All Forum Posts by: Sarah Hatton

It seems like the borrower marked their offer as all cash but are likely using hard money to close (where an appraisal is almost always required). I've seen borrowers do this and while i advise against it (makes things confusing with title, etc) it is a strategy borrowers use, especially in competitive markets.  

Hey Christopher, 

Your heads in the right place, mitigate risk! It's the reason why as a lender we rarely exceed 65% LTARV even throughout the housing boom this past year. While this protects the lender, it also protects our borrowers by only taking on strong projects with a lot of equity. Also, it's worth noting that during this time we still had borrowers find off market deals that were far below market value. Of course finding a hungry real estate agent is always a huge help as well. Few more pieces of advise... 

Rule #1 for any investor in any market is "the money is made on the purchase". This will hold even more weight during down markets. Never plan on being able to push the market prices or saving money on rehab, see next rule.

Rule #2 rehab budgets will always end up being more than estimated. Whether that be due to cost of inflation, contractors underestimating the project, or surprises you find "behind the wall". Be prepared for this.

Rule #3 start small, don't over extend yourself by taking on too many projects at once. One bad deal early on in your investing career can be devastating. One bad deal later in your career is just a bump in the road.

Rule #4 Be patient. Say no a lot more than you say yes as deals will continue to present themselves especially as the market nears the bottom and starts to come back up. 

Hope this helps. Happy Investing!

Hey Antonio, 

$500k opens up a lot of options, the big question is how much TIME you have to put this money to work. Some good hands off options would be syndication deals or investing in a hard money fund (this will bring returns anywhere form 8-15%). If you want to be involved you could invest in a multifamily, or become a private lender yourself. I know this has been suggested already however being a private lender myself there are now way to boost your ROI many multiples above what has been said so far. This can be done by selling your note to the secondary markets after origination/closing.

Hi Jordan, 

It seems the bigger question is if you want or have the TIME to invest passively or actively. Given you have a full time job, how much time do you have to put into this? in my opinion active investors should be full-time focused on the investment and I consider both BRRR and fix and flip active investment strategies requiring full time attention. Time often will lead to money, so if don't have a lot of time to make sure things don't go wrong then theres a good chance things will go wrong and there wont be time to manage the issues. There are good passive investment strategies options that include things like investing in REIT (real estate investment trust), hard money fund, apartment syndications, JV agreement with a flipper, etc.

And like the another BP member mentioned, BRRRR is about creating wealth, not income. Reason being when you refinance the max cash out is 75% of current value so some of your equity will stay in the project, and then your profits will go directly into the fourth 'R', REPEAT. It's also important to remember rental homes will have maintenance issues, so some profits will be offset by that as well. The Fix and Flip method is similar if you keep reinvesting, however when you sell you'll recoup your investment PLUS profit.

Hope this helps!

Hey Bianca, 

Adding off the great advise above...

When trying to underwrite a property and be sure if it's values I find Redfin to be the best platform. When your on the subject property you're considering, go into the map function and click "Nearby Homes For Sale", go to filters and adjust for the following: sold, SFR, sold within past 3-6 months (3 is better), and adjust your square footage limits around 20% below and above the subject properties. The map will populate homes in the immediate area (i try to stay as close as possible to subject, not 1-2 miles away) that match your subject. The goal is to find homes that have a similar layout, curb appeal, and interior upgrades you want to go for. then use those price per square feet to calculate your own ARV (try to be as conservative as possible, don't aim for the top of the market). Hopefully you'll see homes that look like flips (great sign) and also this will help you gauge what style and level of upgrades this neighborhood is selling at.

Good luck!

 Hey Bruce!

Certainly not in California (where i'm from), ha. I don't imagine you would get pricing like that in AZ either...However we have a lot of business in other states, Ohio, Virginia, Illinois, (to name a few) where cost of rehab on a basic cosmetic fix and flip is much cheaper. We just finished financing a flip in IL and the rehab was $65k on a 2,000 sq. ft. home. 

Hey Andrew, 

Few pieces of advise...

1) Start small. Don't take on a huge project for your first flip, or multiple projects at once. There will almost always be bumps in the road with any given project, and on a small scale those will be valuable lesions you can learn from, on a large scale, they can be devastating. 

2) When figuring out what neighborhood to flip in utilize Redfin to comp properties. I personally love using the "map nearby homes for sale" function and adjusting the filters to view sold homes in the immediate neighborhood (not 1-2 miles away) with similar square footage, layout, and interior upgrades your aiming for. The most recently sold homes (3-6 months) are going to be the best in determining your ARV.

3) If you're bringing on a GC do your due diligence! (i.e GC agreement, read reviews, if they are licensed look them up to ensure they are in good standing with the state, etc). A large part of the projects success is in the hands fo the GC and unfortunately not all GCs are entrepreneurs aka good at money management. I would advise against paying any deposits upfront, and definitely not pay by the hour. If you use hard money financing you'll likely have reimbursement style fund control (contractor get paid upon completion of work) and require lien waivers both of which will protect you. 

Good Luck!

As others have said the cost per square foot will vary depending on a few things...  asset type, total square footage, state/city, and also the level of rehab you're aiming for. When i'm underwriting a fix and flip deal I typically use $50 per square foot as a rule of thumb, leaving room for that number to go up or down depending on the factors.