All Forum Posts by: Dale Degagne

Originally posted by @Drea Kade:

To the point about refinancing: I have been reading about the BRRRR method, and that is initially what I was hoping would be the thing that worked for our situation. It's nerve wracking being new to all these decisions, and feeling like there is so much at stake.

I don’t know what any of the more experienced members would say, but it seems like it would depend on short vs. long-term goals, or how one wants the wealth-building process to look like. I’m not sure if equity should be my biggest concern right now? I think it makes me feel more secure, but isn’t educated risk also part of the equation? Making those decisions and overcoming those fears is the real struggle for me at this early stage. 

Thank you!

 

No problem. Hope it helped. It does sound like you may be able to renovate, rent, refinance it, but like joe said. Lots of unknowns. I would suggest nailing down things you can reasonably know. Current value, cost to renovate, timeline, predictive value once complete, likelihood of achieving refinancing and at what Loan to Value. Then I would suggest having a plan for the rest of the money.

I would also suggest looking at at least 1 alternative strategy.  Joe suggested selling. Again, I would use things that you can reasonably know. Maybe it's selling and buying a lot and putting a house on it. So you can learn the price of the lot, and an estimate for construction per sq ft and a time line.

Compare the two and see which meets your goals better/generates more equity for you.  

Again hope that helps.

Originally posted by @Joe Villeneuve:

Originally posted by @Dale Degagne:

Hi Drea that is a doozy of a question.  Reading your post a couple things come to mind.

1st - You'll never build a portfolio if you continually sell what you have.  ***CAVEAT*** it SOMETIMES makes sense to sell IF you have a plan to roll the money into that makes sense. 

2nd - It sounds like your property is not at its highest and best purpose.  As a single family home, it likely would benefit from the improvements you're talking about.  Obviously you should be careful not to put lipstick on a pig, or throw good money after bad, but typically, recently rehabbed properties will typically sell/rent/be appraised for more than something that has not. Also, if you're REALLY close to the downtown core you will likely see changes in the zoning densities allowed (assuming your city is growing). If that is the case then your property is even more likely to make a shift in what it's highest and best purpose is in the future. Another reason to hold onto it.

3rd - Having it re-appraised and taking a bigger mortgage on it would make sense if you can a) use that money to invest it back into the property/into another property.  b) if it will still cash flow after refinancing.  This is a classic way to build your portfolio (buy systematically refinancing properties and using their appreciation over time and mortgage paydown to buy more properties).

I know that can't cover all the intricacies of your market, or family situation, or financial goals etc. But the principals of holding onto property and creating value by elevating properties to their highest and best use, and of using equity via refinancing, are all pretty standard principals in investing.

 1)  The exact opposite is true.  The longer you hold a property the less value your equity has.  When you buy it has a value of 5 to 1.  Since the property increases in appreciation are equal to the increase in equity, as in a 1 to 1 value, it reduces the value of the total equity as it grows.  Selling will increase your portfolio exponentially faster.  The value isn't in the passive equity build...it's what that built equity can do when it's active.

2)  The future in this case isn't predictable as far as it will generate profits/value.  Too many variables out of the control of the owners.  Besides, by the time if/when the "projected" financial rewards are gained passively, the same equity in motion should be exponentially larger.  See #1 above.

3) There is no "if" here as far as cash flow. Negative cash flow is a "classic way" to lose money. When you combine this with Steps 1 and 2 above, you end up with exponential losses. Also, paying down the mortgage only increases the cost to the REI. The tenant is paying the mortgage for you. When you add your money to it, you're not saving anything...just adding to your cost, and reducing your CF.

I think you misunderstand basically everything in my post.

There was no suggestion of putting themselves in a negative cash flow situation. That's dumb.

There was no suggestion of taking their own money and using it to pay down the mortgage. That is also dumb.

There was no suggestion of passively sitting and hoping for things to work out. That is also also dumb.


I did suggest they look at refinancing as a way to increase their leverage up to 5:1 and use the rest of that equity to either add value to their current property or purchase a new one.

I did suggest that they keep their money active. Whether that is through flipping, or maximizing leverage.

I did suggest that if they want to build a portfolio (not a bank account), then they need to hold properties and that holding properties can (and usually does) make sense depending on their financial goals.

Hey Zack, 

Exciting! I've done many renovations for the purpose of renting. Here's what I tend to do;

1.) My bathroom has been remodeled, just waiting on my cabinets for my kitchen to come in within the next week or two and my unit will be ready to go. Does anyone recommend marketing your unit before the full renovation is complete?

100% Yes. You're looking for tenants who are looking to move somewhere between 30 and 90 days in the future. So unless you want your place sitting for that length of time, you need to market now.  Typically I would start marketing Dec 27th for a Feb 1st move in (as an example).  What you REALLY want to avoid is Marketing January  15th for a Feb 1st move in.   People who are in a state of crisis tend to frequently be in a state of crisis. You don't want them as tenants.   SO bring people through. Explain it is going to be a brand new place, and agree to have the place ready to go by the day before they move in.  And then make it happen.  

2.) What are the best methods /procedures for screening tenants ?

Most areas have typical ways of advertising ie Facebook, craigslist etc. but I would also consider reaching out to your social network first.  Connections once removed are great (ie friend of a friend).  

In terms of screening you probably want to look for things that indicate stability (financial, social, mental). Further, you MAY want tenants who are not going to be really long term, especially if rental prices are increasing in your area.  Personally, here are things I look for when renting a brand new place;

- Financial stability indicated by where they work and what that job situation is (full time salary gov't jobs are awesome, part time cashier at the dollar store not so much)
- social stability - friends and family in the area, lived in the town a while may be helpful
- Mental Health - this is hard to assess but look for indicators of high stress, or coping challenges.  Watch for behaviours of desperation and trying to convince you that they are good people. Those would indicate to me that they may be in a state of crisis (which tends to go hand in hand with mental health)
- Lifestyle choices - I want a tenant who will take care of my place so young singles in a brand new place MAY work but likely only if they are in med school at harvard (for example). If a guy pulls up with a budwieser sticker in his beat up old truck, I'm going to assume he gets lit on fridays and isn't going to treat my place well.
- Forward progress in Life - Personally, I want people who will stay 2 to 4 years at a rent that makes sense and then move out so I can increase the rents and do any revitalization work that needs doing or repairs required that went unreported during their tenancy.  So I would rather rent a 2 bedroom apartment to a first time pregnant couple who plans on having 3 kids vs. a single parent who has 1 kid. Why? Because the couple has plans to expand beyond what the unit will provide for living conditions vs. the parent with 1 kid who will likely want to stay there from then until the kid is out of university (or beyond).  

Obviously there is more to it than that but the root of it all is getting to know your tenants and then verifying some basic data (checking to see if they are full of bs about their job, for example).

I’m moving out of state in March , so want to make sure my unit is rented before we leave.

Sounds like you need to be extra sure you have a good tenant in there and potentially someone to take responsibility for monitoring the place.  Hope that helps!

Hey Michael, Sorry for your loss.

I think you need to work with your siblings to figure out how you're going to distribute your dad's estate. This is very much a question for an estate lawyer. I suggest you work with your siblings to hire one to help you guys work through things.  If you end up taking on the duplex, or need help deciding if it is a good investment or not, then I think we could help more.

Hi Drea that is a doozy of a question.  Reading your post a couple things come to mind.

1st - You'll never build a portfolio if you continually sell what you have.  ***CAVEAT*** it SOMETIMES makes sense to sell IF you have a plan to roll the money into that makes sense. 

2nd - It sounds like your property is not at its highest and best purpose.  As a single family home, it likely would benefit from the improvements you're talking about.  Obviously you should be careful not to put lipstick on a pig, or throw good money after bad, but typically, recently rehabbed properties will typically sell/rent/be appraised for more than something that has not. Also, if you're REALLY close to the downtown core you will likely see changes in the zoning densities allowed (assuming your city is growing). If that is the case then your property is even more likely to make a shift in what it's highest and best purpose is in the future. Another reason to hold onto it.

3rd - Having it re-appraised and taking a bigger mortgage on it would make sense if you can a) use that money to invest it back into the property/into another property.  b) if it will still cash flow after refinancing.  This is a classic way to build your portfolio (buy systematically refinancing properties and using their appreciation over time and mortgage paydown to buy more properties).

I know that can't cover all the intricacies of your market, or family situation, or financial goals etc. But the principals of holding onto property and creating value by elevating properties to their highest and best use, and of using equity via refinancing, are all pretty standard principals in investing.

No Problem. Do me a solid and toss me an upvote if you found it helpful!

When it comes to hard money it likely has to do with the lender themselves and what they prefer.  

For me, I developed a relationship first with the lender and got some rough parameters of what they would be interested in backing. But I always make my deals conditional on financing.  I do find that my guy responds much faster when I have a firm deal for him.  Probably a time management thing on his part. I'm not the only Joe looking to borrow short term.

Hey Eddy, from your post it's impossible to say if it's a good move or not.  There are SO many things to consider.  Here are a few;

What is your investment goal with this - Buy/Hold? Fix/Flip? BRRRR? Rezone?   What are you doing with it?

What is the current house being used for? Is it rented? ARe you going to rent it? How much?

What are the expenses associated with carrying the property? All of them, including property management and repairs etc.

What are your return rates for this? What's your Cash-on-Cash return, what's your overall return? (Paydown+Cash+appreciation)

As to your financing options; Banks will only do conventional loans. Privates will give you higher interest only loans, some on balloon payments.  If you're buying from a seller who owns it free and clear you could negotiate a Vendor Take Back, or, if they still have a mortgage, you could negotiate an Agreement for Sale.  

I will say that I'm not used to putting less than 20% down for conventional stuff here because that's what banks demand. So a $570K for $25K down is likely going to give you some good cash on cash return.

You got in with 3.78% down?   

That should give you some great cash on cash!  Well done!

Realtor's be like: "OPPORTUNITY ABOUNDS TO MAKE SWEAT EQUITY" 

Delayed offers til Tuesday.