1st BRRRR Success(ish)

179 Replies

Good job on rehab. This is one of the best posts that really give you an insight into all the small details it takes to make it work.. As I'm getting my feet wet, your write up answered alot of my questions. Much appreciated!! Good luck with the next one

@Seth Robbins on the original hard money note or on the Refi into a 30yr fixed? 

@Alex Sabio  @Daniel Rivera  thank you!

@Gabriela Zhang glad you found it useful, thank you!

@Jason Rosenfeld @Tim Daly  @Damon Phillips  thank you, I appreciate it. 

@Andrew Worgan thank you, good luck on finding your BRRRR

@Dwight Harmon that would be a really great product if it's everything you described. Ironically- Lima One Capitol was the lender that I used to fund the deal. I originally used a local broker here in Ct, but when he didn't have the right product he sourced the deal to Lima One who ended up closing it for me. Let me know what you end up finding out!

@Eric Williams I messaged you. 

@Jeff Gagnon your absolutely right- the cash flow before expenses is $1274, I made note of the correction afterwards on this thread. 

@Laura Verderber couldn't agree more, timeless and goes well with white trim and other finishes. 

@Jonathan Villota thank you! @Dennis Askey appreciate it, good luck on your search!

@Seth Robbins my LLC was the buying entity on the hard money note and I am guarantor of the LLC so yes, I believe your correct. My understanding is on longer term debt, those 30 yr loans are non recourse loans meaning: if you fail to pay your mortgage they will take the house but not come after you personally if there is still money owed. I would love for someone to explain that further though.

Originally posted by @Michael Doherty :

@Brian Brusich my math was wrong in my original post- just realizing this. My income is $2775 a month. My debt service is $1501. So Cash flow before expenses is $1274. Leaving Cash flow after expenses $765. 

That makes much more sense, thanks for clearing that up. I was about to ask, but decided I would scroll through all the replies first. Thanks for sharing and congrats on what looks like a great BRRRR!

Great Job Michael.  I appreciate your understanding of need for speed in the remodel by hiring a contractor and not wanting to 'save' money by doing much yourself.  Get pros with crews and tools that can work 8-10 hrs per day on your project.  Spend your time selecting the SOW, selecting finishes and finding money and your next deal.  Also very smart not to fall in love with the property and want to make it perfect as if you were going to live in it (i.e. forgo the granite, but add the gas heat).  It is an investment vehicle, not your retirement home.  I have had friends loose their shirt in a flip because they wanted to do much of the work, did not select finishes timely, and spent way too much on things that added no value.  Exceeded the hard money timetable and had to get an extension - which includes new set of points and closing costs - Ouch.

If you are going to flip on the next one, don't forget to calculate your short term capital gains tax or at least keep the property for more than a year.  Most folks forget and the bill comes in months after you have forgotten about your deal and are working on the next one.

And thanks for sharing and responding to all the questions. - Cheers. 

@Stefan Knieling thank you for the response and the tips! Is it fair to say... as it relates to cap gains, your profit (all proceeds after closing) would be taxed as 'long term gains' based off your personal tax bracket if it's under 12 months?

Whether the loan is a recourse or non-recourse loan is largely dependent on state law.  According to credissesame.com: "Non-recourse states include Alaska, Arizona, Washington, Utah, Idaho, Minnesota, California, North Carolina, Connecticut, North Dakota, Texas and Oregon. These states only allow non-recourse loans." 
https://www.creditsesame.com/blog/loans/guide-recourse-non-recourse-loans/  Note: This restriction may not apply investment properties.  

Whether the loan is recourse/non-recourse depends on where the property is located and the terms of the actual loan. Of course, recourse against an LLC or corporation may not be worth much (if the property is all that is owned by the entity). As such, a personal guaranty offers significant protection to a lender. Further, I suspect that lenders in the noted non-recourse states are permitted to require a personal guaranty despite the restriction on recourse debt.

To revise my prior statement and generally answer my own question, I'd be surprised if a personal guaranty is not required for any of these investment loans unless there is significant equity.  




 

Very informative! Thank you! 👏 I'm the opposite, I flipped before I came across my first BRRRR- currently in the process of Refinancing from hard money lender. I'm crossing my finger with the appraisal 🤞🏻

This is valuable information especially for us that are new and looking to learn and even mold after others success to lower the risk in the plying field! Thank you.

Michael Doherty - Great job in sharing info, including challenges and successes. Congrats on your BRRR - well done. If you were closer to the Fairfield mkt, I'd invite you to attend a small private group on like-minded investors.

To clarify your tax liability on a flip:

Long-term capital gains are derived from investments held for more than one year and are taxed according to graduated thresholds for taxable income at 0%, 15%, or 20%. A short-term capital gain results from an asset owned for a year or less and is taxed as though it were ordinary income.

If you flip a home and sell it before you have owned it 12 months, your gains may be taxed as regular income which is typically higher than long term rates.  In your state I believe you have both federal and state income tax.  You could do a 1031 Exchange, but that gets more complicated, options are taken away from you as funds are transferred to a third party escrow and you have to pick 3 possible purchased that are of equal or higher value within 18 months.  Deals can fall though and this may not work.

Any home flippers out there - please advise Michael how you deal/budget for the Grim Reaper...er...tax man. 

When you said "I funded my most recent project with the same lender for 9.99% And 2.5 points so it does get cheaper with experience and relationship."

What is the difference between the rates AND the points?  Are you referring to paying points to buy down the rate?

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