All Forum Posts by: Ty Coutts

Hello Lucas, 

Your question about financing a BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy is important for understanding how much cash you'll need upfront and how to leverage financing effectively. Let's break it down with your example and explore the financing options.

Max Leverage (Using a Lender for 90% Purchase and 100% Rehab):

Purchase Loan: 90% of $80,000 = $72,000

Rehab Loan: 100% of $25,000 = $25,000

Total Loan Amount: $97,000

Your Cash Investment:

Down Payment: 10% of $80,000 = $8,000
Closing Costs and Fees: Estimate around 3-5% of the purchase price = $2,400 - $4,000
Holding Costs: Property taxes, insurance, utilities, and interest during rehab (estimate $1,000 - $3,000)
Contingency Fund: 10-15% of rehab costs = $2,500 - $3,750
Total Cash Needed: $8,000 (down payment) + $2,400 - $4,000 (closing costs) + $1,000 - $3,000 (holding costs) + $2,500 - $3,750 (contingency) = $13,900 - $18,750

Moderate Leverage (Using a Lender for 90% Purchase and 0% Rehab):

Purchase Loan: 90% of $80,000 = $72,000

Your Cash Investment:

Down Payment: 10% of $80,000 = $8,000
Rehab Costs: $25,000
Closing Costs and Fees: Estimate around 3-5% of the purchase price = $2,400 - $4,000
Holding Costs: Property taxes, insurance, utilities, and interest during rehab (estimate $1,000 - $3,000)
Contingency Fund: 10-15% of rehab costs = $2,500 - $3,750

Higher Equity (Using a Lender for Less than 90% Purchase):

If you decide to put more equity into the deal by using less leverage, you will need more cash upfront, but your loan amount and, subsequently, your interest payments will be lower.

Pandu Chimata, you're off to a great start! I'll throw in a few more things to consider:

Property Assessment:

Structural Engineer Evaluation: Before proceeding, hire a structural engineer to assess the extent of the damage. This evaluation will determine if the property's foundation and structural integrity are sound.

Insurance Assessment: Check if the property has insurance coverage for fire damage. The insurance company may cover some or all of the restoration costs.

Scope of Work and Budget:

Detailed Inspection: Get a comprehensive inspection to identify all areas of damage, including hidden issues like electrical, plumbing, and HVAC systems.

Cost Estimation: Obtain detailed cost estimates for the restoration or rebuilding process from licensed contractors experienced in fire-damaged properties.

Environmental Hazards:

Asbestos and Lead Testing: Older properties may contain asbestos or lead, which can become hazardous after a fire. Ensure the property is tested and, if necessary, remediated by professionals.

Permits and Code Compliance:

Building Codes: Ensure that the restoration or rebuild complies with current building codes and regulations. This might involve updating certain aspects of the property to meet modern standards.

Permit Acquisition: Obtain all necessary permits from the city, which may include demolition permits, building permits, electrical permits, and plumbing permits.

Restoration Process:

Debris Removal: Clear out all debris and damaged materials from the property. This step must be done carefully to avoid further damage.

Structural Repairs: Address any structural damage first, including the roof, walls, and foundation.

Systems Repair: Repair or replace electrical, plumbing, and HVAC systems as needed.

Interior Restoration: Once the structural and system repairs are complete, focus on restoring the interior, including insulation, drywall, flooring, and fixtures.

Safety and Health Concerns:

Air Quality: Ensure proper ventilation and air quality during and after the restoration process to remove smoke odors and contaminants.

Mold Remediation: Check for and address any mold growth, which can be a common issue in fire-damaged properties due to water used in firefighting.

Final Inspections:

City Inspections: Coordinate with the city for final inspections to ensure that the property is safe and habitable.

Fire Department Clearance: Obtain clearance from the Fire Department confirming that the property is safe to occupy.

I hope this helps, best of luck!

-Ty

Hello Mara Hayes

For your situation, hiring a fee-only financial planner who charges by the hour would be a practical choice. For example, Garrett Planning Network advisors offer financial planning on an hourly basis. You can search their directory to find a planner who meets your needs.

- Search for "fee-only financial planner hourly rate" in Tennessee.
- Review their websites and credentials.
- Schedule a consultation to ensure they can assist with real estate investment decisions.

By taking these steps, you should be able to find a financial advisor who can help you navigate the purchase of your new primary residence in Tennessee without the high minimum fees. Good luck!

When applying for a joint mortgage in California, lenders will typically assess both of your financial qualifications individually and consider the property's use as both a primary and secondary residence. This may slightly affect the types of financing options available, but if both applicants are well-qualified financially, you should still be able to secure competitive financing terms. Be prepared to discuss with lenders how the property will be used and ensure your financial profiles demonstrate strong ability to manage the mortgage jointly.

Hope this helps. Feel free to reach out to me directly if you have any other questions, want to discuss further, or if you would like flexible financing options!

Hey Devonne,

200k in equity is AWESOME! There are so many options for RE investing. Here are a few:

Invest in Rental Properties:

Buy Rental Property Outright: Use a portion or all of your equity as a down payment to purchase one or more rental properties. This allows you to generate passive income through rental payments.

Financing Additional Properties: Use your equity to secure financing (like a home equity loan or line of credit) to purchase additional rental properties. This strategy leverages your equity to expand your real estate portfolio while potentially benefiting from appreciation and rental income.

House Hacking:

Use your equity to purchase a multi-unit property (like a duplex or triplex) where you can live in one unit and rent out the others. This allows you to generate rental income that can help offset your mortgage payments and other expenses.

Real Estate Investment Trusts (REITs):

Consider investing a portion of your equity in REITs, which are companies that own, operate, or finance income-producing real estate. REITs offer a way to diversify your real estate investments without directly owning physical properties.

Real Estate Crowdfunding:

Invest in real estate crowdfunding platforms that pool funds from multiple investors to finance real estate projects. This allows you to diversify across different properties or projects with lower capital requirements compared to direct ownership.

Flipping Properties:

Use your equity as capital to purchase properties that need renovation or improvement. After renovating, you can sell them for a profit. This strategy requires knowledge of local markets, renovation costs, and the ability to manage or oversee renovations.

I am a loan officer and I could advise you on how to tap into that equity and put that money to work. Feel free to reach out directly if you like or if you have any other questions. 

Going the Airbnb rout can be riskier as you have to secure bookings to secure that cash flow. In lower vacation/rental cycles of the year your margins could get compressed. Consider going the route of long term rentals in a different market if this worries you. However, if you believe there will be significant demand, by all means it is a good investment. Just make sure you do thorough research and financial planning. I am NOT a financial advisor so make sure you do your due diligence! However, I may be able to answer any other questions you have so feel free to reach out any time. Also, I am a loan officer if you need to talk financing. Hope this helped!

Hey Ryan,

Its awesome that you are entering into RE investing. It is truly the best way to build generational wealth. Here are some tips from my experience:

Educate Yourself: Since you're new to real estate, continue leveraging resources like Bigger Pockets to learn as much as you can. Explore articles, forums, podcasts, and connect with experienced investors who have gone through similar journeys.

Understand Local Market: Research the real estate market in Missouri, especially in areas where duplexes are prevalent. Look for neighborhoods with potential for rental income and growth.

Financial Preparation: Given your reliance on loans and good credit score, continue maintaining and improving your credit score. Understand the financing options available for first-time investors and explore FHA loans or other programs tailored for owner-occupied properties.

Networking and Mentorship: While you're already connected to Bigger Pockets, actively seek out mentors or local real estate investor groups in Missouri. Networking with experienced investors can provide invaluable insights and guidance specific to your market.

Property Search and Due Diligence: Once you're familiar with the market and financing options, start actively searching for suitable duplex properties. Conduct thorough due diligence, including property inspections and financial analysis, to ensure it aligns with your investment goals.

Property Management: Since you'll be living in one unit and renting out the other, familiarize yourself with basic property management practices. Understand landlord-tenant laws in Missouri to protect your investment and maintain good tenant relationships.

These tips should help you kickstart your journey into house hacking. I am a loan officer so feel free to reach out if you are interested in financing, or if you just want to discuss further/have questions. Good Luck!!

Regarding the long-term implications of using rental properties to offset your W2 income with depreciation:

Depreciation Recapture and Tax Planning

Depreciation Recapture: When you sell a rental property, you'll face depreciation recapture taxes on the portion of the gain attributable to depreciation deductions taken. This is currently taxed at a higher rate (25%).

1031 Exchange: You can use a 1031 exchange to defer paying capital gains taxes by reinvesting proceeds into another like-kind property. This strategy allows you to continue building your portfolio without immediate tax consequences.

Long-Term Strategy Considerations
Financial Goals: Determine your 20-30 year financial goals. Consider whether you aim to build a substantial real estate portfolio for ongoing income or diversify investments over time.

Risk Management: Assess risks associated with property ownership, including vacancies, maintenance costs, and market fluctuations.

Risk Management: Assess risks such as vacancies, maintenance costs, and market fluctuations associated with owning multiple properties.

Tax Planning: Work closely with a tax professional to develop a balanced strategy that maximizes current income offset with depreciation, while planning for depreciation recapture and optimizing use of 1031 exchanges.

Hey Brandon,

Awesome to meet a new investor! Real Estate is truly the best way to build generational wealth (in my opinion). Feel free to reach out to me if you have any questions or want to talk financing!

Given your situation and concerns, here's a breakdown of considerations and advice:

Pros of Renting Out Current Home and Buying a New Primary Home:

Living Condition Upgrade: Moving to a larger, newer home with boutique features can improve your living space.

Rental Market: West Town in Chicago generally has a strong rental market, which could provide good rental income from your current home.

Portfolio Diversification: Adding another property to your real estate portfolio can enhance diversification and potentially increase long-term wealth through property appreciation and rental income.

Cons and Concerns:

Interest Rate: The current interest rate of 7% on a new mortgage is high, and there's uncertainty about future rate decreases. This could limit your ability to refinance in the future to lower your payments.

Rental Viability: Renting out a very new home (built in 2019) may not be ideal due to potential wear and tear concerns and the fact that it's less likely to need significant repairs or updates that tenants often expect.

Local Market Considerations: Chicago's property market is known for high property taxes and historically slower appreciation compared to other markets.

Financial Necessity: If you don't have a strong financial or personal reason to move, such as proximity to work, family, or lifestyle changes, it may not justify the hassle and costs of buying a new primary home.

I am a loan officer so feel free to reach out to me directly if you have any other questions or would just like to discuss!