All Forum Posts by: Jesse Watson

@Luke Carl - Thanks for the tip! We listened to Avery guest starring on the podcast and it gave us a ton of info. Thanks!

Hello there, 

My wife and I are looking to purchase a short term rental in the Phoenix or Austin areas. We're also looking for STR property managers in both areas to network with and learn more about your services. We're located in the Pacific Northwest and are interested in working with small businesses local to these areas (rather than a big nationwide company). Who's out there?!

Thanks! 

Kate and Jesse

Thanks to all who replied on this thread with the awesome feedback! Definitely helps give us clear avenues to research as we hone in on making a decision.

My wife and I are still reading and learning as much as we can before diving into our first REI experiment -- our situation is that I have some RSUs from my job coming in over the next few years that we'd like to re-invest toward an early retirement scenario. I have been reading David Greene's BRRRR book and Long Distance REI, as well as Michael Blank's Financial Freedom book about apartment syndication and still trying to decide which route to pursue. Maybe small multi-family could work as a hybrid scenario.

Some of the parameters we're working with are as follows:

- We live in the Seattle area, so properties are expensive here, and don't tend to cash-flow -- that's why we're looking to invest out of state.
- I work full time and my wife runs her own business -- we have a strong business / entrepreneurial background, and we have some spare bandwidth after-hours, but not enough to take on another full time job (unless it can very quickly replace about $12K per month in expenses)
- We're not too keen on sharing walls with others (we like our privacy) and we hate moving, so house hacking is low on our list of options, but we're open to it as a last resort
- We won't have enough capital to buy an apartment building all-cash, but we could afford a down payment, or we could afford to buy a small multi-family in some geographies.

Can anyone offer pros and cons of out-of-state apartment syndication vs. out-of-state BRRRR? One of the things I'm especially concerned about is the time commitment factor, since that's the one asset I can't leverage beyond a certain limit :-)

How many hours a week of work are we signing up for in each scenario, and how do we limit our risk of over-extending ourselves / losing our capital?

In either case, should we pursue a creative partnership with someone who can put in more of the sweat equity?

Or should we be more "realistic" and start looking at more passive investment options?

Thanks,
-Jesse

Good to know, thanks, @Dave Skow!

Totally makes sense. Thanks for the explanation, @Michael Haas! I can take on a higher payment to access more of that equity. I think I am starting to get the refinance concept!

Thanks for the reply, @Michael Haas - Just to clarify, though -- I am still feeling stupid about how refinancing works... Lets say I buy a property for $750K with 20% down ($150k, $600K borrowed). I put $50K of my own cash into to rehab it, and then it re-appraises for $900K. I've created $150K of additional equity, and I originally put $150 down, so I now have $300K of total equity in the home. I turn right around 6 months later and refinance. Let's assume same rate, same terms. I'm getting a loan on the amount of $600K that I still owe, but now I have a 67% LTV, which means I should be able to cash out some of the new equity for the same monthly payment...

Using a refi calculator like this one, I plugged the numbers above in...
https://www.lendingtree.com/home/mortgage/calculators/cash-out-refinance-calculator/

...And playing with that, it seems like I can only pull out about $47K before the payment is higher than my original mortgage payment... Which is basically what I put into the rehab costs to begin with :-(

Sort of surprising-- I recoup my costs, but nothing more. That equity is not accessible unless I sell the home. Am I thinking about this right?

Seems like you either have to put a ton of cash down to begin with (or pay all cash), or you need to add an intense amount of value to re-access the equity via a refinance...

@Jess Haas - Yeah - we are tethered to the north Seattle area for the next 6-8 years at least, so looking at everywhere north of downtown, south of Shoreline. I ran some numbers on a fixer I found near Greenwood and it looks like we could get very good ROI by updating the space, and if possible, adding a bathroom. But I hear you on the pains of living in a heavy fixer.

Let me know if you need a good contractor - I have a guy I've started working with who is awesome.

The big thing I'm curious about is if I can pull the equity back out of the deal after improving the property. If I buy the property with 20% down conventional mortgage, improve it with my own cash, and then I get an appraisal post-remodel that appraises for more, can I get a new loan on the property and pull some of the equity out for more investments? It's sort of like a BRRR strategy, except without the rental part since we'll just stay living in the house.

@John Barrett - Sage advise, John. Thanks.

I think we are close to the same page now, it's just that we don't know how to meet our needs for living in a nice home and neighborhood in the present Seattle market, while also preserving some of our capital for some longer distance REI in more profitable markets. I am now leaning toward looking for compromise where we look for a cheaper Seattle property that has the potential to add a bedroom or a bathroom to improve its value.

One (perhaps foolish) idea I wanted to put out here was if anyone had experience planning to refinance after forcing its value to increase via a strategic rehab, with the goal of recouping some of the capital that went into the rehab?

Obviously, the key would be selecting the right property in the first place -- first of all, getting a good deal on something, under market valye, then choosing a property with potential for adding a bedroom or even a bathroom. Maybe an unfinished basement laid out in a way that would support adding a bedroom or a new bathroom on an existing water wall -- or choosing a property with an especially large bedroom with a layout that would support splitting it into two bedrooms via a new interior wall. It would be one of those "it either works or it doesn't" situations, depending on the floor plan, and I would aim not to try to increase the footprint of the existing structure unless there was an obvious "sunroom" opportunity (and no HOA to contend with). We would just have to be very strategic about the property and do some pre-research on the logistics of such projects.

For example, if I could get a good deal (under market value) on a 2 bed 1 bath (with decent square footage) into a 3 bed 2 bath, it could appraise for much higher after-the-fact, and we could pull some cash back out of the deal -- though probably not as much as I put into the rehab.

I've heard of doing these kinds of things as part of a BRRRR, but curious if there would be any reasons we couldn't do it as part of a house-hack / longer term flip? We plan on holding the property for at least 5 years.

My wife and I are just starting out in REI -- we are coming into some money from my stocks from my job and we want to invest some of it to work toward a goal of early retirement / financial freedom. We've been considering a long distance BRRR of a MFH, but at the same time, from a personal perspective, we're not happy with the neighborhood we live in for our primary residence, and we are considering a move. We would like to be in a nicer neighborhood (for those who know the area, we are currently in Lynnwood, and we would like to move to Seattle or Edmonds). But housing prices are still absurdly high in those areas, and it looks like future values are predicted to flatten out or even drop in some area. I'm concerned that a recession in 2020 could drive home values even lower, so I'm nervous about buying right now for fear we are still at the top of a bubble. From what I've seen we can get a lot more house for our money by renting, but my wife doesn't really want to rent because she wants to be able to make changes to whatever home we're in (paint walls, minor improvements, etc). Either way, we only plan to stay in the Pacific Northwest area for another 5-8 years until my daughter is little older, then we plan to get the heck out of here. Options we are considering:

A) Find some off-market deal (fixer-upper), then house hack it with the plan to rehab it, live in it ourselves, then refi on the new appraised value after 6-12 months to reclaim the capital so we can use it for more REI. Questions: will this work if we buy the property with a conventional loan? Would we need to buy in cash via a hard money lender? Can you even do this with a primary residence? I'm concerned that given how insane / saturated the real estate market is around here, there is almost no such thing good deal in Seattle / Edmonds.

B) Wait and see if values drop, then potentially buy on the dip (we have been waiting for a year to move - not crazy about this option since it involves waiting another year, and maybe being wrong about the downturn).

C) Tell my wife to suck it up, sell our house in Lynnwood so we can leverage that capital for REI as well, then rent somewhere in Seattle or Edmonds for our primary residence. (My preferred option)

Any thoughts?