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All Forum Posts by: Edward Kuk

Edward Kuk has started 7 posts and replied 24 times.

@Brent Coombs Thanks Brent. Partnering is likely a possible answer I'll have to explore. I'm so early in this right now that I'm trying to absorb as much as I can. Appreciate your time and guidance.

Haha, my wife and I are very fortunate - I just need to not mess it up 

@Brent Coombs - Totally Brent. What I meant to express is that there is likely a trade off between force appreciation and return + time. A property that has no ability to force appreciate will likely not return / cash flow. However, a property that has a ton of potential will likely require a ton of time I might not be able to put into it. My goal is to figure out where the right balance is. As Frank mentioned above, perhaps a property with a good area requires light rehab. 

What are you thoughts here? Perhaps I'm optimistic and the curve is heavily correlated to time and the sweet spot isn't really there?

@David Miller - Thanks for the advice Dave. Appreciate you thinking about my situation and seeing if my plans / goals are realistic. In my head, I'm definitely including a property manager into the equation. TBH, I heard mixed stories about how much time they save so that's still something I need to understand more. I'm also thinking a tri-plex / 4-plex at most at this time. 

I think what you are suggesting though is that the scale from a 16+ apartment complex with partners is a much better return on value and time than a self-owned 4-plex with a property manager. Is that true from your experience? 

Thanks everyone. That is incredibly helpful. I am more of a go slow but quality kind of guy and fortunate enough to have the cash flow to do so. Sounds like the BRRR method is more risky and time consuming than what I want in my lifestyle so as everyone suggested, better quality area that cash flow.

That seems to simplify the process quite a bit as I don't need to worry about forcing appreciation and cashflow post re-financing. Though growth will likely be slower and returns likely smaller, I imagine it won't matter long term with a buy and hold strategy. I wonder if that also opens up more deal opportunities given higher barrier to entry without the need to re-fi (but a deal that works in a re-fi situation will cashflow even better, but might require more upfront work on repairs) 

Anyways, just rambling thoughts as this point. Thanks again for your guidance, these few points helped me think through what strategy works for my me and my family.

Nice to meet everyone. I'm very new to real estate investing (i.e., 2 weeks) but pretty thankful that I found this site and appreciate all the information this community has provided. 

Quick background: My wife and I are Canadian but now live in Chicago. We came here for our graduate degrees and fell in love with the city. We have a 1 year old little boy and when he came around, we decided to get out of renting and buy a townhouse for the extra space. Through this, we fell in love with real estate. We are both very lucky to have high paying jobs but the trade-off to our salary is our time. I work in consulting and easily work 70+ hours a week (with travel). Although I do like the work that I do, it's not sustainable and doesn't give me the life I want with my family long term. That said, I'm not looking for real estate to replace my job or become fully financially independent with it. I still plan to climb that corporate ladder but would like to invest in real estate on the side. Deep down, I want to build a system that I can give to my children 30+ years down the road and no matter how high I climb the ladder, it's not something I can pass down.

My wife and I are pretty financially conservative. Although we by no means live the FIRE lifestyle, we are able to save a good chunk of our salaries every year. Our savings is our primary source of funds.

Question: I've been reading a lot about BRRR recently, trying to wrap my head around the strengths and weaknesses. There is still a lot for me to self-learn but I have a few questions to ask the community to help guide my learning, which hopefully may be useful for others early in the process as well.

1) What are the underlying risks for refinancing? This seems to be the crux of the strategy so if this piece falls apart, you become stuck.

What are the assumptions we need to believe in order for 75% of APV to be sufficient to get our money back. I believe there are two factors but would appreciate guidance on whether I'm correct and if there are others. 

The first is forced appreciation will create meaningful value. However, there is likely some sort of experience curve here as beginners will likely underestimate repair costs or overestimate the incremental value created. Is this why most people don't make money in their first place?

The second is that the market is growing. This allows your property to naturally appreciate while you work through your rehab. This seems very important to me as without this, your ability to successfully re-finance is dependent on your ability to force appreciation, which for a beginner like me, questionable. In a market like Illinois/Chicago where appreciation is pretty flat, how difficult is it to really get that appraisal without market tailwinds? 

Worse yet, if the market goes south and your property devalues, are you essentially locked in?

2) What is the risk of reducing equity due to re-financing?

When you re-finance, you are essentially giving up your built up equity from rehab/appreciation for your cash back. How much equity are you generally left with the investment? 

What I can see happening is that during the bull market, investors are using their initial chunk of money and expanding the units as fast as they can. Although they are cash flowing, the have very little equity. Let's say a recession hits, your next appraisal is a lot less than what you were hoping so you can't get your money out. Worst yet, vacancies go up and you can't cover your expenses. If you had equity, you might be able to sell one unit to cover the expenses of the others until you ride it out. But because you have very little equity, you are essentially forced to liquidate everything.

Does this happen? I read stories and listened to podcasts of people reaching 100+ 500+ units in a few years, all doing BRRR. Is that really that robust of a strategy or have they just spread themselves really thin?

3) Last, seeking advice from the community. Should we re-finance? My wife and I can probably save enough for a decent down payment every 2-3 years. Given the commitment to our jobs, that's probably the time frame we are looking to buy new properties anyways. 

I'm all for getting my money back but given the lack of time for speed, risk consciousness, and ability to self-funds (as long as we are employed), would you suggest the refinance part of BRRR or should we just keep saving for the next down-payment and protect our equity?

This was a long one, but really appreciate the help.

Thanks,

Ed