Why Include Rentals in Your Real Estate Portfolio?

Business, Investing on August 4th, 2016 Comments Off on Why Include Rentals in Your Real Estate Portfolio?
ForRentAs I’ve gained experience in the real estate world and my business has grown, I have expanded my focus to include as many steps in the real estate process as possible — acquiring distressed properties, expediting short sales, rehabbing and selling properties, and I also include rentals and property management as part of my business model. Some call this ADD. I call it smart growth!  And since people have asked me recently why we’re putting such a focus on rentals, I figured an article was due!

So, why include rentals?

Once purchased and renovated, rentals provide stability and cash flow to ALL lines of business, smoothing the months between the sale of our rehabbed properties. Rental properties as we acquire them are intended to be held long-term and provide a “passive” (though anyone who believes rentals are completely passive, has never actually held any!) system of generating cash flow for the long-term operations.

I’ve always recognized that rehabbing was just one facet of the business and that if the market changes, deal flow dries up, or a loss is sustained on a rehab deal, without a foundation of rental properties, there would be nothing left. So my goal was to include rentals as one piece of the pyramid to sustain longer term operations. They also provide some peace of mind and a break from managing the time consuming contractor/management roles and day-to-day tasks of rehab projects.  I firmly believe that if you do rentals right and set up your processes from the beginning, they’re less time intensive or stressful as some rehabs and development projects turn out to be.

I’ve always believed in the concept of turning “quick cash” into “long-term wealth building,” but I had to accomplish this slowly and in different ways than many other investors have done. My strategy was to pick up one rental building for every 4 rehabs, which sounds easy enough, but it was very rarely simple. Because of my rough start in the beginning, I was out of the credit game for a long time and had to find other avenues for generating rental income.

So, working with private money and cash generated from my wholesale and rehab deals, I began buying single family homes in markets outside MA. And let me stop here for a minute to give some street cred to local power couple Linda and Nyrik Huuskonnen, who introduced me to my first “out-of-state” experience beyond MA and NH — welcome to the Pittsburgh market! It was here that I could invest some cash from my rehabs without having to chase down bank financing, and began purchasing single family homes for between $5-15K, investing an additional $20-30K per unit, and then renting them out for $500/month. Pretty good deal, right?  There’s a separate story on the challenges of running an out-of-state investment company (Coming soon!), but it certainly beat paying $300K in Mass to only make $3000/month in gross income.

Now that I have re-established my credit and my business is financeable, AARE Group is acquiring both local and out-of-state rental units at a more aggressive pace, making sure that we set aside the cash to cover down payments. Our typical rental lending relationship will fund 75% of the acquisition price as an investment.

RichardsonRoadAnother key to the success of this process is property management, which we have folded into the AARE Group as well (while not publicly marketed as of yet). As with everything that we do, I find a solid system makes all the difference.  Key points we exercise here are all about tenant screening and pulling from a greater tenant base to ensure we get the best of the best. Our goal is to attract better tenants with better properties. This, along with treating everyone as customers instead of just “tenants,” are a couple of the ways we are able to retain our good customers and, when we have a turnover, we use it as an opportunity to refresh the unit and bring it one step closer to “flip quality.”

I’ll wrap up with an analogy. In our office, we talk about the difference between firing cannons and pistols. A rehab is like shooting a cannon ball’s worth of cash at a project, expecting a return of 1 1/2 cannon balls, roughly 12 – 20% ROI, or 25 – 50% Cash on Cash ROI (depending on location, and market conditions).

A rental is like firing a small bullet of cash at a project to create a net cash flow of $150-300/month per unit (after expenses, repairs, mortgage, taxes). THEN, we work to make money on the cash flow, as well as getting a slight benefit from the depreciation we claim through the investment and principal paydown, and over time, the asset increases in value (although we NEVER count on this happening) — a win – win – win – win!

If you have the resources and are willing to set up a system to maintain your properties, rentals will serve your real estate investment business well.

Hope this helps, and as always,

Keep calm and rehab (or rent!) on!

Tags: , , ,

Gorham Street Complete — Before and After

Rehab on July 18th, 2016 Comments Off on Gorham Street Complete — Before and After

Our project at Gorham Street, Chelmsford is now complete and under agreement! One of the things I love about this job is seeing the transformation of a property, so I’m sharing some before and after photos with you here.

 

Before: Gorham Street exterior

Before: Gorham Street exterior

 

After: Gorham Street exterior

After: Gorham Street exterior

 

Before: Gorham Street kitchen

Before: Gorham Street kitchen

 

After: Gorham Street kitchen

After: Gorham Street kitchen

 

Before: Gorham Street dining room/kitchen

Before: Gorham Street dining room/kitchen

 

After: Gorham Street dining room/kitchen

After: Gorham Street dining room/kitchen

 

GorhamBef1stflrbath

Before: Gorham Street 1st floor bathroom

 

After: Gorham Street 1st floor bathroom with washer/dryer hook-up

After: Gorham Street 1st floor bathroom with washer/dryer hook-up

 

Before: Gorham Street 2nd floor bathroom

Before: Gorham Street 2nd floor bathroom

 

After: Gorham Street 2nd floor bathroom

After: Gorham Street 2nd floor bathroom

 

And if you want more on the process, check out these videos of the initial demolition and our progress at various times in the project:

Gorham Street demolition

Gorham Street walk through

Gorham Street framing in process

 

Keep calm and rehab on!!

 

 

Tags: , , ,

Establishing Your Business Step 1: Set up a Contact Database

Investing, Time Management / Focus, Wholesaling on July 11th, 2016 Comments Off on Establishing Your Business Step 1: Set up a Contact Database

ContactDBI find people getting started in real estate investing are often so focused on the details and fine points of real estate and hunting for their first deal that they skip right over the steps necessary to create a firm foundation for their business. I know these steps can seem tedious, especially if you’re raring to get out and start breaking into meth labs, but trust me — they will pay dividends for years to come and you’ll thank me later.

In fact, Chapter 2 of The Complete Dealflow System is entitled “Business Set-up & Preparation” and walks through the five steps I recommend to establish your business and systems and procedures that will provide you with the best start possible. Here’s an excerpt to get you started:

Step 1:   Set up a Contact Database & Create Categories

If your network is your vital component, your contact database is how you maintain, organize, and grow your relationships.

BizCardSleevesYou need a place to organize your contacts and business cards in a way that is very organized and easy to access.  I cringe when I see a binder of cards tucked away in sleeves a person bought at Staples. If that is your system, please get rid of it. It will completely hinder the way you do business.

The transparent sleeves business card page, and the three-ring binder are the low-tech solution for what to do with all those business cards. This is a start if you only have a handful of cards to sift  through — at least you have them all in one location. Once you start networking heavily, this system becomes ineffective. The biggest problem is that they are usually “organized” only by the chronological order in which you receive them, making retrieval difficult.

Qualities of a Good Contact Database

A system organizes the connections you make through networking, and as you pick up contacts along the way. This is also called your Sphere of Influence, or “SOI.”

A good Contact Database allows you to:

  • Quickly retrieve a person’s information
  • Target certain types of buyers based on their criteria
  • Begin a Private  Lender  Database to help you raise money down the road (if you are going this route)
  • Quickly reach out  to birddogs. Birddogs  are anyone you recruited to help you find deals, motivated sellers, and distressed  properties. (More on recruiting birddogs in Chapter 4)
  • Quickly reach out to other deal sources, where you can bring in more leads for your follow up & analysis.

Most importantly, a good contact database is intuitive to how you work and think. A program that is user-friendly for one person might be confusing or annoying for you to use.

List of Contact Management Databases:

  • Outlook
  • Google Contacts/ Gmail
  • MyMailList Deluxe
  • Realflow
  • The 360 Investor
  • iContact
  • Cardscan (automatically syncs to Outlook)
  • Open Road (need to pay)
  • Microsoft Excel / Spreadsheet Program

DECIDE, COMMIT and PURCHASE an appropriate Contact Database that can fit your needs.

TIP:    Do  NOT  GET  discouraged  if  you’re  not  a  techie –  the directions that come with these things now are so  simple, even I can understand them. Take some time (but no more than 1 hour) learning how to use your new software, as this is a KEY to building your business.

Buyer Criteria – Segment Your List

After your business set up, building your buyers list – and then QUALIFYING them — is your next step. Your new contact  management system is a great way to organize those leads, and any leads you bring in or make through your network. When  you do have a deal, all it takes is selecting the right category to blast it out to people looking for, say, a single family rehab, north of Boston.

CREATE  CATEGORIES  in  your  Contact  Database:    To assist you in organizing everything, here are some examples of how to categorize your contact database:

  • Buyer – Investor Prospect
  • Buyer – SFH — Northern MA *
  • Buyer – Multi — 1 to 4
  • Buyer — Multi – 5 +
  • Lender – Private & Hard Money
  • Lender — Private Prospect
  • Lender – Conventional
  • Buyer — L / O **
  • Buyer – Retail Prospect
  • Buyer – Retail
  • Attorney
  • Contractor
  • Agent – REO & Distressed
  • Agent
  • Lender –Mortgage
  • CPA / Accountant

*SFH: Single Family Home

**L/O: Lease Option

Q:  Why distinguish between 1-4 Unit Multis, and 5-unit + Multis?

A:    There  are  different  types  of  financing  for  1  to  4  units  versus  buildings  with  5  units  and up.    Some  of  your  buyers    (be  they  retail  or  investor-buyers) may  use  conventional financing, and anything over 4 units is considered a commercial loan.  Check with your local mortgage  broker  for  the  accurate  classification… and make  a  connection  for  your  power team while you’re at it!

Looking Ahead

While you are looking for the best Contact Database to fit your needs, working habits, and personality, find one that is compatible with a reminder calendar. The best is if you can find one that is able to “time activate” your tasks and other reminders, even your marketing calendar & follow-up schedule if you think you can put it all in one place.

Time activation:

  • Find one that literally pops up reminders for tasks (Google/Outlook)
  • Even better if you can sync it with your phone!

We’ll talk more about calendars that time active your tasks in Chapter 4. For now, keep in mind when you are considering programs.

CDFSFor my recommendations and further details on steps 2 – 5, you’ll have to just buy the system! Just kidding!  Although it’s not a bad idea… especially since I built it to pay you up to TEN TIMES the purchase price when you sell me your first wholesale deal, if you’re based in MA & NH!

; – )

What have you found to manage your contacts? What do you like or not like about it? I’m always looking for the latest tech solution!

Keep calm and rehab on!

Tags: , ,

Why I HATE Surprises! Or the Reason my Offers to Buy are so “Low.”

Rehab, Wholesaling on June 21st, 2016 Comments Off on Why I HATE Surprises! Or the Reason my Offers to Buy are so “Low.”

As I mentioned before, sellers and agents are sometimes insulted by how low my submitted offers are. “Why do you make such low offers, Nick?” you may ask. Well, I do my absolute best to be super transparent and show my seller all my costs involved in the sale, and of course, I explain to them that I also need to make a profit, since this is my business. Happy to share the full details on that in another post, if I haven’t already — oops — take a search!

Today, we’ll consider a new project I recently bought from an experienced and well-regarded wholesaler. In this case, the fudge factor was called into play, before we even started the rehab.

This wholesaler used all of the calculations and checklists I require before he brought me the deal, and when I went to inspect the property myself, I ran all the calculations and checklists myself and was confident we were offering a fair price for both the seller and our own bottom line. And here’s another reason I submit what some people consider “low” offers — it’s the “surprise” or “fudge factor.” And there’s always a surprise! After years of experience, I know first-hand there’s just no way to know what’s lurking below that subfloor or behind that wall.

There is always a surprise!

There is always a surprise!

In this case, we did catch the asbestos in the basement before closing, and both the wholesaler and I reduced the purchase price by $2,500. Good catch.

What we did NOT catch, mainly due to the need to close quickly, was recognizing that the addition may or may not be legal. As part of our closing checklist, we pull the property file at the inspector’s office before we purchase, though rarely, like in this case, we don’t get to it until the day after. (Oops!) It turns out that no permits were pulled when the addition was originally added to the house. We may get away with just completing the interior work and bringing it up to code, but there’s a real chance we may have to demo the whole thing, repour a new foundation with footings, and rebuild it, especially since this is where we plan to locate vital first-floor elements of the home. Either way, this surprise will cost at least an additional $6,000 over our planned rehab budget and possibly as much as $15,000. Even allowing for contingencies, this was one unpleasant surprise!

The moral of the story? If the seller isn’t insulted, your offer is too high. And there’s always a surprise!

Oh — and if the seller is insulted, your number is probably right – and now you need to work on showing them how you got there. At least, that’s what we do.

Keep calm and rehab on!

Tags: , , ,

Clear Your Desk, Focus Your Mind

Business, Time Management / Focus on May 23rd, 2016 Comments Off on Clear Your Desk, Focus Your Mind

Does your desk look like this??

MessyDesk

If so, stop what you’re doing right now and make some sense of the mess. Whether you call it spring, summer, or just GENERAL cleaning, there’s always time for this.

In fact. when we hold our 3-Month Accountability Workshops, one of the first pieces of homework we give is to focus by and clean off / out your desk and workspace. While this isn’t necessarily an income generating activity (IGA), it definitely helps the mind FOCUS on the next task at hand. Your desk / workspace can be a reflection of your head — and sometimes, it’s a scary place.

As I look across my desk now, I have lots of piles. There’s the “Rental Analysis” pile with deals I still need to analyze, my urgent “Flip Analysis” pile of agents, sellers and wholesalers who are actively working on deals for me right now, the “Active and Pending Contracts” pile where I keep the back-up paper copies of executed contracts before a closing, and finally there is a “Not Time Sensitive” pile of backlogged work that doesn’t have an imminent deadline (which could at some point drop to one of my 80% items, as shown below). Oops! And then there’s the “Short Sale” pile filled with projects and action items for the short sale company, and then I have a “Non-AARE” pile of documents and action items for my Edible Arrangements, Huntington Learning Center and other investment efforts. Holy cow, it’s a MESS in here!

As my very own desk makes clear, all of us can benefit from to a deep cleaning now and again, so we can focus a better on the priorities and “IGA”s with a clean slate and a clear head. C’mon, you know it’s hard to focus when you’re busy digging through piles looking for stuff or worrying about what deadlines you’re missing because you don’t know what’s urgent and what’s just made it to the top of the pile!

While this task can be daunting and takes some time, the secondary task is probably even MORE important: reviewing your efforts to date this year, and pinpointing what actually DOES lead you towards your goal and what isn’t really effective. This is a vital check-in to schedule once a quarter, once a month, once a week, daily or sometimes HOURLY (for us ADD people!).  Ask yourself (1) what things do you do now that take up most of your time, and then (2) which of those things have the highest impact on your progress towards your goals?  I’m planning on doing this Friday of this week!

As the 80% rule suggests, most of your progress and results come from 20% of the things you do on a daily basis, meaning many efforts can be eliminated and your time reprioritized to help gain traction and clarity in what you’re doing on a daily basis.

Remember — it’s ALWAYS OK to stop, refocus, and reset your path if things aren’t going the way you planned for them to go, or on the timeline you wanted. We learn as we go! I’m still learning every single day, with time management always and efficiency at the forefront of my brain.

Stay Legit and Never Quit!

~ Nick

Tags: , , , ,

Nick’s AAwesome Tribute to Mom!

Business, Holiday Message on May 2nd, 2016 Comments Off on Nick’s AAwesome Tribute to Mom!

MothersDayAs we prepare to honor our Moms this Sunday (and don’t be a slacker and wait ’til the last minute to order flowers — do something nice!), I’d like to take a moment to share just how AAwesome my Mom is.

I don’t talk much about my Mom in this space, as she doesn’t intersect with the real estate companies often (except, of course, that she gave me life on this Earth and the fact that Edible Arrangements make GREAT closing gifts, ummm, and Mother’s Day gifts, too!). Then I started thinking how the lessons I learned from her early on continue to shape me as an entrepreneur and business owner.

Some background — she grew up in a VERY small town in Eastern PA (Scranton!! Remember Dunder Mifflin?? Yes, that town ACTUALLY exists!). When she moved to the “big city” of Boston, even though she had NO aspirations of getting into real estate, her father advised her to buy a 3 family in Jamaica Plain, which she did for a whopping $31,00. And sold it for $108,000 in 1981, using the proceeds to buy our family home in Billerica! Yep, that’s right — my Mom got started as a real estate investor long before I was even on the scene!

After meeting my Dad while working at her terrible customer service job where she took all the escalated customer service complaints for the president of New England Telephone, she got married and proceeded to move to the beautiful town of Billerica (aka Somerville with trees). When I was two weeks old, she sold her 3 family in JP, found our family home in Billerica and moved in, quit her job and all this while taking care of me — now that I have experience with a 2-week old, I have an even great sense of respect for her accomplishments. Like, I can’t even bring the trash out while he’s around.

Fast forward to 2005 and Mom got her first job since I was born at an Edible Arrangements franchise. She called me all excited, “Nick, guess what!! I got a job!! But I told the guy I know how to work a computer so you need to come over quick and teach me how to turn this thing on…”  I knew this would be interesting. The weird coincidence is I was in the market for a franchise and started looking seriously into buying this one.

EdibleArrgmtMothersDayIn 2006, with the help of some family members, I surprised her with working out a deal with the owner to purchase the store. That was a special Mother’s Day. And since I was still working at Mellon and part-time in real estate, I only got to actively operate the store for a couple months (I could slice pineapples and melons like nobody’s business, until the fateful Valentine’s Day Knife Cut of 2009 – I still can’t feel my middle finger! Comes in handy sometimes…). Especially when my real estate business was picking up, I didn’t have time to devote to running the stores. Because of this, I relied on her, which at first, was a terrible idea, given she had little-to-no management experience and promptly gave away half the inventory and hired all her friends. (LOL).

As time went on, one of the best lessons she taught me was “you can ABSOLUTELY teach a ‘young’ girl new tricks.” When she was up against a wall and I was dealing with some personal issues that forced me to be MIA from the books and oversight, she forced herself to track the finances, learn how things were organized, and started to actively manage people — I couldn’t believe what I was seeing.
Edible Arrangements Ribbon Cutting 10-29-2010 004
And then I’ll never forget that fateful day when I learned my Mom had a fast-moving strain of breast cancer. My world was shaken, and as I took her to chemo appointments and worked with my brother to get her estate in order I was blown away by how amazing she was through the whole ordeal. At chemotherapy, she was made jokes and did her best to keep everyone else’s spirits up (including bringing them chocolate strawberries!) – and even while she was at her worst and just holed up at home, she still managed to “de-hoard” (as she put it) room after room, essentially cleaning out the entire house by herself. I don’t know how she did it.

And she beat the cancer! Partly because, as she puts it, “Being sick just isn’t part of our gene pool.” Now she’s back in action managing our two Edible Arrangements locations (yes, we’ve expanded!) stores with her no-longer-newfound managerial, computer and finance skills, and I’m proud to say both stores recently posted sales placing them in the 10 top-producing New England stores, with the Westford location coming in at NUMBER 1! She and her manager accomplished this milestone and I’m still learning from her.

Essentially, I can’t believe all she’s gone through, and how much she’s transformed from all of it. And even though she could now use the excuse of “I’m old, I can stay in a comfort zone if I want,” she’s plunged forward in the opposite direction and taken on more challenges, more lessons for herself, put herself in tough situations, and has NEVER been more vibrant or more energetic than she is today. I hope I can be HALF as open minded, motivated and full of energy when I’m her age.

But who am I kidding?  I’m her kid.  She had a huge impact on me being the entrepreneur I am today, and she also told me to live life so that I’d never have any “What Ifs?.”  She completely supported me when I told her I was quitting my bank job to go into real estate full-time. She was there when I went through my personal challenges, and taught me how to be better and stronger on the other side.  And most recently, she’s taught me to raise my kid with these lessons in mind, so he’ll grow up to be even more AAwesome than I am — which is a tall order, I know!
; – )

Here are just some of the lessons I learned from Mom:
• MANNERS are NOT a lost art. People remember and respect someone who acts with courtesy and professionalism.
• Bohemian Rhapsody is an incredible song to rock out to in in the car.
• Take LOTS of pictures with people in them — it’s the people you’ll remember and associate memories with.
• You can make pretty much anything taste good in a Crockpot.
• Animals are awesome.
• And the incentive to earn “bed making coupons” (which excused me from having to make my bed on any particular day) taught me the value of working for what matters to me.

Thanks, Mom. For being so supportive, so strong, and so AAwesome, especially these last 10 years. It’s been a hell of a ride. And I’m excited to see what these next 10 years bring.

Oh – and I’ll need YOUR help in figuring out the new Samsung Note that just came out. You’ve WAY surpassed me in that technology.

How about you? What lessons from your Mom have contributed to your success?

Keep calm and love your Mom!

Tags: , , , ,

Manns Court, Woburn Complete and on the Market!

Investing, Rehab on May 2nd, 2016 Comments Off on Manns Court, Woburn Complete and on the Market!

I am happy to report this project went smoothly and was completed (mostly) on time. Sorry — boring post. Nothing to see here. I know you all like it more when I lose my shirt and have LOTS of issues and drama, but SOMETIMES, deals work the way they’re supposed to! Mostly. A huge thanks to Victor and our new new crew we’ve had working on this project — we may have finally found our A Team!

This was a complete gut job. What was once a dreary property with small, cut-up rooms, is now a cute little center entrance cape with an open floor plan and tons and tons of cabinet space in this huge kitchen.
21 Manns Ct Ext
21 Manns Ct Kitchen

Issues we addressed:

1. The back entrance to the house was pulling away from the main part of the structure, so we tore the whole thing down and walled off the door which contributed to creating the new open floor plan.
21 Manns Ct OpenFloorPlan

2. The staircases in the house were very narrow and located in awkward places. After we considered all the options, we chose to rip everything out, get an architect and do a whole new floor plan. Since we saved the money we would have spent trying to re-work the existing conditions, the entire new floor plan only cost an additional $1,500 after we had it all worked out. A huge shout out to our ace architect Joanna Reck on helping out with this one!

Part of our plan to open up the home and improve the flow was to move the entrance from the driveway or right side of the house to the center and we added a paver walkway. This helped us open the kitchen dramatically.

3. Other improvements: We moved the washer/dryer from the basement to the 1st floor, put in a nice patio on the far side of the house with a view of the neighborhood, added all new systems (high efficiency HVAC units, plumbing, and electrical), all new floors, windows, roof, and hardwood floors throughout. And of course, we created a sexy new master bath on the 2nd floor!
21 Manns Ct Master Bath

4. The final item to be completed was the rock wall of dread. After initially being “asked” by the building department to address it, we got our engineer involved who drew up proposed plans, and also pointed out that this may NOT even be on our lot — but realizing we’d make more friends by fixing it then passing the buck, we then hired a mason to re-do the wall as per the plans. The problem: once he got started, he finished way too quickly (Can you believe it??). He didn’t understand we needed to have the engineer involved for inspections and sign off at certain points in the process, and we were to turn these stamped plans into the town’s engineer. We are having him undo and redo most of the work, so we can get our final “thumbs up” from the town and finish this job up.

And with an UPDATE: We had our open house over the weekend, with over 40 parties viewing the property, and already have multiple offers!! Hopefully we’ll have a good ending to this love fest with Woburn and we hope our new buyers appreciate our hard work and create a happy home here.
21 Manns Ct Living Room
Onto the inspection — cause you know, you can’t count your chickens until the deed is recorded!

Keep calm and rehab on.

Tags: , , , , , , ,

Clustered zoning, paper streets, and unbuildable lots, oh, my!

Investing, Wholesaling on April 13th, 2016 Comments Off on Clustered zoning, paper streets, and unbuildable lots, oh, my!

Had a very interesting deal I worked on for a while, and figured I’d share for those young minds yearning for some lessons — enjoy!

LandforSaleSo, I was twiddling my thumbs one day (As if that ever happens!) when an AAwesome wholesaler I’ve successfully worked with in the past contacted me and offered what I thought was 5 acres of land with potential to build in Dracut.  Ok, I’ll bite — sounded good and I got it under agreement with a 4-month permitting contingency. It looked like a great lot with one issue — access from the main road. Whatever rehab or development was undertaken would require creating access from the main road, which I was hoping could be accomplished by a private driveway. From what I could tell, the sellers were in really tough straits and were looking for anyone who could do something with this land. Cue Super Nick to the rescue!

First step, Assessor.  I pulled the property card at the assessor’s office in the town hall, and discovered there were not one, but two property cards. Hmmmm, curious. Huh. I figured they must be family members, took copies of both property cards and proceeded to the next step. I checked in with the town’s building inspector to ask them who else they recommend I speak to, and they said “You need to see everybody — planning board, town engineer, board of health, conservation commission.” I love this ride around the offices, so I proceeded.

My next stop was the town engineer, which is where I first raised the question — “To create public access to the lot, can I put in a private driveway, or does it have to be a public road?” What’s the difference, you ask? A driveway is basically compacting dirt and stone and paving, whereas a road requires bringing in all utilities, granite curbing, sidewalks, etc.

So, the town engineer tells me there’s a 99% (He said 100%, but I heard 99% in my head.) chance that we would NOT be able to get away with a private driveway. He then directed me to the town planner. I put the conceptual plans in front of the town planner and asked her what she felt was the best use for this land that I could get support for. She suggested a clustered development, which reduces the lot sizes and frontage per lot, allowing for a smaller road, which was looming as the biggest cost to this project.  And in case you’ve never had a project that required installing a public road, the cost is roughly $400 per linear foot and this particular lot requires at least 500 linear feet, so we were looking at $200,000 right off the bat, before we even started building a single house.

This was the first time I’ve encountered clustered zoning (though I’d heard of it and sort of knew what it was), so it was good to learn about it. Certain towns allow it — you have to submit plans to the various town permitting boards to prove that you could build a standard subdivision meeting current requirements, and then submit a second time to show how the cluster development leaves more green space, taking a small piece from each lot to create a common open green space. Besides being environmentally friendly, it would save the developer (me) money on the road construction!

The conservation board was next, and then the board of health to address septic and sewer issues. Conservation is the one who told me that I’d have to bring the plans through twice, which was when I realized this was fast becoming a pricey engineering proposition. In the back of my head, I’m wondering “Is this even going to be worth it?” At this point I figured I’m learning a lot, so let’s keep going until I have to pay someone lots of money. Since the five acres met all the zoning requirements, I was spared a specific meeting with zoning.

While I continued poking at the town engineer to let me put in a driveway with a cul de sac instead of a road, I took all this information, went back to the office and wrote a long e-mail to my engineer. I gave him the lay of the land from each department and told him that if we have to put in a public road this kills the deal and asked him to draw up plans with a private driveway to see if it’s do-able. My engineer made a bunch of calls to the town and told me the town wouldn’t provide a definitive answer until it went through the boards at least one time.

So I spent another three weeks gathering bids from road contractors, who all came in between $200K – $300K for this dumb road.  By looking at those bids, it essentially killed the deal for me, especially since I was told by the town engineer and my engineers that there was little-to-no chance of getting this approved as a private driveway.

At this point, since I could no longer take this deal forward, I asked the wholesaler if I could assist him in a co-wholesale and I would take it to some of my developer contacts who may be able to do the road for less money than I can. He agreed, so I shared it with a few of my contacts in that area. And this is where the second part of the story begins…

One of developers I sent the deal to knew the abutting neighbor and forwarded all my details to him. And all of a sudden I had several voicemails at the office and an e-mail that read: “Nick, it appears you’re trying to sell my land as part of your deal, which is news to me. Please call me ASAP.” Before I called him back, I immediately called the wholesaler to see if he knew what this was about.

Wholesaler:  “Nick, that parcel is not part of this deal. I’ve only got the back 2.25 acres.”
Me: “Oh, CRAP.”

When I looked more closely, I saw that the caller’s last name matched the owner’s name on the property card I pulled at the beginning of this process, which now is a lot less odd than it was at the beginning. Turns out my five acres was never actually five acres, but rather it was 2.25. I’m not sure where I got the idea it was five acres — I have to take the hit on this one since I can’t find anywhere that the deal was marketed to me that it was 5 acres, though NO ONE ever corrected me at any point in this process. I’ll blame it on that knock to the head I took when I fell down the meth lab basement stairs last year. (Wait, what was I just talking about? Oh, right…)

At this point, I called the neighbor, apologized profusely that there was a misunderstanding and that I had screwed up, and then the neighbor divulged lots more information. Turns out that back in 1985 the builder split the parcel into his lot with his own house and the back lot. The only way someone could build on the back lot is if a road is built and the road is required to be a minimum of 50′ wide, and the lot only has 35′ of frontage (check out the plot plan). This fact alone renders the back lot completely unbuildable forever unless one of the two neighbors sells 15′ feet of their frontage, which neither one wants to do since they don’t want anyone building back there. Bottom line, this property is land-locked behind two abutters who do NOT want to sell and will not support any building activity.  This deal is officialy DITW — Dead in the Water. But wait — it gets better…

VarnumPlotPlan

The neighbor graciously offered to buy the lot from the sellers for $5K over what they paid in 1986 — but not $90K over, which is what we had it under contact for. I thanked him for all the info and then made one last-ditch effort to help the sellers recoup any of their investment (because at this time, I knew I was WAY out of this deal). I called the assessor and asked them to check if there was ever a paper road that connected this lot to the street. In some towns, if there is a plan of a road recorded anywhere, even if it’s just proposed and never built, there’s a chance they would allow it, essentially allowing us to “force” the lot into being buildable. The admin in the assessor’s office checked the file, and at first told me she had nothing on file. I asked her to double-check since there were some claims on that paper street. About four hours later the Dracut chief assessor called me back and said “You opened up a whole can of worms on this property. After a lot of research, yes, there was a paper street proposed; but there’s a conflict on this parcel with the engineering department, and let’s just say you don’t want to get involved on this one.”

It turns out there’s a discrepancy between the town’s engineering and assessors department on this parcel. The engineering department claims the back lot should never have been separated from its original parcel and the builder didn’t do it legally, setting in motion a process where their town attorney has been retained to unwind all the transactions that have happened since that date and put the two parcels back together.

Wow. I’ve never worked on a wholesale deal that opened up a can of worms so big that I set in motion an investigation and legal action! Needless to say, I called the wholesaler, shared everything I learned, gave him the neighbor’s contact info in case the seller wanted to make a “quick” $5K on their unbuildable lot, and bowed out of the deal.

Learning moments:
•  Cluster developments are a viable option (but still expensive with time and engineering $$); and
•  Trust my gut when something doesn’t feel quite right in a deal (i.e. 2 public record cards for an alleged ONE parcel being sold to me).

Two good lessons and I’m happy to have learned them on a deal where the biggest cost was my time.  Hope you have had your share of learning experiences along the way too — please share them with us by e-mailing the office, and we’ll post the best ones in a future blog post!

Keep calm and rehab on!

Tags: , , , , ,

How Can Your Retirement Account Work Harder for You?

Investing on April 7th, 2016 Comments Off on How Can Your Retirement Account Work Harder for You?

A boring financial post!  It’s been quite a long time since I posted about these, but I’ve been getting a bunch more inquiries, so I figured answering through a blog is the best solution.

Had your eye on real estate investing or lending opportunities, but don’t have ready cash on hand? Been looking at your IRA statements, wishing your investments were growing more quickly? And how are these two questions even connected, anyway?

SD-IRASo glad you asked! One of the best-kept secrets in the world of financial management is the self-directed IRA (or SD-IRA). Just what is a SD-IRA? Like, a REAL ONE, not the kind that Fidelity tells you is a self-directed, where you can “self direct” your funds to even MORE mutual funds, stocks and bonds. A SD-IRA is an IRA that offers the investor the chance to control and diversify their investments in items besides the stock market, including:

Secured / Unsecured Notes & Mortgages
Business Partnerships, LLCs
Residential and Commercial Real Estate
Private Stock Offerings & Private Placements
Judgments & Structured Settlements

They operate under the standard IRS rules applicable to all IRAs and any kind of real estate qualifies as an eligible investment. And they can operate in any of the various forms of IRAs available, including traditional, Roth, SEP, SIMPLE Business IRA, or an individual 401(k).

REbeatsStocksWondering why you haven’t heard about SD-IRAs from your financial advisor? Most likely because there is no financial incentive for him/her to tell you about them. In fact, many unscrupulous advisors will have you continue to risk your money in the stock market based on the companies who incentivize them to do so, while they enjoy the commissions and fees they get paid from YOUR accounts, regardless of whether the market goes up or down.

That said, what CAN you do within a “true” SD-IRA? The first thing to do is to determine your investment goals and the level of involvement you are most comfortable with, ranging from hands-on wholesaling or rehabbing properties for resale to buy and hold units with positive cash flow and private lending, where you act as the bank with your IRA receiving the interest payments. And, as with all IRAs, your investment grows tax-free (in a Roth) or tax-deferred.

Real estate investors using their SD-IRA can begin in a number of different ways — private lending, note buying and selling, assigning contracts for a “wholesale fee,” residential or commercial buy and hold strategies, and many more. These types of real estate investments allow you the ability to control and limit variables, in ways REITs (Real Estate Investment Trusts) cannot. Holding rentals for cash flow (hiring good property management is essential here), private lending, and rehabbing also tend to give much better returns than a REIT.  One caveat is that transactions must be at arms-length from your personal business, so be sure to read the requirements carefully and make the appropriate arrangements (i.e. hire a property manager, project manager, etc.).

Got an IRA and want to get started? First you’ll need to roll over your existing IRA (without penalty) into a qualified SD-IRA. Once your funds are in the SD-IRA, then you can start investing.

Not sure where to start? Or overwhelmed just thinking about the paperwork required? Fear not — we’ve been working with SD-IRAs since 2005 and can guide you through and assist you with the process. Our pipeline of deals is full and we’re actively looking for new partners.  Watch my guest appearance on this webinar hosted by Entrust —one of the SD-IRA companies I work with (and while we put this together in 2012, the information is still relevant), or contact us to learn more….

Keep calm and invest on.

Tags: , , ,

Update: Wholesale of Central St., Acton

Deal, Rehab, Wholesaling on March 14th, 2016 Comments Off on Update: Wholesale of Central St., Acton
Pa-POW! Another wholesale deal negotiated, purchased, and SOLD! The latest deal closed is 270 and 274 Central Street in Acton. An investor-friendly agent brought us this deal, which when we first analyzed it, we determined it was NOT a deal. But my resourceful partner is connected in the town and he learned that the house next door was held by the same owners, which happened to be a church. So we negotiated the second property into our deal for the same purchase price… and it magically became a deal.

270CentralActon The initial property was a 3K+ sf Victorian, which I was thinking would work nicely restored as a 4BR, 2.5BA with a master suite. We planned to open the floor plan while keeping all the Victorian character design (door knobs, moulding and trim, doors, etc.). It also had a huge garage/barn included with its own heat.


274CentralActonThe other house was a 3BR 1.5 BA which needed a lot of structural support in the basement and abutted the seller’s land (the church and the church’s daycare).

The issues:

1.  the small house was connected to the church’s septic, with an electronic alarm. We had to cut and cap the septic line from the church and put in a new septic tank.

2.  Because the seller was a church, it required an extra layer (or six!) of negotiation and communication (I just kept telling myself that patience is a virtue!). Specifically, to get anything approved, our attorney would send their attorney a proposed document and then we would wait until their next board meeting (held every other Sunday) for comments, changes, or approval. Items up for discussion:

A. Letting them know when our workers would be on-site so we didn’t interrupt their services or daycare classes;
B. Notifying them 5 days in advance before we touched any of the buildings or structures that abutted their daycare lot (originally we needed to seek permission for what days we could work on them, but negotiated for us to just give notice (and not seek permission) of when we’d be there); and
C. The septic cut and cap. The church originally wanted us to rewire the septic alarm system on their property after detaching it from the small house. So many red flags waved before my eyes on this one — including but not limited to us having to go in and deal with their electric panel, so we negotiated that out as well.

In the end, it was going to be a solid project for us, but since we have so much going on already, we’re happy to have made this deal work with Kevin and the buyers he brought to the table.

We wish the new buyers lots of positive thoughts as they begin their new construction and hope they knock it out of the park.

Keep calm and rehab on!

Tags: , , , ,