How We Did 12 Real Estate Deals In 12 Months

In the past year, we diversified and tried different real estate investment strategies in addition to our core lending business. business. We made money on on-line auction and 5 private sales. On the other hand, sheriff auction deals were not profitable enough for us as we made some mistakes. Overall, we gained much experience which we are glad to share - and are hoping that you could make money and avoid mistakes by learning from our stories.

Challenges With Sheriff Auctions
Tenants: Most properties were with tenants and some of them had to be evicted, which is costly, messy and time-consuming. We were led to believe that evicting tenants is not a complex engagement - it is not true, especially if the previous owner is occupying the property. We tried offering “cash for keys” but that approach often does not work. People in these situations at times do not act rationally and making deals is not easy.
Lack of Inspection: We didn’t have prior access to properties and were unable to conduct proper inspections - another big mistake as our rehab cost often exceeded our expectations.
Competition: At every sheriff auction we attended, there were crowds of people. We heard that 2-3 years ago these auctions were barely attended but it is a very different story today. We have also seen some very organized developer groups that routinely hit multiple auctions - they have some people doing research and identifying properties, some people just driving around, taking pictures, estimating work, some reviewing title records, etc. Sherriff auction properties require patience, careful selection, extensive review. It is a hard work to find good deals so be prepared to kiss a lot frogs to find your prince. We were too aggressive and paid our dues to learn the process. Learn from our experience: do not rush, take your time to find good deals.

Other Investment Challenges
Complex Rehab: We feel good about additions, extension or even ground up. However, changing load-bearing walls, moving roof to accommodate for larger size bedrooms, moving bathrooms, etc. seldom leads to positive outcome. The expenses, in our case, seemed to always exceed expectations as little deviations led to unexpected challenges and additional costs. We are going to avoid complex rehab going forward.
Small Bedrooms: People don't like them! Take this seriously. In some houses we added bedrooms and sacrificed size and it didn't quite work out. Mostly, we still made money but it made our sales process more complex/extended. We benefited from a favorable market conditions but still struggled to find buyers. In a challenging market this problem may result in no offers at all.

Challenging Locations: Some areas are not construction friendly; for example Teaneck has a very demanding and extensive approval process. Don’t get us wrong, Teaneck offers some interesting opportunities, but do not think you can turn this around in 3 months unless the property requires only a paint job.

Pricing And Timing: Do not try to price the deal higher just because you might lose money or find your profit is not high enough. Market or supply/demand will decide on the right property valuation. We put some deals out at a higher price and it took longer to sell properties so we lost time=money.

Contractors: We heard much about contractor selection and how important is to find good ones. And we listened! - but still have struggled. So, our words of wisdom are:

• If they are late for appointments, cancel meetings or do not want to provide full and detailed scope of work, do not hire them.

• Cost is important but so is timing - find the right balance. Some of our low-priced contractors managed multiple properties/projects and their complicated schedules slowed down our progress.
In the end, our discount was not enough to pay for wasted time - so try to get some sort of a committed timeline with benchmarks and milestones - offer bonus for on-time completion and small penalty if running behind.

• Conflicts and misunderstandings abound - get a proper contract and as detailed as possible scope of work. This is an absolute must to have.

• Do not pay cash - It doesn't matter what they say or saving - one bad apple will “eat up” any savings that you get. We had to sue some contractors that disappeared in the middle of the project with our 25% advance and because we paid cash, our position was far from ideal.

• Get a good lawyer and learn about how to handle small court claims. Agree on a price and mechanism and steps to follow.
Hopefully you would not need it, but in case you run into problems, you would know who to call and what to do. If you find good contractors - foster relationships. Good, sensible and reliable contractors are rare and worth some premium. You may pay a bit more, but they will shorten your timelines, provide good advice and help you make money. We heard it from other people but were swayed by lower price - we learned so we are holding on to/engaging with good guys.

Take-Aways:

DO NOT:
• Buy properties with tenants
• Buy proprieties without inspection
• Do rehab that is too complex, keep it simple
• Put in small bedrooms
• Offer properties at “wishful” prices
• Hire cheap contractors just because they offer a discount

DO:
• Carefully inspect each property with a trusted inspector/contractor
• Hire good contractors, even if not the cheapest
• Have full and detailed construction scope of work
• Have full and detailed contract with each contractor
• Get yourself a lawyer that can help with small court claims

Finally, we observe that it is difficult to find good deals at Sheriff’s auctions (at least in New Jersey). For new investors who don’t have access to good wholesalers or established brokers to find off-market deals, attending sheriff auctions might be the way to find bargains.

Take your time, do research, find good wholesalers and brokers - there is clearly money to be made investing in real estate. But simple and avoidable mistake may set you back if you don’t have deep pockets. In the end, we did fine because we were diversified across 12 deals, but we lost $150k on our worst investment.

For more information on real estate investment loan options or to apply for a no points hard money loan, visit accolend.com or call 201-643-6650.