All Forum Posts by: Clayton Mobley

@Min Wang At first glance this seems to be a pretty solid property. My primary concern with your numbers is the mortgage rate. The fed just hike the rate again and most investors are seeing rates of more like 5-6%. Unless you are already pre-approved and locked in at this rate, I would maybe run the figures again with a higher PITI.

On the other side of the coin, your repairs, capex, and PM seem a bit high. I'm not an MFR guy (as there just isn't as solid a B/B+ market for those in Birmingham) but I'd still wonder why they both warrant 12.5%, unless this is based on historical figures from the current owner. As for the PM fee, most PMs charge between 8-10% of gross rents, so 12% is a little crazy. Again, if this a figure provided to you by the folks who you would keep on to manage, then use it for sure, but if it's an estimate, I'd think you could cut that down a bit by shopping around.

@Ryan Cartier this prop sounds ideal..... would you mind sharing the details of this flip-turned-potential-BRRRR? $500 a month after refi is incredible cash flow, so I'd just be interested in looking at the numbers. Certainly not trying to punch holes in it, but seeing that you are a new investor I'm always happy to take a look and see if there are any considerations being missed.

If it helps, here is a good article on the risks of BRRRR vs flip: https://www.biggerpockets.com/renewsblog/the-5-pri...

@Brannon Hamby With $210k in equity, you have a number of options. I personally am almost always in favor of using the 1031, but it depends on what your requirements are for your replacement props. Are you committed to investing in your own market or one specific market elsewhere? If you are open to other places, $210k could go a long way, especially if you are open to financing and using that $210k as down payments on a little portfolio - which is another consideration. Are you wanting to stay free and clear or are you ok with leveraging your capital to expand your portfolio?

You also need to consider what you want that money to do. Are you looking for an appreciation play? You'll probably need to deploy most or all of it for a single prop in a great area to have the best shot at good appreciation (if you want free/clear, since those props generally don't cash flow well). If you're looking for cash flow, you can get between 2 and 10 turnkey properties (depending on financing) in Birmingham and a few other markets. If you are looking to buy deals and then rehab them yourself in a more BRRRR strategy, that changes things as well.

If it were me, I wouldn't use all of that cash on one or two properties. I'm a big fan of using leverage to build out a portfolio and then letting tenants buy you 75-80% of those properties. That requires a bit more research, for sure, and some more fancy footwork for you and your QI, but if it were me I would use that equity as DPs on several cash flow props in a good rental market.

Not sure if that helped at all, just my perspective if it were me.

Good luck!

@Geoffrey TanudjajaOne final word of caution:

I definitely understand that you've got the 90 day challenge going, and I always applaud new investors who are active and engaged with the process of getting started, but please don't let the 90 day timeline force you into an investment that doesn't work. It would be better to 'fail' at the challenge and wait until March (if that's how long it takes) to invest than to pull the trigger on something that doesn't work just to 'win' the challenge.

There really should be a support group on BP for new investors that are anxious to get started but haven't found the right investment yet lol So so many folks are having the exact same experience (and we all did at one point or another).

Now, it may turn out, once you have more info, that this is a great first investment! It's just not possible to know with the info currently available. I just always like to advise caution to those who are new to analysis not to get carried away with the idea of owning something and, as a result, just end up buying anything.

Feel free to tag me when you have more info on this property and I'll take another look ;)

@John Leavelle Furnished! A point I didn't even consider but is extremely salient here. 

@Geoffrey Tanudjaja People that rent bedrooms in a shared house aren't going to have their own furniture 99% of the time, so that means you have three beds, dressers, etc plus enough living room furniture for three individuals to comfortably occupy one space, plus kitchen utensils, dishes, etc. This is going to be especially true for students, who these days have so much debt they don't even really own the shirts on their backs. 

Add this expense to whatever needs to be done that isn't being done during the current reno (this will depend on the scope of work) and you may be out more than you think. And, as John pointed out, taking the rent for a three bedroom house and dividing by three isn't going to be accurate, you'll need to compare to other shared housing in the area, which could be tricky depending on how much of it there is. I assume if this was your instinct then this is a college area with good demand for that kind of housing.

@Maurice Blackledge absolutely true, turnkey is like any other investment, and turnkey providers are like investment managers. There are definitely the good, the bad, and the very very ugly. You can search for threads on Morris Invest to see a bit of what the latter looks like.

This is the reason that, while many like to tout turnkey as being 'passive', I like to provide a caveat to that: turnkey is 99% passive AFTER you make the investment. Prior to that there is tons of work to be done. You should learn to run numbers so you know what you're looking at when a company gives you pro formas (not all companies include all expenses and you need to know to look for that), you need to ask questions and expect prompt, data-backed answers. You can tell a lot about a company just by being an active researcher - if they don't have time, get annoyed, can't schedule a tour, or just stop responding, those are big red flags that can be sussed out with just a few emails. 

As James and Jeff have said, the benefit of going with a reputable, established team is that they have systems in place to ensure the same thing happens every time. That means the same standards are met for every property, rehab work is streamlined and efficient, they get better prices on supplies because they use the same things for every property, the tenanting process is specific and finely tuned, they have a team that handles every property and reports to every client every month (or when big stuff happens) to ensure you always know where you stand. Newer companies that are trying to undercut prices by getting whatever property is cheapest or whatever contractor charges the least cannot match this consistency - and consistency is peace of mind, as James said. 

You should always always always do your due diligence, and never go with a company JUST because they are a big name, but these are some of the reasons that some companies advertise with big 'SUNDAY SUNDAY SUNDAY' used car salesperson tactics and others let clients come to them.

@James Wise hit the nail on the head, that's a perfect metaphor. I may steal that ;)

@Chris Seveney not quite sure I understand your post, but from the OP: "I am not sure I can make any money on the house I'm in since it really hasn't increased in value much since I bought and even if I do, I still have the capital gains tax to worry about as I have only been in the house a little over a year." 

Just giving him his options assuming he will have some gain, but as I said in my post, if he wants to sell now and has no gain, then he will just have to take the hit. One reason to hang onto it if he can!

@Tyler Herlihy I'd just like to point out that while I am HUGE fan of the 1031 exchange, you cannot use that process for a personal residence. The 1031 is only for long-term investment properties (which means not for flips either). 

Now, if your market supports it and you have the financial ability to do so, you could move back to your old area and convert your current residence into a rental. Hang onto it for 12-18 months and then, if you want to sell it, you can use the 1031 because you have converted it into a buy-and-hold investment property. 

The other option is to live there for another year (sorry) and then sell, any gain you earn would be tax-free under the Sec 121 exemption - up to 250k for a single filer or 500k for a married couple filing jointly. Sounds like making any serious money would be unlikely, but this is a way for you to avoid taxation on what gain you do have. 

Now, if you qualify for some exceptions, you could potentially sell now and apply the Sec 121 exclusion partially - ie, you've lived there for 1 year out of the 2 normally requires, so you'd only be eligible for 50% of the exclusion amount. If your new job is more than 50miles away from your old job, for example, you could qualify for this. If you're in the military or intelligence service there are other exceptions.

Here's some reading on this topic if it helps:

https://www.journalofaccountancy.com/issues/2009/n...

https://www.irs.gov/taxtopics/tc701

http://www.exeter1031.com/article_changes_to_secti...

You can also combine the Sec 121 and 1031 exchange if you stay for another year to meet the Sec 121 requirements and then convert the property to rental as I mentioned above. Also, the two years for the Sec 121 exemption do not have to be consecutive, it just has to be 24 months of owning and living in the property within the prior 60 months. 

I won't get into all the permutations of these two strategies, but you get the idea. If you want to just sell now and don't meet any of the requirements for a partial Sec 121 exemption, then you'll just need to pay the taxes/take the hit. But you do have options if you have the time/money to wait a bit.

Good luck!

@Shawn Ackerman thanks man, always looking to help new investors understand the way REI really works ;) so many people just say 'turnkey is passive, BRRRR makes more money' and there's so much more to it than that!