All Forum Posts by: Stuart Udis

I would advise to do the exact opposite of what's being recommended. Particularly if this is your first real estate investment. If you have the credit worthiness and liquidity, use a traditional bank, not a hard money lender. Secondly, do not use credit card debt to cover the down payment. Have access to the credit card funds to assist with any contingencies but do not use it as your down payment. This is the playbook of the "gurus" who push these strategies because it captures an audience. However, all these "gurus" do is help their duped students buy lousy assets in zero barrier of entry neighborhood. Over leveraging yourself on your first investment seems like a bad strategy. As you become more experienced with a track record, using higher leverage makes more sense but not for the first investment. 

The more capital you have behind you, the more real estate you can buy. Sure, some lenders might offer better leverage but liquidity trumps. Keep in mind if you are going to turn over houses quickly and they require heavy or even moderate level renovations, having additional liquidity outside of the down payment money will allow for you to advance the renovation quicker and get to the refinance event quicker. Construction loans disburse in arrears and if you are reliant on the bank draws, the rehab will move slower. Lenders also have different seasoning requirements. Using lenders who have shorter or no seasoning will help turn the money over quicker as well.

Lastly, don't make the mistake of allowing the BRRRR method be the lone criterion that determines what real estate you purchase. I can point to plenty of no barrier of entry markets in the US where you can easily complete the BRRRR strategy but the real estate is lousy and the equity rarely translates to an actual gain. I find many get caught up with buying as many houses as they can utilizing the BRRRR method but are sitting on portfolios I would never care to own. Many of these portfolio owners are in for a rude awakening when it's finally time to sell. If you are going to use this strategy, make sure there is a well defined re-sale market for the properties. I find this is rarely the case.

I never understood the infatuation with off market real estate. I constantly hear from investors who will only look at off market opportunities and dismiss any and all properties listed on the local MLS. To elaborate how foolish this is, I receive calls on a daily basis from real estate brokers or wholesalers who ask permission to market properties I own "off market". I decline because I have no interest in selling. However, I could theoretically give the green light to market these properties at 2x their FMV and they will send the property out to their investor lists. That, by its technical definition is off market. When a broker or wholesaler contacts me claiming to have access to XYZ number of off market properties a month, that's my cue to run or unsubscribe from their mailing lists. If you are out there pushing deals, focus on quality not quantity.

It really depends on size of the raise. This will determine whether you are looking to raise what I would refer to as "friends and family" money or need a PE firm or family office to write a check. You tend to be on your own when it comes to friends and family money, but there are placement firms who serve as gate keepers for the bigger checks. 

If I were to redact the first sentence of your post, most readers would assume you are preparing for litigation with a healthy amount of discovery. Any local transactional attorney should be able to handle your request (and for a lot less time and money than your post would suggest).

This is primarily dependent on the scope of work and to a lesser degree the local labor market. Some scopes are more labor intensive than others. You can't group all renovations together. Relying on the material costs to value the total renovation budget is a flawed approach and would highly recommend steering away from this mindset.

You should always conduct thorough diligence which means both physical inspection as well as zoning/land use confirmation, permitting history and a deep dive into the GC and subs. All should be available to view, especially if the property was properly permitted. If the property is already tenant occupied (and not a situation where leases were just signed or property will be delivered occupied, but rather has had tenants living in the property for a few months) is helpful as well. Home inspections on a recent rehab or even new construction property that was never occupied is a challenging task. I tend to find the low end SF homes that are marketed as "turn key" to have the biggest issues and you appear to have a budget that will offer you opportunities a step above the entry level market properties. Nevertheless, your acquisition budget means different assets depending on where you buy and the type of asset you buy.

It is important to understand the hard costs of the builds. Local labor rates in particular will greatly influence these costs. While material costs have stabilized, there was a re-set on material pricing that must be taken into consideration as well.  In many areas it is currently difficult to pencil ground up single family homes that sell for $500,000 due to the cost of construction combined with the finance charges. Keep in mind banks typically price construction debt at WSJ Prime +1% which means you are looking at 9.5% interest even on bank originated debt. While this rate adjusts there's customarily a floor built into the loans and it's unclear how quickly the fed rate will decrease.  If you find the profit spread is lean, you might want to hold off on building, particularly if you feel the land is located in an appreciating market. Not only will this improve your profit margin, this will also improve the value of the underlying land. This will open up more favorable loan terms and the ability to potentially add additional contingent funds or "developer" fees into the loan which can give you some additional drawable funds to navigate any learning curves you experience during the build.

Nobody can appropriately comment on your question without reviewing the partnership/operating agreement. There is no set structure and is dependent on the terms of the agreement.