All Forum Posts by: Kris Kraatz

I use the builder's guidance regarding HOA. Most builders that developed their property will help establish the HOA, so lean on them to provide the details. In some communities, the builder individually manages the number of investor transactions per phase. If you're going for new construction, building trusted relationships with national builders is paramount. These relationships should extend beyond the on-site sales team and into management. Follow the rules, and all is well!

Ed, I completely agree that this strategy is tailored for a specific move, but it's one that has been working exceptionally well for our investors, especially those with 10 or more single-family residences (SFR). Let me share a real-life example that could provide some insight.

A recent client of ours had one of his ten properties, which we manage, become vacant, necessitating a $30k capital expenditure (cap ex). However, the net proceeds from the sale of the property were close to $300k. He's now leveraging those proceeds to invest in two brand new properties at $325k each, making a $114k down payment on both. This results in an LTV (Loan-to-Value) of $211k at a 5.875% fixed interest rate.

The rent rates in this particular community range from $2300 to $2600 per plan. When considering the annual expenses—property taxes estimated at $7800, homeowners' insurance at $1800, and HOA fees at $708—along with low maintenance costs and builder warranties, the numbers look promising. Cap ex might be minimal to nonexistent.

Use a 3% price appreciation YOY (Year-over-Year) as a conservative estimate, and consider the 10-year holding position. The dynamics in the DFW (Dallas-Fort Worth) market further support this approach. If interest rates go down, property prices in DFW rise. Conversely, if rates stay high, your money supply may be cheaper with the BFC.

I hope this example sheds some light on how this strategy could work for you as well. Please don't hesitate to reach out if you'd like to discuss this in more detail or have any questions. I'm here to help!

Definitely what Michelle shared, expert advice!  

New construction has been a great move for our investor clients.  

It’s a specific move and requires spending to cash flow, but has so much up side if properly selected.  Appreciation play plus low cap ex and maintenance.  Less vacancy & the depreciation play is sweet too.

Hello Bigger Pockets Community,

In the current landscape, I want to highlight a significant opportunity that's catching the attention of many seasoned investors buying properties in the North Texas region: buying new construction with national home builders using Builder Financing Credit (BFC). This unique financing mechanism offers advantages that can have profound implications for your investment strategies.

What Is Builder Financing Credit (BFC)?

BFC is a unique financial tool, often but not always provided by new home builders' preferred or in-house lenders. It allows investors to negotiate closing costs and secure a fixed 30-year rate around 5.875%. This is a notable advantage, as the market rate without BFC stands closer to 7.25%. Please note that the rates quoted are roughly reflective of today's going rates and may vary. Furthermore, this discounted rate doesn't impact seller concessions since it's established before the client initiates the transaction.

Why Consider BFC?

Investors should explore BFC in the North Texas market as a spend-to-cash-flow move, considering the following advantages:

1. Significant Savings on Interest: With a 30-year fixed rate at 5.875% instead of the market rate of 7.25%, the interest savings over the life of the loan can be substantial.

2. Reduced Capital Expenditures: Investing in a new home with BFC offers a unique opportunity. Thanks to the builder warranties that come with new construction, the expected capital expenditures over the next decade may be greatly reduced, and in some cases, potentially non-existent. This is not only a reflection of the quality and reliability of new construction but also a strategic move that allows investors to focus more on price appreciation as a primary play in the North Texas market. Leveraging BFC in this way aligns with a long-term investment strategy that capitalizes on both reduced maintenance costs and the region's potential for growth.

3. Potential for Appreciation: The region holds potential price appreciation, providing another profit avenue.

The Strategy

Investors looking to make moves in single-family residences (SFR) should:

1. Time the Entry:** Timing the entry into a new community is key.

2. Consider Lot Position and Saturation Levels:** Maximize return on investment by making informed selections.

3. 35% Down Payment:** Utilize the benefits that BFC offers by making a significant down payment.

The Bottom Line

Investing in new construction using BFC isn't just about buying a home; it's about strategically leveraging a financial instrument to secure interest rates well below market levels, tapping into unique opportunities in the local landscape, and generating strong returns. If rates go down in the future, this could unlock pent-up demand for single-family residences (SFR) in North Texas, driving prices up. Conversely, if rates do not come down in the long term, securing a lower rate through BFC today could prove to be a significant win for investors. Either scenario illustrates the importance and potential benefits of considering BFC in today's market.

If you've used BFC or are intrigued by this approach, I'd love to hear your thoughts, experiences, or questions. This could be a game-changing strategy for those looking to expand their SFR portfolios in today's market.

Best,

Kris Kraatz

Closing on a 1% deal tomorrow in far North Texas, these are very common.  On the market, off the market, doesn't matter.  It's the outskirts of your MSA's that 1% can we found in Texas.

You can "B" Buy with all cash, hard money or traditional finance, the goal is to "B" buy right regardless of method used to acquire. You'll cash out "R" refi once it's "R" rehabbed, and "R" rented. Traditional financing (20% down) is typically not needed for BRRRR.