All Forum Posts by: Drew Purvis

And just to reiterate one more time...My property management company just called me this morning to inform me that I had a water heater fail and will cost about $800 to replace. This was expected, but comes at a very bad time. Thank goodness for reserves.

I just wanted to write a quick post to remind all investors of the importance of keeping some 'reserve' cash on hand. My quick story:

I am a buy and hold investor and I currently own 4 SFR's. I am in the acquisition/growth stage of my REI career, so I have a tendency to want to deploy all/most of my capital as quickly as it comes in to try to buy the next property. I wanted to share my experience to hopefully save another investor some major problems down the line.

In Q1, Q2, & Q3 of 2017, my average NET cash flow from 3 properties was between $2,800-$3,000 per quarter. Mind you, this is not accounting for cap ex, yada yada. This is ACTUAL net cash flow after all expenses and debt has been paid out. However, towards the middle of Q3, I added my 4th unit to the mix depleting most of my cash reserves. (Thankfully not all of them). Then the proverbial sh!t hit the fan. I will spare you the details, but a combination of necessary repairs, a unit going vacant for 4 months, and a tenant falling behind on rent wreaked havoc on my cash flow. I just tallied up the numbers and I finished off Q4 of 2017 with just $56 in net cash flow. Hardly exciting. Had it not been for the reserves I was holding onto, it could have been a very frustrating holiday season.

So if you are a new investor, don't forget to keep some cash on hand for when Murphy's Law comes into play! Hoping the best for you and yours in 2018!

Hey Andrew,

I would recommend David Hall. He is a local realtor with Coldwell Banker Hubbell and he also owns several buy and hold rentals. I know him personally.

I am also willing to help answer any questions you may have regarding Lansing real estate. I am a local investor as well with a handful of buy and holds. I am not a broker.

Best of luck! 

Drew Purvis

Building wealth is about acquiring assets. If your money is your 'worker' then put it to work in an asset (in this case real estate). By paying off the debt, you are essentially killing your workers. Dead. The money cannot go out and go to work for you. I understand that your student loans are 'bad debt' and it may help you sleep better at night knowing that they are paid off, but it will not move you closer to financial freedom. Especially in the Lansing area. That additional $8,000, when properly applied towards real estate is darn near a 20% down payment on a SFR. I have 4 houses in the Lansing area. My average cash out of pocket is $14k to acquire a new rental and I earn over 30% returns on this money. My advice is build up some savings/reserves and then get into real estate as quick as you can. Time is your friend in this business. Let the magic of compounding go to work for you sooner than later. As others have said...worst case scenario is that real estate investing doesn't work for you and you are still left with the student loan debt. However, you are young and have time to recoup.

We rarely regret our decisions to act. We regret most the actions not taken.

Absolutely spitting some real life wisdom here. Listen to what @Michael Rickerd said! Fantastic advise!

Hello all,

I am stuck. I have been searching for information on how other borrowers calculate the performance of their portfolio AFTER they have acquired properties. In other words, the real world, actual performance of their investments. I feel like I understand what ROI and IRR are, but the actual math seems a bit more complex than the examples I have found.

For example:

Lets assume I buy a BRRR property with a total initial investment of 35k (purchase and rehab) The rent is $850 a month, but the property manager collects 10% off the top before I see a dime(in some months, maintenance fees are also deducted). So, the monthly inflow is $725-$765. Now after holding the property for 6 months, I refinanced with a bank. Appraisal came in lower than expected at 35k (70% LTV) and I pulled out about 22k after fees and pre-paids. How does this factor into the IRR calculation? Do you just change the initial investment to 13k? (35k- 22k)

Regarding cash inflows, do you subtract ALL fees/payments? For example $850/month rent. Subtract Mgmt fees, Maintenance, PITI you end up with about $400/month in cashflow. Do you use $400 as your cash inflows? Or would you also make assumptions for vacancy and CapEx?

Help!

@Benjamin Buor Yes it was easy to refinance. As Brandon and Josh are always recommending, I put together a packet for the bank showing them Before and After pictures of the remodel. I also had a copy of the signed lease, cash flow estimate, etc. The process was pretty similar to applying for a home mortgage on your personal house. Copies of W2, tax returns, paycheck stubs, etc. Took about 30 days to refi. Got a conventional 30yr fixed at 5%. Rolled the taxes and insurance in as well so it is one less thing I have to think about.

Hey BP world. I wanted to provide a quick update on this property. I DID end up purchasing this home and completing the renovations. I was successful in using the BRRR strategy. All in all I spent about 41k on the property and renovations, property rented for $795/month, and I refinanced out everything I had into it.

After completing the BRRR strategy and feeling like a winner, it was time for the city inspection process. In Lansing, it must be done once every 3 years (for single family). Over the last 6 months we have undergone a series of inspections, code compliance, and re-inspections to the tune of about $3400...OUCH. It is finally over and the property is fully certified. This was one of those unexpected costs that sucked away all of the potential cashflow to date. I do not regret this purchase in the least. Several of my initial figures were off(I ended up with MORE cashflow than expected) which helped absorb the sting of the inspection process.

One final note, I used the money obtained from the Refinance to fund 2 additional properties, both of which are BRRR strategy as well. I now have 3 properties total, all that are cashflowing. If I would go back and change anything about the process, I would not have done the renovation by myself and would have hired most of it out. I ended up losing rent money by trying to save on labor costs. I could have turned the property quicker and refinanced out sooner. Lesson learned.

A picture just before we completed the remodel:

A couple of quick before/afters of the basement:

@Linda M. - You are correct. A real estate agent with an investor mindset or experience working with investors can make all the difference. I had a similar issue this summer working with several different agents. Most lacked any sense of urgency. I was looking at SFR's under 25k which attracts a lot of cash buyers and get scooped up very very quickly once they hit the MLS. I went though a half dozen agents before finding one that understood the need to move quickly. Some of the agents would take 1-2 days to return my phone calls on a property, only to inform me it already had an offer, etc. I found my agent by chance. I was standing in front of a property after work, about 7pm on a Friday. I could not reach any of the several agents I had worked with in the past. I ended up calling the main office number for my local Coldwell Banker and got a hold of an agent that was working after hours. He was able to contact the selling agent and had a response to me within 10 minutes. Turns out about 1/3 of his clients are investors that buy 1-2 properties a year from him. He understands how we work. He also got into real estate to learn to be an investor. Fast forward a couple of weeks. We found a house that we wanted to buy, he worked late with us until about 9pm on a Saturday to get all the documents together and offer submitted so that it would be on the sellers desk first thing Monday. We ended up buying our first investment property using him as our agent.

My advice to you is this. First, understand that you are the customer. Your real estate agent is a service provider. If they are not providing the kind of service you expect, get another agent. Even though you may have developed a report with a particular agent, you are under no obligation to continue using their services. When talking to new agents, be open and honest. Tell them you are an investor looking at properties. Let them know you may be looking at dozens of properties over the course of several weeks/months before you are ready to move on one. I like to ask the agents if they themselves have any rental properties and how much experience they have working with investors. Eventually, you will find a great agent that has an investor mindset and everything else will fall into place.

@Christopher Manus - Yes, you will want to put a renter in the home before approaching the bank for a refi. They will want to see the lease agreement.