All Forum Posts by: Chris Kendrick

If you find one, tell me. It is very hard to find a bank or credit union to lend. I did hear about one down the shore that would do it on a larger portfolio.

Quote from @Chris Kendrick:

Quote from @Alex Mitt:

Hi, community!

I'm down to my 4th single-family deal, I am an out-of-state long-term investor and I'm still learning a lot. My last one is not turning out great. I take all this as a learning lesson on how to not do things in the future and I'm still very optimistic. My other 3 deals are cash-flowing nicely over $700/month, even though one took a while to stabilize to get there.

Here's some information about the deal:

- Purchase Price with closing costs: $138,000 

- Expected Rehab: $30,000

- Expected ARV: $210,000

- Expected rental: $1,900

- The Rehab turned out to be $55,000 --> a lot of unexpected problems, broken pipes, mold, roof, city requirements and overall bad due diligence on my side. I still would need to put in another $10k to pass the inspections (the city is asking for a lot, like changing the garage door). 

- The Appraised value came back at $175,000  --> we got delayed on the rehab and the latest comps didn't help, and pushed the appraisal down

I paid with a Heloc, so holding costs are interest-only for ~$1,000/month for 5 months. So now I need to decide:

- I listed the home on sale for $195,000, and in just a few days I got an offer at asking. Now the buyer is of course asking for $5,000 in credits. My total expense right now is over $205k, so selling for $195k, plus all the fees and credits, I will lose ~$20k on this deal. I think I can offset this from my w2 income, so at least there's that.

- The other option is to refinance. I locked a rate for $6.8%, and I would be getting $145k back. So I would have a lot more of my own cash in the deal than I would have liked it. Then I could rent for $1,900. Mortgage + Insurance + Property tax is at $1,450. Now add capex, vacancy, etc...the real cash flow is very low.

I would like to see what the community suggests in this situation. Would you sell for a loss, or rent leaving a lot of your own money in the deal and playing the very long-term game? 

Thank you all

So basically what went wrong is the rehab cost,  but why did it appraised so low, just trying to make sure i dont mess up, 

I didn't get a quote accurate for the scope of work and the city requirements. We discovered mold and broken pipes and then the city asked for many more items than initially expected. Bad due diligence on my side, hard sometimes handling this from another state.

The appraisal got lowered given the big delays that I got on the rehab and recent sales in the area at a much lower price.... especially two sales in the same street! That didn't help with the comps.

You will likely end up on dozens if not more lists you don't want to be on. There are better ways. 

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $335,000
Cash invested: $65,000

Fix and Flip property typically what I look for in a deal, very strait forward value add project only requires opening the kitchen to living room area, updating the kitchen and bathrooms and doing a bathroom addition to the second floor.

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

its a typical project for me in Central NJ

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

whole-seller brought me the deal, offered me 350 - negotiated down to 335K

How did you finance this deal?

Private Investors

How did you add value to the deal?

Added a Bathroom upstairs and opening the Dinning kitchen and Living Room

What was the outcome?

Active deal

Lessons learned? Challenges?

being a better transaction coordinator at closing demands you to be very involved the process unless you can outsource the task

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

yea, Martin P. was the buyer Attorney and hes always does an amazing job.

Quote from @Scott Falvey:

Hold them in your personal name. You'll get varying opinions but holding in an LLC increases complexity and cost. The purpose of the LLC is to protect you from lawsuits, but that need is greatly exaggerated. Do some research and find me just one amateur investor on BiggerPockets that was sued and lost their property. I'll wait.

Oh, you're back already and didn't find anyone? No surprise. Here's my generic LLC advise:

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.

If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.

@Chris Kendrick Real estate returns come from 4 sources. 1. Cash flow 2. Appreciation 3. Mortgage paydown and 4. Depreciation. Wealth is built over time. Upfront equity, if you can get it, is icing on the cake. If everyone had to rely on upfront equity for their returns, there wouldn't be so many people making so much money in real estate. 

Chris,

Why not just do a cash out refinance instead of a HELOC? Your loan is based off of a 30 year loan and the rate will only be slightly higher which will offer a lower payment.

BRRRR is a good strategy for those that are local and have the time to manage a rehab project but it's not right for everyone. No one strategy is right for everyone. Managing contracters has always been a challenge. Managing them in today's climate with serious labor shortages is exceptionally difficult. BRRRR isn't for everyone and there is no gaurantee there will be equity left in the deal. Turn key is a good strategy for those that are investing out of state and have limited time to devout to finding properties, determining their renovated values, determine a scope of work and a budget for the construction. There's a lot of moving parts and a lot can go wrong for inexperienced investors.