All Forum Posts by: Brian Fiorillo

Hi Curtis,

Congrats on the tax free win in Denver! The best part is you parked your earnings in another property instead of buying a new car or boat…or am I the only one who made that mistake on their first successful flip? 😉That discipline will take you far in your REI career.

Happy to respond to your post with my two cents.

If replacing your 9-5 is the ultimate goal, your focus is going to be on generating cashflow. As @Steven May mentioned, his first property produced $250/month in net cashflow. I would say this is about right for the average single family house. Going the short-term or medium-term rental route will yield higher figures but we’ll focus on long-term rentals for now. If your only strategy to replacing your w2 income is purchasing one property a year, you will need to find a way to create more cashflow. If you truly believe in the saying you quoted, “Live like no one else, so later you can LIVE like no one else”, you may consider purchasing small multifamily in lieu of all single family. There are obvious pros and cons in either approach, but I’ll focus on mixing in some multifamily.

House hacking is a strategy referenced often on BP. It’s a viable option for single people, but not realistic if you’re married, like you and me. However, the same principles apply if you purchase a 2-4 unit property and occupy one unit while renting out the others. While you’re living in the property, you’ll be able to offset your largest expense (mortgage/rent), which will accelerate your cash savings to put down on your next property. When it comes time to move on, instead of having one door producing cashflow, you’ll have an additional 1-3. My standards for small multifamily are A-B neighborhoods, no frankenstein buildings, separate meters for gas and electric utilities. I’m typically only looking for value add properties to build in some forced appreciation, but I also want the opportunity to create a better than average rental. If I’m going to be sharing the property with someone, my goal is to attract a high quality tenant. If you want to be a bit more hands on but generate more income, you may entertain using one of the units as a short-term or medium-term rental.

One thing you may need to consider is most lenders now require you to put 15% down on small multifamily compared to the 3%-5% required for single family. It’s a larger cash outlay but if your goal is cashflow, this only helps that position.

Hope this helps contribute to your decision!

All the best,

Brian Fiorillo

@Brad S., appreciate hearing the feedback from an appraiser. Since and eight unit is still on the smaller side, I figured there was more opportunity to balance the appraisal with cap rate and comps with similar amenities and features. It’s good to know we don’t have to worry about a single four unit being thrown into the mix as a comp. There are similar properties, some smaller, some larger, that have varying amenities such as car ports, balconies, picnic areas etc. I'll spend more time digging in to see how these items impact property value. Thanks again for the input!

Very happy to see you bring this up, as we do plan on using the BRRRR stragegy on this property. It won't be a perfect BRRRR, but pretty dang close. Sounds like a conversation we need to start having now with our lender.

@Brandon Plombon, perfect. Thats what we figured. This property has two four unit structures. Seeing how four units are relatively common, we didn’t want to risk an appraiser pulling a recent four unit comp and simply doubling the value. Thank you for the input!

@John Warren, really appreciate the feedback! I've done several single family and small multifamily (2-4 units) deals but this is my first leap into the commercial world. This property is in need of extensive rehab, so I'm not too concerned with previous financials. My market analysis shows great upside once we complete the rehab. As I mentioned in my response to @Dustin Allen, this property consists of two, four unit buildings. What I didn’t want to have happen was an appraiser coming in and pulling comps of previously sold four units in the area and essentially doubling their value.

@Dustin Allen, totally agree. This property consists of two four unit buildings that need extensive rehab. What I didn’t want to have happen was an appraiser coming through thinking they can simply find a recently sold four unit in the area and double the value.

After rehab, I am seeing a conservative NOI of $98,000, in an area that is traditionally a 6 cap but am running my numbers as a 7 cap. That puts my ARV at $1,400,000. If an appraiser were to come in and pull a four unit comp that sold for $600,000 and double the value, we would miss our mark considerably. If this isn't standard practice, then I would be comfortable moving forward on this one.
 

Good Morning BP,

My agent and general contractor are walking an eight unit apartment building for me today. Initial review of the numbers looks great. My question is, at what point are you using cap rate to determine value as opposed to finding comps? I hear it said often that cap rate may not be the best metric for small multifamily. I would still consider eight units relatively small so at what point is the cut off? I assumed over four units but am looking for a bit more feedback.

All the best,

Brian Fiorillo

@Drew Davis, I know this is an old thread but I'm looking into purchasing a STR in CB outside the city limits. Curious how you went about the management component. All the PMs I spoke to want 25-30% of revenue. Was that accounted for in you net figures?

The property we are interested in is closer to Crested Butte South - Spring Creek area. It's my understanding that there are no restrictions on STR in the area. I will definitely confirm this in our due diligence!

Thank you!

@Bruce Woodruff, I used a few different tools - Rabbu, AirDNA and my own research based on rental rates and availability of similar properties in the area. Rabbu shows the average monthly revenue at $8,800. If we add a hot tub, as @James Carlson suggested, the average jumps up to $10,700. AirDNA shows average monthly revenue at $5,300 but I don’t have the subscription version of this tool so the ability to customize parameters are limited. My conservative analysis puts me at roughly $5,500 in monthly revenue.

My PITI would be $3,500/month. Utilities add another $250/month and management is 20% of revenue. If I average out the three monthly projections, we get $6,500/month in revenue. Once I deduct PITI, Utilities and management, we are left with $1,450/month is cashflow. Minus another $500/month for reserves, puts us at $950/month cashflow or 7% ROI.

I am very conservative when it comes to AirBNBs, which is why I was hoping someone active in the area could shed some light on the reality of this market. As a BRRRR guy, 7% is a little tough to swallow but if I could get it up to 12%-15%, which falls in line with the Rabbu analysis, then this becomes a different story.