All Forum Posts by: Nicholas Spinazze

Definitely worth a read, especially if you don't have a background with a great deal of financial education. Largely it just shifts your perspective on money. Having it work for you rather than exchanging your time for money is a novel concept to a lot of people. He also has a few other books like Cashflow Quadrant that are worth reading and the Cashflow game is a great teaching tool as well. (As an aside, I wish he'd make a more advanced version where the good deals are less obvious and you have to put more effort into analyzing a deal.)

Fellow REI's what tasks on a daily/weekly basis do you find yourself doing that you want to or have outsourced? Is it searching for properties that fit your deal criteria? Searching for news about the general state of the market/markets you operate in? Is it managing maintenance requests or facilitating payments? Is it book keeping or something else entirely?

Quote from @Dave Skow:

Thanks ...I misunderstood - thought you were looking for const  loan .....contact  some lenders  now to see what  " take out " / permanent loans  are  possible  so you can  have this in place ......is the const  lender  not interested or  willing to  make the loan permananet >?....how many units are on the  property ?

 As I understand our loan is a construction to permanent loan. But I don't know if at the end of construction they re-assess the value? If they don't I guess we would want to wait a seasoning period and then refinance?

Quote from @Dave Skow:

@Nicholas Spinazze- thanks - to add -  finding a lender  willing to do this sort of construction loan in this  environment will be  next to impossible 

@Dave Skow, we already have a loan secured for the construction loan. Do you mean it will be very difficult to find a lender willing to convert a construction loan to a mortgage?

Quote from @Scott E.:

Yes you absolutely can apply the BRRRR method to new construction. There isn't much fundamentally different from doing an extensive remodel on an existing home and building a brand new home.

The BRRRR method is all about adding value. And when you're building in the right sub market, a ton of value can be added by doing new construction for the exact reason you described (construction costs 137/PSF and finished value 220/PSF)

I say do it as long as the numbers make sense as a rental.

(By the way, I am very jealous that you can build for 137/PSF. It costs me 300/PSF+ to build new out here)

@Scott E. Ok awesome that makes me feel a bit better that we might be on the right track! Oh wow! It's amazing how much the construction costs can vary geographically. I wonder is that driven by higher labor costs or material costs or variances in local regulations that make it more expensive? We are doing a very basic box on box design with sealed concrete on the bottom floor and LVH on top. We are using vinyl board on the exterior which I'm a little concerned about as well as I've heard mixed reviews on it, but it's just so much cheaper here than hardy board and brick. Curious to hear if you think all that makes sense for a rental? Also love Scottsdale btw, used to live by the Kierland mall in highschool! 

@Andrew Postell I do not. Is that something that can be done before the property is complete? We only started turning dirt recently. Should you generally use the same lender for refinancing as you did for construction and if so should I ask my current lender? When we convert the construction loan to a permanent loan is that going to be a refinance opportunity?

Quote from @Eliott Elias:

BRRRR works when you are all in on a property at %75. Unless a builder sells to you at a 25% discount you're not going to BRRRR it.

Hey Eliott! Thanks so much for the prompt reply! Our all in cost including construction and land is 859000 and we expect the properties to be worth 1,188,000 based on a range in the area of 220 to 240 psqft, which means our cost is approximately 72% of the ARV (or maybe ABV in this case). That being said we are doing a construction loan for the land as opposed to paying cash. Not sure if its still a BRRRable in that case.

Quote from @Nicholas Spinazze:

Quote from @Jeremy H.:

Are you paying for the new construction in cash?

What you're doing here is really just building at a discount. I would be careful with your expected appraisal amount just because I have generally found new construction to be more expensive than buying an existing structure. Now this may not be true for all areas but it seems to be the case with mine. If it were that significantly cheaper I think you would have a lot more building as opposed to buying existing homes...

Hey Jeremy, thanks so much for the prompt reply! We are financing the construction with a loan and the land (which we own outright) is being used as the down payment so we don't have to put up any additional cash. That's definitely my biggest concern/what keeps me up at night, that builder is underestimating construction costs, but they came highly recommended by a mentor that I trust and our banker also says they generally do a good job of hitting timelines and hitting cost estimates which is why they like using them. We would definitely like to do a proper rehab with a BRRR in future but have had a hard time finding contractors that do rehabs in the area. Most seem to really prefer new construction.

Also I used to live in Lafayette, LA! Would love to connect and chat sometime!

Quote from @Jeremy H.:

Are you paying for the new construction in cash?

What you're doing here is really just building at a discount. I would be careful with your expected appraisal amount just because I have generally found new construction to be more expensive than buying an existing structure. Now this may not be true for all areas but it seems to be the case with mine. If it were that significantly cheaper I think you would have a lot more building as opposed to buying existing homes...

Hey Jeremy, thanks so much for the prompt reply! We are financing the construction with a loan and the land (which we own outright) is being used as the down payment so we don't have to put up any additional cash. That's definitely my biggest concern/what keeps me up at night, that builder is underestimating construction costs, but they came highly recommended by a mentor that I trust and our banker also says they generally do a good job of hitting timelines and hitting cost estimates which is why they like using them. We would definitely like to do a proper rehab with a BRRR in future but have had a hard time finding contractors that do rehabs in the area. Most seem to really prefer new construction.

Quote from @Andrew Postell:

@Nicholas Spinazze is that a single family home? The main reason that won't be a good BRRRR property is because you have to rent it. And in no market will a $1million home be a good rental. We target 3br 2ba homes BELOW the median house price point of each market. To clarify, if you purchased 5 $200,000 homes they will rent better and with more profit than one $1million home. If you do create that much equity, just sell it and go build 2 more of those homes....or buy 6 rentals...or whatever. Those are terrific numbers for a property so don't think that I'm saying it's not a good deal - that's exceptional! At that price point we flip...but not to keep for rentals unless they have many units attached to it.

Hope all of that makes sense.

Hey Andrew thanks so much for the prompt reply! It's not one single family but rather 2 single families each with an accessory dwelling unit (ADU) or mother in law suite. We believe based because we are walking distance from the university that we should be able to rent each single family for 2400 per month (800-900 per bedroom seems to be the going rate in the area). We then plan to use the ADUs as short term rentals. Given the proximity to the baseball and football stadiums we are reasonably confident that we should be able to generate 2500-3000 per month in revenue per ADU and if that doesn't work out we should be able to make them long term rentals as well. So we expect our total monthly revenue to be approximately 9800-10800. Given that does it still make sense to sell and if not would you say its BRRRable?