All Forum Posts by: Phillip Johns

@Renee Yarbrough

My first flip I wound up losing $7,500 on after it was all said and done. I could have thrown my hands up and quit but I did something else. I basically told myself that I just had a $7,500 lesson because in reality it wasn’t a total loss. I learned so much from the experience, a lot of things I’d never do again and things I knew I had to work on and a couple things that went well. Overall my expectations coming into the deal were one of knowing I wasn’t going to hit a home-run right off the bat.

The fact of the matter is that if you have spent that much time researching and learning then don’t allow that time to be a total waste by walking away. Failure is not a lost flip or a negative return, that is a lesson learned (hopefully you learned from it). Failure comes from walking away and not trying again. Only then do you really fail because you choose to allow your fear, indecisiveness and emotions of loss to dictate your future.

Get your butt back in it and try again, you’re not a quitter.

This is a classic example of hyper growth gone wrong. I don’t think either ocean pointe or Clayton Morris started off with the though of running a ponzi scheme or creating fraudulent documents. I believe it happened because they tried to take on way too much too quickly without the right infrastructure to do so. Instead of realizing they were over there head and drawing the reins back they made the fatal mistake of moving forward and hoping that they could eventually catch up and started compromising their ethics along the way. I see it in business quite often, especially service companies and it usually never ends well. It’s a classic case of allowing greed to overrun common sense business decisions.

@Kelsi Dockins

Congratulations, that’s phenomenal to do sight unseen. I am really surprised how much work you were able to get done for $17,000 though. New electrical, plumbing, floors, kitchen, roof and paint on a 2,000 square foot home? That’s 8.5 a square foot. How did you manage that?

@Nick Rutkowski

He was referring to material and labor not just material cost.

Ok, so I have come across an issue that is most likely not unique but something that I am not sure what to do.

There is multifamily unit for sales in a smaller town fairly close to me that has really good potential. Currently the rents are 10-15% below where they could be and it stands at 30% vacancy but only because those units are being rehabbed. Historically it has been at near 100% occupancy for the last ten years.

Here are the problems. It is an 18 unit complex and has been run by an individual for quite some time and the bookwork has been less than stellar. There are no real financials to speak of other than an excel spread sheet which, as we all know, cannot be reliable without further backing. It is almost impossible to get an appraisal on it because it’s the only one in the town and there are no comparable. Plus, even if I did bring an appraiser from a bigger city it would cost $3200 for a restricted report and $6,000 for an unrestricted report that a bank would accept. The seller will not purchase one nor help to get one in any way (most likely because he knows it would hurt his cause not help it) therefore the only and best way to get this done is through the income approach. Having done my due diligence on the property I have almost doubled the owners “supposed” operating costs but even then the unit has really good potential for a nice return.

My usual private money investors are leery because they have nothing to compare it to and because it is a little high for their budgets. The property itself can most likely be purchased around the $650-$700k range.

Is there any private money lender or investor willing to partner on a multifamily like this who is confident enough in there due diligence and ability to properly forecast returns without the aide of outside financials and reports? Any leads or suggestions would be helpful, thanks.

@Amit Chaudhari

You’re missing a lot of hidden expenses that you may not think about.

Landscaping, Lawncare, ice and snow control, bug control sewer trash general maintenance apartment managing etc.

@Philip Johnson my commercial liability has a section for uninsured subs. Basically as long as I report them with my payroll amounts and 1099 them they can be covered.

@Chance Thurman

Bro, that’s way too much profit for a split w/ a silent investor. You’ll be kicking yourself. Find a private lender that will simply act like a bank with interest rate from 7-12% and keep the rest for you.

@Raphael Karger

Don’t try to do too much too quick. You can make a mistake or two at your age and spend the next ten years digging yourself out of the hole.

Here is what I suggest. Find yourself a good paying job and take up construction as your second job. Spend all your free time learning about investing, and honing your construction skills and knowledge. Take side jobs and put every penny you make off them back into a savings account. Build your credit, build your knowledge and build your savings. Always keep and eye on the new upcoming markets and do the numbers over and over and over again. Be creative, think outside the box, try to find ways a deal could work. Study hacks and tips and tricks for expanding income. Make sure that when you do your first multifamily property it’s not really your first, but the first one you pulled the trigger on. You should have looked at hundreds of properties and ran hundreds of numbers and scenarios before you actually pull the trigger on one.

Once you have enough money saved up for a down payment I suggest you pick either a duplex, tri or quad as a starter. Pick one that needs to be rehabbed a bit (this is where the construction skills come into play). I would usually suggest a full 20% down payment saved for your first project to avoid the PMI because, for your your first project, I suggest you get a fixer upper that you can put sweat equity into it. You won't usually be able to get a FHA loan at 3% on a fixer upper because of the restrictions plus that PMI is just throwing money away. Find something that's undervalued if possible and has an ARV at least 40% more than you paid for it. This will help out with your first HELOC later down the line.

Live in one of the units and rent the other ones out as you rehab them. Do the property managing yourself so you can learn how it works and all that’s involved. It will give you the personal skills and knowledge you’ll need later in life when dealing with outsourced property managers. You’ll be tempted to use credit cards to finance the rehabs on your units. I’m not saying it’s not ok to do in small doses every now and then but don’t do it excessively or for long periods of time. Paying 20% interest on a credit card can eat up a lot of profits of rental income. Stick every single dollar you can afford and what you get from your tenants back into paying down the principal of the loan after the units have been rehabbed.

From here you have a few ways to go, you could get a HELOC on the property, use the funds to get your next and move there and repeat, or you could stay where you are at and try to find a good cash flowing property that works with your down payment from your HELOC. By this point you will have gained a lot of knowledge and know some things that you like and don't like and develop your own strategy accordingly. There is no one right way to do it in this business. It takes guts but don't mistake guts for naivety or ignorance. You can protect yourself and avoid pitfalls if you take your time and educate yourself.

Best of luck to you.