James is a featured contributor to the 2021 Guide to Colorado Real Estate Investing Strategies book. In it he writes about Hybrid investing, creative deal structuring, Nomad investing and helping people as a licensed Realtor.
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James Brown’s Denver Real Estate Investing Plan 2021
About
James Brown (aka “The Hardest Working Man in Real Estate!”) caught the real estate bug and loves to spread the stoke for improving lives through home ownership and then taking it to the next level through real estate investing.
Connect with James at [email protected] or HybridRealEstateInvesting.com
The Foundation
Back when I was in college, my Dad suggested that I buy a duplex, live in one side and rent out the other. Great advice! Did I do that? No. I’ve come to regret not doing it back then. If you are that age and are actually reading this book, you are smarter and more motivated than I was! Learn the basics, get a plan together and take action as soon as you can. This book has some great strategies. Find something that fits you and your situation. Don’t overcomplicate it and avoid analysis paralysis.
Despite not buying a duplex I did buy a house together with my brother after college. Then, in 2006 I bought a fixer upper for myself in the East Colfax neighborhood. My plan was basically what is now known as Nomad investing. (See the 2019 version of this guide for James Orr’s detailed description of Nomad Investing.) Unfortunately, about the time that I wanted to refinance and buy my second property the 2008 crash dragged my plan to a screeching halt. It took years to come back around where I had equity in the house to refinance and buy a second property. I could have saved up for the second down payment, but didn’t do that either. I probably waited way longer than I needed to take next steps. I liked living without roommates for the first time in my life. But at one point I took in a friend that need a place to stay. He paid me $500 a month for a bit over a year and I got used to having that extra cash! Plus, he helped me hang drywall when I remodeled the kitchen. After he moved out, I started renting out that room and the second bathroom on AirBnB. I was clearing about $700 a month which paid the payment on my brand-new truck. The AirBnB required a lot of cleaning and there were a lot of people coming and going, but it took the sting out of the $700 a month payment on my new Tundra. Along the way I met some really cool, interesting people… and some weirdos.
One day I was chatting with a friend about investing and he turned me on to Bigger Pockets and down the rabbit hole I went. I listened to every podcast I could. That turned to learning from books, webinars, seminars, networking, and joining a multifamily syndication mastermind group hosted by Adam Adams and the Blue Spruce Group. My eyes were opened to so many investing strategies! But that was a double-edged sword because it took me a long time sort it all out and pick a direction.
Eventually I got more focused but grappled with deciding what to do with my primary home. It would have been fast and simple to refinance, turn it into a rental and buy another place to move into using the Nomad investing model. It was a charming brick ranch with 3 bedrooms, 2 baths, a garage and a big yard. On the other hand, it was built in 1936 and had ancient heating, electrical, plumbing and a crack in the sewer line. It was also in a high crime area with some nightmare neighbors on one side. I could tell you some riveting stories including testifying in court on one occasion. I didn’t want to live there anymore and couldn’t imagine decent renters wanting to stay there for long so vacancy would be a problem. I didn’t think the house would hold up to renters that were not as careful with the electrical and plumbing as I was so capital expenses would also catch up to me. So, I decided to sell it and deploy the proceeds into other properties. I also wanted a place closer to the mountains since I spend most weekends there and was getting tired of the extra 45-minute plus drive.
In the meantime, a good friend let me move in with him down in Castle Pines. I’ve been here for 2 years and, but my money is just sitting in a savings account so it isn’t even keeping up with inflation. The opportunity cost is high and I’m ready to put my personal plan into action.
Motivation
For the record, I’m single with no kids and just turned 51. The good thing is that I can be flexible and aggressive in my investing strategies without being concerned about keeping others happy. It’s not going to be easy either way, but the clock is ticking to make moves toward a comfortable retirement. I’ve had my own graphic design business for over 20 years and it’s given me a lot of freedom. Maybe too much freedom because I’ve gotten by while enjoying lots of adventures but not saving or investing enough. Reality has hit and I’ve realized I have to make some major changes to create a more stable and comfortable future.
Goal
Build a portfolio of properties that cash flow a minimum of $10,000 per month. I will probably always stay busy with some sort of business venture but my goal is to have the freedom to choose how I spend my time. I also want to have the ability to donate money and time to charities. I also want to spend time with family & friends, travel, and go dirt biking, kiteboarding, snowbiking, mountain biking, skiing, snowboarding, playing hockey, reading and playing music.
Major Career Change
During my real estate journey I was at an investor meetups and met Toby Hanson. We got to chatting about our personal situations and goals. Toby is close in age and was motivated to make some big moves in real estate. He had been focused on his digital marketing agency getting leads for Realtors, but decided to leverage his knowledge of real estate and marketing for his own goals. I was in a similar situation with a head full of real estate knowledge that wasn’t being put to use. Toby had researched different real estate business models that employ creative real estate strategies like owner financing, subject-to, wrap mortgages and lease-options. We kept the conversation going and decided to team up. Using some of the proceeds from my house we hired a mentor and dove into setting up and building our business. Along the way we pivoted to a strategy we call Hybrid Real Estate Investing as well as other creative acquisition strategies.
Strategy #1: Hybrid Real Estate Investing
This strategy is profitable while also helping people get into homeownership that can’t get financing…at least not right away. It’s a win-win. We pre-screen our buyers with our lender partners then we give them time and help to fix any financing issues that are holding them back. We let them pick out a home off the MLS and approve it if it would make a good investment property. We, or our investor partners, buy it and lease it to them with the option to buy in the future. We get cash now, cash flow and cash later when they buy from us. Cash now means that we get cash up front in the form of an option fee before we even close. That also means we don’t need to sink a full 20+ percent down into the property. The cash flow is also known and agreed to in writing so we don’t have to guess what we can get for rent. We make good returns with less of the downsides that you’d normally have with being a regular landlord. And the tenants are ready to move in on the day we close. Tenants also cover maintenance and repairs since they are going to own the home eventually, so we don’t need to hire property management or self-manage like the old-school way of investing. We love the model and will build wealth through doing these deals ourselves as well as helping our investor partners benefit from the same strategy. Our goal is to close an average of one deal per week by the end of 2021.
Strategy #2: Creative Deal Structuring
To build our long-term-hold portfolio we market to distressed sellers. Unfortunately, more and more people are finding themselves in difficult situations as the effects of Covid-19 ravage the economy. We have a toolbelt filled with a variety of ways to help distressed sellers dispose of properties that they can no longer afford to keep by paying cash, taking over their payments on their existing financing, partnering on remodels before selling, or selling with zero commissions paid to us as the listing broker through our unique online offer platform. These options can save sellers from foreclosure or bankruptcy and we benefit too. Our goal is to acquire one property per month in 2021.
Strategy #3: Nomad Investing
After a refresher class on Nomad investing that Chris Lopez put on, it sunk in how powerful this strategy is, even if it’s the only strategy a person were to implement. Starting out at a young age could be all one would need to do. And as James Orr calls it, being a “Catchup Nomad” can work for older people like myself. If you aren’t familiar with the strategy, being owner occupied I can get each house with low money down and low interest rates (3.5% down at 3% interest) versus a straight rental property investment (20% down and 4% interest). The downside of low-down payments is mortgage insurance. It’s a consideration but I’m willing to prepay that in exchange for leveraging my money to its fullest and having cash reserves. With the extra money I save I will be able to invest in the shorter term and higher returns of our Hybrid strategy both here in Denver and in some other markets with low money down and high cash flow (but low or no appreciation). I’ll also look at some lower down options and interest-only loans to consider for my non-owner-occupied investment properties. Pro Tip: Set up a HELOC with each house before buying the next property to unlock equity. An experience Nomad investor told me that not doing this was a huge regret because all her equity was locked up. My goal is to buy one Nomad property in 2021 to get the ball rolling.
Strategy #4: Licensed Realtor®
Becoming a licensed broker was an obvious piece of the puzzle. It allows me to make commissions by helping regular buyers and sellers. And if sellers want to sell without paying commissions to me as the listing broker, they can list through our online offer platform. Being licensed also allows me to help my investor partners close on Hybrid deals, as well as working with other agents, lenders and credit repair professionals to help them and their clients that can’t get financing but want a home of their own now. Everyone wins by working together.
Conclusion
If any of these strategies resonate with you, I’m happy to chat about them and how they might work to help you reach your goals.
