All Forum Posts by: Nathan Maier

@Tinley Jones San Diego is a tough place for a new investor. The lack of capital isn't the biggest problem, as much as it is just a different strategy required here. Fix/Flip is a viable strategy, and can be done with OPM. Most everything else around here is an appreciation play, which is tough. I too live in San Diego and have chosen to invest out of state. 

Evansville is a market I looked in to as well, and probably a good fit for you as you have a little local knowledge. Lack of capital right now is not a barrier, just a hurdle. There is plenty of money out there to add to your $25k for a proper BRRRR. You can use private money, hard money, or even a construction loan to get your first BRRRR done. Have you come to any of the local REI meet ups here in town?

When evaluating a potential market to invest in, what indicators do you look at? What weight would you give those indicators. Let's assume a buy and hold / fix and rent strategy of investing. The indicators I have been looking at so far with an associated weight of 1-5 are:

Rent / Value - 5

Population Growth - 4

Recent Job Growth - 4

Future Job Growth - 4

Property Tax - 4

Rent Increase - 3

Home Appreciation - 3

Unemployment - 3

Median Income - 3

Rental Vacancy - 3

Per Capita Real GDP - 2

Median Age - 1

Please post your favorite market indicators and how much weight you give them!

@Axel Meierhoefer Yes, I plan to put together a team in the market I choose. This is probably the hardest and most time consuming aspect of what I plan to do. TK is an entirely different strategy with a much lower ROI, albeit with lower risk. Maybe equate it to Bonds vs Index Funds. An important part of my strategy is force appreciating during rehab to gain 25% equity right away. An optimal BRRRR will also allow you to recycle your initial capital to scale quicker, whereas in a TK you will have to build up a down payment for each purchase.

Wayne, Cash Out Refi is what I was abbreviating. 

Does your current investment property make sense if you Cash Out refi at 5.5%? I understand that you see it as your seed, but sometimes the equity would be a better seed than a possible under-performing sapling. Another way to look at it, is if you did not own the property but instead had $100k cash (your equity) would you choose to buy it now as an investment property? Just food for thought.

I figured you were looking at PenFed but thought I would ask in case you found a different lender to offer HELOCs on non owner occupy, especially at 80% LTV.

Wayne, I am in the same situation. How much longer do you plan to hold the rental property?

HELOC probably makes the most sense here. Only pay interest on what you use, and only when you use it. Yes you will have an additional monthly payment (HELOC interest) but the goal of a BRRRR is to get that money back out ASAP.

Perhaps a CORefi makes sense if you plan to hold the initial property long term and you want to keep the equity recycling in the BRRRRs. Eventually the draw period on the HELOC will end so this strategy gives you indefinite cash. Trading 3.25% for 5.5% is tough, but if the numbers work, go for it.

My plan is to sell my rental property in about a year, which makes a HELOC the easy choice.

Where are you getting an 80% LTV non owner occupy HELOC?

@Aaron Conner you say you can’t find any properties that meet the 1% rule, then say you are seeing an average of $100/sqft with rents $1.30/sqft. That is 1.3%. Remember the 1% rule is monthly rent divided by price should be 1% or more. If you can get 1.3% then you will most likely cash flow positive. 

The word “points” is often used in place of 1%. So if someone says “I can get you a loan for half a point over prime”, that means .5%. two and a quarter points is 2.5%. On conventional loans you can buy down the interest rate by purchasing points. 

What are the details on your $400 cash flowing SFR in Bakersield? What's your CoC?

I've found positive cash flow MFH in Bakersfield. Not great CoC but it's positive, which probably can't be said for anywhere in OC right now. These are C- neighborhoods if I were to guess.

Right away this deal is not looking like a knockout BRRRR. Your acquisition+rehab is 84% of your ARV. if you are off on your rehab or ARV estimates, you stand to leave a lot of cash in the deal. It sounds like you plan to do a loan at purchase, and a loan to refi. Two closing costs are going to eat in to your cash even more.

Now the bigger issue, and the reason why a BRRRR isn't going to work with your financing plan. If your numbers are exactly as you estimate that works out like this:

$100k personal loan

$72k conventional loan

After you rehab and rent you will refi at $205k and probably get a LTV of 75% which means $154k financed minus $72k for the initial conventional loan leaves $82k cash back. Subtract another $5k for two closing costs and you come up $27k short of paying your friend back. That is if your estimates are correct.

What is the expected rent?

Option 5: Stay with your parents and buy a cheap trailer/RV and park it at the drop zone. Get a mobile hotspot to do any business related work that requires internet. I knew someone who lived full time at a drop zone in a 5th wheel type trailer. He didn’t even own a truck to pull it but they let him park it there. He was a pilot for the drop zone. I’m sure if you are spending that much cash to jump as frequently as you plan to, they will work something out. Target Byron/Tracy for this as the airport is smaller and more friendly to this sort of thing. 

With this strategy you can invest out of state in better markets that require much less initial capital.