All Forum Posts by: John Leavelle

Howdy @Wycal J Carter Jr

Are you planning on using a conventional loan for the acquisition?  Do you have a lender who will fund this loan under $50K?  Have you confirmed you can do a cash-out refinance within 6 months of the original conventional loan?  Not many will do that.

If your assumptions are correct on the ARV and Rehab estimate then this part of the deal works fine. However, the Cash Flow is not quite where I would want. I go by the 50% rule number.

This might be a better Flip than BRRRR deal.

Howdy @Deforrest Ferguson

You did not include PMI. It is required when your deposit is under 20%. I would increase your CapEx and Repair reserves to 10%/5% respectively. At least until you have the property inspected to determine the current condition and life expectancy of all major components and appliances. Then you can adjust the CapEx amount appropriately.

Howdy @Elijah Glenn

When you post these reports it helps if you provide additional information on your deals.  Such as:

What are you trying to do?

 What is your goal?

 What kind of financing are you using for the acquisition?

 How old is the property?

 What is current condition? 

 What are some of the things you plan for the Rehab?

Is it currently occupied?

Otherwise regarding your report there are a couple of issues. Did you include Holding Costs in your Rehab estimate? Your Cash Flow analysis is too optimistic for me. Nothing lasts forever. Saving only $30 per month for CapEx is not going to cover much. Even if you are doing a total gut job there are items that will wear out. The same goes for your $60 Repair number. 3% for Property Management is too low. The average for PM services is closer to 10%. If you are planning to self manage you should still include 10% PM in your analysis. If you are wanting to grow your portfolio you may eventually want to use a PM Service. If you do not include it now you may have difficulty adding it later. For Vacancy I like using 8.34% (one month rent) for analysis and budgeting purposes. If you actually achieve 5% or less then great you have better cash flow that year. But, if you have a vacancy for a month or more your Cash Flow will suffer.

@Frankie Woods

HELOC's I would do.

Howdy @Justin Munk

There are a number of problems with this deal. First, remember to stay conservative. Go with the higher Rehab number of $25K. Use the low end of the ARV $155K. If you pay less in Rehab - you win. If the property appraises higher - you win. For the BRRRR strategy it is best to work your numbers backwards from the ARV and ending with the offer price. ARV x LTV % - Rehab Costs - Holding Costs - Closing Costs = MAO (Maximum Allowable Offer).

What type of property is it?  What is the current condition?  Is it currently occupied?

What kind of financing are you using for the acquisition?

Is this the current Rental Income or your estimate?  What are the Market rates?  Any room to increase?

You did not include a lot of expenses in your Cash Flow analysis. Vacancy, CapEx, Repairs, Property Management, any utilities.

As it stands this is not a good deal.

@Mark Doty

All Private Money deals can be different.  Mine is a personal friend.  I pay him 10%.  Monthly Interest only payments until the Refinance.  I have not used anyone else to date.  I'm still a part time investor.

You can make other arrangements including shared cash flow.

@Andres Aguirre

Yes the HEL may allow up to 95% LTV, but, I would not bet on that. You must remain conservative when analyzing any investment. Hope for the best but plan for the worst. 80% is probably more realistic. There are a couple things that concern me that would keep me from using them. The first is it ties your primary residence (or investment property) to the success or failure of the new investment property. It is the collateral on the loan. Secondly, it would be a one shot deal. Until you payoff the mortgage.

In your example you are totally forgetting we are discussing using these for the BRRRR strategy. Most successful BRRRR deals are not acquired using conventional financing with 20% down/30 year term/5% APR. Most are acquired using Cash, Hard/Private Money, HELOCs, etc. The second misconception is you only get 70% LTV on a Cash-out Refinance loan. You can get 70% to 80% LTV depending on the lender and type of property. This is the same for HEL. They differ between lenders.

I assume you would plan on applying for a new HEL on each new investment property.  To me this unnecessarily complicates to whole process.  You are tying multiple properties together in a chain like fashion.

I would need to see actual hard data that this is a viable plan.  I personally would not pursue it.

@Mark Doty

Yours question is a little confusing. Are you asking what are the Advantages/Disadvantages using cash in the BRRRR strategy? Or just using the BRRRR strategy versus other strategies?

Just so you know I currently only do BRRRR deals. I rarely use any of my own cash. I primarily use a Private Lender for property acquisitions. I use a HELOC and personal LOC for the Rehab, Holding and Closing costs. I do maintain a sufficient cash reserve to satisfy Lenders.

I like using this strategy for several reasons.

1.  I do not have to wait until I save enough cash for new acquisition down payments or to complete Rehabs.  In other words I can grow my portfolio quicker.

2.  I can purchase properties at greater discounts.

3.  the biggest advantage is the return on my money.  Most deals I get infinite Cash on Cash Returns.  Not 2%, 5%, 12%.  INFINITE!  That means by the end of the process I own a like new cash flowing property for free (so to speak).

The main disadvantage I guess would be the increased debt.  But that is an acceptable risk I am willing to take.

I currently do not have problems finding refinance lenders.

I am not concerned about appraisal being too low. I'm confident my team gets the ARV/Appraised Value pretty close. I include a buffer amount in my analysis to compensate for Rehab cost overages or lower than expected appraisals. So far it hasn't been an issue. That doesn't mean it can't happen in the future.

Not sure about your lower holding cost. 

@Stephen Armstrong

Just so you understand.  I'm not saying you cannot get those terms.  Lenders change parameters all the time.  But currently most do require 25% down payment for investment properties.

Good Luck.

John

Howdy @Jenna Columbus

I totally agree with @Dan Cournoyer if your ARV is correct this would make a good BRRRR deal. Of course it does depend on the Rehab costs staying within limits. Also as Dan is alluding to be sure to account for Holding costs.