All Forum Posts by: Evan Polaski

@Jessamyn Smith, to add, in my experience if you are not going to be living in the property, it will be a commercial loan.  If you live in it, you can get owner-occupant financing, which is typically the most favorable.

@David Minaya, an additional item to add to @Erik W. discussing financing.  With a personal guarantee, it is a contingent liability and does not show on your personal credit report.  This can help with any personal financings you may want/need to do.

Make sure you disclose these items, but I have had loan officers tell me they do not take them into account when underwriting the loan, if it isn't on my personal report.  I am sure this varies bank by bank.

@Jonathan Miranda  I am guessing this is an issue in Texas as well, but in Cincinnati, sellers have started scoping sewer lines as part of their inspections.  And having had to hydroblast roots out, about $3k expense, and then the pipe likes to collapse, so you can often be in about $10k+ for a full repipe to the street, plus landscaping repair on top of that.

Foundation can also get pretty pricey.

At the end of the day, having done 8 flips, I still think of them as if I can make money, and learn something, I am doing well. 

@Ryan Steiner, for your first flip and really all flips, I would definitely wait until you can be at the project on a near daily basis.  Even highly recommended GCs like to make bad decisions when left to their own devices.

I had used the same GC for 8 years, but had to fire him from a project about a year ago, because he decided to stretch himself too thin, or mismanaged his money, or something.  Either way, after 8 years of working together, he still needed oversight on each project, and still turned bad on me.

Even for a simple project, and with everything outlined, things will come up or be missed that need to be caught quickly.

@John Reyes Any time.  Best of luck!

@Phil Denton, unfortunately I do not remember who I ultimately ended up with.  I started with Penklor, and they did a great job.  Unfortunately, they got acquired by Sundance, who also did a good job, but after a few months got out of the single family rental management.  From there, I got transferred to a local realtor, who also did a pretty good job.  THEN, she decided she didn't want to do other people's properties anymore, and I ended up with basically a handyman, whose name I cannot remember.  That lasted about 3 months, before I had enough and took over management.

I will PM you a friend of mine, who does a great job and looking to grow his management business.

This is great info @John Lenhart.  Thank you!

@Eric Martel, I agree.  When I have used PML, both times it was 12% interest only on full amount, regardless of whether it was disbursed.  I know other investors that use same group we have in past, and they get better rates, but they tend to have $1-2mm outstanding with the PML at any given time.

@Blake Hrabal using your investor as a PML would be an interest only setup. So he lends you $50k @ 5%, you pay back $208.33/mo. You would not be amortizing the loan.

When you sell, or refi, you will pay owe your PML $50k + any accrued interest for that month, i.e. you sell on 15th you owe $104.17.

Correct me if I am wrong, but I believe FHA loans have to be owner occupied, so using those to fix and flip or BRRR could put you in a sticky situation.

@Account Closed, yes and no. It depends on the condition of rentals you are looking for. In my experience, for BRRR to work, you are having to do equal renovations, hence the buy, Renovate, rent, refi. So if you are looking apples to apples, the work is the same.

Financially, there are a few reasons why I would prefer to flip now than hold. Primarily, even when you go to refi, you are limited to no more than 80% of appraised value, and that is after a year. Since there is no arms length transaction, appraisers tend to be fairly stingy in their valuation. So A) you have a chunk of potential cash still tied up in property, that could equate to years and years of rental income. B) In my market, when you account for PITI + Vacancy reserves + capital reserves + repair costs + management fee (whether or not you are managing yourself), you end up in a net zero or negative cash flow position.

To give you real numbers on my best single family rental, and remember that this was bought in recession, not in today's market:
Purchase Price (2010) 22,500
REnovation                 12,000
Initial Rent                      839/mo
Cash out refi (net)      54,000 (so I made my money back at 1 year)

Current Cash Flow Status:

Current Rent:              $1,250.00

Principle + Interest         $360.12
Monthly Taxes                  290.31
Monthly Ins                        59.75
Mgmt Fee (10%)                125.00
Vacancy reserve (5%)          62.50
Capital Reserve (5%)           62.50
Repair Reserve (5%)            62.50

Total Expenses              1,022.68

Free Cash Flow                 227.32/mo (before taxes)