All Forum Posts by: Zach Westerfield

Yes, you need to know comps whatever you decide to do. This will help you determine ARV. ARV is the basis for all other analysis. Start there and work your way backwards.

1. Costs to consider for either BRRR or flip

  a. Purchase costs (closing costs, inspections, etc) - you said you have already purchased so you should know these

  b. Renovation Cost

c. Holding cost - what it will cost to hold the property until completion (sale or refi): Taxes, insurance, HOA fees, Utilities, loan interest/payments

Once you estimate these, subtract from you ARV. That is your break even number.

2. How to get equity out depends. A few options 1. sell 2. Refi 3. HELOC. there is a lot to consider on sell versus refi/heloc, such as taxes, long term goals, property prospects etc. As for Refi vs Heloc, it also depends on what you want to use the money for. If you refi, you will pay more fees up front, as well as interest on that money whether you put it to work or not. However, once you pull the cash out there is no time limit (as well as fixed interest rate). For example, if you wanted to use the cash for a downpayment on another property, as refi may be better. A heloc will have fewer fees up front, and you only have to pay interest on the money when you put it to use. However, they typically come with a time limit (some are 5 years before you have to renew) and variable interest rate. These would probably be better used for shorter projects, such as another rehab, BRRR or flip.

3. Start by estimating what a kitchen and bath rehab would be. Then look at your comps. if they all have nicer kitchens and baths than yours, then dont expect to get the same amount. Sometimes its hard to quantify, but usually the return on kitchen and baths is higher than the investment (with many caveats). Look for the middle ground if it makes sense, such as a light spruce up instead of full reno. Maybe you can paint cabinets, paint the bathtub, paint walls and install new hardware and make a big difference. 

@Anthony Spallone with that many properties, you definitely need to convert to good accounting software. a good software can handle everything you listed. There are numerous different products to choose from. personally i use quickbooks, so i can only speak to that one. i chose QB in the beginning because most accountants use it or are familiar, and it can scale easily from a small business to large business (and therefore prevent swapping systems as i grew). 

First, I highly encourage to you separate your business and personal finances. When you do swap to an LLC, part of maintaining the protections of the LLC is proving its a true company, and not a liability shield. It makes it hard to prove this when business and personal finances are intertwined. I have completely separate accounts and credit cards strictly for my real estate business. After all, you dont need an LLC to be a business. a sole proprietorship is a business as well.

you do not need a separate account for each rental unit. one account can handle everything, and you use the accounting software to differentiate properties. Like everything, there is a learning curve up front, but once you do your world will be much more streamlined. here is how mine works

i have one business checking account. all rent goes into this account. 

in quickbooks, each property is its own class. whenever you do a transaction, you can assign a class to it. that keeps all the transactions segregated between properties. one of the best attributes of quickbooks is the ability to run reports. you can quickly and easily run financial reports on just about anything you can image. If you want to know how much you paid Joe's Plumber's service to work on just 3 of the 8 properties in april and may of 2020, you can run that report in minutes. try doing that with excel (and im an excel nerd at heart). profit and loss statements, balance sheets, expense tracking by vendor, income from a particular tenant - these are all reports i easily run (and are automatically updated) on a frequent basis. 

as far as receipts, i have been using espensify to track receipts, and input everything into quickbooks (i have the desktop version). however, after consulting with other BP members, i am swapping to QB online this year, and i believe it has its own expense tracking app that seamlessly integrates. 

i use quickbooks payments to collect rent. it gives you the option to accept either EBT or credit cards from tenants, and you can turn one or the other off (i dont allow credit card payments). for EBT, its about $0.50 per transaction. for rent once a month, this fee is worth the convenience. there are other systems such as cozi that do this as well, i just chose QB. 

i also flip houses, and i use quickbooks for that as well. however, i do have a few spreadsheets i use for major rehabs as well, mainly to assist with project management. you could probably accomplish that in quickbooks as well, im just not that advanced. 

The three you mentioned are probably just products offered from a specific lender. They are no mean a standard or common term across hard money lenders. I would start by looking at the terms and fine print. most all products will have varying combinations of the same factors. Things to consider:

- Amortization 

- points up from

- interest rate, type and amount

- payment structure - prepayment penalties, balloon payments

A bridge loan is a term for a short term loan to "bridge" the gap until long term financing is secured. Hard money loans for both BRRRs and fix and flips are types of bridge loans. Typical characteristics of bridge loans include: Higher interest rates that are variable; sometime interest only payments; short term balloon payments in 12-36 months. 

For a new investor looking to BRRR with hard money, I would look for something that gives you the lowest payments, as you will eventually finance out. Typically this means getting payments that are interest only. But my advice is consider the above factors and calculate the cost of the financing to complete your deal (give yourself minimum 6 months for your first deal and refinance). Factor these numbers into your up front costs.

@Casey Rawlings I would start by running the financial analysis. Do you plan on holding for a long time? If so, run your numbers with a time frame of 10-15 years in mind. Estimate how much it will take to convert to a duplex, then consider what sort of return you will get on that extra money. The final thing to consider is your exit strategy. Do single family properties sell higher per sq ft in that area, or no noticeable difference? There is not set way to consider these numbers, you have to apply them to your own goals. For example, if you sell the old house for $50K, and it cost you $200K to build a duplex, then consider the return on the $150K. if the extra rent is $1000 per mo, then thats an 8% CoC in the first year. there are many different ways to run the numbers and look at things.

from a tenant management perspective, multifamily tenants tend to be more transient than SFR, depending on market. other than that, usually its more desirable to have a multi. Hope this helps

what is your plan with the land? if short term consider commercial banks and bridge products. if longer term, there are lenders that specialize in land. Agsouth is one in georgia, not sure if they operate in florida but there will be someone like them. 

Not sure about california, but i have one of my properties in florida locked in at 3.175% for 30 year fixed. most what i have seen has been around 3.5. 

@Allison Ault You will most likely have to pay for the roof whether you keep or sell it. If you sell, more than likely the selling price will reflect the fact that the roof needs to be replaced. No matter what happens to the property, the roof will need to be replaced. Ask yourself, if the roof was already new, would you want to keep the property? Do you think you could put your money to better work vs into this property (don't forget the tax hit for selling)?

Based on a quick look at your numbers, it looks like a great investment property. Maintenance items are a fact of owning real estate. If you sell this property and buy another, you will have other maintenance items eventually. If you like the property, like the model of long term rentals and short term under one roof, then keep the property and replace the roof. At least then you wont have to worry about the roof for another 30 years. if you dont like dealing with major repairs, then sell the property and find a real estate model that doesnt involve active management, such as passively investing in limited partnerships. 

Different banks value rental income differently. Some require it to be on your tax return in order to include it in you DTI. This will take planning with your CPA, as you may need to take a few years and not show a loss (and pay more taxes). Some local banks will "cancel" the debt from a property mortgage with the rent from that property, providing the rent is more. In this case, even though you have 4 properties the bank looks at it like you have 0, and you can use your W2 income to continue to qualify. Even for fannie may backed loans, ive found variation on what banks will allow.

Very good to know. I recently heard a rumor that the VA Loan benefit has changed. Previously, a service member was limited to a certain amount of benefit depending on location, say $450,000. You can have multiple VA loans, but in order to receive the benefit the total of the loans had to be below $450,000. I have heard that now you can have multiple loans, up to $450,000, with no limit to total benefit. I find this hard to believe, but its definitely worth looking into.

@Jesse Woodall I believe you experience gives you a leg up. Most people agree the most difficult part of flipping is the construction part, whether it be dealing with contractors or estimating repairs. There are tons of books and material on the financial side of things, but usually only experience brings proficiency on the construction side.