Rehabs & Development


My First Property: Right rehab, wrong tenant
10 Jun 2014

My First Property: Right rehab, wrong tenant

Alex De Marco didn’t let negative opinions from his peers stop him from investing in real estate and for him, finding the perfect property came easily. It wasn’t until he became a landlord that this investor went from doing rehab repairs to replacing tenants.

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Full name: Alex De Marco
Current location: Jersey City, NJ
First real investment: A half duplex townhome just outside of Pittsburgh, PA purchased in March 2011 for $8,500, now worth $25-30K

How did you decide where and what to buy?
My wife and I attended a local real estate education seminar advertised on the radio in May of 2009. The speakers at the event convinced us that real estate investing was a good idea.

We decided to learn the business by doing our own analysis and experimentation in addition to the advice we received from my wife’s cousin, a landlord, and other local investors that we met at ACRE, a real estate investing club in Pittsburgh where we were living at the time.

Not having a lot of money for this first investment and uninterested in borrowing from a bank during the financial crisis, we targeted neighborhoods where we could buy inexpensive properties, make minor repairs and then rent out. The goal was to have the monthly cashflow repay our out-of-pocket cash investment within 3-4 years.

I had just changed jobs, so I had some cash in my old 401K plan. I rolled it over into a self-directed IRA (SDIRA) and used it to buy our first property from a wholesaler, who we met at ACRE. The vacant property needed some renovations, but it was nothing we felt we could not handle.

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Marco Before After House 5Jun2014 EC

How did you purchase and finance your first real estate investment?
We bought the property inside our SDIRA and used CamaPlan as our plan administrators. The wholesaler and settlement attorney made the transaction quite easy. They had recently done deals with buyers using their IRAs, so they were familiar with the process.

The seller was motivated and wanted out. For the acquisition, we bought the contract from the wholesaler, made a small downpayment and the seller financed the rest. They held a note secured by a mortgage on the fixed-up and no-longer-vacant property for a couple of years.

The repairs were done by contractors and service providers who were paid in cash from the SDIRA. All I needed to do was fill out some forms and attach invoices and receipts authorizing the IRA administrators to pay the contractors.

Did you encounter any issues before or after closing?
The transactions and repairs were a breeze. The problems began when I signed a lease with my first tenant. I guess all landlords have tenant horror stories, but this problematic situation really was my fault.

I was not strict enough in my tenant screening process and was too eager to get someone in the property. Unfortunately, I ended up having to evict her within a few months and pay for additional repairs after she trashed the place.

I have since decided to use a property management firm to screen future tenants and have been much happier and productive this way. I get to do more of what I enjoy, which is buying “neighborhood eyesore” properties, fixing them up and turning them into safe, clean and affordable housing.

Marco Before After Kitchen 5Jun2014 EC

What was the biggest challenge in buying your first piece of real estate?
The biggest challenge was overcoming my own fear. Early on, I dealt with negativity from naysayers telling me why investing in real estate was a bad idea and that fueled my fear and anxiety about pulling the trigger.

The reality is that most people don’t know what they are talking about. They, or someone they know, may have been burned in the past because they were emotionally attached and didn’t think of it as a business, didn’t plan for the unexpected (i.e. inadequate cash reserves) or they didn’t educate themselves about the local market and financial analysis required to determine if an investment opportunity is a good deal or not.

Furthermore, I learned a great deal by attending monthly real estate investor meetups and going to inexpensive seminars. There are also a lot of online communities like BiggerPockets that are great resources for investors.


Investing in Land and Homebuilding
28 Mar 2014

Investing in Land and Homebuilding

After the real estate crash in 2007, new home construction was halted and land held by home builders and investors were either foreclosed by banks or turned back into farmland.

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However, with a shortage of new homes, home builders are beginning to build again. Much of the formerly distressed land has been bought at low prices by private equity and real estate opportunity funds. After attaining the lots, they are now selling the land and partnering with or financing builders.

On April 22, IMN’s Real Estate Private Equity Forum on Land and Homebuilding (East) will address the key issues regarding successfully investing in land and homebuilding by private equity and real estate funds and how they are working with homebuilders.

Rockspring Capital CEO, Jim McAlister IV says, “Successful real estate investing has always been about understanding the local economy, not national trends. You want to invest in areas that are growing in population and creating jobs.”

These are the conditions that will continue to present great land buying opportunities for many years to come.

Steve Hagenbuckle, Founder and Managing Partner of TerraCap Management adds, “This continues to be a good space for investment as home production is still well below 40 year averages with a growing US population.”

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Although there is a greater demand, there is also more risk involved as prices rise. However, the value of land is continuing to increase and builders are now seeing 15-20% returns on average.

When investing in land and homebuilding, Jim says, “Make sure you partner with a firm that has a successful track record, local market knowledge and entitlement expertise. These are must-haves in the real estate investing world.”

Steve also recommends seeking out investors or private equity firms who bought land in 2009-2011 from banks or the FDIC Direct at low prices. By doing this, he says, “There is room for investors to buy and resell to builders or developers at a profit.”

To register for the event, visit IMN.org. Enter the promotional code “IB10” and save 10% on your registration.

Photo by: Mike Wood.


The Dirty 30: Where are they now?
28 Feb 2014

The Dirty 30: Where are they now?

Last year, we profiled 30 young investors on their inspiring start in the real estate game. We caught up with them recently to see how their investment portfolios were progressing and the lessons they’ve learnt in the past year. Here’s what they had to say…

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Beau: Real estate reality star

Beau Eckstein had a great 2013. Over the past year, he completed a luxury home renovation – his largest project to date. He is currently renovating a 2 unit building and was even cast in a reality show titled ‘Flip It To Win It.’ Beau says:

“2013 was an amazing year. If you bought anything you could have made money with the market upswing. However, it’s important to realize the market is going to be much tighter in 2014.

For this year, my strategies are to buy, fix and hold.

I’m looking at purchasing properties where I can add value.

The idea is to purchase multi-family units with a future exit strategy of converting into tenants in common (TIC) units.

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I’m also purchasing rental properties in affluent neighborhoods. The strategy of these purchases is to rent out the properties while working on plans to add square footage to maximize the selling price.

Incorporating a buy and hold strategy will help attain long term wealth. I would also encourage helping others invest in real estate. There is over $4.6T in retirement funds with only 2% of these assets being self-directed. We all need to take charge of our futures.”

Dan: Doubled portfolio in 1 year

Over the past year, Dan Botwinik was able to finalize a 70 unit acquisition he was working on and close a handful of other deals that almost doubled his portfolio to 400 units. Dan says,

“2013 was a big year for me and my partners at Cougar Capital Real Estate, largely made possible by the infrastructure investments made in 2012. Our biggest accomplishment was achieving significant rent increases to the 70 unit complex and creating a template for future developments. The complex appraised for $3.45M more than we paid for it, with an investment of $2M in construction – we paid $1.85M and it was appraised for $5.3M.

Improvements in sourcing and construction management are also allowing us to bite off larger projects and get them completed more quickly and to a higher level of finish, while still coming in at a compelling number compared to appraised value. This has enabled us to attract better tenants and have fewer headaches further down the ownership cycle.

These projects have also been helpful in determining which projects are the best fit, add the most value, and the fastest. We just bought another large complex near the original complex and the repositioning of the new complex no longer seems intimidating.”

Doug: Ready for renovations

After spending a year building the foundation of his business, Doug Medvetz was finally able to start buying and renovating houses. He says,

“Our first year was spent building the foundation of our business and though it is an important piece, it was not as exciting as our first year actually running the business.

Over the past year, we have been involved in 3 renovations. Initially, we focused on single-family homes and have already completed 2 single-family home renovations, but are now also interested in 3-family condo conversion projects and recently purchased our first 3-family condo conversion for over $500K.

The most challenging aspect of the business has been managing the financial side of the renovation projects.

We are currently using hard money loans to fund our rehabs. This requires us to negotiate with our contractors to take payment after they perform their part of the project.

That being said, we learned that when looking to partner with another company/investing group it’s best to form a 50/50 joint venture partnership and identify in writing the responsibilities of each group/company involved. In the future this is how we will structure most partnerships when renovating a house.”

Jonathan: Facing the storm

Hit hard by Hurricane Sandy, Jonathan Dieguez learned first hand why it’s important to have a diverse portfolio of investments. He says:

“Over the past year, I have been focusing on commercial real estate vs. residential. My company has shifted our business model from predominantly dealing with loss mitigation departments and homeowners over to asset managers and builders who ran out of financing on their development deals.

I also started a new company, Creative Equity Group, with 3 other partners which capitalizes on the new crowdfunding in real estate concept.

Hurricane Sandy also took a toll on my fully renovated properties. Not only do I still have properties listed for sale on the market, but my builders insurance did not cover any of the damages caused by the storm. Two particular properties were located right near the flood zones and have cost me a combined total of more than $150K in re-repairs and list price reductions.

However, my commodities fund with Absolute Capital Homes received a 23% annual return for 2013. This is a perfect example on why it’s so important to have a diversified portfolio of investments as well as multiple revenue streams so that if one suffers or underperforms, it’s not the end of the world.”

Peter: Quit his job to start a successful company

After acquiring 6 investment properties with a partner in Columbus, Ohio, Peter Lohmann fell in love with real estate and decided to quit his job as an engineer to start a successful property management company. He says,

“Starting my own company was both the most challenging and most rewarding thing I have experienced over the past year.

The best investment you can ever make is starting a successful company because all you have to do is invest a few grand and can have an infinite return.

Since starting the company in April 2013, our portfolio has grown from 0 to 150 units with 4 employees.

Although not much has changed in how I make investments, the most important thing I learned was the difference between debt and equity. Understanding that in a very practical way has helped me think more clearly about future investment opportunities.”


Get rich with vacant houses, Part 3
18 Feb 2014

Get rich with vacant houses, Part 3

Last month I revealed the solution to the ever increasing problem of zombie mortgages. In this article you will follow a real life example which will enable you to see those steps practiced in real life and how you can do it.

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Starting with the usually unsuspecting zombie mortgage homeowner, real estate investors must help these people out of their predicament, settle debts with their creditors, clean up these properties and help with the economic recovery of the US, while quickly recouping their at risk capital allowing very good profits in the process.

Here are the numbers of a real life example of how this can work for you:

Zombie mortgage

This property is located in the city of Brockton, Massachusetts. It’s a typical 3 stacked apartment on 3 separate floors with 3 bedrooms each.

Year 1, January – Homeowner #1 purchased the property:

  • Purchase Price: $388,000

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  • Down Payment: $11,640

  • 1st Mortgage: MERS – $310,400

  • 2nd Mortgage: MERS – $65,960

  • Total Mortgages: $376,360

Year 3, October

The homeowner tried to keep it going but finally gave up and moved out of the property. The property stayed vacant for over a year and a half. Meanwhile, either the city or the bank boarded up and left the property abandoned.

Year 5, May

After about a year and a half later the zombie mortgage investor found the owner of the property and acquired the property rights (without legal title). That being said, the property was still vacant and boarded up, the copper plumbing was stolen and many of the windows and doors were smashed.

The investor then fixed up the apartment and started renting it out. Using the rent money to repair the other units allowed him to only be out of pocket a few thousand dollars. Over the course of a few months, the entire building was rented out and the continuing rent money allowed for further improvements and positive cash flow to the investor.

  • Down Payment: $100 (Yes, only one hundred dollars)

  • Total Repair cost: $11,200 (expended over time)

  • Monthly rental income: $3,000

  • Total number of months until property is purchased: 14

  • Total rent collected $31,000 (there were vacancies)

Year 5, September

After collecting rents for about a year and a half and without paying any mortgage payments or property taxes, the investor purchased the property at short sale for $120K. All back taxes and municipal bills were paid at closing and was included in the purchase price.

Year 5, November

Only 1 ½ months later, the investor (#1) sold the property to another investor (#2) for $210K, which was still a bargain value.

  • Income from sale: $90,000

  • Income from total rental: $31,000

  • Total Income: $121,000

  • Repair/renovation costs: $11,200

  • Total Profit: $110,000

13 months later, investor #2 resold the property for $255K.

This was a case where the zombie investor #1 made profits on the property before closing by renting the property out, then short selling and flipping the property, and finally leasing it back and operating it as a normal house.

This is a typical zombie mortgage property acquisition using the specialized methods discussed in last week’s article with very little money down ($100), no credit needed and cash flow during the short sale process. Initially, only a small amount of money was needed for repairs allowing future rents to cover the repair/renovation costs. I know this because I was zombie mortgage investor #1.

Obviously, the more times an investor takes on a zombie property the more people he can free from the stressful burden that all the bank fraud and financial collapse has entombed them in their zombie mortgage property.

The neighbors are delighted because the hazardous property that was dragging down their neighborhood and their property values has been transformed into an asset to the community. The town collects taxes and has fewer “problem calls” associated with the property. It’s a win- win situation and that’s how real estate investing should be done.

What also occurs is that positive cash flow is almost immediate. As the example above illustrates, the cash flow allows the investor to recoup the monies initially expended on bringing the property up to rental standards – a risk the investor takes on.

Each month thereafter, the investor realizes a monthly profit until either a successful short sale brings ownership to the investor or – if the lender is legally able to – a proper foreclosure is completed and recorded.

When either of these 2 actions occurs, the zombie property owner will finally be free of the financial and legal responsibility of the property. They also finally begin the psychological emotional healing that is much needed.

The more people you help, the wealthier you become and this is a way you can do both – real estate investing at its best.

Alan Kosinski is the co-founder of ZombieMortgage.com where homeowners can learn & find help, and ZombieInvestors.com where investors can see how it’s done. This is the third article of a 3 part series. See part 1 to learn what is a zombie mortgage and part 2 for the 10 steps to zombie mortgage success.

Photo by: Gary Tucker.



10 Feb 2014

Interactive 3D floor plans with PlanOmatic

Attention is power, and for real estate investors, especially those who flip and market luxury homes, getting a buyer’s attention often starts with photographs. But how do you capture the full story of a property, retail space, etc with flat, two-dimensional photographs?

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PlanOmatic is a full service floor plan and photography company that disrupts the way the real estate industry currently handles one of its most powerful, yet misused, marketing tools: photography.

PlanOmatic

As Aaron Rose, VP of Corporate Accounts says, “What MLS organizations are failing to understand is that people don’t necessarily want to look at 43 photos; they would rather see fewer images and a floor plan. Conceptually for a buyer it tells the entire story.”

The impetus for PlanOmatic started nearly 10 years ago when the founders noticed that landlords were often putting up photos of a stray corner of an empty room, or, even worse, no photos at all. As a result, prospective tenants were bouncing between apartments wasting their own time, as well as the landlords’.

PlanOmatic

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What started out as a service for their landlord quickly became a hit among a buyer’s market that increasingly demanded detailed property information and their owners looking for a better way to showcase their inventory.

For those leasing or selling real estate, PlanOmatic provides a full service, online floor plan that are custom designed starting from an on-site visit to your property by their certified professional technicians and not you trekking out and measuring widths.

PlanOmatic

In 2 business days, they turn around fully customized digital, interactive floor plans with professionally shot images of your property that you can easily embed onto your site. From there, potential buyers and tenants can go on a visual tour of your property at anytime from any place.

To really bring the experience to life, PlanOmatic also gives you the option to include music or narration in your virtual tour, as well as a furniture planner application. And once you have your PhotoPlan, you can syndicate it to major real estate websites and quickly share it to all major social networks.

PlanOmatic

PlanOmatic is available in 17 states and users can see some action shots as well as sign up for the service at PlanOmatic.com.

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2014 Property Predictions for Missouri, Nebraska, New Jersey, Pennsylvania, Texas, Utah and Virginia
07 Feb 2014

2014 Property Predictions for Missouri, Nebraska, New Jersey, Pennsylvania, Texas, Utah and Virginia

MissouriMissouri: Affordable homes with great rates

Andrew Dielmann is a realtor and Founder of Dielmann Sotheby’s International Realty in St. Louis, Missouri. He has also served on several local boards, including the St. Louis Association of Realtors. His prediction for Missouri in 2014:

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“Recently, we have seen a tremendous boom in residential property sales. Missouri homes have lost about 35% of their pre-recession value, making them much more affordable. Banks also have more access to funds, are providing some great rates and are on the lookout for quality borrowers.

I would recommend investing in single-family homes. The sweet spot for property prices in Missouri is the $200K-$500K range. Floor plans are important to consider as are the features of the home. We’ve seen multiple contracts being written above asking price for real estate in this range when they’re in perfect move-in condition and in desirable locations.

Conversely, there may be buying opportunities with those that need some cosmetic upgrades – if you don’t mind investing time and effort. The fixer-uppers are staying on the market longer and are priced lower.

I would avoid buying the highest priced property in an area – as potential for growth is limited. Additionally, some of the largest homes are being viewed as ‘too much home.’  Having the right location, setting and features are all critically important to the growing value of the property.

We’re also seeing that the ‘walkability factor’ comes into play with many of these properties – people want to have close access to stores, restaurants and attractions. In our market, there is some movement back into the city, but again, location and quality are key.”

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NebraskaNebraska: Multifamily properties continue to be a hot commodity

Boomer Peterson is a realtor for Woods Bros. Realty in Lincoln, Nebraska and has a sales portfolio that is mainly comprised of investment properties. He is a 3rd generation realtor in Nebraska and predicts the following for 2014:

“Property values in Nebraska will continue to rise and there will still be great deals around for investors. Multifamily properties, specifically ones with under 10 units, are a hot commodity and will remain highly sought after.

Inventory will remain on the lower side, but investors will be pleasantly surprised by the number of deals where they are able to get great ‘bang-for-their-buck.’ Early spring and early fall will bring the majority of buyers and the higher prices we see year in and year out, but competition will stay steady year round for all investment type properties.

The single family investment market has decreased over the past year and foreclosed properties are limited and rapidly drying up. Great deals in Lincoln are now harder to find, with investors doing more cold calling and driving for deals. The market for single family properties is also competitive and flips are becoming more of a rare find.

I would recommend investing in Lincoln and Omaha, as they are home to roughly 1.2M of Nebraska’s 1.85M residents and farm land is still going for a premium. Both cities are experiencing great growth, both economically and population wise. That being said, if you’re looking to purchase in Lincoln, be ready to pull the trigger and put in offers quickly. The competition in the area has been very high with regional and national buyers competing with local investors.”

New JerseyNew Jersey: Continued success over the next year

Jeff Snyder is the Co-Regional Owner of RE/MAX of New Jersey which he started with another partner in 1985. His prediction for New Jersey in 2014:

“New Jersey is poised for a breakout year. The real estate market was very successful in 2013 and is expected to have continued growth over the next year.

The market does tend to fluctuate seasonally, as we’ve seen in previous years. Although, following Hurricane Sandy in 2012 and its aftermath in 2013, there continues to be an increasing housing demand in New Jersey with all indications pointing towards a brisk and busy market.

Additionally, all the markets are showing an upward trend and look like they are in good shape for 2014. There will also be equal investment opportunities across all real estate sectors, from new construction to luxury properties.”

Pennsylvania: Major cities means good investmentsPennsylvania

Bobby Daddis is a real estate technology expert in the Greater Philadelphia Region and realtor for Coldwell Banker. He also provides real estate technology seminars to thousands of other real estate agents in the northeast. His prediction for Pennsylvania in 2014:

“Although we had low inventory, last year was a great year for the buyers and sellers in Pennsylvania. This trend is expected to continue into the new year as a large amount of buyers are preparing for spring purchases and more sellers are getting their homes ready to sell as the prices have risen as high as 10% since 2012.

This is a great time to invest, and Pennsylvania offers a multitude of opportunities from Pittsburgh to Philadelphia. Of course, every investment should be made on a case by case basis, but in and around the major cities have been the best places to invest. The Poconos also offers some good opportunities for vacation homes. The inventory in this area is higher than many other locations so you are likely to find a great deal.

I would avoid investing in crime ridden areas with older homes. You typically get higher cash flow, but end up spending a lot in turnover and rundown buildings. Stay away from local governments that overreach their authority, as it causes headaches for investors.”

TexasTexas: Avoid flipping in major cities

Theresa Bastian is a realtor from Austin, Texas. She has over 15 years of experience in real estate sales and brokerage management and runs the Keep Austin Weird Homes MLS with her realtor husband. Her prediction for Texas in 2014:

“Many people are moving to Texas for the strong economy that the rental markets in most cities are incredibly strong and outperforming other investment avenues.

As a result, the Texas market will continue to go up in 2014.

I would recommend investing in cash flow rental properties – duplexes and fourplexes in particular. Avoid flipping in any of the major cities because the markets have been strong and therefore there isn’t a large margin for investors to pick something up cheap enough to make good money on a flip.”

Utah: Stable, but slow in 2014Utah

Justin Critchfield has been a realtor in Utah for 8 years and is known as the ‘real estate innovator.’ His business, Real Deal Utah has won awards for service and client care. Justin’s prediction for Utah in 2014:

“I expect 2014 to be a stable, but slow year for Utah. If interest rates go into the 5’s, real estate prices may go down a bit. Be on the lookout for desperate sellers needing to sell their homes to move into new homes they’ve just built.

If rates stay in the low 4’s and drop into the 3’s, then prices should go up 2-6% giving investors an opportunity to capitalize on a good short sale.

I would stay away from upper end homes and focus more on starter homes, short sales and foreclosures. Rental prices are still good and should stay high during 2014.”

VirginiaVirginia: No changes expected

Roxanne Southern is a real estate agent with Samson Properties in Arlington, Virginia. She has over 30 years of experience and specializes in residential sales. Roxanne was also a member of the NVAR Multi-Million Dollar Sales Club and a top producer in 2013. Her prediction for Virginia in 2014:

“The Virginia market this year is expected to be much like the market in 2013. Inventory is about the same and appraisals have been holding steady at asking price or less. Unless a loan product comes out for the self-employed, we will not see much of a change.

I would recommend investing in condos and townhomes in Reston and Herndon, and single family homes in Ashburn. The Silver Line Metro is having a great effect on these areas.”



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