Hey everyone, it’s Mark Ferguson with InvestFourMore. Welcome to another episode of the InvestFourMore Real Estate Podcast. Today, I’m going to be talking about quite a few things going on with my real estate investing, my flipping, some updates on my rental properties and what my plans are. I’m also going to talk about a few other things, like a new book that just came out with the podcast and give you a general update on what’s going on with me so I hope you enjoy the show and get some insight into what’s going on with me.
It’s been a busy summer, really crazy so it’s been a little hectic. I just got back from a conference I was at last week and the week before that, we’re all in Disney Land so that always takes a little bit of time but one thing that’s been really nice about when I go to these conferences, it was an REO conference with the NRBA which is the National REO Brokers Association and I’ve gone to this conference seven years in a row now. Really a great conference, a great group, one of the reasons that I was so successful in REO.
But it’s so nice because I realized at that conference and when we went to Disney Land for seven days, I didn’t open my laptop one time in both of those trips. I was on my phone, I could do some work from there but I didn’t have to open my laptop at all. I virtually did no work. I could check in on things, I could send some e-mails to my staff but one thing that’s been really nice about how I set up my business is being able to take vacations without working, without stressing, which is something I know a lot of real estate people have a hard time with especially agents. If you don’t have someone helping you out as an agent, you’re basically working all the time and it’s really hard to get a break.
So transitioning that into one of the new books I have coming out is a book that’s not really on real estate investing or being a real estate agent but more on your attitude, your goals, your mindset and I talk about how I’ve set up my life, my business and what I do to really be as successful as I can, as happy as I can, not work 80 hours a week. I probably work less than 40 hours a week. I know I work less than 40 hours a week. I get to work about sometimes eight but usually 8:30 or nine. I’m home by five almost every single day and a couple days a week, I’m out golfing during the week too. I virtually don’t work on the weekends either.
So yes, I do a lot of things. I keep myself busy, but that doesn’t mean that I have to work like crazy myself and drive myself insane and not see my family. My family is one of the most important things in my life. My twins are five years old now, my wife Jenny is awesome with them but I don’t want to be one of those dads that works all the time when they’re younger to try and provide an awesome life once they’ve grown up. I want to enjoy them when they’re younger and have fun with them and spend as much time as I can with them.
So the book I’ve got coming out is How to Change Your Mindset to Achieve Huge Success,
and then backing on that, Why Your Attitude and Daily Habits Have More to Do with Making More Money and Having More Freedom than Anything Else.
This book is just all about everything that I’ve learned in the last three or four years about habits, being positive, setting goals, dealing with adversity, turning things that seemed horrible into good things. Just the way you look at life has such a huge impact on your success and your happiness and I tried to put everything I could, from my daily routine to writing a dream story to managing my time, all of that is on this book plus a lot, lot, lot more.
Goal setting of course, many of you know that I am huge on goals. I talk a little bit about investing in real estate and how those attitude changes and mindsets have changed me professionally, but most of this book can be applied to any business, any career, anybody, it doesn’t have to be real estate related. I am really proud of this book, it just came out this week. So it’s on sale as we speak. $2.99 on Kindle, $8.13 it's a paperback, which is the absolute lowest prices I can set on Amazon.
So it will be there this week only and then I will be raising those prices. Go check it out, leave a review, I hope you enjoy it. I really put a lot of work into my books lately. I’ve got a professional editor, I got the cover made professionally so it’s really fun to try to reach as many people as I can and help as many people as I can. I found the book are doing an awesome job with that and just giving people insight into what I do, how I’ve been successful and how I try and keep myself grounded as well.
So cool, like I said, that will be available on Amazon when this podcast comes out. Please check it out and let me know what you think. Besides the book coming out, I’ve got my other books of course but as you noticed, some of the podcast guests, the format has been a little bit different. Instead of interviewing ultra-successful investors, I’ve done some interviews with people who are just getting started investing or may have a few properties now for a couple of years and I think it’s been cool seeing what their roadblocks are, what they’re trying to figure out and what their goals are.
So if anybody else out there and wants to be on the show, let me know. Send me an e-mail, email@example.com
, I have some other guest too that are more successful investors. I’ve been trying to do a mix, of course I’ll have shows like this where it’s just me talking about what’s going on with my investing, and then I will have some other professionals on. I’ve got someone who I will have on soon talking about self-directed IRA’s, how to invest with those and some other professional people as well. Maybe some more agents, just to try and give a real broad spectrum of what’s going on in the real estate world.
All right, so now that we’ve got all of that out of the way, what is going on with my investing this summer, my rentals, my flips. So a few really big things to talk about. First thing is as you’ve known, if you have listened to my podcast or read some of the articles on the blog, I was thinking about making a subdivision. So I bought 34 acres back in March of this year. I had plans to divide it into seven five-acre lots. I bought that land for $90,000 plus I had to buy a $28,000 water tap. So I paid about $118 for it, went through the process with my assistant, Nikki.
She’s doing a court exemption now for some other business and we talked to the county, the planning commission trying to figure out what it would take to do the subdivision. On the surface, it doesn’t seem too bad. It would be a minor subdivision, which means not as much is required as if you go through a full blown subdivision in the city. This would be in the county but as we went through the process, it is difficult even for a minor subdivision. We would have to pave a road, even though the county road that comes up to the land is not paved, we would have to pave the road on the land in the subdivision.
I’d have to install water lines, buy water taps for every lot, we have to do some grading draining assessments, to get the fire departments to check it out, figure out what would be needed as far as hydrants, there’s just a lot involved and we figured it would be over $300,000 in water costs, road costs to get this subdivision complete. So I would still make money, I figured I could sell those lots for close to $100,000 a piece, maybe even more. There’s obviously some profit there but it would take 12 to 18 months most likely to get through the whole process of getting everything ready to sell.
So I’d have to have just a ton of cash tied up, making nothing on it, no returns until probably at least a year until we could start selling lots and then who knows how long it would take to sell the lots. Our market is very hot right now but things can change in a year and lots are much harder to sell than the houses themselves because it takes more money to buy a lot, to build a house than to just buy an existing house. So in the end, after looking at how much money it would take to invest into the land, how long it would take, I decided not to do the subdivision, to just sell the land.
I can use that money to flip houses and make at least as much as I would with the subdivision or more with a lot less risk a lot faster. So maybe it would be a perfect situation for somebody else but for me, it was a great learning experience, but it just was not going to work out. Now, all is not lost. I am actually selling, as of this podcast when this podcast is published, I would have sold the land for $151,000. So I am still making money on it, put any work into it really except a few things on interest cost for the loan I got and some other stuff, but I’ll make a pretty decent profit. That just shows that you can get awesome deals on the MLS.
This was an MLS property, it was listed on the MLS for $90,000. I don’t ever look for land but for some reason, I saw the address and the price and I’m like, “Oh just check it out,” on my hot sheet and 34 acres I’m like, “Oh man, I have to buy this” even though I had no idea what was I going to do with it at the time, I just knew it was an awesome deal. So I put an offer on that same day without seeing the property, got under contract and then figured out later what I was going to do, maybe do a subdivision, maybe just sell it? But hey, I had two extra strategies and this one worked out pretty well just a quick flip.
So that project is over. It’s kind of a relief just thinking about how long it would take, the risk, the process, the time out of my schedule as well to go through all of that, knowing I wasn’t going to do it. So it was fun maybe at some point I’ll do it but that also gave me some insight into why there aren’t very many subdivisions being built around here, big or small, just because it is such a pain. Water is so expensive here. The biggest cost by far for that subdivision was the water taps, which were about $35,000 a piece for each lot. I have to pay for those before the subdivision could be completed and I could sell those lots.
That’s just a lot of money, if you’re building a hundred lot subdivision, 200 lot subdivision, I mean the cost of water is just insane. Now, there’s other ways to do it. Some land might come with water but still, that’s a lot to go through. Speaking of building, I came out with an article a few weeks or maybe a month ago too about building in Northern Colorado in new construction. However, our market is going crazy. Our medium price is over $260 now and it was under a $120,000 four or five years ago and so a lot of people are saying, “Well the prices can’t go up anymore. They’ve peaked, there is a bubble, there’s no way it could happen.”
I kind of had the same thoughts. Maybe not that we’re in a bubble, but the prices can’t keep going up like they have just because incomes in the area, there’s a lot of land around here. They’ve got to start building more, builders will meet demand. So I started talking to the city planning and zoning here in Greeley and I could not believe what they told me. They basically said, “There is less building going on in 2016 than there was in 2015. There are less building permits, less new houses going up.”
I am trying to figure out why and what’s going on? And they said, “Just because of the cost of water, the cost of everything to do a subdivision is so much higher than it was before that no one wants to do it,” and in fact, it’s really hard for builders to get financing to build a lot of houses. You can build a handful, maybe a few more with banks but banks don’t want to risk financing a 100 house development. They just don’t want to do it because they’ve got burned in the last housing crisis and a lot of builders are going into multifamily instead of single family because it’s cheaper to build, it’s going to split the water costs up.
But the thing is, I’m in a town with 100,000 people. We’re not an urban center, it’s not downtown Denver. Most people don’t want to live in a multifamily where I’m at. They have families, they want their own house, they want a yard and I see an overbuilding of multifamily almost and an underbuilding of single family and it’s really hard to know what that’s going to do with the market. I don’t see single family housing decreasing anytime soon. I could see multifamily maybe having some problems, rents going down, maybe they’ll drag down single family a little bit, I don’t know.
I saw an article from a really big apartment builder saying they’re pulling out of Colorado. They’re not building anymore apartments anymore multifamily because they think it’s overbuilt for multifamily. In that same article, they said, “But single family is underbuilt and we see no slowdown in the single family market.” So I am not sure what will happen when the two market segments like that are going opposite directions. I haven’t really encountered that before so I guess we’ll find out. So based on my insights with the market, what’s going on, I don’t think we’re going to see a huge slowdown in Colorado.
Maybe it will level off some, maybe it will keep going, it’s just really hard to say. I have sold two of my rentals. So I sold number five and I sold number 13. So my 5th
rental property I bought in 2012 for $88,000, MLS deal, it’s been rented for $1,250 to the same tenants the entire time I’ve had it. I put maybe $15,000 of work into it when I first bought it, but this house was really hard to rent. It had no real eating area, no dining room, the tenants who were in it were always behind. They catch back up, they get behind, they catch back up but they’re just a pain as well.
Then they got way behind on rent this summer, could not catch up so we ended up evicting them. They moved out peacefully, they got all their stuff out but we still had to go through the courts and we ended up getting an agreement where they’re paying me like $50 bucks a month for two years to catch up on their rent but because of the dining room, because the house was hard to rent when I first bought it and our market is so strong I decided to sell that house. It was one of my least favorite rental properties, so I sold it. I ended up selling it for $199,500 so I did pretty well on that one. I only did a couple thousand dollars in work when they moved out to get it ready to sell.
So I sold that property and I’m getting $120,000 in cash after paying off my loan and then rental property 13 I bought in 2015, last year as a duplex. The only duplex I bought. I bought it for $120,000, it had tenants in it when I bought it. They were paying, oh I think $1,300 a month for both units combined so a decent return. I didn’t put any money into it at the beginning but I knew it would need some. It needed a roof, some paint and this summer came along and both tenants moved out.
So I knew it was a good time to fix it up, get some of the repairs done and then I started thinking if I want to sell it as well because the market had gone up so much for multifamily. It’s kind of a college rental, which has not been my niche. I don’t mind them but I love the single family rentals more. The tenants are more stable, they take better care of the house so I decided to sell that one as well because it was one of my least favorite properties as well. So that one sold last week for $182,000. I bought it for $120 last year, put maybe $10,000 of work into it, maybe a little more.
And all that happened recently, in the last month or so and we sold it for $182. So that was another awesome investment obviously. So I got quite a bit of cash coming back from that one too. So now I’m down to 13 rentals in Colorado and 14 total, if you count my turn key property in Cleveland. So I still have properties, I’m not going to sell anymore in the immediate future. That was my plan, to sell a couple that I didn’t like as much and those were the two. They were the last on my list, but besides selling some properties, I have been working on refinancing some properties.
So if you’ve been paying attention to the blog, which I keep saying that, hopefully you are if you listen to this, I’ve been trying to refinance some rentals with one of the larger national rental property lenders and that was Jordan Capital Finance. I went through a process with them that took three months probably of getting something agreed to, underwriter preliminary approval. Basically, we had agreed to some rate on a 30 year fixed loan about six to seven percent on that range. They’re going to give me one to two points and do 70 to 75% cash out refinance. We’re going to 7% cash out.
So I was going to refinance seven properties, I was going to get about $270 to $300,000 cash out depending on where the appraisals came at, and I was like, “Great, let’s do it.” So in May, I paid for the appraisals. They want me to pay for the appraisals upfront, it’s $520 for each appraisal, which seemed kin doc high to me but they said that’s the cheapest they could get them. I paid for those, I got the appraisals back and then Jordan comes back and says, “Oh hey, we’re sorry but the company that lends us money on 30 year fixed loan has just stopped lending so we can’t do the loan.”
I was pretty annoyed because they never even told me that they’re using a third company to do this. I thought it was all directly through them and then they said they had some other options. They could still do it. Well it turns out, their other options were five year ARMs at seven percent and it was not even close to as good of a deal and then it turns out, six of the appraisals they did could not be transferred to other companies because it wasn’t with one of the approved appraisal companies and they wanted me to pay for new appraisals to do that. They wouldn’t even pay for it themselves even though it’s their mess up. They want me to pay for new appraisals if I want to move forward.
So, I talked to a couple of other national lenders out there, none of them could give me that great of a deal. So I came back to my local portfolio lender who I financed all of my properties with and asked if they wanted to refinance some of my properties and the problem I had with them before was I had $2.5 million in loans with this one bank in Colorado and that was their limit for what they’d lend to somebody without getting approval from the committee on every loan, which can take longer and be kind of a pain. But since I’ve sold two of my rentals and then a lot of my balances on my loans have been going down, including my personal house, I had dropped quite a bit below that $2.5 million range.
So they said, “Sure, we can refinance some of them. We can give you up to $250,000 cash out. We’ll do five year ARMs with 30 year amortization or seven year ARMs with 30 year amortization, 4.5% interest rate, no balloon, 75% loan to value and one percent origination fees.” So in the end, I’m pretty happy that it didn’t work out with Jordan or some of the other banks because I got a much better deal with my lender. Sure, they’re ARMs but they’re still way lower rates. I mean even if the ARM adjust in five years as high as it can, I’m probably going to save money over doing the 30 year fixed loans at the higher interest rate.
Plus I’m getting a higher loan to value, more cash out and instead of refinancing seven properties, which I was going to do with Jordan, I’m refinancing four properties with my portfolio lender and getting almost as much money back out because I have the higher loan to value ratios and my bank said they can make those appraisals work. So that was really nice as well, it just shows the flexibility of a local portfolio lender, how awesome they can be and if you find a good one.
So that should go through here in the next month, that will be nice getting that money coming back to do the refinances. I’ll have plenty of cash sitting around because as you know, I haven’t bought any rentals since September. It’s been almost a year since I bought my last rental property. I had talked about this before, the market in Colorado is just insane with prices. Some of those rentals I’ve told you, I’ve bought for $120, I bought for $88, I sold for $200,000. I love to get a good deal, I love to pay below market value so I could get the properties that are similar to that for less than that. Maybe I could pay $160,000 or $150,000 for properties like that, put $20,000 of work into them.
But the thing is they’re not renting for that much more than they were four years ago. They are renting for more, rents maybe have gone up 20 to 30% but prices have doubled almost or more than doubled in some areas. So while rents go up 20 or 30%, that’s great but prices have doubled, that means the rent to value ratios are just way worse than they were when I bought my properties even last year especially three or four years ago. I just can’t get the cash flow I was getting before, sure I can buy below market value and have equity but I’ve got to put more cash into the properties because prices are higher, 20% down.
Instead of putting $20,000 down on a $100,000 property, I am putting $40,000 down on a $200,000 property. My returns are way less, the cash flow is way less, the cash I’m investing is way more, it just doesn’t seem worth it to me and yes, I have my goal to buy a hundred properties. I’m still fighting for that goal and want to get there but I am not going to sacrifice my financial well-being or start making bad deals to get to that goal. I’m going to be smart, I’m going to do things the right way.
So I am still interested in investing in other markets. A lot of you have been sending me e-mails, ask me questions saying, “Hey, what’s going on with Florida? When are you going to start buying more rentals again?” And I still have plans to buy down there. It’s just going a little slower than I thought. I did not do 1031 exchanges with the rentals I sold. I figured I would just pay the taxes because when you do a 1031 exchange, you have to invest all the money, all the cash you get from the property plus the properties you buy have to be worth at least as much as the property you sold.
For the house that I sold for $199,500 and I got $120,000 some cash back, I would have had to invest all that cash into new properties and the properties would have been had to be worth at least $199,500 to avoid paying taxes. Now, I wanted to buy cheaper properties than that. I’d have to buy at least two properties, find them in less than 45 days and I don’t want to be rushed into making investments that might not be smart. So I’m still doing research down in Florida, I’m still trying to figure things out. I didn’t want to be rushed into it. It’s also nice to have that cash available for flipping, or other things going on.
So that is why I didn’t do the 1031 exchange. Yes, it will cost me a little bit more money in taxes but if I get two okay deals doing a 1031 exchange, maybe I get them 10-15% below market, that’s great. But if I can get two awesome deals, they’re 20-25% below market value, I’ll make up for that tax savings right there. By just getting a better deal on the properties I buy, I’ll make up for the money I had to pay in taxes because I will get a better deal. I’ll probably get better cash flow, just taking my time I think it’s worth it over trying to rush into buying something.
All right, now I have a couple of markets in Florida I’m looking at. Like I said, you can get under $100,000 homes in both those markets. They’ll rent for $1,200-$1,500 depending on how high up you go. Very similar to what I was doing here in Colorado. Newer houses, need some work but not a crazy amount of work and I think the economy is doing really well down there plus, the market is not even close to recovered from the crash they had. I think there’s a lot of up site so I’m still trying to figure out exactly where I want to invest, how I want to invest.
I need to find some lenders, do some more ground work down there but I am going to invest in Florida hopefully this year. I can’t give you a time frame for when but another reason that I haven’t focused so much on the rentals is because my flipping business has been going bonkers. So I’ve really been focusing on that. I had a project manager I hired last year who really messed things up a lot. So the properties weren’t getting fixed, things weren’t being done fast or right. I think things were being charged right, we were getting double charged, there’s just a lot of stuff going on.
It was crazy and a lot of that is my fault because I wasn’t providing enough oversight, didn’t have the systems in place but in the end, it was a good thing. Like I said before and I tell them on my book, some of these things that happen to us just feels like, “Oh my God, how could this happen to me? I don’t deserve it, why me? Why this.” But a couple of years from there maybe a couple of months even, you’ll say, “Oh my gosh, I’m so glad that happened to me even though it sucked at the time. It seemed horrible, but it was a good thing,” and that’s how this has worked out.
I was talking on my conference call, one of my coaching programs and they’re like, “Wow, that guy really screwed you over didn’t he?” I’m like, “Yeah, he did.” But in the end, I changed my whole way. I did my flipping business, I changed all my systems, I worked more closely with the people involved and it made me do things so much better because that happened. It made me create systems and get the right people in place and if he’d just been okay and not done such a great job, I would probably be in a worse situation now than if you had totally bombed everything and blew it up.
So it was actually a good thing, I’m happy where I’m at right now. I’ve got 11 flips, I am selling one this week. So I’ll be down at 10 flips. I’ve got two more under contract and buying two more flips that are under contract to sell the next month and after looking at my projected numbers, I am thinking I will be able to flip 19 houses, sell 19 flips in 2016, which will be awesome and I’ve historically averaged over $30,000 in profit for each flip and looking at the numbers this year, I might even be above that because I’m going to have some high dollar profit makers this year if everything goes as planned.
It will push that average up so it will be a good year for a flip, that’s why I’ve been concentrating so much on them, is to get things put in place. You know my goal is to do 20 a year now and that’s buying about two a month, selling about two a month. If I can do that, I can reach my hundred rental property goals no problem because I have the money to invest, the cash to invest and I can still find flips in Colorado. Much easier to find flips and rentals so I’m not worried about cash flow. I’m not worried about returns, I’m worried about profit and what it’s worth when I sell it compared to how much I can buy it for.
So the flipping is going awesome. I had a high dollar flip that I bought for over $500,000 last year. It has been occupied and I have some agreements in place for the tenant to move out. So hopefully that one will be on the market in a month or two and on that particular property, I will be making a very nice profit on. I’ll talk more about that if or when it becomes vacant. I can discuss some more details so that will be a very nice one to have and then like I said, I’ve got a lot of other flips in the pipeline. I’ve got a new contractor we’re working with very closely.
He’s got a big crew, who’s been doing awesome. That’s been the biggest challenge with flipping. It’s finding good contractors, good work. I’ve been working very closely with them to try and get those processes put in place. All right, so flipping is going great, doing very well with that. I’ve got financing put in place from my local banks, private money through some investors, private money through my sister, partially. I also have a lot of hard money lenders who’ve given me some different options. I haven’t gone that route yet because I’ve got the private money and the local banks.
But if anybody is looking for hard money different lenders, shoot me an e-mail, let me know, I might be able to get you in contact with some of those guys. Rates are dropping on hard money. Some of these national hard money lenders are around 10% and two points now where it used to be 14%, three or four points, or more. So definitely some opportunities there for hard money but yeah, I’m in a good place now with the refinancing with selling a couple of my rentals with getting the flipping business under control, I should have quite a bit of cash to invest in rentals, I should have more time to invest in rentals that I’m getting on the flipping business under control.
The process in place won’t take nearly as much time for me and hopefully before the end of the year is up, you’ll see some new rental properties that I am purchasing, in the new market and we can figure out what the returns are, how they do and maybe they’ll do as well as my rentals here, maybe not. If they do anywhere close to what my rentals have done here, I’ll be a happy camper. I looked at my numbers and I have invested about $300,000 in cash into all my rentals and when I had 15 in Colorado, they made me about $8,000 a month in cash flow.
They had increased — their equity was about $1.5 million. Part of that was appreciation, part of that was buying below market value, making repairs but $300,000 to $1.5 million in less than five years is pretty good. A lot of those properties I bought a year ago with my refinance with selling some of my rentals, I will actually get all of that cash back plus some. So I’ll have basically taken at least $50,000 of cash out from all the rentals that I’ve bought and I’ll still be making $6,000 a month in cash flow around there and I’ll have over $1 million in equity in those properties. So pretty happy with that investment. I think I’ll now have $50,000 and a $1 million in equity in that cash flow. It helps to be able to find those markets that will appreciate and have cash flow at the same time. That’s what I’m really looking for.
All right, that is all I’ve got for today. I hope you enjoyed the podcast. Like I said, it’s been a busy summer. I’m still working hard on rentals though, still working hard on the flips, my real estate team they’re going great so that’s another aspect to the business. The blog has been doing awesome. Be sure to check out my new book, I think you’ll really enjoy it. My whole point of writing that book is just to help people change their attitude, get the right attitude and have success in whatever they do plus at the same time, be happy.
The goal is not to work yourself into the ground and have money but not be able to enjoy it and be stressed out all the time. The goal is to have money, to have time, to have freedom so that you can enjoy life, so you can be happy and spend time with your family and do the things that you love. I’m thinking about taking my wife to Monterey next month to go to a car auction just because I’ve never been to a car auction. They’ve got a Lamborghini Miura, a bunch of Countach’s, Diablo’s, all kinds of cool stuff I’d love to see.
I’d love to buy them too but I’m not in that position yet to buy a $400,000 car or the Miura at $1.5 million car, but it would be really cool to see them, to experience and auction, to see the bidding, to see all of that and I’m in a position now where I have the freedom, the time, and the rentals and real estate has been awesome to get me to that point. So check out the book, I think you’ll enjoy it. The sale will end this week. Once prices go up, they won’t be crazy. It will be under $10 for the Kindle for sure, under 15 for the paper back and of course, leave me a review. Reviews help me out more than anything else. I can see how you feel about them, it lets other people see how you feel about it. Also, the more reviews you have, the more Amazon will promote it to other people so I love to get my books out there and reach as many people as I can.
All right, cool thank you guys for listening. If you have any questions, be sure to leave a comment. E-mail me at firstname.lastname@example.org
and I’ll talk to everybody next week.