All Forum Posts by: Ryan Detig

@Mason English  Glad to see you are thinking of taking the plunge.  I am not sure of your families financial situation but this looks like a win win win situation for owner finance.  Based on some work I have done here in Port Neches and Port Arthor I would guess that 2 bathrooms and kitchen would run you 15-25K depending.  If the foundation just needs leveled I would say 10-15K based on quotes I have seen for similar size houses.  Obviously I have not been inside the house to see though.  

I would negotiate buying the property as if you were going to flip it.  Get ARVs from realtors in the area.  I recommend Aislinn Phelan with Keller Williams in Beaumont.  I can set up a time to walk the property with my GC if you want and help come up with a good scope of work and rough rough costs.  I would also get the foundation looked at (National foundation or ACE house leveling) and a quote for leveling.  

I would take all of that info to your family member and show her the numbers and give her the best offer you can.  You can then say something like "If you were interested in owner finance, you would actually get this much over the next X number of years" as a lead into owner financing.  Make sure you know how owner finance works so you can be educated when describing it.

Based on what you have told me if I were to buy the house I would want to be getting it at around 60-70k.  The nice thing is that all of the repair costs you get to help make your case for your purchase price don't actually have to be spent right away.  Unless stuff does not work in the house, I would rent it as is for 1050-1200 (below market) and in X number of years you spend the money on the rehab and flip it.   Or if you keep it long enough and it is paid off and you want to get rid of it you sell it to another investor and never actually spend the money to flip it. 

This is just one strategy.  Call me if you want to chat about others.  Also I am willing to help you get a scope of work and costs if you need it.

@Frank Grigus Jr  Thanks for the feedback.  I would say yes they are tight when you take into account management fees.  Many people say they want $100 per door.  I am currently getting that on all my units now only because I am doing my own property management and repairs.    I had 4 reasons I was ok with the lower than normal cash flow  

1. I was less concerned about cash flow because I was literally getting paid at closing to own these properties.  I decided I would rather have a house I paid $0 (or got paid) for that gives me $50 a month than a house I paid $10,000 for that gives me $150 per month.

2. Appreciation was another reason I was less concerned about cash flow.  Several of the low cash flowing properties are in a good part of town with great school districts.  I don't count on appreciation which is why I made sure they were still positive cash flowing but appreciation and location were the reason I was ok with a smaller cash flow.

3.  Equity is another reason I was ok with a smaller cashflow.  All but one of the properties I have I purchased at 65%-80% of value.  This has lead to me having around 60-80k in equity.  That mixed with the fact that I could turn any of the houses in the better part of town into a flip if I had to get rid of it and make 5-15K was why I was ok with lower cash flow. 

4. Finally, my bigger picture plan was to mix good neighborhood properties with C-class properties.  I thought, and still think, that this diversifies ways for me to grow wealth.  On one hand I have low cash flowing high equity properties.  On the other hand I have no equity, no appreciation properties that cash flow very very well.  

These reasons along with having several no-cost exit strategies for each of my properties made me ok with low cash flow on some of my units.  

@Wesley Cook  Glad to see you are getting into real estate.  It is a lot of fun.  Assuming you have done the research and educated yourself regarding rentals, and you want to buy in the next 3-6 months, I would take the cash out of your current home with the refi.  Then when you find a Great deal (not OK, not Good, but Great) you will be ready to close fast and even potentially get it cheaper because you have cash.  Assuming that the property cash flows well (it should or don't buy it) I would leave that money in the rental property making 8-15%.  When you are ready to start actively looking for your second property, then refi the cash out of the 1st rental so you are ready to pay cash.  Some basics I have not mentioned is make sure you know and run the numbers on the 1st rental to account for a mortgage payment even if you don't have one yet.  Closing costs are a part of life.  I have personally spent over 10k in closing costs in my first 8 months of investing in real estate.  I just consider it a cost of doing business and make sure I account for that cost when calculating my offer price.   

@Bryan Tasumi  The income in the state of Texas should not play a part in whether you can get a loan or not.  Assuming your debt to income ratio is good and other factors regarding your self employment (consistent tax records etc), you should not have a problem getting a loan.  I don't see the lack of Texas income being a factor regarding loan approval as you personally are guaranteeing the loan.  I would talk to a mortgage lender and get their thoughts on the subject as they are the experts. 

@Zachary Sales With one property I don't think you have to have a LLC for holding the property unless you see yourself growing quickly. Make sure to get 1 or 2 Million in General Liability insurance though. I personally do have an holding LLC and manage my 6 doors myself. I introduce myself as the property manager. I also have a PO Box for them to send checks too. It will be hard to get around them having to write a check to someone other than yourself unless you have a property management LLC set up. If you had them pay online through something like tenantcloud (I currently use), then you could get around them personally writing you checks. The savvy tenant is going to know you are the owner because your name will have to be on the lease. I say appear and act as professional as possible and once you get a couple more properties get an LLC set up and stuff transferred into it. If you see yourself growing quickly then get the LLC set up now so that you don't have to have the hassle of changing insurance, leases, bank accounts, etc for each of your properties and tenants.

8 Deals in my First 8 months- YOU CAN DO THIS!!!

Hey BiggerPockets, I wanted to use my first post here on Biggerpockets to summarize my first 8 months in this fun, crazy, stressful, and exciting game we call real estate investing. To give a little bit of a background, I am 30 years old, have a wife and 2 kids, I work minimum 48 hrs a week, and I moved to Southeast Texas for work in March of 2016 from Orange County, CA. While in CA I did not think about real estate investing at all because of how crazy expensive housing was. After I found out I was going to move to Southeast Tx, I started doing research on rentals to find a place to stay. Right away I noticed that houses were renting for way more than the mortgage would be. This is what got me started down this real estate investing path.

After writing this and realizing it is really long, I wanted to provide a summary near the top to give people an idea of some of the items talked about below as I am not naïve enough to think that everyone will be as excited to read this as I was to write it. The below summarizes some strategies and investment types I have used during my first 8 deals.

-Flipping

-BRRRR

-Buy and Hold

-Hard Money Loans

-Wholesaling

-Borrowing from Family

-FSBO Purchase

-SFR Purchase

-Multi-family Purchase

The 1st Deal Purchased 12-22-16: After moving, I spent the first 6-8 months researching the rental market in the area and learning all I could from Biggerpockets. I knew that I needed to make sure I did not get stuck in analysis paralysis so on 12-22-16 I jumped in and purchased my first flip property. It was a 4 bedroom 2 bath foreclosure in a neighborhood with a good school district. Today it is completed and under contract to close in 2 weeks. Below are my numbers:

Purchase price: $ 55,000

Closing Costs: $887.00

Holding Costs (interest and utilities and insurance): $8,200

Remodel costs: $79,550

Sales Price: $170,000

Commission/Closing: $ 15,300

Net Profit: $11,063

Before and After Photos

Now while most people will not even consider doing a flip for a 10k profit, I consider myself lucky that my first flip did not lose me money and that I was able to get paid for an extremely value education.

The 2nd Deal Purchased 3-17-17: While in the middle of completing the flip, I was introduced to a wholesaler, @James Gallen, through 1 of the 2 local REIA I attend. He had three properties available at the time and I ended up purchasing two of them. I was able to find a small local bank that would loan 80% LTV based on the tax assessors value even if the purchase price was less than 80% of the value. This was great because that means at time of closing, I could walk away from the title company with a property and a check.

The lender I used was a commercial lender so in May I started an LLC. I closed on the first property middle of May 2017 with cash because the seller needed a quick close. I then completed the BRRRR strategy on that property, got it rented within 4 weeks, and was able to pull almost all of my money out of the property. Rough numbers for this property:

Loan Amount: $63000

Cash Out of pocket: $7200

Rent: $950

PTI:$ 590

Maintenance/cap ex: $ 115

Vacancy: $95

Property Management (Myself currently): $90

Cashflow: $60/month

ROI: 10% using a property management company and a 26% return when doing my own management.

The 3rd Deal Purchased 5-2-17: The second deal from my wholesaler was not a time sensitive situation and I was able to wait the 20-35 days to do a normal close with my lender. Again at time of closing I was able to walk out of the title company with a check for $4600. This property had a current renter in it with no lease. I was able to get him to sign a month to month lease. He left a couple weeks ago and we are in the process of showing the property to get it rented. Rough numbers on this property:

Loan amount: $58,000

Cash Out of pocket: $-4,600

Rent: $850

PTI:$ 540

Maintenance/cap ex: $ 100

Vacancy: $85

Property Management (Myself currently): $85

Cashflow: $40/month

ROI: Because I actually invested no money it is not possible to calculate ROI.

When analyzing both these purchases, I looked at the properties together to help calculate the ROI. Assuming I used the $4600 I received from the 3rd deal to help offset the $7000 I spent to rehab the 2nd deal, the ROI on both properties is around 45% using management and 130% if I manage them, which I currently am.

The 4th Deal Purchased 6-2-17: The realtor I am using to sell my first flip gave me a call on 5-26 saying she had a great flip opportunity but it needed to close within a week. She had a property that was on the market for around 20 days for a sales price of 100k. Many people were interested but some rotten wood on the exterior turned off many lenders. The seller was in a bind and was going to lose the house they were going to move to unless this property sold. They were willing to sell for as low as 55k if I could close in 7 days. After making a few phone calls to family I got a check in the mail and closed 7 days later. One note on my ability to make a phone call and get money. I had already borrowed money from this person to purchase my 2nd deal and had paid it back when the BRRRR was complete so I had built up trust. This project is about 7 days from completion and being put on the market. Below are the rough expected numbers.

Purchase: 55K

Rehab: 23k

Holding costs: 1k

Financing costs: 3k

Sales commission and closing costs: 11k

Sales price: 125k

Estimated profit: 32k

The 5th Deal Purchased 6-8-17: While I was at the 2nd deal mowing the yard getting it ready to rent, I was talking to the neighbors and they let me know that the neighbor one more house down was moving and they were not sure if they were going to sell or if they were going to rent it out. Ding, ding, ding. The lightbulb went off and I knew that the next time I saw their truck out front I was going to talk to them. Long story short, I ended up walking the house 2 days later, talking to the owner, and finding out he was interested in selling. I did not feel comfortable enough to work the deal myself so I gave the lead to the wholesaler who I purchased the other two properties from. We had an agreement that I would get first crack and an assignment fee discount for any deal that I brought to him. I knew that even if I did not buy it I would get some money through a finder’s fee agreement we had. @James Gallen was able to negotiate a great price that was around 70% of tax value. My bank approved the loan and I closed on the deal about 30 days later. Rough numbers for this rental:

Loan amount: $83,200

Cash Out of pocket: $-1,600

Rent: $1,350

PTI:$ 870

Maintenance/cap ex: $ 160

Vacancy: $135

Property Management (Myself currently): $135

Cashflow: $50/month

ROI: Because I actually invested no money it is not possible to calculate ROI.

The 6th, 7th, 8th Deal Purchased 6-15-17: During lunch one day I was looking on southeasttexas.com to see if there were any good deals. I noticed a 3 unit (4/2 house and 2/1 duplex) property for sale by owner. I immediately called her and talked to her for about 20 mins. She was selling the property because her husband wanted her to get out of the rental business because of her age (70ish). The price of the property had been recently reduced from 89K to 79K. The duplex was currently rented and she was in process of finding a tenant for the house. All three units had been rented with section 8 tenants. I met her 3 days later and walked through the property which was in great condition. I submitted a 75k offer using my own 3 page contract 5 days later. She emailed me and told me she had received another offer which was better than mine and was going to take the other person’s offer. I called her right away and let her know I would be submitting a second offer and if anything at all makes her feel uneasy with the current buyer to call me. I submitted another offer at 85k via email. She called me two days later and accepted saying the other buyer was very flaky and uneducated.

I was in uncharted waters with this property because the other 3 rental properties I purchased had all been below 80% of tax assessors value so I knew I would have to bring a small amount of money to closing. The tax assessors value was 66k on this property due to the C-class area so an appraisal would have to be done. After appraisal was complete, my bank was willing to loan 71k of the 85k purchase price. I was able to secure a private family loan for 18k (5 years @2.5% interest) to cover the difference and pay for closing costs and have some extra. Below are the rough numbers:

Loan amount: $71,000 primary, 18,000 secondary

Cash Out of pocket: $-3,500

Rent: $2,250

PTI:$ 975

Maintenance/cap ex: $ 270

Vacancy: $225

Property Management (Myself currently): $225

Cashflow: $550/month

ROI: Because I actually invested no money it is not possible to calculate ROI.

To those who have been concerned with dealing with HUD please note that after purchase I went to the housing authority office and got the paperwork, filled it out, filed it, and received most of the housing rent checks 15 days later on 7-1-17. They did miss one payment for one of the duplexes. I called them and within 15 days they had the money in my account. I have heard nightmare stores regarding housing but my experience with them has been very smooth.

This turned out to be much longer than expected. I hope that my story encourages those who are new to investing to get educated and take action. Getting educated is a very important first step but don’t make it such a big step that you never actually step off and purchase a property or do a deal. The education you will learn from actually doing a deal or purchasing a property is far more valuable than your initial “book” education. The initial “book” education should be completed before “doing” so that you mitigate the risk involved with a far more valuable education, the education associated with “DOING”. 

@Daniel J.  Ok thanks.  I think getting a 1750k equivalent rent (actual minus lawn care ect) for an all in of 100-125k is between an average and good deal.  If you can get rid of that 250 per month (which is think is really really high), it would be a really good to great deal.  To answer your original question about whether or not you are crazy I think that if all you have (or can get) is 85k (60k for purchase and 25k for repairs) then offer 60k.  If you are trying to get it super super cheap I think you are risking offending the owner to a point where they might not want to even negotiate with you.  On a side note I pay $70 per month for lawn care (not professional but good) and an exterminator on my triplex that I have.  I would look into something cheaper. 

@Daniel J. I am confused, are the number you are giving for rent, taxes, and insurance close to actual or are you asking what they should be? Assuming rents are actually 2000 per month then you will most likely get laughed at by offering 60k but that depends on the condition. Maybe the seller is crazy but I would have to assume he does not have it for sale for 189K unless he wants something close to that. Even if you were all in for 120k with 100k leveraged it would still be around a 10% return using property management and 28% return managing it yourself. It really all depends on how much repair you have to do. I do think that your maint and CapEx are very very conservative especially if you have to fix up the place and put 25k into it. I assume 12-15% for maintenance and Cap Ex combined depending on what condition the roof, AC, and water heater are in. If foundation work is really needed then I think your 25K might be a little low.

All that being said there is nothing wrong with offering 60k but I would try to get a hold of the seller and figure out their motivation and take that into account before offering.  

@Phil S. If you have been attending any REIA meetings I would recommend bringing someone you have a relationship with who is more experienced who can walk the property with you. Ideally you would have your financing set up ahead of time but that's not the end of the world. I think the order you have above is good. If you have equity in your house it will take some time to set up a HELOC. If it really is a "great" deal, I am not sure it will stay on the market that long. First step is to walk it with an experienced investor and see what his/her thoughts are.

@Alan Turner  If you are very experienced with flips in that area (>10) and you have a team you trust then I would say you can consider it.  If it is your first or close to your first then I would say it is too risky.  I just completed my first flip and it was 10 min out of my way home from my normal 9-5 job.  Many many things come up and if you don't have a team you trust in terms of a contractor, 2 hours away is too far.

I would never rely on my GC to do the initial walk thru.  Normally I walk the property, get a good idea of a rough scope of work, then walk it again with the contractor to finalize the scope of work and come up with a repair price.