All Forum Posts by: Eric Gamble

I have seen a number of post where members would like to undrstand why & how the BRRRR Strategy works. Below, I attempt to walk through the logic of How & Why (this is my approach - keep in mind with math you do not have to use the same order to get the same result - BRRRR is about a result, "the REPEAT result."

1) I start with the rent I can get without stretching, let's say it is $1,000 for a SFR.

* SFR Assumptions:

      - Insurance/mo: $50

     - Taxes/mo: $150

     - Property Mgmt/mo @10%: $100 (this is dependent of mgmt company and services provided)

     - Vacancy/mo @ 5%: $50 (this is dependent on the neighborhood and price)

     - Cap Ex/mo @ 10%: $100 (this is dependent on the age and condition of property)

     ## $450.00/mo in owner expense

     - all utilities paid by tenant

     ** $1,000 - $50 - 150 - 100 - 50 - 100 = $550.00/mo (available for desired profit and debt service [paying loan])

2) Now that I know how much I am working with for NOI target and paying a mortgage, I subtract my desired profit per month. So, let's say I want to profit $150.00/mo per unit, I subtract this amount from the amount available for profit and debt service.

   * Amount available for debt service: $550.00/mo

   * Desired monthly profit: $150.00/mo

     ** $550.00 - $150.00 = $400.00/mo ( this $400.00 is what I can afford for a mortgage and cover the loan's monthly principal & interest (P&I)

    !!!! At this point a little deeper understanding is required because we need too understand what the present value of $400/mo, at a given interest, for a certain amount of time will limit our purchase price to !!!!

     >>>> OR you can just use one of the many online mortgage calculator that will tell you how much you can afford <<<<

3) A 30-year mortgage with an interest of 5.25% will allow me to afford a property purchase price of $72,250.00 (P&I monthly payment of approximately $398.13)

   * Use the BP Mortgage Calculator to see various results *

   * This $72,250.00 needs to be your ALL IN Budget (Purchase, Repairs, Fixed and Variable Costs until refi)

   *Remember, the goal of the BRRRR strategy is to refinance the property and repay all initial capital sources (hard money, private money, and/or your money) using a traditional financing source with lower interest rates.

   Now go:

   * BUY a property,

   * REHAB the property,

   * RENT the property, and

   * Keep all money into the project at or below $72,250

4) To be able to refi this property @ $72,250 the following would need to be true:

     - The ALL IN CASH would need to be $72,250 or lower,

     - The property will need to appraise @ $96,333.33 or higher ( $72,250 / 0.75 = $96,333.33 ) this assumes that the refinancing company will refinance 75%.  If they only do cash-out refi @ 70% divide by 0.7, @ 60% divide by 0.6, and so on...

5) So, let's say you are ALL IN with HML and Partner money @ $67,925.00 and you find a cash-out refi @ 75%, it might play out as follows:

     - 75% Cash-out Refi: $72,250 (based on an appraisal of $96,333.33)

- HML payoff: $57,800 <-- This is your property purchase amount

     - PM Partner: $10,125 <-- This is the money you and/or your partner brought to the deal

     **  ALL IN COST - Refi Amount = Money Left In the Deal ( you want this number to be zero (0) or less than zero ( a negative number )

     ** $67,925.00 - $72,250.00 = -$4,325 (yes, negative $4,325.00 - which means at the closing of the refi, you received a check in the amount of $4,325.00)

6) So now let's review what we done so far Buy->Rehab->Rent->Refi is done:

     - Bought property: $57,800

     - Rehab & Carrying: $10,125

     - Tenant on lease for $1,000/mo

     - Refi: $72,250 (mortgage P&I of $398.13/mo)

     - Taxes & Insurance were captured in the assumptions @ $200.00/mo

     - Other expenses captured in the assumptions @ $250.00/mo

- HML and Partner repaid (they are happy :) )

     - You receive $150.00 cashflow/mo

AND

     - You have an extra $4,325.00 from closing the refi (To Do It All Again!)

Hope this helps your understanding.
-EMG

Looking at an 18-Unit Garden Apartment class-C complex on the outskirts of Charlotte, NC. I have not looked in any of the units. Owner states all 18 have been redone.

Asking $2.49MM (5.236 Cap Rate)

Been on the market for more than 5-months, thinking of offering a price at a 10% or 11% cap ($1.2285MM or $1.85309MM, respectively). Anybody know what a good cap rate for North Charlotte - Concord, NC - Kannapolis, NC is?

I will contact the broker tomorrow, to introduce myself and start to develop a relationship. I am just going to ask as many questions as I can, without angering the broker or mentioning the prices I have in my head.

First time looking at this size property, what should I expect?

Many thanks,
-Eric

Forwarded this thread to my 20-year old son (and old chlid).  He is reluctant to move strongly toward real estate, wants to take a "I'll watch you approach."

Hope this will move him.

On another thought, what are the ways I can effectively and efficiently deal with asbestos siding, roofing shingles, and the like?  The area I am targeting has a lot of OLD homes built with these products.

-Thanks!

@Matthew Paul and @Nik Moushon the perspectives you have shared are exactly what I needed.  My brain was not able to conceive your ideas before my post. However, now that heard your thoughts.... Wow!!! My brain is racing... Now, I have this little thought in the back of my head that a solutions for the land in the flood plain might be able to pay for a good portion of the deal.

Many thanks!
BP Forums do work!! :)

After entering the post, I asked myself why no one seems to be jumping on this deal, assuming there is no development issues with the land (septic, pert, etc.).  Until I thought about flood plans... Pulled up the NC Flood maps and found:

• The current house location is not threatened by flood, even in the 99% event category.
• However, some of the land is in the 99%/1% flood category
• Worst yet... most of the 8.4 acres is in the "AE (floodway)" category.

Now I know why the property is sitting there... Research, Research, RESEARCH...
This goes to support the notion of 

• by knowing your target area before an opportunity presents itself, the faster you will be able to move on it when it  comes

An old home built in 1925, with abestos siding is for sale in a developing area outside of Charlotte, NC for $70,000. This home is on 8.4 acres and only a 30 minute drive to Charlotte (45-60 with traffic).  The highway is in the final phase of widen and should be completed by the end of 2019. It has been on the market for 24 days.  Should I tie it up do due diligence (to see if there would be an issue subdividing the land for multiple homes?

I am missing something? Is this an opportunity for green field development or not, depending on the town's desire and what the land dictates (even if each parcel required septic)? 

Many thanks!
-Eric
-Newbie at new construction (don't roast me to badly)

Great thread! And, @Meryl McElwain you came to a very good forum to obtain perspectives, so you can inform and hopefully educate the VCs you work for.

Ok, my 2-cents. Wholesaling is legal. However, it MUST BE DONE CORRECTLY. So, before I address all of the points I read in this thread, can we agree on the following:

- All properties in a given neighborhood will all have different market values,

- The simplification of those values could be placed into the following three (3) categories;

   * AS-IS (No deferred maintenance has been addressed AND curb-appeal is seriously lacking)

   * Enhanced (all deferred maintenance has been addressed and some newer "creature comforts" installed)

   * Optimal (highest priced, highest and best use dwelling in the neighborhood)

If you agree to these simplified characterization, then the following might be agreeable: 

@Randy Thomason - [Good and Bad Wholesaler, Double Closings]

There are good and bad wholesalers, just like there are good and bad real estate agents and brokers. To classify ALL as BAD or OPERATING ILLEGALLY is a stereotype that SHOULD NOT BE TOLERATED. I guess I am a little emotional on this because I and my family has had to comfort stereotypes on many occasions in a myriad of situations. So, to answer Meryl's original question, the best way for a wholesaler to truly be in the business of wholesaling is to perform a double-close for the majority of their "contract flipping" business.

@Jay Hinrichs - [Double Closings]

Even Jay acknowledged that he had to move a wholesaler he works with a lot, if I understood the response correctly, into double-closes. A double-close is when the wholesaler executes the purchase with the seller then, within days or hours, sells the property to an interested party that has the capacity to perform. In this case, no contract is assigned.

@James Wise - [Specialty Real Estate Firms] 

Just this past week, I realized I have new competition in my market buying severely distressed properties and it turned out to be a licensed real estate firm that only caters to cash buyers for AS-IS properties. Well, I didn't see that one coming. However, it validates that an opportunity exist and I will not just leave the patch because they are here. So, I know I have to keep my transactions clean, because I would expect them to use NC state statues to shut me down if they see me as a threat.

@Mary M. - [Bigger Pockets (BP)]

Hopefully you agreed with my simplified categories and read to this point. Why would you attempt to implicate BP in this? BP is not promoting wholesaling, flipping, BRRRR, Buy & Hold or any other strategy, there are providing a forum where a person can learn, ask questions, and use tools to help them make an informed decision. ***DISCLAIMER: I do not work for Bigger Pockets nor do any of my family members. I do not nor do any of my businesses pay BP for advertisements. I am a paid PRO member so I can utilize the analysis tools they make available to all members, but because of my PRO membership, I can save and reload previous analysis.***

@Kate J. - [Government Control]

Kate, I respectfully disagree with you on this point. Before I tell you why, let it be known that "I am a card carrying capitalist." However, I am not of the "cronies" affiliation. Your point was to education, if you look into who I am, I am a HUGE SUPPORTER of education. However, the level of education your post suggest is not realistic and I do not know how to even get people that would be in this situation to a level of understanding that is suitable. So, let us agree that being aware is not necessarily being knowledgeable. Being knowledgeable is not necessarily having understanding. Having an understanding is not necessarily having a deep understanding. With this said, should people be denied access to ownership because they do not have at least a cursory understanding of the three phases of ownership (purchasing, maintaining, and selling)?

@John Thedford - {The Broker, The Investor, The Lender with a license to _________}

Sir, quite honestly, you scare me. As I read your post, I was always leery of your position, until @Caleb Richardson pointed out something about Florida real estate agents and brokers, there are different types fiduciaries and non-fiduciaries. If this is true, I have to assume you are a non-fiduciary, due to the many hats (broker/lender/investor) you hold yourself out as being.  Does Florida require you to have a NMLS license?

As I stated in my opening, there are good and bad wholesalers and licensed real estate "professionals." It is easy to find the bad and tear stuff down. So, let us find the good and build stuff up. The latter is much more difficult.

Yours in success,
-Eric

Thank you, thank you, thank you... I am building a strong pipeline of off market deals and will need to use the transactional funding route.

@Kurt G. - Many thanks for asking the question.

@Brian Jordan - Many thanks for providing a clear and executable answer.

Is there any way to favorite posts? I do not want to lose this one.

-Eric

Hi Clay,

I am building a STRONG Probate pipeline in NC-North Carolina and MA-Massachusetts. Please PM me.

Many thanks,
-Eric