On April 3th, we hosted our first dinner series networking event in Washington D.C. After organizing and hosting a couple of different networking events, we believe that small and intimate gatherings are the missing piece in cultivating conversations and dialogues with our city's top real estate professionals and visionaries. For our first dinner, we were incredibly lucky to have Ms. Samantha Mazo, of Counsel with Cozen O'Connor, join us to discuss the latest zoning regulation changes and hot development topics. We are hoping to make this a quarterly event and continue to target DC's top real estate professionals to foster important relationships.
Now that the final building permits have arrived, our construction crew is hard at work in Bloomingdale! 1741 1st Street is a conversion project from a single-family home to two-unit luxury condos. When completed, this fully renovated building will offer two units. Unit 1 will feature 1bd/1ba and Unit 2 will be a spacious 3bd/2.5ba duplex. We are excited to work with the award-winning 3877 Design on architectural and interior designs for this project and can't wait to bring our vision to the market. The property is just a few blocks away from the Shaw Metro Station as well as all the hot spots and local favorites (Big Bear Cafe, Red Hen, Sylvan Bakery, etc.). Right now, our team have completed the demo, prepared the site work, working on finishing framing, and will be focusing on MEP (Mechanical, Electrical, Plumping) trades next. This project is on track to be complete in Fall. Please enjoy various construction progress photos below, and keep checking back for more updates.
As most of you know, DCBuySell hosts a monthly meetup focused on real estate professionals, investors and developers in the DMV area. We started this group about two years ago and have seen more than 1,500 people join the group in this short amount of time. The mission of our group has always been to educate and provide networking, resources and a belief system to others that might also be interested in real estate investing and development. Jason and I are committed to ensuring the highest quality for this meetup and it will always remain a core part of our business.
However, one challenge when planning these meetups has been around finding specific discussion points and topics that are interesting to our members. Sure, there are plenty of real estate related topics worth discussing, but up until last month we had no data points to help guide our decision on monthly topics. In early June, we sent out a survey to all of our members asking them to pick their top six choices. The idea here is that these six topics will become our discussions points for the remainder of the year. While the survey participation was lower than I had anticipated (only 52 people completed the survey), its been helpful in planning for the future meetups.
Here are the top six topics submitted by our members:
- Guest Speakers - Discussions around financing options with representatives from local banks, and hard money lenders.
- Presentation - Top 10 constructions mistakes
- Presentation - Top 10 lessons learned from previous flips (already covered in June 27 meetup)
- Case Study - Analyzing of a successful flip
- Presentation - Evaluating long-term multifamily investments (income, expenses and cash flow)
- Guest Speaker - Q&A with a title attorney to discuss topics around purchase agreements, condo conversion process, etc.
We are excited to cover these topics and are also planning on some cool events (hard hat construction tours, exclusive networking events, etc) so if you aren't already a member, please follow this link to join our group and hope to see you at one of our events:
On January 11th, we hosted our first 2017 workshop focused on the art of house hacking. This is a topic that is widely discussed in the world of real estate investing and we were excited to spend a couple of hours with our audience and talk shop.
The idea of house hacking is that you purchase a property and rent out parts of it to make the mortgage payment. There are many other definitions and use-cases but the general idea is that the mortgage is paid by others while the property owner works on (hopefully) accumulating more real estate. My partner Jason has built an impressive rental portfolio over the last 10 years using this method and was able to walk us through his journey, what it takes to be a successful investor and a few properties listed in the Washington D.C. for house hackers. Check out this video of Jason talking about his first property in Columbia Heights.
If you would like a copy of the presentation please email email@example.com.
PS> Our meet-up group is 1200+ member strong. Don't forget to sign up to be notified of future events and special workshops. Our next event is January 24th at 6:30pm.
Not a day goes by without us speaking or hearing from someone that is looking for an investment property. After all, there is an insane amount of cash parked on the sidelines and everyone is looking for an opportunity to put their money to work. I am usually an optimistic person when it comes to investments, but my feedback to these new investors is typically along the lines of "you and everybody else." The reality is that It has become very hard, competitive and expensive to find, acquire and manage investment properties inside the District. I am not suggesting that it is impossible, but a lot of things have to align for you to find a "deal," especially if you are a new investor below a certain price range. Below are my suggestions on how to prepare and give yourself a chance.
Financing - This seems like a no-brainer, but I am always surprised at how many people don't necessarily explore financing options before starting on this journey. My suggestion is to work with a local lender or a bank that specializes in commercial real estate loans and understand their rates, fees, timing and recourse requirements before getting too far in the process. I strongly recommend having the pre-qualification and proof of funds letter ready if you are serious about investing. Obviously, it is a different story if you are paying all-cash but then again, why would you pay cash if there are tax benefits to leveraging?
Search Criteria - In my opinion, as an investor, the worse thing you can do is not to have specific search criteria. Too many new investors only care about one thing: price. If I had a dollar for each time someone said to me "I just want a multifamily property for $000" I would be vacationing in my private villa out in Sardinia right now! To me, it is not enough to just to have a price target. There is a lot that makes one property a better investment option than another one and you need to know these things. Consider location, distance to public/metro transportation, the number of units, likely rent rates, zoning classifications, tenant laws, and limitations and don't waste your time chasing properties that don't meet your specific target. Because If your search is broad and all over the place then I can guarantee that some good opportunities are falling through the cracks.
Cash Flow: Since I am in charge of financial due diligence on our investments, I typically run few different scenarios to come up with an acquisition price that makes sense for us. The most important factor to me is property's cash flow today. I don't care what the property will generate after upgrades or marketing campaigns but rather what its cash flow is today. If today's cash flow numbers make sense, then I move on to other scenarios where I consider upgrades, renovations and bringing up the property to market standards as a best case scenario. Too many new investors are chasing appreciations and speculating "this property will be worth XYZ in 5 years" which I believe is one of the reasons we got in a 2008 mess. Remember, cash is king.
Expert Agent/Broker: This is probably the most important item as there is no substitute for what an expert agent and broker can do for you. The thing you have to understand is that agents are also operating in a very competitive space so you must align yourself with exceptional agents that go an extra level to provide services. Investment opportunities are highly relationship driven, and most amateur investors don't have access to off-market deals, financing, and 3rd party service providers. Make sure to pick an agent that specialize in investment properties within your target and someone that is vested in your success. Most agents also specialize in specific neighborhoods and could provide valuable insight into rent rolls, transaction volumes, comps and other community development projects, etc. Even though my partner is also a real-estate agent who specializes in investment properties and has his pulse on the market, we still rely on our network of agents almost on every deal. I am always amazed how effective most agents are and couldn't imagine trying to negotiate a deal without having an expert agency by our side.
Joint-Venture: In my opinion, the best approach to getting started in real estate is to invest in series of cash-flowing properties with best-in-class sponsors. Many new investors, don't know enough about the complexities of working with sellers, structuring a deal, financing and operating investment real estate, whereas an experienced sponsor usually has the vision and knowledge relevant to sourcing and maximizing value. Obviously, do your due diligence but don't be afraid to align yourself with local sponsors with successful track records.
In recent weeks, we have been on the losing end of two transactions. First, we tried to acquire a multifamily investment property in Columbia Heights and then we went after a full-gut rehab project in Capitol Hill. In both cases, our offers were substantially over the asking price - $60k over for the multifamily investment property and $70k over for the rehab project. We visited each property multiple times, did our due diligence, walked both of them with our General Contractor, discussed renovation plans and more importantly waived all contingencies including financing and inspection. We knew there was going to be a lot of interest on these deals and didn't want to miss the opportunity; so our offers were best and final. We were initially given positive feedback by the agents and were feeling good until they stopped returning our calls or texts and eventually hit us with the famous "even though your offer had the best terms, the seller has decided to go with another higher dollar offer"....not a good feeling, I'll tell ya! We later found out that the investment property had six offers and the rehab property received 16 offers....talk about a HOT market!
Losing on a real estate deal is nothing new and is part of the business, but this is a good reminder on how competitive and frustrating real estate inside the District has become these days. Hindsight is 20-20 but we lost on these deals because we didn't want to pay a penny more based on our assessment of the market and more importantly the principal guidelines that we have established. I tend to look at things at a high-level and realize that this won't be the last time that we lose on a deal but it gets really exhausting after a while and I have to keep reminding myself that this is the way things are and we just have to be that much more diligent and tenacious in our investing.
The entire process of acquiring a property is not only time-consuming but it also requires a tough mental and emotional adjustments with respect to principal investment guidelines. Warren Buffett once said "it is an easy game if you can control your emotions" and that saying is very true in real estate investing. Good investing doesn't require an in-depth proforma analysis or analyzing macroeconomic conditions but controlling your emotions, however, is very, very difficult. When people get their emotions involved, they do things that they shouldn't do and end up in trouble. My partner and I were very excited about each one of these deals and it would've been very easy for us to escalate our offers higher to ensure that we win them both but that would've come at the expense of disregarding our investment guidelines and the type of returns and profits that we intend to achieve on each one of our deals.
We are still bullish on the real estate market in DC long-term and will go after more investment opportunities in 2017 but will only do so if they make complete sense. This means we will have fewer options but I am willing to take that risk knowing that our investments were made on principal guidelines without any emotional attachments.
Things are moving along nicely at our latest development project located at 108 Bates Street. We have just installed all of the bathroom tiles and painted the interior walls. In addition, custom black windows and the large sliding glass door were delivered and installed. In the coming week, we expect to install the floors, kitchen cabinets and the countertop and hopefully move on to the fun part of the design and putting the finishing touches right after the new year. We are very excited with all of the progress and can't wait to bring this house to the market in a few weeks.
We recently ran a small advertising campaign on Facebook for one of our listings. The objective of this campaign was to drive foot traffic to weekend open houses so we were very specific about our targeting criteria (location, age, interests, etc) and the results were somewhat interesting that I would like to share with our readers.
As many of you know, social media advertising landscaping is constantly changing. New platforms and technologies have made it easy for small businesses to run effective campaigns with small budgets and without needing much help. Advertising costs are typically impacted by competition, industry, audience and a long list of factors so it is important to analyze each campaign and understand results. It is also very easy to get frustrated with these type of campaigns given there are many industry terms (reach, viewers, etc). In the end, the only metric that I consider to be important is "Cost Per Desired Action". The desired action in our use case was for ad viewers to be redirected to our listing on Redfin. Many real estate agents agree that Redfin has become a favorite with many home buyers so we intentionally wanted to send traffic to Redfin to make it easy for people to schedule for the open house.
We decided to budget $300 and run these ads every Thursday-Sunday for the weekend open house until the listing went under contract. Luckily, the listing was only on the market for 25 days so we spent less than $250 in Facebook ads but still produced a decent amount of data for analysis. For a short time (3 days), we also experimented with ads on Instagram so I've combined these results together. Following is our total ad spend by placement:
Costs Per Placement
- Mobile News Feed: $207
- Desktop News Feed: $0.11
- Instagram Feed: $40
As you can see, 84% of our ad budget was spent on mobile feeds which is really not that surprising given how most people consume Facebook on their mobile devices these days. The Instagram campaign was only active for two weekends so these results are slightly skewed but I do expect Instagram to perform as good as Mobile if not better in future campaigns (more on that later below).
Next, let's look at the number of clicks that we received from each placement:
Website Clicks Per Placement
- Mobile News Feed: 668
- Desktop News Feed: 2
- Instagram Feed: 46
Again, not surprisingly mobile dominated the number of clicks that we received but I wonder what our final results would've been had we ran the Instagram ads for the entire campaign.
Costs Per Action:
Here is where things get interesting. Those two measly clicks that we received from desktop cost us about 5 cents in average each which is relatively cheap. Instagram on the other hand is super expensive in comparison.
Average Cost Per Action
- Mobile News Feed: $.31
- Desktop News Feed: $0.055
- Instagram Feed: $0.87
The median cost is a bit misleading given the way costs trend throughout the campaign but $1.15 for each Instagram click might not be the best use of of our budget. My theory is that since Instagram advertising is new and there is a significant interest from advertisers to place ads in this platform, prices are going to stay high for a while until ad inventories level with demand.
As of now, Mobile seems to be the most affordable placement for us at $0.31 per click and we will probably only ran ads exclusively on mobile from now on and not bother with desktop since fewer users are accessing Facebook via desktop than ever before.
A Word of Caution
Once again, these results are based on our advertising only. This is not meant to be a universal report on the state of Facebook advertising and results are going to be certainly different for each campaign. The bottom line is that the landscape is constantly changing and you must study each campaign performance reports to determine the best possible placement for your ads.
What results are you seeing? Is mobile becoming a preferred placement for you, too? Have you experimented with other social media platforms?
On Thursday May 19th, we hosted a hard hat tour at our recent development project in Petworth. We were joined by 15 of our friends from the DC, MD & VA Real Estate Investing Meetup and had a chance to provide a detailed walk through of the project and share insight into our acquisition, financing, construction and design process of this row house project. We broadcasted portions of the tour live on our Facebook page so feel free to watch, share and comment!
One of the questions that repeatedly came up was around common mistakes that many developers and flippers make while attempting to acquire and redevelop residential properties. We've certainly made some of these mistakes so we decided to compile a list of what we consider 25 of the most common home flip blunders. This is obviously not a full list and might not apply in all cases but should serve as a good starting point.
- Relying only on the information provided by the agent/wholeseller regarding the property without an independent verification.
- Failure to check tax and lien records prior to acquisition.
- Not understanding property's zoning and its implications.
- Failure to obtain tenant rights and agreements prior to acquisition.
- Relying on development estimates and after repair values (ARV) provided by the selling party.
- Failure to complete a thorough inspection and engineering report on the property.
- Not getting bids from multiple general contractors.
- Insufficient budget for construction costs.
- Not having a contingency budget for unanticipated construction items.
- Underestimating overall project timeframes.
- Failure to understand permitting process, costs and timeframes.
- Not working closely with an experienced architect and designer from the start to maximize property's potential and use.
- Not having the general contractor and architect selected and in-sync with each other prior to acquisition.
- Failure to agree on a SOW/contract with the general contractor.
- Not having a gap loan or reserved cash until the first construction draw is funded.
- Making last minute changes to architect drawings without understanding implications.
- Failure to display all the construction permits onsite.
- Failure to make acquaintances with neighbors and the community.
- Not reviewing budgets on a weekly basis with the general contractor/project manager.
- Failure to plan ahead with material purchases to keep costs low.
- Not marketing in the neighborhood in the search of the next property/lead.
- Failure to create a buzz with "Coming Soon" signs, flyers and events.
- Not engaging with several active local agents to understand market conditions and ideal listing price.
- Not staging the property.
- Low budget and unprofessional listing photos.
Things are moving quickly at 709 Hamilton Street, NW property. Our construction crew have been working hard to bring this property to market and we are now at the halfway mark of completion. As of now; we have completed demo, interior framing, exterior painting, front porch installation, parking pad, fences, all new sidings, new roof, masonry and mechanical (all new HVAC, plumping and electrical) rough in. We are expecting an inspection to be done this week and drywall/painting and floor installations to follow next week. Our designer has started selecting bathroom and kitchen finishes and we can not wait to see how things turn out. Check back in a couple of weeks for more updates.