All Forum Posts by: Account Closed

I've been listening to the BP Podcast since 2014 but, due to a serious of detours,  I'm just now getting started this year at age 36 after reading Rich Dad Poor Dad. It really set a fire under my A**! I set a goal of owning 4 cash flowing SFHs this year and so far have 2 under my belt and one currently under contract. The first two were mild rehabs but this third one, which I am implementing the BARRRR method on, is in a bit rougher shape. Overall, the HVAC, Roof, Foundation, Electrical, Plumbing and all other major systems are in good shape and it is livable; the property just needs all new cabinets, flooring, painting, doors, and fixtures. 

While I consider much of this cosmetic, others may not so I'd like to hear your thoughts on what you consider cosmetic rehab and what you would not!

@Mike Sands Honestly, I do not see this being a good, opportunistic BRRRR project unless it appraises for $162k ([$64k cost + $50k rehab] divided by 0.7) Also, the rents would not justify holding this as a rental property as they would not be near the 1% rule. If you can get $162k or more on a $50k rehab, then this is a better flip project than a rental. Best of luck.

@Dan Handford I find it interesting that they call them hidden but nothing is hidden if the investors would do their due diligence and read the leases. Honestly, If I were to be investing multi millions into a property, I'd be willing to pay a law firm ~$10k to have all the leases reviewed to account for these things. Also, shame on the investors for not knowing their market. I mean, is it really that big of a deal if, in the end, they can get another tenant in the property at normal front-loaded concessions? Finally, these leases are likely staggered so while there may be a reduction in cash flow over the course of a few months, it could possibly be well absorbed. 

@Chris Stromdahl most lease agreements should have a clause in the deposit section that indicates it will go towards any undue repairs first and, if the tenant breaks the lease, to any unpaid rent second. Check your agreement and enforce it as such. Personally, I would offer to let them out early if they were willing to pay 2 months deep after their move-in date to allow time for attracting a new tenant. Otherwise, I would tell them not to use me as a reference. 

Optimally, you should only have the minimum 20% equity (conventional loan) in the property and the property should rent for at least 1% of market value. This is if you buy MLS (i.e. at market). If you have excessive equity in a property and it can command 1% of market value in market rent, then a cash-out refinance is optimal and would leave 25% equity in the property (per Fannie Mae requirements). 

You mention two properties - one worth $280k and one worth $400k. Unless these two can command rents of $2,800 and $4,000, respectively, then this is a terrible rental strategy and would be better offer divesting and buying properties that fit the most optimal confines I previously outlined. 

Of important note. Equity can be considered cash as it is trapped cash. So, the higher the equity in your property, the lower your cash on cash return is. Your most optimal cash on cash return will be when you leverage at ~18% to 22% equity and Market Rent is at least 1% market value of the property.

@Steve Sun Almost everyone is overlooking Bossier City, Louisiana because, well...., it's in Louisiana! You can buy a nice SFH for ~$100k in zip codes 71112 and 71111 and rent out for up to $1300 depending on quality of the house. Wht's nice about Bossier City is that it serves Barksdale Air Force Base so many of the prospective tenants are Airman/Air Woman. Bossier City is also the fastest growing city in Louisiana. I look to Bossier as a Cash Flow play all day long; I do not look for hyper appreciation.

@Kathryn Stevens Dealing with contractors of any kind in Austin is a nightmare right now. My investments are out of state but I like in Lakeway. I've been needing a deck replacement, and nothing fancy, of my 8ft x 24ft deck with wooden rails. Materials alone including stain are less than $1k yet the lowest bid I received was $7,200 and the highest has been $13,500. The demand for all trades in the area is so high that these contractors can practically extort clients. 

@Hao Dinh IASB is required in all dealings with prospects regardless if you use the TREC forms or not. In these situations, no matter what, you must disclose that you are an agent - it's the law. Below is the language from the TREC website:

"Texas law requires all brokers and sales agents to provide written notice regarding information about brokerage services at the first substantive communication with prospective buyers, tenants, sellers, and landlord concerning specific real property. "

@Kathryn Stevens Initially I did neither - and quickly learned my lesson! Now, we write up simple contracts that have several milestone payments (most GC's ask for only 2 or 3 but we push for 4 or 5) as well as a early completion bonus and daily penalty if the completion date is not met. Here is a break down of all three:

First disbursement is for demo so it's relatively small given it's mainly for labor. All other disbursements are project based (i.e. painting, kitchen remodel, bathroom remodels, etc). Final disbursement is withheld until everything is completed to satisfaction.

Early completion bonus is arbitrary. We ask the contractor how long it will take them to finish the job. We then give them an additional 14 calendar days. If they complete the job 14 calendar days before the date they gave us (28 total calendar days from contracted completion date) we will kick in a $1k to $3k bonus depending on size of job. 

Since all of our properties are buy and hold rentals, we take the fair market rent lost as well as the estimated cost of utilities for the month and break it into a daily penalty fee. For us, it's typically in the $45 to $60 range. This is withheld from the final payment. 

Hope this helps!

EDIT: Our GC's likely do not operate at the professional level of Matthew Paul (above). We've had issues with our GC being late as well as performing poor quality of work on our initial deals. Reigning him in with a contract that we both agree on has been the best thing for us.

To add to my comment above, take a play out of @Michael Quarles 's playbook and let the owner make you an offer first. It may be well below what your intended offer is.