Choosing the market and partners
# Entrepreneur of the Week Gal Schmuckler # Post 4
So I went back to Austin Texas where I live.
Austin is an amazing city, and the fastest growing real estate in recent years, truly a fun city to live in.
So why not do real estate in Austin ??
This is a question that has been asked of me a lot. Especially friends from the country who hear about how Austin is developing and that it's the next Silicon Valley.
It's really true.
The problem with the story is that I'm looking for something else. I'm looking for Cash Flow.
Austin is amazing for an increase in value but the returns are in the 4 percent range (cap rate - after expenses) if I manage to make a full refinance, as I talked about in the previous post I will reach a state of negative cash flow.
And that's not the business model I'm aiming for.
So what exactly is my plan ???
I want to buy high yield properties.
Many times a high return comes in correlation with risk. Which is true.
So how do you define risk ??
We work in the Class C area.
Our way of insuring the rents and properties is to do a rigorous background check, take a first, last month and also a deposit.
In addition, we strive for 50 percent of the rents to come from the state from programs like Saksin 8 and Veterans.
Sometimes there are problems and the tenants are more difficult, but once we understand that they are human beings, just like us and treat them with respect, we will usually get good tenants who will stay for a long time.
Factually we only have a 5 percent vacancy rate. Which means the tenants are not leaving and they are also giving extra of themselves because we are giving them the same currency.
So how did I get into these properties ??
So I realized Austin was not for me and started looking for what market is best for me for my business plan.
That's how I got to Houston.
I did not know anyone in Houston who deals in real estate and I did not know anyone who knows so I just searched on Facebook.
Yes, there are a lot of problematic things in this platform, but I use it mainly for information consumption.
And that's exactly what I do in this group.
That’s how I got to my partner in the Houston Crescent.
An amazing guy who has been in the real estate business for many years in Houston and I saw that he wrote in "Entrepreneur of the Week" in this group. So I just turned to him. We met and honestly we had chemistry.
We started working.
We examined a lot of joint investment properties and the market was too difficult and competitive. So I just said crescent, let's do hallsailing.
We studied the field and after 3 weeks we had already made our first deal and earned $ 20 on it.
It was amazing, and above all it gave us a Proof of Concept (we realized it worked).
We started running
At first we made the calls ourselves, and now we already have phones that call sellers and close deals.
But I ... I wanted to accumulate as many assets as possible.
So we continued to do wholesale in Houston.
After a few months I took a flight again to Jacksonville where my childhood friends, Itai and Shai have been dealing in real estate for 3 years.
And unlike my first flight there, I already had a clear idea of what I wanted to do.
I opened up to them the field of wholesaling, where what's amazing about it, that you're actually in the driver's seat.
You can sell the contract on the deal as is usually done in wholesale, you can buy the deal and sell it in the market (it is also possible with a bridging loan and then women out of pocket less), you can buy land and build and you can just accumulate assets.
The main thing is to bring a good deal.
It is difficult and tedious and requires a lot of work and investment, but once that happens, the sky is the limit.
So we started working and putting out campaigns in order to allow us to purchase as many high-yielding properties as possible and ones for which we could get a full refinance.
This is our business model.
Buy properties up to 70 percent of the market price, take Hard money that will allow us to purchase the properties when 80-90 percent is funded by a private lender (at a fairly high interest rate) and after 3-4 months go to the same land and make a low interest refinance. (And interest rates today are historically low in the US).
When you think about it if you take financing at 4 percent and inflation at 4 percent you are basically getting money for free.
In addition, when you take financing in the United States and use it wisely, you can reach a situation where you do not pay taxes.
This is really delusional but in a capitalist market like in the US, one has to understand how money works and how one can make the best use of it.
Warren Buffett always says his secretary and apprentice pay more taxes than he does.
I dug in a bit on topics that excite me but we'll go back to wholesaling.
What I'm actually doing in Houston and Jacksonville is just getting to the sellers first who really want to sell the property and I allow them time and convenience.
So if the property meets my criteria I buy it, and if not I sell it. Most importantly I have a lot of exit ways and like I said I'm basically in the driver's seat.
So there are better deals and less good ones. There are a lot of headaches in dealing with phones that work for you, with software that causes problems, with sellers, with buyers, with title companies, with full of unexpected braces.
But in the end, in the end I do not think there is anything lucrative like this.
In addition it is important to note that choosing partners is critical and is the key to any business.
I have experienced partners that I trust.
I learn from them and they learn from me. Everyone brings their part to the table and that is the most important thing.
For those who have burned out very problematic partners in other areas, choosing a partner is critical.
In the next post I will give examples of two deals I made, one better and one less good and what I learned from that.
In the picture Jacksonville City of Lights?
Hope you enjoy and see you in post 5 :)
Love
wave
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