All Forum Posts by: John Leavelle

Howdy @Mark S.

Are you considered a passive investor in this deal?  Sounds like it.  If so, you should ask for examples of the syndicator s past projects.  Find out how successful they have been.  That way you can feel more confident in this deal.

As far as seeing the property it never hurts to ask.  It is your investment and you should be able to prior to closing.

I personally would not invest in a real estate deal that gives me less than 10% Return on my cash.

Good luck.  :)

Howdy @Lou Ruggieri

Questions, Questions,  too many questions.

I will not cover what has already been mentioned.

What they provided you is B.S.  You need actual historical data.  Last two years worth at least.  P & L statements, Schedule E tax returns, and Rent rolls with a history of payments.  How long have the 4 units been vacant?  Why?

 Any past Capital Expenditures?  What is age and condition of the property?   Have you walked the property any?

Are all current tenants on a month to month lease?

What is the Market Rental rates for the area?

Did not see expense for Property Management?

Hope these help to clear the fog.

Good luck.  :)

Howdy @Brittany Fife

I totally agree with @Kevin Siedlecki.  If your long term strategy is Buy and Hold Cash Flow income and you have a goal to reach you should still be in acquisition mode.  Once you reach or start getting close to your goal of 30, 60, 100 units, or whatever it is, then you can start paying down mortgage debt at an accelerated rate.

Of course this all depends on your debt tolerance.

Happy investing.  :)

Howdy @Victoria Townsend

Let me see if I get this right.  

Your partner wants a Return better than his mutual fund (over 7%).  Right?

He can fund down payment, closing,  and some Rehab.  Right?

You do not have cash to put in, but, will do all the work (excluding loan applications).  Right?

If all these assumptions are correct then here is my suggestion. Use the BRRRR strategy or a variation of it. Treat your partner as as Private Money Lender. Pay him 10 -12% interest. Use his money along with another Hard/Private Money Lender to pay for the acquisition, rehab, closing/holding costs. Get property rented. Then refinance after seasoning and pay off both lenders. Win Win. Partner gets 10 - 12% return on his money. You get a long term Cash Flow property.

Of course you must find the right property to do BRRRR strategy and you must be able to qualify for the refinance loan.

Hope this helps.  :)

@Vic Vega, @Randy Gillespie, @Brent Coombs

I do not claim to be a real estate expert. Far from it. I am still fairly new. I am an experienced investor in other areas. However, all 3 of my properties were acquired using the BRRRR strategy.

I do not use the BRRRR calculator. Only used it once and had no issues with it. I like using pencil and paper (and a regular calculator) to do my initial analysis on any property. I want to know where the data inputs and calculations are coming from.

I am approaching this from a basic investment standpoint. The property is the investment - not the financing. In this case using the BRRRR strategy to purchase the investment. The process starts with your acquisition using one form of financing and ends with the refinancing using another. To calculate COC you have to start with your initial Investment Basis (Down payment, Rehab costs, Closing/Holding costs). The Holding cost from the original financing. You end the calculations with the resulting Cash Flow using the refinancing loan. There should be no additional cash into the deal. The 14.8K is not an additional cost. Therefore, should not play any role in COC calculation. It is just your cash still remaining in the property's equity.

I cannot explain any of the matrix of the BRRRR calculator. Since I have not used it much yet. That needs to be answered by someone who was involved in the development of it like @Brandon Turner.

Howdy @James McCartin

The first thing I see is your Acquisition financing.  Are you planning to use a conventional loan for the initial Purchase?  Terms look like conventional, but, 10% down payment is not.  Conventional Loan will need at least 25% down.  Or are you planning to use Hard/Private Money Lender?  Neither will give you those terms unless you have family/friends doing the lending.  What is your plan?

The second thing I will advise is find your Cash-out Refinance Lender FIRST!  Prior to purchasing a property.  Shop around until you find one that has terms you can live with.  Then get Pre-Qualified with them.  That way you know what you loan limit, terms, interest rate, and seasoning requirements are going into any deal.

Next when you find a property ensure purchase price, rehab cost, closing/holding costs do not exceed 70% of your projected ARV. So when you refi the loan should allow you to get 100% of your cash out (or close to it). That is assuming the Appraised Value is close to your ARV. Your current numbers put you at about 72% ($120,000 purchase + $2,000 closing cost + $30,000 rehab = $152,000 total cost). $152,000 / $210,000 ARV = .72 or 72%. This does not include any Holding costs. Hopefully in this case you can get a 80% LTV.

The last thing is stay conservative analyzing for Cash Flow.  As others have indicated some of your numbers are a little low.  Since this is a Pro Forma analysis I always use 55% for expenses going into a deal until I have hard data proving otherwise.  Where did you get $1650 for Rent?  If the property is not a current rental you must find out what the Market Rental rates are for the area.

While I'm at it did you use comps to derive your ARV?

Hope this helps.  :)

@Vic Vega

Sure.  I already mentioned it in my original post.

Cash on Cash (COC) ROI - Is your total Cash Flow divided by your Investment Basis.

Investment Basis - is your total cash invested in the property. Down payment, closing cost, holding costs, rehab costs. Holding costs are included when doing flips or BRRRR because of interim financing (Hard/Private Money Lender, or HELOC) being used for Acquisition and Rehab. Holding time period include Rehab and seasoning requirements for Cash-out Refinancing.

It is not the cash remaining in equity in the property as your calculated it.

@Vic Vega

I thought that is what you were doing. Hope you understand it is not the correct way to calculate COC ROI.

Good luck.

@Vic Vega

Is this your first purchase or hypothetical? Or do you have other properties? The reason I ask is your analysis is confusing. It appears that you are making a total cash purchase and Rehab ($86,800). This goes against the BRRRR idea. You want to invest with as little of your own cash as possible in the deal. Use OPM (Other Peoples Money) to get the best COC ROI. No idea how your getting 26.15% for COC. You determine COC by dividing Total Cash Flow by your Investment Basis (COC = CF / Investment Basis). Investment Basis includes Down payment, Improvement Costs, and Closing Costs.

In your analysis the Investment basis is $86,800. You show Cash Flow as $322.55 ($3,870.60 annually). Therefore, COC = $3,870.60 / $86,800 = .0445 or 4.45 % COC ROI. Anything below 10% is not worth investing. You need to decrease the amount of your own cash invested to get a better return.

The idea of BRRRR is to get 100% (or close to it) of your cash back to repeat the process. The best way to do that is ensure your Investment basis does not exceed 70% of your projected ARV. When you refi the lender will give you a loan that is 70 - 80% of the Appraised Value. If your ARV and bank Appraisal are close then your good.

I understand you are trying to be conservative which is always a good thing. However, I do not know where you get the idea "banks usually don't give market value appraisal for refi's". Banks do not dictate the Value, the Appraisal Company they use will determine Market Value. If you (and your realtor) do your job in determining the ARV based on good comps and a detailed rehab list (both of which you should provide to the appraiser), then, the appraisal should be close to your ARV.

You really need to provide more details on properties you want assistance on. Such as; Type of property (SFR, 2-Plex, 4-Plex, Condo, etc), age of property, Current rent, vacancy, and utility info (if known). Also, include last renovation (if known). If you want to be conservative in your analysis you need to increase the amount of expenses used. As a minimum use the 50% rule (I actually use 55%). For example you did not include CapEx in your analysis. Most will use 10% CapEx, in your case is $125. That would raise your total operating cost from $552.50 (44.2%) to $677.50 (54.2%). Your Cash Flow drops to $197.55 per month.

The final thing I would recommend is to shop around for your Refi Lender first (before you purchase a property). When you find one with terms that are acceptable to you - get Pre-qualified with them! Knowing loan limits, Interest rate, seasoning requirements prior to purchasing any property makes the whole BRRRR process easier.

Hope this help.  :)

@Nate Pummel

For a moment forget BRRRR strategy. You should first find you a refi bank and get prequalified. Find out what are your loan limits, terms, and seasoning requirements will be. This way you know what your price range, mortgage payments, and holding period might be. Evaluate properties using conservative income and expense analysis to get target Cash Flow goals. In my case they must have a minimum of $100 per unit after refi. They also, must be able to increase $200 after property is stabilized.

You did not indicate how you were financing the acquisition and Rehab part of the process. Hard Money/Private Money Lender? I understand you are using a HELOC for your cash input. But, like @Bryan O. indicated you have not shown us how you are calculating your Cash Flow analysis.  It is difficult to provide adequate feedback without seeing your data.

Let me repeat my approach to BRRRR:

1.  Find Lender for refi and prequalification.

2.  Find distressed properties that can be purchased at significant discounts.

3.  Analysis property for potential rental cash flow income and forced equity.

4. Ensure acquisition, rehab, closing and holding costs total no more than 70% of ARV/Projected Market price.

5.  Buy, Rehab, and Rent property.  Hold for seasoning period.

6.  Refinance and start process again.

Questions?