All Forum Posts by: Andrew Kougl

@Justin Berry

LLC should own the entity and you want legal protection from suits against the property. The LLC should be doing business in the state it was created in. Suits will be filed in the state the property is located in so that's where you want the protection.

@Dominique B.

Congratulations on your first deal! Curious with only 5k in repairs it sounds like it was already at market value? Based on you getting a HELOC, how will you scale for the next one? Will all your cash flow go into paying down the original HELOC (once you have your second one?) Or will you be getting a 2nd HELOC?

This is a unique strategy to keep your capital working for you on these lower priced homes you probably would have trouble finding financing for anyway.

@Ryan Copeland

Since it's a BRRRR, what's the reno budget and ARV?

@Jody Sperling

Leverage to me is using the least amount of your own capital to get the highest return. Agreed, using a HELOC and buying cash gives you more power but substantially decreases growth potential and cash on cash return.

Buying, BRRRR'ing, but then not refinancing but instead getting a second HELOC will affect your DTI. It may work a couple times, but you can't do it indefinitely before you have to start paying them off.

I also think the BRRRR strategy is a bit over rated and it's more difficult in practice to get all your money out, especially with the prices of homes today.

@Sean Harris

How is 2k on a 300k house going to cash flow $190/mo? Are you sure you are calculating the numbers correctly and accounting for reserves?

Let me be the contrarion of the group. LEVERAGE is the most powerful aspect of real estate. To not use it would be a shame as it greatly accelerates your ability to grow and scale.

What other investment can you say, "I want to own this (property), but I want you to pay for almost all of it (bank), and the resulting mortgage, I want you to pay for it (tenant). But all the cash flow, depreciation and tax benefits, equity pay down, oh, I want all that."

HELOC's are great but they are variable interest rates, and unless you refinance, like you would with a BRRRR, things could eventually turn and be much higher than you originally anticipated. Interest is so low right now, lock in a great rate for a longer term. If you are comfortable with a BRRRR, and have a cushion for reserves so that you are all in 85k, and the ARV is calculated properly then go for it. Otherwise I'd recommend using leverage, putting 15-20% down and paying down the HELOC with cash flow and your monthly investable income then repeating. I would go 1 at a time until you've done a couple, then 2 at a time, don't take out more then 40k at a time total, so you have reserves, the monthly payment is manageable and you aren't having a detrimental impact on your DTI, affecting your ability to jump on the next great deal.

@Becca Young

I think it depends on your goals. Do you want to be real estate investors? Do you want to be landlords? Or are you only exploring this option because you have a windfall of cash?

What I wouldn't do it sink this money into your new primary residence. You qualified for your current mortgage and you should feel comfortable paying that each month. This additional money should be used to grow your wealth and if you put it into your new expensive house it's just trapped.

@Jordan Brown

Feel free to DM, but without knowing the particulars, I would just reverse engineer your goals. Knowing you wanted 20 doors in the next 5 years, that's 4 doors a year. With your HELOC capital you can afford a lot of things, 4 SFH, or 2 duplex or a combination of multi. Figure out the rent you'd like to receive per door and start on the MLS to get a sense of what areas support those numbers. I use 30% for my reserves so I take that off the gross rent right off the top and then use mortgage calculators to calculate my PITI. I have a calculator I use to quickly analyze properties I'd be happy to share with you.

Regarding LLC formation, I'd recommend you speak to lenders, all I've talked to have no problem lending to an LLC and since you are focused on such a tight area, lenders should cover all those cities. If you do BRRRR, this might change, but for buy and hold I buy through the LLC to begin with. Lots of tax advantages to being taxed on just your profits versus all income.

@Jordan Brown

I've looked at those areas and have heard good things about each of them. Personally I've decided not to invest in Richmond, too college student dependent and the rents were just too low for what I wanted.

Regarding your goal estimates, remember gross rents and cash flow are two different things. You need to set aside rental income for taxes, insurance, repairs, maintenance, vacancy and property management even if you start by self managing. With all the doors you want and lending rates being so low, I'd recommend purchasing through an LLC for added protection and buying with commercial loans, just make sure you aren't a sole proprietor or there won't be adequate protection.

Your plan is similar to mine in terms of acquiring units and at some point paying them off, however based off the calculations I've ran, you always make the best return by leveraging. So the money you make in cash flow from your first downpayment is typically a better cash on cash return than further investing your income, rental or W-2, into paying down your mortgages. For me I switch to equity pay down after I reach financial independence.

@Jordan Brown

That's a massive goal, you do think big! Any particular reason for the 200k passive income? I usually try to hit $120 a door cash flow for multifamily and $150 for SFH. Assuming a blended rate of $135, you'd need 124 units by the end of your 10th year. Which means you'd have to acquire 12+ units per year on average. It's certainly doable but you'll have to get creative and work like crazy to make it happen.

With a 100k from a HELOC, you do have the capital to begin, for sure. If you aren't already, I'd get familiar with the BRRRR strategy, sounds like it'd be best in your scenario and @Joseph Back is very experienced there. One word of caution, beware lifestyle creep. Investors don't tend to come out ahead when renting out their old place and moving on to something bigger or comparable. Everything is more expensive now and that's just going to be backsliding. Since you can't move into something that needs work, I'd just underwrite your numbers with 15% to 25% down (there are lenders who will lend with 15% down on non- owner occupied) and then run analysis on that. If you want to BRRRR though, you'd buy the place cash, rehab it then get your money out in a refinance. With your wife still unsure about REI, maybe the BRRRR is too aggressive early on, probably recommend a nice solid base hit in one of the surrounding towns. I'd avoid Lexington itself as your cash flow won't be good there if you want to show success to your wife and hit your cash flow goals in under 10 years. Best of luck!