Cash Flow Crazy: A Real Estate Investor Story

Minneapolis-area resident Mark Kozikowski sold his business three years ago and started investing in real estate full time — despite conventional wisdom that a declining housing market is not an ideal time to dive into real estate investing.

But like many successful real estate investors, Kozikowski doesn’t mind swimming against the current of conventional wisdom when it makes sense, not to mention when it yields a significant amount of dollars in the form of monthly cash flow.

“A lot of people think I’m crazy when I tell them what I do, and I actually think I got into this at a good time,” he said. “Because I’m buying more toward the bottom and finding a lot of good deals on distressed properties.”Click for larger image

Kozikowski specializes in buying distressed buildings at a discount so he can renovate them and then rent them out for the long-haul with a positive monthly cash flow. He uses RealtyTrac to locate distressed properties in his area.

“I do use RealtyTrac a lot. That’s probably my primary source of finding distressed properties,” he said, adding that he sifts through many properties to find the potential cash flow gold mines. “I look at a lot of properties. You just have to look at a lot to find the right one.

“These are buildings that cash flow nicely and I’m planning on keeping for 10 or 20 years,” he added.

He recently purchased and renovated a bank-owned apartment building located near Lake Minnetonka, on the western edge of the Minneapolis-St. Paul metro area. He said the renovation transformed the 17 units in the building, built in 1969 and not renovated since, into luxury apartments.

Kozikowski originally spotted the property on RealtyTrac and was able to contact the president of the bank that owned it — something that was only possible because it was a smaller bank with less bureaucracy than the big banks. The bank had already received an offer for the property, but he made a cash counteroffer that was accepted.

“They seem to take a lot lower offers when it’s a cash deal,” he said, noting he often refinances properties purchased with cash after renovations are complete. “Cash is a good thing to have right now.”

Creativity Counts
Kozikowski also uses creative buying methods to get the jump on other investors and buyers. He told the story of two bank-owned REO homes he found on RealtyTrac that he was able to purchase during Minnesota’s mandatory foreclosure redemption period, which allows foreclosed homeowners to buy back their former properties by paying off the full outstanding balance of the mortgage within 180 days. Some other states also have similar foreclosure redemption periods of varying lengths.

Kozikowski contacted the foreclosed owners, who agreed to sign over the sheriff’s certificate to him — with the oversight of a local broker and title company — before the end of the redemption period. He then exercised the redemption rights by paying off the note to the foreclosing lenders, giving him ownership of the properties.Click for larger image

“I basically got them for the price of the note and a small fee that I paid to the previous owner,” he said. “I got a much better deal … by buying these two properties directly from the owner instead of waiting until they were on the MLS, (when) I would have had to pay a much higher premium for those properties.”

Kozikowski said he has found the most opportunity in the lower end of the single family residential market, where prices are $250,000 and below in the greater Minneapolis area, but he’s still keeping an eye on the higher end of the single family market.

“I would love it if there were a few more foreclosures on the higher end,” he said, noting that he expects the price declines seen in the lower end of the market to spread to the higher end of the market in 2010 and 2011. “We had a pretty healthy run up … and the prices have not come down as much on the higher end.”

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