All Forum Posts by: Brandon Gale

I have a larger size cabin in Pigeon Forge (sleeps up to 10, usually have 8 guests).

My hot tub is on the way out, so I'm starting to plan for replacement but know absolutely nothing about hot tubs.

I've called around and it seems like the most common size is an up to 5 person tub (roughly 70"x80"x34").

Is this too small for a cabin of my size? Should I be looking at the larger hot tubs? seems like the next size up is 6-7, then even 8 person, but the 8 person ones seem much bigger than the ones I typically see at cabins.

Also, what hot tubs do you guys have in your cabins? Is there a standard value brand that many STR owners in the area use?

Any help or insight is appreciated!

@Todd Kendrick It sounds like what your looking for is a Hard Money loan or a Bridge Loan. Hard money loan is typically 20%+ down payment with high interest rates and interest only periods, they aren't meant to be held for long, but can be paid off without prepay penalties typically when you get to the refinance.

A bridge loan is a product some lenders offer that is basically a hard money loan with a specific plan to refinance with them when the rehab is done.

Just keep in mind the new rule coming out for seasoning periods (going from 6 months to 12 months) so in many cases you will be forced to hold the original loan for a full year, makes BRRRR'ing much tougher.

Annual expenses shouldn't be included in the denominator here. You are including annual expense twice in your calculation. Your cash flow is (annual income-annual expenses) so your formula for CoC return should be (annual income-annual expenses)/(Down Payment+Closing costs+Rehab Costs+Holding Costs during Rehab)=($5,856)/($19.6k+$4k+$15k+??) = 0.15 or 15% before accounting for holding costs during the rehab (interest, taxes and insurance paid during months of rehab when its not rented out). If your estimates are correct, and the rehab doesnt take too long then this sounds like an awesome deal.

That calculation is all based on doing the rehab without a refinance, so if you are doing a BRRRR and plan on doing a cash-out-refinance you will just need to adjust your cash flow to your new mortgage payment and you will in theory be able to pull some cash out which would lessen your entry costs. But with new rules you have to hold the property for a year before refinancing, so for year 1 the return is as calculated above.

If the ARV is $155k, and you took out a $78.4k mortgage, you would now have roughly $76.6k in equity (technically more with loan paydown but it would be very little in year 1 so lets ignore it). This amounts to roughly 49% equity in the property after rehab. Most banks will allow you to refinance down to 75-25 LTV meaning you can take out a new mortgage for 75% of the ARV, so $116,250. That new mortgage amount pays off the old mortgage ($78.4k) and you get the remaining balance in cash, so you would be able to cash out $37,850

This is a common misconception that people usually don't realize until they are in the deal. Banks will almost never let you refinance to below 75-25 LTV, meaning when you refinance the highest mortgage you can get is for 75% of the current property value.

When you buy a property with an owner occupied loan, typically anywhere from 3.5% to 10%, you are starting with very little equity. Lets say you add 15% equity to the property after putting 5% down. That would be considered a successful rehab, yet you're still only at 20% equity which is not enough to refinance, let alone pull money out.

When you hear investors talking about pulling money out with a refinance (BRRRR method) they had to put at least 20% down in the property, so adding 15% equity would put them at 35% equity in the deal and would allow them to cash-out 10% of the new appraised value.

In regards to your specific situation... I am all for leveraging debt for investments, but credit card debt is bad debt and should only be held short term for flips or BRRRRs, and it doesn't sound to me like you have a plan for paying it off other than chipping away at it slowly. Plus it sounds like you have more expensive repairs coming up with the roof as well, and you're not really cash flowing very much when you take into account maintenance/cap ex.

Sell the property, pay off your CC debt and start over. You learned a lot from this experience and can carry that knowledge forward into future investments. Many people lose much more to learn lessons like this.

@Quintin Tartell

There's a few things to consider here. 

You are only going to find a 3%-5% down payment on an owner occupied loan.

You can only have 1 FHA loan at a time, and for many other owner occupied loans it is the same.

You need to live in the property for 1 year on most owner occupied loans. 

You're lender is correct, many loan programs do not like to see you jumping frequently from property to property on owner occupied loans, they aren't technically meant for investing, though it is fine to do so if you follow the rules.

Lastly, doing a BRRRR on an owner occupied loan is very difficult and takes longer than typical BRRRR's. You will not find a bank that will let you cash-out-refinance to below 80-20 LTV, most wont let you go below 75-25. Since you are buying a house for 5% down, you would need to increase your equity at least 20% before you can even refinance, and that would be with no cash coming out.

@Ryan Palczynski Spend some time deciding how you feel about about your finances and debt in general. Look into all the possibilities. For some, paying off all their debt immediately makes them more comfortable, but I know many people who have made minimum payments on their student loans while making great gains in real estate investing. Myself included.

With that being said, $20k in savings is a bit thin to be buying a property in my opinion. I would recommend spending some time saving up more reserves so you can make a safer jump into investing. You should prepare yourself for surprise repairs and capital expenditures. But you have the right idea, house hacking is a great way to start out in real estate investing.

 So I did the math. With these numbers, 5% interest, $25k loan, standard student loan period of 10 years, you pay $6,819 in interest over the life of the loan.

Now to be safe, lets assume the remaining mortgage while in the property is the same as if he rented elsewhere, and that when he moves out the property breaks even, no cashflow.

Over those same 10 years, with a loan amount of $289,500, assumed interest rate of 7%, and 30 year note, The loan paydown amounts to $41,550. That number far exceeds the $6,819 he paid in interest on the student loans, and that doesn't even include tax benefits and potential appreciation, and assumes no cashflow.

Now lets say it DOES cashflow on top of this after a few years, and the cashflow gets put directly towards paying off the student loans, now that $6,819 number gets even smaller.

Am I missing something?

 The only thing you CAN'T control in a negotiation is the other parties emotions. Don't get too concerned with how they will react. That doesn't mean throw them a ridiculous low ball, but run your comps and your rental analysis and find a number that makes sense for you and is fair. Then adjust if necessary based on market demand, days on market, etc. Make an offer that you think is fair, but is a good deal for you. 

If the seller gets offended, so be it. You can't control their emotions. There are unreasonable people out there who will get offended at a great offer and lose out on money in the long term. Worry about the things you CAN control.

If you run into one of these people, simply explain to them how you came to your number and tell them to reach out to you if anything changes on their end and move on. Often times they will realize their mistake and come back, then the ball is in your court.

@Danny P. It depends on the lender, I've talked to HMLs that only lend to LLCs and I've talked to HMLs that lend to individuals as well. Some have different terms for LLCs vs Individuals, some don't. Some require previous RE investing experience, some don't (although lately it seems like most do with the state of the economy). Talk to a bunch of different ones and ask them about their terms. There's a lot of variance between lenders with hard money so definitely shop around.

 I would look for referrals. Ask your CPA, your lawyer, your agent if any of them have worked with intermediaries in the past. And in my opinion stay away from the massive firms, I went with one of the big ones and it was very clear they had no interest in helping me, just getting everything through quickly and with minimal effort.