How did I buy a huge 5350 square foot property in the hot market of Dallas Texas in a great location and at $ 61 per square foot?

Hi friends,

I'm sure I need not tell you that one of the hottest markets in the United States right now is Texas - many companies like Elon Musk's Tesla, Apple, HP and more are moving to Texas and with them tens of thousands of workers due to hot weather, low land cost, tax breaks, convenient corporate regulations and more. .

While Austin Texas has already risen about 45 percent and Dallas has risen over 30 percent in the past year, we are concentrating most of our deals in Houston Texas which still has a long way to go - but the desire to purchase in Texas' additional markets has not expired.

There are a number of boiling markets in North Dallas, such as Plano, and Frisco that have risen 70-80 percent in the last two years and you can see that the amount of properties available for purchase in these areas has dropped to a tenth of the amount available in those markets two years ago. And for me it does not make sense to purchase in boiling areas that seems to have exhausted their rise. Eventually prices will be derived from residents 'ability to pay and as mortgage interest rates rise and inflation picks up, potential buyers' ability to pay will decrease and I predict that in these areas we will see up to 20 percent price adjustments in the coming years.

Another factor that will affect these areas is that while today the supply of homes is small, we see about 79,000 building permits in the making in Dallas and homes in various stages of construction which will result in house flooding - greater flooding than there was in 2008.

Therefore, in today's market it makes sense to concentrate on crisis-prone multi-family complexes or properties that are significantly below market price in key areas that are still far from maximizing their value and are "on the wrong side of the neighborhood" - meaning adjacent to expensive neighborhoods given the positive migration and gentrification of these neighborhoods. Continue the strong neighborhoods will trickle down to the weaker neighborhoods and affect their value.

There is an unwritten law in real estate - a law that comes right after the Location Location Location Law - the law according to which the profit is made on the purchase! - This means that the assets we purchase must be purchased below the market price - in preference to direct purchase from the seller of Off Market assets.

Good deals will come from a distressed seller or a distressed property - or both, meaning a distressed seller or a distressed property - with our goal being to find a solution for the seller and that solution will come in the form of a significant discount on the purchase price.

So we started looking for a property in Dallas with the standard profile of a good area and a good school with the thought of moving to the area (after raising our hands to find a property in cool Austin) but very quickly realized that prices in Dallas in the good areas do not make sense to us. Attack and fast! (Especially after conducting in-depth market research and realizing that this is indeed an opportunity)

So this property first thing was unusual in size - the largest property in the By Far neighborhood. Just a castle - and he was not spared money - it is clear that his owner was a very durable man who invested a lot in it - only the roof of such a property is worth $ 40-50 and the roof of this property is a few years old and in excellent condition.

In general I look for properties not by absolute price, but by price per square foot - price can sometimes be misleading - see a property at $ 300,000 in a neighborhood of $ 500,000 and think it's a bargain - only what you do not notice is that the property is 1500 square feet and the price per square foot Is $ 200 - higher than the price in the area, so the absolute price is less interesting to me. For me I buy a square foot by weight - and as cheap as possible, better, of course as a comparative measure of the area and future income potential of the property.

The property in question went on the market at a price of $ 420,000 and the municipality is listed at about 4,345 square feet - a price that reflects $ 96 per square foot.

Renovated homes on the same street are selling for $ 180 for $ 200 a square foot - half price - so it already sounds interesting and we started following.

The property fell out of contract and returned to the market at $ 394,000 - an excellent price. We're already at $ 90 per square foot. Less than half the price - and according to the photos, the property looks in a reasonable condition and not in such a condition that a complete renovation is needed. I love properties that have fallen out of contract - the seller under pressure.

It is likely that the previous buyer was unable to obtain a mortgage on the property or repaid it after the inspection report as the property needed repair to its foundations.

It's important to note that most of the other areas I invest in include New York where I live, a foundation problem will be an immediate disqualification - but in Texas, where the land is soft, almost every property has a foundation problem and repair costs are relatively cheap because there are many companies specializing in it. Even though in Texas the cost of manpower is much cheaper than in New York and in Texas in general they are not excited about the issue - so it is likely that if an investor from California or New York received an inspection report with a foundation problem he would have backed off if he did not do homework. Due to the condition of the property. For me, this is an opportunity. I took into account that at such a price for Swire Pot even if I have to invest $ 100 in repairs I am still much better off in terms of price.

So Yaron Yashar and I, the agent I worked with, decided to go ahead and make an offer. We contacted the agents of the sellers and we got into a joint exploration call. We wanted to check if there was more room to negotiate the price and to our surprise we got a positive answer. We decided not to go too low so as not to drive away the sellers but on the other hand I realized that there was probably some problem here - either the sellers or the property or both - and where a regular buyer would shy away - that's where the opportunities arise - these are exactly the places to make good real estate deals Below market price.

We offered 370 in advance - so we lowered our starting point for future negotiations. Since the seller already knew the property and performed an inspection and knowledge of the problems in the property because the property was already in the contract - there was a good chance for flexibility. If this was the first round and the first contract the property entered into - it is likely that such flexibility would not have occurred.

The picture conveyed to the seller - "I do you a favor that I am willing to take this burden from you"

The sellers agreed.

We checked with the municipality for the permits that went out to the property - the building permits - and saw that there was another complete housing unit that was not registered with the municipality - a unit the size of about 1000 square feet - so we are already in the property in the area of ​​5350 square feet.

At a price of $ 370,000 we are already at $ 69.15 per square foot!

When the property sells renovated properties at 180-200 thousand for a square - you know there is no room for mistakes here - even if you rebuild the entire property for $ 69 per square you have a very large error space

 We entered into a contract and set a date for inspection and for me the price of 370 is currently the starting price for negotiations. 

I did a comprehensive study of a large number of property inspectors (inspectors), looked at the level of detail of their reports and chose the inspector that seemed to me the most detailed and professional - even if it was more expensive. The price in such cases is not significant - it is better to pay for a professional and detailed report because this report is your entry ticket to negotiations and can earn you a lot of money - it is your lottery ticket and you should choose it carefully.

I knew that in order to conduct professional negotiations I needed tools - I am not one of those who throw numbers into the air without grounding in the hope of lowering the price. I knew that in order to reach a lower price I would have to base the offer on facts and figures.

At this point we discovered another factor that caused the family to be stressed, beyond the divorce - as part of working with the title company we also discovered that the family owed $ 18,000 in taxes to the municipality - so what does that mean - that the family is currently in financial distress and the property could be foreclosed ! And it is likely that the two months they "spent" on the first buyer who did not close only pressed them more and they must close the deal at all costs. 

It should be understood that in this situation - if the property is foreclosed and goes to foreclosure - the property will sell everything.

I knew that with the loan company I owned, NadlanCapitalGroup, Which conducts a reverse tender between dozens of financing entities to find the best offer I can close the deal quickly with financing (our record is 16 days) at an attractive interest rate so even a 30 day contract should suffice.

I went up with Yaron to a very detailed zoom with the inspector, and of course I made sure to record the meeting, and we went over all the significant issues in the property. I emphasized to the inspector in advance, even before the inspection, that the purpose of the inspection is to negotiate the property. I also paid another $ 50 for a special service that allows me to get a quote on all the issues in the report - I knew it could be used by me in negotiations and give me an overview of the expected costs.

The special report showed a total amount of $ 40,770 renovation not including the cost of the foundations. With the basics we are talking "on paper" about $ 80.

We brought in another $ 96,000 quote for renovation from another contractor, and another one that includes making the home completely new - an inflated offer up to a maximum of $ 181,000 - dismantling the house and reassembling.

Yaron told me that he had an email that he usually sends to the agent - I asked him to let me handle the negotiations and he agreed to try my way.

From a past review of many assets I knew that the quality of data presentation is the determinant.

I prepared a detailed 29-page report that included detailed explanations of the property, the main inspection issues he was thinking of focusing on, the video with the inspector, the three quotes and many more explanations.

Generally in the negotiation game - to win the game you have to be in a position that you are All In and willing to give up the deal - to give the seller the feeling that this is your offer or nothing and for every move in the negotiation you have to get something in return.

Brief Reminder - 

It should be remembered that the property went up for marketing in advance at an attractive price for its size - 420

Due to his return to the market - was offered at 394 thousand

And I created for the sellers a correlation to the price we are willing to pay before inspecting the property at 370 thousand.

The price dropped by $ 50 from a price that was attractive even before we entered into negotiations - all of which gives us an indication of the condition of the sellers and the condition of the property and conveys to us - that there is flexibility and there is something to talk about.

I wrote the email to the agent myself - I explained the situation, showed the average cost of the repairs and based all the information on facts on the ground and numbers - I finally said I was willing to "compromise" on a download of only $ 70,000 and absorb the rest of the renovations myself.

We sent the email. 

For me it was "live and forget" - will catch or not catch. The law of large numbers - submit a large number of bids and do not emotionally link to any property or bid - if the bid catches it it will catch.

Need to know how to release. Going to eat Fine Texan food and waiting 🙂

If the seller agreed you will move forward, if not also fine.

When Shiron asked me after a week if to go back and check with the seller - I said no - I did not want to show a picture of a stressed buyer and I really was not stressed - should let the other out brew with the offer and if he is really desperate and can lose the property and has no other options - he will agree - and it What happened. Yaron came back to me after a week and a half that I did not open my mouth and wrote to me - they accepted the offer!

What they asked for - was two weeks Grace - where they could get organized and get out of the property - I agreed. 

We asked for the appliances - refrigerators, stoves and washing machines - we calved. Due to the very good relationship with the sellers - we also received a huge Samsung TV as a gift. 

When asked to extend the time - it was already in the process of renting a property - we agreed on $ 100 for each additional day. 

When they asked for 4 more days - I asked for the house's camera system - they agreed. That's how I got a camera system installed throughout the property. 

So in general in negotiations I know that every seller with his situation - and I knew the problematic situation in which the sellers are - and they have a solution on the table. Maybe not optimal but a solution.

They can get out of debt immediately, get out of the danger that hovers over the loss of property and get a significant sum for the rest of their lives and put that trouble behind them - the debt to the municipality, the need to repair the foundations and move to a new place with a new way and new life.

After the contract was approved, Yaron asked me if I was happy - I said not really. "The money is counted on the stairs." This is not what excites me - I know the language of work is just beginning - after the property is stabilized and generates income I will be busted. One also needs to understand what the bumps will come along the way and unexpected costs. Another vision for the date.

I took the gloomiest forecast in terms of costs so to lose at this price I can not, but of course I strive for the most optimal situation.

I started work - 

First thing insurance - The previous owners paid about $ 6000 - after a few phone calls I was able to get the same insurance for $ 2500.

Electricity, water, gas - There, too, I optimized.

Regarding taxes - I will have to report to the municipality the low amount of the purchase in order for this to be reflected in the taxes. Also if we live there you can lower the amount even more by the Homestead program.

And now for the decision - what will be the purpose of the property - so these are the options before me:

1. Residence + long-term or short-term lease

Living in the large unit of the 3000 square feet - huge living room, master with Jacuzzi and walk-in closet, crazy sized kitchen, two large children's rooms and a full shower for children, guest toilet and another floor with a large loft that also has more shower and massive closet .

In this option we can rent the two different units as Airbnb or in a standard rental. The small unit can bring in about $ 1000 and the large one about $ 1300 in a regular rental. In a short-term lease about three times.

The thing is that his existing style - Spanish style, is less suitable for short-term rent - the color in large parts of the new house - so it can be argued whether the color is nice or not - it is suitable for the population living in this area - so short-term rent is much larger investment - but long-term rent Repaint most of the property - maximum paint repairs - significant discount. The kitchen does not need too much work either - for a short-term lease I would probably paint it white but for a long-term lease the black is good enough - so we will make a zero touch to the color and that's it. 

What winks at Airbnb is the variety of options where - you can rent it all - and then it competes with a very small number of properties because there are not many properties of this size in Dallas for rent - a 7-room castle

Or rent according to different areas in the house - so you can give it several options - in any case the cost of painting the whole, furniture, adding attractions like a pool from a projector etc. does not currently make sense - but it is certainly an interesting option for the future

2. Rent of the whole house
To rent the whole house about 7 rooms and 6.5 baths in a regular rent - I chose with a number of management companies - the range ranges from 3500 to 4500 dollars per month depending on the level of renovation and the opinion of the management company.

With a massive renovation, it is probably possible to reach $ 6000 rent, but the renovation will be excessive to the level of the neighborhood and will not increase the value of the property accordingly.

3. Convert the entire property to Airbnb

About three or four units - the thing that in such a case should change its entire style from Spanish style to solid style of short-term rent - an investment of between 50 and 70 thousand dollars. It may be done later, but in a joint decision with experts on the subject, it is better to first "run" the conference for a few years on a regular basis and see if it has problems, address them and then move on to such a move - we do not want problems with short-term tenants.

4. Splitting the property into 4 units
The property is already built about three units - by opening a door on the left side of the property and adding two interior doors and a kitchenette I get another rental unit of about 700 square feet on the second floor that you can get a rent of about $ 1000

That is, in this option the rental potential is:

A. Main unit of huge living room, master master bedroom with jacuzzi bath, guest toilet and full toilet, huge kitchen and two children's rooms - yes $ 2500 to $ 3000

B. Floor above after split - $ 1000

third. The 1350 Square Foot Rear Unit - Two Bedrooms, Slum Kitchen Bath, Washing Machines and Private Yard - Minimum $ 1 per square foot - say $ 1300

D. The unit in the yard after renovation - and it needs a renovation of between 8000 and 10000 dollars - can be rented for a short rent and made three times or left as it is - let's say 1000 XNUMX

In other words, in a normal lease, the property should bring in 6,300 if it is divided into four units

In terms of costs - in the meantime I have received four suggestions for repairing the foundations from a number of recommendations - the offers range from $ 16,000 to the most expensive offer to about $ 6000 from a company that on the surface made the best impression on me - so not the most expensive is the best. 

This company, compared to other companies, came with professional testing equipment and told me that the whole back of the house should not be repaired - compared to other companies that tried to push as much work as possible

I'll probably have to put French Gutters on the side of the grag to prevent water from penetrating the foundations - they're the only ones who suggested it and they got more points from me.

As for the renovation - there are contractors who offered 40-50 thousand - there are those who do the work directly without raking in high commissions and offered half or a quarter of it - I am still in the testing stages.

I do not intend to "bury" a lot of extra money in this property in renovations at this stage - prefer to save the money for a deposit for the next property and let this property run and start producing cash so as not to waste time of an empty property and also because the compasses at this stage will not justify it - this property is already the largest and most luxurious in the whole neighborhood. That the neighborhood will not keep up with the prices - when that happens it will be profitable to renovate it to a high standard and sell it for close to a million dollars - we are not there yet - it could take another decade - and besides the interesting taste about the existing colors if they are beautiful or not Relatively new and the tenants in this neighborhood have no point at least right now to upgrade to something that does not require an upgrade and that fits the character of the neighborhood.

So in conclusion one needs to know where to buy and keep track of the dry data - all the northern areas of Texas - have already gone up by 80 percent and there are no investment opportunities for my taste - if one does not have to buy a residence there - this is not the place to invest right now.

There are areas like this area that are undergoing gentrification and are seen as new construction, and that are in strategic locations - near attractions and the city center - and that have not yet risen in price in the same way that other areas have risen.

Of course you have to get to the area and see the condition of the houses in the block and that's what you did - in this area you can see houses that have already been flipped - and I have no doubt that in a few years the whole area will change - you can see Comparables attached in the photos. And more.

So what is the value of the property - After Repair Value - ARV?

According to the Redfin website - a maximum of $ 651,000 - according to $ 149 per square foot and according to the size registered in the municipality. (Excluding yard housing unit).
We will know the value in refinance for another six months - in the revaluation after the property has been leased for a period.

Suppose we use for comparison a value of only $ 110 per square foot - at its full size we will already be at $ 577,500.

And what will its value be when it is $ 180 or $ 200 per square foot? That it's by its full size we're about $ 1,070,000 - in principle the bigger the property the price per square foot is small so I would not take it as a comparative index but would certainly have the potential to reach such amounts within a decade when the neighborhood develops.

It is important to emphasize that not everything is perfect - and from there the opportunity - prices and demand in the US are derived from a large number of parameters - and a very important parameter is the mix of population, schools and crime.

This property was purchased with the assessment that the area will improve in the future - so the function of our residence in the property is currently out of the question. This is not a bad area, but the school rankings are too low for us - especially compared to Long Island where our schools are rated at levels 9 and 10.

So this week I will decide on a contractor and the best strategy for the property - and as mentioned we came for two weeks to take care of the property and also check out all aspects of Texas in terms of transition. There are insights here and there when comparing residences in Dallas versus New York - there is no doubt that today the hot goods in Texas - and as a real estate businessman I prefer to be close to goods, opportunities and connections. Beyond that there is a family that comes with me - currently anyone who really wants to go through this Nirit - tired of the cold of New York, so of course we brought the kids and we will visit the local community this week - we will go to Beit Chabad, Scouts, Jewish schools and more - there is a warm Israeli and Jewish community.

Anyway if I'm All In on the property at $ 330,000, and the gross income is $ 6300 - I'm at a 22.9 percent return in downtown Dallas in the craziest market in the US. Not bad I would say.

So what did we have?

Purchase for $ 300,000 - reflecting $ 56.074 for Square Pot

The cost of renovating the foundations, renovating the outdoor unit, adding a unit to the roof and kitchenette and minor repairs to the house - let’s say in the $ 30,000 range - we at $ 330,000 - rested at $ 61.68 per square foot.

So if you have come this far, you are probably interested in such deals - so feel free to invest with us and learn from us.

Anyone who is interested in such deals - tomorrow we open the first cycle of Our Wholesale track with Gal Schmuckler and with me, Lior Lustig In this route I will tell the students in detail about the deal and give the report I created, go through all the quotes for renovations, give access to the recorded interview with the inspector where you can see exactly what I asked and how I directed the call, test report and letter to the agent - and of course happy to answer Any question.

It is important to remember that the property was in the market - in MLS - meaning it was exposed to everyone so the competition that was with it was more difficult.

Think what would have happened if the property had not been exposed to everyone and you would have reached its owner even before it went on the market and negotiated? You had a lot easier and a lot less stress - and that's exactly what we teach in the track - how to get off-market transactions that are on the market, how to get to stressed sellers, or properties with problems or sellers out of state or older sellers who no longer have the desire to manage the property or assets They have a lot of equity - and that these assets have an interest for the seller to sell in order to realize the profit that has been in the asset since he purchased it. 

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In the video - going over the house with the management company.

In the following videos, we will update on the progress of the transaction and renovations.

Good luck to all of us!