We Will Never Sell This Rental Property…SOLD!

A friend of mine recently asked to see a blog post about our first few acquisitions. Starting to provide him with those links (on what I consider my wife and mine’s first buy and hold deals and not my false start), I realized I never posted about our very first deal. How rude of me! Thanks for inquiring Josh!

Our very first acquisition happened in October 2014. I know the month and year but the date is fuzzy as our first child was born only 3 weeks before. I think we zombied our way through the closing. If you ask my wife she’ll probably tell you “Who are you kidding? Jay sleeps like a baby. I think the saying should actually be “I want to sleep like Jay!” And she’s right. Minus the insomnia attacks ever now and then (when I’m really excited about a deal we’re working on), I sleep very well. However, the anxiety of not knowing how to handle our first newborn weighed on me during that time. But she’s right, I can sleep through a dump truck driving through a nitroglycerin plant!

Back to buy & hold property number 1….Our very first rental property acquisition happened in downtown Pensacola. It was a one bedroom, one bath, 600 sq ft single family home. Pictured above, undoubtedly we nicknamed it “The Little Yellow House.”

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The Little Yellow House was a bank foreclosure located in an up-and-coming part of downtown Pensacola. It didn’t need a lot of work and by that I mean, new roof & gutters, new back porch, new flooring in the bedroom, new appliances, replace a few broken outlets & switches, and fresh paint up & all around. The most important item about this property is it hit all of our investing criteria. So we jumped right in.

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Closing Day – 1st Buy & Hold – October 2014

Actually, jumping right in might be a slight exaggeration but at the time it was a huge leap for us. Being our first rental property, we were hesitant and VERY conservative on our projections. Should we do it? Should we not do it? This round of questioning and pros/cons list revolved around our conversations many, many…many times. Wow, we were nervous but we finally pulled the trigger and we’re glad we did.

Pro Tip:Our biggest mistake on this property was attempting to do a lot of the interior reno work ourselves. A full-time job, getting used to the new addition and entering the holiday season, it took us 5 months to essentially put some paint on the walls. Quotes from contractors/handyman came in at $1500 with a timeline of 2-3 weeks. This would have shortened our rent ready time window by 4 months @ $600/month rent = $2400. This property rented right away and by paying a handyman $1500, would could have earned an extra $900 by having it occupied sooner…plus we’d have our late nights and weekends back!! 

How we funded this acquisition: We acquired our first rental property with the use of a Home Equity Line of Credit (HELOC) from our primary residence. Three months later we actually sold our primary residence, naturally we paid off our HELOC with that transaction, and thus owned The Little Yellow House free and clear. That all important (to us) cash flow then went even higher. “We are off and running in the buy and hold game with a cash cow! We’ll never sell this property!!”, or at least we thought.

Fast forward three and a half years from ‘we will never sell this property’ to present day…

Several weeks ago I received an unsolicited message from a potential buyer. He reached out to me through this site and told me he had been following The Little Yellow House for several months. For clarity, during a brief tenant transition I placed for-sale-by-owner (FSBO) ads to test the market. I ended up renting it quickly as the demand was there and again, we’ll never sell this property!

Long story short, the potential buyer made an all cash offer that would allow us to pursue some different opportunities as our investing strategy and focus has changed since 3.5 years ago. So, we accepted the offered, closed the deal and celebrated with a family lip sync battle:

So why accept the offer on a property dubbed “We’ll never sell”? The ROI was great and we have been looking to add more units (reference 2018 Goals). The cash from this sale will allow us to pursue our 2018 Goals easier. For an advanced investing technique, I am taking the proceeds from this sale and pursuing a 1031 Exchange, which I’ll dive into once we succeed or once our time runs out. 🙂 Stay tuned but for now, let’s do some quick math!

These are the actual #s from The Little Yellow House (I track our income/expenses through our Small Multi-Family Spreadsheet, now available for download) :

  • Gain from investment:  $57,670
    • Sold Price: $50,000
    • Annual Net Incomes (after all expenses are paid):
      • 2018: $330
      • 2017: $2,564
      • 2016: $1,727
      • 2015:  $3,049
  • Cost of investment: $32,479
    • Original Purchase Price: $22,000
    • Initial Rehab: $8,975
    • Closing Costs @ Sale: $1,504
  • ROI = (Gain – Cost ) / Cost or in this case….77.5%

My apologies to Josh, and my Instagram, Facebook, and Twitter followers. A recent text / post I stated 79% ROI. In 3.5 years The Little Yellow House provided us with a 77.5% ROI…not bad!

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Side Note: This is also the property where we discovered self managing is not for us. We had great tenants and rarely had issues, but with a full-time day job, growing family, trying to expand our side hustles and rental portfolio, we are happy to pay the 10% management fee to experts who are focused on that type of business (just make sure you hire the right PM).

Questions or comments? Leave us a reply below.

Related Articles:

How to Find REI Opportunities: Just Ask

*Repost from December 2016; as we get into the holiday season, childhood family traditions become nostalgic and lead me back to this little story…
“If you can move the house by the end of the month, you can just have the whole thing!”

____________________________________________________________

real estate investing pensacola fl
As the year is coming to an end, the sights, sounds, and smells of Christmas often remind me of those precious childhood memories. Forcing me to reflect and think about love ones who have passed and I hope those great memories stay with me forever. On that note, when thinking about real estate investing, I sometimes think about my Maw-Maw & Paw-Paw. For as long as I can remember my grandparents owned & operated what they referred to as a tenant building – low income, mid-size multi-family rental property that provided them a way of life. I hope to blog about more of those memories one day, but they lived in the house next door to their tenant building and the story on that house acquisition is amazing.
As the story goes, my Paw-Paw was in need of some spare lumber, this was late 1970s, ’78 or ’79 I think. Driving by this house, he noticed the owner was outside and in the process of removing the front porch from this 2 story, 3 bedroom / 1.5 bath, 1900 sq. ft. home. When Paw-Paw asked if he could have some of the lumber being discarded from the front porch removal, the owner simply said, “If you can move the house by the end of the month, you can just have the whole thing!”
And that’s exactly what they did. They acquired a lot a few blocks away near downtown, hired a moving company, and a few weeks later my grandparents were setup in their new home. I cannot tell this story without mentioning the power company. The path of the move required the power company to drop lines on 2 sides of the street – the largest cost of this project which had to be done on a Sunday; when most businesses downtown were closed (late 70s). I believe their all-in cost was around $25k. Simply put, an amazing opportunity.
real estate investing pensacola fl
Paw-Paw (green hat, 2nd from the right)

We created many holiday memories in this home and my parents still own it today. Opportunities are everywhere and through this event, my Paw-Paw has certainly encouraged me to Just Ask.

Screen Shot 2018-02-05 at 4.00.05 PM
 #REI  #RealEstateInvesting #HelmsREI

Does Your Realtor Analyze Deals Before Bringing Them to You?

I hear this question a lot. The quick answer is No.

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Since the World Series (Congrats to the World Champion Houston Astros!) just wrapped up, I’ll use some baseball analogies to help answer this question. Long has been the day since this 5’8, 120 lbs high school junior kept the pine warm for those starters – wow, I’ve gained 100 lbs since then…all muscle! In the real estate investing game, I’m the player and the Realtors/Brokers are my coaches. They advise me on why they like the deal, details on the neighborhood and potentially an exit strategy.  In some sense, they are also my general manager, helping to ensure a transaction or trade goes as smooth as possible. Let me explain.

Here’s why my coaches don’t analyze deals before bringing them to me:

#1 – I want the BP!  The analytical part helps me stay current on our sought after markets and helps keep my analytical skills sharp. This is me taking swings in the cage. My daily BP! That stands for Batting Practice…or Bigger Pockets! My dad’s a huge baseball fan. Huge is probably putting it lightly. Growing up, one of his many tricks to get us invested in the game involved hanging an old tire off the back fence. I remember him wanting my brother and I to throw 100 balls a day into that strike zone. I was too interested in the couch and TV (and a little fishing) at the time but I wish I would have. Learning from that, instead of throwing balls, I’m analyzing deals, daily!

#2 – I don’t want to be traded to the Detroit Tigers!  By that I mean, I have to love the deal! And for the longest I can remember the Detroit Tigers have been the worst team in  the MLB. Analyzing is only a piece of the puzzle. Love is an emotion and if you’ve been following us I suggest removing the emotion out of the deal (something I continue to work on). However in this case, loving the deal (the location, cash flow, portfolio balance, & value add) is highly motivating. Just don’t let the love emotion compromise your numbers – be willing to walk away. For example, in the last 2 months I’ve submitted four LOI’s. Two of which are still pending but the other 2 we could not come to terms.  I loved these deals but wasn’t willing to compromise on our numbers as doing so wouldn’t yield our anticipated return.

REI Strategies. Lessons Learned. How-Tos. No Spam…Learn More. 

#3 – Extra Innings.  In my dad’s words, it’s “Free Baseball” but, working a full-time job, family w/2 kids, 48 units under our umbrella and currently undergoing a personal home live-in-remodel, I don’t have a lot of spare time to filter through every deal my coaches send my way. Sad to say there are probably some gems that I quickly push to the trash bin because I knew I wouldn’t have time to review and now I’ve wasted my coaches’ time to find and send it to me. The current process I like to follow is finding the opportunity and reaching out to the realtor/broker in that market and so far that has worked very well.

#4 – Pitching Change.  We started out wanting to buy single family homes that cash flowed really well, which are typically C Class properties/neighborhoods and below and we only looked in Pensacola, because it’s local for us.  While I still look at those properties our evolution of investing has progressed like this: single family in one city -> small multifamily in another county -> apartment building in another state. All within a relative easy drive, we now own assets across 3 counties in 2 states. Staying with the value add properties the size of our deals have increasingly grown in size.

#5 – I Simply Don’t Expect Them To It’s not Brent Strom’s responsibility to throw any pitches for the Astros, that’s the players job. I understand how realtors/broker get paid – when a deal closes, not when they send me a listing. I’m very conservative on what we buy and we haven’t sold anything (except our personal home) since we REALLY started investing in 2014. In my opinion, my coaches’ or realtor’s roll is to help educate & advise me, negotiate the deal and ensure a smooth-ish transaction. If they perform these things, then they’ve represented me very well.

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Related Articles:

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Purchasing Our First Apartment Complex

If you’re keeping up with us, you know we’ve traditionally purchased SFR and small MFRs, but through some hard work, late nights and leveraging relationships, we were able to step into the Apartment Complex realm and the anticipated return on this turnaround project is better than any personal acquisition yet.

Here’s how we did it…

Relationships. Without relationships this would not have been possible. Relationships with brokers, relationships with bankers, relationships with like minded partners, relationships with potential investors, and most importantly, my relationship with my wife (for accepting the early mornings, late nights, and weekends this took and will take away from our family).

REI Strategies. Lessons Learned. How-Tos. No Spam…Learn More. 

Strenuously Looked, Got Lucky and Revisited the Patience Virtue. I talk about being patient for a great deal in the Purchasing Our First Duplex post. Same concept applies here, my excitement almost led us to a bad deal but with some luck we side stepped it. My first partnership on this trek was with Tim Kelly, at Kelly Housing Group. Starting close to home in Pensacola, we searched w/in a 100 mile radius looking for any property that fit our like-minded criteria.  We found an opportunity that almost hit all the marks… almost but not all. With both of us being extremely excited to dive into the apartment complex world, we made an offer anyway (mistake!). Our LOI was accepted and with a little luck we never reached an executed sales agreement (nor did we lose any due diligence monies). Continuing the search, just a few months later we are under contract and eventually closed on an asset we renamed as Citronelle Square.  It took about 6 months from the time Tim and I started working together until we closed on this 42 unit apartment complex. Many steps along the way but in the end we brought on 2 more experienced partners, Robert Preston and Jeremy Hans and a total of 9 investors. Without all of these guys we would not have closed the deal and for that, I am truly grateful.

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The Numbers.

  • Purchase Price: $700,000
  • Cost per Unit (42 Units): $16,667
  • Renovation Budget: $200,000
  • Capital Raised: $330,000
  • Return: Anticipated 20% over 5 Years

The Turn Around Plan. One of our acquisition criteria requirements calls for a value-add play. Basically, we were (and still are for our next one) looking for a run down, tired, needing some TLC property.  And we’ve found it. At 55% occupancy, this property has suffered from a tired owner/operator for way too long and we acquired it at a bargain. Our renovation plan includes the interior of the units, uplift to the buildings’ exterior, repave/re-stripe the parking lot and renovating the laundry facility and playground. While these things are in motion, we are staying in contact with the cities Economic Development team to keep them aware of our progress.Citronelle-Square_300Next Acquisition. Citronelle Square was just the start and while we are focused on the stabilization and renovation of Citronelle Square, we have our sites on recreating the process and in search of our next acquisition. I have personally submitted three LOIs in the last month – none have stuck but I’m making offers that meet all of our criteria. Practicing patience and making sure our next opportunity hits all of our investing criteria is a must!

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I look forward to updating everyone on our progress with this turn around project.

#HelmsREI #RealEstateInvesting

Related Articles:

How To Find REI Opportunities: Just Ask

“If you can move the house by the end of the month, you can just have the whole thing!”

____________________________________________________________

real estate investing pensacola fl
As the year is coming to an end, the sights, sounds, and smells of Christmas often remind me of those precious childhood memories. Forcing me to reflect and think about love ones who have passed and I hope those great memories stay with me forever. On that note, when thinking about real estate investing, I sometimes think about my Maw-Maw & Paw-Paw. For as long as I can remember my grandparents owned & operated what they referred to as a tenant building – low income, mid-size multi-family rental property that provided them a way of life. I hope to blog about more of those memories one day, but they lived in the house next door to their tenant building and the story on that house acquisition is amazing.
As the story goes, my Paw-Paw was in need of some spare lumber, this was late 1970s, ’78 or ’79 I think. Driving by this house, he noticed the owner was outside and in the process of removing the front porch from this 2 story, 3 bedroom / 1.5 bath, 1900 sq. ft. home. When Paw-Paw asked if he could have some of the lumber being discarded from the front porch removal, the owner simply said, “If you can move the house by the end of the month, you can just have the whole thing!”
And that’s exactly what they did. They acquired a lot a few blocks away near downtown, hired a moving company, and a few weeks later my grandparents were setup in their new home. I cannot tell this story without mentioning the power company. The path of the move required the power company to drop lines on 2 sides of the street – the largest cost of this project which had to be done on a Sunday; when most businesses downtown were closed (late 70s). I believe their all-in cost was around $25k. Simply put, an amazing opportunity.
real estate investing pensacola fl
Paw-Paw (green hat, 2nd from the right)

We created many holiday memories in this home and my parents still own it today. Opportunities are everywhere and through this event, my Paw-Paw has certainly encouraged me to Just Ask.

Screen Shot 2018-02-05 at 4.00.05 PM
 #REI  #RealEstateInvesting #HelmsREI