Beki and Kelly Cassels’ journey in the real estate investment world is both inspiring and educational. Within a short span of two and a half years, they have gone from being brand-new investors to successfully executing significant deals. Jay Conner, their mentor, plays an instrumental role in their success by providing them with the knowledge and financial resources required to thrive in the competitive market of real estate.
In the latest episode of Raising Private Money, Beki and Kelly shared the details of their latest deal, providing in-depth insights about their journey, the acquisition process, repairs, and the unexpected challenges they faced. Here is a breakdown of how they transformed a problematic property into a profitable investment.
Identifying and Securing the Deal
Finding the Property
Beki and Kelly’s latest project, located at 2332 East 10th in New Mexico, was identified through a referral from a neighbor. The property was notorious in the area for being the “problem house.” The landlord, tired of dealing with tenant issues, was looking to sell. This was a classic case of a “tired landlord” and represented a perfect opportunity for the Cassels.
Understanding the Market Value
The after-repair value (ARV) of the property was initially assessed at $230,000 by their knowledgeable realtor. This valuation was crucial as it provided a baseline for determining the potential profitability of the deal. However, due to market dynamics, they planned to list the property at a higher value of $280,000, significantly increasing their potential return on investment.
Repairs and Unexpected Challenges
Estimating and Executing Repairs
The initial repair estimate for the house was $110,000, but they wisely set aside an additional $10,000 for unforeseen issues, following the well-known Murphy’s Law. True to form, challenges did arise, particularly with the gas lines and HVAC system, necessitating a complete overhaul. This thorough rehabilitation included gutting the house down to the studs and installing new electrical wiring, plumbing, and insulation.
Detailed Repair Budget
Their strategy involved getting a contractor’s rough estimate before making an offer on the property. While the detailed estimate came in after the property was purchased, it closely matched their projections. By diligently working with professionals and being prepared for surprises, Beki and Kelly ensured the project stayed within budget.
Financing and Profit Calculation
Securing Funding
One of the standout aspects of this deal was the financing structure. Beki and Kelly borrowed $172,500 through multiple private lenders at an interest rate of 10%. The funds were wired directly to the closing agent’s trust account, covering the $43,000 purchase price and leaving them with $130,000 upfront for repairs and other costs.
Calculating Net Profit
After accounting for the $120,000 spent on repairs, realtor fees, carrying costs, and other expenses, Beki and Kelly calculated a net profit of $88,200 from this deal. They also paid a 6% realtor fee amounting to $16,800 and anticipated their private lender interest to be around $9,000 over six months. Such meticulous financial planning ensured that they could maximize their returns even with significant upfront and carrying costs.
Key Takeaways and Lessons Learned
Networking and Referrals
One of the central lessons Beki and Kelly highlighted was the power of networking. By maintaining good relationships with neighbors and service providers, and by making their capabilities known, they secured this valuable deal. They also emphasized the importance of appreciating referral sources; rewarding their neighbor with $1,000 was not only good practice but also fostered goodwill in the community.
Importance of Communication and Transparency
Their story also underscored the importance of clear communication and due diligence. Working closely with realtors, contractors, and private lenders helped ensure the project’s success from start to finish.
Unexpected Positive Outcomes
An unexpected but welcome outcome was the transformation of the neighborhood’s perception. The drastic improvements to the problematic property uplifted the community’s spirit, garnering praise and appreciation from neighbors. In addition, they already have an interested buyer, demonstrating how positive community impact can lead to profitable opportunities.
Rewarding Persistence and Hard Work
Finally, Beki and Kelly’s experience reiterates that significant rewards come from perseverance, informed decision-making, and diligent work. Their profit not only exemplifies financial success but also the long-term value of proper mentorship and a solid support network.
By sharing their journey, Beki and Kelly offer invaluable insights into the world of real estate investment, inspiring both beginners and seasoned investors to aim high and tackle challenges head-on.
10 Discussion Questions from this Episode:
- Motivation and Discovery: Beki and Kelly’s deal was sourced through word-of-mouth and neighbors. How important do you think community connections are in real estate investing?
- ARV Calculation: Jay emphasizes using local, experienced realtors for after-repaired value (ARV) estimates. What are the advantages of this approach compared to using online valuation tools?
- Repair Budgeting: Beki and Kelly estimated over $120,000 in repairs. What are some strategies for accurately estimating repair costs before making an offer on a property?
- Murphy’s Law: They mentioned “Murphy” in terms of unexpected repair costs. Can you share an experience where unexpected costs significantly affected a project you were working on?
- Offer Strategy: Their maximum allowable offer (Mayo) was $43,000 which was accepted. How would you determine the right offer to make on a distressed property?
- Rehabilitation and Transformation: The entire house was taken down to the studs. What are some pros and cons of such extensive renovations compared to lighter rehabs?
- Private Lender Financing: Kelly and Beki borrowed 75% of the ARV at 10% interest. What are the benefits and risks of using private lenders for real estate investments?
- Property Appreciation: They adjusted their selling price from an ARV of $230,000 to listing the property at $280,000 due to market changes. How do you stay updated with market trends to ensure your property is priced correctly?
- Community Impact and Referrals: Beki and Kelly received community appreciation and rewarded their neighbor with $1,000 for the referral. How important are community goodwill and rewarding referrals in your business model?
- Learning and Improvement: What lessons did Beki and Kelly learn from this deal, and how can these lessons be applied to future real estate investments?
Fun facts that were revealed in the episode:
- Neighborly Referrals:
Beki and Kelly discovered their latest real estate deal from a neighbor’s referral about a tired landlord. - Profitable Purchase:
They brought home a $130,000 check at closing with no initial outlay. - Appreciative Community:
The neighbors are thrilled with their renovation, and they even rewarded the neighbor who referred them with $1,000.
Timestamps:
00:01 The Problem house owner is ready to sell the property.
05:40 Listing for 280, confident about the budget now.
08:23 Extra $10,000 covers carrying cost, 8% interest.
10:09 Net profit: $88,200 after all deductions.
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