All Forum Posts by: Chris Kendrick

Hi, community!

I'm down to my 4th single-family deal, I am an out-of-state long-term investor and I'm still learning a lot. My last one is not turning out great. I take all this as a learning lesson on how to not do things in the future and I'm still very optimistic. My other 3 deals are cash-flowing nicely over $700/month, even though one took a while to stabilize to get there.

Here's some information about the deal:

- Purchase Price with closing costs: $138,000 

- Expected Rehab: $30,000

- Expected ARV: $210,000

- Expected rental: $1,900

- The Rehab turned out to be $55,000 --> a lot of unexpected problems, broken pipes, mold, roof, city requirements and overall bad due diligence on my side. I still would need to put in another $10k to pass the inspections (the city is asking for a lot, like changing the garage door). 

- The Appraised value came back at $175,000  --> we got delayed on the rehab and the latest comps didn't help, and pushed the appraisal down

I paid with a Heloc, so holding costs are interest-only for ~$1,000/month for 5 months. So now I need to decide:

- I listed the home on sale for $195,000, and in just a few days I got an offer at asking. Now the buyer is of course asking for $5,000 in credits. My total expense right now is over $205k, so selling for $195k, plus all the fees and credits, I will lose ~$20k on this deal. I think I can offset this from my w2 income, so at least there's that.

- The other option is to refinance. I locked a rate for $6.8%, and I would be getting $145k back. So I would have a lot more of my own cash in the deal than I would have liked it. Then I could rent for $1,900. Mortgage + Insurance + Property tax is at $1,450. Now add capex, vacancy, etc...the real cash flow is very low.

I would like to see what the community suggests in this situation. Would you sell for a loss, or rent leaving a lot of your own money in the deal and playing the very long-term game? 

Thank you all

HELOCs are variable interest products. Mine is currently at 11% interest. PML are likely charging more than 10% in the inflationary times we are in now. If a conventional lender is at 7%, a HML will be at least double that. Doing a BRRRR right now is challenging with rates in flux and ARV's potentially swaying with the market softening.

The difference between buying a turn key rental property and doing a BRRRR is..

-TURN KEY RENTAL: Buy, rent, repeat

-BRRRR: Buy, rehab, rent, refinance, repeat

If you're up for a remodel then a BRRRR is still a good strategy. It will help you learn how to buy a deal under market value, how to add value through renovations, and how to manage a remodel. But when it comes time to refinance you will probably be disappointed. Values are dropping, and rates are up. This is that part of the BRRRR method that is broken right now.

@Danny Jimenez to take a step back, DSCR loan, aka lite doc or business purpose loans, uses the rents you receive on the property and divided by the new loan PITI to receive a ratio. Simple math would be a PITI of 1,000 and rents of 1500. That would be a debt service cover ratio of 1.5. Basically, this property cash flows. FICO, experience, and LTV are also factors but this is the basis of the loan. No need for tax returns, Verification of Employment, or income. I have been through this loan as an investor myself and originate these loans all the time.

Rates at this time are 6-8% depending on the factors mentioned above.

DM with questions as Im happy to help. 

@Chris Kendrick

a door is a unit

so a 100 apartment building = 100 doors

2 duplexes and 2 SFHs = 6 doors

etc.

I have 4 doors; 2 duplexes. 100 doors could mean a multitude of things. Could be one property with 100 doors. Could be 50 duplexes, could be 100 single family homes.

 I didn't say 4 properties, I said 4 doors. Why would I lie LOL. And, in my opinion, 4 properties is still "newbie status".