All Forum Posts by: Ryan Webber

Well, welcome to the forum.

Don't blow up in the meantime. You seem to be pretty excited about your market.

When you actually factor ALL of your closing costs for buying and selling, initial financing costs, your holding costs for fix up time and sell time, realtor/advertizing fees, and unexpected repair costs, you will be sitting somewhere between 12-18% of ARV on expenses. If you only have 20% factored below ARV not including anticipated repairs then you will put yourself in a very tight position.

The number one mistake a new investor makes is buying a property for too much. Experienced investors preach the 70% equity formula because it will make you money on a property versus losing money. I have personally learned this formula the hard way.

I would highly recommend that any new investor follow this formula. It has been proven to protect you and ensure that you actually make an adequate profit for your risk. 70% of ARV minus repairs for purchase price will give you roughly 12-18% profit on a rehab deal. This amount of profit margin will make you a respectable profit if everything goes well and will still protect you if everything goes wrong. Things go wrong, and if you do enough deals you will find out that the only way to adequately protect yourself from unexpected issues is to buffer your investment with enough profit margin.

Going with 80% of ARV minus repairs may work if everything goes perfect. If it only takes you two weeks to fix up the property, and there aren't any unexpected repairs, and you stay in budget on your rehab, and it only takes 2 months to sell and close it For Sale By Owner. The problem is that most newbies factor their rehab on these pretenses and then get the shock of a lifetime when it doesn't work out that way. Being realistic and actually conservative is the best method when factoring a rehab or any investment.

Atleast 70% equity (equity does not include repairs as Jim pointed out) is the wisest financial decision you can make on buying a rehab. When you push those numbers, you are putting yourself into a financially risky position. Unless you have a low equity exit strategy (lease optioning, carrying the note, or long term rental) or you are in a HIGHLY appreciating market, I would follow the pros advice on this one.

I started with little capital and did most of my rental properties with little or no downpayment. For my 45 units, which is 6 different multifamily complexes, I put up a total of about $8,000 in downpayments/earnest money. Wow, I had never factored that before. That's not much money. :lol:

Now on the flip side, the amount of rehab that all but 2 of these properties needed was extensive. I currently have over $100,000 in remodeling costs on these different complexes out of my own pocket, and I have another $100,000 in second liens on them that I also used to rehab them. Also, my first 16 unit complex I bought, I had to put up $10,000 as downpayment. About a year after I bought it (and dumped almost $60,000 into it) I sold it for a very respectable profit.

I have not used conventional or commercial financing on any of my rental properties to date. I utilized hard money lending on purchasing all but one of the complexes, and that one I seller financed. Currently everything I have but one fourplex is on the market for sale. Whatever I don't end up selling I am planning on probably refinancing with a traditional lender for a lower interest rate.

Tenant issues vary from overly picky tenants to druggies. You will always have late pays and evictions. Dealing with maintenance issues in a timely manner is always important. With multifamily complexes, intercomplex tenant meshing is important. Everybody needs to get along. I currently have a property manager employee that takes care of all the day to day management duties.

I love to share and to help, and biggerpockets.com has given me the opportunity to do just that. Not that I still don't have a lot to learn myself, but the things that I do know I love to help others understand, also.

I just wanted to make my 100th post. :D

I've read the book a couple times, and I agree that it is an excellent read. Though it doesn't give you the mechanics to success in real estate, it gives you the vision for it. As I have progressed on my own success journey I see the truth of it more and more. Wealth and poverty are created more from perspective and understanding than anything else.

Okay my biggest mistake was the second rehab I bought. It was and hopefully will continue to be the only house I've lost money on.

1933 Aspen.

My partner and I don't even talk about it anymore. It still actually makes me nauseated when I drive down that street.

Here's what I did wrong. I paid $58K for it when it should have been more like $45K. I made it way too nice for the neighborhood and I mean WAY TOO nice. I put almost $30K (that includes my own labor) into it when it should have been more like $15K. My calculation of ARV was factored off the tax appraisal and general price per square foot comps for the area. The tax office and I didn't understand what overbuilt for the neighborhood did to an ARV. It decreases the value per foot if you didn't already know. The actual ARV was 10% less than what I originally factored. And to top it all off we took over a year to fix it up and resell it. A year at 12% interest with taxes and insurance means OUCH.

When it was all said and done, I had to sell it for $17,000 less than what we had put into it to fix it up and on top of that I had spent $12,000 in holding costs over the course of the year. Grand total of almost $30,000 in the hole. By the time it was over it had eaten all of our start up capital and the company still owed my partner and his construction company $17,000.

My partner and I seriously discussed quitting real estate investments. We evidently did not know what we were doing, and it was painfully clear that our ignorance was costing us dearly.

Somehow we stuck through it and managed to scape up enough funds to buy, fix up, and sell our next rehab deal. A deal that thankfully made us a decent profit and put us back into the game.

As Ohio Realtor stated, those are normal numbers for a hard money loan. Hard money loans have a specific purpose, and they work well for those circumstances.

Do a forum search for hard money and read through some of the posts. Here's a good one to start with that explains some of the advantages of this type of loan:

http://forums.biggerpockets.com/viewtopic.php?t=5421

Welcome to the forum John.

You are tempting me since we are coming into our cold season where I live. I've been trying to get in the last couple good days of golf for the year.

Well, I'm not sure exactly what you are asking.

Section 8 is a rental assistance program that you can do with any rental property. Now the rents are regulated and thorough inspections of the property are required, but you can offer any property through HUD's Section 8 program. Usually they will have a list at their office that you can place your property on to advertize to tenants that have been approved for Section 8 assistance.

Now I have 45 rental units which I acquired through different avenues. I financed all of them, and most of them needed varying amounts of remodeling when I bought them.