All Forum Posts by: Michael Wentzel

Thanks for all of the feedback. Work and life have kept me off BP for a while.

@Clay Manship When you refinance with a bank, are you going to a 30-year fixed? If you going to a portfolio loan, what kind of terms are you getting? I'm amortized over 20 years, 5 year until I have to payoff or refinance and only 75% loan-to-value. I'm thinking I might be able to do better on those terms. I'm saving my 10 conventional for four-plexes with higher values.

@Bryan L. and @Cal C. I'm trying not to over-leverage. I am shooting for $100 to $150 a door cash flow with 10% for PM, 10% for vacancy and 15% for maintenance. 

@Matthew L. I am hiring all of the rehab out. It is an art to find good contractors and keep them moving. I just went past my second rehab this afternoon and it looks like they accomplished nothing during the last week.

@Chris Adams I am realizing now that I do need to do better on the purchase side. The first one I purchased without looking at (bad idea). The second one I purchased with a dream of making it a duplex. Building code has ruled that out now. But I think when I come out that other side of these two rehabs I'll have much better understanding when I'm looking for the next purchase.

Thanks again to all of you for the feedback.

Mike

So I'm still relatively new to the game and I'm just finishing my first rehab. My "new" strategy is to purchase run-down properties, rehab them, refinance my rehab costs back out (and hopefully my down payment) and then add the cash-flowing property to my portfolio. I'm sure I'm not the first one to try this, but I haven't come across many others doing it.

Back in January I bought a house and cottage for $32,000. I put $8,000 down and my regional bank gave me a 15-year portfolio loan for $24,000. I bought this without walking through it, which was probably my first and last time doing that. I estimated my rehab costs at $18,000, but I'm going to be closer to $23,000 when I'm done. The appraisal came back at $65,000. My bank is now loaning me 75% of that $65,000 ($48,750) on a 20-year portfolio loan at 5%.

I basically get all my rehab cash back and paid about $7000 out of pocket for two renovated houses sitting on the same property. The gross rents should be about $1150 per month and my cash flow after all expenses should be $280.

Pros-

-I would guess my maintenance costs will be lower over the next 5 years due to the rehab.

-I paid about 10% as a down payment on an investment property instead of 20% or 25%.

-I learned a lot about rehab costs and contractors.

Cons-

-It took of ton of time, work and stress.

-My loan is only fixed at 5% for five years.

My hope is that I can get my rehab costs and ARV numbers down so that I could do more deals like this and actually recoup all of my down payment and rehab costs.

Any advice or insight from those who are more experienced than me?

Mike

4 bedroom, 2 bath- 1800 square-foot single-family home in southern Colorado back in March for $27,900. It probably needs $15,000 to $20,000 in rehab. I'm trying to decide whether to keep it a single-family and save some of my rehab budget or try to make it into a duplex. I like learning and making my mistakes with small amounts of money. Maybe someday I'll be ready to purchase in California or the East Coast.

Mike

Hey @Anthony Gayden

Looks good to me. I've been trying to convince my wife to move into a multi-family so we could live for free. But no luck so far. Property Management is usually 10%, but if you can get it for 7.5%, that is great. I also put my maintenance at 15%, but I think that is pretty generous. With your low down payment and low interest rate, you should be fine. I hope it works out well for you.

Mike

@Christopher Salazar Reading is a great way of learning. Beyond that, the Bigger Pockets forums an incredible free resources where you can learn and ask questions. Finally, if you have time driving or exercising, I would get into some podcasts as well. Most of my learning came from the Bigger Pockets podcasts and a couple other Real Estate podcasts I subscribe to.

In the midst of the learning, you should start taking some action steps. Have you looked at your potential strategy? Have you selected a market? Interviewing Realtors, Property Managers and Lenders is also part of learning as well as putting together a team for actually purchasing.

Mike

@Anthony Martin Congratulations on the property! Bigger Pockets is a great place to learn, but the best place to learn is by actually doing it. I hope it all goes well as you work towards the closing.

Mike

@Jacob Wathen Welcome to Bigger Pockets! This is the right place to find investors in your area. Have you attended any REIA's in your area? It might be a good place to continue learning and find someone who might mentor in exchange for a little of your time and energy.

It is great that you're starting young. I think most Real Estate investors wish they would have started when they were younger.

Mike

Hey guys,

Thanks for the feedback. Can you elaborate on the paperwork involved in the process? Will he need to be at closing? Can the title company do all the paperwork? Will there be any tax implications if he is on the mortgage and then I refinance in two months and take him off?

Mike

I am looking once again to the collective wisdom of Bigger Pockets.

We started buying run-down properties, fixing them up and then refinancing them to get most of our cash and down payment money back out of them. This leaves us with cash flowing properties and little or no cash left in each deal. I don't think this is a new strategy.

As of today, we have a friend who is willing to be a cash partner with us. Our thought is that we would take cash from him for the purchase and rehab of the property. Then when we refinance (estimated 2 months) we would pay him back with interest.

We are just wondering about structures investors have employed to execute similar strategies. Promissory notes? Partnership? LLC? I really am pretty ignorant in this area. I haven't even setup an LLC yet to hold these properties. I also want to create a system that is legal, protects both of us and is easy enough to replicate two or three times a month if we scale up the acquisition of properties.

I know there are probably threads out there that address similar topics. But I wasn't even sure what to search to find relevant information.

Mike

@Douglas B. Most of the units I'm purchasing could be deemed "low-end". I found a property manager who has years of experience and wasn't afraid of managing rentals in "affordable housing" areas. That has been a huge plus for me. I don't want a part-time job managing these properties and chasing rents.

So far, everything has been going well. I'm happy with the returns. After bantering back and forth on some BP forums, I've set my maintenance at 15% and vacancy at 10%. I think this is pretty conservative in case I run into the high turnover and major repairs which are sometimes more common in these types of rentals.

I also believe buying properties at such low purchase prices allow newbies (like me) to learn and make mistakes without taking huge risks. I don't have to empty my savings account to get into a $30,000 property. So it allows for a bit of margin.

Good luck as you move forward. It is great to read all of the input from more experienced investors.

Mike