My First Deal Series

10 Jun

Posted at 14:42h in Background & Preparation to Invest, My First Deal Series, Real Estate Psychology, Transitioning to a Career In Real Estate
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This is a story about Stephanie McConnon's experience in real estate investing:  How she got started, what she worked on, setbacks, marketing methods, and strategy changes. Stephanie writes: It was the design and construction aspect of buildings that attracted me the most to residential real estate at an early age. I had watched my father build additions to our home and was fascinated by the process of creating new living spaces, and the way that each change lifted the value of the home. In my free time in high school, I read every real estate investing-related book I could get my hands on. I was particularly attracted to residential renovations and multi-family value-add opportunities. Short term profits or “get rich quick” schemes never had allure for me. However, I was definitely attracted to the thought of setting aside money slowly over time to invest. I was interested in renovating assets that I planned to hold long-term for passive income and financial security. Developing a Set of Investment Principles Through my reading, I chose investment principles or ideologies that made sense to me, and when I was older, I was able to invest using those same principles. Today, the list has grown, but more or less includes the following: Purchase assets at “below-market” prices. In a stable market, it is my job to find opportunities for arbitrage and purchase below market. Perhaps there is a certain asset class at a specific price point, sitting on bank books, that nobody else is interested in buying. Perhaps larger investors are staying out of tertiary markets. Perhaps one market is going through a total meltdown (this year, I’m thinking of Flint, MI).Whatever the opportunity for arbitrage may be, it is my job to identify it and act upon it. This concept applies to commercial assets as well, and obviously my preference is to purchase assets when real estate values are down in the dumps. (Of course, this is also when capital/funding sources dry up). Invest in a good deal or do not invest at all. If I cannot find the arbitrage opportunity that I am looking for, I won’t invest. Period. I do not need to create an artificial timeline that pushes me to spend investor money or personal money when I am struggling to find deals. I would rather not invest than get involved in a bad deal. There is an investment strategy that works in every market during every phase of a real estate cycle. The fun and interesting part of real estate investing is figuring out what works, when, where, and being ready for it. Sometimes the strategy I really WANT to follow doesn’t turn out the be the strategy that works in a particular market, and I am forced to choose an alternative strategy (it happened to me in 2015). Applying the Principles to Single Family Home Deals With those principles in mind, I began working on residential real estate projects after high school, mostly with a relative. We purchased single family homes in Florida well below market, and many of them were sold at peak prices leading up the financial crisis in 2008. Almost all of these opportunities were identified by sending out direct mail to absentee property owners. During peak months, 30,000+ letters went out to property owners. We also tried sign advertisements, direct phone calls, door knocking, and expired listings from the MLS. Most of our transactions were borne out of direct mail, and our letters simply stated we were looking for properties to buy in their neighborhood. (Note: I am most happy to share the templates/mailers/methods for marketing with anyone who requests it via email). Most people who responded to our advertising wanted to sell at retail (full) price, so we weren’t interested. Sometimes, however, we received callbacks from sellers who were selling at a discount. Most of those types of sellers were those who needed to sell their property “yesterday.” On average, properties were purchased for less than $20-50k, renovated for $10-25k, and sold for upwards of $100-300k. After working on about 30 transactions, we wrapped up the Florida property portfolio and went on with our lives. At that time, our arbitrage opportunities for our strategy were dried up. I spent a few years on other pursuits, including opening a business and finishing my undergraduate degree. Then, in 2012, I came to NYC, like many, seeking opportunity. I wanted to become a more sophisticated real estate investor by working on larger transactions and expanding to additional markets. I was very open minded to opportunities, and I knew two things: Success on a larger scale would require raising money from others. Thoroughly understanding due diligence, legal, and title in transactions would become a necessity. Trial, Error, and An Overheated Multifamily Market As a result, I took on a job role that would help with the fundraising and investor relations aspect of using OPM. This lasted for two years. I worked for a company that handled major real estate transactions nationwide to help me understand the due diligence, title, and legal aspects of real estate. This also lasted for two years. I also used this time to earn an MS in Real Estate Finance from NYU. During my time at NYU, I received my first exposure to the sophisticated investment techniques used by larger players in the industry. I got together with a long-term trusted friend, and we started a company. We began putting out bids for multi-family assets and apartment complexes. From a marketing perspective, we tried lots of things, including: targeted USPS letters to apartment complex owners direct phone calls to owners door knocking networking and reaching out to brokers landlord/property owner associations targeted internet advertising Again, I received the best response through direct mail, with handwritten envelopes and physical stamps on each envelope. Getting potential apartment complex deals in the pipeline was the easy part, and soon we were bombarded. We had properties to underwrite, investment committee meetings to attend, lender pitches to present, and vendor meetings. I put my absolute best bids out on several large assets over the course of a year-and-a-half leading into 2016. They were not junk bids; each was carefully planned, conservatively financed, and had excellent long-term potential for myself and my investors. However, in every case, I was outbid by at least three other purchasers. Given the prices I saw other investors paying, I knew they were underwriting based on highly optimistic, best-case scenario numbers that were not impossible to achieve, but could potentially put the property at risk if anything went wrong, such as: a change in the real estate markets an operational mistake a slight decrease in demand a lag getting new tenants moved in any host of other potential problems While I respect the fact that every investor has their own personal risk tolerance, slicing thin margins and teetering on default in tough times are not the types of risks I like to take. This applies especially to someone who does not yet own an apartment complex, like me, and who is using equity funding from professionals who have worked long, hard hours for years to earn their investment dollars. Though I wished to invest in those apartment complexes, I knew the right thing to do was wait for the market to cool off. In the meantime, where have I found opportunity? I am working on a portfolio of pre-fabricated homes that were bank-foreclosed. I can purchase them below-market in bulk, renovate, and sell them above market by financing my residents. This is a high-margin, low asset value strategy that gives a second chance to both the homes and the people who live inside them. Still, I plan to work in the commercial value-add and opportunistic space in the coming years. As for the right strategy, in the right market, at the right time? You’ll have to get out your crystal ball for that. View my real estate portfolio: www.stephaniemcconnon.com....

28 Mar

Posted at 08:33h in Background & Preparation to Invest, My First Deal Series, Transitioning to a Career In Real Estate
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This time our, guest post is from the successful investor and real estate blogger, Joe Stampone.  Joe discusses how a family business led him to a career as a real estate entrepreneur.   Here's his story: Like many real estate professionals, my initial exposure to the business was through a family member. My Dad, an attorney by trade, and a few partners started buying large tracts of undeveloped land throughout Florida in 2005. They would put in the proper infrastructure, get the entitlement, then flip the land to single-family home developers. It was a great business, until it wasn’t, and in 2008 (after the market crashed) they were left with a lot of value-less land, debt, and personal recourse. Being loosely involved, I learned a lot about the complexity and expertise required to be successful in real estate. It was then that I sought out to become a student of the real estate game. Breaking into the real estate business was an entirely separate animal. I graduated from undergrad in 2008, a challenging time to enter the real estate profession, to the say the least. Using my friends and family network, I was able to join a family-friend who was doing small scale development projects in a growing neighborhood in downtown Philadelphia. It provided a great ‘hands-on’ exposure to the real estate business, but when the projects dried up, I sought more of an institutional exposure to the real estate business. I enrolled in NYU Schack’s Masters in Real Estate Program and moved to NYC. I spent my first year taking classes full-time, learning as much as possible, and meeting up with anyone willing to share a few minutes of their time. Through my various networking activities I met with two fellow Tufts alums who were finishing up grad school at Columbia and on the cusp of launching their own firm. I remained in touch with them throughout grad school and when I graduated in May 2011, I joined them as they began to grow Atlas Real Estate Partners. Over the past 5+ years we’ve done 38 deals, totaling over $600M in total deal value. It’s been a wild ride. Joining a small entrepreneurial shop like Atlas wasn’t my goal entering grad school, but by being open to all opportunities, it turned out to be an amazing chance to join a growing firm on the ground floor. It was the best career decision I ever made. If it didn’t work out, I still would have learned something and been right back to where I was, just a little bit smarter. When starting your real estate career, don’t get caught up on the brand name firm or your title. Just start. Get your foot in the door somewhere and begin your journey as a student of the real estate game. If you'd like to know more about Joe and his business, please subscribe to his excellent real estate blog, A Student of the Real Estate Game....

18 Mar

Posted at 09:24h in Background & Preparation to Invest, My First Deal Series, Transitioning to a Career In Real Estate
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In installment No. 3 of our series on how real estate investors got their first deals, we hear from Alex Franks, a full-time real estate investor who went from personal trainer to single-family home wholesaler to buyer of 100+ unit multifamily deals backed by foreign investors who teaches real estate investment to others.  An inspiring story! An Incredible Story My story has taken me on a incredible journey in the last 16 years. I never thought I would be in multiple states and countries teaching real estate education. I was involved in single family investing, building credit, fixing individual's financial picture, and building real estate portfolios one house at time. So here we go.  Back in 2000, I was going to be a wholesaler learning the ropes, including the ins and outs of real estate. A friend I met at the gym (I was personal trainer at the time) got me interested in real estate. The first six (6) years was nothing but wholesaling properties.  It really was the easiest money to make back then. My wholesaling career took off. I wanted to be the best and that what I set out to do. Finding the deals and learning to farm areas. Making sure any deal that was out or coming out- I wanted to be the first one to know. This was going great until I got the bug to start rehabbing homes myself. My goal was to buy 4 at time, flip 3 of the homes and keep one free and clear as a rental. Man, I was heading to the big time now or so I thought. I then made the leap to the million dollar homes. Now I had made it! I got my self into the right group and this was it. I was making 1{c8cadb6b157e97ed0bdc6df9c01b7d60fb42806e70d6a9acb324c508125f4e61} of the deal up front and 20{c8cadb6b157e97ed0bdc6df9c01b7d60fb42806e70d6a9acb324c508125f4e61} on the backend. I was set and after 2 years of this I should be good to go. Then, in 2007 and 2008 things started to crash and burn along with my business. I was stuck in loans and could not get out. I owed on mortgages because we refinanced everything at 90{c8cadb6b157e97ed0bdc6df9c01b7d60fb42806e70d6a9acb324c508125f4e61}. At the time the banks had told me it was okay to do this. Hitting Bottom In 2009 I took a job for a very short term. I sat in a chair working for a debt collection agency, trying to shake down college kids for money they owed. I had to be in my seat at 8 am and ready to work. That lasted all but 2 days before I came home and told my wife, "I can go and make real estate work again.  I know I can." Now we had lost every rental we owned from 2008 -2009 . No one was paying and I could not make the payments. There was something that told me never again.  But I guess something in you tells you that you either believe in yourself or you don't.  And I was not going to accept the 8 to 5 gig. It was just not in my blood, or chemical make up. I wanted more and more for my wife and family. Still in 2009 we were rebuilding. I took on a partner who was my main competitor in town. We slowly climbed back and starting buying cash flow rentals again. I have always been good at speaking just did not know that the seminars would be some thing I would be doing. Totally by accident how that came about. In 2009, we finally got back to flipping 3 to 4 houses month. A radio show in LA contacted us back and asked if we could provide turn key properties to their investors. So we started with one seminar in the Anaheim stadium press area. After that the wheels were greased and things started moving again. We are buying up to 20 houses a month in Atlanta, Ga.; Sarasota, Florida; and Charlotte, NC. Between 2010 and 2013 we were one of the largest turnkey groups in Charlotte. We were doing seminar in LA, San Francisco, Singapore, and Malaysia. We were raising money from international hedge funds. Our office had 21 people working for us. Our construction company had over 20 people at the time. Pivoting In Response to New Competition in the Market Then, when we could not get any bigger and things were going great, the hedge funds came to town.  Overnight, the Blackstone fund Invitation Homes destroyed the single family flip market. They took over the market, purchasing over 7,000 homes in Charlotte alone. We survived on a few flips to clients, but they were few and far between. The money hose now was just a trickle, barely enough to pay the bills. Right around that time, we found a 102-unit apartment shell in Gaffney, SC on an auction site. We decided to try and buy it. No idea why we did it, because I was totally against it. Lo and behold, one of our international investors had a friend who was looking for projects in the U.S. So he came on board. We took from December 2013 to August 2014 to complete the project. What a learning experience that was! We then leased the units to Limestone College in Gaffney. Things started to make much more sense to me. Why flip 200 houses? Why not just buy one 200 unit apartment? We build up a good network. It was just a matter of finding the projects. We then went on to purchase a 55-unit deal in Gaffney, and we are bulldozing that to build 122 condo units. Then we picked up 136-unit property in Gastonia, NC., which was purchased for $1.2 million and flipped for $2m in 6 months. (We did gut the units and get everything ready for the new buyer, with contractors lined up and such.)  So, from 2013  to 2015, that kept us busy. Our profit off the 136 unit was $400k -- much better then flipping turn key for about $8k to $10k a deal! What the Future Holds for Alex Franks So after that, I decided my 2016 goal is to not partner on another apartment deal, but to buy my next deal for my company. So today I am working on my financial picture, getting ready to buy 100 or 200 unit in either NC and SC. If we can afford more, we will buy more. My goal is to acquire 500 units. I know some people want more, but I don't. I want roughly $30k a month free and clear, with a few apartments that are paid off and will stay in my family for years to come. I can see the light at the end of the tunnel now, where before I was blinded by what I thought was being busy. It's a simple concept:  why buy 250 homes, and have 250 headaches, when I can buy 250 units apartment and be close to being done? I know it won't be that easy and will be a lot more work. There are not that many good deals out there. Just like I taught single family investors how to buy SFH, I am using that knowledge to help market and make offers on apartment buildings close to where I live. That my story.  I hope it helps people understand that apartment investing is a much better route to success than single family rentals. If you're interested in contacting Alex and learning more about his story, you can find him here....

09 Mar

Posted at 13:49h in Background & Preparation to Invest, My First Deal Series, Transitioning to a Career In Real Estate
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The "My First Deal" series explores how successful self-made multifamily real estate investors got their first deal done and took their first step toward escaping the corporate grind.  In the second installment of this series, we meet engineer turned real estate investor, Reed Goossens: I went from a structural engineer to a real estate investor, and moved from Australia to the United States – all at the same time. So my story isn’t just about my first deal; it’s about my journey. Is This All There Is?! Rewind to 6 years ago: I am 24 years old, and I had just spent the previous two years living and working in London as a structural engineer. As my time abroad ended, I moved back to Brisbane, Australia and quickly found another job, when reality hit me. My travels were over, and this is what it seemed I was supposed to be doing for the next 40 years of my life - sitting in a cubicle answering to a boss that answers to a board of directors. I remember thinking to myself “This can’t be it? What have I got myself into?” I knew that I didn’t want to work for ‘the man’ in a 9-5 job for 365 days of the year for the next 40 years; I wanted more. I needed to find something that supplied me with enough income so that I wouldn’t need to work for that long, especially for someone else. I furiously began searching wealth and entrepreneurship on Google. The first two things that popped up were stock market investing and real estate investing. Being an engineer, my day job exposed me to large-scale commercial developments, so I felt a connection to real estate. Also, my dad had a few small successes in the Australian market, so I thought that it was a perfect fit. I started Googling as much as I could about real estate investing and within the first week, I had a copy of the best seller Rich Dad Poor Dad. That little purple booked opened my eyes to understanding financial freedom and long-term wealth, which is what I craved so much. I could take control of my life and ESCAPE the rat race. Big Apple, Here We Come! I devoted all of my spare time to researching real estate investing and increasing my financial IQ. I attended as many different real estate networking events as I could, and surrounded myself with other successful real estate entrepreneurs for about 18 months. At the same time I wanted to move to NYC with my American girlfriend; so we decided to pack up our lives and move half way across the globe in pursuit of an adventure to live and work in the BIG APPLE! Once we settled in to the New York way of life I began educating myself on everything related to investing in the U.S. market, from understanding the U.S. investing lingo, to advanced topics that you would pay top dollar to a ‘guru’ in Australia, yet were readily available and free at the real estate investment clubs in Manhattan. At this point, I still hadn’t done a deal. I spent a solid year getting to know the lay-of-the-land. This was 2012 and there were plenty of cheap properties out there, and I now knew enough about cash-flow properties to get involved. I started focusing on upstate New York (Buffalo, Syracuse, Rochester). These places were within driving distance and were within my price range. Over a period of 6 months I developed a team on the ground and I finally purchased my first triplex all cash for $40K. I had no U.S. credit at the time. Being a landlord quickly taught me the power of cash flow and repositioning; buy a property needing some work, do it up, increase rents and increase cash flow. This forces appreciation in the property. Before I knew it, I was at the bank asking for a small refinance to buy another deal. I successfully closed on another duplex and have since continued to grow my portfolio. From the first deal until now, there was a huge learning curve that real estate seminars couldn’t have taught me. The Power of Connections A year later, I met a mate for a drink, and I was boasting about the small properties I own in upstate New York. I was telling him about the cash flow, and the great tax benefits associated with owning real estate. I thought I was really selling this guy! He then turns to me and says, “That’s awesome mate - I just closed on an 80 unit property in Canada.” My mouth dropped. “…what?” I said. He repeated the sentence, but I couldn’t believe it. He went on to explain the power of NOI and forcing appreciation in commercial real estate. This was the second “ah-ha” moment in my life. I told myself I need to up my game and get involved in larger commercial multifamily apartment buildings. I went out and found a great mentor/real estate coach to help guide me to that next level on my journey. In 2014 he helped me develop my personal brand. I developed a website, worked on my pitch and my professionalism, and I started looking at larger multi family deals. Underwriting 10-20 deals a week for months. At this time, my girlfriend and I decided to move to warmer weather in LA. Again we packed our bags and moved across the country. Again, I rocked up without a job. As soon as we moved to LA I started a meetup group to increase my exposure to other investors. We meet once a month in Downtown LA at a bar and discuss all things related to real estate investing. After a few months, at one of my events, I met an investor, Frank, who was desperately trying to close on his first large multifamily deal. I was still underwriting deals and trying to find as many investors as possible. Frank had good deal flow, but he didn’t have investors to invest in the deal. I connected Frank with my mentor, who offered to bring capital to the table if I found a cracking deal, and boy did I find a cracking deal! One Deal Done and More to Come! We got a 250 unit under contract ($14M deal) and frantically started raising capital from as many investors as possible. Two months later we closed. It wasn’t without massive heartache and a huge learning experience, but we got it done! I am skimming over the details but it was a massive effort! We raised $3.3 million in 2 months! The property is now performing extremely well; above what we had projected. Currently I am raising capital for another 155 unit deal, just down the road from the first one. Now by no means have I “made it.” This is just the start of a long successfully career investing in U.S. real estate, and still I have a lot to learn. The year 2016 is going to be massive! More deals to come, and I am also increasing my reach via my new podcast and looking to release a book by the end of the year, which will cover the fundamentals of investing in U.S. real estate as a foreign investor. Watch this space! Happy Investing! Reed Goossens is founder of RSN Property Group in Los Angeles.  His podcast, which focuses on how to invest in U.S. property from as a foreign investor, can be found here.  We will check back in with Reed in the future to learn about his progress growing a real estate empire from scratch....

26 Feb

Posted at 09:06h in Background & Preparation to Invest, Jonathan Twombly, My First Deal Series
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Closing your first deal is critical. Before you've done it, most brokers, investors, and lenders won't work with you. Once you've closed a deal, everything becomes easier. But if no one will work with you until you've closed a deal, how can you ever close a deal? It's a Catch-22 situation. New investors, struggling to get over that first-deal hurdle, spend thousands of hours every day on sites like Bigger Pockets, hoping to learn the "secret" to getting the first deal. They seek out investors like me for advice or mentoring. Some even invest thousands of dollars on courses promising to teach them "shortcuts" to real estate riches. There are no "shortcuts." The only "secret" is to hustle. To focus your hustling and reduce wasted time and effort, you should learn from experienced investors. Model what they did. To help you, starting today, The Mortar will post a periodic series entitled "My First Deal." Here, experienced investors will tell you the story behind their breakthrough. We'll start with mine. My First Deal:  A Three-Year Ordeal I've written about how I went from miserable lawyer to full-time real estate investor. Getting my first deal was a three-year ordeal. Here's what happened. My first partner and I focused on apartments in Louisiana and Texas. We spent 2011 sorting through the leftovers that brokers show new, unproven investors. In 2012, we finally bid successfully on a property in Houma, Louisiana. We'd seen the deal before, but the owner had cut the price enough for the deal to work. Soon we had a second property under contract with the same seller. We lined up our equity investors, a co-signatory for the debt, and a lender. Then the lender inexplicably dropped out of the deal. We got skittish and canceled the second deal. We were out of pocket thousands of dollars, not to mention the months of effort wasted. Ultimately, we dissolved the partnership. But while we were still riding high, we were looking at other markets to enter in the future. Being a data dork, I was poring over the numbers from the recently-released 2010 United States Census, trying to find the most attractive markets. I decided to look only at markets growing faster than the U.S. as a whole. That eliminated the Northeast and most of the midwest. I cut off everything west of the Mississippi River because it was too far to manage. Florida's big booms and busts scared me, so it was out, too. The Carolinas, Virginia, and Georgia were left. Charleston jumped out as a fast-growing area. I loved the city, and I had good friends in it. So I decided to start there. I knew reaching out cold to brokers wouldn't work. I decided to use my network, knowing Charleston was small enough that everyone knew everyone else. I asked my friends -- a doctor and a lawyer -- if they could introduce me to any commercial brokers in town. Both came through. But my friend Abby really hit a homer. She introduced me to her best friend's husband, Chris, a successful broker and developer in the area. Chris's partner, Tyler, had led acquisitions for a multifamily investment fund for 15 years. He knew everything about the industry and all the players in the region. After my first partner and I dissolved our business, at the end of 2012, I formed Two Bridges Asset Management LLC. Now on my own, I wanted to focus on the Southeast. Just about the first call I made was to Tyler. He became our exclusive representative in the Carolinas. Adding Tyler to my team changed the game for me. But not right away. It still took time to land that first deal. Tyler called his old broker contacts, looking for our first property to buy. We saw many markets and looked at dozens of deals, criss-crossing South Carolina in Tyler's truck.  But, as a new, unknown group from out of town, we were still not seeing the good deals -- the "pocket" listings that brokers only show to their best clients. Finally, Tyler asked a favor of one of his partners in development deals. The daughter of one of his close friends, Kay, was a successful commercial real estate broker in Greenville. Greenville was far from Charleston, but it a fast-growing area, and on my short list. With the benefit of a personal introduction, Kay met us at her office. We first discussed our investment strategy. Then Kay mentioned a new listing that might fit, in nearby Spartanburg. We'd be the first to see it. We immediately left the office, drove to Spartanburg, and viewed the property. It was located at the intersection of two Interstate highways, within minutes of thousands of jobs. Few cars were in the lot at midday -- tenants were working -- and the ones that were there were newer, nicer ones. The complex had a good feel. A few days later, after running the numbers, we made an offer. Kay convinced the seller to accept it without taking the property to market. Soon we were in contract. Someday I will write about the struggles we went through to close the deal. I've already written about how the deal nearly tanked after we closed it. But the point here is that we closed it. We got our first deal. We were in business. Three Takeaways for New Investors So what should you take away from my story? First:  be persistent. Nearly three years elapsed between starting in real estate and closing my first deal. I did not give up, and I ultimately found success. Don't quit too soon. Your goal may be just ahead! Second:  if there's a "secret" weapon in this business, it's your friends and family. I asked Abby for introductions to brokers, and she introduced me to her best friend's husband, Chris. Chris introduced me to Tyler, a multifamily pro. Tyler used personal connections to get us introduced to Kay. We've now done several deals with Kay and her team. Your friends and family do not need to be in real estate. Abby wasn't. I didn't know if she knew anyone in the field. But I asked, and she did. You will never find out who your friends know unless you ask them. It's actually better that Abby was not in real estate. Her contacts were more likely to meet me because they were personal friends, not professional contacts. And they were more likely to take me seriously because of the personal connection with Abby. Third:  persistence and relationships together will lead to a break. Keep pushing forward and keep using your network to meet new people. The next new person you meet may be able to help you. Over time, if you persist and build solid relationships, opportunities will come your way. But relationships and reputations take time to build. You must be patient and build them right....