All Forum Posts by: Adam Beachnau

Thanks all for the input. Agree on the BRRR. I think its already too pricey. I was thinking potentially from a price per ft angle that it could work because I saw some listings in the area above $215 p/sq ft. But even at $220 with this house its at $340k which is a big number for the area. And cash flow at that high of a mortgage given the rents in the area, its not super attractive.

Good recommendation on the Rehab book. Just bought it going to read up this weekend.

I am looking at some potential properties in Tacoma, WA. I am new to REI. My background is in Finance so I am good with numbers, but don't have a lot of experience evaluating how much repair work a house needs to get it to rental material.

Here is the property I am looking at:

https://www.redfin.com/WA/Tacoma/506-S-38th-St-984...

Here are my questions:

- If you were a flipper, how would you structure your analysis of the repairs needed? Are there and "models" out there to help for beginners?

- If you were looking for help in the local market, which people would you reach out to to help build an estimate? Real estate agents? find local contractors? Flippers?

Thanks,

Adam

Here is a link to the quick model I made: https://1drv.ms/x/s!Ai-DwGffYZzioqo3mc0nfpQdDTTeIA

You can change the assumptions on down payment and financing costs. The top table shows the margin requirement needed in order to break even on BRRR strategy. When I say breakeven I mean the after repair value (in this case the appraised value) - purchase price is equal to down payment + repair costs + financing costs.

The bottom table shows the purchase price. So you can see for example for an after repair value of $300k with $30k of repairs, 25% down payment and $10k financing costs, you would need to buy at $208k to pull all of your invested money out of the property.

Hope this helps. Let me know if any holes in the logic as well!

Also I started reading the Frank Gallinelli book. So far really good. They are likely concepts even beginning investors already know, but he puts them in a very concise, clear and structured way which can help you structure how to think about you build your own investing strategy.

@Megan Greathouse thanks for the reply. I love the idea of the BRRR strategy...especially as a guy who is day job is in the finance industry! Awesome way to put money in and then get it back out while getting the passive income.

I've been doing some reading on this strategy but wondering if you have any recommendations of good reading to learn more. One thing I did see on a bigger pockets post was that to calculate maximum purchase price you want to use something like 70% as the margin (ARV *. 7 - Repair = maximum purchase price). I did some modelling to try to understand what margin you would have to use to breakeven (i.e. the equity you take out after refinance is equal to the down payment + repair costs + closing and financing costs). If you assume 25% original down payment and 10k of closing and refinancing, most scenarios actually put the required margin closer to 80%. As closing and financing move higher the rate will go towards 70% so important to get that estimate right. But interesting to see the different scenarios. I can share these and the excel I built if you are interested.

I know you said you are still early in achieving your goals. But wondering if you have fully completed a BRRR yet? Or have you identified what type of properties are good for this strategy? You need multiple things to go right since you need to find a good deal that has flip potential AND rent potential. The good thing about the strategy though is that you have multiple exit points. If you rehab and you don't find good rent opportunity you can always sell and take the equity and move on.

Very interesting discussion! I've learned a lot from this thread already. 

This is great insight and advice. Thanks Megan. I have a few questions: 

1) how many properties to have you today in pursuit of your goal of 70 units 

2) how long did it take you to get there 

3) how much of you own cash did you have to invest?

I would like to reach 6k per month in passive income, which based on your math is about 40 units. I am trying to calculate how much of my own cash I'll need to get there. A lot depends on the appreciation of the homes of your first few investments, as if those go well you can leverage the equity to buy more without needing your own cash. But I am looking for examples for people who've done it before.