All Forum Posts by: Michael Doherty

@Michael Montana How about a 3rd option and use a HELOC? Depending on what your current rate is on your house (if its 3 years ago, its probably not terrible) you may only be saving marginally if you refinance. There are much more closing costs to a cash out refinance than a $500 appraisal. So simple math... what are you all in costs to refinance? Once you get that number figure out how much you would be saving by dropping to a lower interest rate per year.... you said around $100 a month? How long do you plan to be at your current residence? There is a breakeven point to consider. It's going to cost me $5,000 dollars to do cash out refinance... how long do I have to stay at my current house to breakeven on the interest I am saving from going from my current Interest rate to the new proposed one.

Or I could use a HELOC, save on the closing costs and still tap into that 100k equity for a low interest rate you only pay on when you use the money. Yes you will still have a $500 appraisal to pay for but much cheaper overall than doing a cash out.

@Crystina Milici any town right now you will be hard pressed to find a deal that makes sense numbers wise to either flip or BRRR. Your Best opportunity is to cold call or door knock on property that appear distressed. Everything on the market is being bid up to a point that doesn't make sense. I know a couple off market properties in the area but they are more turn key at the moment.

@Wesley Canhedo if you can increase your home value by 210k how much cash would it take in renovation costs to get to 800k ARV? Depending on that, I would just sell my house and go buy 2 BRRRR deals with the cash on hand.

@Eric McCarty Your money... whether bank money or personal money is going to be tied up for 6 month seasoning require to refinance. You can still get a great deal by buying 'cash'. Hard money or private money is a decent way to get started using Other people money. When you make your offer with a hard money lender it is essentially 'cash'. They close quick and make it pretty painless. There are less hoops to jump through for both the seller and buyer. But it isn't cheap. Typically any hard money lender depending on your experience is going to charge 10-12% interest only and 2-3 points. 

@Eric McCarty I don't know if I necessary agree with that statement 'funding the entire deal with cash'. There are a lot of investors, myself included that never would have gotten started if we didn't use debt to fund deals. Debt/leverage used in a responsible and prudent way, is one of the most powerful tools to growing your business. 

The Dave Ramsey school of thought would tell you not to take on any debt. However, some of the most successful people in real estate and other fields started off with debt and using other peoples money. Should you leverage yourself 100%... NO. But if you are short on cash and try to keep saving to fund a deal 100% cash, you may never get started. 

Think about it like this: If I gave you a 100k loan at 5% to fund your deal and you knew you were going to make 10% on the backend would you do it? You essentially just make 5% net profit without touching your own bank account. Even if I had the funds to purchase and rehab 100% cash, I still wouldn't. You pigeonhole yourself to that one deal. What if during the middle of that deal, you get presented a different deal with fantastic numbers. All your capital would be tied up and you would have to pass.  

@Keegan Dsouza I wouldn't get too caught up on 'what strategy fits each market' because many people on here, myself included could probably argue you can make any strategy work in any market. People don't stop flipping/BRRRR'ing, buying tax liens, buying raw land, building storage units ect because of a certain market. With that said, the barriers to entry are certainly harder per market... for example, flipping a house in San Francisco is going to require a lot more capital than flipping a house in Manchester, NH.

I would first decide which strategy you want to pursue. Then research the market and ask yourself why you like it. Do you like it because of growth, gentrification, appreciation? Then try to apply your favorite strategy there. 

@Shushruma Ekbote Hi Shushruma, congrats on your recent house hack! When looking for a BRRRR I would advise to start backwards and run your numbers like you are going to flip the property. Simply said.... what ever you think the ARV will be multiply that by .75. Then take that number and subtract out your estimated rehab costs. What ever that final number is should be your maximum allowable offer. I provided an example below.

200k(ARV) x.75= 150k. 150k- 50k (projected rehab costs)= 100k. So in this scenario your maximum allowable offer should be 100k or less.

These are very loose numbers, there is certainly a lot more that goes into it but this should get you started when analyzing deals. Please keep in mind both sets of closing costs. You are going to incur closing costs to acquire the property and very similar closing costs when you refinance with a new bank. Please be sure to factor these costs into your numbers. Bigger Pockets has a great BRRRR calculator. I would suggest using this and analyze as many deals as you can.

@Alan Carranza Just compare what closing costs, debt service and interest rate would be if you did a cash out refinance. If you can do a Cash out refinance and pay 4% interest rate, cash flow and use that cash to make more than 4% then its a no brainer. If that doesn't seem possible just do a HELOC and tap into the funds when you want.

@Joe M. what LTV can you get the HELOC for? If they are willing to give you 75% or greater LTV then do the HELOC. Closing costs can add up for a cash out refi. So just do the math out... how much money would you be spending in interest on the money you tap into with the HELOC vs closing costs to pull out the same amount. I like the idea of only tapping into and paying interest on the monies I need... like a very large bank account.

@Jessica Heyse congrats, those are awesome numbers! Onto the next one. Let me know if you have any questions as you embark on getting your real estate license.