All Forum Posts by: Aaron Freeman

Quote from @Andrew Postell:

@Aaron Freeman some things to consider here:

1. We rarely, if ever, use a realtor to purchase properties using the BRRRR Method.

2. We rarely, if ever, buy properties off the MLS.

...

Hope all of that makes sense.

This makes a LOT more sense than expecting to find an expert real estate agent that is willing to submit lowball offers ad nauseum.  :)

Just read your article and it's very helpful!

Quote from @Edwin Epperson:

Another question that you did not ask, but is of note, what happens, if after the reno is complete and the property has been seasoned, the market shift and the ARV is not as high as when we first made the loan?

Ha, yes that was going to be my next question, but since you answered it I will ask another: Is it possible for the actual ARV to come back _higher_ instead of lower, or will the estimate? For example could it come back at $245k? Does the borrower get to take out more cash in this case or does the lender cap it at the guesstimated ARV?

Quote from @Edwin Epperson:

In this case, a private lender has committed to funding the $177,750.

I have a question about ARV! The $177,750 in your example is based on an ARV for a project that currently is on the market. Since success of the equity holdback loan hinges on the future ARV, how does the lender determine that number?

Embarrassing question time!

I am embarrassed to say I have purchased 3 primary residences in my life, and don't have a clue how my agent handled offers.  

1) When reading about the BRRRR strategy it seems that it's common to make lots of offers before you are able get to the next stage. Are those offers simply verbal agent-to-agent conversations or is your agent actually writing a contract on each and every offer you want to make?

2) If you are making lots of "lowball" offers (probably a bad word but it's what comes to mind), doesn't that drive your agent crazy if they have to write up a contract on each and every offer and it's always a "lowball"?

3) Are contracts sent by email in this day and age?  

4) I believe in my state (Kansas) the seller's agent is obligated to present every offer made to the seller.  Is that true in all states?

Quote from @Jay Hurst:

If you cannot wait the 6 months and you need more then the 60k we have double close products that will allow you to pull out right away, then refi into a conventional.

Could you give more details about what a "double close" is (maybe a simplistic example with numbers)?

Quote from @Edwin Epperson:

There is no "rule of thumb" in relation to the general difference in spread between the two. I do know the DSCR lender, I broker for, when offering the refinance of my BRRRR Strategy Loans, has about a .45 - .85% difference when calculating the ARP between the two. But remember the goal is to gain access to as much of that liquidity as possible on that refinance, not get caught up in 1/10th of a percentage difference, especially when R&T refis are always going to be less than a Cash-Out anyway.

 Got it.  Wasn't sure if there was a significant enough spread to consider it or not, but sounds like it's just a "safe bet" that it's lower so it's gravy but not worth focusing on.

Quote from @Edwin Epperson:

 The answer to your first question is yes, the answer to the 2nd question is "YO" (Yes and No).

Based on quick number crunching, even with a yes and a yes (increased closing costs and increased carrying costs), the 79% LTV with equity holdback easily outperforms the 75% LTV typical scenario regardless whether it's a 4 month rehab or a 9 month rehab.

Can you shed light on the expectation for a lower interest rate in the Rate & Term option?  If a Cash Out refinance is say, 8%, would 7% be a reasonable guess for the refinance in a R&T refinance?  Is there some rule of thumb/back-of-napkin easy way to guesstimate typical the difference?

Quote from @Edwin Epperson:

At the end of the day, I WANT and NEED my investors to have a successful project, I don't "Lend to Own", that's unethical and predatory.  I lend to build relationships.  Long-term, highly profitable, and storm-weathering relationships.  Find a lender like that and you won't go wrong.

 With your equity holdback loan, is the closing cost calculated against the entire amount of the loan ($177,750), or just the purchase price of the home ($100k), or something else?   (I'd expect slightly higher closing costs due to larger loan?)

Also, I assume the monthly payment on the loan would be against the entire loan, not just the $140k, so we would have a bit higher carrying costs while doing rehab?

Quote from @Edwin Epperson:

In these cases, I have denied making a loan, and investors have gotten mad at me... one even going as far as calling me racist, and misogynist.  I kid you not.

Yikes!

I completely understand and the lender's position makes complete sense as described.

I'm sure there will be a lot more questions to follow as I continue modeling the BRRRR process.

Quote from @Edwin Epperson:

#1: Breakdown in the phases of work
#2: Estimated Costs of each phase
#3: Estimated completion date for each phase.
#4: CHANGE ORDER PROCESS!!

... but at the end of the day your lender should be helping you vet your contractors, because on a project needing construction, that they are funding, they (your lender) wants to have a successful project MORE than you do, believe me!

This makes total sense to me.  Especially for larger (and therefore riskier) projects.

How does this process anticipate a licensed General Contractor doing the work for their own investment property?  Pretty much the same as described, just need the detailed SOW plus a line-item budget?

Also, does this loan method exclude smaller "lipstick" projects that only need, say, $10k of materials where the investor wants to do their own flooring, paint, and trim work (and that's all that's required)?