All Forum Posts by: Steve K.

@Justin O'Malley

Sorry to see no one replied to your question. Seems like BP podcast #223 would speak to you. (How one 26-yr old solved your same question)

https://www.biggerpockets.com/renewsblog/biggerpoc...

@Hunter McDonald ...do a search on the " BRRRR " strategy, spoken of here often. A way to eventually buy each rental with 100% financing.

@Manny Dorticos

I believe you're correct. If your market(s) are such that you can only buy rentals at full retail price (i.e. turnkey....ready to rent), then you get your best 30-yr financing and have to be content with the cashflow and slower wealth growth.

In Denver, we've been appreciating at about 10% per year for 3 or 4 years. Someone who bought 3 years ago could have 25 or 30% newly gained equity.....they could conceivably do the cash out refi, and use it to repeat (acquire another rental). If it should keep appreciating....you could conceivably cash-out refi again in several years.

I can't think of any other way.....you need the rehab equity or the appreciation equity.....otherwise,  there's no free lunch.

@Robbie Taylor

I was reading a similar thread here:

https://www.biggerpockets.com/forums/311/topics/443085-reasons-why-you-would-not-use-the-brrrr-everytime

To restate what others have said, you can build wealth faster with leverage (if you can tolerate the risk/reward of the debt). Build a quick spreadsheet with a 10yr or 30yr projection, and see what your equity and cash flow grows to with $200,000 (for example) cash available in the beginning:

1. Buy 1 rental for $200k, all cash (you have $200k equity in $200k value of real estate)
2. Buy 4 rentals with $50k down on each (25%)....with 75% LTV mortgages. (You have $200k equity in $800k of real estate)
   1. use the monthly cash flow to pay down mortgages, or
   2. save the cash flow, until you get $50k....then go buy your 5th rental, and so on.
3. Buy 4 rentals in the BRRRR method, the possibility of having 100% leverage, 100% LTV mortgages:
   1. Initially put $50k down on each of 4 rentals...but they are fixer-uppers that you get for 75% of ARV. Your acquisition and repairs are $200k, but the new appraisals are $267k per house. You initially have $200k equity in $800k of real estate (at your cost). Then you get the new appraisal for the refi, you take a new 75% LTV loan....you take $200k "cash out" with the refi. After the refi, you have $267k equity in $1,068,000 of real estate value and you have your original $200k cash in hand.....you have $467k (cash+equity).
   2. Now the "repeat" step of the BRRRR , take your $200k cash and buy 4 more rentals with $50k each. After refi....you'd have $534k equity in $2,136,000 of real estate....and your $200k cash back in hand.....then repeat for cycle 3,4,5....
4. Other posts have emphasized the leverage is helping you grow faster, and there are taxable income differences if you have deductible loan interest.
5. Now, what if your local market experiences a few percent of appreciation per year? Portfolios' 1, 2, and 3 above, have dramatically different wealth growth due to appreciation. Your percentage gain would apply to $200k or $800k or $1 to $5 million....
6. And admittedly, if real estate dropped by much.....you'd suffer that percentage on small, medium or large portfolio.

So.....risk versus reward of using debt/leverage. Different strokes for different folks.

@Lee Cruz

I had successfully tried fix and flip, and even a more speculative major remodel (triple the sqft), and then new spec home building and hadn't been dreaming of being a landlord. Then I was reacquainted with a 35-yr old who had, in 5 years, acquired 30 rentals on the BRRRR method (although I didn't meet him on BP and didn't know that acronym yet.) When I built a spreadsheet projection to model/replicate what he'd accomplished, I think he turned $80k cash into $3 million of equity in 5 years....and I got really excited. Even that REI likes to do 5-10 BRRRR's per year, builds a handful of spec homes (likes new construction duplexes), some fix/flilp for quick sale and is even wholesaling 30 deals per year.

Fix/flip gets you faster cash (but taxed immediately), while BRRRR grows more slowly over years.

Contrasted with a friend who used $225,000 cash to buy one rental duplex and likes the conservative (no debt) cash flow, the leveraged view allows you to grow exponentially, if as @JD Martin says, you don't have a recession in the midst of growing your nest egg.

Mrs. K is more risk averse; would like to have the rentals paid off. I ask "why would I invest cash in a 4.5% APR, when my BRRRR strategy makes 20%"? (but not risk free).

So....I'm still using multiple strategies. It's difficult to separate out how much of the profit is yield on my cash investment, and how much is $ per hour for my time. Some days, a completely passive income sounds attractive, as @Dale Carlson says.

@Jim Norton

You may be creating a big problem. I'd suggest you resolve your zoning question with your county officials, before you invest in the remodel to convert to a duplex.

In Denver, the zoning is strict, and you'd have to go through a 2-4 month hearing process to apply for such a variance. When you double the occupant density, the neighbors won't like it. The zoning laws are in place to protect all neighbors from new uses that effect property values....the neighbors are expecting it to remain SFR, unless there's a hearing process). (It manifests itself as twice as many cars parked on the street, etc. ) The county could deny you that re-zoning.

Not to say that there aren't landlords running illegal duplex conversions all over the country....but in Denver, you're not supposed to be able to build a second kitchen in a property zoned as SFR....if there is one, it was done illegally without a permit. (although some older up/down duplexes were lawfully approved decades ago, and "grandfathered"....but wouldn't be allowed today).

Thus, if you're creating an unlawful duplex, your Buyer may not be able to get financing (i.e. Title Insurance will be the most restrictive).

Your illegal duplex might have the same Title Insurance problem as this post:

https://www.biggerpockets.com/forums/44/topics/441853-need-help-with-colorado-1972-subdivision-law

...although that pertains to an unapproved subdivision of a 10-acre raw land parcel.

Good luck.

...there's one active on MLS right now....I believe it's 1385 Xenobia, Denver

You might be able to contact the agent to find the architect

@Eric Young

...I once saw such a rendering from an architect named Jim Keavney....the 4 rowhomes on a single 6200 sf lot in that zoning (W.Colfax neighborhood, north and south of Colfax.) Sorry, I have never worked with him

http://www.ksa-arch.com/multi-family.html

also, there's a "Market Place" were some HML's advertise:

https://www.biggerpockets.com/hardmoneylenders

@Kristopher S.

I believe you can look on the private lending forum.....I've noticed several BP members have "hard money lender" in signature on BP....sorry, I don't know anyone in NY

https://www.biggerpockets.com/forums/49-private-conventional-lending-discussion