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Under Contract: PILGRIM

It's been a few months since our last post. The San Antonio real estate market has continued to be ultra-competitive although we are finally seeing some signs of weakening. We've had a difficult time finding properties that met our target criteria through wholesale channels and were beginning to look at marketing direct to sellers. This would require finding distressed sellers and contacting them directly via mail or phone. While we worked to learn about this process, we continued to monitor wholesale deals. We're excited to report we have our first project under contract and look forward to closing and rehabbing the property.

11:46 AM, 22 Oct - I received an email for a property listed for $115K in North Central San Antonio. That afternoon after work, I noticed this is a property I had seen two days earlier offered for $135K. At that price, it didn't meet our targets but at the new price it was intriguing. I ran the numbers and figured with a $25K rehab budget, it could be a real winner. Here's a look at the numbers.

ARV & Rental COMPS

With our strategy, we are aiming to purchase a property at a price that will enable us to complete the rehab and add enough value that we can immediately refinance it and get much of the money we invested back out. Once we have a loan on the property, we want the rental income on the property to result in positive cash flow after all expenses are taken into consideration (ie loan payment, property taxes, vacancy rate, maintenance reserve, etc). In order to speed the analysis process, we now use a comparative market analysis tool.

After Repair Value (ARV) - Our CMA tool provided sold comparables that suggests this property will be worth $192K once rehabbed. The wholesaler package provided an optimistic list of sold comps that averaged $154 per square foot--that would put the ARV at $205K. We used our more conservative estimate.

Rental Comps - We used the $1450 per month lease estimate from the CMA tool--in the end there may be more upside based on how we rehab and reconfigure the property (ie making the property a 3 or 4 bedroom).

With the ARV and rental estimate in place, we threw those numbers into a calculator to determine if this deal could meet muster. Based on a $25K rehab budget, we calculated the deal could earn us $52K in equity, $145 per month in cash flow, and give us an infinite % cash on cash return -- meaning that after refinancing the deal, we could actually take more money out of the deal that we had to invest. It was worth a closer look. I contacted Dan and he arranged to see the property the next morning.

Walking the Property

6:19 AM, 23 Oct - The next morning, Dan and I have a quick phone call and we went over the numbers, discussed the analysis and the rehab budget. The property was only 5 minutes from Dan's office so he took a look at the property and neighborhood before the 11:00 investor call when multiple investors met with the wholesale agent to evaluate the property.

11:00 AM, 23 Oct - Dan walked the property along with some other interested investors. The property had three front doors as it appeared the previous owner had operated the property as a multi-family property. It also had a large two story storage structure behind the main house. Dan estimated the rehab would take about $30K which would include demolishing the two story storage structure. Since the project was going to cost a bit more than our original $25K estimate, we offered $110K to the seller. After a little negotiation, the seller agreed to the price and we had the property under contract by the end of the day.

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