All Forum Posts by: Chivas Miho

Hey BP! I'm right in the middle of my refinance of my first BRRRR property but I ran into an issue. My investment property is a 4-unit in Michigan that was appraised at $69,000 which was much lower than I had expected, but that's actually not the problem. Pulling out the cash is still something I want to do so I can reinvest in another property, and I qualify for $48k at 70%LTV. The problem is that the lender is asking me change my existing cash value insurance policy to a replacement cost basis policy. My current policy has a rough annual premium of $1200 or so and Foremost just told me that based on their cost estimating software, my $69k property would cost $512,000 to rebuild if the replacement policy were to kick in...and my annual premium would go from $1200 to $4,348! That's about 3.5 times the value of my existing policy. This is where I'm going crazy, the lender is requiring that I switch over to the replacement policy before we can finalize the refi but that kind of premium will cause me to go negative cashflow. The insurance policy at that rate is more than the P&I of the mortgage which just doesn't make sense.

My question here is, has anyone else experienced this problem?  And if so, what has been done to work around this?  At the moment I’m stuck and cant move forward.  Thanks everyone, appreciate the help.  

-Chivas

Aloha @Account Closed - great to hear you starting out. I believe it's possible to do a deal here on Oahu, but the real question is what kinds of returns are you looking for and what is your timeline for making these returns? If you are ok with spending the majority of your money on a down payment for a property now with the possibility in 10 years it will appreciate to make you some money then it's ok. But realistically, my opinion is that it's very rare to find an investor here that can make it happen. Most of the local success stories are from those who started much earlier before the market became unreasonable and now have equity in their homes to unlock for more investments. If you're starting now like most of us, you have a much better shot at investing out of state. Pick up a copy of David Green's book the Long Distance Real Estate Investing. I personally invest in the Midwest area and have found success so far. Many of the other investors here at local REI meet ups also invest out of state.

If you’re still skeptical, just think for a $500k condo on Oahu, you can get maybe $2,000 - $2,500/mo in rent.  You can probably buy 5 to 10 investment properties OOS at say $500 - $1000/mo each.  Which one brings you more in revenue?  If your first OOS deal is a flop, you can still recover.  If you flop here, you’re probably done with investing for a very long time.  But everyone is different, just run numbers, trust them, and go for it.  Good luck!

@Vinay H.  & @Josue Velney - thanks for the responses!  My PM did suggest this initially, but I guess I was just too nervous to pull the trigger.  Now that we did one deal together, I may have more trust to pursue this route.  I do like the idea of putting in only a portion of the funding up front and can add to it as the project moves along.  Thanks again for the great feedback.  

@Brock Carroll - I love Venmo!  My previous property manager was using it to send over rent payments from the tenants and it worked great.  I didn't realize they had a limit, but must be why the PM suggested we go with Paypal instead since we had to send around $25k over a period of several weeks.  Thanks for the input!

@Patrick Daniel - thanks for the response, the article is definitely helpful.  I'll definitely keep these as backups for now.  Based on the article, it seems like Paypal has been the leader here.  

Hi BP, I recently went through a fairly large renovation project on a duplex meant to be a buy and hold property.   The rehab occurred as a long distance property in Michigan where I live in Hawaii.  My property manager agreed to act as a Project Manager and coordinate all the Contractors through the rehab process for a fee.  The problem I had during this process was keeping the Project Manger funded since she was paying the contractors and suppliers.  To avoid added processing fees, we decided to use Paypal as a payment method and send funds back and forth.  The issue I have with this is that I would need to send funds via Paypal early so that the funds could clear and she could pay the contractors in a timely manner.  I also ran into issues with Paypal where they viewed random transactions as security threats and prevented me from sending any money for a 24-48 hour period.  

Does anyone know of a different way I can fund future rehabs?  Or am I just approaching this all wrong?  Thanks!

Aloha @James Chun II, good hearing other locals are looking for OOS properties too.  I invest in Michigan, but that whole Midwest area seems to have pretty good potential.  I’ve heard of others from Hawaii investing in Ohio and Indiana too.  Do you already have a realtor and property manager lined up?  And do you have any other properties under your belt yet?  As long as you can get a good PM first, you can start picking up a bunch of rentals thereafter.  Good luck!

@Hyun Cho - I'm still a novice in the RE community, have 6 doors in Michigan, but born and raised here on Oahu. Hate to burst your bubble here but we have an extremely expensive market here. It's common to hear locals say they had bought a property before the boom and was fortunate enough to have gained massive equity in their properties over the last 30 years. But new investors have slim pickings for any deals. Average single family residence will run you around $700k on the low end and can easily run in to the $900k+ range. Condos have been attractive because their price is more "affordable" in this market, but affordable means $400k - $500k for a 1B/1Ba that will typically get you an average $1500/mo in rent but your HOA fee will run in the $400 to $600/mo range. This is $1500 per month/$400k = 0.375%....everyone talks about the 1% and 2% rules. This is a common scenario here on Oahu, cashflow is extremely rare. Plus, on top of this, you're competing with the a massive affordable housing shortage on the island where first time homebuyers are willing to spend much more than an investor.

I commend you for taking action to cut down the debt, but I encourage you to really run your numbers in this market.  You don’t want another liability putting you back in debt again.  Good luck.

Aloha Jerry,

Difficult question to answer without seeing more of your situation, but I'll give my opinion with the information provided.  I can't really speak to LA or NY, but here in Honolulu, if you're looking to buy a single family home and just reserve the master bedroom as a vacant room when you're on island, you're looking at spending about $1M for a shed, major rehab will be required for anything you buy here.  The locals have gotten used to this, but you probably need to have another hefty chunk of change ready to deploy for capex.  It's common for Honolulu homes to be single wall construction and still cost a fortune.  It's also common for these types of homes to have only 1 or 2 parking spaces.  

If you have $2M in cash ready to spend, I feel it's not the best use of your money to buy an expensive 2nd and 3rd home for you to stay in only part time of the year.  After all the vacancy, repairs, and capex reserves you'll likely be massively underwater.  I'm also assuming you need to have a property manager handle all the renting of the rooms while you're away.  Many of the investors in Hawaii have not been able to make properties pencil here unless you're a flipper and have decided to invest out of state to achieve returns.  

In my humble opinion, I would take your large chunk of cash and invest it into much more properties in other cheaper areas of the country and find other lodging alternatives when you're on island.   Good luck!

Thanks @Dan Rosenberger!  That's great information, and definitely appreciate your feedback.  The Matterport product does look pretty awesome and hope that after I can grow the business I'll be able to afford that option.  For now, I do like the small size of the Ricoh and ease of use.  I'll give it a try and see how it goes.  Thanks again!