It sounds strange, but the biggest difference I see in trying to do a few fixer-uppers and what Mr. Lee is doing (and I am no real estate expert and I definitely know only what I read in the article about Mr. Lee's business, so take this with a huge grain of salt) is the large scale of his operations. He is going out looking for guys doing this on a small scale and who are struggling. He buys their properties at a very attractive price. I would guess that gets him into properties that don't need to a great deal of work to be rented at a good price. (The example in the story was interesting: he spent $375,000 to buy five houses, which he was going to rent them for $800 to $1200 each, or around $4,000 to $6,000 per month for all 5 at full occupancy. Assuming 75% occupancy, that's at least $3,000 cash flow to service the $375,000 purchase and his initial repair costs (which he is trying to keep low). If he can get money for 6% or less, he can run cash-flow positive even at $3,000 (and then there should be some depreciation to help him also). If he can get better than 75% occupancy or gets more than the minimum rental prices indicated, he should be making a profit.)
He is also probably getting favorable interest rates on the money he borrows considering how the general low interest environment. (If he is a gambling man and has serious sang froid, he might even be able to borrow a lot of short-term money for very favorable rates, but that would be very risky indeed since interest rates are practically guaranteed to go up.)
I wouldn't be surprised to find that there is also some government money somewhere in this mix (for instance HUD section 8), although I don't see any indicated in the article. If he is clever enough to help the occupants into such programs, he might be able to turn a good profit from such since it should help keep his occupancy rates up. (I am not aware of anyone that has tried to do this, and I may be way off base on this one.)
bump for later review
I wouldn't be surprised to find that there is also some government money somewhere in this mix (for instance HUD section 8), although I don't see any indicated in the article. If he is clever enough to help the occupants into such programs, he might be able to turn a good profit from such since it should help keep his occupancy rates up. (I am not aware of anyone that has tried to do this, and I may be way off base on this one.)
The prospective renters are one of the biggest unexamined factors here. I know little of how the section 8 slumlord business operates but he did not quite sound like the type, probably more a gentrifiying reverse-blockbuster, forcing a toehold into sketchy neighborhoods for intrepid young couples who want to live downtown. In my Arlington, VA neighborhood as the old folks die out the houses are sublet to Friends/Melrose Place upwardly mobile youngsters who do their time on the Hill or "K" Street for a few years before either moving on up to one of the nearby apartments by the metro or getting married and buying a starter home way out in the sticks. The only people who can actually afford a home here buy an old one, then tear it down and cram a mini-McMansion on the lot. Which is probably why we're going to see more immigrants (legal and otherwise) around here as they're the only ones who will live twelve to an apartment. There was a humorous article in the Washington City Paper about just how competitive even the contest for a broom closet in these group homes is getting.
I thought the big problem with section 8 dirtbags was that they regularly trashed their dwellings or turned them into shooting-galleries, crack-houses, meth labs, etc.