Rental Property Investor · Los Angeles, CA · Member since 2019 · 37 posts · 23 votes
Hi everyone! I have been using BiggerPockets for real estate info for about a year now, but this is my first post. I’m looking to start investing long distance investing in the Midwest (likely Minnesota, my hometown) from Los Angeles. The goal is to start next summer 2021 with $140,000 cash reserves. We will be using the brrrr method through single family homes and possibly multi-family, as well. We are looking to scale as quickly as possible. Does anyone have advice on how to scale quickly?
@Ashley Keeler, generally those that have created the most wealth and the largest portfolios are those that have been patient. As mentioned, you will run into issues, it is inevitable, but if you jump from 0-10 properties very quickly, those mistakes will likely become evident on all 10 properties, versus working out the kinks of the first one before moving to two.
That being said, with cash to invest, your biggest hurdle is going to be seasoning. Most lenders these days are 12 months seasoning. The good thing is, as mentioned, when you get a track record with a bank, you can typically bring that seasoning down. I did my first 2 BRRRR deals with cash. At 12 months I refi'd them to buy my third. My third deal, I was able to refi based on appraisal within 3 months.
The next issue I ran into was overall exposure to that bank. They would not lend to me anymore without having another guarantor on the loan. I was at about 10x my annual income in loan balances to them. So you then end up slowing down and starting from scratch with a new bank.
For those starting out in today's market, my biggest worry is finding deals that are actual deals. A lot of properties can cash flow if you don't account for vacancy, leasing commissions, repair and capex reserves. But if you don't reserve for those today, you will be out of pocket for them in the future. And capex reserves are needed even if you buy a brand new house. Mechanicals will go out, eventually. Kitchens will need remodeled, eventually. You can save today or find the money when you need it, but the cost will still be there.
Hi everyone! I have been using BiggerPockets for real estate info for about a year now, but this is my first post. I’m looking to start investing long distance investing in the Midwest (likely Minnesota, my hometown) from Los Angeles. The goal is to start next summer 2021 with $140,000 cash reserves. We will be using the brrrr method through single family homes and possibly multi-family, as well. We are looking to scale as quickly as possible. Does anyone have advice on how to scale quickly?
Hi Ashley,
I'm speaking out of my zone here because I'm a buy-and-hold investor here in LA, but from what I understand, you can really supercharge your growth by having greatest access to money. Your $140K will get one or maaaaybe two BRRRRs off the ground, but if you can borrow hard money, you'll be able to execute multiple BRRRRs at once. My advice is to start reaching out to and building relationships with hard money lenders here in LA and in Minnesota.
The most powerful tool is overcoming seasoning period limitations. If you can refinance as fast as you can acquire and rehab, instead of once or twice a year, you'll have as much velocity with your money as you want. I don't think you should start at that speed however, it is better to build a sustainable process over a couple properties rather than find out you are cash flow negative after you complete number 8.
@Ashley Keeler call small, local banks in the area you want to invest and ask to speak to the commercial lender.
Portfolio lending allowed me to scale much faster due to the fact that commercial lenders will allow much more creativity and flexibility than a residential lender. This is particularly helpful if you're investing in real estate full time and do not have the W-2 income that most conventional lenders require.
Private money. I think this is going to be difficult to find in this new era of Covid but pre-Covid I had a private money lender with no seasoning requirement, lending 75% LTV. It was expensive (higher interest rate, points, etc.) but it allowed me to move a little faster. I did three deals with them then Covid. They stopped lending for a while but have since opened the program back up. The problem is LTV is down to 65% now. As @Todd Rasmussen said the biggest issue is seasoning requirements. Even if you can find a lender willing to cut down on the seasoning requirements it will cost you money. You won't get the same rates as if you just wait the six months so you have to balance that out
The fastest way to do a BRRRR is to initially buy and rehab with money that does not come from the bank (some sort of hard money lend or personal loan not tied to the property) As soon as you buy property with cash, you begin rehab ASAP so have that lined up as well, start building relationships with local contractors. As soon as rehab is done you walk into the bank you want to use, again get that relationship built as well, and refi the property. You should be able to pull all your expenses out and then do it again.
Ive done this in one area and the local bank knows how I operate so I have a 100k line, unsecured, to do this with. The fastest BRRRR I have done is 30 days. Bought 3 duplexes with are money lend, put a roof on one of them, made sure tenants had new leases in place and walked into the bank and relied them all on one note. We were able to pay back the HML with interest, pay for the roof, closing costs, and we were left with 12k cash out that went into our pockets...later used to rehab a couple of the bathrooms.
It is also possible to BRRRR without rehabbing as well. You can find a wholesale deal or off market deal buy with cash walk into the bank and hope it appraises 20% higher than your purchase price...you can do this by knowing your market and comps that are near by.
Thanks Jon! That is great advice. We will have access to some private money and we will be continuing to make salary wages in LA to keep pumping money into our account.
@Ashley Keeler, generally those that have created the most wealth and the largest portfolios are those that have been patient. As mentioned, you will run into issues, it is inevitable, but if you jump from 0-10 properties very quickly, those mistakes will likely become evident on all 10 properties, versus working out the kinks of the first one before moving to two.
That being said, with cash to invest, your biggest hurdle is going to be seasoning. Most lenders these days are 12 months seasoning. The good thing is, as mentioned, when you get a track record with a bank, you can typically bring that seasoning down. I did my first 2 BRRRR deals with cash. At 12 months I refi'd them to buy my third. My third deal, I was able to refi based on appraisal within 3 months.
The next issue I ran into was overall exposure to that bank. They would not lend to me anymore without having another guarantor on the loan. I was at about 10x my annual income in loan balances to them. So you then end up slowing down and starting from scratch with a new bank.
For those starting out in today's market, my biggest worry is finding deals that are actual deals. A lot of properties can cash flow if you don't account for vacancy, leasing commissions, repair and capex reserves. But if you don't reserve for those today, you will be out of pocket for them in the future. And capex reserves are needed even if you buy a brand new house. Mechanicals will go out, eventually. Kitchens will need remodeled, eventually. You can save today or find the money when you need it, but the cost will still be there.
Thanks for the advice, Todd. How many properties would you think is manageable and reasonable to accomplish in the first year?
We did three last year and are on track to do 6-8 this year. Had two years before that of buy and holds to know our cash flow assumptions were okay. It takes a significant amount of time to manage effectively. I really think do one, wait a year and then start to put the pedal down.
Thanks for the advice, Anthony. I'm sure banks will continue to change policies as the Covid situation changes. Very helpful information regarding LTV.
Thanks Evan. It is definitely a good idea to be cautious and to make sure we have reserves. My partner and I both have relatively high paying full time careers which will help keep a good cushion in reserves.
You can use a combination of residential and commercial loans. As stated before residential loans are limiting. I use multiple lenders to be able to scale. Since you can use commercial lending on residential properties even SFH, you can go as fast as you can, but it's the banks that can slow you down. Remember commercial financing comes at a higher interest rate then residential. 1% or more. Contact some lenders and discuss the speed at which they will fund. You might find lenders will be ok with 1 or 2 a year. If that is the case you'll need multiple lenders.
I've done 4 BRRRR deals in the Minneapolis/St.Paul metro the last few years. I'm closing on a BRRRR duplex next week, and plan on adding 2-3 more in the next year. I used a hard money lender on the last project and was able to roll some of the rehab budget into the initial loan. I'm using the same lender on the duplex. My plan is to wait out the seasoning requirements and refinance them with conventional mortgages and continue to use my hard money lender to acquire more properties.
Good luck, the market is hot and properties are moving fast. Having a hard money lender will give you an advantage with a cash purchase, and is certainly required for those properties that need a major rehab where traditional financing wont work.
@Ashley Keeler taking on multiple BRRRR projects long distance at once right from the beginning is definitely ambitious.. careful or you might find yourself in a world of pain that takes 1-2 years to emerge from. Don't forget BRRRR investing is really expert level & requires a great team, deep local knowledge, experience, etc.
If I were you I'd probably prove the concept first on a 1/2 or 2/3 SF in for ex Cleveland acquired for ~70k with ARV ~130k (totally made up numbers) using hard money w/ DP coming from your money/private money/cash advance from business LOC, etc. I think it's kinda hard to go too wrong with something like that even if you halfway know what you're doing, & even if you're down 20k it will be well worth the lessons learned & won't deplete you financially.
I closed 4 brrrrs in my first year by using cash, helocs and Blocs. My bank offers a cool loan product and suggested I start using it to speed my process up. They are a small local bank that specializes in commercial (properties held inside an entity) lending. This is what they suggested to me. I can purchase a property with 20% down of purchase price, they will also finance the renovations (like a construction loan), interest only upfront and after the house has a lease, they will modify the loan to 75% of ARV with no seasoning period. So, they're basically telling me that my sweat equity will cover the down payment as long as I keep my all in cost under 75%. They do want to see a lease in place and they ask that I am honest and not pull out cash that I didn't put in. So if I am all in for 55% of the ARV they want me to put them in a good position on the property. I am personally signing for these loans and they let the income of the property offset the DTI hurdle. At the end when I refinance out they're cool with me getting my initial 20% down payment back to keep moving forward.
So in my position I am planning on doing this with my lines of credit, but instead of paying all cash upfront, I am going to pay 20% down so I can do 3-4 properties simultaneously and scale much faster. I do respect the comments earlier about doing 1 at a time until you have experience. As it will minimize the sting when you make mistakes. I am a class A contractor and still make mistakes that cost 1000s.
I have an extremely good relationship with this bank. Find a small local bank that you can do this with. If you have $140k and buying properties for $30-40k you can buy a lot of houses with that 140k at 20% down if you can find a lender with this type product.
I really scaled up this last year. I have purchased 5 SF properties in the last 10 months. It took me twice as long to do the rehab portion of the properties as expected because I knew a few guys that you could loosely say were a crew but I didn’t know five of them. I planed to rent 4 and flip 1. However, when the lock down in March happened, I realized that I was very vulnerable. So, I sold 3 rented one and finishing up my 2nd rental that I hope to start marketing next week.
I plan to buy 4 more this year so that will put me 9 in 14 months. (10 if you count my new primary that is a full remodel)
All that said I am a realtor and I work at an office that has a property management company and access to subcontractors. So I have a few mentors in the office and flexibility to oversee projects. Looking forward to wrapping it up next year exponentially.
Thanks for your input! Sounds like you are doing well and you have adapted to the situations as they have come up. No matter how prepared I am, I know I will have to be flexible as the unexpected arises and adapt like you did.