All Forum Posts by: David Rogers

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Lakewood.

Purchase price: $100,000
Cash invested: $20,000

This is my first house hack deal. My fiance and I bought the house in October 2016 and lived here until August 2019. During those three years we reinvested the first floor tenant's rent back into home repairs and other buy-and-hold properties.

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

I was living in Chicago splitting $1400 rent with no laundry in building. Duplexes in my neighborhood, where l'd hear gunshots every two weeks or so, were going for $200,000 and needed at least $100,000 of work. I was a teacher with hardly any savings so I looked at moving back home to Cleveland where I could get started house hacking at a more affordable price point.

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

Found this on the MLS through a real estate agent. No negotiation. I liked the price and the neighborhood was very hot so we offered asking price.

How did you finance this deal?

203k rehab, 3.5% down, owner occupant loan. I took an early withdrawal from my 401k for the down payment and closing costs.

How did you add value to the deal?

Refinished the hardwood floors upstairs and downstairs, installed groutable vinyl tile in first floor kitchen and shared hallway, new cabinets, faucet, sink, and stove in first floor kitchen, repainted entire interior, reinforced upstairs porch, replaced some support joists for upstairs porch, painted both porch floors, built new upstairs porch railing, installed new vanity, medicine cabinet, and toilet in first floor bathroom.

What was the outcome?

We rented out the top floor for $795 and the bottom floor for $750. PITI is $1,040, water is ~$80-90, capex/maintenance is $309 (20% of gross rents), which leaves monthly cash flow of $109. PITI will be adjusted down to about $970 because I contested the county's tax appraisal to reflect our purchase price of $100,000.

Lessons learned? Challenges?

This house was a great set of training wheels for real estate investing. We inherited a tenant who was very easy to deal with, had a few quirks, and a few problems that weren't crazy enough to sour me on investing. Initially, it was helpful to not have to screen a tenant and to just collect the rent every month. I was able to do most of the improvements myself, on my own time, because I lived on site. I learned the power of real estate to build wealth.

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

Lori Forester of Howard Hanna was my real estate agent and great to work with. Natural Choice Floors refinished our hardwoods. Very professional, excellent quality, and easy to work with. They're easily one of the top 3 hardwood floor specialists in the area.

I contested the value of 2 of my properties this last year and won both reviews. The county adjusted the value of each house to my purchase price but neither mortgage has adjusted their escrow to reflect the change. Both mortgage companies are collecting as if the higher tax rate were still in effect. I emailed one and they said they would review escrow at the end of the year and make an adjustment. I figured the other would say the same so I did not contact them.

Has anybody had a similar experience? Does the mortgage company’s explanation sound right? Once they do adjust for next year, I should have extra money escrowed. Will they refund the overage to me or will I be carrying extra cash in escrow for...28 more years?

Thanks ya’ll

Everybody who ever told me to not invest in rental properties is still working a 9-5 job and will not be able to retire until they are 70 years old. Many of them are 60+ years old and still not close to retirement. 

For some reason, everybody's uncle (or dad's cousin in your case) knows a guy who told them about some other guy who got burned by a tenant and lost all his money trying to manage a rental property. Those same people are usually way smarter than all their bosses but are still working for that boss and will work for that boss for 10-20 more years. Doesn't seem to add up.

I listen to that type of person one time, then I avoid them at all costs and replace them with people who are actually making things happen. If your dad's cousin wants to be helpful and believes in commercial real estate, he should be giving you advice on which car wash to buy. Like some other readers alluded to, maybe you can get him to sell you the properties that are wasting so much of his time. You'd be doing him a favor! 

In the meantime, buy your first rental, consult the forums and podcasts for help, and don't give up. If you get a bad tenant, don't blame real estate investing. Realize you made a mistake, fix the system that got you into the mistake, and don't repeat it. There are very few things in RE investing that don't have solutions. Any problem I've had was because I made a mistake. Once I realized this and stopped crying about it, I found a solution on BP and the problem disappeared!

Good luck!

I agree there's no way you could fairly, and possibly legally, charge both. You did the right thing.

I worked as a plumber for a couple of years so my lease lists specific items that should not be put down the drains, including paper towels in the toilets, and also lists the fixtures a tenant is responsible for fixing, including a toilet. If the actual toilet or a branch line that is connected only to one specific unit clogs due to something forbidden that I listed in my lease, I can confidently charge the plumber's bill to that tenant. Even though my lease spells out specific items, if one of them makes it to the main sewer, like it seems to have done in your case, I would still have to eat the cost. 

My follow-up question would be where in the drain did the plumber find this item and how is your duplex plumbed? My duplexes are all two stories so I could never determine which unit something in the main sewer came from because each toilet flushes into the same vertical stack that then goes underground. However, if my second floor unit drains were clogged and not the first, I'd know it was the second floor. Was it clogged in the underground part of the main sewer that goes out to the street? Was it in the vertical stack before it goes underground? Typically, your main sewer is 4" or 6" and even paper towels should be able to make it through. 

Last thought -- Here in Ohio we have clay tile sewers running to  a lot of our houses and they separate, break, and get roots. If a plumber found paper towels clogging my whole main sewer, there would almost certainly have to be a shifted or cracked clay pipe or roots contributing to the problem. 

Hi May, I purchased a second one from the auction in December, which is being rehabbed right now. The plan is to BRRRR that and purchase another. In November or December. So far the auction has been very good for that neighborhood. Additionally, my fiance and I purchased a duplex from Fannie Mae's Homepath site that we will be closing on in the next few weeks.

I see you work with lists. My plans are to use some of my refinance money to start sending out lists in the next 3-6 months. I'd like my name to be in front of some people when this bull market inevitably crashes. I've compiled some lists on ListSource but haven't purchased any yet.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $41,000

Cash invested: $16,950

This was a BRRRR deal. I purchased a 3/1 SFR at the county auction for 41,000. All in purchase, repair, and holding costs were $57,950. Refinance details: $74,000 ARV; 75% LTV @ 7.25%; ~$48,000 cash back, ~$6000 to the lender for fees and escrow; $100 cash flow per month after PITI and 15% set aside for Capex and Maintenance.

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

The unlimited exponential returns through BRRRR are very appealing. Markets are pretty hot on the MLS so deals are hard to come by unless you can offer $100,000 cash the day something is listed. I had only about $70,000 to work with all in. I have not tried direct mail so I don't get any deals that way. I like the neighborhood because competition isn't too high, my ARV was predictable, I could get solid tenants, and cash flow $100/mo worst case.

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

I purchased this at the auction so there was no negotiation. My auction process was to target a neighborhood, drive by the houses for sale, and pick one whose exterior was not too bad. I then used the MLS to estimate worst-case ARV. From there, I set a target all-in price for the auction, worked backwards from that number, and set a limit on what I bid at the auction. I went to three auctions where my target properties were bid up past what I was willing to pay before I purchased this one.

How did you finance this deal?

Cash and then refinance through a bank that would loan to an LLC.

How did you add value to the deal?

The interior was badly stained with tobacco so I paid painters to do 3 coats of interior oil-based primer and neutral gray in the other rooms. I would normally paint myself but the extent of the stains meant my time was better spent elsewhere. I also paid for the hardwood floors to be refinished and the exterior aluminum siding to be painted and repaired. I personally gutted the bathroom, re-did kitchen floors, installed appliances, fixed some plumbing, and fixed a broken downspout.

What was the outcome?

Outcome was stated above with the refinance numbers. $18,500 equity, $100/mo cash flow, $48,000 cash back on the refinance.

Lessons learned? Challenges?

I purchased the house from the auction and the previous owner was still living in it. I did cash for keys for $500 which took 1 month longer than I planned. A straight up eviction may have given me access sooner but there was a risk he would damage the house. I mistakenly started repairs before I fully gutted the house and emptied its contents. This meant I had to get a Bagster 1 month into fixing the house AFTER I had already paid for a dumpster.

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

I used the only lender I could find that would lend to an LLC and found some contractors I would recommend.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $40,500
Cash invested: $16,000

This was a BRRRR deal. I purchased a 3/1 SFR at the county auction for 40,500 and invested about $16,000, paid $150.00 in attorney's fees to create an LLC. Holding costs were $1000.00 for property taxes for the second half of 2017 (taxes are paid in arrears so I paid 2nd half 2017 taxes in the 2nd half of 2018), and about $300 for utilities. All in purchase, repair, and holding costs were $57,950.

I placed a tenant January 1st at $895.00 per month. I refinanced the deal in March. Appraisal came in at $74,000. I refinanced 75% LTV @ 7.25% to get back $55,500. The bank took $6,000 in fees, closing costs, and escrow, so I walked away with $48,500 in cash, $18,500 in equity in the house, and $104.00 in monthly cash flow after PITI and 15% for capex and maintenance. Deal nets 12% cash on cash per year and grew my net worth on paper by $18,500. $48,500 cash was deployed in the same neighborhood on another BRRRR deal.

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

The unlimited exponential returns through BRRRR are very appealing. Markets are pretty hot on the MLS so deals are hard to come by unless you can offer $100,000 cash the day something is listed. I had only about $70,000 to work with all in. I have not tried direct mail so I don't get any deals that way. I like the neighborhood because competition isn't too high, my ARV was predictable, I could get solid tenants, and cash flow $100/mo worst case.

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

I purchased this at the auction so there was no negotiation. My auction process was to target a neighborhood, drive by the houses for sale, and pick one whose exterior was not too bad. I then used the MLS to estimate worst-case ARV. From there, I set a target all-in price for the auction, worked backwards from that number, and set a limit on what I bid at the auction. I went to three auctions where my target properties were bid up past what I was willing to pay before I purchased this one.

How did you finance this deal?

Cash and then refinance through a bank that would loan to an LLC.

How did you add value to the deal?

The interior was badly stained with tobacco so I paid painters to do 3 coats of interior oil-based primer and neutral gray in the other rooms. I would normally paint myself but the extent of the stains meant my time was better spent elsewhere. I also paid for the hardwood floors to be refinished and the exterior aluminum siding to be painted and repaired. I personally gutted the bathroom, re-did kitchen floors, installed appliances, fixed some plumbing, and fixed a broken downspout.

What was the outcome?

Outcome was stated above with the refinance numbers. $18,500 equity, $100/mo cash flow, $48,000 cash back on the refinance.

Lessons learned? Challenges?

I purchased the house from the auction and the previous owner was still living in it. I did cash for keys for $500 which took 1 month longer than I planned. A straight up eviction may have given me access sooner but there was a risk he would damage the house. I mistakenly started repairs before I fully gutted the house and emptied its contents. This meant I had to get a Bagster 1 month into fixing the house AFTER I had already paid for a dumpster.

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

I used the only lender I could find that would lend to an LLC and found some contractors I would recommend.

Good perspective, Josh. Thanks.

I'm estimating about $7000. Light kitchen remodel, pull carpet and refinish floors, paint the interior, finish a halfway finished bathroom in basement. I'm a plumber so most of the expense is materials as I'll be doing labor.

I'm in contract on an SFR and have hit a snag with my projected BRRRR strategy. My question is, does BRRRR work if the initial purchase is with a standard 20% down investment loan? It seems to me that much of my cash flow is eaten up when I refinance at the higher value. I get a lump sum of cash short term (basically everything I put in) but cannabalize my cash flow long term. Is this right or are my numbers off? Am I calculating the refinance numbers correctly? My capex is 10% gross rent; repairs and vacancy are both 5% gross rent.

Here's my projected numbers on the initial purchase:

Purchase Price: 105,000 [ARV = 150,000]

Down Payment: 21,000

Closing: 4,000

Repairs: 7,000

[32,000 out of pocket]

Rent: 1,200

Mortgages, Taxes, Insurance: 839.40

Capex, repairs, vacancy: 228.00

Cash Flow: 132.60

Numbers AFTER Refinance:

ARV: $150,000

$150,000 * 20% = 30,000

$30000 (new down payment for ARV) - $21000 (previous equity from original down payment) = $9000

I've forced $45000 in value and have to leave $9000 for the new 80/20 LTV ratio, plus another $4000 for closing costs, $13000 total. $45,000-13,000 = $32000 cash out.

Projections for post-refinance:

Purchase Price: 150,000

Down Payment: 30,000

Closing: 4,000

Repairs: 7,000

Rent: 1,400

Mortgages, Taxes, Insurance: 1072.34

Capex, repairs, vacancy: 266

Cash Flow: 58.16