Author Topic: My Long Distance Lease-Option-Flip Project  (Read 15666 times)

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
My Long Distance Lease-Option-Flip Project
« on: October 18, 2014, 02:14:30 PM »
Hey folks,

I'm a US expat from Washington State, working 300+ hours a month in Northern British Columbia.  For the last 12 months, I've been purchasing, renovating and renting small, single family properties in Toledo, Ohio, all remotely.  I fly into Toledo about every quarter for a few days to check on the team, walk new properties, network, etc.

My latest project is what I've coined a "lease-option-flip".  I've partnered with a  local mortgage broker that sets up lease options in the area - screens leasees, works with them to build credit over a 24mo term and ultimately arranges conventional financing at the end of the 24mo lease term.  In return, they purchase the property at top market value while making a monthly lease payment, of which approximately 15% goes towards principal.

They pay repairs/maintenance, I pay taxes & insur.

I pulled in some private money on this one...they are excited to be making 9% annual (which I pay out of the lease payments - interest only, balloon payment after the end sale)...and I'll have a nice profit in 24mo (really 30mos, giving time for renovation, lease installation, conventional financing & close) with none of my own monies into the deal - oh and I'll cash flow a bit every month on top of everything. 

Numbers:

28k acquisition
2k holding/misc
10k reno budget

40k all in - funds provided by private money, paying 9% annual ROI (interest only payments of $300/mo - balloon payment after sale).

Leasee to pay 2.5k non-refundable deposit + $700/mo.  I nego'd w/mortgage broker a 25/75 split (he accepts 1.9k fee, I keep remaining as damage deposit)

I'll keep this thread updated as I go and learn.  I have never performed a lease-option before, so this should be interesting.  I'm optimistic as I think this is a great way to scale, in addition to purchase my own long term rentals (which I'm continuing to do now).  I'm excited by the idea of making a return for my investors, creating work for my project manager and his crews, providing housing for a would-be buyer that can't qualify yet and of course creating profit for myself with little/no out of pocket expenses.
« Last Edit: October 18, 2014, 04:13:34 PM by sammybiker »

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #1 on: October 18, 2014, 02:27:00 PM »
The property - a small, 920 sq ft 3br/1ba home in Northwood, OH.  It's located in a good school district, surrounded by 80-130k+ properties.  The perfect starter home.

- Actual purchase price at closing was 29.5k.  I budgeted for 28k
- Holding costs thus far have run ~$500 (first interest payment + utilities).  I've budgeted for 2k.
- Renovation budget was 10k.  I'm tracking to just under 8k, including project management fees, etc.

Major scope of work items...

- Paint
- Some carpet
- Removal of awful front porch/step and installation of built-up replacement
- Installation of base boarding throughout the interior
- Rectifying a sloping issue in the kitchen - removal of all flooring, installation of joists as required, installation of new plywood + flooring.
- Minimal paint and interior work on the detached garage.

17 day schedule, start to finish (10-Oct through 27-Oct).  We're tracking to be wrapped up this coming Tues, 21-Oct with a professional photographer scheduled for Wed 22-Oct.

Before Photos



















sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #2 on: October 18, 2014, 03:26:50 PM »
Progress photos, front porch replaced, baseboards installed, kitchen slope fix on-going...











« Last Edit: October 18, 2014, 03:31:50 PM by sammybiker »

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #3 on: October 18, 2014, 03:45:52 PM »
Kitchen floor sloping issue mitigated, new flooring installed.








Blindsquirrel

  • Pencil Stache
  • ****
  • Posts: 656
  • Age: 1
  • Location: Flyover country
Re: My Long Distance Lease-Option-Flip Project
« Reply #4 on: October 30, 2014, 07:25:03 PM »
 looks good to me. My kind of deal but not done remotely.

mlipps

  • Handlebar Stache
  • *****
  • Posts: 1086
Re: My Long Distance Lease-Option-Flip Project
« Reply #5 on: October 30, 2014, 07:39:26 PM »
Sweet Jeezus I'm moving home to Ohio and buying a $28k house for myself to let be in! But seriously, I'm intrigued. Look forward to your updates.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5079
Re: My Long Distance Lease-Option-Flip Project
« Reply #6 on: October 30, 2014, 07:43:57 PM »
Did you get the litter box (and the smell) out of the kitchen?

Blindsquirrel

  • Pencil Stache
  • ****
  • Posts: 656
  • Age: 1
  • Location: Flyover country
Re: My Long Distance Lease-Option-Flip Project
« Reply #7 on: October 30, 2014, 08:19:48 PM »
 You can steal houses in Oh, In, Mi, Ky. Seriously, folks on the coasts are stunned at what can be bought dirt cheap. Flyover country has a fair bit going for it. Yields on rentals are also greast.

expatartist

  • Handlebar Stache
  • *****
  • Posts: 1783
  • Location: The Big Lychee
Re: My Long Distance Lease-Option-Flip Project
« Reply #8 on: October 30, 2014, 11:17:48 PM »
Congrats! We've been looking at Indiana for remote landlording. Appreciate your work-in-progress photos too.

GoCubsGo

  • Stubble
  • **
  • Posts: 179
  • Location: Chicago Burbs
Re: My Long Distance Lease-Option-Flip Project
« Reply #9 on: October 31, 2014, 09:40:28 AM »
Nice! The mortgage broker pre-screening and supplying qualified leads is a great idea and giving him skin in the game will hopefully provide more deals.  What are you projecting final sales price to be?

Overseas Stache

  • Stubble
  • **
  • Posts: 130
  • Age: 34
  • Location: Democratic Republic of Congo
Re: My Long Distance Lease-Option-Flip Project
« Reply #10 on: October 31, 2014, 03:08:48 PM »
That is a very interesting way to do a flip. How did you find the broker? Does he find the person for the house before you purchase and repair it? What is the final sales price after the 2 years and how much are you projected to make off of the deal?

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #11 on: November 01, 2014, 01:37:25 PM »
Sorry folks, in Europe for some time off, will update in detail soon.

Just closed on lease option #2 yesterday, pretty excited to get that one rolling!  Will update with before photos, project manager gets in this one on Monday.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #12 on: November 01, 2014, 03:39:40 PM »
Did you get the litter box (and the smell) out of the kitchen?

The litter box is out of the kitchen, along with the smell.  Well, I can't personally verify the smell...but I trust my project manager and the mortgage broker did the walk through this last week and all is good - I'm going to get the paperwork back to him via dot loop and we'll start marketing this coming week.

You can steal houses in Oh, In, Mi, Ky. Seriously, folks on the coasts are stunned at what can be bought dirt cheap. Flyover country has a fair bit going for it. Yields on rentals are also greast.

Yes, yields are great.  Appreciation, not so much...but if you buy correctly, in the correct neighborhoods, you may find it as a great bonus.  As you mentioned, folks from my neck of the woods in WA are always quite surprised at my purchase prices. 

Congrats! We've been looking at Indiana for remote landlording. Appreciate your work-in-progress photos too.

I started my long distance search in Indianapolis but ended up in Northern OH due to a few key RE guys I connected with in the area.  Indiana is great for cash flow.

Nice! The mortgage broker pre-screening and supplying qualified leads is a great idea and giving him skin in the game will hopefully provide more deals.  What are you projecting final sales price to be?

Correct.  Projected final sales price @ 65k.

That is a very interesting way to do a flip. How did you find the broker? Does he find the person for the house before you purchase and repair it? What is the final sales price after the 2 years and how much are you projected to make off of the deal?

The broker is associated with one of the property management companies I work with for my rentals.  He and I got talking earlier in the year and kept in touch every few weeks.  After a few phone calls, he and I caught up for a couple of beers during my trip to town in August.  Hashed out the details, got the warm and fuzzy & went from there.

« Last Edit: November 01, 2014, 03:43:51 PM by sammybiker »

GoCubsGo

  • Stubble
  • **
  • Posts: 179
  • Location: Chicago Burbs
Re: My Long Distance Lease-Option-Flip Project
« Reply #13 on: November 01, 2014, 04:32:24 PM »
At a $65K projected sales price the deal is pretty phenomenal.  Only worries would be the property appraising out for the new buyers at $65 K (unless that area already supports that price, otherwise you are betting on some major area appreciation if homes in that area don't currently support that price).  The hard money only asking for 9% is pretty surprising.  Do they get a proportional cut of the final sale profit of $25K?  If not, get as many deals locked up with them while you can cause that's pretty favorable to you.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #14 on: November 01, 2014, 05:45:43 PM »
At a $65K projected sales price the deal is pretty phenomenal.  Only worries would be the property appraising out for the new buyers at $65 K (unless that area already supports that price, otherwise you are betting on some major area appreciation if homes in that area don't currently support that price).  The hard money only asking for 9% is pretty surprising.  Do they get a proportional cut of the final sale profit of $25K?  If not, get as many deals locked up with them while you can cause that's pretty favorable to you.

Fair market value based on recent comparable sales support a 62k sale price.  With the lease option, as we're securing the purchase price at today's fair market value while trying to account for any appreciation that may take place, 65k will be the set lease option price. 

The private money lender has no interest in the final sale profits on this deal.  He'll receive a 30% profit split on number 2 while I get to pay a discounted interest rate.
« Last Edit: November 03, 2014, 07:55:21 AM by sammybiker »

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #15 on: November 01, 2014, 05:54:15 PM »
Final Photos
























sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #16 on: November 07, 2014, 07:48:51 PM »
The first lease option (above) has it's first open house next Monday.  I'll update as the results of this come out.


Just closed on lease option #2 yesterday, pretty excited to get that one rolling!  Will update with before photos, project manager gets in this one on Monday.

The project manager started tearing into lease option #2 this week.  Known issues/scope of work before closing:

- Full Roof Tear-Off
- Gutters
- Paint
- Carpet
- Paint

It was disclosed that the roof was "bad".  Bad to me = possibility of water damage.  The PM start getting in behind the walls this week and has noted that we have had significant water damage behind the walls, thus water damaged damaged insulation, fascia, flooring and of course some accompanying mold.

Some definite scope growth but my margin is solid on this property and it will be a learning experience to manage more than just "paint and carpet" renos from afar.

The numbers...

32k acquisition
12k renovation budget (including project manager fees)
1k holding costs

45k all in.

Resale @ 70k (24mo lease option @ $800/mo with 70k end sale)

A few before photos...






















GoCubsGo

  • Stubble
  • **
  • Posts: 179
  • Location: Chicago Burbs
Re: My Long Distance Lease-Option-Flip Project
« Reply #17 on: November 08, 2014, 08:56:36 AM »
She's a beaut! The water issues stink, but I normally don't mind doing a roof as it is always the first thing buyers ask about. A new roof helps the value immediately and gets decent payback (I can't quantify it, but as a Realtor it is always a big relief to first time buyers to see a new roof).  Hopefully the attic doesn't have bad mold as encapsulation can get pricey.  Exterior looks pretty maintenance free which is a nice.

Side note. The last two foreclosures I bought had a hot tub. People like to spend their money on stupid shit.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #18 on: November 08, 2014, 09:29:37 AM »
Thanks for the feedback.  We'll see how this one goes.

Funny on the hot tub...definitely a pain in the ass to get it out of there.

My scope of work and quotes thus far are as follows.  I'm definitely blowing the 12k "first look" budget but there is enough meat on the bone here so I'm not concerned.  Roof work starts tomorrow.

Scope of Work      
      
Roofing Replacement - Shingle Layover (no longer full tear off), New Fascia, Ice Guard, Step Flashing    @ $6000

Leaky roof caused water damage to drywall & insulation replacement - Repair/Replace @ $1500

Leaky roof caused water damage small section of flooring - Repair/Replace @ $1000

Interior Carpet   Complete Interior Carpet Installed - Repair/Replace @ $2500

Interior Paint - Minimal Paint - Repair/Replace @ $1000

Dumpster for removal of debris (x4 days @ 125 day)  @ 500

Misc, scope growth  @ 1000

Base Fee for Project Management @ $1600

Schedule & Budget Bonus @ $400

Total Renovation @ $15500


She's a beaut! The water issues stink, but I normally don't mind doing a roof as it is always the first thing buyers ask about. A new roof helps the value immediately and gets decent payback (I can't quantify it, but as a Realtor it is always a big relief to first time buyers to see a new roof).  Hopefully the attic doesn't have bad mold as encapsulation can get pricey.  Exterior looks pretty maintenance free which is a nice.

Side note. The last two foreclosures I bought had a hot tub. People like to spend their money on stupid shit.
« Last Edit: November 08, 2014, 09:32:53 AM by sammybiker »

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10881
  • Age: 61
  • Location: NorCal
Re: My Long Distance Lease-Option-Flip Project
« Reply #19 on: November 08, 2014, 12:21:23 PM »
Hey Sammy, I think your plan is very interesting! Before you acquire too many more, please contemplate the potential worst-case scenario(s). Build yourself a cushion and create an escape plan so that you don't risk more than you realize. Then don't look back on your way to FIRE.

My comments refer to house #1. I hope these things have been rectified. If not, there's still time.
1. Kitchen is much improved, but it not clean enough. Those cabinets will benefit from a little elbow grease and Murphy's Oil Soap or similar. Same for counters and walls.
2. Paneling in the kitchen? Gross, as the grooves collect grease and smells. Scrub with TSP, prime and paint them a glossy white. Not the cabinets, just the paneling. Won't cost much but will brighten up the kitchen considerably.
3. Get rid of/replace the blind over the sink. That cord is a huge safety hazard and likely not to code. A new one is probably less that $20 at the big box and will eliminate potential liability.
4. No one wants to look at a water heater in the kitchen. I'd look for simple sliding closet doors on CL or freecycle. Install them so they stack to the left to make doing laundry easier. While you're at it, I'd consider including a basic W/D set-up. First timers are not likely to have these and will pay more to have them included in the deal.
5. Could just be the angle, but the gutter seems to be sagging slightly over the LR window. Again, easy fix.

None of these things are mandatory. However, they are relatively cheap and easy things you can do to get more money and attract a better caliber of tenant. And it's all about the good tenants. Can't wait to hear how your plan unfolds.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #20 on: November 08, 2014, 01:39:50 PM »
Thanks for the feedback, Diane!

I like your thinking on worst case and believe me, it's always in the back of my mind.  My properties all have multiple, easily accessed exits that can be actuated quickly, if required.

1. Kitchen is much improved, but it not clean enough. Those cabinets will benefit from a little elbow grease and Murphy's Oil Soap or similar. Same for counters and walls.  The property will be under property management and they'll be going through a final clean-up prior to tenant move-in.  This scope should be actioned at the time.

2. Paneling in the kitchen? Gross, as the grooves collect grease and smells. Scrub with TSP, prime and paint them a glossy white. Not the cabinets, just the paneling. Won't cost much but will brighten up the kitchen considerably.  I'm not a fan of the paneling either (who is?) but this will stay as-is for the time being.  I really like the idea of painting it but I won't re-mobilize a contractor for this task now.  Great tip though, I'll keep that in mind on future jobs or if I ever have to perform touch-ups on this property again.

3. Get rid of/replace the blind over the sink. That cord is a huge safety hazard and likely not to code. A new one is probably less that $20 at the big box and will eliminate potential liability.  Good call!

4. No one wants to look at a water heater in the kitchen. I'd look for simple sliding closet doors on CL or freecycle. Install them so they stack to the left to make doing laundry easier. While you're at it, I'd consider including a basic W/D set-up. First timers are not likely to have these and will pay more to have them included in the deal.   I agree 100%.  That being said, this will be a bare bones lease option and I will not provide appliances/etc.  I know it sounds strange - it certainly did for me - but for this deal, it's acceptable.  We'll see come the first showings...I wanted to throw washer/dryer/stove/sliding door in there as well but it was recommended to me to leave as-is by the mortgage broker & leasing agent.  We'll see - this is certainly a learning experience.

5. Could just be the angle, but the gutter seems to be sagging slightly over the LR window. Again, easy fix.  I agree 100%.  Good eye, there is some sag there, I noticed this as well.  Obviously, this will impact the slope, thus drainage.  This is on the list for the property manager to action just prior to tenant move-in.

This first one is a good learning experience and the lessons learned will be directly applied to the 2nd property.  I'll keep you posted on how the showings go and the feedback that's provided.

Hey Sammy, I think your plan is very interesting! Before you acquire too many more, please contemplate the potential worst-case scenario(s). Build yourself a cushion and create an escape plan so that you don't risk more than you realize. Then don't look back on your way to FIRE.

My comments refer to house #1. I hope these things have been rectified. If not, there's still time.
1. Kitchen is much improved, but it not clean enough. Those cabinets will benefit from a little elbow grease and Murphy's Oil Soap or similar. Same for counters and walls.
2. Paneling in the kitchen? Gross, as the grooves collect grease and smells. Scrub with TSP, prime and paint them a glossy white. Not the cabinets, just the paneling. Won't cost much but will brighten up the kitchen considerably.
3. Get rid of/replace the blind over the sink. That cord is a huge safety hazard and likely not to code. A new one is probably less that $20 at the big box and will eliminate potential liability.
4. No one wants to look at a water heater in the kitchen. I'd look for simple sliding closet doors on CL or freecycle. Install them so they stack to the left to make doing laundry easier. While you're at it, I'd consider including a basic W/D set-up. First timers are not likely to have these and will pay more to have them included in the deal.
5. Could just be the angle, but the gutter seems to be sagging slightly over the LR window. Again, easy fix.

None of these things are mandatory. However, they are relatively cheap and easy things you can do to get more money and attract a better caliber of tenant. And it's all about the good tenants. Can't wait to hear how your plan unfolds.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #21 on: November 19, 2014, 08:27:49 AM »
Update

Lease option 1: The property is receiving a lot of calls, the open house went well, we received (1) application with heavy interest but unfortunately, they have an eviction on the record (just 6 months ago, ouch) and although they have the money for the option ($2500), the eviction really puts me off. Likely going to keep this on the market, even if it has to sit for 2-3 months.  It's the absolute wrong season to be selling.

Lease option 2:  Roof complete, tackling the rotten walls now.  Some minor scope growth with electrical issues, the panel box being loaded up.  Photos coming soon.

New property:  I received news last night that a 1300+ sq ft 2br/1ba property I had low-balled earlier in the week is under contract - they didn't even counter.  I had pinged this property back in early September, went through it - really wanted to make a 3br out of it (and may still do so) but at the time, it was a bit too expensive.

28k was the accepted offer.  Aside from some cleaning inside, it's move-in ready.  Market rent is $700 and I'll rent it for $645.  This property is located in my favorite local school district.









« Last Edit: November 19, 2014, 08:40:13 AM by sammybiker »

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10881
  • Age: 61
  • Location: NorCal
Re: My Long Distance Lease-Option-Flip Project
« Reply #22 on: November 19, 2014, 08:46:46 PM »
Trust your gut on that previous eviction.
Here's a story from the archives. When I was working, one of my accounts was a guy who owned 500+ single family rentals. I asked his property manager how they handled people who'd had foreclosures or short sales and now needed to rent but had trashed credit. She said that they looked for anything new. Car, truck, boat, rv, etc. She said since most of these folks hadn't had to make payments for some months, they'd only rent to people who had saved the money and not rent to people who had blown their windfall on expensive, shiny toys. And they'd ask for the biggest deposit the law allowed. Later, when an acquaintance was looking for a rental after losing his home, he offered to pay all the deposits plus pre-pay the first four month's rent. He beat out all the other people vying for the house.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #23 on: November 19, 2014, 09:28:21 PM »
Great feedback Diane, thank you.

Question - how in the heck did that guy build an empire of 500+ properties?  Curious if you know the story...

Thanks!

GrayGhost

  • Bristles
  • ***
  • Posts: 389
  • Location: USA
Re: My Long Distance Lease-Option-Flip Project
« Reply #24 on: November 20, 2014, 10:16:23 PM »
500+ units is one thing, but 500+ SFRs is something totally different. I feel like after the first few dozen, you'd have some sort of bureaucracy or system in place, so that would make things a bit easier, but unless you're outsourcing looking at and following up on deals, there's still a heck of a lot of work to personally do.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #25 on: November 21, 2014, 08:05:26 AM »
Yeah, 500 SFH is just massive...would love to hear more on how he built that up.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10881
  • Age: 61
  • Location: NorCal
Re: My Long Distance Lease-Option-Flip Project
« Reply #26 on: November 24, 2014, 02:44:03 PM »
Okay guys, I'll spill some of it, but keep it short.  If I tell you much, some of y'all are going to say "Well that isn't my story, so it would never work for me." That's true, but I admire this guy because he was smart and hard working. He took what he had and made something awesome with it. I was a rep for a flooring mfr. and his store was one of my accounts.

He played pro football for two different teams, back when players didn't make the kind of dough they do now. When his playing days were over, he took a humble job as a sales rep for a flooring mfr. Worked hard and smart. Started buying homes. Opened up a retail operation, primarily to service builders. Over time, if a builder got over-extended, he would work a deal with him to buy whatever the builder couldn't sell to clear up the debt. Once, he purchased an entire cul-de-sac of homes in one day. Lather, rinse, repeat. Added commercial property and who knows what else.

I am sure he has well over 500 now, as he continued buying when the RE market tanked, but I'm FIRE these days, so I don't know the current count. Once, I was working late to finish up a project in his showroom. He stopped and told me I reminded him of himself in his repping days. Huge compliment, but I only have one rental home, hee hee. I simply don't have the drive or aspiration to own more, but I truly admire the guy and the operation he runs. I've also been told that he counsels current players on money management issues. Cool. Oh, yeah he's a very frugal guy. Has one property manager and her office is in his store. He keeps a stash of used appliances in the back of the warehouse to use as needed in the rentals. Drives a truck, too. Probably a candidate for the Mustachian Hall of Fame, except that he did it all by himself long before the internet was even born. Plus, he wouldn't want the attention.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #27 on: November 24, 2014, 02:58:32 PM »
Awesome, thanks for the write-up Diane, great read.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #28 on: November 26, 2014, 06:11:58 PM »
Update

Lease Option 1:  I accepted the tenants with the eviction on record.  They paid the 2.5k lease option payment (of which I keep $500, the remaining $2,000 goes to mortgage broker) and moved in this week.  I'm taking a risk here with the eviction but their credit is strong and speaking with the mortgage broker, we should be able to qualify them in as soon as 6mo.

Lease Option 2:  Wrapping up the rotted walls now (new studs, insulation,drywall), paint and carpet remains.  Due to the season and the fact that the contractors are running on lump sum contracts, I'm letting the work progress slowly, not pushing hard.  I won't be able to get a tenant in until after Christmas anyway, if I'm lucky.  Budget is still tracking to the 15.5k figure.

New Property:  The closing date is still out a ways on this one (15-Dec), no real updates.  I'm putting together a couple different small private money loan packages to (2) new investors (10k ea) that have been interested in what I'm doing for awhile.  I'm excited to provide them a nice rate of return (14% annualized) and hopefully pull them in for larger projects in 2015.  I'm using their funds for bridge gap funding and plan to have them both paid off in 3mo.  Both terms are 6mo.

The strategy for this property is to get a tenant installed in Jan on a 6mo lease, well below market.  I want the property occupied asap.  With the lease-up in June, I'll be in prime season for re-renting.

Photos of the Lease Option 2 wall progress below...
















sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #29 on: December 20, 2014, 12:09:35 PM »
Update

Lease Option 1:  1st rent check paid on-time.  No issues.  Will ping the mortgage broker on status of getting this couple qualified for conventional later next month.

Lease Option 2:  We're substantially complete on this renovation.  Wrapping up a bit of touch-up paint and trim.  Photographer coming in on 22-Dec, on the market just after Christmas.  More unfortunate scope growth when we ran into a dead furnace.  New furnace installed and my net renovation after project management fees & incentives is at $17,420 vs my original shot in the dark of 12k (rev 0) and detailed scope review of $15,500 (rev 1).

The furnace will add value to the end buyer, which I'm excited for however that $2,300 will not be recouped and will come directly out of profits.  Still shooting for a $70k exit, net 65k after commission.  All-in will be just under 50, not including holding costs.  It will cash flow $238/mo once the tenant is in place.

New Property:  Closed.  Fixing a couple of small issues and performing a thorough cleaning to get this property rent ready.  Looking to have it on the rent market 2nd week of Jan 2015.

Photos of the Lease Option 2 paint and carpet below...














sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #30 on: December 27, 2014, 12:31:27 PM »
Pro photos of lease option #2 below.  Still working on the front lawn landscaping and getting that cleaned up.
















ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: My Long Distance Lease-Option-Flip Project
« Reply #31 on: January 02, 2015, 12:57:47 PM »
Wait, you didn't remove the moldy sheathing? Not cool...

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #32 on: January 04, 2015, 08:48:40 AM »
@ShoulderThingThatGoesUp  This was cleaned up further before installing the remainder.  Progress photo.
« Last Edit: January 04, 2015, 08:51:08 AM by sammybiker »

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #33 on: January 28, 2015, 02:01:09 PM »
Update

Lease Option 1:  Tenants were two days late with Dec rent.  Late fee issued, nothing further to report.

The heat exchanger in the furnace went out the first week of Jan.  I went ahead and ate this cost and replaced the entire unit for the tenants.  I gambled a bit with this unit as it was older, figured I could squeeze some more time out of the furnace but I lost that gamble.  This $2900 expense will come out of my profits. 

Lease Option 2:  Signed the lease option paperwork today.  Tenant has poor credit score (520) but great income and good background check (no evictions, no criminal).  She moves in this weekend and is very excited about the property.  We'll need at least a good 18mo to repair her credit to where she can qualify for conventional but that's OK.  No changes on my all-in cost, right at 50k.

New Property:  Application accepted, lease getting signed next Tuesday, move-in shortly there-after.  Spent $1200 getting odds and ends fixed & cleaned-up.  All-in just over 29k, renting well below market @ $650/mo.  Signing a traditional 12mo lease.  Tenants have great income, decent credit, good background, no evictions.

I've been going through a bit of frustrations with profit loss and schedule delays as of late.  The only way around it, while remaining out of state/country, would be to have my own property management company.  Obviously, I don't have the gross rental income to support such a move at this time.

I will be looking at taking more direct ownership on any future lease options by working more with my project manager in a property management relationship - he'll screen and show property and I'll have to partner with a credit repair company and take on that aspect of improving my tenants profile to where they can qualify for conventional myself.

I'll be back in town to check on the team and inspect all the property in March.  I look forward to having some productive discussions about how to organize a more hands on approach to this business then.

Happy new year all.
« Last Edit: January 28, 2015, 04:31:47 PM by sammybiker »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28022
  • Age: -999
  • Location: Seattle, WA
Re: My Long Distance Lease-Option-Flip Project
« Reply #34 on: January 28, 2015, 03:33:14 PM »
Thanks for the update.  Nice to hear things are mostly running smoothly.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #35 on: January 28, 2015, 03:52:26 PM »
Cheers, thanks for the encouragement arebelspy.

This is a difficult set of projects, no doubt compounded by the fact that I have to do everything from afar.  I'm certainly learning a lot.

Thedudeabides

  • Stubble
  • **
  • Posts: 242
Re: My Long Distance Lease-Option-Flip Project
« Reply #36 on: April 15, 2015, 08:03:06 PM »
Just curious, how are things going?

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #37 on: April 16, 2015, 09:29:05 AM »
Just curious, how are things going?

Good call, about time for an update.

Update

Lease Option 1:  We've had more issues with the tenants calling the property management company for issues (this time freezing pipes back in the awful Feb/March freeze), the property management company responding and then charging me the repair bill for items that should never be charged to me.

We've responded swiftly to both the leasees with a formal letter and phone call follow-up, reinstating the terms of the lease and their responsibilities as well as schooling the property management crew on this type of lease and the fact that they are not to provide property management services.

The correction of the freezing pipe was billed to me at $500.  I'm still working out how to recapture these funds.

The market is also coming up a bit in the area and the more I look at it, I think I underpriced the property at 65k.  Should have posted it up at 69k.  I'll have to take closer note of this in the future.

Lease Option 2: Perfect, no issues.  I drove by the property in early March when I checked in on the team, my first time seeing the place - it looked great.

New Property:  No issues, saw the property for the first time when I was in town in early March.  The property looked good, noted some exterior maintenance issues that I'll have to tackle in the next 18 mo (painting).

Additional Properties:  Put another 3bd/1ba under contract two weeks back, closing next week.  It's just around the corner from an existing rental of mine, great street and I'll rent it for $700/mo on the section 8 program.

$31.5k is my all-in cost including a few bucks fixing odds and ends pre-tenant move-in.  Photos below.

Closing Notes  All-in-all, I'm happy with everything and the progress.  I'm learning some lessons, albeit expensive but bigger picture, I'm doing fine.  My gross rents are becoming more and more significant and my goal is to get them up over 70k/annual by end of this year.

In other news, I've accepted a promotion and will be relocating to Indonesia/Singapore in two weeks.  This is a huge change and will have me moving from 2k+ miles away from my properties to 9k+ miles away. 

That said, it's a great move and will allow me to continue to funnel substantial funds into my real estate empire and fuel the ramp up.

I'm confident in the team that I've setup to be able to deal with any issues that arise as well as manage new acquisitions as we move forward.

This last property marks #7.











« Last Edit: April 16, 2015, 09:34:42 AM by sammybiker »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28022
  • Age: -999
  • Location: Seattle, WA
Re: My Long Distance Lease-Option-Flip Project
« Reply #38 on: April 16, 2015, 10:06:34 AM »
Thanks for the update!  Glad to hear it's running so smoothly.

What's your end goal?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: My Long Distance Lease-Option-Flip Project
« Reply #39 on: April 16, 2015, 10:11:15 AM »
This is cool stuff, and in my mind is also "doing good by doing well".

Just curious: do you have an Excel file or a set of formulas for how you evaluate these? I'm good with Excel, but I probably haven't thought of everything and I wouldn't want to miss an opportunity to mooch something that's been working for an expert.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #40 on: April 16, 2015, 10:12:29 AM »
Sure, ARS, thanks as always for the encouragement.

My end goal does seem to change from time to time...as of now, my idea is to get up to 20 properties and then slowly sell off for top dollar using the lease-option to exit.  Keep most of the exit funds in lower risk, lower interest, truly passive financial vehicles while keeping 200-300k on hand for shorter term flip projects (and probably still using private money here and there for other deals).

Maybe quit working.  Maybe not.  Not sure...I'm quite addicted to the expat money & travel right now and will probably continue working for a bit.

But I can also live well and travel on 40k/year (I have picked up some traditional mustachian lifestyle tidbits)...and knowing that I'll be at about that number coming from rental properties (with no debt service) at the end of this year feels good.

Thanks for the update!  Glad to hear it's running so smoothly.

What's your end goal?
« Last Edit: April 16, 2015, 10:15:45 AM by sammybiker »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28022
  • Age: -999
  • Location: Seattle, WA
Re: My Long Distance Lease-Option-Flip Project
« Reply #41 on: April 16, 2015, 10:22:08 AM »
My end goal does seem to change from time to time...as of now, my idea is to get up to 20 properties and then slowly sell off for top dollar using the lease-option to exit.  Keep most of the exit funds in lower risk, lower interest, truly passive financial vehicles while keeping 200-300k on hand for shorter term flip projects (and probably still using private money here and there for other deals).

Maybe quit working.  Maybe not.  Not sure...I'm quite addicted to the expat money & travel right now and will probably continue working for a bit.

Holding for cash flow makes sense to me, but the exit strategy doesn't.

I mean, say your average all-in cost is 32k, and you sell each for 65k, approximately doubling your money.  After selling costs say you net 30k.  We'll hand-waive taxes, assuming cash flow along the way balances it out (this is all rough anyways).

30k x 20 properties = 600k profit.  Meh?

I'd rather have the cash flow.  In other words, why are you doing the lease-option, instead of just holding them as rentals?

I get the benefits of them taking care of repairs, no turnover, etc., but then you have to continually find new ones to keep the cash flow up, or reduce your cash flow by getting other investments with lower returns.

I tend to find it easier to find a new tenant than find a new deal, but obviously YMMV.

But I can also live well and travel on 40k/year (I have picked up some traditional mustachian lifestyle tidbits)...and knowing that I'll be at about that number coming from rental properties (with no debt service) at the end of this year feels good.

I hear that!  :D
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #42 on: April 16, 2015, 10:27:23 AM »
I don't have anything terribly particular that I use (spreadsheet wise, etc)...I hate to say I wing it but really, I just look at the purchase price, renovation, rents, exit price and come up with my spread from there.  I cross check this with my agent and mortgage broker/lease option originator and go from there. 

I suppose you don't really have to think about it after awhile.  Barring any major issues, you can just see the deal without thinking too much.

I'd be happy to share my expense spreadsheet but there isn't a lot of specificity...just basics - rent/taxes/insur/repair/maint/management/vacancy/etc.

This is cool stuff, and in my mind is also "doing good by doing well".

Just curious: do you have an Excel file or a set of formulas for how you evaluate these? I'm good with Excel, but I probably haven't thought of everything and I wouldn't want to miss an opportunity to mooch something that's been working for an expert.

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #43 on: April 16, 2015, 10:39:56 AM »
ARS,

Correct, in net profit, you're looking at about $600k.  But I'm also including another 500-600k in principal that I've saved (invested) over the years for a total sell out of fund of just over $1mm.

Disengaging the majority of this capital and putting it into a lower yielding vehicle vs keeping it in rentals is more of personal decision to reduce my overall exposure, lower my anxiety and increase the passive aspect of my financial investments.

I've slowly been coming to the realization that I probably don't want to manage rentals indefinitely.  Real estate will always be a part of my portfolio but probably via shorter term projects and not a basket of long term rental properties.

I agree with you completely that for making excellent returns, keeping the long term rentals is beneficial.  But I'm just not sure that I want to be managing 20+ rentals indefinitely.  Again, this is a personal decision.  Speaking from the numbers alone, it's not the correct decision - but it's what I'm thinking now.

That said, goals change, mindsets change, etc...we'll see.

Thanks for the spot-on feedback, as always.

30k x 20 properties = 600k profit.  Meh?

I'd rather have the cash flow.  In other words, why are you doing the lease-option, instead of just holding them as rentals?
« Last Edit: April 16, 2015, 10:48:47 AM by sammybiker »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28022
  • Age: -999
  • Location: Seattle, WA
Re: My Long Distance Lease-Option-Flip Project
« Reply #44 on: April 16, 2015, 10:53:51 AM »
Gotcha, that makes complete sense.  30k/property invested + 30k profit/property = 60k x 20 properties = 1.2MM, should easily sustain 40k+/yr at a 4% WR, and with much less work.

Real estate to build the portfolio and then exiting it isn't common at all, but I love the idea.

It's extra work in the accumulation phase, but you hit FI much faster, and then have the benefits of passive investing after.

Love it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Thedudeabides

  • Stubble
  • **
  • Posts: 242
Re: My Long Distance Lease-Option-Flip Project
« Reply #45 on: April 16, 2015, 12:23:23 PM »
Awesome! Thanks for the updates. The before and after photos are incredible. The renovations look amazing.

Congrats on the promotion and good luck with the move!

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #46 on: April 16, 2015, 03:37:24 PM »
Thank you.

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 5788
  • Location: Fayetteville, NC
Re: My Long Distance Lease-Option-Flip Project
« Reply #47 on: November 25, 2015, 01:40:52 PM »
Very cool!  Please keep us updated with any new deals!

(FYI - I would put up something to mask the water heater in the kitchen.  It could be done very inexpensively.   Kitchen appeal is a big deal for selling at a good price.   

sammybiker

  • Bristles
  • ***
  • Posts: 371
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: My Long Distance Lease-Option-Flip Project
« Reply #48 on: December 10, 2015, 12:42:24 AM »
Hey folks,

No real updates to speak of, still holding tight with the (7) properties. 

Contrary to my ambitions earlier in 2015, I've slowed down acquisitions and am saving cash at this stage as there is potential for me to relocate back the US mid-2016 (likely Texas) and I want to be prepared to hit the ground running once that happens.  I'm feeling out a few locations in Texas for picking-up some RE, adjusting to the property taxes (ouch) and insurance costs (ouch x2).  I'll still pick-up another property or two this Winter in Ohio if the right deal comes across.

Both lease options are humming along really well, no issues to speak of.  I've been running pretty hot the last few months with minimal maintenance issues, no late rents and leases renewing without question, so it's been great to see the rental checking account really build. 

Also, I've been working with my credit union over the last few weeks to hammer out a solid commercial basket loan  with attractive rates and term.  I'll look seriously at pulling the trigger on this once things get settled in 2016 to pull out my equity from the (7) properties I own and go buy some more.  I could then rinse-and-repeat, depending on how much I want to scale. 

While buying, renovating and getting tenants is exciting, I'm pleased to say I've enjoyed the slower pace of just collecting rent over the last few months.  I've been able to do quite a bit of traveling in-between working and it's been a fun experience.  I just returned from Bali last week (and gold coast oz the week before) and will be heading back in another couple of weeks...really liking southeast asia.

Happy holidays all.




arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28022
  • Age: -999
  • Location: Seattle, WA
Re: My Long Distance Lease-Option-Flip Project
« Reply #49 on: December 10, 2015, 12:59:55 AM »
Nice to hear everything's proceeding so smoothly. :)

Enjoy your travels!
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.