In Search of First Deal

[Tyler Beers]

Hey guys, 

Myself and a few friends are looking at getting our first buy and hold rental property, the three of us are just out of college based in Wisconsin and we are pretty open to where we should buy our first property, so far we have looked at Chicago because it is so close but it seems like most good deals in Chicago are pretty obscure, that being said we could definitely use any advice we can get regarding where to look, how to secure funding, and how to create value in our first rental when we purchase it, pretty much any advice you can give to a aspiring investor would probably help us.

[Jonathan Safa]

Tyler Beers there's a lot of great activity in the Midwest. Specifically high rent-to-values. I'm beginning on a strategy in Tulsa, Oklahoma based on something another BP member, Brian Stieler (a great contact for you to have by the way), and I are proprietarily calling the "Heeren Method" (copyright pending). Based on Chris Heeren 's method from Bigger Pockets Ep #197.

https://www.biggerpockets.com/renewsblog/bp-podcast-197starting-10k-buying-52-units-3-years-chris-heeren/

Essentially, it's based on a zero-appreciation, cashflow-intensive model. The general idea is to feel comfortable buying cheap properties in B-, C+, C neighborhoods that are going for dirt cheap, yet still rent for higher values. If I recall, he is doing this outside of Madison WI, and Brian has successfully started this model in Michigan. I have found a few neighborhoods in Tulsa, Oklahoma that will be able to successfully apply this model. You're still BRRR'ing the property. But you're buying the properties cash into your LLC, rehabbing, then cash-out-refi'ing using a business mortgage 5/1 ARM. Also, typically you are using a small local/community banks or credit unions. And you're having to do the business 5/1 Adjustable Rate because banks typically won't do a Cash Out Refi on a property owned by your LLC with very little seasoning.

Using the Heeren Method, because of how well the properties cashflow, you're keeping your Debt Coverage Ratio higher than the banks require. Thereby, every property you purchase, you actually become *more eligible* for future financing. Banks typically require a DCR of 1.2, the Heeren Method employs DCRs of anywhere between 2-3.

An example of this is a property I'm about to purchase at $47k, will require about $5k of rehab work, and rents will go for around $800/month. Cashflow will most likely be around $350/month, and my DCR will probably land around 1.6-1.8.

Would love to talk more of this over. Connecting on BP with others is really a great thing.

Hit me up brother! Blessings.