All Forum Posts by: Dave Vona

Bobby, when I'm analyzing properties, I do consider properties with 0 or even slightly negative cash flow.  This CF is after all expenses, including 15-20% reserves for vacancy, maintenance and capital improvements.

If the CF is negative, then I would need to set aside $X for reserve. The reason I allow this in my analyses is because setting aside $4000, for example, to cover reserves until my rent increases catch up is cheaper than going with the lower LTV loan.

I also will try to pull as much money out of the deal as possible. The reason for this is the ROI on the appreciation and mortgage paydown is multiplied by the amount of leverage being used. For example, let's say appreciation is 3% and mortgage paydown that year is 2%, and I only have 10% of my money in the deal. The ROI is 5% x 10 = 50%. If I left 20% of money in the deal, the ROI is 5% x 5 = 25%.

In my analyses, the ROI of the appreciation + mortgage paydown (i.e. amortization) outweighs the ROI I'm able to get on the CF using a lower LTV refi loan.

With that said, I would not consider going with 0 or negative CF if you don't have any enough money set aside to cover mortgage payments for roughly 3-6 months.  If for some reason you don't have tenants for an extended period, you need to be able to still make those payments.  So, always consider your personal situation when deciding your investing strategy.

Albert, I would talk to your bank about why they closed your HELOC, maybe it was a mistake, or it reached the end of its term. My HELOCs (I have a 2nd and 3rd) have a 20 year draw period. You can always open another one with the same bank possibly, or shop around for the best rate at other banks.

This is a good question.  I'm starting to learn that the more refined my property criteria, the fewer properties I need to look at.  If I know the specific neighborhoods, age, bedroom/baths, condition of the properties that I want to purchase, then my pool of homes is already filtered down.  Then I can just run numbers on the much smaller set of properties that match my criteria.  If the numbers are reasonable for my particular strategy, then I contact my agent to put in an offer.

Hi @Anthony Catoni.  I'm also investing out of state.  It has been a challenge, but I found that contractor recommendations from my property manager have helped.  Although, I admit I didn't do this soon enough, and learned through experience not to trust just any contractor.

Another resource that I've been using is the local REIA Facebook groups. I think the key here is to find the contractors that have been recommended by other investors, and that aren't just self-promoting themselves. This works well for many sub-contractors, but it's a little more difficult to find good GC's this way. Most investors aren't as willing to share their GC if they find a good one, and are keeping them busy.

@Adrian Smude Thanks for topic. It's interesting to hear everyone's opinion on this. I'm in the process of refinancing my second BRRRR. I completed the first one last year with a rate just over 6%. It cash flows about $300 after PITI, PM, and reserves. However, it is an older home and requires more maintenance.

The one I'm about to refinance will have a rate of ~7.5%.  I expect the cash flow to be $0, and I will have to set aside some of the reserves out-of-pocket for the first year or two until the rents increase.  But, the property is in a much nicer neighborhood.

I still see BRRRR as a to way acquire a property while also forcing some appreciation. Even if there is no cash flow immediately, I'm satisfied if I can purchase a property with less than 20% of my money left in it, which is what I can still do with BRRRR. It does take some time and understanding of your numbers to find the right property.

I realize appreciation across most markets isn't as good as it has been over the past 10 years, so I feel it's important to buy in areas where appreciation is more likely.  And, I plan to follow a strategy that includes buying higher quality, rather than just looking for high cash flow. Over the long-term, I believe these are the properties that will continue to see rent increases and appreciation.

@Nat Love Be sure to check with several banks to see what rate they have. I opened my HELOC a couple of years ago and it's based off the US Prime Rate. I think most HELOCs are similar and the rate is going to vary as the Fed Rate changes. I just checked, and my 1st HELOC is currently at 7.75%.

@Lance Lamberton I'm not familiar with the Birmingham market, but I've been using the ...research/data section on zillow to do initial analysis on my out-of-state market.  I can run a report showing a home value index down to the zip code or even neighborhood.  I don't consider this an absolute "price", but more of a relative number.  This can inform me when deciding which areas of town to look at.

If I combine this with the rental data on the same zillow page, I can also come up with a relative rent/price ratio.  Also, remember that you'll want to purchase at a discount, so the home values you see in the report are just a starting point.

@James Fischer You can use a business LOC at a local bank to invest in BRRRR properties out of state. I opened a business checking account for my LLC, and then applied for an LOC. This LOC can then be used to invest in whatever I'd like using that LLC. I've used it for local flips, and I'm currently starting to use it for out of state BRRRR's.

The bank used my W2 income to determine whether I qualify for the LOC, up to a maximum of $50K. If you want to go over $50K, they then start to look at your business income. Also, it's a $50K maximum per LLC, so I have more than one LLC bank account with an LOC.

I'm still looking for properties to BRRRR. The issue I'm finding is not the ARV, but that the high interest rate is making it difficult to obtain positive cash flow. The payments on the mortgage (PITI), and accounting for property managment and reserves, are leaving most deals with negative cash flow.

I don't like the idea of buying a property with negative, or $0, cash flow.  Some markets did see rent prices decrease during the last recession, so I prefer to have some cushion in the event rents drop (or even remain static).

Hi @Andrew Diamond, that's a question I've been trying to solve myself as I start to do out-of-state BRRRR's. I start by looking at the rent, asking price, and ARV. This will help me filter out properties that don't have a chance of cash flowing after a refinance. If it's a potential deal based on that information, I then have to get some idea of the rehab costs.

I start with photos and also have my real estate agent visit the property at this point. This can start give me some indication of the level of rehab needed - if it's 10K, 30K, or 50K. I start to plug these numbers into the BP BRRRR calculator to see where I'm at. If it still looks reasonable, I then contact a couple of contractors, and even a inspector. The contractors can provide feedback on the photos and also visit the property to provide an estimate. On the last property I made an offer on, the inspector was able to provide a "risk assessment" for about $250. He looked at major systems and mechanicals - roof, foundation, AC, furnace, electrical, etc. This provided additional information that I was able to use to make an offer.

I've heard of some people using price per square foot numbers, based on the condition of the property.  I'm not familiar enough yet with the rehab numbers to be able to use this approach, so I have to get other people involved that are a little more experienced than I am.