Hello my friends. Welcome back to Passive Real Estate Investing where we dive into the world of real estate investing among other related topics. To help you with your real estate investing journey, today we’re doing something a little different. We’re going to take a trip down memory lane and showcase an important episode from the past on what we call our throwback Thursday episode. Now, whether you’ve been with us since the beginning, which goes back to 2015, or you’re tuning in for the first time, this episode is a must listen, we are revisiting one of our more popular episodes from the past, and believe me, what we discussed back then, whether it’s six months ago or six years ago, is just as relevant today. So sit back, relax, and let’s rewind the clock for this great episode. Enjoy.
Today’s question is kind of simple, but I feel bad for this person. Her name is Grace and she writes in and says, hi Marco. Thank you for your amazing podcast. It is very informative and educational. It’s been a few weeks now since I started listening and I gained a lot from it. I am new to real estate investing and this is my first adventure. Not sure why she called it an adventure. I took some friend’s advice and bought some vacant properties in Baltimore with a price range of 10,000 to $20,000 hoping to rehab and sell or rent out in the areas that are expected to grow. I don’t have any real data, but it is possible in a couple of years maybe, but that was a year ago. Unfortunately or fortunately maybe I need to be educated first in brackets.
I was not able to do any of that due to finances and other circumstances. Now since I started listening to your podcast, I thought it would be wise to seek advice before I go too far with it. The area will be considered a class D neighborhood. I think my question is how should I proceed now? Should I try to sell them as is even if I lose money and use the cash for a down payment for a turnkey rental property or should I try to rehab and rent out or sell the properties? Thank you for your suggestions and keep up the amazing work you are doing in educating everyone who is interested to learn kindly – Grace.
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Throwback Thursday Episode (The episode originally took place in the year 2020)
This episode is part of our Throwback Series and may include references to older content such as web classes, events, promotions, or links that are no longer active or available. While the conversation and insights still hold value, please note that some information may be outdated.
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Grace, thank you for writing in. I appreciate the question. This is a difficult question to ask in a harder question to answer for two reasons. One, I feel bad for your situation and two, I don’t actually have enough information to give you a complete answer but I’ll make a few assumptions and I’ll answer to the best of my ability.
First and foremost, this friend that gave you the advice to buy these two vacant properties, is she really, are he really a friend? In some ways, I’m thinking that this is a way to uh, punish your enemy. But it really depends on what you bought because they could be two great properties with minimal work in a decent area, although I don’t know if decent and D class neighborhoods go hand in hand in the same sentence. But anyway, you did what you did and you have what you have. So on the surface, this sounds like you made a mistake, but smart investors, intelligent investors, good entrepreneurs have the ability to turn lemons into lemonade. It’s just finding the opportunity in a situation where others don’t see it. And that’s really the skill of great business owners and entrepreneurs and dealmakers is they’re able to identify opportunities in things, situations that others, most people don’t find or don’t see.
So let’s just assume you did make a mistake, but here are your two options. This is really the broad answer to your question. I think you have two general answers here. Maybe three. First is, I don’t know if you bought these from a wholesaler or through the MLS through a real estate agent, but option one is since you’re sitting on it, and I assume you probably just bought these with your own cash, you didn’t borrow other people’s money so you’re not accruing interest on the funds that you use to purchase these properties. If that’s the case and you can just ride it out, you might want to try selling them on your own, on the MLS and just, you know, Mark them as investor specials and just sell them for enough to cover your costs, whatever you know that commission is and your carry costs.
That’s one option. The other option is you can find some wholesalers in your area. Uh, maybe visit a real estate investor club meeting. Probably have more than one in the Baltimore market, but go there with some information. You don’t need to tell them what you paid for it, but just ask them if they’d be willing to take them off your hands as a wholesaler and sell them to the investors that they know because they will have a list of real estate investors that buy and renovate properties and they may have a ready, willing and able buyer for you right now and they’ll just make a few thousand dollars off the assignment of the contract. So they’ll put it under contract with you, pay you the price that you want, they’ll mark it up and they’ll essentially just resell it to another investor who will turn around, renovate the property and then either flip it themselves or keep it as a rental.
And I think that might be the fastest and easiest route for you. So if wholesalers aren’t the option, then you could take an active role and roll up your sleeves and just try to do this yourself if you have the comfort and confidence to do it. But essentially what you would do is talk to one, two, or three different general contractors and have them walk the property and write up a scope of work for you. Essentially give you a bid on what it would cost you to renovate the property. And then what you’ll do is you’ll just look at what your total cost is on that and compare that to the comparables in the area so you can see what the market value is and maybe you’ll be able to renovate these properties at a low enough cost basis where you can refinance the property and pull your money back out.
This is essentially what is referred to as the BRRR strategy, B, R, R, R, R, Buy, Renovate, Rent, Refinance, and Repeat. That’s it. So essentially what you’re going to do is take these properties and renovate them and keep them. Or at that point, you could resell them as essentially, an operating asset to another investor place attended in there, put it under management and then just sell them. But if you’re going to do that, you might as well keep it yourself because you have nothing to lose unless you just don’t want properties in what you are calling a D class neighborhood. And I don’t blame you for that. If it’s really that rough of a neighborhood, I probably wouldn’t want any rentals there. Uh, you know, I, I don’t really even want properties in C class neighborhoods, let alone DS. Your third option is just to take the loss, sell them for as much as you can, learn your lesson from the decisions you’ve made and what you’ve done to this point and simply move on.
And as you said in your email, you would just take that cash and use that as your down payment for one, maybe two, but certainly one turnkey rental. These are just three options you need to weigh yourself because again, I don’t know what the condition of the properties are, what the scope of work is and what the total cost basis on these properties are compared to the comparables or the market value of newly renovated properties in the area. And if there’s really that much of an equity spread between the newly renovated properties and what you can renovate these properties for to make them similar, it might be worth considering that option. So it’s really hard for me to tell you what to do. It’s practically impossible, but your three options are talk to a wholesaler, have them sell it for you to get yourself some bids from general contractors, renovate them, keep them as rentals, or maybe just resell them as a fully renovated rentals.
Third, take the loss, learn the lesson, move on. So at the end of the day, this can be a big lesson for you on many levels, regardless of the option you choose here because you can walk away with an education from any of these three exit strategies. All right, so hopefully you can turn this lemon into lemonade and hopefully this was a good experience for you. But yes, definitely you need to educate yourself. Continuing educating yourself. Continue listening to the podcast read. I’m going to say as many books as you can, but definitely read some books about investing in real estate. Passively. Actively get a lay of the land. Uh, some finance books and some books just on mindset, attitude and personal development. All right, I hope that helps. Grace, good luck with those properties. Don’t make this mistake again and talk to your friend and maybe find out why they even recommended these in the first place.
I hope you enjoyed this week’s throwback Thursday episode. If you haven’t already, remember to subscribe so you don’t miss out on a single episode. If you have a question about real estate investing or finance, simply go to passiverealestateinvesting.com and click the Ask Marco button. I read all of them, I reply to many of them, and sometimes I cover them on the show, and I’m gonna try and do more of that. So, I am going to encourage you to go to passiverealestateinvesting.com and submit your question for Ask Marco. Lastly, help us share the show with other like-minded people that you know who can benefit from it as well. Just visit us on your platform. Most of you are on iTunes and leave us a rating and review. I would greatly appreciate it. I read them all and I will thank you in advance. And that is it for today. Thanks for listening. I will see you on our next episode.
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