Am I looking at this the correct way ?

Question

I puchased this property. The reason I paid cash is because I couldn't find a bank to loan my anything with 20% down, so i took this route. My goal is to expand my portfolio and create passive income.

Turnkey duplex property - 900sq 2bd/1bth for each side

Listed price - $109,000

Purchased price - $95,000 CASH BUY

Minor rehabs - $4,500

All in CASH BUY - $99,500

Appraised - $117,000 before minor rehab

Rented - $1,200 total $600 for each side

So now I have this property & here are the numbers. Of course it's not the best deal and everything is a learning curve. I'm at the point now where I just been collecting rent for the last couple months and CASH flow is great which is my ultimate goal. After learning about the BRRRR strategy and about leveraging your cash, I think the BRRRR is the niche I want to use to expand. I'll refi to get my CASH back, buy another property cash and fix it up a little, and do anthoer refi and pull the cash out the 2nd property. So on and so fourth. As long is the numbers with the property is value higher enough or above to get my initial CASH back each time and a cash flow minimum of $200.

Am I missing something ? Is this correct?

Isiah Ferguson · Answer

@John Leavelle Thanks. Currently, I have a lil side job I've been working for about 3 months now. With the 100k I have in my 1 property, that I have now will be used my business. Wasn't looking to get any private lending yet until I can prove to myself and reach my small goal at the moment of 10 unit with good numbers. That was ill have portfolio to show and prove. For instance once I refinance roughly ill get back about 84k plus the rents I've been receiving for the up till this point. Altogether about 95k once the refi process goes through. With the entire 95k I'm looking to get a distress property at 70% market value minimum minus repairs. I'm guessing my purchase price range before rehab should be around 65k maximum depending on house damage. Rehab the property with the remaining 30k. Get it rented and then refi at 75% - 80% LTV. Get my Cash back and repeat the process so on and so forth. I'm currently build my team now (Banks, contractor, lawyer etc) and I won't making any more moves until everyone is in place.

John Leavelle · Answer

@Isiah Ferguson

You are starting off in a better position than most new Investors with your cash position.  I have a few more comments and questions.

Are you using REI as your only income?  Or will you have other sources?  It will affect the way you should proceed.

I would suggest you try to leverage your purchases as much as possible.  Keep your cash for reserves.  Use a Hard/Private Money Lender to acquire and Rehab the properties.

Try finding local banks and credit unions to fund your refinance loans.  Also they may be a good source of Portfolio loans.  Don't worry about 10 loan max.  Portfolio loans have no limit.  You could fund 100 BRRRR deals.

If you haven't already I would get an experienced Property Manager on your team.  They will fill the 2 year Landlord requirement @Ralph R. mentioned.  Also get a good General Contractor to help with the Rehab phase.

Isiah Ferguson · Answer

@John Leavelle @Ralph R. Thanks for the feedback guys. I wasn't able to get a loan from the beginning because I was a professional athlete for a year and then was released. I only had 1 year of W2 for my work history. The 2 mortgage companies I did speak with are willing to give my 70% LTV without a seasoning period as long as I can show I purchased the property with my own funds, which I did. I'm going to keep looking because I'm looking to pull out any between 75% to 80% LTV. Once I get the cash out. I'll search for distressed properties moving forward to get the BRRRR strategy in motion. I'll do that to I reach my own limit of 10 loans and the last property I use BRRRR strategy on, I'll  refinance that one of course. In the end of that period I'll end up with 10 properties leaverge and with all my money back. If not all but close too. That way I'll have reserve too.

Ralph R. · Answer

@Isiah Ferguson

First off the 4500 doesn't sound like a rehab, but rather more like a flip between renters.  not enough to increase value.  it appears you don't have a rental background on your taxes and so the bank may not count rents or future rents as income for a while.  Im not sure why the bank wouldn't loan to you to purchase the property with $99,000 in the bank, but more important  what makes you so sure they will now?

if the appraisal is 117,000 you can borrow $87750 with a 25% down payment. ($117000-25% equity left in house.)  that leaves $87750 cash to you, but you must take out for loan closing costs  That amount varies. It depends on your bank charges for the loan. to be safe I allow $3000.00 for a refinance.  That leaves $84750 for you to keep.  a 30 year loan on $84,750  at 5% interest has a principle and interest payment of $455.00 a month.  add to this your monthly tax and insurance and you will have a good guess at your monthly payment.  use the BP calculator to determine how much if any cash flow you will have left after you pay the bills and this loan payment.

RR

John Leavelle · Answer

Howdy @Isiah Ferguson

When you do the cash-out Refinance the lender will provide an amount that is typically 75% LTV based on a current appraisal.  That means for you to get your $99,500 back your ARV and bank appraisal would need to be around $132,700.  Anything lower will result in cash remaining in the property.

BRRRR strategy works best with distressed properties.  You need to be able to force appreciation.  That is difficult to do with Turnkey or rent ready properties.  If you stick with those type properties do not expect to get all your cash out.

Not sure why you couldn't get a loan.  However, with the BRRRR strategy you normally use short term financing (Hard/Private Money Lenders or cash). The key is knowing the ARV and keeping your all-in costs to 70% of ARV.  If you can do that then repeating the process over and over becomes automatic.