All Forum Posts by: Aaron Pfeffer

Thanks to everyone on this thread who contributed.  It's been a fascinating ten days to say the least!  Predictions aside, it's been (almost) fun seeing all the boiler plate Registered Investment Advisor emails reminding clients not to panic and that percentage-wise, a one day 4% adjustment really isn't so bad.  Riiiiiiiiiight.

Not to say the Dow Jones alone is the true measurement of the "market" any more, but man, this is still a wild ride at the moment.  It's been ten straight days of more than 1% change in either direction (except for February 7th) and that feels ulcer-inducing at times. Any further thoughts out there now that we've seen such wild daily swings?

Kind of a big deal, no?  Anyone care to share their thoughts on this?  Start of major blood letting or just a blip before stabilization and the bull run continues?  And let's say there is a sizable correction over the coming weeks and months -- what do you think happens to real estate prices and consumer confidence?

You probably won't believe this, but yes, this is a true story...

Back in my realtor days I was given a lead to a widow who lived about 45 mins away in a private community in horse country.  She had put good money into restoring the property, but no longer wanted to stay without her husband, and the realtors she really wanted didn't want to get involved so they pawned it off to me (and I had no book of business at the time so of course I agreed to at least meet), and the house was going to list for well over $1 Million.  Anyway, I get there and it's going well and we're touring the house and discussing what the listing may look like, and then she wants to show me the entire neighborhood. Well it's about 94 degrees that day and I'm dressed in a suit and not exactly wearing the shoes to be taking the two mile walk we're about to go on, but how am I saying no at this point?  Well, we aren't just going or the walk alone -- she's going to take all eight of her dogs with us.  Yes. Eight.  All off leash. So there we are, walking around the private development and she's giving me backstory on every neighbor, and one of the worst things you can imagine happened -- a car backing out of a driveway runs over one of the dogs. As you might imagine, she absolutely loses it and is inconsolable and we are now over a mile away from her house (on foot) and there are seven other dogs going crazy!

The car belonged to a worker who was at that house doing some maintenance (the owners weren't home), so it's me, him, and her in one of the most awkward situations anyone could find themselves in...and finally 20 mins later she makes a phone call, and it's to someone she was letting live on her property that I didn't even know was there the whole time, and he comes down on foot as well (another 20 mins), and he also becomes inconsolable when he sees for himself what happened! This goes on for awhile, and then he finally carries the dog, and we all take a very solemn, very long walk back to her compound.  We get there, I'd been up there now about three hours, and it seems only appropriate that I leave them to their grief, but yes, the story continues...

They immediately go about trying to bury the dog in a part of her yard where other animals had clearly been laid to rest previously, but they are both so despondent that neither of them are breaking into the ground.  Uh huh, yes, true, yep, I proceed to take the pick axe and shovel and dug the hole. A very sizable hole, in a suit, in 94 degree heat, and everyone is a mess, including myself.

We're going to end this story there. The story does not really end there, but we are going to end it there because it's crazy enough as is.  You asked, and that is my craziest real estate story.  By far.

Avoid other cooks in the kitchen and make it clear you are the operator/developer of the deal with all decision making power.  Get your conventional or private or hard money rehab loan financing in place, and then secure your friends' debt in second position behind that.  You are essentially using their money as "Gap Financing" to cover whatever it is you lack -- down payment, debt service for the rehab loan, extra cushion for rehab itself, etcetera.  Offer your friends a fair return for their money, which should most likely be pref interest + profit participation.  Those amounts are up to you, and the "pref" should be deferred, so it will also be paid when you sell the project, just like the profit participation portion. 

To reiterate...strongly suggest not bringing them on as "partners" with any decision making power. You will be tempted to form an LLC or other entity (perhaps a trust), and include them in the paperwork. Don't. This can work well for larger Multi Family syndicates in need of Limited Partnership status, but should be avoided for SFH flip venture. SFH flips are relatively simple, so do your best to keep it that way and keep all the control while also offering your friends a fair percentage of the profits.

And in case you are wondering why "pref interest?" It's because they are lending you money, and if this deal doesn't generate the windfall you expect, well at least they get a minimum pref that shouldn't change, which they deserve as risk taking lenders on your project. 

Good luck!

To be blunt, your last post is concerning @Arturo Borges

It's not really about whether it's a good time to start flipping, or not worry about a course correction, it's always about the same thing for all flippers:  Buy well, don't involve yourself with projects that can take too long, and have a Plan B (like refinancing and renting as others on this post have mentioned).  You're looking for someone to just give you a magic bullet answer and it doesn't quite work that way.  

Many flippers have made great fortunes when things turn bad because they buy well and know how to underwrite the bottom of the market, and they pick up REOs and Short Sales when that happens.  Many have made great fortunes in the past eight years on the market appreciation alone.  But all the good flippers still have three things in common:

- Buy Well

- Know your abilities vs. your time frame for each flip

- Have a sensible Plan B

If it's a primary residence, you're really looking at more like 30-40% out of pocket for the total project cost (purchase + hard costs), and that will be with a bank like Banc of California, or Union, or First Federal -- who are adept at construction loans for homeowners.  A hard money construction lender may go all the way up to only 20% out of pocket for total project cost, but that high of leverage is reserved for seasoned developers, and also for non-owner occupied projects with the intent to sell when completed.  I think you'll have a very tough time finding a 10% down construction loan either way, unless you can source a private individual who would take that risk with you, and obviously that won't be easy.

I am looking to sell directly to a fellow investor interested in purchasing three excellent cash flowing SFRs. I have spent the last 2 1/2 years renovating, cultivating and stabilizing all three properties, and the only reason I am selling now is because of other opportunities closer to home coming up in the latter half of this year.  Please DM or call me to discuss specific addresses, but here is a breakdown of all three...

W. H14, 93534

This has undergone a substantial renovation since purchase, and I chose poorly for the first set of tenants, but the second tenancy has been perfect.  Tenants are paying $1,350/Month and have a lease in place until April 31, 2019. They pay all utilities as well.  The house is in great shape and has a nice front and backyard, and besides some annual tree cutting and maintenance, it's well stabilized now. Pics attached.

W. J12, 93534

This underwent an even bigger renovation at time of purchase, and I've thrown all the necessary money at it since then to get it perfect.  That includes decomposed granite landscaping in front of house, tree cutting and removal, doors replaced, and a slew of other little things that make it shine now, with very happy tenants.  They also pay $1,350/Month but are currently month to month and the house could easily get more in rent now. I agreed to do gardening once a month, but tenant pays all other utilities. Pics attached.

W. Ivyton, 93534

This house has bonus footage that doesn't show on title. I inherited great, but underpaying tenants when I purchased the house, and they are still fantastic, though paying well under market. $1,050/Month and lease is in place until June 30, 2018. I did not do any renovations are time of purchase -- didn't have to -- and since then it's been minor maintenance for the past few years, though I substantially trimmed down trees for safety reasons. The house will need a very minor renovation if intention is to rent to other tenants in later half of year, but you will get a substantial leap in the rent as well. Tenant pays all utilities.

I am eager and happy to share the past two year pro formas with anyone seriously interested, so please DM or call me at 323-306-3296. Thank you.

I could see you getting around $700,000 ARV for this deal, but at your numbers, no, I would not say it's a good deal. Not after purchasing/holding/final sales costs. You'd need to be at $750,000 ARV comfortably and hope this comp you are watching explodes in price first. Then again, in this insane market that all may happen, but you're also talking about a burst water pipe that may have affected more then just the flooring -- maybe even the sub flooring. Dry rot and mold would balloon your budget. Also, I believe the southern part of Expo Park is HPOZ, so triple check that first, because this deal is 100% a no go if that's the case. Lastly, $80,000 for 1,400 Sq Ft sounds light, especially if you are already putting in all new floors. You could certainly do it for that cost (or less if you wanted), but it won't get you the ARV you need.

@Kenneth Lee

At last we get to the heart with your last post...you will be a passive investor as opposed to active (we all knew this thread was leading there) and you will invest in Multi Family via syndication (we all knew the thread was heading there too).  Now you've specified a diverse portfolio that sounds smart, but is it?  What you really need is a personal sounding board, as opposed to a bunch of diverse voices in Cyberspace - no offense to any responses on this thread - many, if not all were very well intended and intelligent.  Consider finding yourself a professional wealth manager who specializes in alternative assets like real estate. What do I mean by that exactly?  Well, I'll say this...Schwab managers do one thing, JP Morgan managers do another, Northwestern Mutual managers do another, T. Rowe Price, Edward Jones, Morgan Stanley -- etcetera.  But you're someone who came to Bigger Pockets for a reason.  You're someone who clearly wants to invest specifically in real estate, and perhaps real estate only.  There are specified wealth managers who do that and ultimately direct their clients into Multi Family investments.  Find them.  They exist.  They are the ones who focus their efforts on finding guys like you (and smaller family offices).  Good luck!

Fear Mongering.  The cyberspace pulpit at its best...