All Forum Posts by: Kevin Luttrell

Hi BP,

I have a great opportunity to purchase an off-market triplex in Inglewood CA at a very low price and would love some feedback. I'm hoping to BRRRR this property, but I'm not sure if it makes sense yet. Here are some details:

Purchase price: $550k

Estimated rehab: $20k

ARV: $900k

Projected gross monthly rent: $5,700

Permanent financing details post-rehab:

$580k loan amount

5% interest rate

$3,886/mo PITI [$3,114 P&I, $573 taxes(1.25%), $200 insurance]

$1,881/mo expenses (8% vacancy, 8% maintenance, 7% CapEx, 10% PM)

Total Cash Flow: -$67/mo

All utilities are metered separately and paid by tenants. It seems like a great deal, but from my analysis it doesn't pencil out as a good cash flowing rental. Is my budget for expenses too conservative? Not including vacancy, maintenance and CapEx it would bring in around $1,200/mo and I can't see those expenses running that high, but it seems like most investors on BP estimate these 3 expenses at around 23%.

If I can't make it work as a rental I think it'll still be a great flip, but I really want it to work! Any advice would be greatly appreciated. 

Thanks! 

@Ike Mouser

When you purchase a home as a primary residence you sign a disclosure at closing stating it's your intention to live in the property for at least a year. You'll sign this disclosure again even if you refinance into a Conventional loan, unless you refinance as an investment property rather than a primary residence. 

You may want to get advice from a 1031 exchange company or CPA, but as far as I know, 1031 exchange only applies to investment properties. You cannot use this if you live in it as your primary residence. If you live in it for 2 years though, you can sell with no capital gains tax. 

Is this a conventional or commercial loan? 

@James Mulrain

"Rental for owner occupy"? Are you purchasing a multi-unit with the intention to live in one and rent out the other(s)? 

So to clarify, you're asking if you can buy cash and then do a cash out refinance right afterwards right? 

@Lauren Hogan

Good question. All conventional mortgage lenders to my knowledge use FICO, but each credit bureau also has multiple versions of the FICO model too. There's really no way to check yourself and see exactly what scores a lender will see when they run your credit (if anyone knows something I don't on this matter, I'd love to hear it). 

The algorithms used for calculating the credit score are different between Vantage and FICO, and even between the different FICO models. In my experience VantageScores are usually higher than FICO (at least the versions used by mortgage companies). You can get a relatively good idea of what your credit scores are by checking the free places like Credit Karma, Credit Sesame, etc, and many banks and credit cards will also show your credit score for free nowadays, but you'll really just need to do a credit inquiry with a lender to find out exactly what it is they'll use. 

@Costin I. Thank you very much for the detailed response and link to the BP article. Very helpful! 

Hello,

I was wondering if some experienced investors out there could provide some quick tips/advice on estimating CapEx when analyzing potential deals. Obviously this is impossible to perfectly predict and I know it can vary significantly by area, property size, condition, etc, but do you have some general guidelines/principles you stick to when doing the up-front analysis? Like a percentage of the rent, or a range depending on the condition of the property?

Any insight would be greatly appreciated. Thanks! 

@Ali Boone and @Tim Harwick: What turnkey companies are you using if you don't mind me asking? Do they primarily offer properties that are already in move-in ready condition, or do they have some good deals at a discount that need rehab (where I could possibly make a BRRRR strategy work)?

@Alonso Escalante, I was fortunate enough to find a Jr Loan Officer position back in 2012. I got paid training and they paid for my licensing while I worked under a senior loan officer for 4-6 months. These opportunities are still out there, but hard to find. I'd recommend getting your license through the NMLS first and then start looking and applying at different mortgage companies. Most companies I'm aware of that hire fresh licensees with little or no experience are pretty cutthroat and you'll be making a lot of calls and have strict numbers to hit. The best mortgage companies, the ones you want to work for, usually stick to hiring experienced loan officers. There are always exceptions of course but this is what I've found. PM me if you'd like any other tips or advice, and good luck! 

Thank you so much for the info and suggestions! 

Thanks for the reply Chris. Yes, it largely depends on where a broker is sending the deal. Since the OP seems to be interest rate driven, I thought I’d mention the turn time as the broker may be inclined to put the loan with the best priced lender.

I work for the consumer direct division at my company so we’re primarily competing with online lenders, and most of them (our company included) offer float downs when there is a 125bp+ improvement during the process and there’s a risk of losing the loan. That’s with our already razor thin margins, so the options are definitely out there. Thought I’d mention it as a possibility to the OP since again they seem interest rate driven and aren’t on much of a time crunch.

Glad brokering is working out for you. I started at a broker shop in 2012 and know it's changed quite a bit since then. My old colleagues who are still brokering are doing quite well now!