All Forum Posts by: Randy Smith

@Andy Zirger. Thanks for the response. We might consider selling it and I’ll reach out to you to get some wholesalers.

I'm a REI living in AZ that focuses on BRRRR in Atlanta. I recently purchased a property and ignored the advice of the inspector that suggested a structural engineer (long story). Now I've found out I need to scrape the house and rebuild. I'm $90,000 in on the property, estimates show $125/sqft to rebuild on the low end and comps come in around $250,000 for 1300-1500 sq ft homes. Looking for suggestions to on what to do. Sell now at a loss, rebuild and flip, BRRRR and leave a ton in the deal or negative cash flow or something else?

My wife and I currently have 4 rentals and we recently purchased a 5th home to BRRRR in Atlanta. Unfortunately, our inspection suggested some minor structural damage, but we've since come to find out that we'll likely need to tear the structure down and completely start from scratch. Fortunately, our preliminary analysis included rehab costs of up to $100,000 which still results in about $300/month in cash flow after mortgage, insurance, Capex, Repairs, vacancy and property management.

Our plan now is to get bids from numerous contractors to scrap this structure and build a brand new 4/2 with about 1200 sq ft, and we're seeing bids around $85-$110/sq ft. If we are all in for about $200,000 we'll hit the 1% rule on our rental and easily be able to get $275,000-$300,000+ ARV and pull all of our money out.

My questions is this:  What advice/suggestions might you have for someone living in Phoenix and investing in Atlanta with experience on 2 full gut BRRRRs and two turnkey rentals?

@Wade Kulesa

My wife and I were Dave Ramsey fans for years, and we worked our way all of the way through the baby steps in about 5 years.  What an amazing feeling it was to complete that final step after being riddled with debt for decades.

I will share that I believe almost everything he says right up to the point of investing in properties only in cash.  I think it's very important to get all of your debt paid off before starting to invest in real estate, but I don't agree you shouldn't leverage debt to finance real estate.  While you could save up and pay cash for cheap properties in some markets, you lose some of the biggest benefits of real estate that come with leverage.  I think Dave Ramsey has to promote real estate investing with cash as it could be used against him if he didn't.

I'll always be a huge fan of Dave Ramsey as he taught us to live like no one else so now we can LIVE LIKE NO ONE ELSE.  The key is to be smart with your debt and don't over leverage just because you can.  Also, be sure to have nice reserves, and make sure not to rely on appreciation.  You have to have cash flow in each deal in order to weather the storms that will always be on the horizon.

Build a real estate investing strategy that fits your needs, lifestyle, and long term goals, and leverage the advice/suggestions by the best that are out there.  Dave is one of the best at teaching people how to get out of debt, and there are many great, long term investors that can teach you how to build wealth beyond your wildest dreams.

Hi @Geoff Husa,

My wife and I shopped around the Phoenix area for quite some time to find buy and hold properties, and we were not able to make the numbers work on anything locally.

The short answer on why I invest in Atlanta instead of Phoenix is cash flow.  Specifically, rent to price ratio.  Atlanta provides the 1% rule whereas Phoenix does not.

The longer answer is provided through an example, in my neighborhood, a 4/2 with about 1700 sq. ft will sell for about $300,000, and you could only get about $1500 in rent for this house.  If you put 25% down, you'll be losing over $200 per month in cash flow each month if you factor in repairs, maintenance, property management, vacancy and capex.

If I took that same $75,000 I used in the down payment listed above, I could buy three, $100,000 houses in Atlanta that generate about $600/month in cash flow which is close to $800/month difference in my pocket each month.

This is a really great question though, and one that you will need to determine yourself.  If you are looking for appreciation, you'll do better in Phoenix, but if you are looking for cash flow, you'll find better results elsewhere.  

Hopefully this is helpful, and feel free to correct any assumptions I might have included in error.

@Adam Eckhoff

Congratulations on your engagement and your home purchase!  You're well on your way to achieving financial freedom through real estate investing.

In regards to the HELOC, your math is close, but it is missing one critical item. You will also need to factor in your existing mortgage as well so you won't be able to get 75% of your equity. Instead, you'll be able to get 75% of your home value less your mortgage balance. So, if your house can be appraised at $300,000 and you only owe $200,000 on it, you would be able to pull out $25,000 ($300,000 * .75 - $200,000).

I've seen HELOCs that offer up to 90% LTV, and I've heard some people reference 100% LTV loans as well. In my situation, we did a HELOC for 80% LTV through a regional bank, and they only required a "drive by" appraisal. We had no fees to set this up, and we were able to get 2.9% interest only on the loan. Shop around until you find one with good terms as many banks are tightening the belts on these now due to COVID.

Good luck and keep us posted!

Investment Info:

Single-family residence buy & hold investment in Atlanta.

Purchase price: $90,000
Cash invested: $42,500

4/2 BRRRR SFR.

What made you interested in investing in this type of deal?

My wife and I love the BRRRR strategy because there are great tax benefits from the rehab costs and it creates instant equity. It also provides us with a great long term rental with limited capex in the first few years because all of the systems are replaced during the rehab.

How did you find this deal and how did you negotiate it?

This was an MLS deal and we offered asking price due to a hot market.

How did you finance this deal?

We have leveraged a HELOC for all of our deals up to this point. We'd like to increase our volume so we'll need to start looking at hard money soon.

How did you add value to the deal?

We replaced the kitchen and the bathrooms, converted a large addition into a 4th bedroom and added all new finishes. We also updated the electrical panel, replaced the furnace, repaired the HVAC, replaced the roof, and replaced all of the windows.

What was the outcome?

This property is in the final stages of rehab, and we are hoping to have it refinanced and leased in the next 30 days. Our goal is to refinance and pull as much of our money out as possible to move onto the next deal. Our initial estimates show that we'll be able to refinance at 75% ARV and cashflow around $200/month.

Lessons learned? Challenges?

-Schedule weekly calls with contractor to hold them accountable and keep us involved in the rehab
-Get multiple bids on rehab on the front end, and cheapest is not always the best option
-Communication with partners is key
-COVID caused a delay in completion so always plan on extra holding costs

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Trey Brunson is our realtor that handles our acquisitions, and he has been a fantastic resource for sourcing properties, walking properties, and staying on top of our contractors. He's our feet on the street, and we couldn't do this without him.

Investment Info:

Single-family residence buy & hold investment in Atlanta.

Purchase price: $50,000
Cash invested: $50,000

3/1 SFR BRRRR strategy that took 13 months to complete.

What made you interested in investing in this type of deal?

My wife and I like the BRRR strategy because it allows you to create instant equity and some nominal monthly cash flow. In addition, the tax benefits of the added construction costs help to add more savings in the first year.

How did you find this deal and how did you negotiate it?

We are located in Phoenix, AZ and investing in Atlanta, GA due to the price to rent ratios. Since I work a traditional W-2 and has been able to transition from her 9-5, she networked with local real estate agents and found one that she felt particularly comfortable working with. Our realtor found this property on the MLS, suggested we look at it, and we made an offer that was accepted.

How did you finance this deal?

My wife and I practiced Dave Ramsey's Baby Steps which allowed to us create some financials success so we had the money to pay cash for this property.

How did you add value to the deal?

This was a full gut rehab with many surprises along the way. First we had to overcome some flood zone issues which threatened the whole deal. Then we had to work through permitting in Atlanta, GA which proved to be extremely difficult, and then we ran into COVID. Ultimately, this will be nearly a brand new home with new flooring, drywall, kitchen, bathrooms, fixtures, roof, and everything else you can imagine for a full gut rehab.

What was the outcome?

We are now coming up to 12 months of rehab, and we hope to have the property rented for $1200+ in July or August at the latest. Our hopes is that the property will appraise for about $150,000 so we can pull all of our money out and move on to the next property.

Lessons learned? Challenges?

Lessons learned are very lengthy, but here's the short list: Always check flood zones, work with a contractor that is used to working with the city and pulling permits, work with a contractor that is used to working with residential properties versus commercial, schedule regular meetings with your contractor to check on status and hold accountable, be sure to consider permitting time when calculating holding costs, and lastly, be sure to have reserves in case of natural disasters (i.e COVID)

Investment Info:

Single-family residence buy & hold investment in Atlanta.

Purchase price: $50,000
Cash invested: $50,000

3/1 SFR BRRRR strategy that took 13 months to complete.

What made you interested in investing in this type of deal?

My wife and I like the BRRR strategy because it allows you to create instant equity and some nominal monthly cash flow. In addition, the tax benefits of the added construction costs help to add more savings in the first year.

How did you find this deal and how did you negotiate it?

We are located in Phoenix, AZ and investing in Atlanta, GA due to the price to rent ratios. Since I work a traditional W-2 and has been able to transition from her 9-5, she networked with local real estate agents and found one that she felt particularly comfortable working with. Our realtor found this property on the MLS, suggested we look at it, and we made an offer that was accepted.

How did you finance this deal?

My wife and I practiced Dave Ramsey's Baby Steps which allowed to us create some financials success so we had the money to pay cash for this property.

How did you add value to the deal?

This was a full gut rehab with many surprises along the way. First we had to overcome some flood zone issues which threatened the whole deal. Then we had to work through permitting in Atlanta, GA which proved to be extremely difficult, and then we ran into COVID. Ultimately, this will be nearly a brand new home with new flooring, drywall, kitchen, bathrooms, fixtures, roof, and everything else you can imagine for a full gut rehab.

What was the outcome?

We are now coming up to 12 months of rehab, and we hope to have the property rented for $1200+ in July or August at the latest. Our hopes is that the property will appraise for about $150,000 so we can pull all of our money out and move on to the next property.

Lessons learned? Challenges?

Lessons learned are very lengthy, but here's the short list: Always check flood zones, work with a contractor that is used to working with the city and pulling permits, work with a contractor that is used to working with residential properties versus commercial, schedule regular meetings with your contractor to check on status and hold accountable, be sure to consider permitting time when calculating holding costs, and lastly, be sure to have reserves in case of natural disasters (i.e COVID)

Investment Info:

Single-family residence buy & hold investment in Kansas City.

Purchase price: $119,360
Cash invested: $30,000

3/1 property we bought from a turnkey provider found on another Real Estate Podcast. This turnkey provider offered traditional turnkeys properties or what he called "hybrid turnkey properties." We chose the latter which meant that we purchased the distressed property for from him for $95,000 and then spent about $25,000 rehabbing the property through him as well. The quality of rehab was sub par and we've have significant repairs/maintenance in the first 15 months.

What made you interested in investing in this type of deal?

I had been listening to Bigger Pockets and other numerous podcasts for a number of years. After completing the Baby Steps by Dave Ramsey, my wife and I were ready to start investing. Since we live in Phoenix, AZ, we had difficulties finding properties that would meet are target metrics, but we were scared to do BRRRR or flips out of state for our first deal.

How did you find this deal and how did you negotiate it?

I heard a turnkey operator on another Real Estate Investing podcast, and he was very animated and high energy. We connected with him shortly after the podcast , connected with a few referrals he provided, and decided on one of the many properties he had available. Since he presented this as a "hybrid turnkey" we thought we were getting a great deal because we would purchase the house, then pay for the rehab which would be completed by his company, and than move to his prop. management team.

How did you finance this deal?

We funded the purchase and rehab from a HELOC on our primary residence.

How did you add value to the deal?

We thought we were adding value by using the "hybrid turnkey strategy," but we later found out that our appraised value was far less than the ARV he provided in the provider's numbers. This was our first lesson about ARV inflation from turnkey providers and wholesalers.

What was the outcome?

As it stands today, we are cash flowing most months, and over the past 15 months, we've realized about $1100 of actual positive cash flow. We moved the property to another property manager due to a negative experience withe the turnkey provider. On a positive note, our home has appreciated by about $12,000 and we saved about $2500 in taxes in our first year of ownership.

In hindsight, we wouldn't change a thing because this deal got us off of the couch and got us into the game.

Lessons learned? Challenges?

-Always have an inspection completed by a third party before completion of every transaction
-Check for comps in the area through a third party and compare to the ARV that is provided by the turnkey provider
-Check ratings and reviews of turnkey property managers before moving forward
-Turnkey providers can be a great option for first time investors but due diligence should be a priority

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We were able to find some great partners in insurance through NREIG and lending with Movement Mortgage. Both companies have been able to work with us on multiple properties in multiple states.