Willie is a buy-and-hold real estate investor in Boston. He’s been doing real estate for 13-14 years and started in 2006 when he bought his first multifamily at 23 years old. He rode the market down to the bottom when the financial crisis happened and learned some valuable lessons. In this episode, we learn how to buy and hold in Boston as a long-term strategy.
Willie went to school for finance, but his grandma pushed him to buy his first multifamily right out of college. He soon realized that with that investment, 65% of his mortgage was being paid by someone else. The property appreciated for 6 months or so before the market crashed.
He made some moves in 2012-2013 when people were running away from the market. He was buying in Boston and even encouraged his wife to take an FHA loan and get 3-family property. With that, they accumulated 5-6 units all on low down payment programs.
The 2008 recession was a huge learning curve for Willie. It made him mentally tough as at that time, he was a new landlord, relatively young, and being challenged. It forced him to be patient.
Because he started in a bad economic climate, he became a more conservative investor and would crunch the numbers better and look at them more carefully.
For him, real estate investing is not about the appreciation play. He prefers to get properties that if 15-20% dip happens, they’ll still be collecting the same amount of rent. He believes flips are income-generating, but the money you generate from them is the same that a doctor would earn, which could be used for a buy and hold.
While he has done a couple of conversions and flips, he’s a long-term guy and believes true wealth is built in the buy and hold space.
Most investors would probably start with rent-ready properties, so it would be more of a house hacking play. Then over time they increase rent and pay off their mortgage. Once they’ve maximized their conventional lending, then that’s when the BRRR strategy gets applied.
Investors then look for a property that needs a substantial amount of work where they can create value over time. This has been Willie’s strategy for the last 5 years.
Willie believes that the reason he is able to survive is that he understands it’s a numbers game. For every 100 prospects that he puts in his lead generation pipeline, he buys 3 deals. To be successful in Boston, you have to have a strong lead generation system.
Find a good deal and get a hard money lender for the primary financing. Then get a private money loan which could be your family and use it as a down payment for your hard money lender.
Later, you can go to a more conventional lender once you have established your resume. You can go get construction loans that are cheaper than hard money loans.
After the project is done, refinance out, go back to a primary lender and refinance yourself out of that hard money loan. Then push the debt over into a permanent financing vehicle and pay back the high-interest loans.
When it comes to portfolio loans, Willie prefers to use community lenders. He usually buys 2, 3, or 4 unit buildings in a residential space but under an LLC. So he would get a 5-10 year fixed rate loan and the note can be stretched out over 30 years.
Rates are a point higher than typical residential loans, and there’s a prepayment penalty. While he can pay up to 1% of an origination fee, sometimes he doesn’t because he negotiates with the lender. He usually keeps a reserve account and security deposits with them, so they’re more interested in getting the deal.
He also typically gets a 75% up to 80% loan-to-value ratio.
At the start, Willie was doing a little of everything. He recommends new investors to pick a couple of different strategies, focus, and learn them well. His bread-and-butter was driving for dollars for many years.
He started by first defining his geographic niche before defining his marketing niche. He’s been on every single street in his area looking for ugly homes. He’d look for all the signs that a house is being neglected then take note of the address. He goes back home and gets information on the owners, then goes back there to ask the neighbors about them.
Most investors buy a list that is not proprietary. His way allows him to create a list that’s proprietary and not something everyone has.
But now, he finds deals through networking. People know that he does what he says, so people bring leads to him.
Willie has his own Wealth Builder Nation group. It first started as Boston Wealth Builders but has since expanded to Atlanta, Chicago, and Austin. In this group, he teaches people what he was doing and how he was buying properties.
Most real estate investor associations operate in the same hotel on the same day of the month. This results in the same group of people showing up every month. He started the group to meet a more diverse group of people, so they’d hold the meeting at different nights and in different areas.
With the pandemic, they’ve been doing webinars and virtual events since March. But they’re about to hold a rehab tour and currently have 100+ people who sent their RSVP. They expect that 60% might show up and plan to do it in one of the larger properties to maintain social distancing.
As an organizer, Willie always looks for the new person walking into the room. He starts talking to them and immediately connects them with somebody else in the room. This makes people stay and get comfortable.
He wants to make sure people leave with a connection that night, and it has worked wonders for retention and repeat attendance.
Willie believes that people should invest in something they truly understand. In Boston, the economics are solid. People come there, and they stay.
Since the population is growing, there is a strong demand. Also, unlike other states, Boston doesn’t experience huge dips in the market.
While it is tough to get into, Boston has a pretty stable community with great rent growth. There are still a lot of houses that need a considerable amount of work because their housing stock is quite old.
Willie’s typical deal is a 3-family home with a purchase price of $600,000. He avoids 2-family buildings because he needs the third unit to cash flow.
He puts in around $200,000 for windows, updating the wiring, adding a new heating system, etc. With an 80-20 ratio, his building would have a value of $1,000,000.
He would then do a cash-out refinance and would have roughly created $200,000 in equity for himself. For rents, he usually gets $1,500 or $500 per door.
With a temp to perm loan, he would get the purchase price plus construction money. The lender would give him 12 months to rehab the building and only charge him interest before it converts to him getting charged principal and interest.
Typically, it takes him 3-4 months for construction and 2 months to lease-up. So he gets around 6 months when he’s only paying the interest on the loan and cash flowing on the rent.
Maximize the conventional loan programs. Ask a lot of questions and learn the business.
Don’t forget to think long-term.
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