All Forum Posts by: Kevin Siedlecki

@Jarred DeArmas - I've never seen a loan that did not base the rate on APR. Maybe some exist, but I would think it's safe to assume any discussion of interest rates is based on APR.

@Bill E. - 

The biggest factor to consider would be the rate on the FHA loan, and if there is a difference in the PMI for each loan. You're talking about a difference of less than $10,000 at closing. If the monthly payment is significantly lowered by the rate, the amount borrowed, and lower PMI, then you'll build your reserves back up pretty quickly.

The next thing to consider are the origination fees. Is this lender charging you points to get you that rate on just 10% down? Are there other fees that are going to make the out-of-pocket expenses even higher?

Another thought: if you won't have much left over, are you sure the lender is actually going to follow through on giving you the loan? They're going to want to see reserve funds. You're also going to want that extra cash for minor repairs, especially as you get your first tenant in. Little touch-ups to make a unit attractive can add up quickly. 

@Michelle Fox - I think it's a good idea. I would try to make present it as a safety inspection - checking the smoke alarms, cleaning the fireplace or dryer ducts, etc. Of course, during your inspection, you will notice other things that are the tenants' responsibility, and point that out to them or even let them know you will be checking, but creating the inspection solely as a check-up on tenants could create an adversarial relationship that might cause problems long term. So yes, do the inspections, but start with safety and make condition the second priority. 

@Eric Chiu - If you have no good contractor and no experience, what is attracting you to the BRRRR strategy? I would (actually, I did) start with something closer to retail, knowing that you're not getting a killer deal, but something that will make some money and give you some experience. Pick a small project - redo a bathroom or a kitchen, turn a closet into a laundry room, or something like that - to test and develop a relationship with a contractor, and to know what goes into the rehab process. Then, armed with someone you can trust and some experience, go after more of a killer deal to BRRRR.

I have been entirely working in slightly distressed, slightly under market (a bankruptcy, a couple REOs, a nightmare tenant, burnt-out landlords), in need of minor improvements and no-nonsense management, for about 3 years, after owning just one rental (purchased at market price) for a couple years before that. I finally feel like I have enough experience to find something that will work with the BRRRR strategy, and that is my goal for 2017. I think trying to start with a BRRRR is very risky unless you have a team in place or serious experience in construction and rehab. If you're not confident estimating the costs, then either try a different strategy or partner up with someone with experience.

First real BRRRR

@Felipe Villagran - I like the strategy from a big picture perspective, but need a lot more info to give advice on this deal.  What does each unit rent for? What are the taxes, insurance, maintenance, water/sewer costs? Are utilities split? 

I wrote a blog post a while back that might help you think about the initial analysis. Take a look!

https://www.biggerpockets.com/blogs/6815/45137-my-...

Hope it helps. Post here again when you have those details worked out, and a bunch of us will chime in with our thoughts on the deal!

@Michael Chilton - Welcome! Sounds like a great strategy. I like that you are willing to get your feet wet on a deal that you know isn't killer but will make money, then take on more risk once you have experience. Too many people think they're going to jump into killer deals right away. You understand how it really works. Good luck! Reach out if I can help with analysis of a specific property or anything else.

@Jonathan Safa - No. The taxes will be based on the most recent assessment, and have nothing to do with bank appraisals. You will have to wait until the city/town does another round, or you can file a protest of the current assessment. My guess is that you're going to want to make improvements, which will bring the assessment to where it was before, anyway, if not higher, so the protest is probably not worth the trouble.

@Will Gaston - It's not gray at all. It should be very black and white. Check your local laws. They will tell you exactly what makes a unit considered livable. Usually it includes little more than working plumbing, electricity, and heat. 

@Art Maydan - it really depends on what the clothes are. They will give you a receipt based on the number of each kind of item you donate, but not the specific type: you won't get more for an Armani tee shirt that first sold for $50 than for a hanes tee shirt that came in a pack of 6 for $10, for example.