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All Forum Posts by: Gary Lawson

Gary Lawson has started 2 posts and replied 9 times.

Daniel, congratulations and great story. This is really inspiring, as I have followed a similar path to you. I purchased one property the conventional way and realized I would run out of money before to long. I just finished getting all of my ducks in a row to implement the BRRRR strategy and now am on the hunt for and deal. I'll keep my fingers crossed that it comes sooner than 2.5 years down the road!

Post: Trying to Figuring out the BRRRR Formula

Gary LawsonPosted
  • Denver, CO
  • Posts 9
  • Votes 0

Wow, thank you for your time and insight @John Leavelle! This is incredibly helpful, and gives me a point of reference to go back and check my numbers, assumptions, and way I am evaluating deals. I feel much more prepared to initiate a BRRRR strategy deal. Now I just need to find another opportunity. I have been looking solely on the MLS due to living in another state than where I am investing, and good deals seem few and far between. I have been considering trying out a direct mail campaign but haven't pulled the trigger yet.

Thanks again for all of your thoughts!

Post: Trying to Figuring out the BRRRR Formula

Gary LawsonPosted
  • Denver, CO
  • Posts 9
  • Votes 0

@Josh Stanley, the CapEx I am estimating in is for the unknown down the road, and is in addition to the rehab budget (which I guess would also be a CapEx). I am figuring that my rehab budget takes care of anything I know about at the time of purchase, but I am also putting money aside so that when my furnace goes out or it's time for a new roof, I have the cash available. This may be a large over estimate in most cases (and hopefully is), but until I actually get some data and a track record, I want to be ready for anything. I guess this is the way I understood estimating capital costs. If I am understanding this incorrectly, and most people are calculating CapEx based on what they know needs to be completed as a CapEx in their determination on whether it is a good deal, I may have passed up quite a few deals that may have been worth an offer.

Thanks again for the advice and thoughts.  It is really nice to be able to bounce some of these things off of someone else with more experience than I have.

Post: Trying to Figuring out the BRRRR Formula

Gary LawsonPosted
  • Denver, CO
  • Posts 9
  • Votes 0

@Josh Stanley, good to know these numbers are comparable to what you are looking at.  You and @John Leavelle mention having a $200 minimum cash flow, so I may have to re-calibrate my approach.  As for my estimates on expenses, I am really just guessing.  I only have one property under my belt, so I really don't have a lot of data to base these estimates on.  On your end, do you use your past experience with expenses to develop your estimates, or do you have some other approach I may be able to consider.

@John Leavelle, thanks for your thoughts.  I never considered the holding costs, which I am assuming to be any costs associated with holding the property for whatever time period needed to season prior to the Refinance phase, such as interest on borrowed cash, mortgage payments during rehab, etc. I'll need to include that back into my process.  Also, aiming for 70% is a great idea to create a bit of a cushion.  I'll also be reevaluating my minimum cash flow requirements. 

Post: Trying to Figuring out the BRRRR Formula

Gary LawsonPosted
  • Denver, CO
  • Posts 9
  • Votes 0

I am a relatively new investor that has gotten my feet wet by using my own savings to buy my first deal. The deal was just okay, and now that I have the education of how to actually evaluate, buy, and rent a single family property, I want to do another deal that is much better than my first. I am really interested in the BRRRR strategy, and actually just passed up a deal that may have been a good candidate. But when I worked out my numbers, I think I had to many questions on whether or not I was understanding the strategy correctly and doing the math properly to jump on it so quickly. I was hoping that if I put some numbers up for everyone to look at on this deal, maybe you could help me with some insight on whether or not I am approaching the BRRRR strategy correctly. This way I am more prepared for the next time an opportunity like this comes up.

So here are the details of the deal:

  • 3 bedroom, 1 bathroom single family property
  • Listing requested an all-cash offer
  • The numbers looked like this:
    • Listed on the MLS for $80,000
    • Needed about $20,000 to bring it up to meet or exceed the quality of similar houses in the area
    • Estimated After Repair Value (I think abbreviated ARV) was around $141,000
    • Similar rents range from $1,100 to $1,300

Initially looking at this, my thinking was that the $80,000 purchase price plus $20,000 rehab bill puts me at 70% of the ARV, and my understanding is 75% or under is the target for BRRRR. Slam dunk for a BRRRR strategy, right!? I think so, but my biggest question revolves around the refinance part. My understanding is since I have put $100,000 of my money into the deal, I need to try and get that full $100,000 back out of the deal with the refinance so I can do the last "R" of Repeat, correct?

Running my numbers on the refinance, here is what I think I was seeing (and please feel free to comment on any of the assumptions I used, as I don't have a lot of data to support my estimates).

  • Appraised value estimated to be $141,000, and knowing I can finance up to 80% of that, I could realistic pull out up to $112,800.  I don't think I'll cash flow here, so I ran my numbers only on the money I needed to pull out to have no cash in.
  • Financed amount is $100,000
  • The monthly mortgage payment came out to be $435.59 per month
    • At a 5.125% rate on a 30 year loan, I calculated a 
  • Net Renal Income came out to be $1,140 per month
    • I split the difference of the range and used $1,200 for an estimated monthly rent and added in a 5% vacancy rate.
  • Expenditures came out to be $613.73 per month
    • I used an 11% property management fee, which was $125.40.
    • I used $120 for capital expenditure reserves
    • I used $60 per month for maintenance reserves
    • Property taxes were $225 per month
    • Insurance was $83.33 per month
  • This put me at a Net Operating Income of $526.27 ($1,140 rent - $613.73 expenditures).  Factoring in the mortgage, I came out at $90.68 (526.27 Net Operating Income - $435.59 mortgage) as my monthly cash flow.

So here are my questions:

  1. Am I correct in thinking that I can finance $100,000 to cover my cash in, and use the difference between the appraised value and the financed amount ($41,000) as the minimum 20% equity to stay in the property that is needed by the bank?  Originally, I was trying to run my numbers so that I was financing the amount I needed plus the 20% equity, meaning finance $125,000 so that I could pay myself back the $100,000 and have that 20% equity, but the more I thought about it, this didn't make sense.  At that point, the extra $25,000 from that approach would be cash that I took out as well, correct?  Whatever I finance will essentially be the check the bank would write back to me, while the equity will stay in the property, correct?
  2. Did I approach the math correctly with my BRRRR strategy in looking at how the property would cash flow after rehab?
  3. If it were you, would you have jumped on this deal?  

Thanks a bunch for any and all guidance/comments/tips you can leave me with!

Post: Rental Property Yard is Flooding

Gary LawsonPosted
  • Denver, CO
  • Posts 9
  • Votes 0

It has been 4 months since I posted on this, and I think I am in a place where my yard flooding issue is tied up.  It certainly did not make for the best first rental experience, but I am persevering and just now getting back into a mindset where I would like to try another property.  For those that are interested, here is how my situation turned out.

From some of the suggestions posted above, I began to look at what my options were to best address the flooding issue.  I wanted to balance cost with a fix that would actually address the problem, and I wasn't convinced that just bringing up the grade would solve my problems.  In fact, I was concerned that this may actually result in other problems with neighbors getting water on their property.  Well, I obviously didn't act fast enough because my property management company's broker received a ticket from the city along with a request to appear in court.  This is a whole different headache I had to deal with that I won't get into here, but it is looking like they are charging me all the legal fees because I followed their guidance to keep looking for a solution, when in reality we were already in violation of the city's requirements.  Anyways, I digress.

With the pending ticket issue, I stepped up and took the lead instead of letting my property management company look for a solution.  Maybe I should have done this earlier to save me the anxious, but I quickly found that by getting involved stuff got done much quicker.  I started with a "survey" of the property that my father and father-in-law completed to get an idea of where our low spots were.  I also talked to a lot of people including the city engineer, an engineering firm, two plumbing companies,  some landscapers, and an attorney.  A few options I entertained to address the flooding included yard grading, a drain tile that could be run from the backyard across a neighbors property to tie into a city drain, and a culvert in the back yard that could be tied into my property's combined sewer system.  While I was leaning toward the drain solution, this became pretty involved and did not create a very quick or cheap fix.  

My final decision was to go back to the very first idea and start with some grading.  The rational I used to make this decision was 1) I would most likely need to do some grading with any of the other options I was looking at, 2) it was the most cost effective option, 3) I found someone that was relatively confident they could do the work with the intended result by contouring the yard in a way that would direct water back to the driveway and out to the street and not onto neighbor's yards, and 4) the city stated this was all they would need to mark that finding as complete in their files and issue my landlord license.

So how did it work?  Well, I have obviously not been through a spring thaw yet, but there have been some big rains in the last few weeks and there has been no water accumulation in my yard or neighbors yard.  So time will tell, but I am hoping this issue is put to bed.

@Michele G. Yes, a bit more flooding over the past few weeks. I asked my PM to get some quotes/ideas on how best to address the yard, and the maintenance group for the property management company indicated flooding has been a common problem with properties in SE Michigan this spring, and really questioned whether I really need to address it. It came back up last week in an inspection by the city to get my Landlord license for the property, so now we are waiting to hear back on what the city recommends/requires. So... more to come. I’ll  be sure to post how I finally take care of it. I did also follow up on your recommendation and the house itself is not being affected, and there is no sump pump in the house. 

Thanks for following up. It is nice to know there is support and guidance from the BP community! Also, I hope your properties are fairing ok with all the water!

Thanks everyone for the insights.  It is always nice to know I am not the first (or last) to experience some of these problems!

@Andrew Kerr I had the feeling that taking my property manager's advice of going back to the seller may not be a real great option.  The legal costs and time investment to pursue this as well as finding a way to prove this was an ongoing issue was my worry as well.

@Michele G. I am in Madison Heights, and the complaint from the tenant came in on Tuesday morning this week, so that lines up perfectly with the storm you experienced.  I'll have to do some research to see if I can find some metrological data that helps to substantiate that this may have been a rare occurrence.  I'll check on the sump pump, but I am pretty sure it is not affecting the house.

@Frank Adams French drains sound like the easiest and most superficial way to go.  I was thinking about tiling as well, but that may be more cost and/or time.

Does anyone have any tips on how to handle this with a tenant?  They have asked about it twice, and if the result is a rare occurrence that I am not willing to spend big money on, what is the best way to communicate this to the tenant while trying to keep them happy enough to continue to maintain the house and keep them in the frame of mind to renew a lease in the future?  My first thought is honesty about the situation and that we will continue to monitor it.

Thanks everyone for the thoughts and posts!

Good Morning!

I have a single family home that I purchased in Southeast Michigan in January 2018.  I have a tenant in there now, and am working with a property manager due to the fact that I do not live in Michigan.  Twice now the tenant has called the property manager to communicate that the back yard is flooding when it rains, providing pictures that substantiate the claim.  The flooding is not impacting the house, just making the backyard pretty wet for a day or two until the precipitation infiltrates the soil (I have included a picture below).  I should point out that Michigan has had an excessively wet year with a lot of snow over the winter, frozen ground late into the spring, and a healthy amount of rain the last few months.

My property manager is telling me the flooding is a significant problem, and that I should take action.  His recommendation is that I should go back to the seller, who did not disclaim any flooding or grading issues in the Seller's Disclosure, and hold their feet to the fire.  His point is that taking care of grading issues is not going to be cheap, and this has to be a historic issue.

Trying to weigh in on other experience and get a second opinion, I also talked to my real estate agent (who is also an investor in Southeast Michigan and has been a pretty honest resource as a new investor).  His thoughts were doubtful that this is a disclosure issue, and should be contributed to a late, wet winter, which led to saturated ground in the wet spring.

I am hoping you all may have some insight from your experiences on how to handle the situation to keep the tenant happy and my property safe while limiting my costs as much as possible.