BRRRR Strategy really works! Even in the Bay Area!

BRRRR Strategy really works! Even in the Bay Area!

Ori SklootPro Member
Investor · Berkeley, CA · Member since 2016 · 242 posts · 304 votes

I am every so grateful to BP and all the great people that are part of the BP community. It was after reading extensively about the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) that I was inspired to try it out on my next purchase. I have bought properties before, but I always used my own cash to finance the deal. This time I decided to do it differently.

Below are the details about the process.   Below that are the numbers on the deal.

Deal Process

  1. I found an off-market SFD in Oakland with a motivated seller.  (For those who are going to ask how I found it - it was through the usual marketing efforts that people talk about on BP.)  His tenant had been living in the property for years without paying rent.  Crazy right? 
  2. We negotiated a little bit on the price.  I made an offer, he countered, and we met in the middle.  I sent him a purchase agreement and he signed.  I am a real estate broker so I represented myself.
  3. The tenants were still in the house.  One of my conditions was the tenants would have to be out of the house before close of escrow.  Owner agreed to offer tenants cash for keys in order for them to leave.  They refused and said they would see him in court.
  4. We hired a lawyer for the eviction process, owner paid cost which ended up being around $3k.  Lawyer went through all the filings and the tenant never responded.  In about two months from when the tenants were first served I get a call from the Sheriff saying they are going the next day to evict.  I meet them at the property and the sheriff enters the house.  The tenants have already vacated!  The have left a bunch of junk and took the wall furnace out of the wall, but for the most part the place isn't trashed. 
  5. Now the interesting part with the financing.  The purchase price was $250k.  I asked four friends if they would be interested in lending me money at 10% interest.  Between them I raised $250k for the purchase.  I provided each of them a promissory note and a deed of trust against my primary residence (not the property I bought).  Apparently this is a key element that @Chris Mason explained to me ahead of time (HUGE shout-out to Chris who was my Super-Star mortgage broker and consigliere on this deal..more about his efforts below).  Chris informed me that by securing their loans against my primary property this would count in the lending world as being an "all cash" purchase.  This matters big-time because it then allowed me to do a cash-out refinance.  Read on about that.
  6. We close escrow and the next day I am in there doing clean up and a rehab. I am also a GC and have lots of construction experience so I run all the rehab myself.  Total of the rehab was about $40k (more specifics below).
  7. Once we close I immediately start the process of my cash-out refinance with Chris.  Once Chris has all my docs he is just waiting for me to finish the rehab so he can send out the appraiser.  I finish the rehab and we have the appraiser out at the house two days later.
  8. Two days after that the appraisal comes back at $400k (which is what I expected, but is probably under market value.  I think it would sell for $430-450k)
  9. I immediately put the house up for rent on Craigslist.   After a couple of weeks I rent it out to a great family for $2750/month.
  10. Some more time passes with providing all my docs to underwriting and then the loan closes a month after the appraisal (total loan time was just under 60 days).   I get the loan for $255k which is the purchase price plus closing costs.  My friends all get their principal payments back as a check from the escrow company.
  11. Bottom line - I put about $54k into the renovation from my own pocket, got about $130k in immediate equity, and I'm now cash flowing $800 per month.  From when I closed on the house it took me two months to close on the new loan.   My friends, the investors, are ready to reinvest the moment I have the next deal.  Yes, it works!  even in the Bay Area :)

Numbers on the Deal

  1. House in East Oakland.  Officially a 1200 sqft 2/1.  
  2. Bought for $250,000
  3. Rehab for $63k - $9k rebates = $54k
    1. Clean up and Dump: $2k
    2. All new electrical, lighting and service panel upgrade: $10k
    3. Hardwood floor refinishing and repairs of 120 sq ft.  $4k
    4. Kitchen: new flooring, quartz countertop, all new appliances (bought all the appliances from Craigslist) $5k
    5. Addition of 1/2 bathroom: $5k
    6. Conversion of garage into 3rd bedroom: $5k
    7. Sheetrock work and Painting: $12k
    8. New high efficiency central heating: $6k
    9. New high efficiency tankless water heater: $4k
    10. New Sewer lateral: $4k
    11. Misc carpentry, landscaping and plumbing: $5k
    12. EBMUD rebate for sewer lateral: -$4k
    13. PG&E rebates for efficiency upgrades: -$5k
  4. House is now a 3 bedroom / 1.5 bathroom
  5. Holding cost (10% interest to friends) $5000
  6. Cash out refinance at $255k = $1,950 per month (PITI)
  7. Rent of $2750 per month, so cash flow of $800/month.
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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y

Thanks for the shout out @Ori Skloot, much appreciated. :)

Non-owner occupied, $430k value, total of $59k out of pocket including rehab, is a super cool thing to help execute. 

And, not super hard to be cashflow positive on a $430k property that you picked up for $250k. $2750 rent... I think we have here a 1% rule SFR in the Bay Area.

Ori's networking efforts were also huge part of this. I'm guessing he went to his friends with money earning 5% on Wall Street, and offered them to double their ROI at 10%. Now that he paid them off, they can put it right back on Wall Street earning 5%, and it's a private bank he can draw on the future. Wall Street cannot guarantee you that if you put your $70k with it for 2 months it will become $71k (& you'd be lucky if it did that well in 2 months), but Ori just did exactly that, and proved to his network that he's a better place to park your money than Wall Street, to the extent that you are fortunate enough that Ori is in need of funds. So from the POV of his friends, this was a huge win to double their ROI for a couple months. 

For Ori, hard money would have wanted 3 or 4 points upfront ($250k * 4% = $10k in the garbage) even though he is an experienced and licensed GC, so this was a huge win for him too. I did a little blog post about how it might look to pitch this to people with money sitting on Wall Street doing nothing for them.

For people that only have access to $15k or $25k in capital saved up, but want to get into Real Estate in the Bay Area, this model is also an opportunity for them. I'm certain that if any of his private investors had wanted to see the property, the plan, the numbers, etc, he'd have shown it to them, and knowledge is money.

See this reply in the discussion

133 Replies

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  • Silver Spring MD · Member since 2015 · 198 posts · 116 votes
    9y

    @Ori Skloot well then that kind of reinforces the opposite point... for "regular" investors -- who aren't GCs, agents, and managers, deals in your area, even ones that are as fantastic as this, won't cashflow ;)

  • Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes
    9y

    Great job @Ori Skloot. Having a background like yours really paid dividends for you in this situation. I have question and I'm sorry if I missed this answer somewhere in this post. But could you refinance for the appraised value once the 6 month period comes around?

  • Ori SklootPro Member
    OP
    Investor · Berkeley, CA · Member since 2016 · 242 posts · 304 votes
    9y

    @Justin Young Thanks!  Yes, if I waited 6 months I could finance for the appraised amount.  In that case I could have pulled money out of the deal and be cash flow neutral.   I preferred to have positive cash flow and reduce my costs.

  • Property Manager · Castro Valley, CA · Member since 2016 · 212 posts · 110 votes
    9y

    @Ori Skloot, you are right that the vacancy is incredibly low here.  

    I like to think of a vacancy estimate for taking into account the situation of non-payment of rent.  Screening well is great insurance against that, but bad ones do slip through the cracks here and there. 

    The length of the eviction process and how things can get hung up by the rent board fill in some of those missing vacancy numbers that other places contend with.  

    Great job on those updates.  You covered every major area of failure that could happen and will have pretty small maintenance hassles for a good amount of time.

  • Investor · Portland, OR · Member since 2014 · 65 posts · 46 votes
    9y

    Congratulations! @Ori Skloot

    @Chris Mason Just wondering if a rate and term refinance(Fannie Mae's limited cash out refi) would have worked in this situation assuming the loans from Ori's friends were secured by the subject property. 

  • Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Ori Skloot:

    @Rivy S.  you bring up a good point. This deal wouldn't work for everyone. 

    I fixed everything up in the rehab so I don't expect capex expenses anytime soon or much maintenance.  It already had a new roof and the foundation is solid. I did brand new HVAC, water heater, electrical, plumbing, etc.   

    Vacancy in Oakland is hardly an issue (I know, never say never). I have a clause in my lease that the tenants have to give 60 days notice if they want to vacate.  Plenty of time to find new tenants.  

    Finally, I am managing the property myself as I live in Berkeley which is 20 minutes away. 

    Rivy has some good points that your cashflow will not be $800/mo, but it will not be zero or negative either ... 10% CapEx maybe on $1000 rent, but not on $2700 rent ... it won't be zero either though even if all new remodel. New stuff wears out at just the same rate as old stuff, so your monthly CapEx "expense" should be just the same ... the only thing that should be different in that case is the initial size of your CapEx reserve fund.

    The other thing, just to take the cashflow blinders off for a sec ... $150k in forced appreciation in just a few months! If you find any of those in your market Rivy that you won't buy because they are cash flow negative, you can please feel free to send them my way :)

    If "regular" investors can't find deals like this, then my advice would be "don't be regular". If you plan on being average, buy an index fund and save yourself the trouble ... otherwise, you need to find your investment edge to succeed in this business, no matter which market you are operating in.

  • Ori SklootPro Member
    OP
    Investor · Berkeley, CA · Member since 2016 · 242 posts · 304 votes
    9y

    @David Faulkner Exactly! Couldn't have said it better myself. It's definitely going to take some creative thinking, skills, gumption, cash to make a good deal happen. Folks who don't have that are just buying off the MLS.

  • Real Estate Consultant · Brick, NJ · Member since 2011 · 91 posts · 7 votes
    9y

    @Chris Mason would I be able to refinance a property upon completion of the rehab, on a deal originally structured with seller financing and also recoup my own personal cash I used for the rehab? i.e. $70k purchase price w/ seller financing, 100k rehab cost, refinance immediately after rehab, $175k, 70%LTV, presuming an appraisal price of $250k. Thanks!

  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y

    @Rob, there was a reason we didn't do it that way. This project started like 5 months ago, so I'll be damned if I can remember what it was from that conversation 5 months ago.

    @Brian Buckley, six month wait for that one, but yes.

  • Silver Spring MD · Member since 2015 · 198 posts · 116 votes
    9y

    @Ori Skloot @David Faulkner Oh I agree with you 100%, this is a home run of a deal.  I was just wondering about the $800/month cashflow statement.  Also, what I meant by regular investors is people who need to treat real estate as an investment rather than a business, due to capacity/time constraints. 

  • Rental Property Investor · SF Bay Area, CA · Member since 2015 · 206 posts · 156 votes
    9y

    Nicely done!  Thanks for posting the pics @Ori Skloot!

  • Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Rivy S.:

    @Ori Skloot @David Faulkner Oh I agree with you 100%, this is a home run of a deal.  I was just wondering about the $800/month cashflow statement.  Also, what I meant by regular investors is people who need to treat real estate as an investment rather than a business, due to capacity/time constraints. 

    Understood, and my statement stands ... those who do not have hands on experience in REI and don't want to treat real estate as a business will be better served by buying an index fund or an REIT if they want to stay with real estate as an asset class to remain diversified and at least assure themselves an average return. For these people to concentrate their savings into one or only a few RE investments without extensive knowledge, will, ability, or desire to be hands on at any point in their REI career is foolish IMO. Horror stories here on BP abound about what happens to these type of "investors" who don't want to treat this like a business, and for every horror story posted there are likely many, many more that don't post. And this is not a local SF market thing either, it extends to all markets, even (and in some cases I'd argue especially) those that readily show cash flow on day 1 pro formas at retail price. Of course, this goes against the guru and snake oil salesmen's rosy picture of how easy and passive it is that is sold by some here on BP and elsewhere and since the rosy picture is what the newbies want to hear, that is what they tend to listen to.

  • Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes
    9y

    I am gym and WiFi sucks here so can't tag.

    Solid post guys.

    Ori and Chris, I want to check with some friends to see if I  can do this.

    How do you setup the private lending piece of this strategy? Chris is that something you can help with?

  • Ori SklootPro Member
    OP
    Investor · Berkeley, CA · Member since 2016 · 242 posts · 304 votes
    9y

    @Osazee Edebiri the private lending - I did that piece myself.  Got a promissory note and deed of trust template. Signed them, got the deeds notarized, filed the deeds with the country, mailed the promissory notes to my friends.  They wired money into escrow.  Voila!

  • Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes
    9y
    Originally posted by @Ori Skloot:

    @Osazee Edebiri the private lending - I did that piece myself.  Got a promissory note and deed of trust template. Signed them, got the deeds notarized, filed the deeds with the country, mailed the promissory notes to my friends.  They wired money into escrow.  Voila!

    Thanks! Let me see if, I can get some friends to get that rolling. Then I will talk to Chris Mason

  • Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
    9y
    Ori Skloot great job and congratulation. All my properties are in the Bay Area, BARR does work in Bay Area. Actually, it should work better since the price per sf here is higher.
  • FL · Member since 2016 · 912 posts · 107 votes
    9y
    Originally posted by @Ori Skloot:

    I am every so grateful to BP and all the great people that are part of the BP community. It was after reading extensively about the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) that I was inspired to try it out on my next purchase. I have bought properties before, but I always used my own cash to finance the deal. This time I decided to do it differently.

    Below are the details about the process.   Below that are the numbers on the deal.

    Deal Process

    1. I found an off-market SFD in Oakland with a motivated seller.  (For those who are going to ask how I found it - it was through the usual marketing efforts that people talk about on BP.)  His tenant had been living in the property for years without paying rent.  Crazy right? 
    2. We negotiated a little bit on the price.  I made an offer, he countered, and we met in the middle.  I sent him a purchase agreement and he signed.  I am a real estate broker so I represented myself.
    3. The tenants were still in the house.  One of my conditions was the tenants would have to be out of the house before close of escrow.  Owner agreed to offer tenants cash for keys in order for them to leave.  They refused and said they would see him in court.
    4. We hired a lawyer for the eviction process, owner paid cost which ended up being around $3k.  Lawyer went through all the filings and the tenant never responded.  In about two months from when the tenants were first served I get a call from the Sheriff saying they are going the next day to evict.  I meet them at the property and the sheriff enters the house.  The tenants have already vacated!  The have left a bunch of junk and took the wall furnace out of the wall, but for the most part the place isn't trashed. 
    5. Now the interesting part with the financing.  The purchase price was $250k.  I asked four friends if they would be interested in lending me money at 10% interest.  Between them I raised $250k for the purchase.  I provided each of them a promissory note and a deed of trust against my primary residence (not the property I bought).  Apparently this is a key element that @Chris Mason explained to me ahead of time (HUGE shout-out to Chris who was my Super-Star mortgage broker and consigliere on this deal..more about his efforts below).  Chris informed me that by securing their loans against my primary property this would count in the lending world as being an "all cash" purchase.  This matters big-time because it then allowed me to do a cash-out refinance.  Read on about that.
    6. We close escrow and the next day I am in there doing clean up and a rehab. I am also a GC and have lots of construction experience so I run all the rehab myself.  Total of the rehab was about $40k (more specifics below).
    7. Once we close I immediately start the process of my cash-out refinance with Chris.  Once Chris has all my docs he is just waiting for me to finish the rehab so he can send out the appraiser.  I finish the rehab and we have the appraiser out at the house two days later.
    8. Two days after that the appraisal comes back at $400k (which is what I expected, but is probably under market value.  I think it would sell for $430-450k)
    9. I immediately put the house up for rent on Craigslist.   After a couple of weeks I rent it out to a great family for $2750/month.
    10. Some more time passes with providing all my docs to underwriting and then the loan closes a month after the appraisal (total loan time was just under 60 days).   I get the loan for $255k which is the purchase price plus closing costs.  My friends all get their principal payments back as a check from the escrow company.
    11. Bottom line - I put about $54k into the renovation from my own pocket, got about $130k in immediate equity, and I'm now cash flowing $800 per month.  From when I closed on the house it took me two months to close on the new loan.   My friends, the investors, are ready to reinvest the moment I have the next deal.  Yes, it works!  even in the Bay Area :)

    Numbers on the Deal

    1. House in East Oakland.  Officially a 1200 sqft 2/1.  
    2. Bought for $250,000
    3. Rehab for $63k - $9k rebates = $54k
      1. Clean up and Dump: $2k
      2. All new electrical, lighting and service panel upgrade: $10k
      3. Hardwood floor refinishing and repairs of 120 sq ft.  $4k
      4. Kitchen: new flooring, quartz countertop, all new appliances (bought all the appliances from Craigslist) $5k
      5. Addition of 1/2 bathroom: $5k
      6. Conversion of garage into 3rd bedroom: $5k
      7. Sheetrock work and Painting: $12k
      8. New high efficiency central heating: $6k
      9. New high efficiency tankless water heater: $4k
      10. New Sewer lateral: $4k
      11. Misc carpentry, landscaping and plumbing: $5k
      12. EBMUD rebate for sewer lateral: -$4k
      13. PG&E rebates for efficiency upgrades: -$5k
    4. House is now a 3 bedroom / 1.5 bathroom
    5. Holding cost (10% interest to friends) $5000
    6. Cash out refinance at $255k = $1,950 per month (PITI)
    7. Rent of $2750 per month, so cash flow of $800/month.

     Not my business, but why wouldn't you just flip the thing and put that $130,000 in your pocket? What's $800/month compared to that?

  • Rental Property Investor · Napa, CA · Member since 2016 · 68 posts · 57 votes
    9y

    @Ori Skloot Newbie question here. What are the benefits to raising private money to make the initial purchase vs using conventional financing? I guess why wouldn't you have used the same conventional mortgage you refied into to make the initial purchase? I'm assuming that having the full purchase about in cash enabled you to do this deal.

  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    9y
    Originally posted by @Ori Skloot:

    @Osazee Edebiri the private lending - I did that piece myself.  Got a promissory note and deed of trust template. Signed them, got the deeds notarized, filed the deeds with the country, mailed the promissory notes to my friends.  They wired money into escrow.  Voila!

    How many lenders was it? The way I read this, you had to file multiple deeds (one for each lender) against your primary residence and assumanly behind an already existing first mortgage, correct?

    @Rivy S. alado brought up a good point about your cash flow numbers quoted. I was going to point out the same as it is very important that all members here realize that cash flow does NOT equate to gross income less PITI. I see your responses and would reply to them with the following in efforts to educate all who read this. Doing capex items upfront will not eliminate your need to put away (build from cash flow) capex items that will occur over time therefore a bare minimum of $137 (5% of the monthly gross) monthly needs to be taken from the cash flow and put into reserves for these future expenses. Self managing - this requires your time and efforts to perform and I don't know anybody that works for free so from a business standpoint, you still need to calculate 8%-10% of monthly gross income for this. Realizing that if and when you sell it, another landlord may not self manage and or wants to get paid for said services so it should be included as a cost.

    Vacancies being low in your area, this is true and they are at record levels we but that can not and will not last forever. Over time, you will experience vacancies and loss to rent expenses so they must be calculated. Your contract for 2 years does not prevent the tenant from not honoring that contract so while you hope repairs, evictions, maintenance, etc won't occur, you can bet they will. Bottom line, your $250k purchase and $40k rehab amounts to just below 1% of your monthly rent which in most cases equates to some negative cash flow. Since your rent is in CA and on the higher end compared to the majority of the country, it would be safe to say that after including all expenses, you are around the break even Point with a $275 or so in positive cash flow for self managing income.

    This all said, I am by no means dumping on your project. You just obtained well over $100k in equity in just a few months, you are getting additional equity from the principle paydown, you are getting a nice tax deduction, and potential for future market appreciation in a very hot market (CA). I merely want to point out that those investors looking to generate cash flow to possibly replace or add to a current job income, they will need to find deals that have better cash flow numbers or do a whole lot more deals and self manage. I would take your deal on any day and twice on Sundays to be all in at $290k with the option and ability to sell at $425k. That is a home run flip in my book in this highly competitive market. 

  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    9y
    Originally posted by @Tim McGarvey:

    @Ori Skloot Newbie question here. What are the benefits to raising private money to make the initial purchase vs using conventional financing? I guess why wouldn't you have used the same conventional mortgage you refied into to make the initial purchase? I'm assuming that having the full purchase about in cash enabled you to do this deal.

     Being an all cash purchaser enabled him to not have any financing contingencies (thereby strengthening his offer) likely enabled him to negotiate a better all cash price vs a financed offer, and enabled him to refi and pull 100% of his purchase price back out to pay back the original loans. That enables him to utilize the rinse and repeat portion.

  • Broker / Investor · Tewksbury, MA · Member since 2008 · 1k+ posts · 351 votes
    9y

    @Ori Skloot Great story thank you for sharing. I am currently trying to do this as well I bought the house with cash and fixing it up but I am worried about the LTV when I am finished and getting all my cash out, because this cash is from a heloc and ideally I would be able to pay it all back.

    I am also worried about  my income. My credit is great however I have been writing off so many expenses the past couple years it doesn't look like I make anything. :(

    Questions about the cash out mortgage you got. 

    What was the loan to value on it? 

    What was the interest and terms?

    Did they take into consideration the lease or just used your debt to income?

    How much in reserves did you need to qualify?

    The bank you used for the cash out was it a portfolio lender or some other unique lender?

  • Surveyor · Hemet, CA · Member since 2015 · 797 posts · 112 votes
    9y

    great post everyone a lot of us can learn from this. That's what I am wondering can members people make money at this method if you are not a broker and a gc ? I am neither but would like to try this method. 

  • Investor · Philadelphia , PA · Member since 2015 · 57 posts · 15 votes
    9y

    Sounds like you did an awesome job @Ori Skloot, congrats. I just want to ask a question to clear some of my confusion? After the work was done and you took the $255k loan out to pay back friends and cover costs, you still had your $54k tied up in the property correct? You just wanted to get out before 6 months so you could pay your friends back and stop paying them interest? So after 6 months do you plan to refi again to take all of your rehab costs (the $54k) out of the property and put it back in your pocket?  

    Sounds like you made a great deal but not too realistic for someone with out a ton of capital if you have to keep the $54k in the house.  Would love to hear your thoughts.

    Jay

  • Investor · San Ramon, CA · Member since 2016 · 6 posts · 7 votes
    9y

    Thanks for sharing @Ori Skloot, and I like your creative use of financing on this deal!

    I'm curious about the rebates you got from PG&E and EBMUD. I'm working on a project in Oakland that needs some sewer lateral work in order to get the certification, and I haven't heard of any rebate programs.

    For the PG&E rebates, was this through the Advanced Home Upgrade program? If so, was it a pain to qualify? It looks like you have to go through one of PG&E's qualified contractors, and after a quick search it doesn't look like there are too many who are part of the program.

  • Ori SklootPro Member
    OP
    Investor · Berkeley, CA · Member since 2016 · 242 posts · 304 votes
    9y

    Hey folks, going to attempt to answer multiple questions here. 

    1. Originally posted by @Patrick Philip:

    Not my business, but why wouldn't you just flip the thing and put that $130,000 in your pocket? What's $800/month compared to that?

    @Patrick Philip   Don't want to pay 50% of my $130,000 gain in ordinary income tax.  I'll hold it as a rental for a couple of years and then if I sell down the road I will pay a lower capital gain taxes.  So long as the market doesn't take a dip in the next year or two, this strategy could be worth about $50,000 in savings (difference between my ordinary income tax and capital gain tax after holding two years).   I'm also not opposed to holding it and letting the tenants pay down my mortgage and then refinance again down the road to pull out the equity.

    2.Originally posted by @Tim McGarvey:

    Newbie question here. What are the benefits to raising private money to make the initial purchase vs using conventional financing? I guess why wouldn't you have used the same conventional mortgage you refied into to make the initial purchase? I'm assuming that having the full purchase about in cash enabled you to do this deal

    @Tim McGarvey  I think @Will Barnard answered this nicely.  The key thing for me was that doing an all cash offer allowed me to then finance for 100% of the purchase price.

    3. Originally posted by @Rich Hupper:

    @Ori Skloot Great story thank you for sharing. I am currently trying to do this as well I bought the house with cash and fixing it up but I am worried about the LTV when I am finished and getting all my cash out, because this cash is from a heloc and ideally I would be able to pay it all back.

    I am also worried about my income. My credit is great however I have been writing off so many expenses the past couple years it doesn't look like I make anything. :(

    @Rich Hupper

    Questions about the cash out mortgage you got.

    What was the loan to value on it?

    I think it was 75% LTV, but the appraisal came in so high it didn't really matter. 75% of $400k appraisal = $300k. I was limited by my purchase price of $250k.

    What was the interest and terms?

    30 year fixed.  5.375% interest rate with lender paying a bunch of my closing costs.

    Did they take into consideration the lease or just used your debt to income?

    They took into account my lease on the property I was financing.  Had to show them the signed lease and cashed deposit check.

    How much in reserves did you need to qualify?

    None.  No reserves needed on a residential purchase.

    The bank you used for the cash out was it a portfolio lender or some other unique lender?

    I used @Chris Mason as my mortgage broker.

    4. Originally posted by @Robin Boyer:

    great post everyone a lot of us can learn from this. That's what I am wondering can members people make money at this method if you are not a broker and a gc ? I am neither but would like to try this method. 

    @Robin Boyer  Short answer is it's a lot more difficult to make the numbers work if you don't have some skills yourself and can save money.  But, that said, if the purchase price is right then yes you could make this work and pay a broker and GC.

    5. Originally posted by @Jay Sechowicz:

    Sounds like you did an awesome job @Ori Skloot, congrats. I just want to ask a question to clear some of my confusion? After the work was done and you took the $255k loan out to pay back friends and cover costs, you still had your $54k tied up in the property correct? You just wanted to get out before 6 months so you could pay your friends back and stop paying them interest? So after 6 months do you plan to refi again to take all of your rehab costs (the $54k) out of the property and put it back in your pocket?

    Sounds like you made a great deal but not too realistic for someone with out a ton of capital if you have to keep the $54k in the house. Would love to hear your thoughts.

    @Jay Sechowicz Correct, I still have $54k tied up in the house.  I may refi later and take a $100k out so I can repeat the process.   If I didn't have the $54k myself I could have borrowed that money from friends and then waited 6 months and done my refinance to pull out the full amount to pay everyone back.

    6. Originally posted by @Matt Pendleton:

    Thanks for sharing @Ori Skloot, and I like your creative use of financing on this deal!

    I'm curious about the rebates you got from PG&E and EBMUD. I'm working on a project in Oakland that needs some sewer lateral work in order to get the certification, and I haven't heard of any rebate programs.

    For the PG&E rebates, was this through the Advanced Home Upgrade program? If so, was it a pain to qualify? It looks like you have to go through one of PG&E's qualified contractors, and after a quick search it doesn't look like there are too many who are part of the program.

    @Matt Pendleton   I glossed over the EBMUD part.  It isn't a rebate, we had to put $4500 into escrow with EBMUD at closing.  I did the work and then got a check back from EBMUD.  For PG&E rebate, yes this was through Energy Upgrade California Advanced Path.  For me it's a pretty smooth process, but I have an edge on this one.  Definitely worth getting a $5000 check back from PG&E after I completed the work.    Ping me and I can give you more info.

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