All Forum Posts by: James Brewer

Thanks @Brad Hammond that's exactly what I was thinking - was just having a senior moment haha.

Hey Folks,

I have a question about the BRRRR strategy. I'm very well versed in the entire process but I need a little clarification the refinance part.

If you pay cash to acquire a property and complete the renovation, when you go to refi since you’re looking for a typical conventional loan (non-owner occupied) are you required to put 20% down since you’re asking for a new loan….or since you already own it do you just need to make sure the appraisal comes in high enough to have 20% equity and no DP is required?

Thanks!

Hi Andrew,

I'm a new investor living in California as well and from what I've gathered it can ABSOLUTELY be better out of state and even for a first timer, depending on your state. In David Greene's book on Long-Distance Real Estate Investing and his other one on the BRRR Method, he states though its comfortable its not always in your best interest to invest in your own back yard, and he lays out a method and process for making out of state investing very possible and profitable.

In the research I've done I've been comparing states and cities based on a number of factors including price-to-rent ratio, population growth, job growth, landlord vs renter friendly states and overall renter population percentage. California for example is in the top 20 most renter friendly states in the US. Do you want to have a hard time evicting your tenants or taking them to court? Buy in California then, they always side on the renter. 

Developing your own criteria for analyzing markets and being deliberate in your investing will help you eliminate future headaches.

With home prices raising all over the country and especially in California, I've realized several hundred thousand worth of equity in my primary residence and was debating the same question. I have a friend who is a loan officer explain that for the cashout refi I'd be paying $30k in unnecessary closing costs and losing a relatively good rate I currently have just to take cashout at 80% LTV, whereas just like others have posted here the closing costs for a HELOC are next to nothing, and you can get much closer to 100% LTV. That worked better in my scenario because I didn't need all the cash at one time so a HELOC became the obvious best solution to draw funds over time.

Also, when you analyze the risk of borrowing against your current primary residence as long as your ROI (5,10, 15% for example) will beat the cost of borrowing the funds (4% HELOC) you should come out ahead. In fact, you may find that you can borrow from your 401k at a cheaper rate then your HELOC if you need additional funds and its a much quicker process! Just don't forget to add these costs into your BRRR calculator so the numbers are realistic.

Kerry that's an interesting point you brought up, my intent was actually to set it up the way you describe. 

I've just started a holding company LLC that I'm doing business out of and once I've secured an out of state property I'll set up an LLC there for just that property (or Series if that state allows). Was initially planning to make the residential 2/3/4 purchase in my name then afterwards retitle into the property-specific LLC.

So you're saying once its owned by the LLC banks my conventional options for refi or HELOC go out the window and I'll have to use commercial lending or something else? Can't you just keep title in the business name and still keep the conventional financing tied to my name?

@Julie Chai I'm glad you posted this I'd never really thought about that before but I'm a new investor - got my mind thinking though. I wonder if the LTR tenants would come to dislike the property due to random people always in and out of the common spaces/area. 

 Love these comments Todd!

Thanks Salvatore, you bring up a great question I was wondering about - how to tap into the equity of the new investment property. I haven't fully thought this out yet so bear with me and don't beat me up too bad. Since I'm using a HELOC against my current primary residence to give me the ability to purchase this investment property, perhaps once I've purchased and stabilized the property within the first year I take out a HELOC on that property itself and remove all the equity out to pay off the HELOC on my primary residence, effectively transferring the debt to be self contained within that property. Then use the extra cash flow and reserves to pay down that HELOC and eliminate it over time which will eventually increase cash flow over the long term. That also frees up my initial HELOC cash to buy more properties and repeat the process.

While I'm certain it could work that way with a residential loan, I'm not sure If you can HELOC on a commercial multi family the same way. Can anyone confirm?

Scott that's a great idea to discuss how property managers charge for a 4 plex vs an actual apartment building. It may just be per door or it may be higher once you get into these commercial properties. I'll look into it!