All Forum Posts by: James Aravena

I own 3 SFR as investments in Columbia MO, along with my 4th primary SFR in KCMO. two of the 3 investments have been gutted and rehabbed. I Bought a dental practice with my wife 2 years ago, so once we are no longer poor from that, plan is to convert 3rd property into a STR. Then plan is to merge some City lots I own in Columbia MO and build new construction triplex.

Then my plan is to begin investing in my local market of KCMO. For now though, I just assist local and OOS investors underwrite deals, and act as boots on the ground for my OOS investors. I am well versed in laws pertaining to STR regulations, which are extensive in my market.

@Ryan Burg

My mind works similarly. I've used cheat sheets to study for (and pass) everything from middle school Spanish to organic chemistry. I'm also brand spanking new to REI. This is my first post on BP as I literally just joined. I'm reading through the Ultimate Beginner's Guide and educating myself as best I can. I feel like one of my biggest "challenges" so far has been figuring out all the vocabulary. I often find myself doing a Google Search on terms like ROI, ARV, etc. (I found an awesome BP interview video via Google about ARV and thought it quite funny that I actually didn't check here first).

My intention is to continue learning all I can from here, friends who do this, and anywhere else I can for a month and then jump into making my first educated move. I'm leaning towards fix n flips as these make the most sense to me conceptually so far.

Anyways I did a forum search for "Vocabulary" and that's how I found this thread. I don't know if there's any sort of glossary in the Ultimate Beginner's Guide because I have only gotten to Chapter 3 (started last night). Anyways I'm building up a vocab list and a more comprehensive useful insights list and will joyfully add it to this thread or possibly start a new thread and link you to it once it's more thorough.

Trusting your numbers, it sounds like the current value of the property is around 155k if not less. That's 250k minus 88, factoring in some closing costs. And that's not including any kind of margin. Most BRRRR investors will want to be all in for 75% to 80% of the ARV, flippers will want a similar or greater margin. Reality is seldom so absolute so all of those numbers are not necessarily perfect but that's likely the gist of it.

Some other things to consider: Is your scope of work appropriate for rental grade? Do you have to do everything you plan to do to get fair market rent? Compare what you planned to what other similar rentals have in the same area to make sure it's all necessary. Pay attention to what finishes they have.

As far as cash flow goes, it's subjective but $2,500/month meets the 1% rule for a property valued at 250k and is generally not bad. If you're 80% leveraged that's a 200k loan. At 7.5% your monthly payment is around $1,400 not including taxes or insurance. I have no idea what they are for your property so I used $2,500 and $600 respectively which takes it up to $1,650. Using 15% of gross rent to cover maintenance, capex and vacancies and you're left with $475. Again, I had to do some guesswork and rules of thumbs here but it may cash flow decently if you dig into the math.

So what can you do? Sell it for a substantial loss: maybe 80k? Or put the 88k in, refi out of the HML which requires you to come out of pocket quite a bit of money as well, and hold it long term which on paper may eventually make you whole. There's also the option of sweat equity if you don't have the capital to pay for the remodel: In other words, buy the materials and do the work yourself over time. The downside to this of course is that it will take a lot longer and you're still paying for the HML.

Is it listed with an agent/realtor? If so, what is their opinion of the current value?

It is very curious to me that the lender lent you so much on the property without doing any due diligence of their own. I don't believe that this is a lender that just wants you to default so that they can foreclose and take the property themselves because that doesn't make financial sense for them if the numbers I put at the beginning of this reply were anything close to accurate.

Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss. For financial discipline, check out Set For Life by Scott Trench , or The Total Money Makeover by Dave Ramsey. Every Landlord's Legal Guide by NOLO will teach you how to manage your investments and points you to state-specific laws.