All Forum Posts by: Pete Harper

@Pete Harper

Sorry, I made a mistake in my math. My original cash investment was only $90k.

$10k goes to repay owner financing leaving me with $91,340 cash. However I still have my original $10K that I didn’t invest in the deal. That still leaves me with $101,340 to reinvest.

One of the biggest things missed in Brrrr is the ability of rehab to drive both appreciation and cash flow. If you buy the right deals you leave little to no seed capital in the previous deal.

Admittedly Brrrr is not perfect. It doesn’t work in all markets and for all people. I’m fortunate in that I live in a market it works very well. This very well might not be the case for Joe.

@Joe Villeneuve

That’s a pretty good deal. It would also work as a great Brrrr.

$90k cash, $10k seller financing

CC $1k (closing cost are lower with no loan)

CF $890/month

6 months rent $5340 pays 100% rehab

ARV $125k

80% cash out refi

Cash to reinvest $100k plus $1340 cash from rent = $101,340

101% of original seed capital.

Rinse and repeat....

@Michael Roetzel That’s the risks of doing work yourself without pulling permits. Once you open the door to an inspector you can open a can of worms. It probably too late but in the future only have the work requiring the permit active when the inspector is on site. For example when you are working on plumbing don’t have any electrical or framing projects in progress. That way the inspector can not get side tracked on other non permitted work he sees in progress.

For this reason I generally do all or nothing when it comes to pulling permits. If a portion of project requires a permit them the whole project goes under permit. If it is a small project then I don’t pull a permit and don’t open the door to the inspector.

I only pull permits when doing major renovations that include adding rooms or major modifications.

We ran into an issue buying a property where the previous owner was a contractor. He did a garage conversion into master bedroom and back porch into family room. When it came time for appraisal he had 600 Sqrft of unpermitted addictions that could not be used in the appraisal. 2000 sqrft home became 1400 sqrft and he was under water on value. We walked away from the deal and he landed in foreclosure 6 months later.

@Dustin Crawford

You are right, there is not a lot of multifamily inventory in Palestine. However, there are a lot of single family properties. Have you looked at the sheriffs tax auction? A couple times a year the county will sell off delinquent tax properties at public auction. Palestine usually has a large inventory. Read up on the rules before you bid. Non owner occupied properties have a six month redemption period. Homestead properties have up to two years. During the redemption period the owner can buy back the property for 25% premium over auction price. Any renovations would be forfeited. For this reason you have to wait out the redemption period before doing any work. However you can still charge rent, including the previous owner for owner occupied.

My other suggestion is to look for off market deals. Beat the streets looking for likely multifamily properties. Send lots of yellow letters to find your own deals.

I’ve had luck with both approaches.

@Joe Villeneuve

After expensed and mortgage you clear $520 profit per unit per month on a $100k investment. I’d like to see you break that down.

@Joe Villeneuve

Back to your original $100k example. After you have purchased four properties for $100k you have $300k in debt and zero seed capital left. You are done investing unless you have capital from other sources. Assuming $200/door Cashflow you have $800/month.

With Brrrr I have the same $300k in debt, $100k in Capital to reinvest in other deals. Since I put rents back into renovations I have been able to force appreciation in value plus increase rents. Cash flow will be $250/door or $1000/month. Since I can keep repeating the process after four more years I will have been able to buy eight more properties using the same seed capital. I now own 12 properties generating $3000/month total income. Plus I still have my original seed money to keep investing.

@Joe Villeneuve

Obviously you are a Brrrrr hater. That’s ok. You invest your money your way and I will invest my way. I’m not here to educate you. I’m answering the original question why you would want to pay all cash. I’ve provided two good examples.

1) Tax avoidance using 1031 exchange.

2) Brrrrr strategy.

Good Day Sir

@Joe Villeneuve

3) What do I do with money from refi?

“Repeat” of course.

I keep buying more deals and repeat the process. I have a Brrrrr going now where I’m in the process of renovation on my second property with the same capital. In a years time I’ve cycled the same capital through three properties.

@Joe Villeneuve

1) As stated I'm using your $100k example. However I have a real life example listed in my profile if you would like to look it up. Duplex purchased for $98,500, ARV $130,000 rents are $1350/month.

@Joe Villeneuve

Taking your example and turning It into a Brrrr.

I sell my property for $100k and do a 1031 exchange into a $100k duplex paying all cash. Since I don’t have a mortgage I collect $750/month rent. I use that rent to fix up onside keeping the other rented, once that is done I renovate the other side. In six months I have both units renovated. Rents are now $1500. The property is worth $125k. I refinance and pull $100k out in equity. I buy a second duplex for $100k and repeat. Now I have $400/month take home plus $750 from the second duplex. I can now do a nicer renovation on the second duplex. The new duplex is worth $140k, renting for $1700. I pull out $110k and buy a third duplex for $110k cash. My cash flow is now $400 from first duplex, $500 from second and $750 from the third. Within a years time I have $1650 in Cashflow. The best part is this method scales. So long as I buy good properties I can keep recycling that same $100k over and over.

With non-Brrrr I have to pay state and local taxes on sale. My $100k becomes $75k after taxes. That is just enough to buy three duplexes. Since they are not renovated I only get $200/month for a total of $600/month Cashflow after paying three mortgages. Since I’ve spent all my capital I can’t buy any more properties. I’m stuck until I can save up another $25k to buy another one.

I don’t get your point that cash out refi is not my money. It’s green and I get to spend it however I want. I can keep recycling the same money over and over.