All Forum Posts by: Russell W.

I have a question regarding how the total annual expenses is calculated using the BP BRRRR calc.

I have used this report generated by another BP member as a sample to review (I've used up my 5 trial ones).  View report

You can see that the Total Annual Expenses comes to $10,328.00 for the first year.  I am coming up with a much higher number based on the expenses shown in the report.  

Here's my math....  
$792.00 for the first 6 months =          $4,752.00
$1,171.76 for the second 6 months = $7,030.56

                                                                  $11,782.56

Now after the refi my understanding is that you would not have a mortgage for the first month.  This would subtract out $379.76 for one month. So new total is:
                                                                  $11,782.56

                                                             -    $     379.76

                                                                   $11,402.80

So you can see I am a long way off from $10,328.00.  I know I'm missing something here... any input would be much appreciated!                                                                          

@Corby Goade

Thanks for that info.  I have heard exactly what you mentioned... basic materials may be acceptable to pay up front but anything beyond that, especially labor, is a great way to lose your money.  The bit about the completed job coming in over original bid throughout the rehab is also a great point.   

When you mention you have done a few of these, would you mind expanding on what that looked like exactly?

@Chris Mason 

Good to know.  Will do some more hw and ask questions with the lender.  Appreciate your feedback Chris.

@Wayne Brooks 
Thanks for that info.  I wasn't aware of the % on the rehab piece.

@Chris Mason
You're right, not sure why I was thinking this process would be done pre rehab.  It was a quick conversation with the lender and I don't think I grasped the concept.

So with delayed financing exception you would be allowed to recoup 75% of the purchase price + closing costs and 75% of the rehab?
 
Typical cash out refi with seasoning you would be able to recoup 70%-75% (dependent on lender) of the ARV ?

That sound right?

Hello everyone I have a question regarding delayed financing exception. My understanding is the purchase price and closing costs can be recouped on the cash out refinance. A lender has mentioned that if I was to put the rehab costs on the HUD-1, I would be able to recoup this money as well. However this would mean paying the contractor up front for everything. This obviously raises a huge red flag. Paying for 100% of the rehab before any work is done seems like a great way to send a contractor on a nice vacation. Has anyone been able to make this work or is a typical cash out refi with seasoning the only way to recap rehab costs?

@Mark Merdita I can definitely see this pitfall being a reality using this strategy.  Something I have gathered in the short time I have been doing my research is the importance of making the numbers work for you and not you working for the numbers.  I feel like it would be easy to stretch myself thin by making my acquisition price the most important factor so that I could get into a higher priced sfh or multi-unit, shorting myself on rehab costs.   

In your experience what would you attribute most borrowers shorting themselves/leaving money in the property?  Poor comps?  Shorting on rehab costs/unforeseen rehab costs, or something else?   I'm curious so that I may learn from those who have seen it personally.

@Brent Coombs
Thanks for that fix on the ARV section there. Very true about calculating all possible expenses and of course needing that positive cash flow. Currently I'm sorting out how to account for the fixed costs specific to my area when analyzing a property. Jay Scott has put a great list in his flipping book as well as on here at BP that I've been digging into. My aim is to be very conservative in my approach on the numbers, especially going into my first deal when it comes.

@Bernie Huckestein
That's great to hear that it IS possible to get both 80% and waive the seasoning period.  Well done on finding that lender.  I'm sure that will prove invaluable for your success and it definitely gives me the motivation to search for the right lender.  Would you mind expanding on how you estimate the tax assessed value? 

One question that just came up in my mind is how do you perform necessary rehab to increase property value if the property is currently occupied?  Do you avoid properties that are currently occupied?   Thanks in advance.

@Chris Mason

Am I to assume that you would use your cash flow to pay back the HELOC? This is my biggest concern.... how to pay back the HELOC after refinancing (using brrrr), but needing it to tap into future investments.

@Chris Mason

Haha like I said I know that post was very confusing. 

I'll tell you exactly what I'm trying to sort out. I'm looking to invest in multi family units. I have 35k cash that I have saved and am ready to invest with. I have partnered with a friend of mine so that we can bring a little more money to the table. He will have to take out a HELOC on his end but he has estimated he can take around 40k out.

That puts us at 75k. I can also take a HELOC that would give us about 80k additional money. That would bring our all in total to 155k.

In our market that might get us into a 2-3 unit multifamily at the bottom end minus rehab costs. This is our first deal and it makes us both a little nervous taking on a HELOC.

So now the the question. 

1. Use 75k on a sfh, utilize brrrr and build a portfolio more quickly at the lower price point?

2. Go all in at 155k and try to find a crazy deal  on a multifamily to use use brrrr on. 

3. Figure out a way to finance a property (sounds like a bad idea/impossibility if using a HELOC), take the monthly cash flow and save up until we have enough to invest again.

@Bill S.

Thanks for your reply. After I wrote this post I realized it was pretty hard to digest; even after I reread it!

My numbers were hypothetical on that property and I realize most multi family properties, in order to get a great deal, will need rehab costs beyond that 17.5k estimate. 

It makes total sense that taking on debt by using a HELOC would be compounded if you used that money as a downpayment on another property. For some reason that didn't click offhand.

I'm at the point now that I need to run the numbers on some properties to see concrete results instead of hypotheticals. It becomes overwhelming when trying to sort it all in your head!