All Forum Posts by: John Leavelle

Howdy @Jonny Morris

First it important to understand what you mean when you say “Multi family “. 

There are two basic terms when describing rental properties. Residential - 1 - 4 unit properties (SFR, Duplex, Triplex, 4 Plex) or Commercial - 5 plus units. Apartments!

There is a difference in how there Value is determined and how they are financed. Residential uses Comps (Comparable Sells) to determine the value. Commercial will use NOI and Cap Rate. With Residential properties you can get conventional Freddie/Fannie financing amortization over 30 years. Commercial properties will have shorter terms, higher interest rates, and balloon payments.

Howdy @Alex Kamunyo

Have you determined what the current appraised value is for this property? And what the new ARV should be after you finish the addition? These numbers are where you need to negotiate the purchase price with the Seller. You are correct to be cautious not to go past a specific amount that makes sense for you. The FHA lender has a maximum loan amount that you qualify for. The deal must stay under that and still be able to Cash Flow after you move out. If it doesn't while living there that could be okay. It definitely must when you move out.

Howdy @Ken Nyczaj

The interest only plan works only if you are renovating to force appreciation to market value.  Or plan to save up the cash flow to meet the 15% additional equity needed to refinance.

Shop around with other lenders. If you have owned the property for two years and had it rented for that time (seasoned) you should be able to get refinanced based on a new appraisal (after your renovation). Make sure you know what the ARV (Market Value) is for the property.

@Jason Howell

Acceptable Cash Flow minimums are an individual decision. I do not want anything below $100 per unit. Even with the BRRRR strategy. I will adjust my cash out (cash remaining in equity) to an extent to get above that amount. If I had to leave too much in it might not be a good deal to me.

All Realtors are not equal. They all should be able to provide you a CMA (Comparative Market Analysis). Try to find one experienced dealing with investors (investor friendly). They normally have a better understanding of what you are looking for. Many will have a list of properties not on the MLS. I would not rely solely on a Wholesaler for proper comps. They also can be good experienced investors or inexperienced newbies.

Keep moving forward.  You are getting there.

@Michael Pitsos

I believe it is always wise to be conservative with Analysis. Hope for the best but plan for the worst. It's much more rewarding when you plan to have Vacancies, some repairs, or CapEx. Then none of them occur. Rather than the opposite happening. Not planning for these expenses and then they all hit you at once.

It's good to see you are still showing positive cash flow. Have you established any investing criteria yet? Such as Target price range of properties, minimum cash flow per unit, Rent to Purchase ratio, minimum CCR, etc. If you have not you should. It will help guide you through your analysis of properties. That way you are less likely to go a stray and make a bad decision.

There is  another reason you want to keep PM in your analysis when you plan to self manage.  If you plan to increase your portfolio of properties you may want to have a PM Service the property for you.  If you didn’t include that cost in your original analysis you would be hard pressed to include it later.

Howdy @Bart H.

Overall your total expense estimate look good.  If you rent to students your turnover will be higher than regular tenants.  Repair costs will probably be more.

Do you think you will have it rented through the summer months all the time?  You might want to be able to cover at least one month of vacancies.  That would be 8.34%.

Make sure you can find a lender that will give you a load for less than $50K.  There are a lot that will not.

Howdy @Michael Pitsos

Your expenses are too low for my taste.  Even for a “like new” property.  I would be much more conservative than that.

I never withhold less than 8.34% (one month rent) for Vacancy.  If you do not have any vacancies, no problem.  The money is still in your bank.  However, if vacancies do occur you are at least covered for one month.

5% is okay for Maintenance/Repairs.

1% for CapEx is crazy! Yes, everything is nice and new. However, that doesn't mean things will last forever. You will eventually have some major repair or replacement needed. If you don't save for it how are you going to pay for it. At a minimum you should have 5%.

You should always include PM in your analysis.  Even if you plan to self manage.  Most will charge 10%.  Again, if you are self managing this money is already in your bank.  If you choose not to pay yourself that is up to you.

I Rehab all my properties to “like new” condition.  I still withhold sufficient reserves for the reasons I indicated.

Howdy @Jason Howell

The reason you have infinite CCR is you no longer have any of your own cash in the deal. Yet you still own it and conceivably collecting positive cash flow. Every investors dream. If you still had some cash in it there would be a percentage indicated.

The most important number you need to get right is the ARV. Is the $140K for a 3BR or 2BR? What is the difference between them? What is the current rent? Market rent rates? Rent for 3BR vs 2BR? Rehab estimate for both?

Don’t forget to include the Refinance closing costs/Fees.

Howdy @Kayla Oliver-Pratt

Congratulations!  Welcome to the path of financial freedom.

It is never to soon to work on the Refinance part of the process.  In fact I make sure I get prequalified with a Lender before I purchase a property.  It provides several benefits.  1.  Your Private or Hard Money Lender knows how they will be paid back.  Note:  This is not the same as a pre-approval and doesn’t carry the same assurances.  2.  You know what your loan limit is and what the Refinance terms should be.  They can change some before the actual refinance happens.  3.  It makes the whole process go smoother and less stressful.

Once I get close to finishing the Rehab I start on getting the pre approval from the lender.  Once the mortgage application is processed I check other lenders rates to make sure I’m getting the best deal I can.  Pre-approvals do have time limits.  So make sure what your lenders policy is.

Howdy @Kevin Rhoden

Your plan is good. However, you need to have a firm grasp on the numbers to be successful with the BRRRR strategy. Know what the ARV for the property should be. Know what the Refinance Lender Terms are (LTV %, Amortization and Interest Rate). And be able to reasonably estimate your Rehab, Holding, and Closing costs.

Make sure you don’t over renovate a property.  Know what the Rental Market demands for finishes.  No need to go overboard if it is not needed.  Example:  what type appliances do most rentals have?  Stainless or good serviceable appliances.  Hardwood floors or carpet and laminate.  You also need to be aware how recently sold comps are finished.  Don’t upgrade if it will not improve the Value.

You may already know all this. The reason I am bringing it up is because it is important to the BRRRR process. You have already purchased the property and started some Rehab. Those things cannot be changed.

Do you know what the ARV should be?

Do you know how much you need to spend on the Rehab?

 I would need to see more of your numbers to say whether it will work on this property or not.

Good luck.