New Multi Family Investors

[Steven Kassler]

Hey BP Community,

My partner and I are just starting out and have a goal to purchase our first Multi-Family property in the next 90 days. We have our down payment secured and will be investing from out of state. The next step in our process is to identify which markets we'd like to explore and have narrowed it down to the following three: Austin, TX, Baltimore, MD and St. Louis, MO. We're going to use either the Buy and Hold strategy or BRRRR method. Our question to the BP community is if anyone uses similar strategies in any of these markets would recommend one over the other.

Thank you!

Steven

[Louis Jeffries]

@Steven Kassler

Good Luck Steven!!! Now is a great time to invest in real estate. I am biased as I believe in the BRRRR strategy. I agree with Arn, the Austin market is very competitive and may not be the place for the best return on your investment. Many times we are drawn to the hot markets, but that does not make the best place to invest. If you are looking to grow your portfolio and you do not have unlimited funds, consider the BRRRR but make sure you are buying the property right. The purchase price plus the rehab amount should be not greater than 70% of the after rehab value. Another way to look at that is to access the after rehab value (let's say the ARV is $200,000 for a simplified example) take 70% of the ARV (70% of $200,000 is $140,000). Then determine the rehab costs making sure you have a 5% to 10% contingency built in that for surprises (let's say that is $40,000 in this example). Then subtract the rehab costs from the 70% of ARV number and you have the maximum you should spend to purchase the property ($140,000 - $40,000 = $100,000). In this scenario the maximum purchase price would be $100,000. This is a guide and by following this once you refinance you will get all or most of your investment back to be able to purchase a property. In the BRRRR method the 70% rule is the first consideration in determining the purchase price and whether this is a good investment. The second and equally important calculation you need to make is what is your NOI or how much money will you make a month.

As a lender we look at numbers a little differently, but you want to make sure that your NOI will cover a debt service ratio of 125%. This means your rental income minus your expenses will cover 125% of the mortgage payment. You must also ensure that this meets your minimum return on investment.

These 2 formulas are key to refinancing your property. From a lenders perspective we will lend (cash out) up to 75% of the property value as long as the rent minus expenses covers 125% of the mortgage payment.

In the BRRRR Strategy, you will successfully grow your portfolio if you add these key financial metrics to choosing the right property.

Finally, the numbers are important but they are not the only factors. They say the key to real estate investment is , Location, Location, Location. You choose the Location by numbers and many other factors. Numbers say no this is not a good deal but never say buy a property for the numbers alone.

Good Luck!!!