All Forum Posts by: Zach Westerfield

Disclaimer - I am not a lawyer and this is not legal advice. 

Why do you want an LLC? the main reason for an LLC is liability protection. If you are a high net worth individual with plenty of assets to protect, then it might make sense to start there. However if that is the case then BRRRing a SFR may not be the best method of real estate investing for you.

You almost certainly will not be able to secure the best long term financing with a property held in an LLC. To do this the property needs to be in your name. You can complete the deal, refi and get a good long term loan, and later down the road when you have more assets to protect you can transfer the title to an LLC. Until then use liability insurance and an umbrella policy to protect you.

Every bank I have ever talked to (I've talked with approximately 30-40) will only issue commercial loans to an LLC.

@Simon Obas that depends on your comfort level and systems. BRRR is flipping, it's just flipping to yourself. If you develop good systems for rehabbing and flipping properties, you can handle as many as you want. Two years ago I was doing the work myself and could only do one at a time. Now I have better systems, and have had three in various stages at once this year, and would feel comfortable handling 5-6.

@Simon Obas from what I can see in the pics, this property needs very little. The floors look great.

Outside - trim everything up, clean any trash, put out fresh mulch

Based on your budget you can consider painting the outside. Shutters are cheap and add curb appeal

Inside - Paint and updated electrical fixtures. I would keep the cabinets if they are in good shape, and paint them and install new handles. Those are nice appliances. I would add low end granite countertops.

For the bathrooms I would paint everything, including vanity, and install new faucets and lights.

Finally I would paint or replace the old brown closet doors.

Looks like a great property

i havent used those calculators before, i made my own. however, i do not see holding costs in there. You are predicting a $37,000 rehab, and 6 months to complete it. for that six months, you will need to pay

interest on your loan

utilities

taxes

insurance

any HOA fees

I dont know all your details, but that can easily add up to $7-10K. 

what exactly is your question?

rehabing for BRRR is different than rehabing a straight rental property. its a lot more like rehabing for a fix and flip. It takes experience (im still learning myself) to learn which areas to focus on for the most cost efficient rehab. My thought is, almost all SFR appraisers are used to looking at a house through the eyes of residential buyers. So the same thing that a buyer in that area would want to see the appraiser is going to like.

1. learn your comps. If you ARV is 290K, look at 290K homes nearby that are similar and sold recently. This makes the job easy for the appraiser and you. if these homes have stainless appliances, granite counters, etc, you need to do that as well to get that ARV.

2. Focus on Kitchens and baths: just like selling a home, this are the big ticket areas, so spend your extra budget her. I use new stainless appliances and granite countertops even though it will be a rental. i have had several appraisers positively comment on that, and i have found i attract a higher end tenant for the market. Also, granite is more durable (tenant proof) than Formica. 

3. make sure the "cosmetic rehab" is complete. if plumbing and lighting fixtures look old or out of date, replace them. this is a relatively small expense for a 290K house. You dont have to go expensive here, just something that is new and in style. i go with low end oil rubbed bronze fixtures. a faucet runs $30-50 but makes a big difference in a bathroom. 

4. Flooring - i use Luxury Vinyl Plank flooring throughout the entire house, bathrooms and closets included. its durable, tenant resistant, in style and looks great. and its affordable compared to other hard surface flooring options. 

5. spruce up the landscape - dont spend much money here - your tenants will most likely not keep up an expensive landscape. your goal is to get curb appeal for the appraiser and initial tenants. Trimming bushes, mowing grass, and having pinestraw and mulch can go a long way to making a property look nice from the outside. 

6. pressure wash - speaking of curb appeal, any cheap way to make sure a house looks good is to wash it. a pressure washing runs about $200, but can make a property look new. 

I definitely spend more on my BRRRs than other landlords do in the same area, but I do spend less than I would if I were flipping the same property. 

I recently got a quote for a personal residence rate of 2.25%. i would shop around and see what you can get. if you think you will be in this house for a long time, consider the refi. The bank will give you the closing costs up front. You should compare that with the amount of interest saved with the lower rate. 

This is a little bit of a grey area. If you intended to live in it, but after closing something came up unforeseen, you should be okay. 

The legal answer: the bank could accuse you of mortgage fraud. to do this they must prove you had intent to defraud, which is where the prior statement about your intentions comes to play. Otherwise, you need to live there for a year before renting it out. 

The practical answer: Once a bank closes a loan, they forget about it unless you stop paying. In fact, if its a Fannie Mae backed loan, odds are it will be sold in the first few months. This topic is similar to the question about transferring mortgages to an LLC. Yes, the bank could call your loan if they found out, but the last thing they want to do is foreclose on a performing asset. As long as you stay current on your payments you shouldnt have an issue.

Is this on an investment property or personal residence? Thats a great rate for an investment property, with closing costs it will take a long time to make up the difference for a refi. Also, Fannie Mae just added a new fee for cash out refis. Yes the HELOC is variable rate, but you dont have to pay interest if you arent using it. Also less closing costs. About the only way it would make sense to refi is if you are CERTAIN you would hold this property for a long time. It all depends on you goals and strategy.