All Forum Posts by: Aaron H.

Standard disclaimer, I'm not a CPA. You might want to hire one, though - it sounds like they might be able to help you organize a better system for keeping track of expenses.

There's a lot of reasons to keep a copy of your receipts (even if just electronically). How important having an itemized printed receipt from Home Depot is in the (unlikely) event you get audited, I can't really say. Primarily, the government wants to validate that you spent what you said you spent, and substantiate that the charges you made were actually for business purposes (especially when being used to reduce your taxable income). So in that sense, the receipt itself isn't the important part, it's having some kind of complete audit trail on the business finances that you can prove isn't fraudulent.

A big part of the reason to have a physical paper receipt (besides e.g. returns) is to be able to correctly enter the transaction into whatever system you're planning to use for bookkeeping (Quickbooks, Freshbooks, an Excel spreadsheet, a paper ledger, whatever). So in that sense, re-printing a transaction from your Home Depot account is the same thing and shouldn't be a big issue. You can even just use the list of transactions from your bank, though you then lose all the detail on e.g. itemizing what kind of supplies you purchased, so if you don't remember, you might not be classifying expenses correctly.

For check payments, you'd ideally be receiving an invoice of some kind from your contractors. In lieu of that, go to your local office supply store and get a receipt book, and write one out yourself when you write a check. You may also want to get a carbon-copy checkbook so you have a copy of each check you write.

1) There's no hard and fast average for cap-ex. You can come up with a more precise estimate by looking at each of the major systems in the property, guessing at their age and replacement cost, and then spreading out that cost over time. Even if the HOA dues cover some stuff, they're also going to hit you with special assessments periodically to cover major cap-ex costs. You end up paying either way. Point is, whatever the number is, it's higher than 1%.

2) Average vacancy is entirely dependent on the market in your area, how good you or your property manager are at filling it, how desirable the property is, etc. Talk to your PM about their average vacancy rate for similar properties. PM cost is usually 8-10% depending on the market.

3) If you're not confident on whether the ARV is 135K or 175K, then you need to do some more research and have a detailed plan on what kind of rehab you're going to do. BP has a ton of good resources on how to figure out an ARV, you can also check out reikit.com for one good tool/calculator, or talk to a good real estate agent in your area that can actually run the comps for you until you're more comfortable with doing it yourself.

4) Whether a 203K loan will work for you depends on a lot of different factors, but you'd need to talk to a local lender to figure out if you even qualify. Note that a 203K loan comes with a lot of red tape - it's not always the best idea for a quick flip.

Look into a "203K loan", that can sometimes be a way to get into a property for low money down and be able to finance the rehab costs.

If you've got a 401K/IRA, it's sometimes possible to use that as a method to fund real estate deals; the details are complex.

You've already got a handle on a lot of the main methods - hard money, private money, friends and family, partners, crowd-funding online. Bottom line, you either have the money yourself or you need to find somebody who does that will lend it to you. Who that person (or institution) is or how much that costs you has an infinite number of variations.

Consider reading one of the BP books, e.g. "Finding and Funding Great Deals" for a more exhaustive look at the options.

Put it this way: post-refi, your current calculator is showing $140/m in cash flow. Your cap-ex and repairs numbers are set to 1%. They combined are probably more likely to be 10-20%. A lot depends on the HOA and what's included/covered by your monthly dues.

Let's say it's 10%. That means you're under-estimating your expenses by $140/m. So after your refi, you're only breaking even.

Your vacancy, management, and water numbers also seem low. And your mortgage payments are significantly underestimated. You're very unlikely to get a 30 year loan at 3% (or even 4% right now).

Add all that up, your expenses are a lot higher than you think. Based on your numbers, it looks highly likely that you would be in negative cash flow, especially post-refi.

This also doesn't work as a BRRR. If the ARV is 135K, then the max you're getting from the bank when you refi is 75%, or 101K. To BRRR, you'd have to pay off the original loan (~97K), closing costs (~4K), and pay you back for the purchase/rehab (~16K) = ~117K. There's no way you're getting your original money back out, much less making a 20K profit.

My 2c, this isn't a deal.

To get your money back you need:

a) To be past whatever your lender's seasoning requirement is since you purchased it (usually 6 or 12 months)

b) A high enough re-appraisal to justify a loan-to-value ratio (usually 70-80%) that gets you all or most of your money back

After that, whether it's worth it to refinance depends on comparing the LTV and interest rate you can get from your lender on the refinance vs what you currently have. You also have to account for the closing costs - you're going to pay several thousand dollars minimum to get your money back.

A HELOC is usually going to be at a lower LTV, but it could be a great option if you don't need all the cash back right now and you're happy to basically use your current property as a piggy bank that you can pull money out of when needed to make a purchase/fund repairs, etc.

Bottom line, you need to talk to your local lender about their rates and different refi options so you can compare apples to apples.

Beyond "whatever you negotiate", it's really "what does your friend want?" He's the one that would have to be happy with what he was getting out of it to make it a win-win, so...ask him?

Some people are going to want an equity stake in the profits, some would be fine with a flat fee or a debt deal.

Broad advice, keep it simple, and do it on a deal-by-deal basis (or at least, a "raise-by-braise" basis). Don't start giving away equity in an umbrella entity.

1) Yes. It sounds like you're talking to a banker, not a "hard money lender". They're going to be a lot more conservative and require larger down payments/reserves. Call another 20 hard money lenders in your area, someone will be willing to work with you if the deal is good enough. Most lenders will still want you to have some kind of money in the bank, but the terms vary widely. Don't take one "no" for an answer. The better the deal gets, the more likely you find someone that wants to underwrite it.

2) Take out a HELOC on your primary residence. Go to local REIA meetups and find a more experienced partner to work with on your first deal. Save up money for a year until you have enough to really get started safely. Not really recommended, but there are also plenty of examples of people using credit cards to fund their first reno. Usually a very bad idea, but I'm not going to pretend to know enough about your situation to tell you what to do.

Your link doesn't include enough info for anyone to help you, it doesn't include any details on the market, the rehab estimate, etc. If the question is "is a 70K profit representing around 10% of ARV on a 6 month flip decent" then the answer is yes. I'm skeptical of a profit number that high, though, and in most markets I'd be concerned about trying to flip a house in the 700K range because unless you live in an expensive market that's probably (significantly) above the median home value and is more likely to have a slow absorption rate (the more expensive the house, the fewer buyers out there can afford it).

Whether your numbers are accurate depends on whether your estimate on ARV and rehab cost are correct. That's not something we can help you with based on the calculator. Strongly recommend you get a second opinion on those from someone knowledgeable about your market before you jump in to a flip that expensive.

Not enough info. What market is the property in? What are you goals? What are you planning to do with it? Rent or flip?

If it's a rental, your repairs and cap-ex numbers are way too low. Your assumptions on loan interest rates are also very optimistic given recent rate hikes. If it's a flip, you're not accounting for holding costs and sale costs. 

You're unlikely to get a detailed response to such a broad question. Click "Education" at the top of the screen, then "Guides" and read the BP Ultimate Beginner's Guide. That has a ton of advice on getting started.

Whether a hard money lender requires you to have an LLC or will loan to you personally depends on the lender. There is no "best" hard money lender, there are thousands out there and it depends on where you live, what your experience is, and which lender you can work with.