Think Win-Win-Win-Win-Win
As you have seen throughout this site we are “Buy and Hold Investors” who enjoy buying distressed assets that are in need of work and sometimes real blights to the community. This isn’t always the easiest thing to do but it gives us the greatest sense of satisfaction. Please don’t get me wrong we don’t buy every distressed asset as we only take on projects that meet our financial criteria for expected return/yield.
We chose to focus on this segment of the market because we wanted to have the greatest impact on all parties involved. We look at our strategy as Win-Win-Win-Win-Win. Let me explain. We see five constituents winning from our goal of converting distressed properties to functioning rentals. We believe that all parties should win when we secure a deal.
Community:
When we buy a property that is distressed we are taking on an asset that needs work, may owe back taxes, and have other liens and issues recorded against it. When we buy the property it insures that the property is going to be put back into the mix of for the community. We will pay our taxes, we will fix all the issues and we will do the correct thing by the community and address the issues in timely manner.
Neighborhood:
The neighborhood might be the most obvious winner given the before and after state of these distressed assets. If you drive by one of the properties we buy the day we close and then 3-6 weeks later there is a good chance you won’t recognize the property.
Every property needs its own get well plan which can include the simple things on the outside like yard work, new fencing, new roof and new exterior paint. Inside the property could include things like new wiring, new plumbing or the creation of an extra bedroom. It will always include new paint, new flooring and new window fixtures. The house goes from worst on the block to at least middle of the road which helps raise the value of all surrounding properties.
Tenant:
Our business model is focus on only owning rental properties that are safe and secure. On occasion this means we have to blow up our initial budget because of an unplanned issue arises. Sometimes we could simply ignore or put off the issue and artificially increase our yield by lowering our repair cost but that is not good business in our opinion. If you are going to follow our model you will need to provide a safe and secure property. Now this does not mean you need to add all the extras if the rent will not support it but you need to make sure the basics work.
Don’t you ever buy a fixer upper and simply stick a “for rent sign” in the ground and then rent As-Is. This is a bad business model and in my opinion reflects very poorly on your personal character. You only get one go around in this world so it should be about who you helped and not who you got over on. In addition I believe this model will eventually lead to some very bad things (At least that is my hope as Slumlords give all of us a bad name).
Lender:
Whether the lender is a Bank or a Private Investor looking for a secure and decent return on their cash they are only looking for two things. First and foremost they are looking to understand the asset will produce the income with room to spare to pay the mortgage each month. The second thing they want is downside protection. If they are lending on an asset that was purchased at distressed price and repaired producing a large equity spread they may very well pray they don’t get paid back.
Think about it from the Bank or Private Lenders perspective. They are in position with say 20K to control an asset that has had 10K or more in work done, is now producing income and is in livable condition and thus a lot more valuable. I like to joke that our Private Lenders hope we forget to pay them so they can take our assets at insane prices and laugh all the way to the bank.
Owner:
Lastly as the owner of these distressed assets turned into quality rentals we do this to make money each month and increase our balance sheet. As you can see from the above we hold ourselves to some pretty high standards. I refer to us as Compassionate Capitalists as we look for ways to serve others while we insure a quality return on our capital.
In the end it should be a Win for the Community, a Win for the Neighborhood, a Win for the Tenant, a Win for the Lender and a Win for the Owner.
Good Investing
