All Forum Posts by: John Leavelle

Howdy @Sara C.

That is my exact strategy. BRRRR, hold for 5 years, 1031 exchange to larger properties. The level of quality also depends on if it is a SFR or Multi Family. The single home can be purchased buy Home owners or investors. The Multi's will be purchased by investors. Each have different expectations. I never put carpet in any of my rentals. I primarily use laminate/vinyl planks for most rooms. Some ceramic tiles in certain neighborhoods. Hardwood flooring only when it was originally there.

My Rehabs include any major component that will not last past 5 years along with the usual cosmetics stuff.  So far I have replaced every roof.  I fully expect to due a cosmetic refresh before selling.

Howdy @Sean McElligott

If you pursue the BRRRR strategy be prepared for a whole lot of "NO's" and walking away from deals. Your numbers are your numbers. Do not compromise on your investment criteria. Yes, it can be hard to find the right properties. But, they are out there. Patience is key.

@Geoffrey Tanudjaja Don't worry about asking questions.  That's how we all learn new things.  If you clicked on the "contact agent" button on the page with the property you are looking at, the odds are it will be the agent who listed the property (Seller's Agent).  Go to the bottom of the of the page to see who the listing agent is.  Are they the same agent you're dealing with?  IF so, then you can find a Realtor/Broker to represent you (The Buyer).  Suggest you use the BP Market Place to search Companies (Realtor/Broker) for your area.  They will have the investor (You) mindset to help in your search.  You can also post something about looking for an "investor friendly" agent.  Many people on BP have Key word tags set up so when you mention a specific topic or location they automatically get notified.  They in-turn may read your post and/or contact you.

Getting Pre-qualified is always a good idea.  I always strongly recommend it to everyone.  

I use my Realtor to help screen potential deals, run Comparable Market Analysis (CMA) reports, and on occasion provide me with unlisted properties. Of course she is involved with actual purchases.

Keep moving forward and good investing.

John

Howdy @Michael Dewar

The resulting CCR is correct. Infinite is the result of having no cash left in the deal after the refinance. This is your ultimate objective. Payoff any loans and get all your cash back to "Repeat" the process.

The problems I see with your report are as follows:

1. Did you get a quote from the HML as to the terms (Down payment, Interest rate, Points, Term length)? Most HML charge Points for the loan. 6 months is a very shot time frame for the loan. Is the Lender allowing you to acquire the loan without making any kind of monthly payments?

2. Did you get a quote from a Refinance Lender? Even if the Lender says seasoning of 6 months, does the time start from the closing date, or from the date property is ready and available to live in? Your HML should really be 12 months at a minimum. Get pre-qualified for the Refinance loan prior to Purchasing the property. Most Refinance loans will have Closing Costs/Fees that are paid separately or included in the loan. Check on that.

3. Your Total Project Costs shows $83,000. Yet the Refinance loan amount is $80,000. You really have $3,000 cash still in the property. I don't know why the calculator does that. Additionally your numbers are still not right since you did not include the HML Points and Refinance Closing costs in your report. Another Cost that you may or may not have included is Holding Costs. The calculator does not have an individual input for this. Some of it is automatically pulled from your Cash Flow analysis such as HML mortgage payments, insurance, taxes, and owner paid utilities. Anything not in your Cash Flow must be added manually to the Rehab budget to account for it.

4.  The Cash Flow analysis looks decent.  However, I like a little more for Vacancy Reserves (8.34% , one months rent).

@Geoffrey Tanudjaja the realtor may or may not know the information.  Hopefully your realtor is use to dealing with investors (or is an investor themselves).  Are you using the Sellers Realtor or your own Buyer Realtor (recommended)?  

It is possible the ARV or Fair Market Value (FMV) is lower than the "Asking" price. Remember, the Seller is trying to make money on the deal. This is why I would use my own Realtor. Not the Seller's. No conflict of interest (even though they are suppose to be unbiased).

Just as a side note Geoffrey.  You only need to tag (@) someone one time per post.  Just use their name in the rest of the post as I did in this paragraph.

@Elijah Glenn No problem.  That's what BP is here for.  Good Investing.

Howdy @Elijah Glenn

You need to provide more information.  The numbers you are presenting are not enough to make any kind of logical reply.

What type property is it? SFR? Multi family (# of units)?

What is your plan?

How did you determine the ARV?

Is it currently rented?  Are rents within the local market rates?  Any room to increase?

Is $85k the Asking Price?

What kind of Acquisition loan are you using?

Your Refinance loan is not possible. The maximum loan amount is based on the lenders LTV ratio. That will be 70% to 80% of the new appraised value. So based on your ARV that's $77K to $88K and not the $112,500 you have.

To make this a "Great Deal" I evaluate it two ways. 

First, I want to be able to Refinance 100% of the acquisition loan amount and all my cash invested. Therefore, I target an All-in Cost of 70% of ARV. That means $77K for this deal. I then start subtracting Rehab estimate ($15K), Closing Costs ($5K) and Holding Costs ($6K, this is my estimate) to determine my Maximum Allowable Offer (MAO). My MAO for this deal would be $51K.

Next I evaluate the potential Cash Flow. It must meet a minimum of $100 per unit for Multi's ($200 for SFR). I'll 50% rule for expenses (I really use 55%). That's $950 income x 50% = $475 expenses or the NOI is $475. Then subtract the projected mortgage payment $413.35 ($77K loan at 5% APR/30 years) = $61.65 Cash Flow per month. Obviously this would not meet my requirements. The Cash Flow would need to be at least $138.35 more. So the rent would have to be high enough to make a difference or the loan amount must be lower. Or a combination of both. I realize you may be thinking I am being unfair with the expenses. But, until your able to get in there to verify everything you don't know. It can, and has been, lower. It has also been higher.

Based on your report this would not pass either of my evaluations.

Howdy @Tate Siemer

$591,000 is the total of the down payment ($327,500), Estimated Repairs ($260,000) and Purchase Closing Costs ($3,500).  This is a quirk of this Calculator.  It automatically assumes you are paying cash for Rehab costs.  You need to revise your report.  Just remove the Rehab cost.  The new Cash Needed will be $331K.  You can explain the breakdown in your post (which you did).  Your Closing costs are way off.  It is normally 2% - 5% of the purchase price.  I would expect them to be more like $30,000.  Check with your Lender to get a better estimate.

Please provide more details on this project.  

What type property is it (how many units)? 

How did you arrive at your ARV?

You need to explain your Refinance more? The loan amount ($1.4mil) is only 80% LTV of your ARV. How do you expect to not pay interest on a loan payment? $3,888.89 is not anywhere close to a realistic payment. My guess it will be closer to $7,000. Which makes this a none Cash Flowing deal.

If this is a multi family property you should breakdown your rents.

Most of your expense numbers are not realistic.  Using low percentages for all expenses is dangerous.  You will end up losing your shirt (and a lot more).

Strongly recommend you do more research before moving forward.

@Geoffrey Tanudjaja ARV should be determined by recently sold comparable properties (Comps). Similar in size, Bedrooms, and in the same neighborhood. $75k may or may not be correct. Ask your Realtor to run a CMA for you. Hopefully you are using Realtor.

As @Clayton Mobley suggested most "Investors" interest rates are higher than 4.2%.  I strongly recommend you get pre-qualified with a lender so you have accurate numbers to use.  Knowing your Maximum loan amount, interest rate, and amortization ahead of time makes the process go smoother. 

How did you actually use Rent-o-meter to determine rents?  One bedroom?  Three Bedroom, then divide by 3?  Neither would be correct.  It doesn't break it down by room!  For student rents you need to check school sources or other investors/property managers that rent to students.  Your property would probably need to be partially or fully furnished.  That means additional costs on your part.  You need to do a lot more research in this area.

@Jarrod Frankum for my Market I require SFR to Cash Flow a minimum of $200 per month (After renovation). There are many miscellaneous expenses that you did not include in your initial analysis (most investors don't). Such as Pest Management, Accounting, Lawn Care/Snow removal, Legal, Administrative, Marketing, etc... All these type of expenses may only occur once or twice a year. If you have poor quality tenants or the property is in a bad area you may have more repair/maintenance cost than originally expected. $100 may not cover the compilation of these expenses. You will be able to identify many of them during due diligence.

$20,000 may or may not be enough.  My Rehabs run between $20K and $50K.  But I only buy distressed properties.

@Cameron Lambo 1. The property should qualify for a 203K loan. The whole purpose of that type loan is to be able to do renovations. Not cosmetic repair. 2. If you check his Report you will see he included PMI in the Cash Flow analysis. Totally agree with the remainder of your comments.