All Forum Posts by: Scott Hawley

I'm moving this to the blog section of BP. Future posts will be at https://www.biggerpockets.com/...

I'm moving this to the blog section of BP. Future posts will be at https://www.biggerpockets.com/...

THE JOURNEY OF A PART-TIME REAL ESTATE INVESTOR

I’m a day late but I left Thursday afternoon with my 8 year old daughter to visit friends in Seattle. We returned very late Sunday; 1 AM Monday actually. We had a great time but I was only able to spend 3-4 hours on real estate activities. Today I’m sharing how to get started, going over my progress, an example deal, and offering a gift at the end.

If you missed the previous blog, you can find it at https://www.biggerpockets.com/forums/12/topics/765679-the-journey-of-a-part-time-real-estate-investor-2.

GETTING STARTED

You think I’m going to start talking about wholesaling, rentals, or flips don’t you? But that isn’t where you start. I have a close friend that has been interested in investing for years. He wants to invest passively and each time we talk he is pretty interested, yet his money continues to sit idle. The last time we spoke he said “Man, I should have started investing with you years ago.” This stall is common whether you want to invest passively or actively. It’s happens when people skip straight to the interesting real estate stories or even worse, tv shows, which are exciting, but they don’t know what to do next. I’m going to share with you the exact same advice I’ve just given my close friend.

Before you start anything, you should have your financial house in order. You should have a budget, know how much you are saving each month (whether it is $0 or $1000), know your debts/bills, and know exactly how much you have to invest. Budgets are hard, I know. If you share finances with someone, they need to be involved because you need consensus and commitment. If you struggle with this and already feel defeated, read about budgets from Dave Ramsey or search for budgets on The Simple Dollar. That’s what I did. You could also sit down with a friend that is good with budgets (I’ve done this for family/friends), hire an hourly non-commission based financial planner to help, or find some other financial blogs that you like. This takes time and it won’t be right the first time. Get it started and update it as needed.

Now that your financial house is in order, you need to answer these 3 questions. How much time do you want to put into investing? What type of returns do you want? How much risk are you willing to take?

Time – if you have 10+ hours per week to dedicate to real estate investing, then actively investing is an option. It takes time to educate yourself by attending meetups, classes, and reading. You need to cultivate relationships with many professionals like wholesalers, property managers, real estate agents, and a dozen more. Then you need to find a deal, buy it, and manage it. For myself, I actively invest and passively invest. My passive investing is currently just with my retirement accounts.

Returns – you should think about your criteria for an investment and know what would be an investment you are interested in. You don't create this from scratch, it comes from seeing many deals. It can be very different in different cities. I know people that are fine lending with a house as collateral and getting 8%, others that only want 12%, and others that only want 20%. I know people that only buy a flip if they can make 15%, some if they make at least $20k, and others only buy if they get it for 70 LTV minus the repairs. For buy and hold, people often target a minimum CAP rate or cash-on-cash return.

Your return ties into your risk. Here are some examples I see regularly for private lending. The associate that gets 20% lending is doing risky gap funding which is a 2nd position loan for flips so the flipper needs almost no money. For the 12% rates, it is less risky than the 20%, because you are in 1st position, but you are likely funding 100% for up to 12 months and getting paid at the end. For the 8% rates, you are lending in 1st position but they are putting 20% down.

Risk – Understanding your risk is critical to making a decision. Flipping houses is generally higher risk than buy and hold. Buying houses at auction is higher risk because you don’t even see the house prior to ownership. Lending on good collateral with a safe loan-to-value is less risky than flipping houses. In all cases, your capital is at risk. Whether you are flipping, lending, buying long-term rentals, or something else, you need to understand what can go wrong (this is the risk) and be ok with that. I’m not listing extreme examples that can and do happen, but rather, am focusing on the common risks.

Flipping Houses – what if you lose money on a bad contractor? What if you uncover hidden expenses? What if your water main shut-off valve breaks when the plumping is only partially installed? What if your contractor messes up the permits and you get red tagged and have to wait 14 weeks to start construction again? What if it sells for less than your ARV? All of these have happened to me! The high level risks are discovering unplanned repairs, anything that extends your timeline (since a decent part of your budget is holding costs), and problems with contractors. You'll have insurance for theft, fire, etc. You need to be an active investor to do this. As an active investor there is a lot of education to do that I'm not covering today to be prepared for a rehab project.

Buy and Hold – buying a property with little to no repairs needed is pretty simple to analyze. With a property manager, this can be done passively. Your inspection should uncover any surprises. You should know the average vacancy rate and rent for the area which would have been part of your analysis. Your risk is if major components need repairing like the roof, AC, HVAC, and you aren’t prepared for it, or if your tenant stops paying, trashes the place, and you need to evict. The first one is mitigated by setting aside money to repair those items in the future. Now the last one is where I see the most concern. In reality, it is pretty rare, but if you plan to buy lots of rentals, I’m sure it will eventually happen. My advice is to have an inspection, know the vacancy and rents, have cash reserves, know how long the eviction process takes, and hire a professional to do it.

Lending - this is another passive investing option. Your risk is not getting paid. If you lend money on a property it should have a deed in trust which gives you the ability to sell the property through the foreclosure process if they don’t pay your loan. This is a lien against the property and the first one recorded is in 1st position, the second one is in 2nd position, etc. If the 1st position lien is not paid and they foreclose, whatever it sells for at auction will first pay off the lien in first position, then extra money goes to the 2nd position lien, etc. The foreclosure process removes your lien from the property. If you weren’t fully paid through foreclosure, hopefully you had a personal guarantee. The personal guarantee gives you the ability to file a judgement against the person. This can hurt their credit score, freeze their bank accounts, block them from buying or selling properties, and cause them grief until they pay you. Each city/state can have different laws and you’ll be working with a lawyer to do this. My advice is to lend on a project that you have faith will be successful, lend to someone you have faith will pay you back, make sure you get a deed in trust so a property is collateral, you want your lien position to be the smallest number possible, and get a personal guarantee.

ACCOMPLISHMENTS

I went to one multi-family meetup with good pizza and good people. It was a social event and there wasn’t a speaker. I was able to spend a few hours meeting many new people and finding referrals for property managers and general contractors.

For the 8-unit property under contract, I had the inspection, was able to see all the units, and met with a GC. There's more rehab needed than I initially thought, but it is still a good deal. It also looks like I'll be able to separately meter the water which is great! I've compiled a list of referrals for property managers and general contractors. I've called a couple and need to call more and decide on one. Then finding the right GC will happen. I also creating my operating agreement for the LLC this week. Escrow needs that to show who can sign for the LLC.

I signed a letter of intent (LOI) for a 24-unit property. An LOI shows you are serious and many apartment owners want one before they will release some of the financial documentation. We're doing some negotiation right now so maybe I'll have something to report next week.

Even though all my money is committed to the 8-unit and the 24-unit, if I get it, I kept up on deal analysis. If the 24-unit deal doesn’t happen, I have more that I’m ready to jump on. In addition, I met up with a local full-time rehabber that is also a real estate agent. I plan to start flipping houses again in Q1 to generate cash for more buy and hold properties.

I spent four days in Seattle on a Daddy-Daughter trip visiting friends.

EXAMPLE DEAL AND GIFT

This is a deal I saw and is a great buy and hold property with no rehab needed. I see many smaller deals also but this one was my favorite medium sized deal and I think of it as my backup property if the 24-unit doesn't happen. This is what my deal analysis spreadsheet looks like (ignore the rehab loan & closing section). The rents in the spreadsheet are the increased rents, so it would build up to that. I like deals like this where the COC (cash on cash) return is enough to split with a money partner. Next steps for this property would be to do less than an hour of research on the area to ensure the crime rate wasn't bad and to be confident that the rents can go that high. Then it would be time to contact the buyer's agent, talk further about this property and see if it is really below market rent or if the units need updating to get there. If they need updating, adjust the spreadsheet, make sure it is still a great deal, and put in an offer.

The gift is if you want a copy of the spreadsheet I use, either message me on Bigger Pockets or email me if you got this by email and I’ll send you a copy.

WHAT’S NEXT

The 8-unit property has a lot of work coming up. I need to follow-up with the lender, finish reading the inspection report and decide on what I need to negotiate, select a property manager, and decide on the SOW for the units and other repairs so I can get contractor bids next week. I have some more negotiation to do with the 24-unit property. There aren’t any meetups this week so I’d like to complete a couple of home projects like painting a wall in my office with white-board paint and mounting my TV on the wall in the family room. Saturday is busy with a girl scout event followed by a small birthday party for myself.

You can do it @Humayun Ahmed! Keep learning, ask questions, and take action.

WHAT IS SPECIAL ABOUT THIS BLOG?

I’ve been to a lot of real estate investing meetups and heard from a gazillion speakers. The good ones share meaningful knowledge and sometimes how they operate. I’ve struggled trying to emulate them because they do this full-time while I already have a demanding full-time job and do my investing during breaks, evenings, and weekends. Most investors I talk to have a goal to invest full-time. There is a knowledge gap on what to do to get there. I see evidence of this every time I go to a meetup and see people that have been attending for years and still have no rentals or investing income. This blog is designed for all of you part-time investors. Come join me in my journey!

For more details about myself and my goals, please read my first blog at .

ACCOMPLISHMENTS

I received much more positive feedback about this blog than I expected. Thank you readers for your interest! I thoroughly enjoyed your feedback and welcome it (good or bad).

I went to two great meetups this week. One was on assisted living homes and it was fascinating how the investor dove into his first one by turning a large home into a 10-bed assisted living facility. The other meetup had a national speaker - Mr. Landlord. If you _ever_ have the chance to listen to him speak, I highly encourage you to do it. In the 100’s of meetups I’ve been to, he is the most entertaining speaker I have ever seen. When I network with other investors, I focus on putting more time into learning who they are and what they do and sharing that about myself. I used to do a quick exchange of business cards to meet more people, but the mound of business cards I had without remembering what they do or where I met them proved that was not effective. I met 3 investors at the meetups. An experienced buy & hold investor, someone wrapping up their first rehab, and an agent that does property management near the 8-unit.

I created a process for tracking my mileage and expenses and filled it out from the start of the year. This is going into my list of daily activities along with deal analysis. I’m a big fan of excel and have a simple spreadsheet to track this. There are apps to track both of these but the majority of my trips are to a hand full of places so the spreadsheet is easy. I can see myself outgrowing this in the future.

My most exciting news is that I have a mutually signed purchase and sale agreement on the 8-unit property! That happened Friday evening. This will close in early December and I’ll share every step of the way with you. Earlier this week I called the 15 closest local banks to my house to talk about their commercial loan terms. I quickly narrowed that list down to 4 and have since had 2 other banks referred which I’ll follow-up within the next couple of days. One astute reader asked me why I didn’t put it under contract last week when I first met with the seller. The answer is … I should have! I had some anxiety on not having a lender lined up yet, but there’s a financing contingency for that. Fortunately I didn’t lose the opportunity.

I caught up on bookkeeping for the three rental homes I have with a partner. I use excel for this as well. I have heard great things about Quickbooks and will upgrade to that sometime but it is low priority for now. It is more important to analyze deals and take action!

I took too long to install my overhead garage shelves myself and hired it out. I’m nice and sore from rearranging everything in my garage but it looks great now.

Family time is important! Thursday evening was dedicated 1:1 time with my daughter, Friday evening was a family movie night, Saturday was a morning swim class with my daughter and we visited family that evening for dinner and a movie, and Sunday was church and lunch with family followed by some errands and ending with another family movie night.

THIS WEEK’S PRO TIP

I attend several meetups a month and some of the benefits are targeted networking like finding general contractors, general networking like meeting the person you sit next to, and exposure to new ideas from the speakers. The danger is that you will regularly learn the tip of a subject from a polished speaker and it almost always sounds amazing. It sounds like that’s what you should be doing instead of what you thought you should be doing last month. If you keep jumping to the next interesting topic then it is no different than watching tv. I just hope you aren’t dropping $$$$ on programs that turn dusty. This advice hits home for me. This was me for years around 2006 – 2009 and I have boxes of speaker’s products to show for it.

If you are brand new, it is ok to wait 3-6 months to pick your first investing strategy. The way to succeed is to pick one strategy, create a plan, and stick with it until you hate it or master it. If you decide that you hate it, then pick something else and pivot to that. When you master it, it will take less time to continue doing it. Then you can jump into a second strategy while keeping the first one going. This is how really successful people have multiple business pillars and income streams.

I’m currently focused on buy and hold. In last week’s blog, I shared that I completed my deal analysis spreadsheet and analyze deals daily. This week I talked to over 15 lender’s and found the right ones. These are rungs on the ladder to mastery. Before the end of the year I will have buy and hold mastered and start focusing on rehabbing properties.

WHAT’S NEXT

I have a lot of work on the 8-unit property. I will be contacting a couple more lenders and lock one in, schedule an inspection, bring a GC in to bid on the full rehab of one of the units, get the P&S to the title/escrow company, and talk to some property managers.

I’ll attend one meetup this week and meet with a local rehabber.

My daughter doesn’t have school this Friday so we’re going on a spontaneous Daddy-Daughter trip to Seattle this weekend.

@Logan Ho - two year old twins does sound busy!

@Ahmad Gul - I started out using an agent that was experienced with flips and working with investors. There are a few brokerages like this in Seattle. I was transitioning to using wholesalers instead of buying off the MLS because there would be more profit potential, but then I moved to Kansas City. I use a property manager for the rentals. I've heard good and bad on turnkeys. My advice is to get several reviews from people that have used them for more than 1 year.

@Lee Ripma it is in 64030. One unit needs to be completely rehabbed. Otherwise it is pretty good.

@Danny Randazzo this is perfect advice. I've talked to a lot of lenders in the last couple of days but they were larger, often national, lenders with minimums. I've heard similar advice that local banks would lend on this and will be calling several on Tuesday since Monday is a holiday.

WHAT IS SPECIAL ABOUT THIS BLOG?

I’ve been to a lot of real estate investing meetups and heard from a gazillion speakers. The good ones share meaningful knowledge and sometimes how they operate. I’ve struggled trying to emulate them because they do this full-time while I already have a demanding full-time job and do my investing during breaks, evenings, and weekends. Most investors I talk to have a goal to invest full-time. There is a knowledge gap on what to do to get there. I see evidence of this every time I go to a meetup and see people that have been attending for years and still have no rentals or investing income. This blog is designed for all of you part-time investors. Come join me in my journey!

A LITTLE ABOUT MYSELF

My name is Scott Hawley and I'm a part-time real estate investor. I work full-time in the tech industry where I travel about 20% of the time and can be paged at any moment. I'm married with an eight year-old daughter and spending time with her and my wife is a top priority. After having stepped away from investing many years ago, I picked it back up in early 2016 while living in Seattle. Over the next 2.5 years I had completed 7 rehabs of which 2 were done in a self-directed IRA, raised over $300,000 of private money, acquired 2 out-of-state rentals, and was a private lender with my self-directed IRA on 2 notes. In mid-2018 I paused investing to focus on finding a job in Kansas City which is where my wife and I grew up and where nearly all our family lives. With a then seven year-old, it was important to us that she grow up with strong family relationships which just wouldn't happen from our annual visit over Christmas. After a few months of interviewing, I got a job in Kansas City. We had a fun road-trip down, did Halloween in a small town while on the road, and I started my new job early November. Over the next 6-7 months, we bought a house, moved-in, my wife started a new job, my daughter was in 3 schools for 1st grade, I traveled about 40% for training events during my first 6 months, we got a dog, and had a few extended family emergencies. We took a week vacation over July 4th and then I jumped into investing again.

MY GOALS

My long-term goals are to achieve financial independence from cash flow rentals in multiple cities. I started rehabbing in 2016 to generate cash in order to buy rentals. I’m currently looking to deploy some of that capital in value-add rentals or the right turn-key rental in Kansas City or another cash flow market and to hold back some of the capital to start rehabbing again in January.

MORE DETAILS TO COME

I plan to share everything with you. You the reader will know me better than many of my friends, unless they are also following along. In this blog I will break-down the deals I’ve done, the lessons I’ve learned, what I did in Seattle, what I’ve done in Kansas city over the last couple of months, and anything else you want to know. What do you want to see first? What questions do you have? Just ask and I’ll prioritize that for my future blog articles.

JULY THROUGH TWO WEEKS AGO

I started out by joining Kansas City Facebook groups, finding all of the real-estate investing meetups, and starting to attend them. There are a lot here and my goal is to go to all of them and see which ones I think are the most valuable to attend regularly. Other than when I’m traveling for work, I’m attending an average of 2 meetups a week. My goals of these meetups are to network with other investors, find general contractors, property managers, investor friendly agents, and wholesalers. I’m getting on their buyer’s lists and setting up a deal funnel. The goal of the deal funnel is to have as many deals landing in my inbox as possible. I had also made some connections while in Seattle for out-of-state investing and get deals in email for some other cash flow markets. In mid-July I acquired my third rental which is out-of-state near the other two. In September I setup a Solo 401k, rolled over my IRA and my wife's IRA, in order to invest in a syndication.

THE LAST TWO WEEKS

Everything up until now has been pretty high level. That’s because you’re only going to read so much, but I will expand on those areas in future articles. I want to get very detailed now so you can see exactly where I’m spending time.

With the deal funnel active, what do I do with the flood of emails? I already have the 1% rule to weed out properties, but when you are focused on cash-flow markets, they are almost all 1% or better. I created an excel spreadsheet to quickly analyze the deals. You could also use the Bigger Pockets calculator, but I personally prefer my spreadsheet. It has the same inputs and I have the results of either buying it with a loan when there is little to no rehab, or buying it with a rehab loan, fixing it up, and then refinancing it. I also include some expenses that I don’t often see like the cost to create an entity and seed money for the checking account for this investment. The important step here is to analyze all the deals! I don’t go to bed at night until I have analyzed all of the deals in my inbox.

With all of that deal analyzing, a few properties stood out. One is an off-market 8-unit value add property in Kansas City. I’m pretty excited about this property! I first became aware of it on Saturday 9/28, nurtured the relationship, and got the address on Wednesday 10/9. Since then I’ve done lots of online due diligence, found a good title/escrow company who provided me with a purchase and sale agreement, and met the seller on Friday 10/11 where I toured 3 units of the property. I contacted close to 15 lender’s between Friday and today. Some I already knew about and some I got by asking for referrals from Facebook groups. Only 1 of them may work because the others either only do residential or they have loan minimums which this is under. I’ve learned that local banks are fine with lower loan values and I’ll be calling several local banks on Tuesday since Monday is a bank holiday. I plan to make an offer in a few days.

I spent the weekend of October 5th in Nashville networking with several other investors while meeting a local team of people like real estate agents, property managers, general contractors, and lenders. While Nashville is expensive, some of the suburbs are good cash-flow markets. This is part of my deal funnel and a multi-family value add property also stood out when I analyzed it. I spent a few days last week collecting more information on it and finding a lender for it. I’ll get a quote on the rehab loan and long term refi on Monday or Tuesday this week, update my spreadsheet to finish analyzing it, and most likely make an offer on it.

Some of the deals I see require more cash than I have available. One 24-unit stood out but it needs 240-250k to purchase. I’ve reached out to a couple of friends that have previously expressed an interest in investing to see if they want to partner on this.

I went to one meetup, not including the Nashville trip, where I met someone that I may lend to. After investing in the syndication, I still have some leftover IRA money that I need to put to work. I've traded several emails with him and am evaluating whether I'll lend to him or keep looking for something to do with it.

My work in September to setup the 401k was finalized and in early October I wired the money to the syndication. The syndication will close on the property in early November.

That’s a lot now that I see it written down, but my personal life wasn’t sacrificed either! The weekend before my Nashville trip we celebrated my daughter Kahlan’s 8th birthday at Chuck E. Cheese, Tuesday we had our annual special breakfast on her actual birthday, yesterday Kahlan and I went to a Nature Center followed by lunch with my brother and a friend (my wife was holding an open house), and today we all went to the Kansas City Renaissance Festival. I spent time playing Minecraft with Kahlan, reading her stories, snuggling and watching TV, and playing Magic Arena.

THE KEY TAKE-A-WAY

The key part of the last two weeks was analyzing deals daily. Your deal funnel will grow as you continue to network, but it is critical to analyze the deals. This will give you the ability to recognize a real deal and the confidence to take action on it.

WHAT’S NEXT

This next week there are 3 meetups of which I plan to attend at least two, I’ll find a lender for the 8-unit, and make offers on both properties. I need to setup a website for this blog, setup a process for tracking my miles and investing budget, and catching up on the accounting for my 3 rentals. There are plenty of other things to do but these are at the top of my prioritized list.

Thank you for reading my first blog post. I plan to do this weekly and welcome your feedback.

-Scott