All Forum Posts by: Brandon Z.

It is my understanding that there are plenty of people implementing this (BRRRR) strategy using financing on the original purchase (not buying all cash).

The following hypothetical numbers outline my understanding of how this might work:

Purchase Price (-20% below market): $80K

Market Value: $100K
Cash Down (25%): $20K
Loan Amount: $60K
Rehab Needed (loaned): $10K

All In Cash: $20K  (down payment)
Total Loans: $70K (purchase + rehab)
Total Into Property: $30K (down payment + rehab)

ARV: $130K

Refi @ 70%LTV: $91K
$60K pays off existing loan, $10K pays off rehab loan, $21K is your cash out plus maybe part of the refi closing costs, which covers your down payment.

Sound about right?

While plenty of books mention the idea of refinancing cash out of existing properties to fund down payments for new properties, I haven't seen anyone talk about how to account for this in your initial property analysis.

In the book Investing in Duplexes, Triplexes, and Quads: The Fastest and Safest Way to Real Estate Wealth by Larry Loftis, there is a line that reads something like "refinancing cash out of your property will make your mortgage payments go up and can turn a property with positive cash flow into a property with negative cash flow."

For this reason, if refinancing to fund further purchases is part of your plan, it seems critical to get your head around how refinancing will impact the big picture.

What are the typical closing costs? How can you structure a refinance to keep your payments the same or close to the same? How much equity gain do you need for refinancing to even make sense?

Was browsing Craigslist and found what seems to be an authentic ad from a motivated seller. Home is in a small mountain town, fairly close to a major ski destination. 3bd/2ba, 1400 sq. ft. Built in 1904 (public record).

Seller is asking in the high $200Ks, which there is no way I'd ever consider. Place looks dingy, but mountain homes are at a definite premium. Thing is, public record indicates this home was last sold for $38K in 1979!

To me, this indicates that this woman owns the home free and clear and has all the opportunity in the world to let it go dirt cheap. Looks like it has been listed for a year or so, with some decrease in asking price over that year, but not much.

Her ad expressly asks for OFFERS and indicates she is looking for a quick sale, and she identified herself as motivated. What's more, public record indicates she lives in state, but hours away.

So...I've emailed her with my phone number and expect to hear from her. Any advice on how I might negotiate my way into an incredible deal? Is there anything to look out for if she actually has this listed with an RE agent?

I am new and still trying to wrap my head around this as well. Does the following concept make any sense...?

You "borrow" the 25% down payment. Let's also assume you got a good deal as well and have some immediate equity, which we will call 5% (You got it at 95% of market value). Now there is 30% equity. If the house were $100K, there is now $30K in equity, a 20% gain on the initial $25K down.

Can one simply refinance to pull that equity out and pay back the lender, including the interest? I realize refinancing can also have significant costs...

Another take on that scenario would be to pay down $5K in equity over a year or two and then refinance, pull out the equity and return it to the lender to fulfill your agreement.

Could a contract be structured around this type of idea?

Thanks for the input Trevor. Really good points there.

I'm not sure I have a solid grasp of what that aggregate number I would feel comfortable with would be. You imagine a situation where conditions change and suddenly you are stuck having to 1) lay thousands out a month to cover mortgages, or 2) have to sell at a loss and owe the bank lots of money, or 3) face foreclosures.

I agree that drastic situations like that could probably be foreseen and prevented to some degree, but the thought of potentially facing multiple foreclosures is a scary one.

Been reading and watching a bunch of stuff from the Syrios family, who manages hundreds of rentals. Really compelling stuff.

I currently don't own any properties, but I'm wondering if anyone with experience can explain the risks of having multiple mortgages totalling significant amounts of debt.

In the event of an economic downturn or crash, can having this much debt/risk put you in a situation to lose everything you have, even other personal assets like savings, primary residences, etc?

How does getting a good deal on a property (20-30% below mkt value) and/or having more equity built (or acquired through down payment) help against this risk? Are there other precautions you can take, like owning the properties under a business versus your personal name?

Thanks,

Brandon