As the saying goes “So much to say so little time” seems so true and I apologize for not updating the blog more often for the 2 of you (my daughter and some random dude from Romania I think) who actually visit this thing.
Where do I start? The last real post was in the middle of May I think when I posted my 30 day challenge. At that time I decided to see if it were true that there were no more good deals to buy (I was a little worried this may be true).
The challenge was to buy 2 San Diego properties in the month of May (which I decided to increase to 3 because as the cool people say “that’s how I roll”) and I am sure the two of you must be curious how this so called challenge turned out… Be patient I will get there shortly.
Back to the “so little time” in Real Estate. Where has my time gone??? I ask myself that at the end of every day,week,month & year but looking back I have been extra busy I think with these 3 things.
1) Real Estate Interns
I brought on two interns from San Diego State University who are going into there senior year and board members of the SDSU Real Estate Society. I bit off quite a lot bringing on two full time people and was concerned about the time it was going to take me but Anthony & Seth have been great.
They’re assignment for the summer is
- To document everything they learn as they are doing it. They will do this by making or adding to instructions I already have on how and why I do what I do. This will be helpful to me next time I have interns and helpful to them by having to spend the time documenting these systems I use.
- To keep a daily journal on what they are doing
- To update the blog with what they are doing and their point’s of view. I feel this is benefit for everyone. The two people who read this blog, for them by having to really think about what they are doing and to be able to articulate it to someone reading the blog and really sound like they are in College and me by creating valuable content to people on what the view from someone really is like from someone immersing themselves into the business and to get additional information on what is working (and not) in the Real Estate business (at least related to my world). Seth posted his first blog last week and Anthony is due to post any day now so stay tuned on that front.
- To end the summer with a set of goals and business plan to help guide them into the future. They are finding this difficult as all of us do but I believe if they can set a course for their futures now and a plan of action the dividends they will receive in the future will be incalculable.
Just like anything in life they will probably receive a benefit in direct proportion to the effort they put into this.
2) FINALLY!!!! I have all my legal entities and documents set up for our Real Estate syndication
Well it’s taken me about 6 months longer than I was hoping and expecting but I finally completed our private placement memorandum with the help of Jillian Ivey. In addition I was able to complete our business plan with the help and push from Seth and Anthony, in addition to some other people who just graduated from the USD MSRE (Masters in Real Estate) program. Having the interns here really kept me on track and focused (they may disagree with my use of the word focus but trust me I know myself).
We have decided to selectively take in investor partners to the company. The original idea started out raising a million dollars in equity which would be used as capital in buying distressed single family 1-4 in San Diego. We would use leverage and estimated anywhere from 15-24 properties could be purchased with the money.
When we have done this in the past with Apartment buildings it was fairly straight forward. I would put a deposit on a building and get it in escrow and if I decided I wanted partners we would put an offering together for the building and close on it.
With SFR REO’s it is much more challenging because of the time frames are much more compressed and it is logistically impossible to raise the capital in this manner, the money had to be available first.
It seemed like every time we thought we solved one problem another came up that had to be solved. This made the process take much longer than expected since I was also buying and rehabbing properties at the same time.
A benefit of proper planning is that many times it tells you what not to do. I think a trait of an entrepreneur is optimism right? Otherwise why the hell would you work for free in the hope of getting paid some day? So sometimes it is better to learn what you shouldn’t do which then guides you in the proper way it should be done or helps you decide it’s not worth doing before spending countless amounts of money and energy on a project.
I believe the structureÂ should be a solid foundation for growth. In summary we are using a Delaware Series LLC which the investors will be members of and GII the manager. Instead of raising 1 million at a time and having to try to place it immediately we decided on doing micro funds of $150,000 – $350,000 each. This allowed a lot more flexibility and less pressure in having to place all the money at one time.
The funds are set up so as soon as the $150,000Â is in we start buying properties. Each fund ends up being from $150,000 – $350,000 each in which we will buy 2-6 properties using about 80% leverage to increase the return for everyone. As each property is sold the money that was invested into that property and any additional profits are distributed pro-rata according to the partnership agreement with the final distribution at the sale of the last property.
Once the money from the current fund is placed the next fund is mobilized. The attractiveness of this being that I can keep the flywheel moving. Real Estate is really a momentum business and nothing happens quickly.
Just like in brokerage or many sales jobs you have a pipeline of opportunities you create for yourself. The work you do today (sowing the seeds) you reap in the future. Real estate can have very long cycles and very sporadic cash flow.
A good analogy to getting your pipeline flowing is like moving a train. It takes a tremendous amount of energy to make it move but once it gets going it’s also hard to stop.
Buying properties are the same way. If this is your business you need to constantly be working looking for opportunities and you need to be able to take advantage of them when they come up. You do this by letting agents, owners etc. know that you are looking (sowing) and over time they start calling you (reaping) with these opportunities (9 out of 10 are not opportunities). As soon as you tell them you are not looking anymore they find someone else to work with and then you have to start all over again once you are ready to buy.
In the future when the time is right we can purchase other investment that are kept for the long term and apartment buildings again.
2) Buying San Diego Real Estate
Originally the 30 day challenge was 2 properties by the end of May. Well like many goals they don’t turn out exactly how you planned but it almost 100% of the time turns out better than if you had none.
We bought 3 properties with a 4th closing next week. I will post more information on these properties later but all is going well. 1 of the 3 went on the market and went into escrow right away. We are scheduled to close in about 40 days. Two more should be on the market by august 1st and the 4th one which is a much bigger rehab 60 days after (we have to deal with the city and take care of some violations from the last owner so that will probably delay us 30 days).
I plan on following up with a video post of how I found the properties I purchased. I attempted to spend about 15 days tracking my activities so I could report back to everyone
- how many agents I had to call before I found something worth driving
- how many properties I had to drive before I put in an offer
- how many offers until I got a property under contract
- how many properties did I have to get under contract before I purchased one.
By having these numbers you can set your goals and work backwards on the activities necessary to accomplish them.
Click Here are 3 of the 4 properties I am buying and how we underwrite and put them together for ourselves and investment partners when we have them.
I have finally gotten around to putting together some numbers from my last 6 properties into a website that I hope to post soon. I have gotten the numbers and some pictures together so far. The next step is to do a little summary with how I found the properties, what I did wrong, what I did right, etc. All this stuff always takes longer than I estimated (like almost everything else in life right?)
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