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Updated over 2 years ago, 04/27/2022
Houston-area market concerns (BRRRR)...
Good morning everyone! Rookie investor here - no properties yet but I hope to change that in the coming months. My partner and I are in the NE Houston area and looking to get started investing in this area. We've settled on the BRRRR method to start off with, unless something else ends up making more sense.
We currently have $100K cash (purchase power) and hoping to close soon on $50K HELOC (rehab power). From everything I've researched, all-cash offers seem to be the way to go if we want to have a chance of standing out and not paying over asking price. Since we don't have a ton of capital to compete for some of these exorbitantly priced homes, I understand that to mean we need to find the highly-distressed properties that more established investors aren't wanting to spend time on, then get well-priced rehabs done to get the ARV where it needs to be to cash flow and do the cashout refi. All for under $150k.
From looking at available properties, this seems to be a very tall order. I would be interested to get other perspectives on this. Do these homes exist? Homes I can get under $100K that can rehab for under $50K and end up with an ARV at-or-better-than 80% of the all-in cost so we can pull all our cash back out? If we buy and rehab all-in at our max $150,000, we would need to have an ARV at $188,000 to pull it all back out on a cashout refi. Or am I too focused on pulling it all back out? How common is that? Should I expect to leave money in most of my BRRRR deals?
I understand I can "simulate" all-cash offers with private money and/or hard money loans. My concern is that without having a track record of success, convincing a lender to invest with us could also be an issue. Is that accurate?
I understand I may be WAY off-base with these presumptions as well. And maybe I'm off-base with thinking all-cash is the way to go and should re-double my efforts in looking at conventional lending to secure the more-readily-available properties.
Thanks for reading!
Brad
Hey Brad. Congrats on being a new investor. I am on the same boat as you. I live in California and the prices here have gone up crazy! I have not done a BRRRR yet but that is my next purchase. What have you done to start your search of homes that you can purchase for $150K? I am just curious if those still exists lol? I think it's definitely possible but I think it's more likely that you will find those home off market, which means lots of cold call, driving for dollars, or post cards. Have you gotten a chance to read David Greene's BRRRR book? It has lots of great strategies and tips. Since we are both so new, I would love to be a part of your journey. I just finished my first rental project in my home state. I used my HELOC and converted my garage to a ADU. I am going to get another HELOC out and start looking for some out of states deal. Keep me posted.
@Brad Turner You're not way off. You're statements are fairly accurate across the country. In my opinion it's better to have a realistic goal at realistic price point. If you're looking on market in my neck of the woods almost everything sells for 3-7% OVER asking. Take a few breathes and either accept it or look in other places.
Off market deals do exist but you have to put in 3X the amount of effort to find them. Personally I'm deleting 99% of listings sent to me from agents. If a deal doesn't fit into my investment strategy box I don't force it. Stop wasting time searching in that neighborhood, reading listings, or sending marketing flyers. We're probably late to the party or it's getting hit hard from agents and other investor buyers.
If you can't find a deal, network with the right people, or add value to someone in the next 6 months I'd make changes.
@Jaron Walling
Thanks for the reply. Glad to know I interpreted it right. I had a long talk with my partner this morning about the situation and we're going to have to accept it and consider financing rather than all-cash on the cheaper stuff. It at least opens up our options. He was able to get some leads on some angel networks so maybe that will make more sense.
I'm going to put in some more leg work into those off-market properties, see how that goes.
Quote from @Tuan Huynh:
Hey Brad. Congrats on being a new investor. I am on the same boat as you. I live in California and the prices here have gone up crazy! I have not done a BRRRR yet but that is my next purchase. What have you done to start your search of homes that you can purchase for $150K? I am just curious if those still exists lol? I think it's definitely possible but I think it's more likely that you will find those home off market, which means lots of cold call, driving for dollars, or post cards. Have you gotten a chance to read David Greene's BRRRR book? It has lots of great strategies and tips. Since we are both so new, I would love to be a part of your journey. I just finished my first rental project in my home state. I used my HELOC and converted my garage to a ADU. I am going to get another HELOC out and start looking for some out of states deal. Keep me posted.
@Tuan Huynh
I finished the BRRRR book last week and it was inspirational. It was written before this most recent property splurge, though, so it felt overly optimistic to me. The strategies appeared sound though. As far as finding homes I can go all-in at $150k and still cash flow... I haven't found any real possibilities yet. I've scoured Zillow and Redfin and HAR at length. There are houses at that price-point, but their locations won't allow for a high enough rent to cash flow. I've started this week doing some driving and checking out auction houses and foreclosures, but all that I've seen so far look to be in good enough shape to price out of that range. Next step is the "driving for dollars" and just start hitting the roads and looking for houses that look like they need love but aren't otherwise listed for sale. I'm an endurance runner and regularly run 15+ miles on Saturdays and Sundays, so I think I'll run different neighborhoods and see what's out there. And keep listening to the BP podcast while I run.
How did you do your first rental? What did the process look like? Something my partner and I go back and forth on is whether we should set up an LLC/Corp and do everything through the business or continue forth with a simple DBA and do everything in our names. What did you do? Was it the ADU garage conversion? I'd love to do something like that, but it's against our HOA. We explored selling the house last year, but we have a couple of teenage kids that are set and comfortable and decided not to uproot them and their life while they're in school.
I'd love to connect as well. Once we get this up and running, I can totally see needing to move to different markets and spread out beyond Houston.
Hey Brad. Well thought out and explained! $150K is a good budget for a really good deal! Might suggest the court house steps if you're up for that.
Make sure you can refi after the home is finished. Don't over look this step!! Otherwise you might just be a flipper!
Have you considered marketing to sellers yourself directly? Would highly recommend it. Way more return from $5k in letters than $5k in reno!
If you feel your cash is too low for a deal you've come across then consider a seller finance deal. Give the seller of a distressed property lots of cash down (displaying you mean business), interest only payments until you get your money back from the refi.
Quote from @Brad Turner:
Quote from @Tuan Huynh:
Hey Brad. Congrats on being a new investor. I am on the same boat as you. I live in California and the prices here have gone up crazy! I have not done a BRRRR yet but that is my next purchase. What have you done to start your search of homes that you can purchase for $150K? I am just curious if those still exists lol? I think it's definitely possible but I think it's more likely that you will find those home off market, which means lots of cold call, driving for dollars, or post cards. Have you gotten a chance to read David Greene's BRRRR book? It has lots of great strategies and tips. Since we are both so new, I would love to be a part of your journey. I just finished my first rental project in my home state. I used my HELOC and converted my garage to a ADU. I am going to get another HELOC out and start looking for some out of states deal. Keep me posted.
@Tuan Huynh
I finished the BRRRR book last week and it was inspirational. It was written before this most recent property splurge, though, so it felt overly optimistic to me. The strategies appeared sound though. As far as finding homes I can go all-in at $150k and still cash flow... I haven't found any real possibilities yet. I've scoured Zillow and Redfin and HAR at length. There are houses at that price-point, but their locations won't allow for a high enough rent to cash flow. I've started this week doing some driving and checking out auction houses and foreclosures, but all that I've seen so far look to be in good enough shape to price out of that range. Next step is the "driving for dollars" and just start hitting the roads and looking for houses that look like they need love but aren't otherwise listed for sale. I'm an endurance runner and regularly run 15+ miles on Saturdays and Sundays, so I think I'll run different neighborhoods and see what's out there. And keep listening to the BP podcast while I run.
How did you do your first rental? What did the process look like? Something my partner and I go back and forth on is whether we should set up an LLC/Corp and do everything through the business or continue forth with a simple DBA and do everything in our names. What did you do? Was it the ADU garage conversion? I'd love to do something like that, but it's against our HOA. We explored selling the house last year, but we have a couple of teenage kids that are set and comfortable and decided not to uproot them and their life while they're in school.
I'd love to connect as well. Once we get this up and running, I can totally see needing to move to different markets and spread out beyond Houston.
Hey Brad, sorry for the late reply. It seems like BP is not sending me notification when I get a reply on the forum. I would have replied sooner. Yes, the BRRR book was written before the crazy price hike, and it does seemed overly optimistic... Nevertheless, I know good deals exist out there. How are you doing with your search? Have you gotten any deals yet?
In terms of my first rental, I am going to most likely put the unit under my LLC. In my case, it's a little weird because my ADA is considered a part of my primary, therefor I don't fully know how to structure it yet. I have been trying to research on this topic but haven't had the time. I just finished the construction 2 months ago and is still waiting for the Certificate of Occupancy before I can rent it out. Keep in touch and I will try to reply to you as soon as I hear back.
Tuan
Hi Brad, I am also in Houston and have just done a cash out refinance and also looking for my first BRRRR deal. This would be my 2nd rental but my first brrrrr. So far I am having issues finding a deal that would cash flow after a refinance. How have you been doing so far?