How to Win at Philadelphia Real Estate Investing
(ALL Real Estate investing for that matter).

Winter Storm Jonas is here. Probably the only time I can be forced to stop moving, sit down, and actually write something.

That’s right, it takes an act of God, lol.

So, what do I think it take to win at the game of real estate in the City of Brotherly Shove, a.k.a. Philthadelphia a.k.a. my hometown?

The balls, or corresponding biological lady parts (unless you’re Caitlyn Jenner, then same difference) to actually make a decision and follow through with it.

Did you think it was going to be something more profound than that? Well, too bad.

…But if you think about it, it IS profound in it’s simplicity. So keep reading.

Here’s how you’re going to win.

1. Make a decision to do it.

What’s that looks like?

Say to yourself, or better yet go to the nearest mirror and you tell yourself. “I’m going to buy a piece of investment real estate now.” Actually, write that down, you should be writing down goals anyway, so do that.

Now. I’ll wait.

…. Finished yet? Hurry up, I’m not giving you Step 2 until you do.

Okay, if you haven’t done at least one of those things by now, you’re not scamming me, you’re only scamming yourself, so you’ve already lost.

If you have done it, then read on in full confidence that you will now kick some @$$ in real estate.

Yep, it’s that simple.

2. Pick a strategy.

For simplicity’s sake, all you have to know right now is that there are basically only 2 strategies in residential real estate.

  1. Buy and hold OR
  2. Buy & Flip.

Then rinse & repeat, whichever one you have settled upon.

Rather than going through a ton of things that are relatively irrelevant to this particular conversation, I am just going to tell you to pick #2 buy and hold right now.

EVERYBODY and their mother wants to buy and flip. So you are up against waaaay more competition and will most likely need access to waaaay more cash to do that. And it can be a bit of  roller coaster, especially if you are also working an actual 9-5 job to feed your family while trying to manage, complete, market, and finally sell your flip property. And a lot more money gets eaten up going through that process time after time than you even realize.

Me? Right now, I’m in buy and hold mode. I’ll dig deeper into this and why in a few, just let me get through this little list.

3. Buy a property.

Lots of ways to do this. I’ll go through a bunch very shortly.

And last but not least….

4. Do it again. And again. And again.

You will improve each time, to the point that you wont even recognize yourself in a year.

Oh yeah, you can call this my unofficial Number 5 if you want.

5. The opinions of friends, family, or anybody who does not own real estate other than their own home,
IGNORE THEM!

robert downey

Got it? Good.

I will now illustrate and breakdown my own current strategy, in all it’s ugliness, as it pertains to the above steps

1. I made a decision.

In November of 2015 I decided I was going to buy 10 properties and be all in 25k and under with a target cash flow of $400 a month, and I wanted this accomplished by the end of 2016.

Done, decision made.

Let’s look at the component parts of my decision so we can all be on the same page.

  • 10 houses @ 25k each = 250k. Where am I going to get 250k? And 10 houses? Answer: “F**k it I’ll figure it out as I go.” Seriously, that’s how I think.
  • 10 houses @ $400/mo income = $4000. Why that number? Answer: Because I figured out that that would be enough to replace my wife’s income.
    Pro Tip Your WHY is very important! If it’s not bigger than “I just need more money” then you’re going to fail. So find that very personal big why to motivate you and keep you on mission. It’s your GPS and your rocket fuel.
  • Buy and hold, not flip. So, selling and after appraised value and all the other considerations are not my main focus. A cost efficient rehab and good property management are way more important to me right now.

Hannibal Buress says it best right here at about the 1:10 mark…

Anyway…

2. I picked a strategy.

We sort of have the strategy outlined above, but the devil’s in the details right?

Where are we going to find these magical 25k all in properties?
Short answer: They’re EVERYWHERE.

Ever go to the car dealership, maybe you have interest in a particular model vehicle. Maybe you buy it right then, maybe you don’t, but now that you have focused on that particular car, you suddenly start seeing it everywhere. In parking lots, on the road, commercials, ad infinitum. Now that this particular vehicle has become embedded in your mind, you will see that same car everywhere.

Same principal here.

Sources of 25k all in properties include

  • wholesale deals,
  • off market properties and referrals,
  • anything listed on the MLS 50k and under,
  • seller financed deals,
  • Craigslist

Seriously, they are everywhere… you can literally create them out of thin air once you have decided to buy and have a very specific goal in mind.

The song playing playing on repeat in my head now is “25k, $400 a month minimum, 10 houses by the end of 2016.”

What’s in yours? Better get on it.

3. I bought a house.

I’m on the hunt. So, now my eyes, ears and nose are all open to finding one of these hidden gems. I go through some of the sources listed above.

Found one. My first purchase under this new strategy looked something like this.

I got a wholesale deal lead from a wholesaler who couldn’t close on it and had pissed off the owner. It was a tricky property to market because access was very limited. My original intention was to wholesale it to a another cash buyer myself, but after I saw it, knowing it would be a tricky wholesale but a sweet deal either way, I was like “Nah, I’ll keep it.” Basically it was an outdated 2 bedroom in good shape on a quieter street in a lower end neighborhood, the stuff most people ignore because it’s not a sexy part of town or whatever. Their loss.

So, I thought that I could get this bad boy purchased and rehabbed for about 20k total. In the end, I was higher, but I still hit my target…

25k, $400 a month minimum.

Below is screenshot of a financial analysis of that property using a cool tool I found called RehabValuator. This helped me stay on target. If you look at the numbers, they are decent. And as of this writing, the property now has a tenant at $725/month. So where am I on the numbers?

Judson sheet for blogpost

 

$24,680 at $518.60/mo. Boom.

“Okay, that’s great” you might be saying, “but where am I supposed to get that 25k?”

Plenty of ways. Here’s how I did it for this one. Won’t always be this easy for everybody, but keep reading.

This first purchase was all cash, a combination of savings and profits from wholesale deals. If you don’t have close to that in cash handy, relax, it’s gets real interesting from this point on.

Here’s what the property looked like after I got it “rent ready”. Notice I did not say fully rehabbed or anything that denotes fancy schmancy. Nice, clean, basic. living quarters.

 

So I hit my target for House #1. One down, ten to go.

Status Report
Pros: I have income coming in and I don’t have a mortgage to pay (yet), but,
Cons:
 I also have a lot of cash into it and am no longer liquid.

How do I do better next time? Reduce the Cons?

See that Rehabvaluator analysis for Judson Street? That Cash on Cash return number on the bottom started is suddenly looking a lot more important to me now.

How do I get A LOT more leverage for my cash?

Typical Way. You can refinance out, but it might take a little time for the property to season (too new to re-fi, not enough data), banks usually want to see that income coming in for at least a year (Money Over Everything). Plus, you have to have good credit to do this often. And a lot of people don’t.

If you do have good credit, you’re golden, go re-finance out, and do it over again. I would only caution you not to pull out more than where you calculate that your payments would amount to more than would cover your initial cash flow goal.
Example: $518.60 – $400 = 118.60 for Judson Street property above, so I can’t get much more than 12k or so out at an $118.60 monthly payment if I’m sticking to the rules. I made that mistake before, never again.

But you have to develop your own style and know your own comfort level. Point is, stick to the original plan until you absolutely can’t any more, then adjust course in small, measured increments.

Truth be told, while a refinance is most seasoned investors Plan A, it’s not doable for me with this particular property right now anyway, not just yet. No worries though, I did what I said I was going to do once, I just need to do it again. But way, WAY better this time.

Just from this one house I learned…

  • Doing land trusts can be problematic for property management (because of the City of Philadelphia and it’s idiotic bureaucracy) but now that I’m aware of them, I can now learn how to handle, fix, or do better on the next one. Not a deal breaker.
  • Some cheap, quick, KEY ways to make a house worth a little bit more desirable to tenants and Sec. 8 or a city agency in case I want to go that route.
  • Who I can trust with tools, a time frame, and a budget, LOL.

So now that number #3 is all finished and rented, it’s time to…

4. Do it again.

During this time, I made sure I talked to a lot of experienced investors, buyer customers, mentors, and asked TONS of questions. Like I said, only listen to people who own real estate. Everybody else… IDGAF about your opinion. Agents especially LOL.

What this did was make me hyper-aware of how to refine my approach now that actual cold hard cash was getting scarce.

Now I can still wholesale properties for more cash, but I do have regular business expenses and such with wholesaling too, so now I just have to be a little smarter about my moves.

One day while at lunch with one of my mentor buddies he tells me “I don’t do any deal if it’s under 20% cash on cash return. That translates to 20% on my money, anything less it’s not worth the aggravation.” Got it. This guy pulls in 2 million a year from his holdings, by the way.

After some other personal research into finance, I found out that truly wealthy people consistently get returns of 40% cash on cash through a combination of tax and investment strategies.

Well, damn son, I want to be wealthy too!

Time to tweak a few things. Added some further refinement to my strategy. Now…

  • I am looking for anything that can give me a Cash on Cash return of 40% (to infinity), and
  • Trying to achieve a cap rate somewhere between 8-12% (but that cap rate is secondary because ARV is the last thing I care about right now, but if I can get it, I will.)

Keep in mind, I’m still going for that 10 properties/25k/$400/mo income, it’s just that now I’m really paying a lot more attention to the cash on cash return.

If you’re into video games, this would be like finishing a level but really trying to get into all the secret rooms and get all the bonuses. Can’t relate? Ask your kid to explain it then. The bonuses would be higher After Repair Values and appraisals, property appreciation, and higher cash on cash returns. But you can still beat the level with the original basic game plan. Make sense now?

Now I figure out that the only way to make something like this cash on cash level-up happen with another property now is that somehow I’m going to have to get some kind of seller financing on the property, especially if it’s a property that might be in a better neighborhood with higher after repaired values.

But where there’s a will there’s a way right?. When you put your mind to it, you’ll identify that there are a few ways to make that happen. Most of them aren’t pretty, like taking houses with cloudy titles or subject to the liens on them, but so what? If its not a lien anybody can foreclose on, then that sounds a lot like financing or an opportunity for a payment plan to me ;-). Cloudy titles? last time I checked, banks don’t do full title searches on refinance properties, so…

Just remember my original strategy – 25k, $400/mo. 10 houses by the end of 2016.
Add the tweak for cash – Cash on Cash 40%, Cap rate 8-12 (if I can get it).
But as always… Money Over Everything! Cash Flow is King.

Houses 2-6, The Potential Line Up.

Based off of the above strategy, these are my next potential purchases.

House 2, Price Street. – I’m supposed to be closing on it next week, but the lawyer at my favorite title company still wants to talk to me about it first because “it’s a risky deal.” Lawyers, psssht! (Just kidding, I’ll listen, but I’m pretty sure that I’m still doing it.)

Upside – I get control and “strategic ownership” of this property for about 6k total which includes an LLC I had specifically constructed for risky properties (since I’ll probably do more of them now).  Hell, I even go so far as to call them “disposable properties”. I’ll leave the explanation of what I mean by that for another time.

The rehab might be 4k to get rent it ready, it’s in decent enough shape for a rental. Also brought in a partner in on this one to rehab and manage, and I’ll just sign over half the LLC shares when he’s kicked in his half of the financial responsibility.

In the end, we should get a cash flowing property for about 10-11k, and it should rent for $800 or so easy.

Downside – I’m taking this house subject to some pretty significant liens. Some I will negotiate down, some I will just ignore if they don’t play ball because they can’t foreclose on a property for them. Bonus: For fun, I get to play a game of chicken with the current note holder. I’ve done it before and have been able to ultimately achieve what I wanted, but its not always guaranteed to work, however I DO know how to make it extremely difficult and expensive for a defaulted note holder to foreclose, so like I said, it’s going to be game of legal chicken.

And that’s not for everyone, but me, I like to experiment because I always learn something valuable. Even when I lose I win.

Source of funds – Wholesaling cash income and partial loan out from my retirement plan @3.5% interest, no biggie.

Hey, did you catch that? Pay attention! If you have mutual funds, retirement plans, and whole insurance policies, you have sources of cash.

House 3, Souder Street – House in Northeast Philadelphia. Great shape, decent neighborhood, owner wants to walk away to his new life as a married man, has a new house to move to already so doesn’t care about this one much. Mortgage note payments are is kind of high. Was originally thinking of  taking over subject to, but I then would be out like 6-8k cash and the cash flow would be like $200 a month if I’m lucky.

Eff that. I can do better than that. Should I walk?

Nah. I came up with a plan that will only have me out of pocket less than 4k total but with control of the house and better cash flow by…

  • using a master lease for an amount a couple hundred dollars less than the mortgage amount, and
  • buying an option to buy the house in the future at a more desireable price, which I may or may not exercise.
  • That also buys me more time to I figure out how I can get the house out of his name and into mine and solve both our problems and profit.

No matter what happens, I project that I will still get at least 2 years of $400/mo income out of it for around 4k. Money Over Everything! Cash flow is King.

Now, this deal may or may not work, but, it’s still a real possibility as of this writing as I  literally just got off the phone with the seller and he’s 90% onboard with all of it now.

Source of funds – Not sure yet, maybe a combination of self directed IRA’s, that’s that I’m leaning towards, but the that becomes a slight deviation from the $400/mo income per property strategy because that income will be going into qualified tax free retirement plans. Plan B is cash &  maybe withdraw some funds from a whole life insurance policy at about 4% interest (which I’m only paying to myself anyway) so, pretty much free money. (Hey if you want to know more about how to set yourself up with the right kind of insurance policy so you can do that, contact me HERE!

House 4, Harrison Street – Another person who just wants the note payment covered so he and his wife can move out of the City and downsize. From some preliminary research, it looks like if I’m taking over the note on this huge property, I can easily get more $400/mo (more like $600/mo) in cash flow coming in after payments and everything. Not sure if a master lease/sublease, option will work or not on this one yet, I still have to see house. Might be 4-10k wrapped up in this depending on what I find.

Source of funds – Maybe insurance, pension, SDIRA’s, cash, food stamps (JK), don’t know just yet until I sign a contract. Then I’ll figure it out.

House 5, Lehigh Ave. – Stumbled across a new source of properties that my be pretty sweet (thanks to a little help from my Virtual Assistant). For these properties, they basically structure a deal where the Sellers takes a little bit down as a downpayment ($500-$2000) and then finance the balance due for 2  years at 0% interest. The Catch? Its a land contract, which means that you don’t get the deed to the property until your fully paid off. And you take it as-is.

There’s free ways to check on all the major liens on a property so that you don’t screw yourself completely. And if I can control a property, stick to my basic strategy and get my $400/mo cash flow and some sweet cash on cash returns in the meantime? All day baby!

Source of funds – Again, maybe insurance, pension, SDIRA’s, cash, private lender/family member, don’t know just yet until I sign a contract. I could get into this one on for like 1K with no closing costs, relatively clean title (so far) and whatever the rehab costs, I’m  guesstimating 10k from what I saw in pictures so far, and this is for what might even be a 2 unit according to zoning. So… #winning.

House 6, 16th Street. – Yesterday this one blipped on my radar. Non-owner occupied property with long term tenant and the seller needs some cash RIGHT NOW or she risks loses her own personal residence to pending foreclosure. Just needs a little folding cash to buy her time to leave her home and go to a rental and rent out her house for more money to even it all out and get her situation straight again. Totally makes sense given what she shared with me, I didn’t want to put her into a worse situation just for a profit. That’s bad stuff and I don’t roll like that.

The deal I’m trying to put together here is $3500 down, payments of $150 month until balance paid off, 25k purchase price on a house worth maybe 15k cash to me. Did I mention it comes with a 7 year tenant paying $675  month already? She would get her problem solved and a guaranteed income for however long I can stretch the terms.

I really like this one so far, because cash will come in immediately upon purchase, so, fingers crossed. Plus, it fits my strategy model nicely.

Source of funds – See list above. Figure I could get into this property for like 5k total and have cash coming in right away. M.O.E. & C.F.I.K.

Wrap up

So these deals are all in various stages of completion. Will they all work out? Probably not for a variety of reasons, but I think at least 2 will. And that sure as hell still puts me on track for my “10 properties @ 25k all 400/mo income by end of 2016” strategy. I have a sneaky feeling I’ll probably beat that goal too…

And to refresh & reiterate…

Do I care about After repaired values? Sure, but not right now.

Do I care about where they are located? Somewhat, but it really all depends on the deal. And I’m not managing them myself after they are repaired, so if my management company is okay with the area (yes, I ask them what they think first), then it’s not a huge concern.

What do I do with the properties that don’t fit my criteria? If they are my leads, I just put them under contract for a good price and sell them to someone else with different tastes and goals. Then I use those funds to buy the ones that do, duh.

So, my dear dear friend reading this, you who has suffered all the way to the end of this story in hopes of finding some clarity within the mad mad world of real estate investing in Philadelphia (or wherever really, this works anywhere)…

Do you have a strategy yet??

No? Well, just copy mine if you want. That’s why I put it here. Copy this basic google spreadsheet just for tracking.

Everything you need is outlined above, where to find deals where to find cash, you can find contractors on Angie’s list if you don’t know anybody, and the Rehabvaluator software will help you get your numbers down.

All you have to do is start doing it.

Fumble, stumble, fall, fail, get back up, don’t stop til you get it get!

Need help? Sure no problem. I can probably help you, as long as you understand that I have to make money too, so, while your numbers may not look exactly the same as mine, even with my fee figured in there, I’m confident I can get you pretty damn close.

Use me, don’t use me, makes no difference to me.

All I really want you to do is… start now. Thinking about it will get you zero.

Follow the 4 steps.

Right now, decide. Then figure out your strategy. Then go shopping. Then look at where you can find money, it’s everywhere, Self Directed IR”S , 401k’s, personal money markets, whole life insurance policies, the bank, everywhere. Run it through rehabvaluator software to get you closer to your numbers.

Then buy a property.

Shia LaBeouf Delivers The Most Intense Motivational Speech Of All-Time (Nike Edition)

You wanted to know #howtowin in Philadelphia Real Esate? Well I just told you.

So what are you waiting for?

…Think you still need help?

Fill out this form.

I’ll help out a select few serious people after I see what kind of responses I get.

Just remember, Investing” means you are investing time, energy, and money, so if you don’t have those 3 things available when you sign up, just work on them right away, then come back when you do. Most serious people who exactly what they want can and will make all three of these things happen, if they want to bad enough.

But I’m not here to convince you of anything, not my original intent. My intent was to hopefully help and inspire someone to get off of the sidelines and into the game.  I also wrote it because sharing this idea with others this helps me get further clarity on my overall strategy so that I can keep learning by doing and improving.

Just one more thing…

Think I’m wrong about all this? Say so!

Got opinions? Share them below.

I welcome ANY and ALL feedback! Why? Because I know I don’t know everything. Because maybe you can teach me something. Because maybe you can add tremendous value here with some of your input, even more than I feel like I just gave.

So, your 2 cents? Put it it right at the bottom, in the comments or whatever social media channel you happen to be reading this on right now. None of this stuff  works if we don’t talk about it and keep things to ourselves.

Iron sharpens iron. So get to key stroking!

Thanks.

J.