Ep. 310: A Repeatable Path to Early Retirement w Jenny Bayless

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Ep. 310: A Repeatable Path to Early Retirement w Jenny Bayless

Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes

Looking to find financial independence through real estate but don’t want to be responsible for a portfolio of 100 homes? Well, that’s exactly what today’s guest is doing!

Jenny Bayless is a real estate investor in Colorado who is using long-distance investing principles to systematically build a portfolio of cash flowing properties using the BRRRR method! Jenny is absolutely crushing it by "making" deals in today's tough market and shares what she looks for that other investors miss.

Learn her system for targeting fixer-upper properties, how she estimates rehab costs, and the method her real estate agent uses to send her videos of potential properties so she doesn't have to drive hours to see them. Jenny also shares how she uses hard money to buy "cash," how she found a rockstar agent, and how she backed into an "accidental BRRRR" that led to future success!

Today’s episode is equal parts inspirational and practical with TONS of actionable advice. If you want to retire early with real estate but don’t want the headache of managing 100 homes, don’t miss this show!

Listen here or on your favorite podcast app.

[email protected]Podcast Guest on Show #261
BiggerPockets
6Reply
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Most Popular Reply

Jenny Bayless
Real Estate Agent · Colorado Springs, CO · Member since 2016 · 109 posts · 96 votes
7y

@Dave Fagundes- I'm glad you enjoyed the episode!  

I think you bring up an awesome question/observation!  Here are my experiences:

1. I have experienced the same issue you have with the 6-month seasoning requirements for a cash out refinance. We also recognized this would be a hurdle in being able to turnover and stabilize properties as quickly as we wanted. Personally, I could not find any local or institutional lenders willing to waive the 6 month seasoning requirement for a cash out (but that's not to say they aren't out there!). A strategy that we adopted in a few instances to be able to turn over these properties faster, is by utilizing a private lender/HML in conjunction with a rate/term refinance (opposed to a cash out). We have private lenders that are willing to lend 100% of purchase price and renovations, not to exceed a percentage of ARV. What the rate/term refinance does, is a 'conventional lender' (caveat: always check with your lender!) can refinance the rate and term of that private loan (so for example, taking a 3 month 12% interest rate loan for $120k to a 30 year 5% interest rate loan for $120k). Our lender requires the loan to come in at 80 or 85% of appraised value. No cash has changed hands during this process of the refinance, and now we are able to get the property (a good example of this is in the Deep Dive) for just a few thousand dollars out of pocket (some additional renovations not covered by the loan less the purchase price). Of course, this method exposes you to the risk of having to potentially bring money at the time of refinance to close out the first loan if the property does not appraise for what you had estimated originally.

2. Definitely a great point to bring up. The way I consider it is, say for example you can pull out $30,000 in a cash out refinance BRRRR. At 5% interest, that increases your monthly payment by about $160 a month upon completion of the refinance. Say for example on house #1 you were originally cash flowing $500 a month but are now cash flowing $340 a month (due to the increased mortgage payment). If you re-leverage that cash you took out and applied it to acquire property #2, and that property cash flows $400 a month, you've now increased your net cash flow from $500 (just prop #1) to $740 per month ('new' cash flow of prop #1 and prop #2), in addition to both properties are now able to realize all the other benefits of real estate, such as mortgage pay-downs by tenants, etc.

Hope this helps!

Jenny

27Reply
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47 Replies

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  • Manju Shackett
    Member since 2018 · 4 posts · 5 votes
    7y

    Hi,

    I am CPA as well but just getting started.  I am looking for my first rental property.  How do you find an real estate agent? what do I ask him or her.  Since I haven't bought my first rental, I don't know how to screen the agents first.

    thanks much!

    M

    5Reply
  • Nicholas Wood
    Real Estate Broker · WV · Member since 2018 · 8 posts · 10 votes
    7y

    The cash-out refinance is the key to success in repeating and becoming wealthy. The tools that are out there for RE investors are mind boggling. Hoping to make my first investment in 2019.

    9Reply
  • Shawn Regnier
    Realtor · Los Angeles, CA · Member since 2017 · 99 posts · 97 votes
    7y

    Nice podcast, and love the path she took. Very worthwhile listen imo!

    4Reply
  • Dave Fagundes
    Attorney · Houston, TX · Member since 2018 · 34 posts · 50 votes
    7y

    Enjoyed this podcast a ton. Lots of great info and insights. One question and one follow up observation:

    First, my experience has been that most lenders are unwilling to finance for more than the purchase price until six months after purchase. This would slow down the BRRR approach because it would mean that if you bought a place and then finished rehab in a month, you'd still be stuck with initial financing for five months. I've talked to lenders who have offered delayed financing options less than six months after purchase, but this option is always based on the purchase amount of the property, which defeats the purpose of BRRR because it misses out on the equity that is added by improvements. Bottom line question: are any (residential) lenders willing to lend based on the appraised value of a property within six months of purchase?

    Second, one feature of the BRRR strategy that never gets mentioned much is that it necessarily constrains cash flow. If you finance a place for $100k, then improve and rent it out, and later do a cash out refi at an appraised value of $150, then the cost of financing is going to be significantly greater. You're paying to rent 70/75% of 50% again as much money, but the rent is presumably the same. So the higher financing costs necessarily diminish the cash flow to an extent. This diminishment may well be worth it to get the extra cash out to use; and by reducing the cash in the deal the cash on cash increases significantly even with the reduced cash flow. But it's a point worth considering that I've never heard mentioned in discussions of the BRRR strategy.

    21Reply
  • Jenny Bayless
    Real Estate Agent · Colorado Springs, CO · Member since 2016 · 109 posts · 96 votes
    7y

    @Dave Fagundes- I'm glad you enjoyed the episode!  

    I think you bring up an awesome question/observation!  Here are my experiences:

    1. I have experienced the same issue you have with the 6-month seasoning requirements for a cash out refinance. We also recognized this would be a hurdle in being able to turnover and stabilize properties as quickly as we wanted. Personally, I could not find any local or institutional lenders willing to waive the 6 month seasoning requirement for a cash out (but that's not to say they aren't out there!). A strategy that we adopted in a few instances to be able to turn over these properties faster, is by utilizing a private lender/HML in conjunction with a rate/term refinance (opposed to a cash out). We have private lenders that are willing to lend 100% of purchase price and renovations, not to exceed a percentage of ARV. What the rate/term refinance does, is a 'conventional lender' (caveat: always check with your lender!) can refinance the rate and term of that private loan (so for example, taking a 3 month 12% interest rate loan for $120k to a 30 year 5% interest rate loan for $120k). Our lender requires the loan to come in at 80 or 85% of appraised value. No cash has changed hands during this process of the refinance, and now we are able to get the property (a good example of this is in the Deep Dive) for just a few thousand dollars out of pocket (some additional renovations not covered by the loan less the purchase price). Of course, this method exposes you to the risk of having to potentially bring money at the time of refinance to close out the first loan if the property does not appraise for what you had estimated originally.

    2. Definitely a great point to bring up. The way I consider it is, say for example you can pull out $30,000 in a cash out refinance BRRRR. At 5% interest, that increases your monthly payment by about $160 a month upon completion of the refinance. Say for example on house #1 you were originally cash flowing $500 a month but are now cash flowing $340 a month (due to the increased mortgage payment). If you re-leverage that cash you took out and applied it to acquire property #2, and that property cash flows $400 a month, you've now increased your net cash flow from $500 (just prop #1) to $740 per month ('new' cash flow of prop #1 and prop #2), in addition to both properties are now able to realize all the other benefits of real estate, such as mortgage pay-downs by tenants, etc.

    Hope this helps!

    Jenny

    27Reply
  • Tim Polk
    Realtor · NWI (Northwest Indiana) · Member since 2018 · 63 posts · 36 votes
    7y
    Anyone know why the app Podbean stops at episode #295? Trying to listen
    1Reply
  • Andrew Hagmann
    Rental Property Investor · Minneapolis, MN · Member since 2017 · 6 posts · 5 votes
    7y
    @Jennifer B. So basically one has to be sure that they're not pulling out so much on the refi that the cash flow on the house#1 goes negative? Unless, I suppose, they are going to cash flow a huge amount on house#2 and need that large amount. I have always wondered about this as well. Thanks for the explanation!
    2Reply
  • Olu Efunwoye
    Rental Property Investor · Springdale, MD · Member since 2018 · 65 posts · 24 votes
    7y
    Me too wondering how to get the other episodes after 295. Looking forward to an answer here
    1Reply
  • Kyle McCall
    Brentwood, TN · Member since 2018 · 20 posts · 5 votes
    7y

    Great podcast.  I found the same to be true as @Dave Fagundes mentions with lendors. Some even require 12 months after purchase.

    2Reply
  • Neil Goradia
    Developer · Indianapolis, IN · Member since 2012 · 259 posts · 129 votes
    7y

    Firstly, congrats to Jenny, this is pretty amazing. I do tend to agree with @Dave Fagundes on the cashflow comment however. The higher overall cashflow would only pan out if you don't pull money out of the 2nd investment, 3rd, 4th, etc. If you keep BRRR each time then I personally don't think it works very well. Also, my personality is such that anxiety creeps in during vacancies or when large maintenance expenses hit if I'm only cashflowing a few hundred a month (vs. a free and clear property). But to each their own! Depends on your overall goals.

    4Reply
  • Sean Tabor
    Rental Property Investor · Flint, MI · Member since 2017 · 17 posts · 19 votes
    7y
    Originally posted by @Dave Fagundes:

    Enjoyed this podcast a ton. Lots of great info and insights. One question and one follow up observation:

    First, my experience has been that most lenders are unwilling to finance for more than the purchase price until six months after purchase. This would slow down the BRRR approach because it would mean that if you bought a place and then finished rehab in a month, you'd still be stuck with initial financing for five months. I've talked to lenders who have offered delayed financing options less than six months after purchase, but this option is always based on the purchase amount of the property, which defeats the purpose of BRRR because it misses out on the equity that is added by improvements. Bottom line question: are any (residential) lenders willing to lend based on the appraised value of a property within six months of purchase?

    Second, one feature of the BRRR strategy that never gets mentioned much is that it necessarily constrains cash flow. If you finance a place for $100k, then improve and rent it out, and later do a cash out refi at an appraised value of $150, then the cost of financing is going to be significantly greater. You're paying to rent 70/75% of 50% again as much money, but the rent is presumably the same. So the higher financing costs necessarily diminish the cash flow to an extent. This diminishment may well be worth it to get the extra cash out to use; and by reducing the cash in the deal the cash on cash increases significantly even with the reduced cash flow. But it's a point worth considering that I've never heard mentioned in discussions of the BRRR strategy.

    Dave, 

    I saw this question and my mind went back to Ep. 301 (though it took me half an hour to find it). Alex said that he's done a few days through Delayed financing through HUD, and it allows him to refinance out his construction costs as well. Something to look into!

    1Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    I find that owning properties is not some kind of retirement.  Lots of work.  It is not passive.  

    Smart investors are completely on top of the details of their properties.

    2Reply
  • Mindy JensenPro Member
    OP
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    7y

    @Olu Efunwoye and @Tim Polk, this is the first I've heard that Podbean is not updating after episode 295. I know Google Play is having sporadic issues - some people are getting weekly updates and some are not. 

    Try uninstalling and reinstalling the app or contact the app support itself and ask them.

    We are continuing to put out episodes every week for both the Real Estate Podcast and the Money Podcast and most podcast apps are updated. I've had no issues with Castbox or Podcast Addict.

    I'm sorry you're having these issues.

    [email protected]Podcast Guest on Show #261
    BiggerPockets
    0Reply
  • Dave Fagundes
    Attorney · Houston, TX · Member since 2018 · 34 posts · 50 votes
    7y

    Great thoughts everyone, thanks for the contributions.

    @Jenny Bayless, I had not heard of rate/term loans, that's a really interesting idea. I assume that among the features of the initial loan that you can modify is the principal, because if it's just the rate and the length term then it doesn't seem to give the opportunity to level up your equity, which is the key to the BRRR strategy.

    @Andrew Hagmann and @Neil Goradia, the cautions in terms of cash flow are well-taken. I understand Jennifer's point to be that she models the entire portfolio's cashflow instead of looking just at a single property, and if the net cash flow increases thanks to a deal, that's on-balance a good move.

    This makes sense to me, especially because as I work on REI more and more I try to resist getting caught up in max cash flow as the primary criterion of what makes a good investment. It's purely personal, of course, but for me I'd be OK with lower cash flow in exchange for a greater and growing equity stake, since I have a longer buy-and-hold horizon. Even so, the risk of thinner cash flow margins is that you have less room to take care of any unwelcome major expenses like HVAC going out. But this can be accounted for by increasing your reserves, and if you're renovating yourself then hopefully that should lower the risk of major expenses because presumably you've addressed any capex concerns in the initial renovations.

    One final thought on BRRR and financing: I talked to a colleague who suggested acquiring a property with a construction loan. The rate would be higher, but the payment would be interest only; then restructuring to traditional financing soon after. I think this kind of loan can be restructured into traditional within six months, though it does require pretty significant cash reserves up front. This approach is pretty similar to Jennifer's suggestion about PL/HML then restructuring the rate/term.

    3Reply
  • Olu Efunwoye
    Rental Property Investor · Springdale, MD · Member since 2018 · 65 posts · 24 votes
    7y

    @Mindy Jensen Thanks for your feedback. I just uninstalled and reinstalled the app. Same issue. However I am able to see the update episode on the Money Podcast - #52, but can't see beyond episode #295 on the BiggerPockets podcast (Brandon & David). I have send an email to support and will update this thread once resolved so other people too can know what to do.

    1Reply
  • Eli L. Ku
    Rental Property Investor · Fountain, CO · Member since 2017 · 20 posts · 8 votes
    7y

    @Jenny Bayless This was great podcast! Zorbing sounds super fun. haha. Next time when you and your husband are in the springs let us know maybe we can some coffee and talk about REI. Thank you for giving your time. Great job on REI!

    2Reply
  • Olu Efunwoye
    Rental Property Investor · Springdale, MD · Member since 2018 · 65 posts · 24 votes
    7y

    @Tim Polk @Mindy Jensen BiggerPockets support reached out back and confirmed: "It is an issue with google play itself, please watch it using a regular browser instead". I was able to see all episodes with Castbox. Thanks

    2Reply
  • Tim Polk
    Realtor · NWI (Northwest Indiana) · Member since 2018 · 63 posts · 36 votes
    7y
    @Olu Efunwoye Thanks for finding a solution!
    0Reply
  • Andrew Neal
    Real Estate Professional · Brentwood CA / Dallas, TX · Member since 2016 · 185 posts · 146 votes
    7y

    One strategy I have been considering implementing is BRRRR but you create your own LLC and then lend yourself the money. The LLC is the HML in this situation but since you are lending the money to yourself you can avoid crazy high fees. When you go to refinance the bank will pay off that loan and will do so without any seasoning.

    The caveat is obviously you need to have the initial cash to pull this off but would greatly accelerate the rate at which you could acquire properties.

    3Reply
  • Kyler Cook
    Rental Property Investor · Kalamazoo, MI · Member since 2018 · 117 posts · 235 votes
    7y

    @Brian Ploszay

    Anyone that says owning real estate takes no work doesn’t understand passive income. It isn’t that it takes no work, it’s that the end result of the work is relatively easy income that isn’t trading time for money.

    4Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    @Kyler Cook    

    I am against the use of the term "passive" income when describing real estate investments, especially residential rentals. It seems more of a marketing technique for those who sell investment properties, rather than an accurate description of the investment. Passive income real estate is NNN corporate guarantee properties, like a Walgreens. Or investing shares in a REIT. But managing rentals - it is a lot of time, even compared to what you are making.

    My rentals are a full time career.  What can be called passive is that there is a financial residual down the road - we will own assets that will trend towards being paid down and possibly appreciate.  

    5Reply
  • Christopher DerrPro Member
    Investor · Garner, IA · Member since 2013 · 70 posts · 36 votes
    7y

    I do BRRR with 25 year commercial loans from a smaller portfolio lender here, no seasoning they will re-write the loan whenever I want for the doc fee, and half the time I just do a "subject to" appraisal up front and they front load me the rehab cost upto 80% of the value of the subject to appraisal so its a front load Buy, Finance the Rehab, Rehab, Rent, Repeat. I still get $150/mo after PITI, Vacancy, Repair, Management. On 25year loans and sometimes even get that on 15 year loans. It just means I have to find deals that make the numbers work on 25 instead of 30 but RE is cheaper here in the Midwest than most places. My appreciation will probably barely keep pace with inflation.

    3Reply
  • Marquis Okafor
    Flipper/Rehabber · Tampa, FL · Member since 2014 · 31 posts · 8 votes
    7y

    Im going to listen tonite, seeing how I am looking to start implementing the BRRRR method in 2019. These podcasts have been such great teaching tools. Congrats to Jenny!

    0Reply
  • Matt Walker
    Rental Property Investor · Denver, CO · Member since 2018 · 36 posts · 16 votes
    7y

    @Mindy Jensen Hi Mindy, do you invest out of state as well?

    0Reply
  • Matt Walker
    Rental Property Investor · Denver, CO · Member since 2018 · 36 posts · 16 votes
    7y

    @Manju Shackett First lesson in RE investing, you don’t need an agent to find deals, because they don’t very often have access to good deals. The best deals aren’t listed on the market, they are off-market wholesale deals.

    0Reply
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