All Forum Posts by: Joe P.

I thought I would share what I feel is a small win with the community. Last week, I closed out the cash-out refinance on my BRRRR in South Jersey. Money wise, this property cost me $475 after the cash-out refinance. Not bad! Certainly makes for a quick return on my cash in!

Investment Info:

Single-family residence buy, rehab, and hold investment.

Purchase price: $37,711 (including closing costs)
Cash invested: $45,380 (including holding costs)

Total Money In: $83,091

Appraisal: $125,000
Cash out Refinance: $87,500, less closing costs

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

Obviously the prospect of BRRRR seemed like a great way to get money into a deal, and out of the deal and hopefully onto the next. I'm a relatively young (35 y/o) professional by day, and I would love to execute a BRRRR once per year; anything more is gravy. While the prospect of being a real estate professional is welcoming, right now I enjoy my day job tremendously and I'd like to use real estate as a "low and slow" build-up to help my family's financial future.

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

This was an on-market MLS deal, but was sitting for a long period of time. I went to see it with my agent in January 2020, and figured it was ripe for a low offer. On market for $68,900, and I offered $35,000 cash, no contingencies. They asked me to come up a bit and we settled on $36,500. I believe the property was either in bankruptcy court or had a proxy seller of some sort -- the previous owner may have owned several properties and went belly-up on his investments. My guess is, people saw the price was way too high and didn't even bother to offer, and may not have known they were just trying to dump the properties.

How did you finance this deal?

Cash on the purchase, and then HELOC on my primary home to fund the rehab. I used a local credit union to obtain the HELOC and it was super simple.

How did you add value to the deal?

Essentially a full rehab on the property. I'd say the real value came from meeting the neighbors, introducing myself, being friendly when I was around. I have made a great friend with the next door neighbor who always watches the property, and met another neighbor who does heating/cooling, and replaced the heating system in the house at a very fair price. Every person used for the rehab was relationship-based, i.e., they knew someone I knew, or I've met them before.

What was the outcome?

After a cash-out refinance, my total all in cost is $475. The property should cash flow approximately $160 per month. The unit rents for $1475 monthly, PITI is $750 per month, and my total set-a-side for all expenses is $563. Since everything is new, I expect low CAPEX for the first few years but I am setting aside that amount anyway. You never know, plus with tenants -- they could always be rough on items.

Lessons learned? Challenges?

OK, first, I believe in anything you are not well-versed in or have experience in, you need to be highly cautious and conservative. Almost to a fault.

When I ran the numbers on this deal, I had to be ultra conservative. I didn't care what this deal would look like if everything went right...I cared about what it would look like if everything went WRONG. If I had to dump out of this deal, I had a number in my head that I could lose as a learning experience if things went south. And things did go south to some degree, in essentially every phase of the deal. Let me explain:

1. Purchase was delayed by covid. I was supposed to close March 17, 2020 and we went on an indefinite hold until June.

2. My contractor was wide open in March, but not so much in June. He had to bring on subs who did primarily molasses-slow work. What should have taken 4 weeks, actually took 3 months. Not necessarily his fault, but I wasn't totally on-board with the excuses he made for his subs.

3. The city was extremely difficult to deal with. I got a permit for the new heating system and they dinged me on an electrical permit while inspecting my heating system, of which they had no knowledge of anything new. But they saw all new things and put a stop order on me. Total cost of that permit for the city? $77. They stopped me for TWO MONTHS for $77. These local governments don't make a ton of sense -- if it's about quality of housing and ensuring the city can maintain their resources -- CHARGE ME FOR A QUICKER INSPECTION. I'd pay $200 just to have them inspect the work that week instead of waiting 20 business days, because I have to wait that 20 business day period for the permit and THEN schedule a CO with the SAME HOUSING AUTHORITY to receive a CO to rent. This little $77 maneuver cost me two months of rent. So, when people post "should I get a permit" or "should I get a CO" -- think about the alternative, because its ALWAYS time and money.

4. The first tenant I put into the building was fantastic, but texted me 3 days into her lease and told me she would have to leave. She cited a family emergency/issue. Whether or not its true, I felt like I did enough due diligence on this tenant, and it's a shame. Despite opinions to the contrary (people said hold her entire deposit, make her stay until I found another tenant, etc.), I charged her prorated rent for the 3 days and returned her money, and then offered it to the next qualified candidate, who accepted. 

5. Of course, the big one -- I grossly underestimated my rehab. And I thought it was a good number. I wanted to be ~36.5 in on purchase, and ~35 on rehab, and ~3k on holding costs. I ended up with a rehab around 42k, which included unforeseen items like a new heating system, under-estimating appliance costs, landscaping issues, higher than expected electric costs, etc. When you are doing a pro forma on rehab, don't guess willy-nilly. Know your numbers on what is acceptable and what isn't, and then get your quotes. If you want a rehab around 35k, are comfortable with it going to 40k, and 45k is your absolute line...follow it. But you need to know what is acceptable and what isn't, and always add a contingency for time AND money on your rehab estimate. Something small -- I forgot to put blinds purchase/install on my contract with the contractor...well the house has 18 windows, so I had to measure 18 windows (~1 hour of time), buy 18 cheap blinds (~$200), drag them all to the house, install 18 blinds (~4 hours over two days...some of them had to be redone).

6. Time is money, but spend the time and the money to do things right. I added on a small project towards the end of the rehab for an extra $1000 that would be a quick, cheap, and nice facelift to the front façade. The attached neighbor had a similar work product done and I wanted to match it closely. Doing so would make the houses look more uniform and give it some more curb appeal. I'm really glad I did it, because as you can see in the pictures, it turned out beautifully.

And finally...for anyone looking to complete a project like this, sometimes you just have to "do it" to get off the ground. I think the biggest trick is starting with a property that is way lower than market value. If that property does not exist, don't force it. Also, you have to be prepared to take a loss and deal with the time it takes to execute a BRRRR. Your money is going to be locked up. You might have a HML or HELOC you need to borrow against and pay interest. Think through, methodically, the real costs of buying a distressed property, rehabing it, holding it, and hopefully refinancing to get some or all of your money back. It is a PROCESS at the end of the day, and if you haven't thought through that process, or given the process aspects the respect and time they need, you put yourself at risk. And, don't invest anything you can't comfortably lose if things go belly up. The chances of you actually losing every dollar are slim, but things can go wrong, namely messing up numbers and underestimating rehab. You might not get all your money back, so run the numbers as if this will be a mediocre-bad deal, and if it still looks good and you still like the long term hold, it's worth digging onto the next step of the process.

If you're going Fannie/Freddie then it needs to be 25%. Keep in mind FHA multifamily might also be possible but have not looked into this. You'd have to be owner-occupant in one of the units for this, I think.

You might have an opportunity with a HML to do 10% down, but the terms will not be as favorable. Recommend you research this and ensure your numbers are conservative when doing a pro forma estimate.

Aiden...likely a mistake. Especially if you plan to purchase properties using government-backed funds; a few thousand dollars for a hit to your credit report, the "stain" of forbearance, and likely worse terms or making you more difficult to underwrite...just a stupid idea, man. You might have applied for the loan, but that doesn't mean anything until it hits underwriting. Your current loans will ALL SHOW forbearance. The underwriter will look at that and go "da EFF is this?!". You're answer can't be "going after free money" -- they won't believe you. Especially if they want THEIR loan to get paid, too, which most of them do.

Start conventional with enough insurance to cover your personal assets -- that's not perfect, but its better than nothing. Then, when you are seeking to add more assets, speak to an attorney or CPA to move forward with the best option for you. This question has likely been asked a million times over on the website, and you won't get a straight answer because there is no perfect answer.

I'm on a few buyer lists in my area. I'd say about 95% do not go past the initial e-mail stage. I can tell right off the bat (thanks to being in the area a long time) if it's closer to a retail deal, or closer to an investor deal. I see a lot of properties that are a slight discount off the MLS pricing, but with no pictures, and then I get a follow-up e-mail that the property was purchased usually within a matter of hours. That tells me people who have higher risk profiles than I do are snatching up those properties. And those folks (I assume) are either flippers themselves doing the work, or have a crack-crew who can get in there to rehab cheaply. I do not.

I want my next deal so badly. But I don't want it badly enough to screw me for the next time. I have run the numbers on a handful of properties, and I recall once or twice where I asked the wholesaler for more info, but usually it was snapped up by then. And with cash.

To me, if you're going the wholesaler route, you need to be experienced in doing so. These are cash purchases and usually sight unseen. I can't see myself (yet) engaging in a deal like that.

But, I'm also a guy with 3 total doors. So, I'm a bit risk adverse and not moving as fast as my peers (which is fine for me). Take my advice with a grain of salt.

Probably better to cash out refinance or just refinance the existing home if the financing is terrible. Could refi the house without cash out and maybe pull a HELOC for the next purchase. I think the name of the game in this case is avoiding tax "events", which a refi, cash-out refi, and HELOC would achieve for you.

You can keep the home in Grandmom's name, assuming she has good credit and a worthy financial history that would allow you to achieve this. If she does not, or the equity doesn't exist, or you have too much debt, or you don't have the funds for the next purchase...you're not ready. Clean up as much as you can to put yourself in the best position to execute.

I covered my first year in my first "real property" in depth on this thread: https://www.biggerpockets.com/...

I did it for cathartic reasons, but also as a lesson and insight for others to see. The TL;DR version is I bought a duplex in an area that has low home prices but stable rents. Essentially looking at a 2% rule property...and while it showed well walking through, there was a lot wrong with it. I had a ton of maintenance and CAPEX items in year one, which I consider a partial year (August 2019 to December 2019) and the first full year was also negative cash flow.

However, I've turned the corner (or what I think is the corner) in year 3. I cash flowed $119 per month/per door this year, and that's with some unexpected bills that came through beyond my budgets. I wouldn't call it a perfect deal, but it provides some tax advantages, and I have investors texting me daily for it. It appraised 40k higher than what I bought it for in 2018 (just refinanced to a much better interest rate, which will save me ~$100 a month in PITI).

In the investment world, folks I respect and have learned from might call it a single. They might even call it a bang-bang play-at-first bunt single. But the amount of knowledge and experience this property continues to provide me, is worth me hanging onto it. I am re-evaluating every year and I need to maintain the $100 per month, per door cash flow, as it suits my CF goal for any property I have. Should my goals change, then my evaluation will change accordingly. 

Point of this is to tell you year 1 is a stabilization year, especially for your first deal. If you're committing to investing, then commit to it. Bounce your financial expectations off another investor or two to make sure its sound, and then evaluate it against that. If you've essentially fixed or replaced all of the items you needed to, you crashed through your CAPEX budget early, but then your CF should be much better moving forward (in theory).

This is a gigantic country, with about 330 million people in it. We're all individuals. We have our own thoughts, knowledge, experience, backgrounds, and style. I like to think that I'm a lot like @Nathan Gesner in my head, but for all the tough talk I give I'm basically a cookie pushover. That's why I have a PM. :D

You know what they say about opinions. The old adage is don't take the criticism of someone you wouldn't take advice from. There's a small amount of investors on this site and in person I would truly listen to if they had something to say. Those are the ones I follow to see, and engage in conversation as necessary.

If someone is truly a self-righteous blowhard, and they're wrong, frankly they likely crave the attention. So don't give it to them. Without an audience, someone shouting is just a crazy person. :D

Yo Pete...this isn't Twitter. We don't need to come at each other. Assessing school districts is very much subjective. Teachers are usually great people although the politics of some school disticts create problems. Most important thing? Getting a good education from good teachers. Most hit that mark.

If you don't agree, you don't agree. Move on. You don't have to invest there because you don't agree on the quality of schools. OP sees two differing thoughts, can make their own judgement.

Can you get into investing without selling the condo? Sounds like the condo is break-even, so do you anticipate it ever cash flowing? What's appreciation like?

You could also HELOC the condo, depending on numbers, and use it to fund other projects, then cash-out refi and pay back the HELOC.

Options abound...I'd state your real estate investing goal out loud, and then see if the condo helps you reach the goal or not. If the goal is straight appreciation and its in a great location, then maybe you keep it. If you want your investments to pay you every month, then a condo with no cash flow won't do anything for you.