All Forum Posts by: Neil Henderson

I would suggest talking to @Avery Carl. She has experience buying, selling, and running short-term rentals in that area.

I would invest about half in a low-cost index fund (something with moderate to low returns and risk) with Vanguard or Fidelity or some other "low fee" funds. I would invest the other half with a diversified mix of cash flowing assets across operator and geography with a focus on assets with good long-term demographic fundamentals, (i.e. Apartments, self-storage, mobile home parks, assisted living facilities, etc.)

Diversify across Asset Class, Operator, and Geography.

Most investors have one of three things: Time, Money, or Experience. If you are missing one or two of those things, leverage what you do have with someone who has what you are missing. 

I'm not a financial advisor, I just play one on TV, nor am I a securities attorney, and I don't know a great deal about your specific goals or situation, but I would not put all your eggs in one basket to start. 

You have money, great! What you lack is experience. Do you have time? Could you network with an experienced investor to bring your money and your time to a deal? Could you just bring your capital to a 506(b) deal as a Sophisticated Investor and learn/earn that way?

Whatever strategy you choose, it's better to get started small, than wait and wait and wait for the perfect big deal to come along. In my humble opinion.

If you wish to be an active investor, then I would suggest you start small and bring your capital (and time?) to an experienced investor who focuses on ONE strategy (multifamily, self-storage, mobile home parks, house flipping, etc.) Whatever, just pick the one you understand and like the best.

If you wish to be a passive investor, then I would suggest you diversify across asset class, operator, and geography. You can invest passively as a non-accredited investor, you'll just need to network with operators who are doing deals under SEC reg 506(b) as a sophisticated investor. These are deals that will not be advertised, you will have to find them by networking with operators.

Good luck to you.

The thing that makes BRRRR possible is the Forced Appreciation of buying a distressed asset and rehabbing it. Classic example: Buy a beaten up house for $50,000, Rehab it for $25,000, it gets appraised for $100,000 (After Repair Value), you Rent it out for $800-1,000/month, you then go to a bank to do a cash-out Refi at 75% LTV loan on the new value, allowing you to pull your original investment of $75,000 out of the deal so you can Repeat that with another property.

With a Turnkey property, the turnkey operator has already done the Rehab, so they are the ones who have forced the appreciation. They then recapture their investment by selling it to an end buyer at retail. 

@Whitney Hutten has used a hybrid of this model by investing with a turnkey operator in Kansas City, then she eventually approached the operator about buying some of their stock from them before they rehabbed it. But again, SHE does the rehab and thereby forces the appreciation.

Very interesting concept. I'm intrigued. We have looked into renting a fifth wheel to try it out, but we don't have a vehicle to tow a large one, and the thought of driving someone else's rig with their vehicle or a rented vehicle is pretty daunting. Would be cool if there was one pre-positioned at a nice park that we could go stay at.

I think the biggest issues will be:

1. Parks letting you do this. I'd bet good money they have rules against sub-leasing, or if they don't, the moment a group of savvy entrepreneurs try this model, they will.

2. Insurance. Talk to your RV insurer about this, they might void your insurance if they find out you're using it for commercial purposes.

3. Many parks are starting to push back on long timers, and I could see that really taking off if they suddenly had an influx of long-time rigs that were being used as short-term rentals.

1. Don't compete on price. Compete on value. Work to emulate what the highest priced listings in your area are doing rather than compete with the bargain listings. Go for quality over quantity. I'd rather have 50% occupancy at a high price point than 90% occupied at a low price point. Don't rely on AirBnB's smart pricing, their goal is more bookings (which they get a cut of) not quality bookings.

2. Spend the first 3-6 months doing most everything yourself. Cleaning, guest communication, price setting, etc. Spend that time writing down processes and procedures that you will eventually hand off to team members or automation. Turnoverbnb (cleaning) changed our lives, as did Smartbnb (communication), as did Pricelabs (pricing). 

Talk to your current lender about it. Be honest about what exactly you're trying to do.

@Jake Silverman No, you would definitely want to talk to a lender who has experience doing it. Not all lenders will be comfortable with it. That's why it's important to line up the lender BEFORE you buy the property.

All things being equal, there is no difference in the interest rate on a delayed finance loan. 

All that the BRRRR strategy is is value-add investing. It's not new, it's how Warren Buffet has built his fortune, buying distressed assets at a discount that can be "fixed" to return their value to a normal, market price, or better. It's not natural appreciation, it's forced appreciation. In the commercial real estate investing space, it's a double whammy of increased cash-flow, PLUS forced appreciation due to the income based valuation of commercial real estate.

With residential real estate, if I purchase an asset for $60,000 that's worth $100,000 if it's been fixed up, and I spend $15,000 forcing that appreciation to $100,000, I've just created $25,000 in value, not the market. If that property now rents for $1,000 a month, in most scenarios, it's going to be positive cash flowing, even after placing a long term mortgage on it.

Yes, there are risks. You could be in the middle of a refinance when a global pandemic hits that causes an economic catastrophe that causes your cash out refinance lender to balk at a cash out refi of 75%. Now it's 70% and you've just left more money in the deal. Living that right now.

In the time you purchased the property and rehabbed it, the market could soften and your appraisal comes in low. 5% lower? 10% lower? Is a market really going to soften that much in a 3 month period? Maybe, but that would be a pretty severe market correction, and you're still pulling most of your capital out of a deal at a 10% drop.

So, everything has gone reasonably well, but not great, now your in a deal for $10,000 that's worth $90,000 and it rents for $950 a month. Eh. Not great, but hardly catastrophic.

Ok, now your tenant stops paying rent. You need to evict. In a normal world, and assuming you didn't buy in a state with wildly tenant favorable laws, you evict. It takes 3 months? Maybe returning it to rent-able condition costs $6,000? Ouch. Again, not catastrophic...IF you follow the Three Immutable Laws of Real Estate Investing:

1. Invest for cash flow
2. Invest with long-term, low-leverage debt
3. Have sufficient cash reserves.

It's all about creating multiple margins of safety. The first margin is buying low and forcing the appreciation.The second margin is positive cash flow. The third margin is good debt, not over-leveraged, not short terms. The fourth is your cash reserves that allow you to adjust and weather the unexpected.

If it were me, I wouldn't want to be tied up with that property long term at this moment in time. A lot of potential volatility on the horizon, and I wouldn't feel comfortable holding that long term. So, I would lean flip. Not a huge return, but if the rehab can executed quickly, under 90 days, sure.

I don't like it as a long term rental at all! A $450,000 home that rents for $2,800 a month? I would be stunned if that would show positive cash flow. Negative cash flowing property in a hot market entering a period of severe economic uncertainty? Yikes!

As a short-term rental...maybe. I would not bank on 68% occupancy. Totally possible, we maintained nearly 85% occupancy for 6 years, but that was on a one room guest house. Larger properties tend to have lower occupancy, but higher revenues. You might hit 68%, maybe even better, but I would underwrite more conservatively to give yourself a margin of safety.

Let's say you average, over the course of a year, an ADR of $200 a night using dynamic pricing. If your occupancy is low, say 45%, you're looking at a gross of $33,000 ($2,750/month), if your occupancy is 70%, you're looking at a gross of $51,000 ($4,250/month). Those are some THIN margins for deploying a lot of capital.