The Key to Scoring Discounted Deals

David:
Welcome to the BiggerPockets Podcast Show 861.
What’s going on everyone? I’m David Greene, your host of the BiggerPockets Real Estate podcast. And today I’m rolling solo. Rob and I decided to divide and conquer and bring you not one but two episodes for double the flavor and double the fun where we speak to a real estate agent and an investor that they’re actively working with so we can better understand what deals are working today.
In this episode, you’re going to hear from Remy, who is an out-of-state investor who broke into a new market for him, Florida. You’re also going to hear about the deal he completed in that market. And we’re going to hear from his real estate agent, Kim. Kim’s going to discuss the Florida market and general market conditions so that you get realtime information about what deals are working in that part of the country where I invest myself. Kim is actually one of the featured agents on the BiggerPockets Agent Finder as am I. This tool helps investors find real estate agents like me in their markets. So visit biggerpockets.com/agentfinder to learn more. All right, without any more ado, let’s bring in Kim and Remy.
Kim, Remy, welcome to the BiggerPockets Podcast. Kim, let’s start with you. Tell me a little bit about yourself as an agent and what market you focus in.

Kim:
Sure. Thanks for having me on the show, David. I am actually in the Tampa MSA and also Orlando. We only work with investors in investment sales. That could be single family multifamily. Then we also have a long-term property management company and a short-term property management company. So I kind of take care of everybody here across central Florida.

David:
Now, Florida has been one of, or the hottest markets in the country the last couple years. Is this trend continuing?

Kim:
It is. We still are on a net migration here. Our homes are maybe down just about 11% as far as sales, but our median price is still up, which is really crazy. It’s just lack of inventory really and affordability just for everybody across the board. And we’re sitting at about 45 days average on the market right now.

David:
Now you said that sales are down 11%. Do you mean that the sales volume, like the number of transactions is down by 11%?

Kim:
Yes.

David:
Yeah, that’s pretty standard for the country right now. When rates go up, you see less transactions happening. But like you mentioned, that doesn’t mean that prices are dropping because you said your median sales price is up.

Kim:
Yeah, we’re up to 405 right now.

David:
What about the days on market?

Kim:
About 62% are selling under 30 days. About 28%, 30 to 90. So it’s averaging out about 45 days.

David:
Okay, so at 45 days you’re probably not seeing quite the number of bidding wars in a lot of these places that you were before, right?

Kim:
No. The one thing that I’m seeing is that I’m seeing a lot of things come back on the market, and that could be people not being able to get approved for loans or maybe being scared away from just any kind of maintenance or rehab. So I have picked up quite a few that way and maybe we were second in line. So yeah, we’re still getting properties and still a great time to buy.

David:
Yeah. So one of the strategies I talked about in my newest book, Pillars of Wealth, was that you should literally target properties that are back on the market because the sellers are often frustrated, they’ve already started making plans for where they wanted to move to. They’ve already gone through the idea of like, “My house is worth this much. Okay, fine, I’ll sell it for this much. All right, fine. I’ll give you a credit.” You’ve already had those expectations sort of beat down a little bit so when the next buyer comes in, they can get a better deal than when the seller had really high expectations. So I like seeing that in markets I’m investing in. The houses are more likely to come back on the market and that days on market are creeping up. So 45 is not a bad number at all, but it’s definitely better than what it was when you were seeing houses selling in eight or nine days. As far as what investors are making work out there in Florida, what types of deals do you see working the most often?

Kim:
In our smaller multifamily, anywhere from four to 10 units, I’m seeing a lot of owner finance being offered, also some subject too. And then also because we are going back and wrapping back around to look at these things that are longer days on market, we’re getting credit for maybe it needs a new roof or it needs X amount of work. So we’re seeing a lot of that happening. People are being a little more negotiable in kind of reality.

David:
All right. Now Kim, you brought someone with you, Remy. Remy, I understand that you’re Kim’s client. How long have you been a real estate investor?

Remy:
So I’ve been, I call it a part-time, real estate investor since 2006. I had a W2 job, so it was something that I actually got into by accident. My father was a builder and he said, “Hey Remy, you should take the money you make from your job and just put it into stuff that makes more money. Real estate’s always been good for me.” So that’s really how I got started and have just dipped my toe in the water here and there over the last 10 plus years.

David:
Okay, and how did you find Kim?

Remy:
Actually, I found Kim on BiggerPockets. It was actually an episode you had Kim on. And I think there was another agent from the Dallas area on as well. And then everywhere I seemed to go when it came to the Florida market, Kim’s name just kept popping up so I thought, “Well, here’s someone who really understands the market and works with investors,” which was important to me, and someone who also is an investor themselves and she sort of ticked all those boxes for me.

David:
So BiggerPockets play in the matchmaker. Who needs Bumble and who needs Hinge when you’ve got BP making love stories here that actually turn into money? So what made you decide on Florida?

Remy:
I think like everyone in New York, there seems to be a well warm path from New York to Florida. But I mean joking aside, I mean for me, I looked at all those macroeconomic indicators. So where are people moving? Where are the jobs being created? And Florida just kept coming up. I remember circulating an article, I think I sent it to you, Kim, about it was in Bloomberg where Florida now is bigger market than New York. So it’s things like that from an macroeconomic standpoint that I pay attention to. And then of course, just drill down on the cities. Tampa seemed to be a real hotspot in addition to Orlando, which are really the two markets I like.

David:
Yeah, you’re not kidding about New York moving their way into Florida. The first time I went, I was expecting to have retirement, older people driving really slow, looking at the scenery. They drive like crazy people in South Florida. I mean, I’m from California. We’re not a bunch of church mice, girl scouts, and I was shocked at the level of aggressiveness in South Florida .and I realized it’s all these New York, New Jersey people that have that mentality that have moved their way into Florida and they’re absolutely insane, blowing your doors off. Still, every time I go, you don’t relax when you’re driving. It feels like you’re riding a motorcycle when you’re in your car. Exact same feeling.
So I do love that market as well though. I think the same things that you said, Remy, I see a lot of, if you just look at the population of the United States, it’s like someone tilted the whole thing down into the left and everyone is sliding down into the southeast there. So that will work out very well long-term for that market that you chose. And Tampa and Orlando are both growing exceptionally fast now. Tell me about your buy box on this deal. What were you looking for?

Remy:
This was actually my first deal in Florida. My buy box was a little bit more conservative than I usually do, but I was looking for something, a small multifamily, so we ended up going with a triplex. So anything from two units to four. I also wanted it to be in an area that was gentrifying. And I’ve done well with areas that have been gentrifying. I’ve bought in other parts of the country, Missouri. I own stuff in Canada too. And I’ve always bought in neighborhoods that are changing. And so I think for some people, it might scare them off, but having frequented that Ybor City area for years and seeing it change over time and all the projects, and of course, Kim was great and her team were great on educating me on that, but I look for the gentrifying neighborhoods. I think there’s a tremendous amount of upside there.
I think where I went a little bit more conservative was we didn’t want to take on a big renovation project this time. We wanted the house to be, I wouldn’t say done, but we wanted to have a lot of that stuff done. I was particularly more cautious just because I actually ended up partnering with someone on this first deal as well and I wanted to make sure that that partner also had a really good experience as well since they were not only new to Florida, but new to real estate investing out of state.

David:
What was it about the turnkey element that drew you into it? Why were you trying to avoid a bigger project?

Remy:
I think it really goes down to probably not understanding the market or it being my first time buying in Florida. Not to say that there isn’t work to do, we ended up putting a little bit of work into it. I didn’t take on as much as I probably would’ve. And I’m looking to actually with the second property that I’m looking to buy in Florida. We wanted to make it just a little bit easier, make that experience particularly for the partner, just a little bit easier, a little bit more smooth.

David:
All right. Now that we’ve heard about the market and what Remy’s buy box is, we’re going to jump into a deal shortly here that Kim and Remy recently did together as well as how they made the numbers work. But before that, we are going to take a quick break to hear from our show sponsors.
All right, welcome back to the show. Let’s jump into Remy’s deal. Now, Kim, you were tasked with the job of finding these properties for Remy to review. How many did you show him before you guys found one that you thought would work?

Kim:
Well, actually, myself and one of my agents helped Remy, which I have a team of 12, so we are always sourcing. I think we looked maybe at 10 or 20, Remy, is that probably about right?

Remy:
Yeah, I think it was more than that, Kim. I think it was more upwards of 30 or 40. Yeah, we looked at quite a few. Yeah, we looked at quite a few before we ended up diving in.

Kim:
For that particular thing that he wanted, we definitely had to look at quite a few. This one that he ended up getting, there were offer already on it and it came back on the market and we ended up getting it that way again the second time around.

David:
Okay. So what was it about this property, Remy, that caught your eye that made you think you wanted to look deeper into it?

Remy:
The neighborhood itself was the big draw. It was one of the few properties on the street that had been renovated. So I think there wasn’t a huge amount of price inflation because it was, I’d say maybe one the first three to be renovated. Yeah, I think at the end of the day we try to keep it pretty simple. It was in a good area, it was close to a lot of different amenities. One of the units was already rented and it was fairly turnkey. So we kept it really simple, the first one.
I think where the challenge came in and the challenge with Florida in particular is cashflow. And so, at first I was pretty adamant that… In fact, David, I think I remember you saying, “Hey, if you can hit a 15%, that’s a grand slam.” And finding 15% is trying to find a needle in a haystack right now. So we had to readjust that buy box a little bit and really focus not only on the cashflow but really focusing on the long-term appreciation. And so at the end of the day, the property did cashflow and it does cashflow positively. It probably just didn’t cashflow as much and I think I was probably being pretty stubborn in terms of trying to find that cashflow, that 8 to 15% range, which is pretty tough, but the appreciation is there for sure.

David:
All right. Remy, what were you pre-approved for and what was your price point on this deal?

Remy:
Pre-approved for 650,000. I really was trying to keep it anywhere from 400,000, which is about the average as Kim mentioned. And I really didn’t want to go higher than that 650,000. I wanted to keep it at that. And what really attracted me about this property was the agent, and this is where Kim’s team was really instrumental, is although it was a triplex, they had really priced it as a duplex. Candidly to this day, I’m not sure why. Maybe the agent on the other side was less experienced. But one of the things that was really attractive is that most triplexes in that area sell for more. And so there was instant appreciation right from the start. At the end of the day, that’s why we really stuck on that one.

David:
What was the purchase price on the property?

Remy:
So it was on the market for 549,000. Actually bid under contract, come back. So we were a little late and it came back on the market. Because it had been priced pretty aggressively, and again, it was really priced as a duplex but obviously a triplex, we actually ended up going over. And so we ended up going in at 554,900 and we ended up getting it.

David:
Now looking back, are you glad this property hit the market again? Do you think that gave you an advantage? Or do you think it would’ve been the same if you were writing an offer on something that hadn’t just hit the market?

Remy:
No. We’re really happy with the purchase. We were very happy with the property just again because I think we were dealing with something that was underpriced from the beginning. And so again, that’s why I didn’t really mind going in over. And I think compared to what it could have been, I expected it 600,000, 625,000. So yeah, absolutely we do that deal all over again now.

David:
Yeah. What kind of coaching did you get from your agent that helped you write the winning offer so that you didn’t have to worry about going too high that you weren’t comfortable about it, but you did go high enough that the seller accepted the offer?

Remy:
Yeah, so Kim’s team was really, really helpful. I actually thought we should have gone… I want to be a little bit more aggressive and I thought, “Let’s go in under because it had come back on the market.” I think where Kim’s team was really helpful was just in showing me some of the comps in the area and showing me some of the pricing trends and whatnot in the area. And she said, “Look, if you really want to secure this deal, my suggestion is you go a little bit over given the fact that it is underpriced, it’s really priced as a duplex and it’s obviously a triplex.” And so they were really helpful in terms of providing me with the data that I needed to make that decision because again, at first I really wanted to go in under given the fact that it had come back on the market, I did the opposite of what I thought we should have. And probably would’ve lost it have we been in the same situation. But yeah, so going in over was a good strategy and based on the data to support all of that.

David:
That’s a great point. I mentioned before, in 2015, I saw people that didn’t want to overpay for a property. They had it under contract at 600,000, it appraised at 590,000 and they walked away from the deal because they weren’t going to overpay. And now that property is worth $900,000 and they have nothing. And I just wonder what are we thinking sometimes when it comes to the area, the location that you’re choosing the property in that has a lot more to do than the price you’re paying for at that moment in time. So what was it about this neighborhood or this location that really stood out to you that caused you to focus there?

Remy:
Again, it really came back to… I mean, Kim’s team, I had a general idea about that area, the Ybor City area. I know it’s been gentrifying over the last decade or so. And I think where Kim’s team really helped me was just pinpointing where specifically in that area I should focus down to the street level. And so they were real helpful in really pinpointing, “Here are the streets you should be looking at. Here’s that section of the neighborhood you should be looking at.” They got extremely detailed with me, which is exactly what I wanted because we all know, I mean one street can change from the other and it makes a big, big difference, right? So if you’re betting a long time appreciation, we just wanted to make sure that we’re on the right street in the right neighborhood, and they really helped us there.

David:
Now Kim, whenever an investor is looking at small multifamily properties, odds are they could come with a tenant. What’s your thoughts on if investors should buy properties that have tenants in them or if they should only buy vacant properties?

Kim:
We do both. There are some caveats to it. We’d really need to look at what are the rents right now, how far below market are they, how long have they been there, how do they keep the property, what kind of payments have they made?, Are they been late. I mean there’s a lot of different pieces to the puzzle. I prefer that we have them either vacant. Or if we need it for the loan, that they’re month to month. A lot of times when I’m selling something of someone that’ll call me up and say, “Oh, well I want to sell this,” I’m like, “Okay, when’s the lease up?” And they go, “Oh, I just renewed it.” And I go, “Ah!” You know? You just want to go crazy. So we are very, very detailed on that. We want to know exactly what’s been going on with that tenant.

David:
Okay. So Remy, in this property, did it come with tenants inside or did you place them all yourself?

Remy:
So one of the units was rented, definitely paying below market rent. The other two units obviously were vacant, so gave us a good opportunity to go in there and boost the property’s cashflow by putting in new tenants. We had a little bit of stabilization of the property by having tenants in there. So yeah, it wasn’t fully rented but it was… And they were month to month too, by the way. So it really checked a lot of the boxes that Kim mentioned in terms of what she looks for when acquiring a property.

David:
Now once this property is fully rented, what do you expect the cash on cash return to look like?

Remy:
So the cash on cash return will be anywhere from 4 to 5%.

David:
And are you happy with the 4 to 5% on a pure cash on cash return? Or are you thinking more five, 10 years down the road with rent increases and the property appreciating, it’s going to look like a really good investment?

Remy:
Yeah. So I really didn’t focus on today, if you will. I was really focused on the future value of the property. I know that rents in Florida are going up. I know that properties in Florida are appreciating. My whole time is anywhere from five to 10 years, I’m probably on the five. But I knew given all the data that I’d looked at with regards to that market all the way down to the street level, that that property was going to go nowhere but up. And so for me, the cashflow is nice. I don’t like negatively cashflowing properties. But for me the cashflow was much less important. It was more about the long-term prospects. And so yeah, I’m real happy with the property and I think long-term it’s a winner. I did have to change my philosophy a little bit on the cash in terms of what expectations were, but the cash on cash return was really secondary compared to the ultimate goal was that longer term appreciation.

David:
Now Kim, I understand that there was a little bit of trouble with the financing on this deal. Can you tell us what happened there?

Kim:
Remy can probably do better, but I think it was hard moneylender and it was somebody he had chosen. I did not know them. A lot of times I like to probably get in front of that a little bit more so that we can try to refer them to a couple different people we’ve worked with in the past. And that was what had happened on this deal. And Remy learned that quick.

David:
Yeah. Remy, what was your experience like? How did you guys solve this financing problem?

Remy:
So we wanted to do a DSCR loan. A lot of people who have gone through that, especially when it comes to hard money, there are a lot of requirements. And those requirements can change and do change as you go through that process. And so it was really, a lot of things were changing, documentation requirements, more documentation requirements, et cetera, et cetera. With that being said, we did have some things that just seem to come out of nowhere, like a hurricane. And so that shut things down. We wanted to do an LLC out of state versus a Florida LLC, and that proved to be a real challenge. So we had a couple of things come up that were obviously related to the financing but weren’t obviously because of the financing.
So I would say whatever curveball could have gotten thrown at us in this particular deal, I think it did. Everything from the LLC to challenges with the financing and the hard moneylender to a hurricane shutting down the entire state and stalling everything. So it was definitely a good exercise in patience.

David:
Yeah. So what happened with the hurricane shutting down the state? How did that affect your transaction?

Remy:
So we ended up having to, rather than do an LLC out of Wyoming, in order to get the deal done, we needed to form an LLC out of Florida. The turnaround time for those can be I think longer than 10 days. And so we had had actually pushed back the deal a couple of times already and we had to extend the deal yet again and the seller understandably starts getting cold feet and said, “Look, if you can’t do this by this date, we’re going to put it back on the market.” The hurricane of course ended up coming. We knew there was no way we were going to be able to meet that date. Now the seller understood, but it was challenging. And Kim’s team actually put me in touch with an attorney in Florida that really, really pulled that off. I think we ended up getting the LLC within three days, which is pretty unheard of.
So again, for me that was really about having the right team and knowing the right people to help pull those levers and get it done. I don’t know if we would’ve been able to do that deal if we hadn’t gotten in touch with that attorney and she pulled some strings pretty quick.

David:
All right. Now I understand you two had a pretty good experience here. You worked through some issues. Do you have any future deals on the horizon? Will you be looking for more?

Remy:
I know we’re trying. It’s a challenging market. We’re looking in different parts of Florida too, so focusing on Orlando, which is also a very challenging market, but also looking at Space Coast as well. I won’t say exactly we’re in the Space Coast because I feel like we may have an area that hasn’t quite hit the headlines yet. But yeah, those are the three areas that we’re really continuing to look at and really scour the deals.

David:
All right. And Kim, what advice would you have for an investor looking for a deal today?

Kim:
Don’t sit on the sidelines if you really do want to get something. Something that I read a couple of weeks ago that in ’73 the rates were outrageous and people were like, “Oh, I’m going to wait for the rates to come down.” They didn’t come down for over 20 years. So don’t wait. You’re going to miss out on all that appreciation you could have gained, the depreciation, and building your financial wealth, which is what most of us want to do. So don’t sit on the sidelines, get out there.

David:
All right. Thanks so much you two for sharing the information on this deal with us and our audience today. If you would like to find an agent like Kim, go over to biggerpockets.com/agentfinder to get matched with your perfect agent today. Remy, Kim, thanks for being on the show. Really appreciate you, guys.