All Forum Posts by: Andrew Kennedy

Find a property, any property that fits your strategy. This would be like distressed properties you want to use the BRRRR method on, or maybe you want a long term rental single family home. Run the numbers. For me, it comes down to 2 adjustable numbers: Down Payment and Purchase Price.

After factoring in taxes (from your local tax assessor property search), insurance quotes, available cash for down payment and closing costs, and what mortgage you would have from the purchase price, and variable expenses (vacancy, repairs, property management, capital expenditures), and fair market rent, you're left with your cash flow number. If it is acceptable to you for your effort, go with the deal. If it isn't, you have two numbers you can adjust: your down payment OR the purchase price. For me, I won't change my down payment. But  I can change my purchase price and get a lower mortgage (with a over the mill interest rate, I use 7%) and drop the price until I get the desired cash flow. Even if that purchase price is way below listing, I'll still submit that offer. I'm going to get a lot of no's from everyone, and I'm sure they are going to get irritated with the lowballing. But like Brandon Turner says: "There is always a number that makes the deal work." 

If I submit 100 offers and only get 1 yes, well then I have a cash flowing asset now. Rinse and repeat. Whether you're doing a BRRRR and calculating ARV and such, or looking for turn key LTR/STR, or multifamily properties, someone will sell to you for YOUR price.

Why would the sell to you? Well David Green says in his book, BRRRR, that there are many types of distress. Property distress is the most common reason for getting a deal, but there is also Personal Distress. I like to refer to them as the 4 D's: Debt, Disability, Divorce, Death. A seller may be selling to cover debt, for medical care costs or downsizing due to disability, house is sold following a divorce, or a family member passed away and the beneficiary/trustee needs to pay the estate debt, cover probate, or doesn't have the time/resources to handle the property. This is where I as an investor can come in and assume another person's liability and make a profit. If you knew that you would receive a yes after you've been told no 100 times, you would welcome the rejection because you are now closer to your deal. You would be excited to get through as many analyses to get to that solid deal.

In the words of David Greene: Run the numbers. Investors are cash-poor because their money is in properties at work. Having liquid cash is useful, but it depends if you're maxed out on mortgages or can't get financed. I personally got involved in real estate because I came into a sum of money and due to inflation, it is consistently losing purchasing power. Because LTV doesn't allow 100%, you're going to lose some liquidity on a HELOC as well, so you need to run the numbers for what makes sense with your goals. If you plan on purchasing properties, line up using equity vs cash in line with your goal whether it means purchasing in 1 month, 3 months, 6 months, or a year later.

Biggest challenge: I have capital to purchase a few properties outright. I understand the BRRRR method, but when it comes to turnkey, rent ready properties (maybe the have minor cosmetic fixes like paint/carpet/landscaping) I'm at a loss. If I purchase the property outright, learning about refinancing or using a HELOC to reclaim some of my investment capital to move on to the next deal is a bit concerning. My concern is ensuring I get the best opportunity to reclaim my capital without busting my cash flow. So for me, talking to lenders about all of the possible options is a little intimidating at my point in my real estate career, but it is something I need to do.

What I would like is getting education without actually doing the actual refinance so when I actually go to do it, I understand all of the ins and outs. But, learn by doing is best so I just need to get over that. 

The market is very abnormal right now; it's super competitive. If you're looking for a 1% rule deal, due to the erratic nature of appreciation, you're more likely looking between .65% and 1%. Just know that the more money you put into the down payment, the more you'll hit that target. But, your Cash on Cash ROI and cap rate will go down if you put more into the deal.

So you'd need to determine what is more for important when building wealth: cap rate and cash on cash, or meeting the 1% cash flow. Most people will tell you cash on cash ROI, but it depends on your investment strategy.

Hopefully soon. I'm looking into doing the BRRRR method because in my area, all of the turnkey SFH and Multifamily properties are getting offers way above listing price and out of my range in order for my numbers to work. So I'm trying to research how ARV works, getting the estimates, and getting a lender to finance them. I understand the concept of ARV, but where to start is what I'm looking at.

Investment Info:

Single-family residence buy & hold investment in Moore.

Purchase price: $200,000
Cash invested: $61,165

SFH (3 bed, 2 bath), purchased for 200k. Down payment (25%) plus closing cost invested.
Originally expected to pay 15k more and $300 more for insurance, so major discount and profit.
Fair Market rent at time of purchase is $1500-$1800.
Original cash flow was at $198/mo but with less in the deal, cheaper insurance, and depending on rent rate, my pure cash flow could be up to $400/mo.

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

This was my first real estate deal and I took the passive investor way in order to 1. Get in to the market and 2. Get exposure to the learning curve with my partner.

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

I have a partner who’s been doing real estate deals for over 15 years. For this deal, I put up the money and he put together the deal, property management, the works. This was a way for me to put my capital from sitting around to use. It also allowed me to get some exposure to the real estate market and the experience has been very educational. From acquisition, to financing, to due diligence, I have learned a lot. The biggest lesson I learned was how lenders decide on financing.

How did you finance this deal?

I did a conventional finance, with 20% down. Had to spend around 3k to buy down the interest rate.