All Forum Posts by: Aaron Cook

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $88,500
Cash invested: $50,230 (Down payment, closing cost, plus rehab)

First investment property - completed the rehab in the middle of quarantine while also going to school at night.

What made you interested in investing in this type of deal?

Had to get started somewhere and a single family home seemed like a "simple" place to start.

How did you find this deal and how did you negotiate it?

MLS and hired a real estate agent who is also an investor.

How did you finance this deal?

Bank financing - 30 year 4.6 fixed rate.

How did you add value to the deal?

Completely rehabbed both bathrooms, half the kitchen, new flooring in two rooms, painted entire house, replaced roof (got a hail storm that helped pay for it!!)

What was the outcome?

ARV of 145,000 and renter in place at 1125 per month. Rehab would have been finished in 1.5 months however the cabinets we ordered got delayed due to Covid. The entire rehab was 2.5 months.

Lessons learned? Challenges?

Time, time, time! I wanted to rehab as much as I could my self, I didn't realize how much time every single little project takes. Huge impact on family life, sleep, etc...

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes

2/16/20 Update 

• Closing date is Feb 28th. 
• Sellers agent is telling us the current tenants should be out of the house by Feb 19th.

@Axel Meierhoefer  

Thank you for your comments, I appreciate you sharing your thoughts! 

1. My dad was an electrician, so growing up I was onsite with him a lot at job sites. I have never formally worked in the field but I have a working knowledge on basics and a willingness to learn in areas I am not proficient. We view this first deal as almost a "test" of how hands on we want to be in future deals. We might find we enjoy painting but don't like laying down floors, etc, etc... Really want to use this first deal to embrace learning what parts of the rehab process we are comfortable doing ourselves for our future deals. 

2. My wife and I do have a 6 month emergency fund of cash. Our closing date is Feb 28th so our goal is to finish the renovation in one month but we are prepared to hold the property for 2-3 months without a tenant in order to give us time to properly screen and get the right tenant in place.

3. Absolutely, we are planning to get a home inspection done and use his report to help build and prioritize our repair list. 

4. The 15k in rehab cost is stemming from an estimated 5k cost for the bathroom floor repair from a contractor and 10k for the remaining rehab items. We think it will cost 8k in materials as we plan to do this work ourselves to save money and build experience as I mentioned above. We built in a 2k buffer. 

5. I don't know how to add the HELOC charges on the rental property calc - however it is an interest only payment at 1.99% so if we have 15k on the HELOC our monthly interest only payment is estimated at $24.88. Our plan is to refinance the property after we have rehabbed it. We have been in contact with a bank that has no seasoning requirements so we could theoretically refi as soon as we are done with the rehab if we are happy with the appraised value.

• The comps we have (attached) show an average of $106 per sq ft for 3 bed room houses in this area. So at 1149 sq ft our ARV should be near $121,794‬.
• Assuming we get an appraisal at 121k and a 75% LTV on the refi our new loan should be 91k.
• With our first loan amount being 70k we should be able to pull out approx 21k on the cash out refi. 
• The way we are thinking of this is yes, we will be leaving money in the deal, its not the perfect BRRRR. But the refi situation outlined above will allow us to pay off the rehab costs that we put on the HELOC, we will have a cash flowing asset and we got a fantastic learning experience at the same time.

6. The as-is appraisal from the bank came in right at the purchase price. I shared my thoughts on the comps, ARV, and the back end appraisal in point 5 above.

Rental Calc - Link

Hey guys,

My name is Aaron Cook, and my wife and I are under contract for our first deal! We have experienced a range of emotions such as being terrified all the way to being extremely excited! I wanted to write out regular updates on this deal for a couple reasons.

• To help me stay organized. To help me keep track of where we are in the process and what needs to be done next to keep moving forward.
• To provide other, more experienced investors, a forum to share their thoughts as appropriate on best practices for the challenges we run into. We are grateful for the ones around us who have already chosen to help us.
• Provide some measure of inspiration to other newbies who are trying to work up the courage to pull the trigger on their first deal.
• To document a (hopefully) winning, systematic approach that gets other investors excited about working with us in the future as we try to grow our portfolio.

Background

• I work in healthcare sales for a Fortune 500 supplier of MRO materials. I’ve been with my company for nine years.
• My wife, Laura, and I have been married for 8 years and we have two young kids (3-1/2 yrs and 8 months).
• Laura and I are fairly conservative and our goal has been to get our bachelor’s degrees before we turn 30 without having any student debt.
• This cash flow approach can work, but it takes forever!
  •  Laura graduated in 2016.
  • I am turning 29 in February and am scheduled to finish my degree in Oct of 2020.
• We are very much looking forward to being done with this schooling chapter of our lives!
• We feel very blessed to have been given the opportunities we have been given. We view real estate investing as a way to be good stewards of what we have been blessed with and experience early financial freedom. - - - This will allow us to devote our time, energy and effort into people and causes that are most meaningful to us.
• Our goal is to build a portfolio of buy and hold properties that cash flow enough that we have the financial flexibility to choose if we want to continue working “normal” jobs.
• I started educating myself about real-estate in the summer of 2019. After 7 months of listening to the podcast (started at episode 1 and now I’m up to episode 221), reading many of the recommended books, and watching YouTube videos, we know the next step of our education is to get into a deal and start working through real-life scenarios.

What We’ve Done So Far

• The first thing we did in the summer of 2019 was “practice” a direct mail campaign by sending out 100 post cards in our neighborhood advertising lawn cutting services.
  • We got 1 phone call back (didn’t win the job…) but we still thought this was worth the money and time investment since we learned how to use the county GIS mapping tool and saw that the 1% expected response rate is very true!
• The second thing we did in Oct of 2019 was open a HELOC on our primary house to access 65k worth of equity in the property.
• Bought a cheap prepaid cell phone that we call our “real estate phone”.
  • Initially our thought was if that phone rings then we had a real estate lead on the line, and we would get very excited.
• However, we quickly learned that these prepaid phones get TONS of spam calls and we have decided not to renew the contract when it runs out. We will most likely try setting up a google voice number.
• We set up a real estate email address.
• We started driving for “dozes” on Sunday afternoons
  • Put the two kids in our car and while they napped, we drove around neighborhoods near our house using the Deal Machine app to build a database of distressed looking properties.
• We have sent a couple mail campaigns and done cold calling to the phone numbers we got out of the Deal Machine app.
• So far, we have not had any success with this, but we know consistency pays off with this type of marketing.
• We then met with a real estate investor friend of ours who is also a realtor and explained our goals are to get two rentals in 2020.
  • We did walk-throughs on 5-6 possible houses since meeting with him.
• We took time at the end of 2019 to write out specific goals for 2020. Some of those goals are:
  • Be a great husband to Laura and a great father to my sons. I always start with this because I feel all the other work I do isn’t accomplishing much if I am failing in these two areas.
•      Work with an insurance broker on our auto and home insurance to save money.
•      Refinance our primary house to get a better rate and extend the term of the mortgage from 16 years to 30 years.
  •      We plan to move from this house in 2021 and will convert the house into a rental and add it to our portfolio.
  • Hire an accountant who is also involved in real estate to help us with our taxes and make sure we are structuring our financial lives in the most efficient manner as we get into real estate investing.
•      Buy 1-2 cash flow positive rental properties in 2020
•      Finish school strong
• Jan 1st we took action on each of these goals and one month into it we are making solid progress!
  • We will save approximately $50 a month on auto insurance and get better coverage
•      We are scheduled to close on our refinance in mid-February
  • We learned about mortgage subordination throughout this process… Fun stuff!
•      We found an accountant who found we made a $6,700 mistake on our taxes last year.
  •      We are filing amended returns and expect to receive around $6400 after we pay him for his services.
•      We went under contract with our first rental property the last week of Jan!

The Deal

• The first thing we say is that we know this is not a home run deal. We obviously want to be wise and make as much profit on this deal as we can. However, we feel the benefit of putting some money on the line and forcing ourselves to take the next step in our education is well worth the risk of only getting into a base hit deal. Essentially, we are not trying to make all our money on our first deal, but we are trying to develop the skills needed to make great profit on our 2nd, 3rd, 4th deals.
• This deal is a Single-Family Home (SFH)
• Brick ranch
• 3 beds
• 1.5 baths
• 1150 Sq Ft.
• In a B- neighborhood.
• Some numbers to start with:
• List Price - $99,000
• Purchase Price – $88,500
• ARV – $115,000 to $120,000
• Estimated Rehab Cost – 15k
• Rental Rates – $1000-$1200
  • Rentometer Pro say average rent is $1125 for this address. We have been basing all our numbers off $1000 for rent.
• Down Payment - $17,700 (20%)
• Closing Cost – TBA (estimate is $6500)
• The property is currently occupied by a tenant, we do not have an appetite to keep them in place for a couple reasons
  • We don’t want our tenant to know more about the house than we do.
  • We have read Brandon’s book on managing rental properties and feel that we need to take ownership of     the tenant screening process and develop real skills in this area.
  • The tenants are a family friend of the current owner and the rent rate is way below market rates.
• During the walk through we noticed there is a spongy floor in the hall bathroom
  • It seems there was/is a leak associated with the bathtub and it has caused damaged to the subfloor, joists, etc.
• We have had the termite inspection completed and after talking with the termite inspector here are our key takeaways.
  • We start with getting a termite treatment in place to resolve the one small termite trail they found.
    • The seller will pay for this as we made the contract contingent on getting a clear termite letter.
  • Next, we need to verify the cause of the water damage has been fixed and will not create additional issues in the future
  • 3rd we need to make necessary repairs to the joists, subfloors, etc in the hall bathroom.
  • 4th we need to clean out the crawl space underneath this house
  • 5th We need to replace the insulation and old vapor barrier underneath the house.
  • 6th we need to install vent wells for the vent ports outside the house.
  • With tenants still living at the property it is very difficult to get access to the house during this time period.
  • As soon as we have full access to the house our plan is to do very systematic walk-throughs and start building a punch list for repairs.
  • We have multiple people involved in this industry who have offered to come do walk-throughs with us and provide suggestions on items we should fix and how to fix them.
  • Our plan is to do 3 or 4 walk-through's, build out a line item punch list and then start prioritizing what needs to be fixed.
    • We plan to support these punch lists with photos or videos as appropriate to help speed up getting quotes from contractors.
  • Because this is such a small house (1125 Sq. ft) we feel we can keep our rehab costs reasonable.
  • We plan to be very involved in the rehabbing process in order to save money but also to gain experience so that for future projects we have a better understand of what we don’t mind doing and what we know we want to contract out.

Next Steps

• Closing is first week of March, 2020
• Working through the financing process right now with the same bank who is refinancing our primary residence.
• Trying to get organized and prepare ourselves to get the rehab finished ASAP.

I plan to make weekly updates on this; any feedback or questions you have would be great.

Hey guys,

Brand new "wannabe" investor here. My wife and I are excited getting started with real estate investing and are working our way through the education process before we take any action. We thought it could make sense to get started in real estate investing by doing a cash out refinance on our current house, renting it out and moving into a bigger house using the cashed out equity as our down-payment. 

 We have been trying to use the rental calculator on Bigger Pockets to understand if our current property would positively cash flow once we turn it into a rental.

The calculators don't seem to be set up for someone who wants to start out in the real estate investing world by cash out refinancing their current house, turning it into a rental, then using the cashed out equity as a down payment on a new primary residence.

That being said the more we played with the calculators it seemed like we would get less then $100 of positive cash flow when we factor in Capex, Property Management, Vacancy, Repairs, etc... This is making me think this idea could be a poor strategy. I am curious if people have done what we are thinking about doing and have success in getting their house to positively cash flow once they have cashed out all the equity and turned it into a rental.

The numbers for our current house are: 

• 20 year fixed @ 3.87%
• Purchase price 125k
• Home Value 185k (have not had official appraisal this is based on neighborhood comps)
• Mortgage balance 90k
• Rentometer's Suggest Rental Price $1200-1400
  • We based our numbers in the calculator tool at 1350 because our house has several features that sets us apart from other other houses in the area. 
• Screen shots attached show my number from the Bigger Pocket Rental calc tool. 
  • We were alarmed by the 1.1% Cash on Cash Return and the 6.59% annualized ROI.

My wife and I are asking the same exact questions. The calculators don't seem to be set up for someone who wants to start out in the real estate investing world by cash out refinancing their current house, turning it into a rental, then using the cashed out equity as a down payment on a new primary residence. 

The more we played with the calculators it seemed like we would get less then $100 of positive cash flow even if we could rent our house at our market's top dollar. 

All of the above is making me think this idea could be a poor strategy. I am curious if people have done what we are trying to do and have success in getting their house to positively cash flow once they have cashed out all the equity. 

Our numbers are: 

- 20 year fixed @ 3.87 

- Purchase price 125k 

- Home Value 185k (have not had official appraisal this is based on comps) 

- Mortgage balance 90k