PLEASE, VET MY PLAN AND TEAR IT APART

12 Replies

Hi guys,

I'm a Brazilian living and investing in Mexico, as I'm starting I saw an opportunity to build wealth through RE and would like you to analyze my plan and show me my flaws. Knowing that the Mexican RE market is different than the US I'll try to explain some of the steps in here so you can get in sync with how it works.

I'm currently buying foreclosures in Mexico City. The foreclosure process here is a little slow because the bank doesn't take possession before having a buyer. So first you gotta show interest in the property and pay the initial fee, all of that has to happen through a company specialized in foreclosure (they usually have their salespeople and attorneys to take care of the process). After that initial fee, the company will take care of the process that takes up to 6 months to receive the keys. During the entire process, I'm not allowed to see the interior of the property because it is usually occupied. Also, the property must be paid in cash. However, it's possible to find really attractive deals, as the property can be purchased by 1/3 of its appraisal value, just like I bought a month ago.

The interest rates managed around here are between 8% and 10%. I talked to a mortgage broker and he assured me that with my credit score we could be looking into 8.5%.

My Idea is to, once the property is rehabbed and rented, take a cash-out refi on the amount of the entire project (as long as my cash flow remains positive) and use that money to purchase another property and so on. Always tapping the equity of the property recently bought to purchase another.

I ran the numbers on the BRRRR calculator and the property that I recently bought will cash flow around $50 USD after refinancing the full amount, leaving me with a CaCROI of infinity, because I won't be putting any money down.

The banks here don't bat an eye as long as my DTI is below 50%, and as long as my property is cash flow positive I should not get into 50% DTI (for at least 10 properties) because I don't have any other debt (and usually don't use debt to purchase anything for me, not even cars, I usually pay cash for my car).

So now, if are kind enough, be the devil's advocate and tear apart my plan and expose its flaws, so I can learn from you and avoid most of the beginner's mistakes.

Cheers

If you may, forget about the market I'm in. Just do your best to find a flaw on a plan like that. Imagine buying a property in relatively good condition where you'll have to pay 1/3 of it's appraisal value, and another 3/20 in repairs. Be able to take 70% on a loan to purchase another property, considering that the property Y u cash flow 50 USD if you take the refinance.

@Gabriel Mouzella Silva

I invest in Mexico but the location doesn't matter when it comes to your question. Investment is all about figures. If your calculations are correct and give you a positive outcome, your plan should work. This obviously assumes that the condition of the property and the rental market allow you to be cash flow positive. Mind you, you can always resell the property if you're not.

Conclusion: it sound like a sound plan that would work but of course there are risks, as there are in any ventures.

Hello, Gabriel.

I have over 30 years of experience investing in rental properties in Mexico City, from single family homes to multi-family buildings. I also do it in Texas.  Feel free to PM me, perhaps I can be of help.

Charles.

Hi Gabriel, I live in mexico city and the majority of my investments are here(over 90% of them). I think you should find somebody that really knows foreclosures in mexico. 6 months is far from the reality and there is a lot of fraud in that type of investing. A real time line is around 18 months and 8 months would be the fastest I've heard and over 6 years is the longest. I do RE consulting and could recommend a few people that can help you through the process so you have a realistic grasp on how "remates" work here. DM me if there is anything you would like help on or recommendations with who to help you. I'll gladly help free of charge. It is posible to do what you want to do, but the time line is far from realistic and things here are extremely bureaucratic and slow when it comes to foreclosures. best of luck 

Originally posted by @Gabriel Mouzella :

If you may, forget about the market I'm in. Just do your best to find a flaw on a plan like that. Imagine buying a property in relatively good condition where you'll have to pay 1/3 of it's appraisal value, and another 3/20 in repairs. Be able to take 70% on a loan to purchase another property, considering that the property Y u cash flow 50 USD if you take the refinance.

 Hi @Gabriel Mouzella, I am not sure if anyone mention this yet but here is my 2 cents. Cash-out/refinance and just leave enough to be cash flow positive is a good strategy to build up your portfolio quickly. When in a stable rental market there wont be an issue. However, if one of your tenant run into any trouble paying you rent then the cash-flow will turn negative right away. Enough of them not being able to pay rent or moving out during the same time period will leave you with a lot of stress trying to pay the mortgages with your own money. Try to leave some reserve in case you run into those kind of trouble. When you do the calculation do you add in reserve, vacancy, management fee, etc... in case you run into trouble?

Khoa

Hi Khoa,

Thanks for your input, I plan to reserve around 12 months of expenses from the cash-out refi.

For example: if my expense, with a mortgage, is around $7,000.00 MXN, and take a cash-out of $700,000.00 MXN, I will save $84,000.00 MXN exactly for those kinds of problems, and use only $616,000.00 MXN for the next property. 

@Gabriel Mouzella

I do not know your market, or plans for REI.

But if I was picking up houses for 1/3 or their value, and only cash flowing $50, I would be flipping--not holding. Lots of equity there, but not enough cashflow for my time.