All Forum Posts by: Leo Kotschenreuther

@Joe Villeneuve Thanks for reminding me of that. A cash flow positive property is actually a really great thing, even if it's not that much. This is how I learn to pay less for the next property.

For paying down the mortgage, sure it would lock up the money in the property. I would be saving interest but considering my interest rate being at 4.25% it's not that much

@Andrew Syrios I would love to hear more about why different people prefer financing or all cash purchases. What are the reasons you prefer financing? Just to be clear, even if I buy all cash I still want to pull out all my money when I refinance after a few months or a year.

Dear BP-community,

I just finished David Greene's book "Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties". Before I had read the book, I was convinced that I wouldn't be able to do an out of state rehab considering my lack of experience with rehabs and it being out of state. My view on that has changed quite a bit now that I have read the book and I want to start doing the BRRRR strategy.

Right now I have about 15k in cash available for real estate investments. From what I have been reading on the forums, I could probably get a loan of another 45k to buy and rehab a property in the next months.

On the other hand I also own a rental property in Texas. It cashflows but not great, it's only 5% cash on cash return. I'm thinking about selling that property in about a year and to use every dollar I have available to reduce the mortgage until then. If that goes smoothly I could have 40k in cash available once the property is sold in a year (some equity from the property and some additional savings over a year).

If you were in my position, would you rather wait until you have enough cash available to buy and rehab a property without any financing or would you find financing and start now?

What are the advantages of all cash purchases? Lower closing costs, no interest payments until the property is refinanced and the potential to negotiate a lower purchase price of the property?

Thanks for your input!

@Sid Bobba Can you share a little bit about what your closing and refinance costs consisted of?

I haven't done a refinance yet but I can talk about the closing costs of my first deal (which I bought with a conventional 30 year loan):
Underwriting fees: 600
Appraisal: 675
Title Fees: 1650
Recording Fees: 150
One year of insurance prepaid: 600
Initial Escrow payment: 400

So overall, I paid about 4k for closing costs as well, but I bet this also depends from area to area.

@Jimmy Solano Another thing you might want to consider:
Once you add your estimates for the missing expenses your NOI will be lower. Assuming the Cap Rate stays the same that would reduce the After Repair Value of the property.

Does the lender have any conditions tied to offering 100% financing? Say if the lender only were to finance 70% of the After Repair Value, having a lower ARV might suddenly dictate that you put some of your own money into the deal. Based on your initial calculations you are making an infinite return because you don't have to put any of your money into the deal. However that infinite return can quickly become very small once you actually have to put some of your own money into the deal.

@Jimmy Solano Could you please elaborate more about the seller offering to make repairs? Does the seller offer to make repairs now or also in the future?

@Jimmy Solano I had a look at your calculations. I noticed that your expenses besides the mortgage seem to be quite low. After looking at which expenses you included, I noticed that some hidden expenses are missing.

Have you thought about monthly contributions to budgets for vacancies, maintenance and capital expenditures? I think that you should account for them as well. I would update that report to include estimates for those as well and see how well the numbers work out then.

That's a really good question. I also live in a quite expensive market (San Francisco Bay Area) and I think I'm in a similar situation. Here are my two cents:

The way I like to approach such scenarios is to look at the numbers assuming that I rent out all units and that I pay a property manager to manage the units. If the numbers don't make sense that way, they will make even less sense if I live in one of the unit. In that case I could just find a comparable unit, rent it and come out ahead. Otherwise, if the numbers do make sense, you would be your own tenant and hence still come out ahead because your "rent" goes into your own pocket.

How would the cash flow look like if you were to rent out both units and also include cost for a property manager?
I don't know how much you are paying for rent right now but I'm guessing that it is likely more than $1000/mo. If that is the case, buying a duplex and house-hacking it would already bring down your monthly spending on housing. You also want to consider your return on investment assuming that you are paying yourself rent.

In the end, it's really hard to compare two properties that are the opposite about appreciation and cash flow. Properties in LA probably have a lot of potential for appreciation and maybe only cash flow a little bit whereas some properties out of state could cash flow a lot but never see any appreciation.

@Ali Boone Roofstock is not the seller of the properties, think of them more like a market place. So essentially neither the seller nor the buyer chooses who gets to perform the inspection. Instead a third party (Roofstock) chooses another third party inspector.

@Ali Boone I had a call with a sales rep from Roofstock last week. He said that Roofstock is still having a third party perform an inspection when properties become available in the market. Only when it's not possible to do so then a buyer can request an inspection contingency.

@Ali Boone, I think @Zach Evanish already answered most of your questions. I am thinking about using them again. They have made some changes to their site since I used it to buy my property, I asked them to setup a phone call to answer some questions about those changes.

I have not thought about using an actual turnkey provider. I just really like Roofstock because I have used them already and they have properties everywhere from the midwest to the east coast available. I also think that there won't be any out of date inspection reports in the future anymore but I will confirm that when I talk to somebody from Roofstock.