All Forum Posts by: Brian C.

I get that. I personally did a BRRRR last year with an infinite rate of return. I was all in for less than 110k, it appraised for 200k did a cash out refinance and got out more money I invested, within 6 months. I get these deals exist, and would love if I could find more, but that's not the norm for most people. My point was that I think it's fair to say that the majority of real estate deals do not recoup all their money in the first year and therefore calculating beyond the first year is useful. The 20% down example was just an easy, relatable example to show for comparison.

Did I get offended when I was equated to being the sellers "sugar daddy"?  Yes.  Maybe I'm off, but I don't think many people read that very well.  To me it came across more of talking down to rather than trying to help. 

And yes, I agree that real estate investing aren't based on hope. My point was that using his logic, all investing is hope because there are some risks you can't control, and have to decide whether to accept them or not, and I've decided to accept some risk. It's based on a variety of factors which I felt I explained. I still don't know what the "hope" that my analysis is based on? And in regards to my numbers I feel pretty good about them. I've been renting properties in the area for about 7 years now, manage them myself, including maintenance. I've only had about two months of vacancies across all properties during this time. It's also a newer home so shouldn't need much maintenance. 180k @ 3.5% interest = $648.36 (PI) + 191 (TI) + 95 (HOA) + 200 (Vacancy and expenses) = 1134.

In regards to the CoCR, yes, I acknowledged that the first year will have negative cash. And maybe it wasn't clear, but I was calculating based on a year time frame following when rent collections start, acknowledging that this will not occur for potentially the first 18 months.  But you will technically be negative cash in almost any investment the first year. Buying a rental property the traditional way, for example, with 20% down, you lose money the first year... and the second year, and so on... If someone puts 50K down on a home, at a 10% CoCR, they're still negative 45K for that year. That doesn't mean it's a bad investment, but the CoCR can help you determine when you can anticipate recouping all your costs back, and compare to other investments. So,at at 29% CoCR, calculated a year following the investment, I can roughly plan on it taking little less than 4.5 years to recoup the money invested from when it was initially purchased.  Or, in the eviction scenario, roughly 7 years. The CoCR statements came across like he was picking on the method because it didn't fit into his box on how to use it, therefore it's wrong.  

I appreciate everyone's input, and apologize to @Joe Villeneuve if it wasn't meant to come across as condescending, but that's how I took it. 

By your logic, every investment is based on hope.  You buy a stock, your basing your expected return on a variety of factors, historical data, market conditions, company performance, etc.  You buy a rental, you based it on a variety of factors, vacancies, expenses, rent, etc.  In this scenario, I've stated what my projections are and based my analysis.  

You then state that unless you assume the mortgage, the lender still has collateral on the property.  That's true for anybody with a mortgage...  Can nobody evict a tenant if they have a mortgage on it? The due on sale clause is a well known risk risk.  And, the likelihood that it will be called when it's being paid and the rates are as low as they are are very low.  That's a factor always considered with a subject-to deal.  So is your point you don't agree with any subject to deal?

Distressed properties and/or distressed owners are both great sources for good real estate deals.  I don't understand what you're trying to say there.  Every investment has risk and will always have factors outside of your control. You try to eliminate or minimize what you can and decide to accept or not what you cannot control.

As far as cash on cash return, I refer again to my example of calculating cash on cash return to a house needing a remodel. What if you have a BRRRR that takes a year. Do you calculate your CoCR as zero? No, when you go to refinance, you determine how much money you ultimately left in the deal, determine your net income for a year period it is to be rented and calculate your return. Sure, you could argue another formula factoring in a larger time frame could be more useful, but that's true anytime. There's a reason CoCR is used as the primary way to analyze single family rental deals.

Finally, your statement that cash is more valuable than equity... I agree. That's one big reason people find subject-to appealing. You can put up less cash for a property freeing it up for other investments.

This is something that I've thought of, and was hoping someone would have experience with.  Because the title is transferred, I'd assume I could evict as the house is mine just like with any eviction.  I'd make sure the sales agreement is clear, notarized, go through a title company, etc., but I could see a judge either feel like I'm trying to get one over on him, or just not understand the idea of a non traditional sale.  I haven't seen/read anything like that, but I'm sure it could happen.  And, as far as the fact that he could be a liar, I fully acknowledge that and why I factored in the likelihood of the eviction.  I also know there's their's a risk of possibility destroying the house, etc., just like with any eviction. 

Not based on hope, based on numbers...  You start off stating I'm not actually the owner, but I would be, as the title would be transferred to me as typical with a subject-to.  There would also be a standard rental lease, with a rent of $1 and and a rental increase stipulation after the first year. If you have some insight on why a subject-to purchase doesn't actually make you the owner, I'm all ears. But, if that's the case, I can't see subject-to ever being worth it. 

Part of finding good real estate deals is either creatively solving people's problems, are agreeing to take them on weighing the possible returns.  It's like someone saying they're not going to buy a house with a tenant they know they have to evict, even if it means them getting a much better deal. You factor that risk, calculate the costs and determine if you're comfortable with it.  

As far as the cash on cash return, like I stated, it's based on the first year following the purchase, once it's actually being rented.  If I were to buy a house that needed a 6 month remodel before you could rent it, you don't not count the money invested to buy it upfront because you spent it 6 months ago and then also count the first 6 months of rent as zero in your calculation because you weren't collecting rent while it was being rehabbed.  You make the calculation once the house is ready for rent based on the total money in and what your first year of income is going to be.  Investing is long term, and paying 14k over the first year for a 29% return starting next year doesn't sound too bad to me.  I know it involves extra risk, but there's where I'm figuring out if the risk is worth it.  

I agree that there's a decent chance I would have to evict, and that's why I put that in there as a factor in the decision.  

I've never done a subject-to deal, but am working a possible opportunity for one.  I put the information below.  Just looking for anyone's insights or if they think I've missed anything.  Thanks!

Scenario: Potential seller lost his job due to a DUI.  Has a wife but can't currently afford the mortgage on their own.  Is looking for a buyer who will purchase home and rent it back to him for a year.  Seller wants profits from sale of house to cover a years worth of rent.  

The Numbers: Home is worth about 220k.  Seller owes about 180. Rent would be 1500-1600.  

My Proposal: I acquire home subject-to and credit seller a years worth of rent at $1500 a month. Win-win as he gets a free place to stay for a year and I don't have to pay a large sum out of pocket to acquire a nice property. After mortgage, HOA, maintenance, etc, it's roughly 1200 a month. that's about 350 a month in eventual cash flow after the first year, assuming conservative rent of $1500. Using the first year of monthly fees as my purchase cost (as I'm getting no rent during this time), that's puts money down at $14,400 ($1200 X 12). Cash on cash return, after first year, of 29%.

Risk: Continued job loss could leave tenant unwilling or unable to move after first year and I'd have to deal with eviction. 

Risk Mitigation: 

1. Offer credit back to seller if he moves out prior to a year, to encourage move out and allow for properly screened tenant to move in.  For example, if he moves out after 6 months, he gets 6 months of rent in cash.  

2. Plan for 6 month eviction process. $2500 in legal fees plus monthly expenses of $1200 X 6 = $9700.  That would still result in a cash on cash return of 17% (granted it would be 18 months before realized), but on a home in a good neighborhood I feel has good appreciation potential.  I could also use an amount smaller than the total as a cash for keys option which would result in a greater return and moving in a paying tenant sooner. 

I'm in the Fredericksburg market.  I've been renting there since 2012 and haven't had difficulty finding tenants.   It's never been a red hot market where I've gotten more good tenants than I can handle, but usually have at least two tenants with 700+ credit and decent income (3X rent). I think I've only had one or two months of vacancy, but that was because I went to rent out in December.   It's hard to say what's a good neighborhood, but typically something close to Rt. 3 or Rt 17 is usually pretty desirable.  You can go to google maps street view and can usually get a good feel for the neighborhood.  

Rents are going to depend on the size, quality, etc of your house.  I would say all mine are B class properties and for a 3/2 townhouse, aprox 1200-1400 sqft, I get around $1400.  For 3/2+ house, aprox 1600-1700 sqft, $1550-$1600.   I haven't bought anything there since 2018 as it's been hard to find the return I'm looking for at current prices.  If you can find a good fixer upper, you probably could. 

I will also caveat with we're in a different time now (COVID).  I haven't had any issues getting rent, but I also haven't had any listed for rent during this time.

I'm looking for a good lender who doesn't require the seasoning requirement when using a HELOC as a down payment. I purchase rental properties in either Northern Virginia or Delaware. I have good credit (800+), low DTI (20%) but have 5 mortgages in my name and keep my reserves in investments.

I plan to start calling around some of the smaller banks, but a point in the right direction would be greatly appreciated.  Thanks!

Investment Info:

Single-family residence fix & flip investment in Fredericksburg.

Purchase price: $143,000
Sale price: $270,000

First flip. Learned a lot... Worked a TON... Made a little...

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

If I'm being completely honest... My wife probably watches too much HGTV and got tired of some of the light "boring" rental rehabs. She wanted to "open up some walls" and "throw in some granite." So, we figured we could do a flip and make some money for our next rental down payment.

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

MLS. We put an offer well under asking, but was still probably too much. It was accepted immediately and it was then we realized "wait, did we just overpay?"

How did you finance this deal?

Hard money (Ground floor) and personal funds.

How did you add value to the deal?

Converted it from a 4 bedroom 1 bath to a 3 bedroom 2.5 bath.

What was the outcome?

The house was beautiful, and the new owner got almost new everything. But, it was way more work than I expected (I did about half the rehab myself) and I could of made way more money working overtime at my job. But after countless evenings after work and weekends, I learned a lot in the process and didn't lose money, so I can't complain.

Lessons learned? Challenges?

Sometimes being "handy" is a downside. I routinely underestimated the work because I always told myself "if it ends up more expensive, I'll just do it myself to save some money." Next time I will budget the work conservatively without me lifting so much as a paint brush.

Investment Info:

Single-family residence buy & hold investment in Colonial Beach.

Purchase price: $72,000
Cash invested: $35,000

First BRRRR. Got all my money out and then some! Ironically, I put the least amount of effort into than any other property and it's the most successful. By less work, I mean I didn't actually do the rehab like normal, I hired it out and just made sure the numbers worked.

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

I quickly realized I could not reach my goal of obtaining more rental properties if I had to keep saving up a down payment that I wasn't going to get back.

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

I found it as an REO on the MLS. I offered way under asking (originally offered 65 and it was listed for 148 originally and reduced to 118). We ultimately settled on 72,277.

How did you finance this deal?

A combination of a private lender and my own funds for the purchase and a HELOC from another rental for the rehab.

How did you add value to the deal?

Rehabbed the whole house. One of the biggest value adds was converted it from a 2 bedroom to a 3. It was very easy to do because it was actually originally a 3 bedroom converted to 2. I just threw up a wall and closed off a door.

What was the outcome?

It appraised for 176, so I was able to pull out 132k but had only about 110k in it.

Lessons learned? Challenges?

Don't be afraid to offend a seller, especially on an REO. Just be respectful and let them know you understand they may not be able to come to your number, but that's the number you need to be at. If you can't come to terms on a deal, best if luck to them.