Building A Real Estate Empire

soulravager said:
Moded Xrumer now rents out real estate for you.

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A good business owner realizes he can't do everything himself and finds a way to get it done in an effective manner without significant personal involvement.

I started off a long time ago with the goal of having 500 rentals. From that # I decided what would be needed to make it so that i don't spend 100 hours a week taking phone calls about toilets and noisy neighbors.

It was the exact same reason I got out of the real estate agent game. I worked with many nice, older people who had been agents for the past 30+ years. They live comfortably, but continue to work 60+hr weeks so they can continue to clear $60k-$70k a year. There aren't too many options to get that down to 40hrs or less (Being a broker is the only one I am aware of). The other option, and it worked nearly every time was getting involved in real estate.

I've had the chance to meet many wonderful, wealthy individuals while being in real estate as an agent. They all had one thing in common - They owned properties. Most of which were rentals.

Now, when you come from a poor background, from a family that's never had more than a few hundred bucks at any given time, you try and pick up tips from someone who has done well. And in virtually every case they followed the same principals - Buy things that have value, don't flock to stuff that's useless.

So, from the math I did, once you've set up as much computer-based management as possible, it takes around a hour per month per unit to do the upkeep stuff, whether it be physical, background check keying (Taking SSNs and using them to check up on tenants). So, 500 units * 1hr/mo = 125jrs/wk or 4 full time employees.

We figure roughly $200 net profit for each unit per month (After leverage) which ends up $100k/mo of free cashflow. Hiring the full management team runs less than $100k a year, or $8k/mo which brings total net cashflow down to $92k. At this point I have no work, just sitting back and collecting income like any good business owner should be doing (Isn't that what you're supposed to be doing with your websites?) the other upside is that on top of the rental income, i'm also collecting an extra 3-4% in annual appreciation on the properties that also grows along side CPI and almost always exceeds it. So, normally, the net equity gain from appreciation is equal roughly to the net monthly cashflow (An extra $100,000 a month in my pocket) bringing it up to a $2.4m annual income.
 


The part I don't quite get about your business model is why you need so many investors. I have a very similar business in a state where property values are higher, rent is higher and price variation is wild.

Buy some properties. Finance them with an expensive lender (hard-money) at 80-100% of cost. Repair them (with lenders money), stabilize them for 6-18 months. Refinance them with a community bank (they now base it on valuation and your ability to service expensive debt). You can rinse and repeat this pretty consistently with under 50k in startup capial.

The first banking relationship is a challenge but after that it is easier. Success breads more success.

Your end game would only involve 50 properties versus 500 for the same results. The infrastructure you require for investors and VCs forces you to create unnecessary scale.
 
The crowdfunding option was much easier for us due to initial cost of achieving financing. We did this on a budget that was virtually non existent and have secured right around $450,000 in startup funding through a very small equity stake in the business. It certainly is a messy setup, but I felt it was the best route to go about things.

HMLs can be good, but from what I figured, scalability was the issue, most HMLs I've talked to only want to fund one property at one time then on to the next one, throw in the need to refinance a property and you're looking at financing maybe 2 or 3 a year till you're established. We're not "Established" by bank standards but will have 8 or more properties all in less than a year's time.

We've already talked to a community bank , we feel we can relatively loan from them about $350,000-$400,000 in financing through the 7 properties we have currently once we have about 3 or 4 months of records on them (Some properties though do have tenants who have been there for 2-3 years, so that helps a bit).

Our endgame right now is looking at 500 properties or 750 rental units by 2018. This would provide us $315,000/mo in effective net income. At this point we want then to roll the business model out to franchises and then work on less realestate oriented things (Raw land, resources, minerals).
 
Shocker, I think your $100K figure for 4 full-time employees may be a little bit low.

A really great property manager who is able to handle a portfolio of as many properties as you're considering purchasing/managing is really worth their weight in gold.

I'm talking a singular person who handles everything from background checks, having keys made, locks changed, collecting rent, managing your renovations/daily maintenance guys, etc...

If you can find a person who can do all of these things and also do them in an efficient and organized manner (you should be able to pop in on any given day and know exactly what's going on and be presented with any relevant paperwork) I'd throw enough money at them to make them stay for the long-long-term.

This way all you really have to get involved in is surveying new projects, zoning meetings, etc.

These people are rare birds but holy shit does it make running a large rental business 10000x easier when you have one of them.
 
Antics said:
Shocker, I think your $100K figure for 4 full-time employees may be a little bit low.

A really great property manager who is able to handle a portfolio of as many properties as you're considering purchasing/managing is really worth their weight in gold.

I'm talking a singular person who handles everything from background checks, having keys made, locks changed, collecting rent, managing your renovations/daily maintenance guys, etc...

If you can find a person who can do all of these things and also do them in an efficient and organized manner (you should be able to pop in on any given day and know exactly what's going on and be presented with any relevant paperwork) I'd throw enough money at them to make them stay for the long-long-term.

This way all you really have to get involved in is surveying new projects, zoning meetings, etc.

These people are rare birds but holy shit does it make running a large rental business 10000x easier when you have one of them.
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We've gone through many revisions of costs, but overall I'm more inclined to agree with you today than I would have been 6 months ago. Right now we have one guy in our fold doing background checks on a per-tenant basis. The cost of the manager is paid solely from the fee we collect for the background check which differs our cost on the worker by a good deal. Our big goal is to try and automate as much as possible with the tenant handling through software.

The big asset we have right now is our Facebook page. We've got absolutely fantastic, highly qualified tenants from the page on our properties all without doing hardly anything. We shoot 1080p & HD photos of the properties and post them on our sites/pages when the time comes and it helps to reduce the need to go out and show the properties to unqualified tenants. Right now on our newest rental we have something like 20 waiting it to be open.
 
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schockergd said:
We've gone through many revisions of costs, but overall I'm more inclined to agree with you today than I would have been 6 months ago. Right now we have one guy in our fold doing background checks on a per-tenant basis. The cost of the manager is paid solely from the fee we collect for the background check which differs our cost on the worker by a good deal. Our big goal is to try and automate as much as possible with the tenant handling through software.
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Definitely sounds like an interesting plan, although one I'm not familiar with.

I've done a bit of book-keeping and sales work for a few real estate firms around here but they're all far more old-school with how they run things.

It's definitely an industry that seems to actively defy automation though, as you're working directly with people...and people are stupid as fuck.

From my personal experience though, having that one person on board who can handle all of that day-to-day shit (if you have over 15-20 units there is an unreal amount of this shit as you mentioned) can more than justify a slightly sub-6 figure (or higher) salary.

That said, out of all of these firms only one of them actually had a rockstar who was able to pull this shit off on a daily basis. She was a fucking maniac that was in the office at dawn, but didn't mind because she was far out-earning most of her friends who had gone to college, even after they graduated and then got their post-bacc.

schockergd said:
The big asset we have right now is our Facebook page. We've got absolutely fantastic, highly qualified tenants from the page on our properties all without doing hardly anything. We shoot 1080p & HD photos of the properties and post them on our sites/pages when the time comes and it helps to reduce the need to go out and show the properties to unqualified tenants. Right now on our newest rental we have something like 20 waiting it to be open.
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It's funny, something I noticed (might just be totally skewed by the local market) was that major players like Century 21, etc have been much, much faster to adapt to this kind of marketing/sales than some of the smaller local firms have.

Sort of the opposite of what you'd expect in a lot of other spaces.

Best of luck to you though, mate. It sounds like you have a crystal-clear vision of what you want to do and that is worth a lot in and of itself.

Didn't catch it earlier but is this urban or suburban rentals you're dealing with?
 
Antics said:
Apologies, I just backtracked to the first page of the thread.

$60k investment for a $1k/mo property ain't bad (it's quite fucking good!) :cool2:
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Here's how the portfolio looks now :

#1 - $63.5k Total cost - $115k ARV = $1k/mo - 13.2% NOI%/YR
#2 - $33.5k Total cost - $60k ARV = $600/mo - 15% NOI%/YR
#3 - $71k Total cost - $85k+ ARV = $1350/mo - 16% NOI%/YR
#4 - $38k Total cost - $75k ARV = $750/mo - 16.5% NOI%/YR
#5 - $56k total cost - $75k ARV = $1300/mo - 19.5% NOI%/YR
#6 - $45k total cost - $65k ARV = $1250/mo - 23.3% NOI%/YR
#7 - $41k total cost - $80k ARV = $800/mo - 16.3% NOI%/YR
 
[ame=http://www.youtube.com/watch?v=ORE2kqA1HD8]Losing Millions on the Homie Vending Machine Empire: Profiles by VICE - YouTube[/ame]
 
#1 - $63.5k Total cost - $115k ARV = $1k/mo - 13.2% NOI%/YR
#2 - $33.5k Total cost - $60k ARV = $600/mo - 15% NOI%/YR
#3 - $71k Total cost - $85k+ ARV = $1350/mo - 16% NOI%/YR
#4 - $38k Total cost - $75k ARV = $750/mo - 16.5% NOI%/YR
#5 - $45k total cost - $75k ARV = $1200/mo - 24% NOI%/YR
#6 - $45k total cost - $65k ARV = $1300/mo - 23.3% NOI%/YR
#7 - $41k total cost - $80k ARV = $800/mo - 16.3% NOI%/YR
#8 - <$29k total cost - $50k ARV = $650/mo - 21.7% NOI%/YR
 
Shocker, it seems like you are doing great so congrats on the success of the business!

I always had concern about partners in real estate, I've elected to keep it personal myself. I just bought a property with th intention of flipping it within the next 5 years. My hope is to bankroll some flips until my own 'large estate' is bought and paid for.

With your plan, the only downside that I see is trying to please investors, but it seems your plays are good ones. Hopefully your success continues.

What happens when a partner needs to liquidate an asset and you and the team aren't ready for it?

I would suggest bankrolling these homes on your own, ASAP. Have you considered refinancing the properties to pay them off?

A friend of mine consistently buys a multi-unit property a year based off of the incomes of the others he already has. His only partner is the bank, and his only job is relaying the payments.

I wish you great success in your future...
 
Weeds said:
Shocker, it seems like you are doing great so congrats on the success of the business!

I always had concern about partners in real estate, I've elected to keep it personal myself. I just bought a property with th intention of flipping it within the next 5 years. My hope is to bankroll some flips until my own 'large estate' is bought and paid for.

With your plan, the only downside that I see is trying to please investors, but it seems your plays are good ones. Hopefully your success continues.

What happens when a partner needs to liquidate an asset and you and the team aren't ready for it?

I would suggest bankrolling these homes on your own, ASAP. Have you considered refinancing the properties to pay them off?

A friend of mine consistently buys a multi-unit property a year based off of the incomes of the others he already has. His only partner is the bank, and his only job is relaying the payments.

I wish you great success in your future...
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As stated before - I own 70% of the company. That includes voting rights and everything else. So, realistically I have the say whether assets will be liquidated or not.

The real issue with me bringing investors in was the fact I don't have enough personal income to justify rentals. All the banks I talk to want to see $30k-$50k in extra income doing nothing just to justify the purchase of one or two properties. With my websites crashing due to google's constant algo changes I never was able to prove that to the bank in this post-crash environment.

So, the best bet was to bring investors on board to share the burden of investment and then subsequently share in the profits.

I meet with 2 lenders in the next 2 days to hopefully get a loan. We're clearing a little over $4k/month in net profits. Once we get the remaining 3 units taken care of it'll be a little under $6k. It *should* be more than enough to justify more bank loans.

From this point on, the investors start getting their initial investment compounded. This is where the big money is because we're essentially arbitaging interest from the bank (4%-7%) to whatever the rentals bring in (16.54% right now on average). The ~10% difference might not sound like alot, but it's scalable to the hundreds of millions (dare I say billions?) of dollars. Insurance companies do this with their multi-billion dollar annunity programs.
 
schockergd said:
From this point on, the investors start getting their initial investment compounded. This is where the big money is because we're essentially arbitaging interest from the bank (4%-7%) to whatever the rentals bring in (16.54% right now on average). The ~10% difference might not sound like alot, but it's scalable to the hundreds of millions (dare I say billions?) of dollars. Insurance companies do this with their multi-billion dollar annunity programs.
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I wouldn't be basing scalability on bank loans. Sooner or later they will probably cap you at a certain amount of outstanding loans.
 
What do you calculate your occupancy rate will be on 500 units?

What about fluff and buff costs every time someone moves out?
 
Word of advice, drop those low income properties. Managing them for 6k/year return is not worth it.

At one point I had 17 properties. Average rent for a 30-40k house should be around $1,000. Also, renting low you are going to get shit of shit tenants. Even if these people don't intentionally destroy the house they will do so by being idiotic. Splashing water all over the place, leaving windows open in storms, breaking things in very odd ways, melting / burning things.

One major repair / bad tenant could cripple that income. Most likely why banks won't loan to you. I wouldn't loan nor invest in something like that. Go for low cost / high income. Just by skimming this thread you will most likely run flat in the long run.

Being a landlord sucks balls.
 
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