All Forum Posts by: Mallory Thompson

We gave her the opportunity to come by last night and get her things so we have that conversation in writing. She sent someone else and didn’t turn in keys again. She is aware we changed the locks. I feel like that I’d clear enough to substantiate her intent to leave but correct me if I’m wrong. There is still furniture and trash all over so we’re moving forward with cleaning it out this weekend. 

That’s what I’m worried about. My gut is telling me she knows this and is refusing to return them for that reason. Her lease already ended and we have texts from her that show her intent to leave but no keys. 

She asked in a text yesterday if she could leave it and we told her no, assuming that gives me the right to move it out if nothing else does.

I'm in the process of closing on a section 8 duplex. I've started the process of gathering the paperwork for the local housing authority to have rent payments redirected from the seller to me, but it takes time. We close on December 16th, which gives me four days to get paperwork in, just to have rent redirected to the following month, in January. The seller has already received December rent ($3,200), meaning we should be entitled to half of that. If we don't get all the documents filed within the four days following closing, we'll lose out on another month, bumping the total up to $4,800 (half of December and January).

Is there something that can be done during closing to ensure we receive the rent for the time that we have ownership of the property? I have a question out to my realtor now but am anxious over it since it's a good bit of money and we are responsible for collecting it from the seller instead of the housing authority.

@Alex Bekeza thanks for responding. Since my husband and I will be forming a LLC and partnering with another couple to purchase with cash, I'm curious about general commercial lending requirements and rates. While my husband and I are well qualified on our own given this is our second investment, the couple that we're partnering with is more seasoned and they own more properties than we do (debt to income ratio comes to mind as a potential issue for them). I want to understand if we're going to be able to pull our cash back out before we make a purchase together.

@Brian Garrett - This is the second post I've come across of yours around using the BRRRR method and commercial loans. A partner and I are purchasing a property and plan to form a LLC, and I have the same questions.

Curious what you ended up doing? Was a LLC and a commercial loan to cash out refi the best option? Seems like that's the path we're headed down but there is a lot of conflicting advice out there.

My husband and I are under contract with another couple on our first BRRRR. I've set appointments with a RE attorney, CPA and then have plans to do my research with insurance companies and lenders but wanted advice from the BP community on how best to structure our partnership since I know many of you have to have already been down this path.

Our goal is to purchase in cash ($120k) rehab ($40k max) and then do a cash out refi for 75% of the $225k ARV, so pulling out around $168k. Priorities include both couples needing to protect ourselves and our other financial assets, getting the best financing rate when we do the cash out refi, and being able to take advantage of tax strategies that the RE investment will offer us.

Questions:

1. LLC works great for ownership structure, but the financing is a grey area. I had a lender flat out tell me that they would look the other way if we did the refinance through one party, and then put the property into a LLC. They did raise that it could cause issues with insurance, ex: if the property burns to the ground, where will the payout go? Likely the one party on the mortgage and not the LLC. Seems like if this was an issue it could be solved through an attorney and structuring the operating agreement saying that insurance payouts go to both parties.

2. I want to lower our w2 income through RE investments/pass through which I understand I need an LLC for, but I don't want to pay the commercial loan rate when we refi. Am I looking for a unicorn solution or is there a way to have the best of both worlds?

3. I keep seeing people say LLC usually doesn't provide the protection that everyone says it does, is umbrella insurance really a better deal? I feel like for people with multiple properties, which both parties have, umbrella could be the way to go, but then I worry we forefit the tax benefits of a LLC.

Is there anything else we should consider? 

I know this is all likely in the forums which I have skimmed, but hoping for some quick advice given we are already in our due diligence and I have calls with CPA, attorney etc quickly approaching. 

Hi Loren - I'm looking at a property in the Grove Park area and seeing about the figures that you listed. There's a 4/2, 1600 sqft house that is probably liveable, but needs a full rehab. I'm estimating based on recent comps that we could pull around $300k by flipping it with a moderate/higher end rehab but I haven't had an agent look at it. 

I'm curious if you pulled the trigger on any properties and if so, what your experience was. Thanks!

@David M. the cash flow for the BRRRR property is very low. I have it at only $42/mo being extremely conservative with vacancy, capex and management all at 10%. My partner, being less conservative is estimating that it will cash flow around $250/month. This is definitely an appreciation play, which is mainly why people are investing in the area we're looking at. I've heard others say that for this market, you get either cash flow or appreciation, usually not both and that seems to be ringing true here.

You're correct on purchase price for the conventionally financed property, it's listed for $320k. 

I'm partnering and being extremely conservative since this is our first time purchasing a property solely for investment purposes - more so testing the waters and wanting to use this as a learning experience. 

@Nicholas L. Sorry for the confusion. Yes, based on our situation and cash on hand, we'd do a cash purchase on the BRRRR since conventional financing wouldn't be available due to the condition of the house. So purely looking at finance options and a more "apples to apples" scenario, what I listed above as option would be 1. BRRRR with cash, and cash out refi after a year getting 89% of money back out. and option 2. purchase with conventional financing and a 20% down payment, likely no ability to cash out refi anywhere in the near term (unless I'm missing something).

I understand that I would still have a mortgage in the BRRRR scenario, but it seems like a better option for being able to scale since we would be able to pull the forced equity out and move on to another deal.

@David M. thanks, I know it's a lot to unpack. To break it down, these are the options:

1. BRRRR on a property -$100k purchase prices, estimated rehab of $70k and it would easily achieve an ARV of $220k. Rent for $1600/mo. and we plan to cash out refi after a year.

2. Conventional finance - 5% maintenance, 5% capex, 7.5% vacancy, and 10% management fees would still net us $669 mo in cash flow. CoC ROI is 11.7% and NOI is 22k. A five year annualized return would net an 18.5% return.

If it makes any difference, we're doing a cash out refi at an estimated 3.65% on our first investment property to fund part of the BRRRR. Not house hacking, and we'd have plenty of reserves for either option. I'm comfortable with all aspects of eiather purchase, ex: rehabbing, since I have a partner who has done both.

We'd expect to get 89% of our money back out of the BRRRR after a year, whereas with the conventional finance route our $80k down payment would stay tied up and the property wouldn't appreciate enough to do a cash out refi anywhere in the near future. I lean toward the BRRRR, but just looking for any perspective I might not be considering here.

Really appreciate you weighing in.