All Forum Posts by: P.J. Bremner

Quick update - After speaking with several lenders, it seems like the most cost effective strategy is to wait the 6 months and BRRRR out the full equity with a cash out. A DFE loan would be nice, but with closing costs in the thousands it would eat up most of the benefit of having the cash out early. It seems the best strategy is to plan the full BRRRR cycle at 6 month intervals. Another option that popped up was to cash out with a portfolio lender and then refinance for rate/term down the road, but this strategy suffers from the same issue as the DFE - closing costs and loan points will negate most of the benefits. Patience is a virtue - but that doesn't mean it sucks any less lol.

We are scheduled to close both properties on the 15th and I will create a separate post for the progress of everything.  Thanks everyone for your input!

@Account Closed

Oops, I meant to tag you in the above post as well.  Hope the info is useful!

@Ashley Benning

I will be closing on 2 duplexes in the middle of next month so I have been doing a ton of research on these questions.  I'll do my best to get these answered correctly - Just take them with a grain of salt because I'm not over the finish line yet!

1.  This for sure I know about - only compare comparable sales: Duplex with 4 bed 2 bath 1,800 sqft should be compared to other duplexes with 4 bed 2 bath and +/- 200 sqft of 1,800 sqft.  You can look at per door cost to make sure your numbers make sense, but my understanding is that the bank doesn't care.  2 - 4 units they look at comps.

2. NOI is for your use only. Assuming you are going for a traditional Fannie/Freddie loan, they will look at your personal income to qualify, but can use the income from the rental to help offset that income. Your primary focus should be on getting the house cheap enough so that your cost of purchase + rehab cost will be at 70% or less. SFR max LTV on cash out 75%. Multifamily max LTV cash out 70%.

3. No, this is not common. The reason why is that appraisers are, to quote Forrest Gump, "Like a box of chocolates, you never know what you're gonna get". You can have 5 appraisals and they will all be different. My personal philosophy is to put your money in when your have good odds of success, but be prepared for things to not work out. The best thing for you to do is run your own comps on the property you're buying. Have your agent run comps for you and compare. Ask the BP nation to look at these comps and offer opinions. Get as good of an ARV as you can get and then put the money in with the best of intentions. Worst case scenario, you leave a few thousand in the deal and still have a great rental that you bought for way less than full retail.

One more thing to keep in mind - In order to take cash out of a BRRRR using a Fannie/Freddie loan, you must wait for 6 months from the time your name was put on title until you can close the cash out refi. If you're expecting to get the cash back instantly, you'll need a different plan (portfolio lender, much more expensive).

Best of luck on your BRRRR adventures! I will be posting on my purchases once they close and things get moving, keep an eye out : )

@Jonny Morris

No problem, I ran into the same thing before with my better half haha ;)  I'm a bit more aggressive with investing than she is, so she will often try to pull in the reigns and I'm always pushing as far and fast as I can go without "sleeping on the couch" lol.  My strategy was always to put my best foot forward - get a solid deal lined up, make sure the numbers are legit, pull the equity out only when the payment will be covered by an investment and still have a happy marriage.  It's kind of interesting when you think about it though... If you use a hard money lender, they are almost like a "check and balance" to your deal.  If the deal sucks, they won't lend on it.  If the deal we bring to the wifey sucks, we are dead in the water.  Maybe it's a good thing they are conservative : )

@Jonny Morris

It's a good strategy for sure, one that I employ, but she also has a good point. Perhaps it makes sense to get the best of both worlds: Pull a HELOC instead of a cash out refinance. With a HELOC, you have no extra expense (some HELOC has annual fees, but they are low - like $100 - $200 at most which is negligible) unless you actually pull the cash out. The instant you pull the money out, you have "a second mortgage", but you also have an investment that will pay the mortgage so the net result is positive. If you pull a second mortgage (cash out) and you have no deal to use the money on, she is absolutely right: you have a second mortgage.

Explain to her that with a HELOC, you have no second mortgage until the deal comes up. When the deal arrives, you will ONLY BUY DEALS THAT PENCIL OUT and the deal will pay for the HELOC, effectively negating the "second mortgage argument". The HELOC gives you lots of flexibility without rushing you into a deal (every second your money sits in the bank, you're losing ROI).

I have a $110k HELOC that I keep in reserve for when my liquid cash runs dry. I also have a $90k business line of credit (BLOC) for when the HELOC runs dry. It's all about layering yourself so that WHEN the deals come, you can capitalize on them (no pun intended). If I were to take equity out in the form of a cash out, I would be paying another mortgage with no immediate deal to put it to use on, effectively losing me money.

I hope this helps!  

@Jennifer Brown

My first few properties were buy and hold that I still have, used them for student housing. I was looking for huge homes that had a ton of rooms and were run down - it's a perfect combo because nobody wants a 6 bedroom house with 2,500 sqft that is a dump lol so I was getting stuff for like $100 - $150 / sqft in 2012 - 2014. These same homes now sell for over $200 / sqft so things definitely change. I've found several properties on the MLS that would have worked as a flip, toured the house and made offers but always got outbid (to the point where there is no profit to be made unless I rehab by myself). I've recently started looking out of state and employ the same search method and it's already netted me 2 deals this month : )

For the local deals, I would go to the house myself and since I've done about $250k worth of rehab work on my own properties, I generally know what it will cost with my team.  For the out of state stuff, I have a local GC that walked the property for me and gave me a bid.  I can keep him in check because I know roughly what things should cost.  Very important for you to get that experience, just being around rehabs will help a ton.

Flips are tough in the areas i've been looking because it's super competitive and my direct mail pieces didn't result in any flips (got a good listing or two so still made some ROI on the mailers). My personal opinion - buy and hold is a lot less scary because the numbers are much more steady. If you go over your rehab a little on a buy and hold, it's not the end of the world. On a flip, it can be devastating.

My best advice is to try to partner up with someone that knows what they are doing.  If you have access to cash, either your own, other's or credit, then you should be able to find people doing it that will partner with you.  Follow them around, learn everything you can about the rehabs, what needs to be replaced, what to ignore, what things cost, how long they take, what order things need to be done in, how to keep contractors in check, etc.  So much to learn, adding the stress of doing all of this on your own seems like a mistake for most people.  Partnering is a very logical choice.  I'm actually meeting with a flipper this Thursday for a possible partnership.  We will see!

Finding a partner: ask for it on BP forums, go to local REIA meet-ups, contact flippers directly (direct mail list, find people buying stuff cash and reach out to them), etc.

@Jennifer Brown

Me too!  I'm somewhat OCD so I like to parse a map into sections and just go section by section, $/sqft first looking for oddball prices, then price next, then onto the next section.  Once I have a whole map covered, I only have to look at the map once or twice per day to see if anything new popped up (on Redfin, light green means you clicked on it already.  Dark green means it has not been looked at yet) so I just click on everything to "clear the map".  I could set up email alerts to do this as well, but personally I like to manually look so I know exactly what is going on in the area.  

For me, every single listing on the market is of value - it is either a deal to purchase, a retail ready property that helps you price your flips, or a perfect example of what NOT to do lol (that 300+ DoM property that the owner begrudgingly lowered the price after it sat too long and is now unwanted inventory).

@Jennifer Brown

I have had access to the MLS (have my license) but found that I can pretty much find properties just as easily using Refin. Here is how I do it:

- I search for an area that I am interested in by zooming the map in on it.

- I use the $/sqft column and search by the LOWEST number first.  You do this by clicking on the top part that I highlighted in yellow, it will show the arrow pointing up or down.  You want LOWEST at the top.  

**Generally you will get 2 types of properties here - really big homes that are expensive or really run-down properties that are selling for cheap.  I keep my eye on the price as I scroll down the low $/sqft part of the list and when I see something that looks out of place, like a $200k property when everything else is $600k+ then you have a good candidate**

- Next I will click on the price at the top to bring the cheapest properties to the top and see if anything looks out of place there.

By using these two filter methods, you will pick off homes that are listed either at a good value relative to the size of the house OR you will find the cheaper homes in area.  Cheap doesn't mean it's a good deal, but I've never seen a good deal that was listed at the highest price point in the area.

Also, please keep in mind that these prices are STARTING POINTS so do your research, find out if homes in your area are going for below asking price or above.  In my local area, most properties are being bid up well over asking price so if you try to offer at or below asking, the selling agent will ignore your offer.

A final note, you can also filter deals by the age (Days on Market - all the way to the right side) and find stuff that has been sitting there.  This is where getting in touch with the selling agent or having your agent reach out can come in handy.  Sometimes you can find a deal because the seller needs something specific to happen that scares away most buyers.  A perfect example of this is a 1031 exchange clause: The seller wants escrow to be 4 - 6 months OR until he finds something else to buy.  Most people don't want to deal with this, so they ignore and move on.  Certainly an opportunity for you (investor) to solve the problem and make a deal.

Hope this helps!!

@Jen R.

Yes this is great advice, I actually ran across someone on BP last week that referred me to a company that does this for you. They are a team of lawyers and they charge something like 30% of the reduced tax that they are able to save you. For someone who doesn't know the local laws and processes, this seems like a no-brainer! I had estimated that on one of my properties, the taxes would reduce nearly $150 / month just because of the tax reduction down to the purchase price. That's basically turning a duplex into a triplex as far as cash flow goes ($300 / month to $450 / month without any added investment). I think the property tax reduction is tailored to the BRRRR strategy : )

Most people who want to use a portfolio lender are doing so because they do not qualify for the traditional Fannie/Freddie loans.  They want someone to lend them money based on guidelines that are more lenient.  I assume that's what @Sawyer Dina is interested in?  I'll be curious to know a few more local portfolio lenders myself as well.  I plan to use conventional mortgages for the first few deals, but will quickly be needed a portfolio lender.

*side note* @James Wise We were able to lock up 2 duplexes with Nick.  Anyone looking for a great real estate agent in the Cleveland area definitely look up Holton Wise.  They know what they are talking about.  Just be prepared to get the cold shoulder from the beginning (understandably so - agents get paid to close deals and most out of state investors aren't serious or do not have the ability to actually buy anything).  Stick with it and you'll be rewarded.