RG 073 – How to Acquire Over 100 Properties in 12 Months with Lease Options
About Jimmy Vreeland and Bob Scott
- They are the co-founders of Joint Ops Properties
- They focus on the St Louis market, single family homes.
- They were both in the military.
Nuts and Bolts
Jimmy and Bob both started their careers in the military which taught them how to be comfortable being uncomfortable; an important trait in an entrepreneur. Jimmy was inspired by real estate investment after reading Rich Dad Poor Dad, Kiwasaki was also in the military and fought during the Vietnam war so Jimmy saw the parallels of their stories. Bob was a civil engineer in the airforce but after leaving the military he realized he didn’t want to sit in a cubicle for the rest of his life taking orders. They both moved into entrepreneurship and started Joint Ops Properties. Their company currently has 100 distressed properties on the books which turn approximately 30-40 cents on the dollar. They also own many single family homes which are under a rent to buy contract with the tenant.
What are lease options?
A lease option is a contract giving the tenant the right to buy the house after a specific time. The time and price is given in the original contract, for example $100,000 in 2 years and in the mean time the rent is set at xxx. This benefits the landlord because they generally get a higher quality tenant and a non-refundable deposit which is usually 3-5% of the house. A normal rental landlord might get 1 month’s rent up front whereas a rent to buy landlord gets several times more. During the lease the tenants are in charge of maintenance and organizing any renovation or fixings. This is a great way to get involved in the real estate investing world without having to struggle through management or maintenance. A lease option like this is targeted towards the motivated part of the market and there is usually a lot of interest and competition for these properties which means Jimmy and Bob can charge above market rent.
How to find properties
Jimmy and Bob say that in the right market it can still be possible to find distressed properties but you need to spend some money on marketing to find them. The criteria that they use when looking at houses are that it has to be distressed and create a good cashflow of $350/m per door after expenses. Ideally they wouldn’t have to spent too much money beyond cosmetic repairs, for example $10-15,000 or less, however it is sometimes possible to leave the cosmetic repairs to the tenant buyer which means they can skip the property manager parts of the job and the tenant can chose their own styling. Jimmy and Bob will always do the major system work before the tenant moves in, this is the heating, cooling, electricity and plumbing. They find about 70% of their properties on the MSL and the remaining through wholesalers.
The numbers
Jimmy and Bob are picking up their houses for $30,000 on average because they are choosing good solid 1970’s houses which haven’t appreciated. Due to the value of these properties they keep their renovation costs low because if they went much higher it would be hard to generate a cash flow. In St Louis real estate tax is cheap and when included with hazard insurance and sewerage they are paying about $200 per month on each property and these are the only costs that can’t be passed onto the tenant. 80% of the US market can’t get conventional financing due to poor credit scores or mistakes with past bills. This means that lease options are good ways to own a house for people who might otherwise have the money but can’t go through the bank. At the end of the 2 years of renting the best case scenario is that the tenant pays the agreed amount but more likely is that they still don’t have the required money and Jimmy and Bob will offer them owner financing to buy the property. Once owner financed Jimmy and Bob will keep taking the mortgage money but they can also sell the note to third party note investors.
Top tips
- Most important habit – Following the Wim Hoff method and meditation
- Most influential person -Rich Stevens
- Most important tool – The software Livecom for text blasts over an email network
- Most important mistake – Really bad book keeping for the company until about 6 months ago.
Youtube – Joint Ops
Podcast – Entrepreneur Drinks Podcast