All Forum Posts by: John Leavelle

Howdy @Timothy Cox

You are right. The numbers do not lie. If the property doesn't meet your investment criteria such as Cash Flow, ROI, etc then move on to the next property. There are numerous reasons I would not waste my time with this property. As you mentioned the Rental rates don't support the Price. No telling what the repair/upgrade costs will be. The only option to me is to submit an offer at a price that works for you. Additionally, I recommend you be more conservative with your expense amounts in your analysis. The 50% rule for Cash Flow is more realistic than you might think.

Howdy @Brian McPheeters

Is $175,000 the Sellers Asking price?  What condition is the property in?  It had better be the nicest place around if your comps are right.  

Only put in an offer that you are comfortable with. Start with the $145,000 for instance.  That gives you negotiating room.  The Seller needs to justify the High Asking price.  Just as you do the lower offer price.  It’s all part of the game.

Your Expenses are more optimistic than I prefer. For analysis and budgeting purposes it's always wise to stay conservative. For example: I never go below 8.34% (one month rent) for Vacancy. If it ends up lower for the year, great, you made more money that year. But, if you only budget 5% and have a month long vacancy then your Cash Flow takes an unexpected hit. The same goes for CapEx reserves. I use 10% until I have the property inspected to determine the current condition and life expectancy of all major components and appliances. Then you can adjust the amount for your reserves requirement.

Howdy @Mike Greenwood

What makes you think you can do 5% Down payment?  Plan on 25% for an investment property.

Your Expense estimates look good and conservative.  Rework with the higher Down payment.  Good job.

@Andres Aguirre

Most BRRRR deals are purchased and Rehabbed using Cash, Hard/ Private Money Lenders, HELOC, or Credit Cards. In order to repeat the process you need to get your cash back and/or payoff the High Interest Loans. Therefore, the Cash-back Refinance loan is the most used tool.

It sounds to me you are questioning using a HELOC versus the Refinance loan, to continue the process, after the purchase and Rehab are complete. My question to you is how did you purchase and Rehab the property to start with? If you use a HELOC on your current residence that is only good for approximately 10 years. The interest rate is variable and usually higher than a regular mortgage. You should want a lower rate and longer term (30 years) to pay it off. To me HELOC's are a valuable asset to use for the acquisition and Rehab of properties. Not for long term financing.

@Joe Malucci

Regarding the Cash-out Refinance. No. I miss spoke. I'm meant to say you must maintain that much equity in the property. The lender will provide a loan amount that is 70% - 80% LTV based on a current appraisal. In your case I used 75% ($105,000) and you are now saying 70% ($98,000) based on your ARV ($140,000). The amount used in your report is more than both of these ($110,000 or 78.6%).

Your dad is financing most of the deal with no interest.  Nice to hear.  However, the question was does he expect to receive back all the cash he loans you.  Even though it’s your dad you need to be clear about what is expected.  The reason I stress this point is your costs are going to be more than you think they are.  Let me explain further:

You have an ARV of $140,000. You now are saying the Refinance LTV is 70% or $98,000. Your All-in Costs must fit within that amount or you end up leaving additional cash in the deal in the form of equity. How much additional cash is yet to be determined. I previously suggested $12,000 with a $105,000 loan amount. That number increases to $19,000 based on the 70% LTV ($98,000). You are contributing $20,000. That means you only get $1,000 of your own cash back after dad gets his. How do you intend to repeat the process with only $1,000?

We have not even covered Holding costs. These can include existing mortgage payments, insurance, taxes, utilities, HOA fees, etc that occurs during the Rehab period and up until the property is fully rented. After it is fully rented these costs are covered by your tenants. I routinely pay $6,000 to $8,000 in Holding Costs. You will not have any loan payments, but, the other expenses do add up quickly. This is why I said I would not even offer $55,000 for the property. I want all my cost to fit within that $98,000. Or close to it.

@Chris Sweeney

For some reason I cannot display your new report.

Double check with your Lender to make sure you only need 20% Down payment.  A Duplex is an investment property.  Most require 25% Down for investment properties.

I’m not sure I understand your question regarding risk of Down payment with $500 a month in Cash Flow.  That solely depends on what your investment criteria are and what your risk tolerance is.  For me I would take $250 per unit monthly cash flow all day every day.  Many investors have a minimum of $100 per unit.

I need to see the new report to give a better review.

Howdy @Andres Aguirre

Most assuredly you can execute the BRRRR strategy with these tools. I use a HELOC all the time.

I use it in conjunction with a Private Lender Loan and sometimes with a personal Line of Credit. I like the HELOC because I only pay interest only payments until I do a Cash-out Refinance. I can keep reusing it over and over again. The HEL is a one time deal. You have to re-apply for one each time. The interest rate may be lower, but, it takes more time to deal with and you take a hit on your credit each time. I'm not as concerned about the interest because I recover it with the Refinance loan.

Or are you opposed to the Cash-out Refinance all together and are speaking to using a HELOC from each property ?

Howdy @Adrian Hollifield

I understand your confusion and frustration. The best BRRRR deals are what I would call Cash purchases. You use your actual cash, cash from a Hard/Private Money Lender, or Cash from other sources like a HELOC, LOC, and Credit Cards. Or any combination of these.

If you put together a good package that makes sense to these lenders you will be able to get your deal done.  You may have to shop around, but, they are out there.  If you have your own money to contribute to the deal it makes it easier to find them.

I use a combination of a Private Lender, HELOC, and a LOC to do most of my deals.

Howdy @Lesli Watson

I have recently started looking at RV Park Investing. They are similar to Mobile Home parks. Many are a combination of both. Every thing I have read and looked at recommends buy an existing Park. The start-up costs for new parks make it limited to achieve a decent ROI. Look for Mom and Pop operations that may not be performing to their potential and have room for expansion.

It is difficult to get financing for RV parks without having a sound business plan and experience.  For this reason many Sellers offer Owner Financing.  A 30% Down payment is common .

Recommend you check into the RV University website.  That can get you started in your quest for knowledge.

Howdy @Joe Malucci

Is your dad financing the whole deal?   I.e. $113,500 cash needed at closing. Will he charge any interest?  Does he expect the entire amount to eventually be repaid?  I say this because you show $7,000 cash remaining in the deal after the Refinance.  I believe that amount will be much more depending on what Holding costs you have accounted for.

Is that the current rent rates?  Or what you expect them to be?  If they are current is there room to increase after the Rehab is complete?

$55,000 is more than I would offer. If that is your Maximum Allowable Offer you need to start lower. You need room to negotiate to the MAO.

The Refinance loan assumptions are misleading the analysis.  This is an investment property.  Most lenders will require at least a 25% Down payment.  That makes the amount $105,000.  Unless you have already been quoted these terms you will need to double check the dp and Interest Rate.  Now you have $12,000 Cash remaining in the deal.

Why are you showing PMI as an expense? As long as you put a minimum of 20% Down payment there should be no PMI.

I agree with increasing the amount for Vacancy reserves (for analysis and budgeting purposes).  I always use at least 8.34% (one month rent). If it ends up being less for the year, great, you made more money that year.  If keep it at 4% and have a vacancy for a full month, then, you lose.

All this being said.  This still can be a decent deal.