All Forum Posts by: Brady Morgan

@Lara Kimbrell

As Greg mentioned, great strategy in the right circumstances. I would certainly be interested in seeing more and hearing how it goes if you end up going through with it. 

I have not done any deals like this myself, however, I recently walked a property that was exactly what you describe, in the Houston area. 70’s build and same room sizes. About 100 units if I remember right. It is near a university center and so is focused toward students with lots of study books and what not in the lobby. The units were half way through conversion when it was sold to current owner about a year ago. I’m told it has proven to be a good investment so far. I’m meeting with the owner soon to get more details. 

Would like to see updates on this if any come up. 

You are absolutely right about the valuation methods, and for that reason I don't treat them exactly the same. I am willing to take more risk on commercial if I have solid strategies for improving NOI. However as you pointed out the SF side is more sensitive to the market and therefore I always build in similar cushion as with equity. In most cases I pass on deals that can't remain positive cash flow with a 15-20% drop in rent. This is without the interest only option as I run my criteria on base numbers before altering the strategy with tweaks such as IO. My goal in today's market is to ensure I never have to liquidate, that way I can just hold through a downturn and still cash flow if needed and wait to sell in the next expansion.

Because I'm BRRRRing, the rates vary by rehab size and some other factors but generally they are low 6% for the product I described with a 100k purchase and <30k rehab, ARV around 170k.

Jonathan,

Great question. I struggled with a similar situation myself. Could never find Very much good information online. 

Ultimately what I decided to do was go with a portfolio loan (LLC) from my hard money lender. The product I preferred was the 5/1 ARM on 30 yr term with first 5 yrs IO. Like you, I figured that having the cash flow up front to re-invest rather than waiting to cash out down the road was a better choice for my goals, so I don't mind losing the principal pay down for the higher cash flow in the beginning. So long as there is enough equity cushion to absorb any market shocks. Because I plan to hold for at least 5 years, I'm comfortable with 15% or more equity in my current markets, so I generally will do a 80% or even 85% LTV on the cash out refi.

Hope this helps. I only recently started but so far I haven’t found a downside to this strategy. Best of luck to you!

Ah, that makes more sense then. If you have to keep it but refinancing will eat up most of your cash flow then you need to ask yourself if refinancing and reducing the cash flow on this property will allow you to make more money than what you are currently making with it. Basically this sets the bar for your criteria on the new deals. If you come out of it making more money in the end, then I'd go for it. If you make more cash flow by not refinancing and staying in the condo, then maybe just save up the cash flow for a couple years to build capital for reinvesting? I will say this, now is a good time to refi, as values are up and rates are low. So it likely won't get much better than now. You just need to make sure whatever deal you go into with the refi money puts you in a better position that you otherwise are now. Hope that makes sense. 

I would consider selling the condo if you can't cash flow with debt on it. Personally I don't like condos anyways as investment vehicles. The HOA fees can get pretty out of control from what I have seen. Investment properties are generally not owned in full because then you are not leveraging OPM to increase returns. Instead you have dead equity. So yeah, if it doesn't give you a decent return (or a return at all) with a 75% LTV then I think you could do better selling and getting into better deals. At least that's what I would do. Best of luck!

Sounds like standard brrrr then. If you ever find a good deal and want to partner with someone who has some capital, I may be interested. Let me know and I'll take a look. 

@Account Closed

Yes, I have noticed that as well, and with those high prices the rents have struggled to keep up. Which is why I haven't looked much in the Austin area for deals lately. Everyone wants their piece of Texas hill country. Can't say I blame them, haha. A triplex or four-plex would be a good way to get better returns with the economies of scale. Do you see many of those out there? I've never looked. 

@Account Closed

Yes, I am familiar with those areas. We love to visit the Round Rock area and occasionally have looked for deals out there but never saw much that looked good for our investment strategy. Short term rentals I have heard can be good out there though. Cedar park I havent looked at but I have family there so I am familiar with that area as well. From what I know, that could be a good area to look for deals.

Hello Josh!

I live and invest in the Houston area. I have looked at Austin before since my wife and I like to spend a lot of time in that area (we are outdoorsy and dont enjoy the Houston swampland much).

I have always had a hard time finding good deals in the Austin area. I know San Antonio is a pretty good market, but nothing in Texas beats the greater Houston market from my experience. Cash flows are around $300/mo on average from what ive seen in the last 6 months (single tenant per property) though appreciation is a bit lower in Houston than other parts of Texas, in general. I dont invest for appreciation though and only consider that bonus on top of the other returns.

If you are looking for better cash flow, i recommend checking out some of the other Texas markets. Even DFW seems to have more to offer than Austin from what ive looked at.

Congratulations on getting married and on a great start to your investing career! Wish you all the best.