All Forum Posts by: Michael Cross

If you are looking for buy and hold then I would follow David Greene's concept of looking within 2 hours of your location. Maryland landlord tenant laws are not as friendly as parts of PA or WV. I live in Maryland but invest in south central Pennsylvania for example. If you are looking for STR just confirm local regulations but generally the Ski areas and coastal areas should be viable options.

@Nathan Park My Advice is to start with the end in mind. It sounds like the property is vacant which is fantastic:

1. You can work with your property manager to get a well vetted tenant

2. You can assess the cosmetic repairs that need done to make the property competitive.

3. You should take stock of the capital expenditures that need to be completed.

If you bought the property with a BRRRR in mind and have the bandwidth in your budget i would strongly encourage you to focus on the Plumbing and Electrical portions before you get the property locked into tenant rotations. Does it have an upgraded electrical panel? Knob and tube wiring? is it still copper pipes or old steel pipes? take stock of those problematic items and replace them, especially the ones in the walls that will be a pain to do maintenance on once a tenant is in place.

Also think about tenant proofing your property. While you don't want to over improve it, consider durable materials in your choices.

If you find an affordable contractor and granite guy, a nice kitchen with granite countertops may enable a bit higher rents in your area.

Finally, consider who your tenant will be. A high quality renovated property is very appealing to a lot of applicants. Spending a few thousand more on upgrades that will be durable, attract more tenants, and attract higher quality tenants will pay off in lower turnover and increased tenant reliability with decreased maintenance expenses.

@Miguel Bautista With most of my renovations i am dealing with 100 year old houses and they always need windows replaced that are odd sizes and need to be ordered. Even with the cost increases, $400-600 for windows installed should be a good rule of thumb so this capital expense shouldn't be more than $7,600 to $11,400 total including wrapping the exterior of the window which will help avoid water penetration.

Another suggestion is to connect with local investors like Scott Williams to identify others who can do the work for much less. Finally, join the local Facebook groups for Mesa neighborhoods and look at the last few years of contractor recommendations for window installations. You will see names of outfits that come up time and time again and can help you find someone who can do the installation of your Home Depot or Lowe's Windows like mentioned before or a reputable retail outfit that will get you in the right ballpark.

@Joe Caivano I echo what @Nathan Gesner says about it depends on your future plans. Are you looking to grow your portfolio? or are you heading into a stage of life you just want increased cash flow and reduced risk? In the growth stage there is a lot to be said for borrowing more while many who have stabilized a portfolio then want to reduce risk and headache and work to pay off the properties and increase cash flow.

You need to determine what your goals are for the next 5-10 years and then that will inform what your next steps are with your rental portfolio.

@Justin Segarra-Santiago A few points to help you along your path. First is when you go look at a property the most expensive parts of the house are the ones you do not see. So ask yourself the following questions:

1. How old is the HVAC?

2. How old is the roof?

3. Does this house have Vinyl windows or old wood windows that need replaced?

4. Does this property have updated Electrical? Are all of the outlets 3 prong? a 2 prong outlet is a flag that there could/probably is electrical that needs updated. 200amp service with breakers if you are trying to keep things simple (if you have natural gas powered hvac and stove you could get by with less) Knob and tube electric would be a cost to upgrade

5. What kind of plumbing does the house have? PEX, PVC, Copper, Steel, Cast Iron? A combination of PEX and PVC would indicate updated plumbing.

Things like flooring and paint and cabinets are what too many people focus on but those above 5 areas are the expensive ones that will turn a house hack into a house of horrors.

For the financing piece, most lenders will use 75% of the rents of a tenant to offset debt to income ration. This is likely more of a concern for you with house #2 vs house #1. If you are doing an FHA loan your downpayment should be 3.5% to 5% so save up that money. If you live in a more rural area you could use a USDA loan for that first house with 100% financing.

Best of luck and good on you for asking questions so you don't learn the hard way!

Mike

@Alex Medina A number of years ago Brandon Turner and Josh Dorkin talked about how most people have a place within 2 hours from them to invest. I live about 2 hours near west of you near Hagerstown, MD and invest in southern PA towns Waynesboro, Greencastle, Chambersburg and looking at Gettysburg for future opportunities. Within 2 hours of Loudoun County Virginia you have Wincester, VA to the west, a little north you have Charles Town, WV and Martinsburg, WV and north of that along the I-81 corridor you get to Hagerstown.

Look at that I-81 corridor north and south and you will find a location you can invest in and the numbers work.

Good luck!

Mike

@Michael Cox What you are trying to do is not impossible and you can reduce your risk in a number of ways. If you need to invest out of state for the numbers to make sense the first steps you should take are:

1. Identify potential Locations

2. Identify potential partners

3. Identify your core four as David Greene describes - Property Manager, Lender, Contractor, Real Estate Agent.

An easy way to get started in a new location is to visit that location for a few days. Identify potential properties of interest and contact the listing agents for each of those properties to have them show you the properties. If they have tenants ask them how they like the property manager, have they lived other places in the community and did they like those property managers. If you look at 10 + properties with 5-7 Real Estate agents you will likely find a specific agent who "clicks" with your personality better than other agents. If you visit multiple properties with tenants and agents you will ask each agent and tenants for property managers they like and will certainly hear a theme.

To identify contractors in a specific area join the local community Facebook groups. Once a member of the town or community Facebook group search for contractor, plumber, electrician, hvac, foundation, flooring, etc in that Facebook group. The Facebook groups can store years of posts by members. Multiple times a year members will ask for recommendations for everything from mechanics to wedding venues to contractors for repairs. With years worth of these questions in local groups and surrounding are groups, in 2 hours you will find themes of the same people recommended over and over again. This will give you a list of contractors to try and use.

Start with something small and renovated if you are concerned. You have a 16 year horizon to invest and 80 k to invest with but you want to feel comfortable with real estate to be able to find BRRR deals. You didn't mention how much you wanted to scale or building a massive team so i will assume maybe 5-10 properties. Your first 5 years will let you get to know the area, the contractors, identify a potential partner to have boots on the ground and establish a beach head understanding of investing in real estate through real experience. The next 11 years you will be poised to scale. A 150k townhome or SFH on a 15 year mortgage that is renovated and rents for maybe 1200-1300 in middle America or secondary markets is a high quality location, higher caliber tenants, and a less risky investment. You have 80k to invest. At 20% down with a local credit union in that area you would have a mortgage of about $120,000 and a payment of about $900. The loan will pay down by 30k in 5 years. You could buy 3 and learn the area. During that time you have $90k in principal pay-down, learn the area, benefit from appreciation, learn to manage property managers, repairs, contractors and basically find out if real estate investing is right for you. By year 5 you will know your way forward and could refinance or sell your 3 properties to pull all of your money out and move forward with your overall game plan for the next 11 years to scale for retirement or let those properties continue to pay down on their 15 year mortgages.

The hardest part is getting started but no one said you have to go for a home run on your first property or try to scale immediately.

Your plans to BRRRR out of state will become easier as you develop a team in that local area or identify a partner. There are still plenty of places in America where the numbers still make sense for BRRRR with some effort but you need a team (your David Greene core 4) in place who can execute the plan which each project (property) you identify.

Good luck!

Mike

Jimmy,

My advice on this is to get comfortable with going slow as you grow initially. I continue to work my W-2 and intend to continue for some time. I did a similar approach initially with personal loans and credit cards just to get started in 2018. I have only done 7 properties now so not living off any passive income yet, just sold one of the flips from this year. I also had to sell off some of them to improve my DTI but with COVID it took a year longer than i originally planned. I know from experience that you have more options then you you think. Like me you have done major renovations. You have learned a lot in the process and you can benefit from that education. Consider taking on a partner with a higher credit score so you can keep moving forward. As @Brandon Turner has said on countless podcasts - 50% of a day is better than 100% of no deal. If you keep with your W-2 and keep acquiring more BRRRR properties you will get faster.

Do not get discouraged that your BRRRRs took a while -- you will get faster. My last flip was a major renovation and took 9 months from purchase to sale but could have been rented at 7 months if that was the exit strategy. The first one i ever did took 13 months. For financing, change your focus to something you can action on. There are properties i would love to have a line of credit for that are major projects but too much risk for a bank or hard money lender. I choose to move forward on properties i can finance so i can continue to grow and learn. You will struggle to find banks to do 12k loans but you will find banks to do lines of credit. Start considering other strategies and maybe chart out where you want to be in 1, 3 and 5 years and take steps to set yourself up for the short medium and long term goals. Maybe focus on properties high enough to meet the minimum required loan for your bank or hard money lender. Perhaps you should consider house hacking or refinancing to a 15 year loan to create major equity in just a few years to allow you access to a HELOC. I recently refinanced my personal residence to a 15 year mortgage to give myself the option as i grow. Mathematically it doesn't make sense for cash flow but it is creating a forced savings account that will let have a larger HELOC in 5-10 years for BRRRR investing and eventually a paid off residence to reduce my risk.

Keep calling lenders. I have used 3 different hard money lenders i met through Biggerpockets. I have used 2 local banks - well 1 bank and 1 credit union. Credit unions have a much lower minimum loan amount. I have talked to over 10 local banks. Primarily to the commercial loan side of them. If you are not talking to your commercial banker then you are not allowing them the time to help you. @Ashley Kehr noted on her podcast how she talked to the bankers about what she was trying to do and ask their advice which allowed them to identify a short term loan product to help solve a problem. If you make it a goal to consider 50 financing options among partners, calling banks, and hard money lenders you will likely find a way forward before you get through your 20th on the list. It may not look exactly how you like but it will let you move forward. which sounds like your goal.

Really appreciate all the advice. A little background on why i am asking this question. I have done 7 properties since Feb 2019, 4 of which were full renovations, in south central PA generally with a typical ARV of 125k-175k. I spent 2017-2018 learning and looking a lot for properties to BRRRR. I have a solid core 4 and am taking advantage of the hot market to sell off some of the properties to firm up my personal financial status and catch up from some of my mistakes on the first couple properties. I am not looking to be a full-time investor; pretty happy with my day job for the federal government.

Even the larger renovations are getting easier so i want to learn how to do this even better in 2022, increase the velocity of my money, and maybe try to do 6 properties with an average turn time of 4 months. Once the contractors get scheduled to do their part i am freed up in my time with mostly just making sure they showed up and did their job. My limiting factor seems to be money so i want to set new objectives on how to fund these to increase the volume without having to build out too much of a company at least until i retire and have more time. I will take the advice of @Jordan Woolf and start reaching out to some local banks. @Jay Hinrichs I have not bought any using traditional financing for the 10 available that way. All of my properties have been through an LLC with a commercial loan product. Nearly everything has been a massive rehab. Any suggestions on that to maximize those or should i keep with my model?

My end goal is ballpark 30 units paid off over the next 15 years by selling the least desirable ones which would make a solid base to add to my pension at retirement time.

I have been re-listening to David Greene's BRRRR book for the umpteenth time. I am currently doing 2-3 BRRRR deals per year with the same money. We held some and sold some after a couple of years of BRRRR. I noticed how David Greene wrote he scaled to 2 per month. How did he manage this?

If i use hard money to rehab i am still 30-40k per property locked up for about 6 months to complete the rehabs +4-5 weeks for closing. That money includes the down payment + funds to front rehab costs before reimbursement. In today's market i can still find value properties on the MLS with some effort or through my agents if they are substantial renovations which is fine. If i want to do 2 per month, and say only did BRRRR no flipping i could focus on getting more efficient in the renovations and get down to maybe 4 months + tenant placement + refinance still 5 months of money locked out. Seems like i would need to increase my funds available from 70-80k --> 350k in order to maintain a steady flow of properties. I could see doing this in stages - If i tried to focus on 2 per every other month i could do 12 a year and would need about maybe 200k.

Seems like with 8-10 in progress at any given time i would also want an extra 25-50k+ for additional reserves. Doing these massive renovations there is always something unexpected once the walls get torn off even if i count of replacing all plumbing and electrical.

Does anyone know how David Greene was able to scale? In his book he mentioned saving up 90k, did he save up more than this to increase his velocity of BRRRR properties?

Would welcome any insight on this so i can work through mechanically how to increase from 2-3 a year to 10-15 a year.

Thanks in advance!

Mike