How did I purchase a huge 5350 square foot property in the hot Dallas Texas market in a prime location for $61 per square foot?
Hi friends,
I'm sure I don't need to 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 bringing with them tens of thousands of employees due to the warm weather, low land costs, tax breaks, favorable regulations for companies, and more.
While Austin, Texas has already risen by about 45 percent and Dallas has risen by over 30 percent in the past year, we are concentrating most of our transactions in Houston, Texas, which still has a long way to go – but the desire to purchase in other Texas markets has not died down, and we continued to look for interesting transactions in Austin and Dallas as well.
There are several hot markets in North Dallas, such as Plano and Frisco, that have increased by 70-80 percent in the last two years, and it can be seen that the amount of properties available for purchase in these areas has dropped to a tenth of the amount of available properties that were in these markets two years ago, so finding a property that fits your criteria will be almost impossible, and in my opinion, it makes no sense to buy in hot areas that seem to have exhausted their growth. Ultimately, prices will be deducted from the ability of residents to pay, and with mortgage interest rates rising and inflation racing, the ability of potential buyers to pay will decrease, and I expect that in these areas we will see corrections of up to 20 percent in price in the coming years.
Another factor that will affect these areas is that while the supply of homes is currently low, we are seeing about 79,000 building permits pending in Dallas and homes in various stages of construction, which will result in a flood of homes – a greater flood than there was in 2008.
Therefore, in today's market, it makes sense to concentrate on crisis-resistant multi-family complexes or properties that are significantly below market price in central areas that are still far from maximizing their value appreciation and that are "on the wrong side of the neighborhood" - meaning adjacent to expensive neighborhoods that, given that the positive migration and gentrification of these neighborhoods will continue, the stronger neighborhoods will trickle down to the weaker neighborhoods and affect their value.
In real estate, there is an unwritten law – a law that comes right after the law of Location Location Location – the law according to which the profit is made in the purchase! – meaning that the properties we purchase must be purchased below market price – in preference to purchasing directly from the seller of Off Market properties.
Good deals will come from a distressed seller or a distressed property – or both, meaning a distressed seller or a distressed property – when our goal is to find a solution for the seller and this solution will come in the form of a significant discount on the purchase price.
So we started our search 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 we gave up on finding a property in the cool Austin) but we quickly realized that even the prices in Dallas in the good areas didn't make sense to us, and then this property popped up - and when an opportunity comes, you have to attack and fast! (Especially after you've done in-depth market research and realized that this is indeed an opportunity)
So this property, first of all, was exceptional in size – the largest property in the By Far neighborhood. Simply a castle – and no money was spared on it – it is clear that its owner was a very durable man who invested a lot in it – as evidenced by the fact that the roof on such a property alone is a waste of about 40-50 thousand dollars and the roof on this property is only 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 – you see a property for $300,000 in a neighborhood of $500,000 and think it’s a bargain – only what you don’t notice is that the size of 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 square feet by weight – and the cheaper the better, of course as a comparative measure of the area and the future income potential of the property.
The property in question came on the market for $420,000 and is listed with the city as 4,345 square feet – a price that reflects $96 per square foot.
Renovated houses on the same street are selling for $180 to $200 per square foot – half the price – so it sounded interesting and we started following.
The property fell out of contract and came back on the market for $394,000 – a great price. We’re already at $90 per square foot. Less than half price – and from the pictures the property looks in reasonable condition and not in need of a complete renovation. I love properties that fell out of contract – the seller is under pressure.
It is likely that the previous buyer was unable to obtain a mortgage on the property or withdrew from it after the inspection report because the property needed repairs to its foundations.
It is important to note that in most other areas where I invest, including New York where I live, a foundation problem would be an immediate disqualification – but in Texas, where the soil is soft, almost every property encounters a foundation problem and the repair costs are relatively cheap because there are many companies that specialize in this and the competition between them is great, especially since in Texas the cost of labor is much cheaper than in New York and in Texas in general people are not excited about the issue – therefore it is likely that if an investor from California or New York received an inspection report with a foundation problem, he would be deterred if he did not do his homework and it could be that this is why the deal fell through or due to the non-approval of a mortgage due to the condition of the property. For me, this is an opportunity. I took into account that at this price for Swir Pot, even if I had to invest $100 in repairs, I would still be much better off in terms of price.
So, I and Viron Yashar, the agent I worked with, decided to move forward and submit an offer. We contacted the sellers' agent and had a joint exploratory conversation. We wanted to see if there was still room for negotiation on the price and to our surprise, we received a positive answer. We decided not to go too low so as not to scare the sellers away, but on the other hand, I realized that there was probably some kind of problem here – either for the sellers or the property or both – and where a normal buyer would be deterred – that's exactly where the opportunities arise – these are exactly the places where good deals in real estate are made 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 had it inspected and knew about the problems with the property because the property was already under contract – there was a good chance of flexibility. If this was the first round and the first contract the property was under – it is likely that such flexibility would not have occurred.
The image that is passed to the seller – “I am doing you a favor by taking this burden off of you.”
The sellers agreed.
We checked the permits issued for the property at the municipality – the building permits – and saw that there was another entire housing unit that was not registered with the municipality – a unit measuring approximately 1000 square feet – so we are already on a property in the area of 5350 square feet.
At a price of $370,000, we are already at $69.15 per square foot!
When renovated properties are being sold on the street for 180-200 thousand per square meter – you know there is no room for error here – even if you rebuild the entire property for 69 dollars per square meter, you have a very large margin for error.
We entered into a contract and set a date for an inspection, and as far as I'm concerned, the price of 370 is currently a starting price for negotiations.
I did extensive research on a large number of property inspectors, looked at the level of detail in their reports, and chose the inspector who seemed to me to be the most detailed and professional – even if he 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 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 negotiate professionally, I needed tools – I'm not one of those people who throw numbers around without any basis in the hope of lowering the price. I knew that in order to get a lower price, I would have to base the offer on facts and figures.
At this point, we discovered another factor that was causing the family stress, beyond the divorce – while 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 end up in foreclosure, so they are obligated to sell, and quickly! And it is likely that the two months they “wasted” on the first buyer who didn’t close only stressed them out more and they must close the deal at all costs.
You need to understand that in this situation - if the property is foreclosed and goes to foreclosure - the property will be sold for the entire price, the main thing is to repay the debt and the family will receive what is left - the risk for them is that the property will be sold for pennies.
I knew that with the loan company I owned, NadlanCapitalGroup, which conducts a reverse auction 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 on a very detailed Zoom with the inspector, and of course I made sure to record the meeting, and we went over all the significant problems with the property. I emphasized to the inspector in advance, even before the inspection, that the purpose of the inspection was to negotiate the property. I also paid another $50 for a special service that allows me to receive a quote for all the problems in the report – I knew that this could be useful for me in negotiations and give me a general picture of the expected costs.
The special report showed a total renovation cost of $40,770, not including the cost of the foundations. With the foundations, we are talking “on paper” about $80.
We brought in another quote of $96,000 for renovation from another contractor, and another that included making the house completely new – a quote inflated to the maximum of $181,000 – dismantling the house and reassembling it.
Yaron told me 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 past experience with many properties, I knew that the quality of data presentation was what mattered.
I prepared a detailed 29-page report that included detailed explanations about the property, the main problems in the inspection that I plan to focus on, the video with the inspector, the three price quotes, and many other explanations.
General approach in the negotiation game - to win the game, you need to be in a position where you are All In and ready to give up the deal - give the seller the feeling that it is your offer or nothing, and for every move in the negotiation, you need to receive something in return.
A quick reminder –
It should be remembered that the property was previously marketed at an attractive price for its size – 420 thousand.
As a result, it returned to the market – offered for 394 thousand
And I created a correlation for the sellers 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 initially attractive even before they entered into negotiations – all of this gives us an indication of the sellers' situation and the condition of the property and sends us a message 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 repairs, and based all the information on facts on the ground and numbers – finally I said that I was willing to “compromise” on a reduction of only $70,000 and absorb the rest of the renovation cost myself.
We sent the email.
For me it was “set it and forget it” – catch it or not. The law of large numbers – submit a large number of offers and do not get emotionally attached to any property or offer – if the offer catches, it catches.
You have to know how to let go. Let's go eat. 
Fine Texan food awaits 🙂
If the seller agrees, move forward, if not, that's fine too.
When Yaron asked me after a week if I should go back and check with the seller – I said no – I didn’t want to portray a stressed buyer and I really wasn’t stressed – you have to let the other person come out and digest the offer if he’s really desperate and could lose the property and has no other options – he’ll agree – and that’s what happened. Yaron got back to me after a week and a half in which I didn’t say anything and wrote to me – they accepted the offer!
What they asked for was two weeks grace – during which they could get organized and leave the property – I agreed.
We asked for the electrical appliances – refrigerators, stoves, washing machines – and they agreed. Due to the very good relationship with the sellers – we also received a huge Samsung TV as a gift.
When they asked to extend the time – it was already in the property tenant process – 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 has their own situation – and I knew the problematic situation that the sellers are in – 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 hanging over their heads of losing their property and receive a significant amount for the rest of their lives and put this trouble behind them - the debt to the municipality, the need to repair the foundations and move to a new place with a new road and a 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.” That’s not what excites me – I know that the work is just beginning – after the property is stabilized and generating income, I will be satisfied. You also need to understand what obstacles will come along the way and what unexpected costs will come. Another vision for the future.
I took the bleakest forecast in terms of costs, so I can't lose at this price, but of course I strive for the most optimal situation.
I started work –
First thing insurance – The previous owners paid about $6000 – after several phone calls I was able to get identical insurance for $2500.
Electricity, water, gas – I also optimized there.
Regarding taxes – I will have to report the low purchase price to the city so that they can reflect it in the taxes. Also, if we live there, the amount can be reduced even further 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 rental
Living in the large 3000 square foot unit - a huge living room, a master with a jacuzzi and a walk-in closet, a crazy-sized kitchen, two large children's rooms and a full shower for the children, a guest bathroom and an additional floor with a large loft that also has another bathroom, shower and a massive closet.
In this option we can rent the two different units as Airbnb or as a regular rental. The small unit can bring about $1000 and the large one about $1300 in a regular rental. In a short-term rental about three times that.
The thing is that its existing style – Spanish style, is less suitable for short-term rentals – the paint in large parts of the house is new – so you can argue whether the color is beautiful or not – it is suitable for the population that lives in this area – so for short-term rentals the investment is much greater – but for long-term rentals you don’t need to repaint most of the property – maximum paint repairs – a significant discount. The kitchen doesn’t need too much work either – for short-term rentals I would probably paint it white but for long-term rentals black is good enough – so we’ll do a zero touch-up of the paint and that’s it.
What does appeal to Airbnb is the variety of options it offers – you can rent it all out – and then it competes with a very small number of properties because there aren't many properties of this size in Dallas for rent – a 7-room castle
Or rent out different areas of the house – that way you can give it several options – in any case, the cost of painting the whole thing, furnishing it, adding attractions like a pool with a projector, etc. doesn't make sense right now – but there's no doubt that it's an interesting option for the future.
2. Renting the entire house
Renting the entire house, about 7 rooms and 6.5 baths, for a regular rent – I checked with several management companies – the range is between $3500 and $4500 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 in rent, but the renovation would be excessive for the neighborhood and would not increase the value of the property accordingly.
3. Converting the entire property to Airbnb
About three or four units – the thing is that in such a case, its entire style needs to be changed from a Spanish style to a solid short-term rental style – an investment of between $50 and $70. 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 with a regular rental and see if it has problems, address them, and then move on to such a move – we don’t want problems with short-term renters.
4. Splitting the property into 4 units
The property is already built as 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 can receive a rent of about $1000.
That is, in this option the rental potential is:
A. Main unit with a huge living room, master bedroom with jacuzzi bath, guest and full bathrooms, huge kitchen and two children's rooms - yes $2500 to $3000
B. The floor above after splitting – $1000
C. The 1350 square foot back unit – two bedrooms, a kitchen, a bathroom, washing machines and a private yard – minimum $1 per square foot – let’s say $1300
D. The unit in the yard after renovation – and it needs renovation of between 8000 and 10000 dollars – it can be rented for a short lease and tripled or left as is – say 1000 dollars
This means that at normal rent, the property should bring in 6,300 if it is divided into four units.
In terms of costs – so far I have received four quotes for repairing the foundations from several recommendations – the quotes range from $16,000 for the most expensive quote to about $6000 from a company that seemed to make the best impression on me in terms of reliability – so it's not necessarily the most expensive that's best.
This company, compared to other companies, came with professional inspection equipment and told me that the entire back of the house did not need to 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 garage to prevent water from penetrating the foundations - they're the only ones who suggested that and they got extra points from me.
Regarding the renovation – there are contractors who offered 40-50 thousand – there are those who do the work directly without pocketing high fees and offered half or a quarter of that – I'm still in the testing stages.
I don't intend to "bury" a lot of additional money in this property in renovations at this point. – I prefer to save the money for a deposit for the next property and let this property run and start generating cash flow so as not to waste time on a property that is empty and also because the compasses at this stage will not justify it – this property is already the largest and most luxurious in the entire neighborhood – there is no point in improving it even more until the neighborhood catches up with it in prices – when that happens it will be worthwhile 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 taste is interesting regarding the existing colors, whether they are beautiful or not – the existing color is relatively new and for the residents of this neighborhood there is no point, at least for now, in upgrading to something that does not require an upgrade and that suits the character of the neighborhood.
So in conclusion, you need to know where to buy and follow the dry data - all northern areas of Texas - have already increased by 80 percent and there are no investment opportunities there in my opinion - if you don't have to buy there to live - this is not the place to invest right now.
There are areas like this one that are undergoing gentrification and seeing new construction, and that are in strategic locations – near attractions and the city center – and that have not yet increased in price in the same way that other areas have.
Of course, you need to get to the area and see the condition of the houses on 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 entire area will change - you can see Comparables attached in the photos - we saw houses on the same street after a flip at a cost of $180 per square foot and more.
So what is the property's value – After Repair Value – ARV?
According to the Redfin website – at a maximum of $651,000 – at $149 per square foot and according to the size registered with the municipality (not including the housing unit in the yard).
We will know the value in the refinance in six months - in the reassessment after the property has been rented for a period of time.
Let's say we use a value of just $110 per square foot for comparison - based on its full size, we would already be at $577,500.
And what will its value be when it is $180 or $200 per square foot? Which, based on its full size, is about $1,070,000 – in principle, the larger the property, the lower the price per square foot, so I wouldn't take that as a comparative measure, but there is certainly potential to reach such amounts within a decade as the neighborhood develops.
It is important to emphasize that not everything is perfect – hence the opportunity – prices and demand in the US are derived from a large number of parameters – and a very important parameter is the population mix, schools and crime.
This property was purchased with the expectation that the area would improve in the future – so our residential function in the property has now been eliminated. It’s not a bad area, but the school ratings are too low for us – especially compared to Long Island where our schools are rated at 9 and 10.
So this week I will decide on a contractor and the most appropriate strategy for the property – and as mentioned we came for two weeks to take care of the property and also to check out all the aspects of Texas in terms of moving. There are insights here and there when comparing living in the Dalles with New York – there is no doubt that today the hot commodity is in Texas – and as a businessman in real estate I prefer to be close to the goods, opportunities and connections. Beyond that I have a family coming with me – at the moment the one who really wants to move is Nirit – tired of the cold of New York, so of course we brought the children too and we will visit the local community this week – we will go to the Chabad house, to the scouts, the Jewish schools and more – there is a warm Israeli and Jewish community here.
In any case, if I go all in on the property at $330,000, and the gross income is $6300 – I’m at a 22.9 percent yield in downtown Dallas, the craziest market in the US. Not bad, I’d say.
So what did we have?
Purchase for $300,000 – reflecting $56.074 per square foot
The cost of renovating the foundations, renovating the outdoor unit, adding a rooftop unit and kitchenette, and minor repairs to the house – let's say in the $30,000 range – we're at $330,000 – we settled on $61.68 per square foot.
So if you've come this far, it's likely that such deals interest you - then you're welcome to invest with us and learn from us.
Anyone who is interested in such deals – tomorrow we open the first round of Our Wholesale track with Gal Shmukler and with me, Lior Lustig And in this course, I will tell the students in detail about the deal and give them the report I created, we will go over all the price quotes for the renovations, I will give you access to the recorded interview with the inspector where you can see exactly what I asked and how I directed the conversation, the inspection report and the letter to the agent – and of course I will be happy to answer any questions.
It is important to remember that the property was on the market – in the MLS – meaning it was exposed to everyone, so the competition with it was more difficult.
Think about what would happen if the property was not exposed to everyone and you reached out to its owner before it even went on the market and carried out the negotiations? It would have been much easier and much less stressful for you – and this is exactly what we teach in the course – how to reach off-market transactions that are not on the market, how to reach stressed sellers, or properties with problems or sellers from out of state or older sellers who no longer want to manage the property or properties that have a lot of Equity – and in which the seller has an interest in selling in order to realize the profit that has been hidden in the property since he purchased it.
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In the video – a walkthrough of the house with the management company.
In the following videos we will update you on the progress of the deal and the renovations.
Good luck to all of us!
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