All Forum Posts by: Dean I.

@Alexander Felice

I think you are completely miss-understanding the situation . . . 

First let me state that currently, I have no rentals. Up to this point, I have only been flipping houses. So I don't know what actual expenses are, which is one of the reasons why I am posting here.

I understand that I am automatically gaining equity in the property, which is great. Also, if you read my original post again, you will see that I am accounting for tax benefits, which is actually one of the main reasons why I am trying to purchase rental properties. However, even with the equity and tax benefits, I would like to have some cashflow after accounting for all expenses (current or future). 

But unless you throw out the CapEx and the repairs and maintenance expense and drop the vacancy rate to 6%, I don't see how you are making $100 a month like you suggest.

You say that I am accounting for too much CapEx, but from everything I have read, that is the one area that most investors don't account enough for.

Again, I do not have any rentals at this moment, so I cannot tell you what my actual expenses are. But what I can tell you is that I don't want to throw the CapEx and repairs expense out the window, only to throw all my cashflow out the window once a major expense comes up. Granted, if I only hold on to these properties for 3 to 5 years, then I can see justifying a smaller amount of CapEx, but I cannot just completely getting rid of it in the name of cashflow.

Then there is this statement, which is just completely wrong and insulting. 

"You're banking on all worst case scenarios, then complaining it only makes you a **** ton of money, not a double **** ton.

That greed will keep you from making ANY money if you try to make every unit a homerun. you don't need homeruns, you need 50 singles."

I am not complaining that I am making a crap ton of money instead of making a double crap ton of money. In fact, I am not complaining at all. What I am trying to understand is why I am not making any cash flow after I do all the math. This has nothing to do with greed. I am a businessman and I don't go into any deal unless the numbers work and right now, the numbers don't work. 

So rather than insulting me, maybe you can be more specific on how your numbers work and why mine don't. I am just trying figure out what I am doing wrong, so I don't get myself into a bad deal.

@Brent Coombs I was basing those lifespan figures on this article here

https://www.biggerpockets.com/renewsblog/2015/10/1...

I basically took the age of the property and the condition of the components and subtracted it from the typical lifespan (according to this article), to come up with the remaining life of those components. I did add a few years to the flooring since I am going with LVT instead of carpet. I am also going to check out the resource that Steve posted and compare the two. 

But even if I drop CapEx to 5% of the rent ($43), I would still have a negative cashflow of $6. Also, the repairs expense should have been $43 (not $22) at 5% of the rent. Not sure how that got messed up.

@Chad Lamb Unfortunately for me, I have no intentions of doing the work or managing the property, which is going to make it that much harder. Glad to hear you found a property that works for you though. Good luck on your REI journey!

@Brent Coombs 

That is just from one property that I looked at. I took into account the age of the property as well as anything I was going to replace. 

I get the fact that others are paying down my debt, but the fact is, I want to make a little something while they are paying down my debt. Also, others are obviously making the BRRRR strategy work for them (they are making a little bit of cash flow) so why can't I?

@Dave Toelkes Sorry for the confusion, I was simply stating that I could at most, refinance for 80k, but I only planned on refinancing for what I had into the property, which would be 75K, excluding closing costs, etc. I also get that my ROI is essentially infinite, but that is not my main concern. Sure, I do want my ROI to be infinite, but I also want some cash flow. An infinite RIO of $100 per door is much better than an infinite ROI of $1 per door. Now, if I got 5k out of the property and still managed to cash flow positively at all, that wouldn't be so bad, but with these numbers, I am bleeding over $150 a month, without taking out the extra 5k.

@Chad Meyer Well at least it's not just me. 

I have read others getting decent cash flow from BRRRR on the forums and of course @Brandon Turner gives an example of a fictional property making $370 cash flow a month. When I first read that, I thought to myself, "there is no way!" In his example, the ARV was 100k, he refinanced it for 80k and the rent was $1150, giving him a positive cash flow of $370. I know that this example was just fictional, but I am guessing he wouldn't give an example unless it was at least somewhat plausible. A property like this around the areas I have been looking at, wouldn't rent for more than $800 to $900 a month. I do notice that in his example, his CapEx is only 5% of his rent (which is about $150 less than my CapEx), but I don't know how he would come up with that number. I mean, I get giving a lower % CapEx for properties where everything is brand new (Especially if you are just going to sell it again in a few years before things start breaking down), but when you completely break down CapEx numbers, I can't get it that low. Maybe that is what I am missing though? I am not planning on holding on to these properties for longer than 3 to 5 years. Eventually after I accumulate enough of them, I plan on selling them and doing a 1031 exchange for something larger like an apartment complex. So maybe I can justify a lower CapEx, so long as whatever is on the house is either new or has at least 5 to 10 years of life left in it. But if that is the case, what would a safe number for CapEx be?

Ok, so I did have the 50% rule wrong. 50% of the rent is supposed to be the expenses not including principal and interest. I was taking 50% of the mortgage for some reason.

https://www.biggerpockets.com/blogs/4454/32123-wha...

Even so, the 50% Rule still doesn't quite work with these properties. At best I would break even if the 50% rule was accurate for these properties.

Thank you for that resource. For my capex, I have been using the chart in this article to determine the lifetime of these items. 

https://www.biggerpockets.com/renewsblog/2015/10/1...

Of course the replacement cost I can figure out my own based on my experience with flipping houses.

I primarily flip houses at this point, but I also need to pick up some rentals for the depreciation and of course the passive income. That being said, I do not want to have my money tied up into rentals, when I could be using that money to flip houses. This is why I am trying to work with the BRRRR strategy, but I can't seem to find a property where this actually works. When I look at a property initially, I make sure that the property will satisfy both the 1% rule and the 50% rule, after refinancing the property for what I have in it. Once that happens, I dig into the numbers and calculate all my expenses to include, CapEx, repairs and maintenance, vacancy, insurance, property management, taxes, HOA and other misc expenses that my be associated with the property. Each time I do this, my expenses blow the 50% rule out the water (expenses are usually twice as much or more) and the 1% rule looks more like a 1.5% rule and thats just to make $100 per door. Of course, I always hear people say things like they buy houses for 75% to 80% of the value of the home, in order to buy a home that cash flows, but with rents in the areas I have been looking in, you would have to purchase and rehab the home for close to 50% of the homes value.

Let me give you an example for a 1200 sqft, 3 bed/2bath home.

Home is worth 100k with a maximum refinance of 80k with a LTV of 80%

If I am lucky, I can purchase and rehab a house with an AVR of 100K, for around 75k (which as a flip, would yield me around 10K profit).

I can then rent this property for around 850, which satisfies the 1% rule.

But here are my calculated monthly expenses for a property like this

$200 For CapEx (which I calculate based on the age and replacement cost of each major item, not just some random number or %)

  $22 For repairs and maintenance at 5% of rent

  $68 For vacancy at 8% of rent

$438 For mortgage. 30 Year Amortization, 5.75% interest

  $70 For insurance

  $85 For Property Management at 10%

$110 For Property Taxes

Total Expenses: $1013, which is over 100% of the mortgage. 

So basically, I would have to rent the property for around 1200 (which is about $350 above what the market can bear in these areas), in order to get $100 cash flow per door.

Am I doing something wrong? Am I just looking in the wrong areas? It's kinda driving me nuts, because I feel like I am doing the math right, until I get to the end . . . I should also note that these properties are in areas that are good for buy and hold rentals, according to investors on this forum.

lendingone.com advertises as low as 4.99% amortized at 30 years, with an arm or 5.49% amortizated at 30 years fixed. Though you will likely have to meet some strict requirements, I would try them out.

@Joe Splitrock I should also clarify that I am not moving the financials in the name of the LLC in order to somehow not show that I have a mortgage on the property in my name. In fact, the opposite is true. While my name will be on the mortgage, I will be paying the mortgage through the LLCs account. I think maybe that is what you were getting at. Sorry if I originally miss understood what you meant.

Yes, they will look at both my personal and business (all of them), but they often times won't lend to an LLC that is not well established and showing profit. This is not my first rodeo. I have run personal accounts and loans (for the purpose of a business) through an LLC before, in order to get a business established. As I said, this is the advice given by my tax advisor and my lenders.

Not sure what else to tell you if you dont agree with my tax advisor and lenders.

It's not about building credit as much as it is about showing the banks that the LLC they are considering lending to is making a profit. When it came to flipping houses with my other LLC, I couldn't get any business loans or credit lines with any banks until I was able to show that the LLC had been open for a while and making a profit. I was lucky to be able to get funded for flips through my LLC and even then, there was only one bank willing to do that.

It may be easier to get funding for a new investor with a new LLC in some other parts of the US, but I have not found that to be the case here.

Also, this is what my Tax Advisor suggested I do.