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Scaling my business, 15-20% annual ROI
04-19-2014, 07:03 PM
Looking for some insight/brain storming ideas here in order to scale a business:
- I'm purchasing homes in Northern Ohio all cash, renovating and placing tenants. After expenses, I'm realizing a 15-20% cash on cash ROI annually. I'm going to continue this path forward on my own accord, building my passive income.
How can I scale this further? I'll begin using bank financing later this year which will boost my cash on cash returns well above 20%. However, I'm interested in using other peoples money to expand this further.
1) I can purchase, renovate, install tenant and flip to end-user investors as a turnkey package with a 20% profit margin. This involves more risk as I'm holding inventory and ultimately realizing a shorter term gain.
2) Utilize crowd funding to purchase a group of homes, reno, tenant and split the profits back to the investors with myself taking a 5-7% cut. While the cut % isn't much, in theory that 5-7% could be based on 200k/500k/1mm$+ under management. Not sure how on the risk is distributed here nor do I quite understand the ins and outs of this model.
What other ideas/models apply here?
I have a viable business here and anything >10% ROI annually in my book is great. However, I think I can go bigger. I'm in no rush to scale but needless to say, it's been in the back of my mind for awhile now.
Thanks all, I appreciate your thoughts/insight.
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Scaling my business, 15-20% annual ROI
04-20-2014, 11:46 AM
Great job on the rehab.
A bank loan is OPM. There are two types OPM: debt & equity. I rather deal with one bank than 2-4 investors. The less people the easier! For each additional person you add to the team the complexity of everything increases by an exponent of two. lol
Go to all the banks you can and find a banker who you get along with well and who you feel you can build a business relationship over time. Not all bankers are created equal, and the worst are the ones from the big corporate banks, but there are still a few good bankers out there.
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Scaling my business, 15-20% annual ROI
04-20-2014, 12:22 PM
You should be looking at private lending or hard money. Show someone that has money like a doctor, lawyer, engineer, etc etc that they can get less than 1% of return on their money or 10% lending it out to you, BACKED by real estate
Go on Facebook and join Hard Money or Private Money groups its dozens of them out there. Also join BiggerPockets and post in the Success Stories your before, after and spread made. That way you can show potential investors you're serious.
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Scaling my business, 15-20% annual ROI
04-20-2014, 08:54 PM
Things seem to be working out well for you right now. I like what you are doing.
I think a couple things to consider is start looking for other avenues to use your profits. Stick with something you enjoy or are willing to learn. It can be another facet within real estate or something completely different. If there is another real estate collapse or even a slight downturn, the one thing I learned in real estate is years and years worth of gains can be wiped out in one bad decision. So keep that in mind.
Secondly if you have time and the energy you can scale up your business by not only using bank financing but you can get multiple projects going by using hard money lenders or private financing. Private lenders generally don't care if you have other projects going on (unlike the bank), if the numbers make sense they will cut you a cheque. When I was really going I had a few partnerships with my family and other guys my age that were hungry. We weren't really friends at first and had met through acquaintances. We are now great friends but I think the success we had came from the fact that we weren't friends to begin with and grew a mutual respect for one another.
Also if you do take on multiple projects at the same time, try to keep them within close proximity to each other. I used to do things in different parts of Alberta and BC and got to be a headache. If you are single and don't mind the travel it can easily be done but if you have other people to look after I would imagine it would become pretty daunting.
Any business venture entered into with anybody, including grandma, be sure to get it all in writing. Not only money and expected return, but also what is expected of each party. Having clearly defined rules saves so many headaches in the end. One thing I liked to do was consult with mentors or very experienced real estate lawyers. Pay them the first time to write out a pretty rock solid joint venture agreement template that you can use for any opportunity.
Great job and I am glad you are taking chances and they are paying off
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Scaling my business, 15-20% annual ROI
04-20-2014, 09:00 PM
Thanks for the input Big, hope AB is still kicking ass.
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Scaling my business, 15-20% annual ROI
04-21-2014, 04:59 AM
I've got both friends and family in this biz.
1. lease with an option to buy for all tenants of SFH
2. moving from SFH to Multi-family. It's not much more difficult, plus you can hire a full time manager and maintenance. Becomes much more attractive to outside money. My east coast peoples flat out told me they had Wall Street connects, but those guys aren't interested in anything less that 4-5M. It's too much work for not enough return.
3. switching from mere habitation to special needs, retirement, hospice, halfway house, foster housing, et cetera. (high touch, very good money)
4. Cowgill-esque fund raising. You'll need an experienced person to walk you through it, but you either raise money from newbs @ your local REIC (Real Estate Investment Club), or you go legit, get you a lawyer and ADVERTISE.
I know at least 4 RE millionaires, and most of they got their by initially flipping/renting, and then moving to bigger deals.
The real money is unlocking possibilities. One dude looked at the city plat, found two useless parcels right next to each other, convinced both lando owners to sell, combined the parcels, and then did a ground lease to a major retailer for 75 years. Turned around and sold the lease payments to folks looking for return on their money.
Another chick bought a 3 story mfh, added two floors and an elevator.
Gotta homeboy who cashed out his retirement, convinced two owners to part with land (land that was not for sale!!!) to part with their pieces, and is combining the plot to put some Dwell magazine type units. He is gonna spend low 7's to make high 7's. Super risky, but if it works he no longer lunches with the serfs and dregs of society like myself.
I know folks that were selling raw land to housing developers and took a piece of the final sale to eventual homeowner.
There are all kinds of ways to do much more than buy, fix, and hold, or buy and flip, buy/fix and flip.
WIA
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Scaling my business, 15-20% annual ROI
04-21-2014, 02:11 PM
You need a cash business that will feed into your cashflow business.
Something that generates money that can be funneled into more cashflow properties.
You may want to start concentrating on properties you can rehab and flip until you are bringing in enough cash to parlay that into the type of cashflow properties you are working right now.
Seeking private investors and all is cool, but I think you will do better by setting up a cash machine of your own.
You already have the rehab skills judging by your photos, just use them to generate more cash now.
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Scaling my business, 15-20% annual ROI
04-21-2014, 03:09 PM
If you are serious about making more cash flow you need to consider how to increase your income. Jason Fried said in this entrepreneur book Rework, sell your by-products of doing business. You clearly learned how to fix houses, set up an internet business selling information on how to flip houses or get into real estate, niche market over mass market in today's economy.
That is only one option, consider ensuring long term profitability, how they are paying for upkeep, do you recommend a guy? Do you have a gardener, or even once a week maid come by to help and maintain your property. Are you making money from the upkeep process, large apartment buildings take a cut out of what maintenance earns. If you manage to find a way to construct an effect business model in this are you might be able to see extra cash flow.
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Scaling my business, 15-20% annual ROI
04-21-2014, 11:09 PM
Interesting re: Jason Fried's book, been reading up on that the last hour or so. Thanks for the direction.
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Scaling my business, 15-20% annual ROI
04-22-2014, 12:38 AM
Sammybiker:
To me it's amazing that you can do this while out of the country (not even city or state) and still hold down a demanding job. You must have a ridiculous amount of energy and really good time management skills to pull this off. I admit, when I had properties on the East Coast, it was eventually too much for me to handle and I was very relieved when a colleague of one of my investors bought the entire portfolio from us all at once.
Now that you're looking to scale up, do you think you'll be able to allocate more time for these new projects without giving up your 9-5? I think it's a valid concern and one of the main reasons I'm working at a very low stress 9-5 job now.
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Scaling my business, 15-20% annual ROI
06-12-2014, 07:18 PM
sammybiker,
What are the types/quality of tenants you are getting? Nice job!
Fate whispers to the warrior, "You cannot withstand the storm." And the warrior whispers back, "I am the storm."
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Scaling my business, 15-20% annual ROI
06-26-2014, 05:41 PM
Ah, Real Estate, lol I was in RE Wholesaling for a while on and off, but unlike trading I had no mentor or solid knowledge base/tools and just gave up with it. I personally am turned off even by the prospect of going into that industry again. It's too much of "who you know", but congrats man on the success!
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Scaling my business, 15-20% annual ROI
06-27-2014, 05:16 PM
Sammy, I really like the fact that you're buying these houses cheap. They are literally 10x-15x cheaper than houses where I live. I also notice you work remotely. At one point did you live in the area where you're buying these homes? How do you do your due diligence on the property, or does your PM do it for you?