All Forum Posts by: Will Barnard

@Bianca Rodrigues
Advice of using the 75% figure is not going to be accurate for all areas, at all price points, and for all investors. That makes this advice very sketchy. Investors must know that these rules (more accurately “guidelines”) which were intended to be a quick back of the napkin calculation to see if the investment was worthy of further review and nothing more. Never should they be used (whether 70%, 75%, or any other %) as a purchase decision.

With that out of the way, here is my answer for how I have choose an investment to flip over the last decade and a half:

The neighborhood is checkpoint number 1. I make sure the street and the houses on that street, along with the streets around it are sufficient to produce a good resale value. Buying a flip that sits next to another junker house (or across the street from it) will hurt your buyers pool which in turn hurts your resale value. When more buyers are interested, you typically get better sold prices from that.

Checkpoint number 2. What is the current market conditions of this area? I want to know the average DOM (days on market) for listings and what the current inventory levels are, what the previous 6-8 quarters of inventory were. This helps me predict more accurately what I can expect the market to do during my hold period. This is important because knowing if the market is likely to stay flat, drop, or increase in price is valuable information.

Next step is to ensure this specific property does not have any major resale defects. What I mean by that is does it sit on a busy street, next to commercial, in an airport flight path, near railroad tracks, no garage (if most homes have them), too many steps from street to front door, no yard space, etc. All of these potential deficiencies will dramatically reduce your buyers pool hurting your resale value and likely increasing your holding costs as it will likely take longer on the market to sell.

Lastly is the numbers of the deal themselves. Purchase price, holding costs (debt service, taxes, insurance, maintenance, utilities, etc), resale costs (escrow fees, transfer taxes, real estate commissions, title fees, recording fees, etc), ARV (I call it exit value) and of course rehab costs. So often investors get the exit value and rehab costs wrong as they are subjective as opposed to holding costs which are much easier to get accurate.

Your exit value less all costs above = your profit. So then you must decide via side by side comparison one investment to another which has a better return. Better returns are not created equal in each investor’s eyes. Some do quantity and have tighter profit margins while others do fewer with higher profit margins. Only you can decide which is better for you on that one.

Lastly, consider the level of rehab which will have a direct impact on your holding costs and rehab costs. A heavy rehab will have longer hold times exposing you to more potential for market conditions to change vs a quick lipstick flip.

Hope this was helpful in answering your question.

Brokers and credit unions are your best bet for a HELOC on your primary to use the funds for investment. It goes without saying that underwriting your investment and building your team are of vital importance to ensure they spit out cash to pay the monthly HELOC payments.

That is a fantastic story and very inspiring. Congrats on pulling the trigger and jumping in with both feet. While some call that risky, it appears you took the necessary cautious steps prior to jumping so I call that having guts and it is commendable.

I’ve been investing for almost 20 years and to see someone go from zero to 60 mph in such a short span is always impressive. It took me many years just to get to my 7 rentals and you did it in year one. I look forward to seeing where you are at in year 10!

Your first buy and hold can certainly be out of state, however, before doing so, it is important to consider your options in out of state investing. Doing it yourself and building your own team without any previous experience can be an overwhelming challenge in of itself. Learning the specific market conditions (both past and present so you can more accurately predict future) is imperative. Fail on this portion and you will set yourself up for a failed investment.

Options: What could you invest in passively out of state and what returns would that produce. Place that side by side with your do it yourself single family rental purchase and see which pencils out better. Some of these options would be partnering with an experienced out of state investor with at least 5 years experience (successful) or investing in a syndication are two other options just to name a couple.

When u start off investing with someone else with experience. You get your feet wet, learn the ropes and have a “safety net” via the experienced investor to keep your investment on the right track. Of course this comes with risk too as the selection of the partner or sponsor of the syndication is of vital importance. Perhaps even more important than the deal numbers, the partner or sponsor selection is number one priority to get right to ensure success.

 Many of the previous answers did not seem to get the numbers correct based on what I am reading. If this is a complete gut to the studs, then clearly you have the legal ability to pay the tenants currently in there to move as it will not be habitable. Spending $1M on a 4 plex remodel without adding any square footage is a very steep price and I am a contractor here in LA so I know costs, I'm not guessing from another state. The numbers need to be laid out correctly on paper for both options and then compare side by side returns on the investment capital. Once that is done accurately, it will be easy to see which way delivers a better return. If your first occupied unit brings in $1600 (which could be increased to $3500 once the project is completed) and the second occupied unit gets $1000 (to be increased to $3500), then you have a net gain of $4400 monthly from those two units. Your 3rd unit is vacant so lets assume it could get $2k monthly as is (feel free to correct this figure as this is just a guess). Increase that to the $3500 for an additional $1500 on top of your $4400 (total now = $5900 monthly gross income gain). The 4th unit you state you are living in and assuming that remains accurate, you have zero gain on that unit. So you have an annual gross income gain of 70,800. YOu will have operating expenses, vacancy, capital expenses (albeit little to none in the first few years since everything will be new), so your actual net gain is obviously less. Lets use a 35% cost margin which gives you a net pre tax gain of $46,020 annually. To get your $1M back, it will take you 21.73 years and even more when you factor in the interest on the loan. By this calculation alone, I would love to see wife and parents reply of the financials.

It is often said that good family relationships are often ruined through business dealings so without being emotional, try using this simple math approach and then put the ball in their court to explain how it makes financial sense. Numbers don't lie and numbers don't have emotions. If you still need help, set up a meeting with you, your family and myself and I can perhaps get to the bottom of the financials with you all to make a sound investment decision based on numbers that pencil out and make sense.

"Tenant is unhappy with the rent increase"

And I am unhappy with gas prices, food prices, inflation, politics, the inept building and safety departments, etc. But all the wining in the world will not change the facts and as such, your tenant needs to pay the increase or find a new place to live.

That said, a $400 monthly increase does seem steep all at once and quite frankly, it was your own fault for not raising the rents in smaller increments each year. Perhaps a better explanation is in order or perhaps a lower increase now and another each of the next years. YOu may be better served explaining to your tenant that due to extreme and unprecedented circumstances, you did not raise the rent during the pandemic to help your tenants but do need to retroactively raise them now to catch back up. If that explanation fails, then you have two choices, stick to your $400 guns and let him leave or pay, or make the increase smaller today and increase again in 6 months or a year.

Biggest challenges are finding deals and keeping rehab costs under control. As Evan stated, costs for labor (AND materials) have skyrocketed and although I have my own GC company (as well as HVAC), the material costs (and availability) are well out of my control which makes managing the project much more difficult than during pre covid days.

With a recession looming (some say we are already in one) and interest rates on the rise, finding a deal that pencils out is getting even more difficult. This begs the question, is it necessary to fully switch gears and go down a different real estate strategy like buying apartments or self storage or keep trying to find deals to flip? NOt easy to answer and one answer is not right for all - only you can make that call.

Welcome to Biggerpockets Frank. THe SFV is my main area of real estate investments and I also currently have a 14 unit in K Town. Happy to answer any questions you may have and perhaps network with you at a local meet up.

 Good. I am a bit late to respond here but in CA, asbestos is no joke and highly regulated. The testing company should report findings and the abatement company certainly must. AQMD is the authority over this and fines are in the tens of thousands for violations. The abatement company must be licensed and certified for asbestos abatement and since you disturbed the item containing asbestos, a level 5 procedure is required. Yes, they will come in with "space suits" along with all the necessary equipment and then report back to AQMD. There is also a mandatory 10 day waiting period so make sure you are aware of that. The abatement company will report, then must wait 10 days prior to doing any work. I have gone through this process several times and just completed a procedure 5 abatement at a flip project.

 Yes, last Wed of each month. There is typically a post on BP for each meetup.