All Forum Posts by: James Orr

Thanks @Lesley Resnick. The data I shared above includes strong sellers markets AND the great depression period that was a buyer's market. So, it does include both.

Yes. Makes sense to me. 

@Chris Mason... that's so weird. Our MLS is actually encouraging putting rates out on the properties themselves now:

https://ires-net.com/2017/12/21/ires-offers-rateplug/

Many years ago, I had read regulation z stuff. Will review it again:

https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/1/#b

To make sure either I am compliant or an exception to having to be compliant.

With our software we are not telling people "you get this rate", but showing them if they got this rate what happens (and they can change the rate to see how the rate they did get from their lender affects the scenario).

I do appreciate the reminder about that and will read reg z again to make sure we're OK, and if I don't feel comfortable, I will call our attorney.

@Alex Bekeza... great info. Will check out your website, but I definitely appreciate you sharing that info. Super helpful. Thank you!

Thanks for the message @Alex Bekeza.

> This is one heavy but valuable undertaking.

Thanks. Just preparing for a class we teach every week. Writing the book will take a little bit longer.

> Loan programs and RATES change quite often so it would be very difficult to once and for all establish what the best terms are for any given situation but that being said I would be happy to talk to you about my unique experiences with BRRRR investors.

Yes, I get that. This is obviously a snapshot in time, but the relative differences should give folks an idea for the examples.

> I'm a mortgage broker in Los Angeles who focuses on non conventional products for BRRRR investors more or less nationwide.

Very interesting. Care to share so everyone can benefit as well?

> Feel free to reach out and we can figure out a time to discuss.

Might be better for everyone if we discuss publicly so others can see the programs you have too.

Thanks.

@Zoran Stanoev they will be different. Just like I wrote a book about real estate investing that is TOTALLY DIFFERENT than any other real estate investing book ever written before:

https://realestatefinancialplanner.com/book/

Download a copy of it and see for yourself... there is nothing out there like it.

Attention Fort Collins, Loveland, Windsor, Greeley, Severance, Wellington real estate investors.

RSVP to our brand new 2-hour, free real estate investor class "The Ultimate Guide to the BRRRR Strategy" sponsored by James Orr Real Estate Services LLC (helping folks buy Fort Collins Investment Real Estate) and the Northern Colorado Real Estate Investor Group.

RSVP to attend the class on October 16th, 2019 from 6 PM to 8 PM with networking after (and for first time class attendees a free copy of the Nomad™ book):

https://www.meetup.com/Northern-Colorado-Real-Estate-Investor-Group/events/gwwpplyznbvb/

And, download a copy of arguably the best book on how to achieve financial independence (with an emphasis on using real estate to do it) that I wrote for my son here:

https://realestatefinancialplanner.com/book/

The book is 240-pages of the best real estate investing stuff you've ever seen... but don't just take my word for it... check it out for yourself using the link above... I think you'll tell me how amazing it is. Most other people do.

If technology cooperates I will be publishing a recording of the BRRRR presentation here after the class next Wednesday.

I am about to teach a class (that may end up becoming a new book) on the BRRR strategy (or BRRRR strategy if you're doing it repeatedly).

Any lenders willing to help me understand the interest rates for a few situations so I can get a feel for the range of what people are seeing in a variety of real estate markets?

Ideally, you could provide me rates for someone with a 740 credit score for the following situations:

20% down non-owner-occupant rate and points:
25% down non-owner-occupant rate and points:
5% down payment owner-occupant with rate, points and monthly PMI:
5% down payment owner-occupant with rate, points with lender-paid PMI:
5% down payment owner-occupant with rate, points and one-time up-front borrower paid PMI:
Non-owner-occupant cash out refi at 75% LTV rate and points and seasoning requirement:
Non-owner-occupant cash out refi at 80% LTV rate and points and seasoning requirement:
Anything higher for LTV on a cash out refi for non-owner-occupant?
Non-owner-occupant rate and term refi at 75% LTV rate and points and seasoning requirement:
Non-owner-occupant rate and term refi at 80% LTV rate and points and seasoning requirement:
Anything higher for LTV on a rate and term refi for non-owner-occupant?

And, if you're interested, here's the outline of the class I will be teaching and may write a book on. This is a really rough draft. It will likely change before I present it next week to the investor group.

• What is BRRR? Back story of how I "grew up" with my father doing this and how I implemented this strategy early in my real estate investing career.
• Basic BRRR modeling in appreciating market with the Real Estate Financial Planner™ (REFP) software
  • How do you model with REFP (delay collecting rent, higher closing costs to model initial financing, buy for below ARV with maybe 100% financing)
  • Analyze a deal with The World’s Greatest Real Estate Deal Analysis Spreadsheet™
  • Return on Investment Quadrant™ and Return on Equity Quadrant™
• Financing BRRR
  • Will be financing property twice (find lender first)
  • Initial Purchase (cash, line of credit, HELOC, conventional, FHA 203K, Fannie Mae Homestyle reno loan, seller financing, creative financing like subject-to or lease-option, hard money, private money)
  • Refi (cash out refi, rate and term refi, private, hard money, commercial financing)
  • With refi: taxes and insurance will likely go up
  • Seasoning: lender dependent, likely to be at least 6 months, sometimes 12 months.
  • Interior appraisals versus drive-by appraisals and challenging low appraisals (what is your plan?)
  • Rates for today for: 20% down, 25% down, Nomad™ (3 variations of PMI), Investment Cash Out Refi (75%, 80% LTV, anything higher?), Investment Rate and Term Refi (75% LTV, 80% LTV, anything higher?)
• Modeling BRRR with REFP in a declining real estate market
• Modeling BRRR for Financial Independence/Retire Early folks
• Comparing BRRR versus Nomad™ Property
• Pros and Cons of BRRR
  • Many of these are not discussed anywhere else.
  • Pros
    • Pro over doing Nomad™ is don't need to move into the BRRR properties.
    • In an ideal world can do it with no money down… more likely a low money down strategy (but you pay for that privilege with higher rates and increased financing costs)
    • Possibly higher return on investment
    • Can acquire properties faster (much faster than the 1 per year for Nomad™ and likely faster than 20% down payment if you require time to save down payments)
    • Can invest remotely – invest in “better” markets
    • Real Estate Investing Rules of Thumb: For every $10K you don’t have to finance, you save about $50 per month in payment.
    • Can reduce interest rate risk of rates rising while saving money for your down payments or to Nomad™
    • Buying properties sooner in an appreciating market will allow you have more properties as values go up
  • Cons
    • Severely limited property selection (most choose from the properties you can get at a big enough discount to do BRRR). These may not be the properties you'd want to buy for your rental portfolio long-term.
    • Might have lower rent-to-price ratio (if you're not selecting properties optimizing to rental income)… again, less ideal rentals than selecting ideal rentals to begin. Further compounds with DSCR and qualifying for future loans.
    • Might have higher maintenance than properties you might otherwise pick as a rental
    • Might have reduced appreciation rate (based on having to pick from a limited pool of properties)
    • Likely to have higher interest rates than doing traditional 20%/25% down payment buy and hold and definitely higher than buying as a Nomad™. This also will adversely impact your DSCR and your ability to qualify for future loans.
    • Interest rate risk during rehab (rates could go up and it is unlikely you’re able to lock a rate that far out for a reasonable fee)
    • Holding costs during rehab increases your amount invested (and decreases your overall ROI)
    • Market risk during rehab (market can decline and you’re unable to refi at the level you originally believed you would be able to)
    • Requires time and mental overhead to do rehab or manage a crew doing rehab
    • Contractor and scope of work uncertainty during rehab
    • Appraisal risk
    • Buying properties sooner in a declining (negatively appreciating) market will see you have amplified losses. While worse in an appreciating market, dollar cost or dollar value averaging your property acquisitions through buying at regular intervals might be better.
• Finding BRRR purchase candidates (a discussion of property selection, low ball offers, below ARV property acquisition, off market deals)
• All other things being equal, simpler is better
• How much equity are you likely to end up with? If you’re lucky 20%. More likely less. Cost to capture that equity? Equity wasted in finance costs? Even experienced investors aiming for 25% equity are rarely hitting 20%.
• Optimizing property selection: best discount, best cash flowing rental, best appreciation? Not usually the same! MREI book and ideal rentals.
• Likely to leave some money in the deal… rarely a true no money deal. If you’re going to leave money in the deal, why not Nomad™ and get better long-term properties with better rates and better cash flow in your portfolio?
• Challenges with using LLCs and possible solutions

Here's the place where I will ultimately publish the class and likely the book if I write it:

https://realestatefinancialplanner.com/brrrr-strategy/

It will be a follow up to the 240-page book I wrote for my son on how to achieve financial independence that you can download and read or link to share with your clients here:

https://realestatefinancialplanner.com/book/

Thanks in advance. I do appreciate you taking the time to reply with rates.

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This FREE 240-page book on how to achieve financial independence and retire early (FIRE) with an emphasis on real estate includes chapters on:

- What it takes to FIRE with just stocks, just bonds, stocks and bonds

- The impact of various savings rates on your ability to hit your FIRE number

- Buying rentals with little or nothing down or receiving gifts for down payments

- Buying properties as a Nomad™ with just 5% down and converting them (eventually) to rentals

- The math behind should you pay off your properties early? Which ones? How? And what impact that has for hitting FI/RE.

- The math behind buying more properties than you need and selling off some to pay off the others to hit FIRE faster than you imagined possible.

- The math behind house hacking or getting a side hustle on your ability to hit your financial independence number

Plus... the book gives you the ability to change any of my assumptions to see how the plans apply to your specific, unique situation.

I am super curious to see how folks from various cities change the assumptions to model the properties from their cities. Please post and share your own results to BP and other forums to start discussions and spread the word.

Thanks and I hope you all enjoy the free book:

https://realestatefinancialplanner.com/book/

I'm especially curious how the numbers look from real estate agents, lenders and investors from the following cities:

New York
Los Angeles
Chicago
Houston
Phoenix
Philadelphia
San Antonio
San Diego
Dallas
San Jose
Austin
Jacksonville
Fort Worth
Columbus
San Francisco
Charlotte
Indianapolis
Seattle
Denver
Washington
Boston
El Paso
Detroit
Nashville
Portland
Memphis
Oklahoma City
Las Vegas
Louisville
Baltimore
Milwaukee
Albuquerque
Tucson
Fresno
Mesa
Sacramento
Atlanta
Kansas City
Colorado Springs
Miami
Raleigh
Omaha
Long Beach
Virginia Beach
Oakland
Minneapolis
Tulsa
Arlington
Tampa
New Orleans
Wichita
Cleveland
Bakersfield
Aurora
Anaheim
Honolulu
Santa Ana
Riverside
Corpus Christi
Lexington
Stockton
Henderson
Saint Paul
St. Louis
Cincinnati
Pittsburgh
Greensboro
Anchorage
Plano
Lincoln
Orlando
Irvine
Newark
Toledo
Durham
Chula Vista
Fort Wayne
Jersey City
St. Petersburg
Laredo
Madison
Chandler
Buffalo
Lubbock
Scottsdale
Reno
Glendale
Gilbert
Winston–Salem
North Las Vegas
Norfolk
Chesapeake
Garland
Irving
Hialeah
Fremont
Boise
Richmond
Baton Rouge
Spokane

@Tim Bradley You wrote:

> @James Orr I just closed on a property around 9% below MLS.

Yes... we do see these in the data. They are just a small percentage of the transactions. The data shows how rare they are.

> This was also after a couple months of the price being lowered 2 or 3 times.

Yes, this data shows the discount/premium from the last list price (not the initial list price). I should also stress that list price does not automatically mean value (ARV). It could be listed way above ARV or way below to start.

> Just outside Orlando. Nothing special here too.

Thanks for sharing that.

> I sent out about 15 lowball offers in total and closed on this one.

How low where the others? And did you hand select ones that you thought might be more likely to accept?

> This is a major rehab though as well as sat on the market a couple months.

Yes, I did some other data analysis and studies that show you are more likely to get a lower offer accepted on properties that have been sitting.

> That might skew the data.

Yes. Definitely helps you get the lower offers accepted.

> Like you said would be interesting to have that chart.

Yes.

@James Mc Ree You wrote:

> You may be misrepresenting low ball offers.

As I said... it is a proxy. It shows the discount/premium of sold price compared to the last list price. Since offer prices are not published, this is the closest proxy we have for offer price.

> The data you show is for all settlement prices, not offers, and does not appear to focus on low ball offers.

Yes it shows settlement price (not offers) and it shows the entire data set. Part of that is low ball offers.

> I think it is reasonable to assume the original offers were lower than the settlement prices for a significant portion of your data set.

I would challenge that assumption. Having done hundreds of transactions personally... I recall just one where the price went up... most (and especially on distressed properties) the price is likely to go down during the inspection and appraisal negotiation.

Any other real estate brokers will large transaction histories seen a large percentage of their transactions close at a price that is higher than their offer price?

> You might want to adjust your theme of odds of getting low ball offers accepted to be more focused on settlement prices relative to asking prices.

It is settlement prices relative to asking prices, but my assumption is that these are highly correlated proxies of offer prices.

> Similarly, your story could be titled around the theme of the effect of asking for a higher price as the same data appears to support an analysis across the pricing spectrum.

Yes, the same data set suggests that you don't get all of your "full price" offers accepted.

> Further stratification by property type could also provide insights.

I have broken it out by price band and days on market already. I did a quick breakout of multi-family as well. I have not done a detailed break down of property type.

> I think your story shows your leading theme better if you were able to show the original offer, settlement price and asking price.

If only I had offer price. It is unpublished data. I only have list price and settlement price.

> That would allow for analysis of how far off the original offer was from the asking price to see where they settled. I don't know of the MLS capturing offer data though.

Yes. Agreed.

@Tyler Gibson You wrote:

> I sit for the state test today and will be joining a brokerage later this week. Send me a message of what info you are looking for and I will see what I can put together for you. 

For this analysis, you just need to have sold price and list price to do similar analysis in Excel. If you happen to have that data, you could run it for your area and post the results to see how it compares.

@Lynn McGeein you wrote:

> Is the data based on original list price

Nope. It is the last list price prior to sale.

> (especially if it was listed higher, sat on market a long time, expired or withdrawn and re-listed at a lower price) versus sale price,

It already takes into account price drops. It would ignore all expired and withdrawn listings... as it only looks at ones that sold. If it got relisted then sold, it would use the last list price and the sold price for that transaction.

> or list price at time of contract versus sale price?

It is technically not even list price at time of contract... it is last list price.

> Many homes that sell significantly lower than original list price go through 2-3 price reductions

Yes... this is sold price/last list price.

It is important to re-emphasize that list price is not value (ARV). It is just what the seller and their representation listed the property at for sale. ARV could be higher or lower.

> and several new listings before going under contract.

Yes. Totally true.

> They would appear they sold much closer to list price if you're using the list price after the reductions rather than original list price.

Which I am... I am using the last list price... not the original list price.

> I've seen firsthand where a home listed over $500K, sat on market for months, expired, relisted $475K, sat on market again, finally took a $425K offer, but listing firm withdrew old listing, then listed it as a New listing, $425K before accepting offer so it showed a full price sale,

Yes. In that case, that would have shown as a $425K list price and a $425K sale price and would be in the 100% pile.

> 2-3 days on market, when in fact it was sold at 85% of original list price after over 6 months on market.

Yes. The data I am showing would not show it based on its original, fantasy-land list price in the previous listing. This is a better proxy for can you "low ball" based on the current list price (not what it was listed at before).

> Not sure how your data accounts for those sales, and that is not an isolated case, just the latest one I'm aware of.

I do see those too, but... and this is completely anecdotal... I don't think they're anywhere near 10% of the total market. My guess is maybe 1 in 25 or less where that happens. I don't have original list price and I especially don't have original list price for "recent" listings that would catch relisting properties. If I did, I could break those out as well.

And @Justin Foster... here's a "help page" on some of the Monte Carlo stuff including some screen shots on how to set it up:

https://realestatefinancialplanner.com/using-monte-carlo-to-model-real-estate-portfolios/