All Forum Posts by: John Leavelle

@Michael Temple

Good to hear you have a working relationship with a Realtor.  Although she is new she is still a source to run CMAs, and she has a Broker who is probably experienced that can assist her.

Regarding being considered a serious investor or not.  Which do you consider to be serious?  The person always asking for marketing packages from the Seller’s agent, wanting to tour the property, asks a hundred questions, but, never pulls the trigger and submits an off.   Or the person that completes a thorough analysis, looks at the property, and submits an offer based on that analysis.

To help alleviate that impression when we submit our offer we will explain the justification for the lower than asking price. Rent ready ARV vs Asking price, less all the repairs/upgrades required to get it to that condition. Plus a complete breakdown of any discrepancies identified in the Cash Flow analysis.

Many investors will provide multiple options to their offer.  Different levels of Purchase price based on meeting different criteria.  Like all cash purchase, Seller Financing, Sellers Repairs prior to closing, etc.

The bottom line is it takes a lot of work to find the right distressed properties that have motivated sellers. I am not in the business of trying to rip people off. But I also don't want to buy a bad deal. Most of the types of distressed properties that are good for the BRRRR strategy are not on the MLS. Although, I do submit offers on MLS properties every now and then. I have yet to purchase a property from the MLS. I did acquire 2 properties from one offer. They were off market deals the Seller had and just wanted to get rid of them. You never know.

Keeping tabs on the "No" properties that remain on the MLS is a good idea. It doesn't hurt to send a courteous follow up every few months. I have heard some have been successful with it.

@Aaron Winters

Not sure what you mean by “put all rehab costs into purchase price ... wasn’t able to have rehab costs flow through financing “. ????

Does the HML require a Down payment? If so, how much? Is the $59,150 Down payment really the Rehab estimate?

Regardless, you should separate the amount for Purchase price and Rehab estimate in the first section. In the Acquisition section anything not covered by the HML is assumed cash out of your pocket. This number is reflected as the Amount of cash needed at closing. If you do not put data in the correct areas it makes it difficult for us to help you evaluate your deals.

@Shelly F.

Finding a mentor and/or partner is an excellent idea. Find a local REI club and meet-up group. There are all kinds of people there that can help you out.

@Shelly F.

If you are contemplating the BRRRR strategy be sure to rework your numbers using the BRRRR Calculator.

Check with some Hard Money Lenders to see what their rate/term's are. Most will require you to have skin in the game. Anywhere from 20% to 30% is not unusual until you gain experience. The good thing is you can make interest only payments until you refinance and payoff the original HML.

How confident are you in the Rental Income?  What is the demand for rental properties?  “Rural area ... Economically depressed “!  Be sure you will not be wasting time and money only to find it hard to get tenants.

Revise your analysis using the BRRRR Calculator and post it here or new post. We'l discuss more then.

Howdy @Michael Temple

Do you use a Realtor?  If not you should.  Many have access to off market deals.  Your mentor is right.  Submit offers based on what makes for a workable deal for you.  Yes, you will get a lot of NO’s.  But, once in a while you get maybe’s.

Howdy @Hugh Nelson

At that Purchase price this is not a good BRRRR deal. With only 6.3% CCR I would not consider this a good investment period.

To make it more workable the Purchase price would need to be more like $130K given the $264K ARV and $40K Rehab estimate.

Howdy @Aaron Winters

You did not include any Rehab estimate.  How do  you expect to force appreciation $20K without any repairs?

What is your investment criteria? Cash Flow? ROI? Appreciation?

This is not a good BRRRR deal.

As far as converting to a Duplex you need to check on how it is zoned.  You may not be able to convert it if it is single family only.

Howdy @Shelly F.

1. What type of property is it? SFR? Multi family?

2.  What type of loan product are you using?  5% Down payment is usually for owner occupied properties.

3.  Would you be paying for all utilities?  That’s what is really killing you deal.

4. 10% for both CapEx and R&M may be too much. It depends on the age, current condition of the property, and quality of tenants.

5.  I never go below 8.34% (one month rent) for Vacancy reserves.

6.  Most PM charge closer to 10%.

7. How confident are you with that ARV? That will be a good buy if it is right.

You just need to work on reducing expenses , specifically utilities costs, to make it a good Cash Flowing deal. Look at the 50% Rule cash flow. Your reserves (Vacancy, CapEx, and R&M) don't go against you until you have to use them. No vacancies for the year. Bingo, bonus Cash!

@Samuel Ruelke

Most good contractors are very busy.  If they are a General Contractor they probably have multiple job sites running at the same time.  So time is valuable to them.  Pay them a token amount for their time.  Maybe $100.  Once you establish yourself and they see you are a serious business person it may not be necessary.  They know bid request will be coming from you.

I use a program created by a BP investor to analyze my deals called Rehabvaluator.  Google it if you want.  They do have a free version for you to try.

As for additional tips.

1. Find a good investor friendly realtor to help you find and evaluate properties.  

2. Find a local REI club and/or investor meet-up group. Lots of experienced investors, Wholesalers, Realtors, Contractors, and others attend these meetings. Great place to find other like minded individuals. Also a good place to obtain team members and partners.

3. Distressed properties make the best BRRRR deals. Properties that only require minor or light repairs are difficult to force appreciation.

4. ARV ARV ARV. To me, establishing a good ARV is the most important part of the process. You must have a good idea of what the appraised value will be when it is refinanced. That's where a good Realtor comes in. Because everything else is directly effected by it.

Howdy @Matthew Jure

Don’t strain your brain too much.  The headache is not worth it.

You are correct too many fail to either include CapEx (and Repair/Maintenance) or do not withhold enough.

I currently solely use the BRRRR strategy for my investments. I always start my analysis with 10% CapEx/5% R&M. If the property passes my initial screening I (or my Realtor) will go look at the property and make a list of repairs or upgrades that would be needed. We work up a preliminary Rehab estimate (with lots of over estimating).

Once a property is under contract I have it inspected. I want to determine what the life expectancy of all major components and appliances are. I use this report to finalize what needs to be repaired now during the Rehab and what can be deferred. I readjust my CapEx reserves to meet the deferred timeline. Anything not expected to last over 5 years is added to the Rehab budget. My plan is to only hold most properties for about 5 years. At that time I 1031 exchange them for a larger property.

Since I do not have many CapEx costs after the Rehab I have been able to build a significant reserves account for all my properties and future investments.

This process has worked great for me.  It might not work for every investor or in all markets.