Post: #1

Looking for some insight/brain storming ideas here in order to scale a business:

- I'm purchasing homes in Northern Ohio all cash, renovating and placing tenants. After expenses, I'm realizing a 15-20% cash on cash ROI annually. I'm going to continue this path forward on my own accord, building my passive income.

How can I scale this further? I'll begin using bank financing later this year which will boost my cash on cash returns well above 20%. However, I'm interested in using other peoples money to expand this further.

1) I can purchase, renovate, install tenant and flip to end-user investors as a turnkey package with a 20% profit margin. This involves more risk as I'm holding inventory and ultimately realizing a shorter term gain.

2) Utilize crowd funding to purchase a group of homes, reno, tenant and split the profits back to the investors with myself taking a 5-7% cut. While the cut % isn't much, in theory that 5-7% could be based on 200k/500k/1mm$+ under management. Not sure how on the risk is distributed here nor do I quite understand the ins and outs of this model.

What other ideas/models apply here?

I have a viable business here and anything >10% ROI annually in my book is great. However, I think I can go bigger. I'm in no rush to scale but needless to say, it's been in the back of my mind for awhile now.

Thanks all, I appreciate your thoughts/insight.

Post: #2

In an effort to add some more context, some before & after photos:

My best deal thus far occured this last Winter when I purchased an 11k home, performed 5k of renovation and now have it renting for $550/mo. After expenses, maint., vacancy & prop mgt, I'm seeing just about 25% cash on cash returns.

This was a smaller 2bd/1ba home with a full basement. C class neighborhood, close to the local elementary school.

**This deal is certainly above average. My typical ROI is in the 15-20% range. This home is in a C neighborhood vs my other properties which are in A- to B (excellent school districts, quieter neighborhoods). Higher risk/higher reward, as they say.**

Before

Repairs were quite light; messy home, missing plumbing, needing paint, minor appliances, bathroom fixtures, water heater work, etc. My apologies, the before pictures are not comprehensive.











After

Post: #3

Great job on the rehab.

A bank loan is OPM. There are two types OPM: debt & equity. I rather deal with one bank than 2-4 investors. The less people the easier! For each additional person you add to the team the complexity of everything increases by an exponent of two. lol

Go to all the banks you can and find a banker who you get along with well and who you feel you can build a business relationship over time. Not all bankers are created equal, and the worst are the ones from the big corporate banks, but there are still a few good bankers out there.

Post: #4

Thanks for the reply.

Agreed. I am pre-approved and will lay on the bank financing towards the end of this year as prices drop a bit and I can rack up properties for my own long term cash flow.

On the side though, I'm seeing plenty of deals that I can put together using OPM entirely. Almost syndicating? Putting together deals for other people.

My cash on cash ROI is great when I'm purchasing all cash (as I've done up until now). Cash on cash ROI is even better when using bank financing (leverage ). But both of these still require heavy funding from my end (either all cash or a 20-25% down payment with cash allowance for renovation & reserves).

My cash on cash reward for something with as little of my money in it as possible even better.

Bank financing is great but it has a ceiling. And while that ceiling can be breached, the terms becomes less and less advantageous, while maintaining the same capital intensive contribution (20-25% down-payments). I'm trying to look outside the box a bit and see what other models there may be out there.

I've contacted a few crowdfunding folks this weekend and will keep this thread updated of the results.

(04-20-2014 11:46 AM)monster Wrote:  Great job on the rehab.

A bank loan is OPM. There are two types OPM: debt & equity. I rather deal with one bank than 2-4 investors. The less people the easier! For each additional person you add to the team the complexity of everything increases by an exponent of two. lol

Go to all the banks you can and find a banker who you get along with well and who you feel you can build a business relationship over time. Not all bankers are created equal, and the worst are the ones from the big corporate banks, but there are still a few good bankers out there.

Post: #5

You should be looking at private lending or hard money. Show someone that has money like a doctor, lawyer, engineer, etc etc that they can get less than 1% of return on their money or 10% lending it out to you, BACKED by real estate

Go on Facebook and join Hard Money or Private Money groups its dozens of them out there. Also join BiggerPockets and post in the Success Stories your before, after and spread made. That way you can show potential investors you're serious.

Post: #6

Something like this...but instead of one property, I would acquire 30 units, reno & get on the rental market. Using economy of scale, I imagine I'd be able to squeeze out another 1-2% on my return (nego acquisition costs, reno, prop mgt fees, etc.)

----------

But in introducing its new deal, RealtyShares has joined the ranks of a growing cohort of startups, including Realty Mogul and Fundrise, that have also crowdfunded equity deals.

In equity deals, crowdfunders pool money from investors that a real estate firm uses to purchase property on the investors’ behalf. Each investor in such a deal acquires a stake in the property and earns money through rental revenue generated by the property, not through interest on a loan. The investor can also earn or lose money if the property sells (based on whether it sells for a profit or a loss).

http://www.inman.com/2013/11/13/realtysh...uity-deal/

Post: #7

I have both on hand but with the interest rate that they require and the short term amortization, it's difficult to delta much of a margin.

I've used them before for quick acquisitions and it was helpful when I needed bridge funding to gap my own income/payoff and the purchase. But for something like this, that's not a flip or a bridge gap, I don't think it applies.

BTW, if anyone is interested in hard/private money lending, big ups to BIGINJAPAN's equity lending data sheet:

/thread-15712.html

(04-20-2014 12:22 PM)PhilE Wrote:  You should be looking at private lending or hard money. Show someone that has money like a doctor, lawyer, engineer, etc etc that they can get less than 1% of return on their money or 10% lending it out to you, BACKED by real estate

Go on Facebook and join Hard Money or Private Money groups its dozens of them out there. Also join BiggerPockets and post in the Success Stories your before, after and spread made. That way you can show potential investors you're serious.

Post: #8

Things seem to be working out well for you right now. I like what you are doing.

I think a couple things to consider is start looking for other avenues to use your profits. Stick with something you enjoy or are willing to learn. It can be another facet within real estate or something completely different. If there is another real estate collapse or even a slight downturn, the one thing I learned in real estate is years and years worth of gains can be wiped out in one bad decision. So keep that in mind.

Secondly if you have time and the energy you can scale up your business by not only using bank financing but you can get multiple projects going by using hard money lenders or private financing. Private lenders generally don't care if you have other projects going on (unlike the bank), if the numbers make sense they will cut you a cheque. When I was really going I had a few partnerships with my family and other guys my age that were hungry. We weren't really friends at first and had met through acquaintances. We are now great friends but I think the success we had came from the fact that we weren't friends to begin with and grew a mutual respect for one another.

Also if you do take on multiple projects at the same time, try to keep them within close proximity to each other. I used to do things in different parts of Alberta and BC and got to be a headache. If you are single and don't mind the travel it can easily be done but if you have other people to look after I would imagine it would become pretty daunting.

Any business venture entered into with anybody, including grandma, be sure to get it all in writing. Not only money and expected return, but also what is expected of each party. Having clearly defined rules saves so many headaches in the end. One thing I liked to do was consult with mentors or very experienced real estate lawyers. Pay them the first time to write out a pretty rock solid joint venture agreement template that you can use for any opportunity.

Great job and I am glad you are taking chances and they are paying off

Post: #9

Thanks for the input Big, hope AB is still kicking ass.

Post: #10

I've got both friends and family in this biz.

1. lease with an option to buy for all tenants of SFH

2. moving from SFH to Multi-family. It's not much more difficult, plus you can hire a full time manager and maintenance. Becomes much more attractive to outside money. My east coast peoples flat out told me they had Wall Street connects, but those guys aren't interested in anything less that 4-5M. It's too much work for not enough return.

3. switching from mere habitation to special needs, retirement, hospice, halfway house, foster housing, et cetera. (high touch, very good money)

4. Cowgill-esque fund raising. You'll need an experienced person to walk you through it, but you either raise money from newbs @ your local REIC (Real Estate Investment Club), or you go legit, get you a lawyer and ADVERTISE.

I know at least 4 RE millionaires, and most of they got their by initially flipping/renting, and then moving to bigger deals.

The real money is unlocking possibilities. One dude looked at the city plat, found two useless parcels right next to each other, convinced both lando owners to sell, combined the parcels, and then did a ground lease to a major retailer for 75 years. Turned around and sold the lease payments to folks looking for return on their money.

Another chick bought a 3 story mfh, added two floors and an elevator.

Gotta homeboy who cashed out his retirement, convinced two owners to part with land (land that was not for sale!!!) to part with their pieces, and is combining the plot to put some Dwell magazine type units. He is gonna spend low 7's to make high 7's. Super risky, but if it works he no longer lunches with the serfs and dregs of society like myself.

I know folks that were selling raw land to housing developers and took a piece of the final sale to eventual homeowner.

There are all kinds of ways to do much more than buy, fix, and hold, or buy and flip, buy/fix and flip.

WIA

Post: #11

Thanks for the insight.

Post: #12

You need a cash business that will feed into your cashflow business.

Something that generates money that can be funneled into more cashflow properties.

You may want to start concentrating on properties you can rehab and flip until you are bringing in enough cash to parlay that into the type of cashflow properties you are working right now.

Seeking private investors and all is cool, but I think you will do better by setting up a cash machine of your own.

You already have the rehab skills judging by your photos, just use them to generate more cash now.

Post: #13

I've looked into doing flips but I believe I should be on the ground to do that. I left out one fact in this thread - I'm working outside the US right now and manage these projects from afar. I travel quite a bit and review everything in person every eight weeks or so.

However, I'll keep that in mind. The area is not prime for flips although there are some very select, higher end neighborhoods that would work. That being said, I know the major flip players in the area and they are far more sophisticated and really geared up for that model. We'll see...but I definitely would want to be on the ground to manage.

I'm in talks with a couple of crowd funding folks now, looking at packaging a few homes together and split up the rental income back to investors as dividends with them getting a split of the profits at exit in 5-7 years. While my profit margins are slim on a model like this, it would require little to no out of pocket funds and something that I could easily manage on the side - it's right in line with what I'm doing already. I'll keep the thread posted on where this goes.

Thanks for chiming in.

(04-21-2014 02:11 PM)worldwidetraveler Wrote:  You need a cash business that will feed into your cashflow business.

Something that generates money that can be funneled into more cashflow properties.

You may want to start concentrating on properties you can rehab and flip until you are bringing in enough cash to parlay that into the type of cashflow properties you are working right now.

Seeking private investors and all is cool, but I think you will do better by setting up a cash machine of your own.

You already have the rehab skills judging by your photos, just use them to generate more cash now.

Post: #14

If you are serious about making more cash flow you need to consider how to increase your income. Jason Fried said in this entrepreneur book Rework, sell your by-products of doing business. You clearly learned how to fix houses, set up an internet business selling information on how to flip houses or get into real estate, niche market over mass market in today's economy.

That is only one option, consider ensuring long term profitability, how they are paying for upkeep, do you recommend a guy? Do you have a gardener, or even once a week maid come by to help and maintain your property. Are you making money from the upkeep process, large apartment buildings take a cut out of what maintenance earns. If you manage to find a way to construct an effect business model in this are you might be able to see extra cash flow.

Post: #15

Interesting re: Jason Fried's book, been reading up on that the last hour or so. Thanks for the direction.

Post: #16

Sammybiker:

To me it's amazing that you can do this while out of the country (not even city or state) and still hold down a demanding job. You must have a ridiculous amount of energy and really good time management skills to pull this off. I admit, when I had properties on the East Coast, it was eventually too much for me to handle and I was very relieved when a colleague of one of my investors bought the entire portfolio from us all at once.

Now that you're looking to scale up, do you think you'll be able to allocate more time for these new projects without giving up your 9-5? I think it's a valid concern and one of the main reasons I'm working at a very low stress 9-5 job now.

Post: #17

(04-21-2014 04:59 AM)WestIndianArchie Wrote:  I've got both friends and family in this biz.

1. lease with an option to buy for all tenants of SFH

2. moving from SFH to Multi-family. It's not much more difficult, plus you can hire a full time manager and maintenance. Becomes much more attractive to outside money. My east coast peoples flat out told me they had Wall Street connects, but those guys aren't interested in anything less that 4-5M. It's too much work for not enough return.

3. switching from mere habitation to special needs, retirement, hospice, halfway house, foster housing, et cetera. (high touch, very good money)

4. Cowgill-esque fund raising. You'll need an experienced person to walk you through it, but you either raise money from newbs @ your local REIC (Real Estate Investment Club), or you go legit, get you a lawyer and ADVERTISE.

I know at least 4 RE millionaires, and most of they got their by initially flipping/renting, and then moving to bigger deals.

The real money is unlocking possibilities. One dude looked at the city plat, found two useless parcels right next to each other, convinced both lando owners to sell, combined the parcels, and then did a ground lease to a major retailer for 75 years. Turned around and sold the lease payments to folks looking for return on their money.

Another chick bought a 3 story mfh, added two floors and an elevator.

Gotta homeboy who cashed out his retirement, convinced two owners to part with land (land that was not for sale!!!) to part with their pieces, and is combining the plot to put some Dwell magazine type units. He is gonna spend low 7's to make high 7's. Super risky, but if it works he no longer lunches with the serfs and dregs of society like myself.

I know folks that were selling raw land to housing developers and took a piece of the final sale to eventual homeowner.

There are all kinds of ways to do much more than buy, fix, and hold, or buy and flip, buy/fix and flip.

WIA

Great insight as usual WIA... it seems like most of these people you've described are retirees or do this full time.

Post: #18

Thanks. I have a great team on the ground that I trust very much. Not enough to fire the second team (who has a couple of my properties as well). But they run the show. I also heavily incentivize my project manager and contractors. I pay 30% over market rate on my renovations. But what's 1.5k when you're seeing 20%+ returns and you get a property turned around in 10 days and on the market? Nothing. Actually, it's money in your pocket vs a lagging renovation, risk of a break-in, etc.

Booshala,

- Did you have property management?

- What became too much to handle, for example?

- If you don't mind, how many properties did you have?

- You still maintain some properties now, correct?

My idea is that it will become easier and easier with more properties. Once I have 9-10+, processes will be more streamlined, one or two vacancies won't hurt me, repairs will be cushioned across 10 cash flowing properties, etc. Again, the ROI I'm making allows for a bit more shooting from the hip and helps to absorb unforeseen issues and straight up mistakes on my part.

With the project manager I have in place now, I can take on more projects. If he fks off, I have back-ups in place, albeit not as good.

(04-22-2014 12:38 AM)booshala Wrote:  Sammybiker:

To me it's amazing that you can do this while out of the country (not even city or state) and still hold down a demanding job. You must have a ridiculous amount of energy and really good time management skills to pull this off. I admit, when I had properties on the East Coast, it was eventually too much for me to handle and I was very relieved when a colleague of one of my investors bought the entire portfolio from us all at once.

Now that you're looking to scale up, do you think you'll be able to allocate more time for these new projects without giving up your 9-5? I think it's a valid concern and one of the main reasons I'm working at a very low stress 9-5 job now.

Post: #19

(04-22-2014 08:17 AM)sammybiker Wrote:  Booshala,

- Did you have property management?

- What became too much to handle, for example?

- If you don't mind, how many properties did you have?

- You still maintain some properties now, correct?

To answer your questions:

- Yeah, went through three property managers each worse than the previous... finally, just had my buddy take care of the rental collection and all that and had a home warranty company take care of maintenance.

- Dealing with Section 8 people is extremely difficult. White, black, Latino, Asian - their ethnicity doesn't matter as they're most likely on housing subsidies for a reason. Quickly learned that ceiling fans, garbage disposals, screen doors, etc, were 100% going to be broken by these people. So many headaches trying to keep on repairing their blatant misuse, we ended up just taking everything out of the houses that weren't absolutely necessary according to the Section 8 code. Even if a place had a garbage disposal, we'd take it out, etc...

- At the peak, 8 in ATL, 3 in Virginia, 3 in Miami area.

- Sold all of the above properties to a private investor, so currently don't own anything except some properties I maintain for the family here in LA.

Post: #20

Thanks for the info!

Post: #21

Following-up, the game plan is to stick to the bread and butter purchase-reno-rent, maybe get in a flip next year. Until then, I'll continue buying with the target a having 10 single family properties by close of 2015.

Reno completed on #3 below, tenant moving in this week. 22k acquisition, 5k reno, 1k misc/closing. Rented for 775/mo.

Post: #22

sammybiker,

What are the types/quality of tenants you are getting? Nice job!

Post: #23

Sam - thanks.

This home is in the best local school district, surrounded by home owners (non-renters) and is quite desirable. Small families that care enough to want their kids in the best public schools is my target and who I'm getting.

(06-12-2014 07:18 PM)samsamsam Wrote:  sammybiker,

What are the types/quality of tenants you are getting? Nice job!

Post: #24

Ah, Real Estate, lol I was in RE Wholesaling for a while on and off, but unlike trading I had no mentor or solid knowledge base/tools and just gave up with it. I personally am turned off even by the prospect of going into that industry again. It's too much of "who you know", but congrats man on the success!

Post: #25

Sammy, I really like the fact that you're buying these houses cheap. They are literally 10x-15x cheaper than houses where I live. I also notice you work remotely. At one point did you live in the area where you're buying these homes? How do you do your due diligence on the property, or does your PM do it for you?