The Blog

Reprinted without any permission or warning from this article
BY SUSAN TAYLOR MARTIN
Times Senior Correspondent

Get Into Rentals

Chris Smith had just graduated from the University of West Florida in 2003 when he saw a foreclosed house he admired. He tracked down the Tennessee bank that owned it, and got what he calls “a really good deal.”

Smith was hooked. After moving to Tampa in 2005 to help with his dad’s vinyl repair business, he started buying and selling houses, “rode the market down like everybody else,” then rebounded along with the economy.

Today, Smith, 37, owns Bay to Gulf Holdings LLC, a Tampa-based wholesale real estate investment company that buys distressed and run-down properties, does minor rehabbing and then sells them at modest markups, mostly to other investors. In the past decade, Bay to Gulf has closed some 3,000 transactions, making it one of the biggest house flippers in the area.

Smith, who has 20 full-time employees, runs the company out of a striking building on North Dale Mabry Highway decorated with items salvaged from houses he buys. He also writes a real estate blog and recently started a website with how-to videos on home improvement projects.

In an interview with the Tampa Bay Times, Smith gave investment tips and explained why he thinks rental properties instead of quick flips are the best way to build wealth.

Chris Smith's Advice: Get into rentals.

Q. What’s the No. 1 thing you need to know about investing in real estate?

A. You’re not going to get rich on one or two deals in this business. It’s a lot of work and even if you only make a dollar on the first house, it’s well worth it because you’re going to learn from that experience and learn about all those items that can go wrong with a house, like the water heater that starts to leak all over those new engineered-wood floors you just put in. All of a sudden you have $5,000 or $10,000 in repairs. These are the pitfalls you can run across and you may find out you don’t like doing it (investing) because it’s a very high stress job.

Q. Do you need a lot of money to get started?

A. When I first started flipping houses the money we had was very minimal. We took the profits and reinvested them in more purchases. Cash is king but you can do it with minimum money, 20 to 25 percent (of the purchase price). Then you need money for rehabbing, money for maintenance. If you’re looking to get into this business, start saving today.

Q. Are there alternatives to bank financing?

A. There is this thing in the market called “private money,” individuals who will invest money at high interest rates, almost like credit cards, that allow (other) investors to purchase property. A lot of property is purchased that way.

Q. Why rent out houses rather than quickly flipping them?

A. With flipping you can make money, no doubt about it, but it has so many pitfalls you can also lose your shirt. But if you own a property worth, say, $200,000 and you’re in a rental-type area, that would bring you about $1,500 a month in cash flow so you’re looking at about $18,000 a year. If you allow that to compound, in less than 10 years you can double the amount of houses and double the amount of income, so you’re now up to $36,000 (per house).

Q. Why is this a good time to be in rentals in Tampa Bay?

A. Home ownership is at an all- time low since 1990. Population growth is at an all time high. This recipe is perfect for low vacancy rates.

Q. What should you look for in a potential rental property?

A. I personally look for something that appeals to me. A lot of people choose block over frame but sometimes frame has a better look. Typically for rental you’re trying to find something that maybe has a new roof, maybe air conditioning that’s new, something that’s not going to cost you a lot of money as you’re building profit.

Q. What are the common mistakes newbie investors make in rehabbing houses?

A. Somebody may put 99 cent (a square foot) tile into a bathroom when they could put in $2.99 tile. It’s such a small area that for a few hundred more you can have an upgraded product. Or they’ll put in Formica on the kitchen counters instead of granite. Formica won’t last as long, it scratches, it burns. With entry-level granite you can spend an extra $800 or $900 so it’s not a huge expense but it looks much better and is much more durable.

Q. Any other advice for the novice investor who plans to get into rentals?

A. Other than getting it fixed up in a short time period — every day it’s not on the market is a lost dollar — it’s picking a property manager. It’s worth the 8 to 10 percent the property management company is going to charge you. If the rent is late, they go collect it.

Q. Home improvement and house-flipping shows are hugely popular. Hillary Clinton says one of her favorite programs is Love It or List It on HGTV. Is there anything to be learned from this type of show?

A. Here’s what I would take from most of them: If you see the pace they work at, it’s very difficult for the average person to work at that pace but you have to do it if you want to be successful.

Q. Your company seems to turn over most properties very quickly. Are there any you wish you hadn’t bought?

A. I have a property in Palm Harbor I’ve owned for about a year. That property is going to lose a lot of money. It’s a great house, I’d live in it, but it has one negative: the shape of the lot. (Investing) is not an exact science, you could be wrong on a house but every day is a learning experience.

Q. Aside from duds like that, do you think the bay area will continue to be a good place to invest?

A. Everybody has to be excited about Tampa Bay and the St. Pete area with the massive amount of building, the plans they have for downtown (Tampa). It’s still very affordable, still room for a lot of growth. People are still moving down here. I think everybody should look into purchasing rentals. If you’re 25 and buy now, by the time you’re 50 you’ll have a large net worth.

Contact Susan Taylor Martin at smartin@tampabay.com or (727) 893-8642. Follow @susanskate