2017 was a year of adjustment for BuyCashFlowProperties.com.
Since the US single-family house market has stabilised, there are less opportunities for below-market value acquisitions. The hedge funds that acquire these type of assets are still active, some more than others. For the above-average family operation like myself, we’ve returned to our roots on how we acquire houses.
That is; we’ve abandoned mortgage foreclosures for the most part and we are back to marketing for distressed sales directly from homeowners. This is how I cut my teeth in this business back in the early 1980s. The funds are still buying at the courthouse steps and their acquisition price has little regard to do with the cost of rehab. In many cases, they pay over retail for the properties. It would be crazy for mid-sized operations like me to do that because we are in the market to buy and sell in today’s marketplace.
The funds have a huge advantage over small operations because their cost of money is so low and in some cases backed by the government at 1% interest. When the cost of money is that low, you can afford to overpay and you’re going to make a profit on cash flow and you have a giant potential for upside returns in an appreciating market. That’s why the funds are still buying.
So, were back to the basics in marketing in every which way possible for distressed owners that need to sell now.
Since the real estate market has risen so much across the US, it’s been more profitable for us to sell houses retail to wannabe homeowners. Part of this reason is because the price points have moved up on many of the house we acquire and get sold for over $200,000. We could look at other markets in the US, but I am bullish on Atlanta due to the growth in the area, job creation and moderate climate.
We do acquire less expensive properties in the Atlanta market but they’re not the kind that you would want to own for long-term appreciation and cash flow. These are the types of houses we wholesale to other investors because lower income properties are much more management and maintenance intensive.
In some areas the skillset required to manage these types of properties includes a gun and a Doberman Pincher. But there is a market for these types of properties and we tie them up on a contract and wholesale them to other investors who have mastered this niche. Not for me. I lived that life in Buffalo, New York in the 1980s and 90s and even though I bought the upper end of the low income properties, it’s a thankless job and I got kicked in the teeth.
Many of you heard me speak of my adventures in New York while on my first tour of the cities in South Africa in 2013. If not, the videos are still on the BuyCashFlowProperties.com website under education. Scroll down to additional education labeled “Money Talks”,the song written by AC/DC. That was one of my favourite presentations in Johannesburg as the energy in the room was so high that day when I came out to the music of that song.
THE QUESTION IS: SHOULD YOU BUY MORE OR SELL NOW?
The simple answer is, it all depends. The real question you have to ask yourself is why did you buy houses in the first place? If you bought houses for cash flow and upside appreciation, along with getting your foot into a safer economy, a safer currency then why would you sell? The only reason I can think of for people to sell now is that you have a greater need or opportunity for the money. It really all starts out with the goals you created for yourself and your family. And everybody’s goals are different.
Another consideration is that the US dollar is weakening against other currencies, which makes it a good time to invest in the US.
Last year I sold approximately 1/3 of my portfolio of houses to a hedge fund. But there’s more to that story. You see, most of my houses were held in retirement accounts and upon the sale of those properties there was no income taxes. And in some case I did a 1031 exchange into other properties so that I wouldn’t have to recognise any income tax on that sale as well. For most of you reading this, if you sell your properties, you will pay income taxes and you would dilute your working capital.
When I spoke at the IMN conference in Scottsdale Arizona in December, I was on a shark tank panel and I was presenting one of our investors portfolio of approximately 50 houses. A lot of interest was generated by my presentation and in the end the sellers raised the price of their houses and never concluded a sale.
I’ve seen this over and over with investors now. They say they want to sell their house and then all of a sudden they get sellers’ remorse, or they’re just testing the market. Or, they go back to their original reasons and goals for buying the houses and realise there’s no point in selling when they’re making cash flow and the properties are going up in value.
I was listening to one of the other speakers at that same event and he said that 60% of all investors that outsource their property management don’t like the property manager. Property management is the foundation of holding rentals. If that foundation cracks or breaks all bets are off. There have been times when my own properties suddenly needed a new HVAC unit or a septic tank.
When the temperature dipped below 20° for extended periods of time in Atlanta this winter, I had a couple of HVAC units that had to be replaced because they were working so hard to heat the house and they burned out. It’s a fluke, and it happened, and it’s no one’s fault. Just like it’s hard to fix blame when the stock market goes down, you really can’t blame it on the stockbroker that sold you the stock. One thing I do know, and I know for sure is the management company we all use never marks up a fee for repairs, turnovers or maintenance of any kind and every other property management company does.
One of my closest friends teaches property management companies how to mark up their fees so I know this is an industry standard. And that’s probably why 60% of all investors that outsource their property management don’t like their property management company. My business is strictly buying and selling houses to investors and to homeowners. For our investors, I give a one-year warranty and I have to tell you, I’ve paid in excess of $100,000 to keep those warranties in place over the last six years.
During the first 4 years, we never even told the investors about the repairs made to their houses and I’ve come to realise that that’s ridiculous. You need to know that I’ve honoured our agreement and always will no matter the financial impact on me.
To sell or not to sell? It’s really a personal choice based on your goals. My goal was to have a certain number of houses without debt that provided for my family’s lifestyle. Once I reached that benchmark, I created new goals that allowed me to be more, so I could make more, so I could give more. And guess what? I’ve gone back into the market and bought some more houses. I’m holding and I plan to add more.
If I can help you obtain more properties or liquidate the ones you have simply contact me directly at RJP@5cashflowproperties.com or call me at 813-495-3006.
We have investors that tell us what they are looking for: if we don’t have it, we keep an eye out for the investment that fits their needs.
“Anything worth doing, is worth doing to excellence!”
Director of Acquisitions