All Forum Posts by: Jordan Mummau

Two lessons learned as they pertain to BRRRR investing which compromises nearly 100% of my buy and hold portfolio. #1 Always try to negotiate a vacant property, even if you have to compromise on price. Inheriting tenants is hard enough, holding a property in which time is of the essence to refinance and dealing with inherited tenants is even more difficult. There have been amazing deals on paper that I've turned down because it was occupied. #2 while renovating during a BRRRR, be sure to renovate what you need to renovate. Meaning, don't leave anything that needs renovated left original. Why? These renovations after the refinance kill your cash flow and can create the nuisance calls from tenants that something isn't working. Example, I renovated an entire 4 unit building and left about 10 windows out of 25 original. They looked in "good enough" condition. Eventually after tenant complaints they needed replaced. I could have easily fit that into the refinance initially, but it ended up killing a month and a half worth of cashflow. If you leave a lot of these seemingly small items left undone during your BRRRR renovation, it will come back to eat up a lot more of your projected dollars.

Rates are low. My wife and I are considering purchasing a second home in the Florida Keys. It appears as though qualifying for a 10% down second residence loan is a pretty common program throughout the mortgage community. My question is, what's the best way to go about acquiring the property. I've bought and sold plenty of foreclosures, however the damage left after hurricane Irma in that area is a little daunting for a property I can't get eyes on. Also, I'm considering offering as-is cash on a property on the open market, however I have concerns that a lender will require more than the 10% on a secondary home when attempting to complete a cash out refinance. So although I might be able to get a better deal upfront with a cash offer, I may be laying more money out in the refinance. Our goal here is to use the property 3 to 4 times a year and rent it the rest of the year. Our bigger goal is to have a long term investment in areas that actually appreciate in value over 10,15,20 years (I understand the Fl Keys may not be the greatest investment area for us to maximize upward trajectory but selfishly we have always dreamed of having a place in the keys). Our local market is great for cash flow investment properties but lacks any type of upward appreciation or value movement (very rural market). Aside from the general questions above, if anyone has more specific knowledge around the keys, specifically Marathon and the advantages of having a stilted home vs concrete build vs modular vs ground level, how that effects insurance rates, financing etc would be greatly appreciated. 

Lastly and possibly most importantly, I'm wondering if holding this in an LLC or commercial type of loan may be better to offset the personal debt to income ratio. I understand this would probably prohibit me from getting a 10% down loan but if it allows me to show the income generated from the rents on the property to maximize the income over the debt is something I'd consider. I don't want this to have a drastic effect on my ability to continue borrowing in the future so I'm trying to figure out how to hold this asset appropriately.

Your insight in any of the above is greatly appreciated!

@Pablo Davidov

I do BRRRR exclusively. As others have mentioned. Shop your lenders. I have found a few that offer no seasoning periods. Additionally, ask beforehand what they'll lend on a cash out refinance. Some will only do 60%. I've found others that'll do 75%. If you qualify, I'd always recommend when doing a BRRRR financing 4 units or less on a residential 30 year mortgage. There's a lot of content on BP about the pros and cons of 15vs30 but typically BRRRR investors are cash flow hunters and the 30 year allows you to do this the best.

As far as rehab time, that’s not easily answered. Depends on a myriad of factors including contractor availability, crew size (is he a single guy/gal or does he have a full crew) sq ft size, #of units, significance of rehab, etc. My average turnaround is between 3-4 months between rehabbing and renting.

I’m in the middle of one right now that I’m detailing step by step on BP if you care to follow.

@Andrew McCartin

I’m an investor and an agent. Some have mentioned not using an agent at all. I wouldn’t necessarily recommend this on your first deal. In my experience, there’s no single first deal (always exceptions) that will instantly make you rich. However, there are first deals that, done incorrectly can set you back or disenfranchise you from doing another. It’s important to understand that a vast majority of agents don’t actually invest in Real Estate themselves. The investment side is so drastically different than how they make money in Real Estate. As it sounds like you’ve learned, an agent can be a good agent but have little idea or offer little insight on what makes a good investment property. I’d recommend finding an agent, probably here on BP in your local market that has a strong investment portfolio of their own. These people can not only send you the properties that come up but breakdown which deals are best and why. This is the value add you need from your agent and will give you significant confidence pulling the trigger.

Alright so I closed on the 30th. To get the deal, the bank wanted it off the books so I had to turn the title around during X-Mas week which was a feat in itself but we got it done. So here are the numbers.

Purchase: 95.5k

*I got my RE License to save on some transactional fees so I actually got a check at closing for $2,500 (Actual PP was 98k)

Reno: Budgeted $35k

*Upstairs unit is a pretty quick two bedroom turn around. I’m keeping some flooring and carpet. Some base cabinets, just replacing countertops etc.

*Downstairs two bedroom unit needs the most love but it’s also a very large unit. This one requires all new flooring, paint, fixtures, drywall, etc.

* Biggest expense is heating and electric. Currently only one panel and one meter. We’re separating out the electric to three different meters.

Rent: Top $850 Bottom $925 Garage:$125

=$1900/mo

Refinance: ARV $165,000

I'll have $135,000 into this deal. I'll be able to finance 75% of this against the ARV. The bank should be cutting me a check for about $123k. So as it stands now, I'll leave $11k in this deal and cash flow about $900/month. That's really worse case scenario. If I can get around replacing the heating units, I won't be a dime out of pocket which is obviously the BRRRR goal. I'll post some pictures and more details as we get into the rehab if anyone is interested in following the complete process.

Honestly, it will probably be the best learning experience you'll ever have and hopefully make a couple bucks doing it! A lot of people spend a lot of money to learn what you went out and DID! Nice work! I know a lot of people BRRRR single family properties and make it work. I mainly focus on 4 or less multi-family units to BRRRR. They typically will cash flow a lot better (and you can finance them for 30 years) after refinancing and make great buy and holds. Additionally, the other benefit is you're left with a practically new property after renovation so there's not many tenant phone calls regarding maintenance so the properties run very efficiently. The downside to this, however is that it expedites the process by having a vacant multi unit. If it's currently occupied, BRRRRing can be done but it's a much longer process and when it takes longer, it inevitably costs more money. Everyone has their "thing" they look for. Mine is certainly distressed, vacant 2-4 unit properties. Almost like finding unicorns but when you find them, it's sweet! Keep moving forward Jaron, I'm sure the next will be a home run!

Are you flipping a single family or Multi? Depending on the area, single families, in my experience are more difficult to cash flow unless you have some creativity. The single families I own are set up for student housing so I essentially rent out by room. If it were as a stand alone single tenant, the numbers get really tight. Each area is different. There's not doubt to be speculative on the future RE market is it's currently setting records but I don't know that I'd be nervous especially in the residential space in rural markets. We don't have the huge appreciation swings but also don't experience the drastic drops either. In my very under-educated opinion, the market that is being over leveraged and I'd be nervous about right now is the bigger 50+ unit multifamily properties. A lot of syndication and 1031 exchange money being poured into that space driving the purchase cap way down. However, I'd still love to play in that space some day as you see many still achieving great success there. 

Right now, for me buying and holding makes more sense. I work full time, have my RE license on the side and like my real estate deals to maximize passive/horizontal income at this point, not necessarily looking for a cash out return. Additionally, the depreciation helps significantly when it comes time to pay the tax man. If I dipped into RE full-time, I would certainly do more flips. I do about two or three a year as it stands currently. I'm certainly not a Guru by any means but I think a lot of people realize the market is high right now. I read an article that said the average flip is making roughly $15-$20K. That's either good or not good enough, depending on your perception. After considering taxes, headaches, contractors etc. unless you're really focused in this space, it's certainly not a slam dunk, at least for me (however, we all know people that do really well in this space year over year). 

Depending on expenses, if you live modestly in an "affordable" area you should be able to offset your living expenses with a handful of solid cash flowing MFS properties. The unique thing about the BRRRR method is that its easily repeatable as you can recycle your initial investment money over and over.

@kiran k. I had a very similar situation I dealt with last year. My tenant, also lived with her mother beforehand had decent credit and a good job. Paid the first month and then less and less until no rent was collected at all. Long story short, I was in court twice for eviction we did have the sheriff ultimately come to evict. The lesson, however was that the process isn't necessarily difficult, it just takes a long time. The longer you wait, the longer you'll be without rent that's owed. I do have a judgement but that will never be paid. Also, another point to mention is to make sure every piece of mail you send is certified mail. At least in PA, it needs to be in order to be considered as proper notice in court. That was my first experience going that far and I did consult an attorney for that particular scenario. 

Depending on your lease and depending on how responsive they are, it's always easiest for both sides to just part ways. Have in writing that you've ended the lease agreement if your lease allows, they don't owe anything to you and you to them and start over. Sounds like your dismissing rent owed, but in the long run if they can agree to it and it can be done legally, it often saves money and significant time in the long run.

Forgot to add, Don't physically enter the property at this point. That was advice given to me by the sheriff at the time. Believable or not, the tenant can sue you for a variety of things, including forced entry, stolen property, etc. if you are found in the property. 

I know the BRRRR method is the buzzword these days on BP and for good reason! It's the best way (that I know of) to buy and hold real estate. In my experience with the couple I've done previously, there are different levels of success to BRRRR'ing. How you define if a BRRRR was/is successful is ultimately determined by how much money you feel comfortable leaving in the deal and what your return on that money is.

I recently went under contract on a duplex (Bank REO). My plan for this post is to simply take you through the entire process and hopefully help someone and if you're in my local market (Central PA) maybe create some new relationships. This post is going to basically put my thoughts to words as I analyze this and go through it. While I've done these successfully in the past, I'm always amazed at what you learn each time and/or someone else reading this may have a different approach I could learn from as well.

Here are some details. I'm paying cash and expected to close before 2020. The property is currently vacant. I went to sheriff sale for it months ago and it sold back to the bank. They simply wanted too much money at the time and there were still tenants inhabiting at that time. I was patient and it came back around on market for less money as an REO & vacant. I love vacant properties. I'll go into specific numbers after closing is finalized but there are a lot of things to consider when analyzing how to renovate this property. Each unit, one above and one below, are just over 1,000sqft each. Both are two bedrooms, 1 bath. The exterior of the property is in good shape along with replacement windows and decent roof. This place has a single oil heat source that is currently running both units. Additionally, it only has a single electric meter. The best bang for my buck (in my opinion) is going to be adding an additional meter, separating the electric and then evaluating which route to pursue when analyzing how to heat each unit. The property doesn't currently have natural gas running to it, however there is natural gas available. In my estimation to do a tap in and run the lines + add two furnaces + ductwork is going to cost around $9,000. Alternatively, since the electric will be separated and paid by the tenants, I'm considering just adding electric baseboard which is significantly cheaper for me, but would be more expensive for the tenants to operate on a monthly basis. Ultimately this decision will be based on comps i'll be using for the appraisal later.

There's a 3 car garage in the back of the property that needs a lot of help but could rent for $75 per door. I can rent both the two bedroom units for $900/mo which gives me a gross monthly rent of $2,025. ARV on this property based on comparable sales is $180,000. As mentioned, I'll get more specific numbers to anyone interested after closing but I estimate my ARC to be $135,000. My lender will require 25% down off of the actual appraisal when refinancing. More to come...