All Forum Posts by: Jake Baker

@Stephen G.

Overall, it seems like a sound investment given the location and financing. With a long-term hold strategy, this property should continue building wealth through appreciation, equity, and potential rent growth. Do you see yourself holding this duplex for 10+ years, or are you considering other investment types moving forward?

@Angelo Llamas

At the bare minimum, you should do the following to make your bookkeeping easier:

- Dedicate one checking account and credit card exclusively to real estate. Keep personal and business finances separate to create less headache.

- File all receipts in a dedicated Google Drive folder. Digitize physical receipts for easy storage and use a consistent naming convention for easy sorting - 2024.03.25 Home Depot.

- Maintain proper records, such as contracts, settlement statements, and promissory notes.

- Additionally, you can track income and expenses consistently using software or spreadsheets.

If you track everything, you could show a loss and use that to offset other earned income (such as a W2) which will net you a bigger refund.

Thanks for the replies! @V.G Jason @River Sava @Lisa Jones @Ben Pileggi @Gregory Schwartz @Jay Hinrichs

Another silver lining I forgot to mention - Good investing partners.

Having solid partners who can share the load (financially or logistically) during disasters can make a massive difference. Our private money lender on this flip was very reasonable through this whole process, as we had to navigate many gray areas and difficult decisions. 

Quote from @Otis Clayton:

Quote from @Jake Baker:

@Otis Clayton

We typically fund with a combination of Hard Money and Private Money. Hard Money will fund 90% of the purchase price and 100% of the rehab on a draw schedule. Our Private investors will fund the remaining 10% of the purchase price, the first portion of the rehab (to be drawn later from the HML), and the holding costs. Of course, with private lenders, you must give up equity or a return on the debt.

 Hey Jake

Thanks for the response. 

I can find deals, close them with Hard Money but I run out of cash with closing costs and holding costs. Therefore, I want a partner because I have had success in multiple markets in the south, west, and east to help with those expenses so I can help more sellers.

Can you share more information about private lenders or what strategy may be optimal?

 Every private investor has different priorities. Some want upside, while others want a guaranteed return with less risk. My bookkeeping practice pays me active income, so my priority is equity.

For debt loans, you will see 10-15% annualized, depending on your experience as an operator. Recently, more on the higher side since people can get 5% in a savings account. 

For equity, I usually see 50/50. 50% for effort, 50% for capital. However, no one deal has been the same for me. 

Preferred Returns. Before you split the profits 50/50. If I am the contractor I get my % of rehab costs. If I am the agent I get my commission. The investor(s) get a 5-9% preferred annualized return on their money.

I wanted to share a horrible BRRRR experience with a property in Jacksonville, FL. What started as a promising BRRRR ended with us making the tough decision to sell at a loss after an unexpected disaster.

The Numbers:
Sold for: +$230K
Purchase Price: $115K
Closing Costs: $3K
Rehab Costs: $105K ($49K original rehab, $56K additional repairs due to the car crash)
Holding Costs: $31K (12 months)
Selling Costs: $16K
Insurance Claim Recovery: +$25K
Net Income: - $16K

What Happened:
This was supposed to be a BRRRR. The rehab was complete, and we were ready to refinance when disaster struck—a car crashed into the property the week we were scheduled to refinance. The crash caused significant structural damage, and the driver fled the scene, later reporting the vehicle stolen. This meant I couldn’t pursue the driver personally and had to rely on their car insurance, which settled for $25K—their maximum coverage.

Unfortunately, the crash added $77K in unexpected costs, including $41K in repairs and extended holding costs. Rising interest rates at the time created downward pressure on our ARV. Faced with mounting expenses, extended timelines, and diminishing returns, we ultimately decided to sell the property instead of continuing with the BRRRR strategy.

The Insurance Mistake:
The biggest lesson I learned was that I had the wrong type of insurance. I mistakenly had a rental policy instead of a builder’s risk policy. When I filed a claim, my insurance company denied it because the property was under rehab and not rented. I’ve done many flips and always had the correct insurance, so this foolish oversight proved costly.

The Silver Linings:
My Contractor: My contractor went above and beyond. He felt so bad about the situation that he did the additional repairs at cost, which was a huge relief and saved me from further losses.
My Agent: My real estate agent, who helped me purchase the property, was incredible. She spent countless hours on the phone—with me, the city, contractors, and other key players—to help find the best path forward when she didn't have to.

What I Learned:
Insurance is your safety net: Always double-check that you have the correct policy for your project type. 
Expect delays and unexpected expenses: No matter how straightforward the project seems, having a contingency fund for emergencies is essential.
Your Team matters. A reliable contractor and an exceptional agent can make all the difference when things go wrong.

The Outcome:
This was a humbling experience, and I still wonder if I could have done anything differently (besides the insurance). Sometimes, you have to walk away. Cutting our losses and selling was difficult, but it was the best option given our financial woes.

I’d love to hear from others—has anyone else faced something this unexpected during a BRRRR or flip? How did you handle it, and what would you do differently in hindsight?

@Mark G.

For my flipping business, I prefer to use fewer software programs to streamline things. It's easy to get bogged down by too much software in today's world. We use DealCheck to underwrite deals and QuickBooks Online for everything related to accounting and numbers.

@Steve Castagnetta

I also have used Neighborhood Scout for my markets. Great tool

@Sean Gammons

Consider adding a partner for the second deal to share the down payment and mortgage responsibility, keeping DTI manageable.

@Otis Clayton

We typically fund with a combination of Hard Money and Private Money. Hard Money will fund 90% of the purchase price and 100% of the rehab on a draw schedule. Our Private investors will fund the remaining 10% of the purchase price, the first portion of the rehab (to be drawn later from the HML), and the holding costs. Of course, with private lenders, you must give up equity or a return on the debt.

@Chris Lu

Welcome to the BP community! I invest primarily in Jacksonville, including Jax Beach. Here are some of my takeaways from your budget:

Operating Costs: Your STR management fee of 20% is high. While it's not uncommon for full-service managers, you might find lower rates (~10-15%) or alternative solutions like co-hosting services, especially if you handle bookings, rate adjustments, or guest communication yourself. This could improve your margins.

Occupancy Rate: A 60% occupancy rate seems low for Jax Beach, but that is a reasonable conservative baseline. 

Cash Flow: The numbers currently show a negative annual cash flow -$21,242. I personally wouldn't invest in a property that doesn't cash flow.

What is your financing strategy? Are you using the BRRRR method or buying turnkey?