to arrive at the numbers below. I'll do a separate before and after photo montage. If experienced flippers have suggestions as to where I can cut costs or make improvements to my plans, feel free to fire away.

My goals are 1) don't lose my investor's money, 2) learn a lot, 3) make money for myself.

This flip I am going to start actually came on the market about six months ago. The seller's agent didn't enter the property properly into the local MLS so when you searched for either SFH or duplexes, the property never showed up. The listing is actually for two separately deeded properties, one SFH and one empty lot. The original asking price was $36k.

When the property was dropped to $29.9k, I decided the property was worth a visit with my Realtor. The property needs some fairly standard improvements: fully updated kitchen (existing is old 1950's era metal cabinetry), refinish floors, painting, reconfiguration of the 2nd floor bathroom and moving the laundry room from the nasty 4.5' tall basement, up to the nicer 1st floor.

I used zillow to find the three most recent sales, on the same block and arrived at an ARV of $85k. Because I arrived at the ARV myself and not through my Realtor, I chopped 15% off of my proposed ARV, dropping the potential sale to $72,590. With 30% margins, my max cost to rehab is $50,813.

Please note: I try to be conservative (ie high) on my rehab costs. I'm a contractor as my day job, so I have some idea of local pricing. That being said, even contractors can be 'low' on their estimates.

Kitchen Cabinets: $1,725
Counter top: $6,480
Appliances: $1,350 (range and dishwasher)
Minor electrical updates/repairs: $1,000
1st Floor refinish: $3,600
2nd Floor carpeting: $1,500
Bathroom Update: $1,500
Painting: $750
Heating System*: $1,000
Labor for the above: $6,720
Contingency: $2,563

Purchase price: $25,000
Rehab costs: $28,188 (Including contingency)
Total Investment: $53,188

Holding costs @6 mos: ($2,150)
Closing costs: ($5,978) (7% of Comps value, ie $85k)
Net profit: $72,590 -$53,188 -$2,150 -$5,978 = $11,275

*The owner let the building freeze without winterizing the house (claimed and screamed that the house had been winterized, so don't worry about the pipes). Anyway, one of my contingencies was to include a warranty for all domestic water and heating pipes and appliances. The seller agreed. After the polar vortex left the North East, we went back to the house. There was water all over the basement. The seller got the domestic pipes back in order and claimed the boiler was fine.

How would a boiler freeze? The seller had decided to not keep oil in the house, so the boiler ran out of oil and the cast iron heat exchanger froze. Cast iron doesn't stand up to thermal shock or stresses well, and the HX cracked. I'm supposed to close on Monday at a cost of $23,k and was at the house today (Saturday) to verify everything was dry. The boiler was dripping water, just as I had predicted. The deal looked to be off as the seller told us she would only credit $300 if we found any other issues.

I asked my Realtor to let the seller's agent know that if the seller would drop the price $5k for me to put a new boiler in, I would still close on Monday. The seller relented and dropped the sales price to $18k. My sub gave me a cost of $6.5k for an oil-to-gas conversion. So the $1,000 in my budget plus the $5k from the seller plus $500 from contingency should cover the new boiler.

@Scott Richards Your analysis looks more or less realistic. My number is approximately 20 units cash flowing at $200/unit. Currently, three of my five units meet this criteria. The other two units may never reach that level of profitability, but I bought that duplex before I found BP.

Because I've only been investing for about 18 months, I'm setting aside 10% of my gross monthly rent for those random repairs. I plan to do that until I have a large enough nest egg that I am comfortable not setting aside more money.

My ideal property is a multi-unit with all separate utilities. That way, I'm not paying for the tenants heat/electric/sewer/water, etc. If I ever look at a non-separated building, I am looking to see if it is possible to separate the utilities.

@Jordan Richardson I always prefer to finance my deals, but then pay down the loans and not refi (unless I really need the cash). I do this because I have more cash available earlier: you can use all $29,000 now for one house, or you can use ~$7,500 and get a loan for the balance, allowing you to keep the extra cash for additional properties.

Remember: The numbers have to work for the deal to be a good one.

@Shiva M. I just did something similar. I had a half rented/half gutted duplex. I fixed the gutted side. I wanted to pull out some of the equity from the improvement.

If you didn't do anything significant to improve the duplex, I would wait another year or two. Let your cash flow accumulate, then buy another property.

@Ariel Echevarria The owner of the property next door should be listed in the public records. Every time I've purchased a property, I've used a Realtor. Now, if I see a run down property, or just another property I want to buy, I'll ask my Realtor to do some research on the property/person. Usually I can find a phone number or address of the owner. If a phone number, I'll call and explain what I want. If an address, I'll send a letter explaining what I want and ask if they would like to meet.

In my opinion, I know Realtors do cost money, but when you find a good one (or a few good ones), they can do a lot of the heavy lifting for you, just don't push too hard...it's a fine line.

Good luck w/ this one.

@Scott Richards and use your loan for a small multi-unit. You will learn what it is like to landlord, while having your rent paid by your tenants.

If you've read anything on BP, you know the buy-and-hold method is not a get-rich-quick scheme. My wife and I have a goal to be financially free in five years (we're 1.5 years into it). Reaching that goal will be exceedingly difficult, but we're still working towards that goal. To hit that goal, I've had to expand my REI techniques; for example, I'm going to be starting my first flip on Monday. I plan to use any profits from the flip to add to a down payment on another buy-and-hold.

Lastly, remember: there are always two sides to your income and expense equation: Your Income and Your Expenses. Too many times people focus solely on the Income side of the equation: increase income to become financially free. Reducing expenses also helps significantly. My wife and I recently went through an expense reduction exercise. The only thing that changed slightly for us is our wireless provider (used to pay $140/month for Unlimited talk text data) w/ new provider, we pay $25/month for Unlimited talk text and data while on wifi. For us, it wasn't a big deal. By changing our expenses, we went from saving about $50/month to saving $700/month.

@Darien Gilbert I am a contractor and purchased a run down duplex in March 2013. Half was rented, so that really helped with the cash flow while I was working on the gutted side. I put about $15K into the property on nights/weekends. The unit was finally rent ready by mid-November 2013. It's now rented and the whole duplex cash flows about $400/month. If I didn't have a day job, purchasing run down buildings, rehabbing and renting would be the way I would go. Because I have a day job and my wife wants me home for dinner (!), I am now focusing on rent-ready units -or- units that are not in good condition, but that do cash flow at the time of purchase.

For example, I purchased a duplex in Aug 2013. The building is not in good condition and really needs a full gut rehab. However, the duplex is fully rented and cash flows as is. When I rehab the building, I will be able to significantly increase the cash flow. The current cash flow is about $100/month ($50/door). With the whole building rehabbed, the cash flow should increase to about $300/month or so.

@Arthur Banks Yes, the loan from my friends that I then invest is considered 'ownership investment' and the banks have not questioned the source of the cash.

@John Chapman I'm in a very similar situation. I own a duplex in FEMA flood zone AE, which according to the definition I found, looks like "Localized ponding during a 100 year event". That being said, my flood insurance is going up because of the subsidy mess.

In the future, I plan to not purchase any properties in flood zones. I'm not sure I will ever be able to sell this duplex, or if I do, will probably not realize any appreciation on the property (only pulling my cash out). It's not a huge deal, because the property cash flows approximately $200/door, which is a good return on $40k investment ($10k down).