- Cathcarts purchased its first investment property in January 2020.
- Despite the market slowdown, they haven’t stopped buying 14 single-family homes this year.
- He shares the biggest mistakes he’s made and watches other investors make.
Camron Cathcart considers himself a novice. Real Estate InvestmentHe and his wife purchased their first investment property in St. Louis, Missouri in January 2020 after selling their home in Denver, Colorado. They moved to Gateway City because it was affordable. especially before the pandemic Homes were $161,038, as opposed to Denver, which was $467,000 in early 2019.according to Zillow.
Over the past two-and-a-half years, the couple has been fortunate enough to grow their portfolio at a sizeable rate. They also flipped and wholesaled more.
Cathcarts got a head start in building its portfolio because it started investing during a strong seller’s market. This year, housing market is starting to cool down as mortgage interest rate It heats up, effectively plummeting demand. Existing home sales in July were down 5.9% from June and 20.2% from a year ago. According to the National Association of Realtors.
“Anyone who has started investing in real estate in the last few years looks like a genius,” says Cathcart. “And I can say that about myself. Some of the deals I bought should never have made money. I earned it.”
A strong real estate market may have made many investors successful, including those who cut corners and went over budget. But as home sales falter, Cathcart said, shoddy contract work and poor quality materials pose problems when corners are cut. This means that details that may have been overlooked in the past, such as sticking to tight budgets and conservatively underwriting deals, will catch up with investors in this market, he noted.
Buyers will now have more inventory to choose from, Skip home inspection Avoiding contingencies will probably pass, and buyers will have a better eye and will prefer properties with better details and finishes.
Excessive leverage can also be a problem. He added that those who bought negative cash-flow assets in hopes of rising would likely get into trouble. Investors who cash out their home equity in their primary residence or other properties to buy additional units could also find themselves in precarious conditions if the rental market softens in the coming months.
The market slowdown hasn’t stopped Cathcarts from expanding its portfolio. This year they purchased his 14-family home. They flipped and sold three of his homes, leaving 11 behind for a total of 40 rental properties. Cathcart said another said he has a deal on two properties.
historically, recession Especially in St. Louis, it doesn’t affect the price of rent as much as the house is worth, he pointed out. However, this may not be the same in other markets, especially those where supply and demand have fluctuated significantly.
Cathcart is all in. Real Estate InvestmentBut the number one pitfall that almost all new investors fall into is trying to do too much too quickly Rather than picking a specific niche and growing within it. He warns beginners not to chew more than they can chew when starting out.
“I was in that trap. One of my mentors told me, ‘You have to pick a road and run 100 miles an hour in that direction. Forget it,'” Cathcart said. of his mentor’s advice.
He came to understand that he could always change course later when he had enough in one area. We have expanded our business to reversal sales, wholesale, wholesale, which is to put out to the market.
He pointed out that if you dabble in too many different markets, whether residential or commercial or even expanding into other locations, nothing will work. that’s right.
The first year Cathcarts started investing, they stumbled upon a surprising deal to purchase a storage facility. Even though all the numbers were lined up and the opportunity looked profitable, they decided to sell the property. , he recalled.
Cathcarts may have missed liquid cash opportunities. However, in one year, they have been able to build his $2 million net worth out of their portfolio and maintain cash flow all the time.
“I devote 60 hours a week to single-family renting,” says Cathcart. “There are others spending 10 hours a week on Airbnbs, 10 hours a week looking for storage facilities, 10 hours a week looking for multiple families, 10 hours a week flipping, 10 hours a week renting a single family home. If so, I’ll be better than them, especially at finding deals for my niche.”
Overpaying real estate is the second pitfall he has committed in the past. No matter how frenetic the market is or how much you want the property, stick to the fundamentals. Going beyond, this mindset and practice is not always helpful for investors.
Cathcart uses one formula to determine the price you are willing to pay for your home. Simply put, it’s 75% of the value after repair (ARV) minus the repair. So if the property has a $100,000 ARV and requires $25,000 in rehab, his purchase price will be approximately $50,000.
The market is so hot that some investors are breaking that rule by incrementally increasing prices up to 80% or 85% of AVR minus rehab costs. Many investors could get into trouble if the market slows down and starts to stagnate, he said.
The third mistake is buying Properties without multiple exit strategiesThis means that the same property can be stored and rented, flipped and sold, wholesaled or wholesaled.
Cathcart has had to learn this lesson the hard way, he says. In the spring of 2021, Cathcart purchased a single-family home in the St. Louis metropolitan area and resold it for a profit. It was in an upmarket neighborhood where the average home sells for about $350,000. Refurbished properties made him 15% to 25% more. He paid his $250,000 for the property but underestimated the rehab costs.
In the end, it turned out that the house required about $125,000 worth of work. Cathcart didn’t have the financial capacity to flip it over.
The couple decided they couldn’t keep it because it wouldn’t necessarily make for a good rental property as their monthly cash flow would be negative. It was also too expensive to profit from wholesale or wholesale. Cathcarts was unable to use the property for approximately four months before reselling it for the same purchase price. They lost his $5,000 pocket after incurring holding fees and realtor fees.
Ideally, the property an investor is looking to buy should have at least three exit strategies. In a perfect scenario, he pointed out, there would be four.
A fourth pitfall many investors fall into is Afraid to spend money on education or networkingInstead, they try to figure everything out on their own. He believes one of the big factors in driving the couple’s rapid success is being surrounded by the right people.
“Usually it costs money. The joke I have is that we paid a lot of our friends,” Cathcart said.
They spent between $6,000 and over $8,000 attending Mastermind sessions in Sedona, Arizona and Maui, Hawaii, according to receipts viewed by insiders. I also pay $1,000 a month to join an ongoing online high-level mastermind group.
While the return on investment for professional development and networking opportunities is not easily quantifiable, Cathcart believes the real value is 10 or 100 times the investment. Not only did they continue to be inspired to continue, they also raised money, automated some of the processes, and adopted strategies such as asset management that saved them a lot of time and cash. Spend the money, he said. It’s like paying for college, except with a much better yield.
Finally, another big mistake is when: Investors don’t deliver great finished products, He said. This is one mistake he’s never made, but I’ve seen him buy homes and do low-grade rehabs with paint and carpet. But he doesn’t have a great home, he said. He added that that also applies to rentals and flips.
For Cathcarts, home renovation means installing new floors throughout the home, upgrading lighting fixtures, bathroom and kitchen countertops, and adding stainless steel appliances. If your house needs electricity or plumbing, there’s about a 50% chance that you’ll upgrade that as well.
Over the past few years, offering barebones products didn’t do much. Demand was so high in many major markets that Flipper was able to find a buyer in most cases. But as the market slows down, he said, he’s starting to notice that the MLS properties that are seeing markdowns are the ones with poor or no regeneration.
“Last week we listed a house for $189,000 and had 30 shows and eight offers. We had three offers well over $20,000, which is pretty rare in this market,” Cathcart said. rice field. “But we delivered the best products in the area, so they wanted to buy it.”
On the renter side of the business, no one has failed to pay their tenants, even during the pandemic and various stay-at-home orders. The reason Cathcart suggests is that the better the product, the higher the demand. This means they can choose from a large pool of applicants, and can filter candidates with excellent income and work history, credit scores, and landlord references.