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What I've Learned
Chad Murray • Jun 10, 2020
What I've learned over the years and find most helpful in the day to day
What I've learned over the years and what I am still learning. I still have so much to learn that's for sure and it's fun to try and get better everyday and I am sure you are the same. I'd like to share a few things I've learned.
First off. Lets identify what I've been doing over the years. I invest in real estate and manage property. Started investing in 2009 in the midst of the great recession about 30 days after a layoff that I thought would never happen - but thankful now that it did. Prior to real estate I was in sales for Hershey foods for about 4 years then did commercial financing for General Electric in their Capital group. First in inside sales then, their Commercial Leadership Program then as Regional Manager overseeing the central part of the US selling financing to the Refuse Industry - trash trucks and waste equipment! A fun job and industry to learn. The layoff was tough at the time, but a blessing. In January 2009 I purchased a $15K single family home about 11 miles east of where I grew up and we've not stopped since then. I still remember that rehab like it was yesterday. My wife Jessica and my parents and I rehabbed the house and rented in for about $500 per month. At the time, I never dreamed this business would turn into so many houses and so much fun. From that little house in Louisiana MO, we moved to a four plex in Bowling Green Mo where I grew up then to St. Louis where I was living at the time. In St. Louis, I hooked up with a few good brokers and the race was on to buy foreclosure properties from banks and motivated sellers. I think back to those days in South City when almost no one was buying it seemed like and Tower Grove Park area was yielding 15% cap rates all day long!! Can you believe that.
We were buying amazing four family buildings with 2 bedroom units for about $150K that would rent for $750 per unit that now rent for about $1,300 all day. Needless to say, properties like these created the ideal buy, rehab, rent and refinance strategy even before it was a strategy that is so widely popular today that you all know. I won't even name it because it seems every real estate investor talks or writes about it today. I guess the reason they do is because the buy, fix, rent and refi strategy is so amazing. Banks love it, and I love it too. It's what keeps a full time investor like me in business. Sure, I have loans on about everything, but I've also purchased a great deal of property with just a rather small initial investment. Same goes for the few partners I work with. I guess I'll be Ok as long as the market does not take a 35%+ dive and all tenants don't pay. It could happen, but it's a necessary risk in this business if you want to use the same capital over and over to grow units, revenue and net worth. That's my business background since college for the most part. Besides growing a rental portfolio, we also manage buildings for others which is an awesome job. I love helping others with their assets and especially doing a good job so they can buy more units and get closer to the goals they have.
Ok, so that's my background. Looking back, what do I think are some of the most important things to know or do in real estate?
Profit First (the book) - how I use the book's strategy. Pay yourself first. Allocate the first 8% or so of revenue to your profit account which is paid before any expenses, then about 4% to capital reserves, pay property taxes monthly to the collector of revenue and the rest to the checking account to grow for uncertainties or other investments. At one time, I had about 4 bank accounts per LLC, and we have a lot of LLC's, but I found that was too many and quite frankly, sometimes there was not enough to fill all the buckets, since this business can be pretty low margin. Generally, if we can generate about 15 to 20% profit on rent after paying all expenses, that's amazing. When underwriting new deals, generally I allocate about 8% to vacancy, 35% for mortgages, 40% for expenses and hope for about 15 to 20% profit on revenue. In my experience, whether it's a single family home or 78 unit building, the profit margins are about the same. So that's why over the years I've gravitated from SFR to multifamily since with a multifamily acquisition you can get so much more revenue in the door each month. I don't see them as any more risky than SFR and I really like the upside and amount of equity you can build. Same equity percentages, just a lot more of it ($) with multifamily with each purchase.
In the coming weeks, I will write about a few other topics.. little teaser below on some of the topics..as if you were hanging on my every word! I will write a few things about what I've learned so maybe it's helpful and maybe it's not, but you never know until you try so I'll do that soon in the coming days or weeks.
-Buy properties where people want to live - no matter what the proforma looks like
-Once you buy the property, make your tenants proud of the inside and outside of their apt
-Manage what matters - occupancy, collections and maintenance as a % of revenue.
-Simply, treat other people like you want to be treated - listen, communicate and follow through
Talk soon.
Feel free to contact myself at chad@314rent.com or leave a comment if you have questions on a topic or find this content helpful.
Chad
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