All Forum Posts by: Jack Inman

@Brandon Ellis All-in for less than 100k and pulling in around 1,800 a month is pretty good. Is that 30k going towards the vacant unit only or do all four units need work?

@Levi Benton The numbers look very good on paper. Definitely want to get those repair costs accurately estimated. The ARV seems very high relative to the all-in price. Have you checked to make sure there are comps that can support the ARV? I usually pull comps using RPR (which I think all realtors have access to) then I cross reference the comps with my local MLS. (Some of RPR's comps are inaccurate)

@Miguel Santiago Most successful investors move very quickly to get a property under contract. Then they'll take their time doing due diligence during the inspection phase. But properties that have been sitting on the market for a while can also be a source of good deals. Those sellers are often getting more desperate.

@Maurice Blackledge Assuming you buy the property at the right price, the main issues would likely occur at the renovation phase. If you choose to act as your own general contractor and individually hire various subcontractors like plumbers, painters, etc, it can be very difficult to manage the project from out-of-state. That's where I've seen investors get stuck. So, If you can find a real estate company that offers a complete BRRRR system (in-house renovation team, in-house management, etc) it makes the process significantly easier.

@Joshua D.  The snowball strategy is to focus all of the cash flow from various properties to pay down the debt on one property. Once that property is paid off, it will have a higher cash flow. Then you focus on another property and so on. It does speed up the pay-off process faster than paying down all properties evenly.

BankTennessee has my recommendation as well

Hey @Albert L. If you're accounting for the 3% origination points in the 'HML cost' then you're right; dividing by 3 is the way to go. If you do it that way then your closing cost estimation of 5k is a little high. It usually costs less than 2% of the sales price to close a cash or cash equivalent deal.

With regards to your question about diminishing returns with each deal; It is often the case that after the refinance, some amount of cash will be left in the property, so the bank loan may not be enough to completely cover your equity position. To continue to purchase a large number of properties it would be likely that you'll have to add in more cash over time to compensate. I use the BRRR method personally, and usually I know that I won't be able to pull out all of my money during the refinance. But leaving $5,000 in a property that's worth 80k is better than going the conventional route of 20% (16,000) down on an 80k property. If I can cut my equity position in-half, then all else being equal, I've doubled my return on equity.

With regards to you risk aversion of debt; the BRRRR strategy focuses on minimizing payback period and maximizing leverage (debt). Not exactly what a debt adverse person wants to hear, but it's not any more risky than a conventional loan from a debt perspective.

Most banks let you pull out at most 75% of the property's appraised value. With a conventional loan most investors put down 20%. So, on paper, you'll typically have a 25% equity position on a BRRR deal after the refinance, which is arguably better than a 20% equity position if you go the conventional route. Also, when you choose to refinance, you can choose to pull out only half of the property's appraised value if you want less debt. You'd just to have to be ok with leaving more cash in the property.

Welcome aboard Hendra! 

Value-add projects such as the BRRR can yield great returns, but they have a lot of moving parts. Good work on thoroughly researching the topics before buying!

Hey Albert, 

Your holding costs seem kind of high for a property in that price range; since you've already factored the loan holding costs separate, your remaining holding costs should just be taxes and insurance for the 3 month vacant period.  

Couple things:

• 1,400 isn't your NOI it's your monthly rental rate

• If you have the HML for 3 months, then divide the annual interest rate by 4
• Your 10% ($5,000) out-of-pocket cost doesn't need to be deducted from the all-in price. You only need to deduct the costs associated with borrowing the acquisition capital, not the capital itself. 

That's all I've noticed; looks like the rest of the math is correct. Good work!