All Forum Posts by: Michael Delpier

@Mar Now it depends on what you want to do. If you want to flip to build up a pile of cash for buy/hold rentals, I would get a revolving credit line on my rental. You can then buy a house in a condition that would not normally pass a banks inspection criteria, rehab it, refi it and pay off your credit line. Rinse and repeat .

If you want only buy/holds without needing any rehab, I would do a cash out refi and buy several other properties using 30y mortgages. Let the rent build equity on one of the houses and then rinse and repeat. Slower, but less work.

There are several other strategies depending on your end goal, skills, and risk tolerance.

@Torrence Washington ha, ha, ha!!! Houston has over 150k homes needing flood repair, not to mention the massive amount of new construction, and commercial rehabs going on. Finding a good, and available, contractor to do flips is going to be hard. This is where networking before the need is very critical.

I’m on waiting lists over 6 months long. Time is money, so I picked up a hammer and got to work. Sometimes there is no choice but to work “in” your business.

Okay, to be somewhat constructive (pun intended) I have had had some luck by driving/walking the flood rehab areas an looking for good quality work where the crew is nearing the end stages. Call it driving for contractors. :) you get to see their work first hand and get their business cards. 

Also the “ next door” app works well for finding someone who has a day or two to do something like lay tile or paint a wall. Can’t judge their work this way, but it will get you someone local that others have used. Not the cheapest route, but there is not much cheap work being done these days in Houston.

There are three types of work I’m seeing being done on rehabs. 1. Super expensive $150k/house plus being paid in insurance money, or 2. Flippers who have their own crews/do it themselves, 3. Night/weekend crews (guys that work full time somewhere else and do this for extra money) 

Give it another 6 months and good help will be somewhat easier to find. (But still very busy)

@Monique S. this is fairly straightforward. Pay off the highest interest rates first. (Dave Ramsey appproach) focus all your payment on the highest interest rate loan until paid off. Then move onto the next highest rate, and so on.

From my understanding, the new tax rules still have a deduction for interest on your primary, but this means you have to have an income to deduct from. So this will depend on your income situation.

I’m no investing guru, but my take...

REI has several advantages over stock market (leverage, tax, control) but the one that most don't really think about is less volatility. The downs are worse than the ups. For example, if you have $100 and the market falls by 50%, you have $50 left. But it will now take a 100% return to get back to your original $100. Real estate is significantly less volatile than the stock market.

But if you have a W2 job, and your employer is providing matching for your 401k, then by all means invest. If you do, take warren buffet and Ray dalio’s advice. Invest in the S&P unless you really have a very strong understanding of the company and industry you are investing in.

SFR's are a business and take lots of work, but there are many ways to invest in real estate that is fairly passive. (Syndications, commercial, notes, partnerships)

@Ashley Pohlman, unless you see this house doubling in price in the next couple of years, sell now. Too much money locked up for the rent your getting.

for the PM’s, you have to look at it from the owners perspective. For the new owner, they have no idea how to tell a good PM from a bad PM. Going to the hamburger analogy, if you have never been to a hamburger restaurant and never eaten a hamburger, how do you pick which place to go? I’m sure the owners of Burger King, McDonald’s, Carl’s Jr. or Whataburger all have their reasons why their the best and clearly see why you should buy from them. But the first time buyer can’t see it and can’t place value on it. Same for real estate agents. Funny thing, I have had some terrible real estate agents and PM’s but never knew it. Now I have some perspective and can make a choice as to what level I want.

For the owners, a good PM can save your butt. But you won’t really know it tell the chips are down. It is kind of like a pilot. Anyone can fly a plane strait and level in good clear weather. But when the engine catches fire, you better have someone who knows how to handle the emergency under pressure. Same for PM’s. In the good market they all look the same to most owners. But when the economy gets rough, the good ones can still keep your investment working and profitable.

There is no standard on PM's who handle SFR's. I've seen flat fees, 6%-10% of the rent and a mix. I've seen PM's who add 20% to maintainance bills, fees to physically visit the property, several hundred for lease rentals, and sign up fees. I've even talked with a PM that did all of these. In the more expensive markets, PM's generally charge a lower percentage, but this is a lot of money when the rents are $4k to $6k per month. In the sub $1k/mo markets I see a lot more flat fees as many times lower end is harder to manage.

PM’s also must realize the profit margins of most investors are becoming very compressed. Not their fault, it is just the market at the moment. Their tolerance for anything that eats into this is becoming a huge concern.

I have not posted in quite a while. But I have been busy and ran into the old "too busy doing that I don't have time to keep up with the network." I really need to learn to balance that. But, working full time, two small kids and REI on the side makes for a busy schedule. But no excuses!

Overview:

- Sold one house

- 1031 exchange

- Bought 3 houses

- Renovated 3 houses

- Got ripped off

- Got flooded

- Renovated another house

- Buying another deal

- Ran into bank not wanting to fund me

- Found a way around and now in the process of getting funding

In late 2016 people here on BP convinced me that I should sell a high equity property for a few cash flow properties. I pulled the trigger and put it on the market. But not before needing to remodel the 8’x4’ bathroom at $10K. But that $10K brought me $30K more in the selling price.

The property was only $100/mo positive cash flow after 10 years of ownership, but that was pretty good for the SF Bay Area. The problem was not having my money work efficiently for me. I had $400K in equity sitting there and refinancing would make it negative cash flow.

I used the great people at IPX 1031 to facilitate the exchange. Was a lot easier than I had imagined. Sold one property in CA and bought three in Houston.

One of the new properties was of the MLS and two were through a wholesaler (Northwestern). But all needed work.

Property one:

This was off the MLS and was listed for $160K. I ended up paying $145K as it needed a lot of loving care. New siding, a new cement patio and walkway, new flooring, remodeled the 2 bathrooms and painted in and out. Roughly $20K in work but a lot of my own labor. This was not a good deal as ARV was $165K. Have it rented for $1650/mo.

Lesson learned: there is a lot more work needed than you may see, especially one prepped for selling to the normal home buyer.

After:

Before:

Property two:

This was from a wholesaler. There was a pipe that burst and the house had flooded. No drywall or sub floor in the second floor. You could see right through the house. But had good bones in a decent neighborhood. Paid $130K put $62K into the rehab and ARV is $220K. Rented for $1775/mo.

The problem here was hiring the wrong contractor. He talked a great talk and had massive amounts of verifiable experience, but for some reason his life had made a turn and he ended up only doing a few days of work in 2 months. I finally had to confront him. I had set up triggers by all the doors to show if he entered. He was not even showing up to the property but was billing me for his time. Well $20K into my learning experience, I had to fire him and look for a new contractor. After sulking for a week, I hired another team and they did a great job. So the rehab would have been much less had I not waited to fire the first guy. Just felt so bad for the guy, but after running the numbers on holding costs and lost rents, I was mad enough to fire him.

Lesson learned: Fire contractors quickly if they are not preforming. Kept thinking, I have now paid for my education, I might as well use it.

After:

Before:

Property three:

This was through a wholesaler also. Bought for $200K, $30K in rehab, ARV is $255K and rented for $1875/mo. I knew going in this was not going to be a good deal but this was going to be an "alternative primary residence" I love the neighborhood and like the house. So I was going to rent for a year and sell my house to move in to reduce my tax burden. Ended up just renting it. I'm still holding a lot of equity in this house and the value continues to climb as the businesses keep moving into the area. (more on the benefits of holding equity later)

After:

Before:

The Flood:

I had just finished these properties, and was getting back to normal life when Hurricane Harvey hit Houston. All the rentals made it with no issues, but my own house got 18” of water. Had to tear out the entire bottom floor and start over. I had no flood insurance as it was nowhere near the 500yr flood area. There was just a crap load of rain. 52” over 3 days.

Lesson learned: buy flood insurance.

This rehab was particularly hard as most of the contractors were booked up or working on their own houses. I called the same drywall crew as I used on property two, and their quote was 4x the cost for less work. Supply and demand in action. Materials were hard to come by, and the prices increased rapidly. I ended up doing all the work myself, and was faster than most full crews because I focused on only my house. Working this fast was beneficial as I usually got to the next build stage before others needed the same materials. This let me keep going where they had to wait for materials.

But the downside during this time was fixing things at the rentals when my own house was in pieces. I could not get a contractor to fix small jobs when they were making big money on big jobs.

Lesson learned: Don’t let your contractors jump around. It will take longer and cost a lot more. They should focus on one job only until done.

After flood and demo:

Starting to come together

The new deal:

I talk about real estate investing to everyone. So many in the neighborhood knew I would buy flooded houses. I also helped others plan the flow of their rehabs so they had the materials they needed and set up some group buys very early. I helped several wholesalers make deals. Now that my house is nearing completion, I am picking up another house myself and this one looks to be a better deal than the others.

Lesson learned: Talk about what you do, and help where you can. It will come back to you later.

Financing:

So I ran into an issue with financing. I wanted to use home equity line to pay for the new deal. But I was denied as this particular bank does not make 5 loans to one person. Oh well, their loss. After tapping into my network, I found another bank that will do the deal and they can move much faster. The good thing here is that once you build up enough equity you can use it like a credit card to do cash deal and the interest rate is only 1pt above prime. This bank will also roll it into a long term loan at a lower interest rate when the rehab is done and it is rented.

Lesson learned: Shop around and don’t let the bank tell you no.

Lesson learned #2: having equity in a house can be a good thing if you know how to tap it. (used property 3 for this)

Conclusion:

I moved from an equity play making only $100/mo to a cash flow play making over $3K/mo using the same amount of capital and a lot of sweat equity.

Bought for $270K waited 10 years and sold for $600K. Don’t wait to buy real estate. Buy real estate and wait.

I did a 1031 exchange into 3 properties. I paid $475K and put $112K in rehab for total of $587K all in, but ARV of $640K. (That is only $53K of equity + $36K in cash flow for the year)

With all this done, I have learned  the real lesson of cash flow and the ability to force equity. This has led me to now to make moves to get into multi-family where this all can be magnified. So if anyone has lessons learned relating to multifamily, Im all ears.

Good deal!! I feel "why's" fall into two categories. Either your running from pain or running toward pleasure. Currently I am doing both. My "why" started out as running from the pain of other people controlling my life and threatening my future. Basically people being total d!@ks with my career path because they just were being mean. I have since realized a W2 has not much to offer other than money, health benefits and a 401K, but you cant really have your kids take over your W2 job. And you cant sell it off when you want to move on. When you leave, all the blood, sweat, and tears stay with the company. When you leave, all the fancy titles you have clawed your way to get become meaningless. So now I am starting to run toward the pleasure of being in control of my own time and having the ability to spend time with my family. I am building my future. I am eating what I kill so to speak. And if I get tired of it all, I can sell it all off and give it to my kids or let them run the business. I have purchased 3 houses last year bring me to 5. I am now setting my sights on multi family or commercial medical office.

I guess persistence pays off. Found a plumber who is more reasonable and does not charge for their travel time. Still waiting to see if the quality is acceptable. time will tell.

We used to use a plumber that charged $140 for a service call and that would cover the 1st hour of labor. But I have called 4 separate plumbers now and all charge around $145/hour  + charge their regular hourly rate for the travel time.

For my Houston properties, I am currently paying around $100 for a service call + any parts. Unclogging a drain is around $65 to $100.

I looking to see if this is now normal for the SF area, or do I continue to call plumbers until I find one who does not charge for travel time.