All Forum Posts by: Jamie Derasmo

Also, whatever the end number you come up with ends up being, make the offer. All he can do is say no. Be open about your plans to renovate and the general scope of work, not a fully detailed list. You never know, he might take his chances elsewhere but may realize he’s not going to get what he wants. If you build that good relationship with him, he might just come back to your offer and want to negotiate.

Hi Andy, on the surface, the numbers don’t match the 70% rule but I think it would be worth considering if you can get a better estimate on rehab. As an agent, you know what’s expected in that area so I would dig deep into the comps and see if all the repairs you mentioned are necessary. I’m not advocating cutting corners by any means! Everything needs to be safe and liveable for a new buyer, what I mean is don’t get too caught up in what you would want in a home. If the HVAC is in good working condition, why completely replace it? 
What did the comp who put in 60K sell for? What level of finishes did they put in? Does your rehab estimate include similar finishes? Are 2 full baths expected in that area or are you adding it for potential resale value? Also with the yard, is it necessary to tear down a chain link fence? If so, is it necessary to put one back up? Is converting the patio to liveable square footage included in that 90K or would that be additional? Do your comps factor in what that additional square footage could get you for ARV? There are a lot of questions that you can look at to see if this could work. Also, you are an expert in your market and can convey to the owner what lies ahead if he chooses to list or go with another investor. Don't walk away without doing some digging.

I agree with Andy that the 70% rule is a great analysis to quickly make decisions, as well as the BP calculators. Just ensure you’re working with the right numbers or everything could be off.

My biggest mistake was NOT buying a property. I was 22, in the military, renting a 2 bed/2 bath condo in Kailua, Hawaii in 2011 and the owner's had it on the market to sell. It had been listed for a few months but no movement. My roommate was leaving the island and I could not afford the rent on my own but when I looked into how much the house was and would cost, I could easily afford the mortgage payments and the down payment (if I didn't use the VA loan). I was all about it, but received advice from my parents that I should not buy because I was too young. And because I was in the military, everyone said buying was not worth it since we leave every few years. I knew there were two new high-rise developments being built within the next 2 years and that the economy there was rising but I didn't understand much else and because everyone had such negative things to say, I stopped looking into it. Even though I thought it would be a great investment, I listened to everyone else...long story short, 10 years later it has more than doubled in value and the cash flow would be RIDICULOUS. I've kept my eye on it ever since and I kick my self for not trusting my own thoughts. At the time, I had no idea what real estate investing was but the lesson I learned was to trust my own opinion and to do my own research. So many people doubt the power of real estate investing because they only see the risk. Do your own research and only seek advice from those who believe in REI! I only recently discovered Bigger Pockets and the first podcast I saw was with Scott McGillivray and he talked about his biggest RE regret was not buying units in Hawaii that have now soared in value...it opened an old wound!

Kenyon, sorry can't be of much help in this situation. I don't want to assume anything about the situation but it seems like it would be best for your grandmother to hold on to this since market rent would most likely increase her monthly payments (unless she has a very high interest rate). Does it need to be rehabbed right now? While she holds it, you could save up the money to do the renovations down the line before you do end up buying it from her. If she truly wants to offload the debt, could you check to see if her current mortgage is assumable? Another option could be just doing a hard money loan for the price of the rehab. After that you could do a conventional loan once it appraises for higher. It's an unconventional method but seeing as it's a personal connection, it can be done differently than a traditional style BRRRR.

Hi Kenyon! You have an interesting situation. Unfortunately, banks don't care much about sale price but about appraisal price, what are those homes appraising for? Target that number. I think to be on the safe side, assume the property will appraise for $270K after renovations. 270000x.70 = 189,000. This means you should not spend more than $189,000 total for purchase and rehab. Is that doable? I know you said the rehab would be moderate but that can be different in different markets. Ensure you have an accurate estimation  of repair costs. This most likely won't come off the financing side but you might need to rework the purchase price with your grandma.

2.With your hard money lender, make sure you know all the details. Do they have a minimum amount of months you have to pay interest on? For instance, if the rehab will only take 1 month, but they require 3 months of interest, is that deal worth it to you? You can consider other financing options but 70% LTV is common.

4. Do you have an exit strategy? Are you pre-approved by a lender to get out of your hard money loan quickly?

I found this article very helpful:
BRRRR Method: The Secret to Building a Real Estate Portfolio (biggerpockets.com)

Jamie

I agree with Zachary, I would look into making it a 50/50 split. They essentially only want to be an equity partner. They’re bringing the money to the deal, and you’re bringing the expertise, work, management to the deal. So even though they’re supplying the money, you’re both equally vested in the deal. 
I'd also revisit the CapEx/Emergency Funds agreement. It's aggressive and it does set you up for the future but I think you'd be just as safe if you just saved the 50% rule and split the rent revenue each month after that. Especially if you're doing repairs upfront, some of those costs can be saved for over time and you and your partner can start reaping the rewards of your investment sooner.

Hi John, great question! You should definitely get familiar with what is expected in that area. As some others mentioned, you might put in a premium material (marble or granite) when the comps say you could have used a more cost effective material. In this aspect, this is something you can do yourself by looking at what else is for sale and what recently sold but a real estate agent can help with this. Most will be happy to do a consult with you. However, they are not going to choose designs or materials for you, they are just going to advise you on what's popular in the area. Make sure to do research here and get a real estate agent who is familiar with that neighborhood.

A designer could be worth it but they can get pricey. You would have to decide if you have the budget for it and if the expense is worth freeing up your time to focus on other aspects of the flip, or your flipping business in general. Whichever route you choose, make sure you are paying attention to what they say and get familiar with products and designs so you can feel more comfortable in your future flips! Good luck!

Jamie

#3 Fairfield Hickory looks best with the current colors, it’s lighter and helps make the room feel bigger. 
#4 is nice and I would lean toward that in most circumstances but I think it makes the room feel a bit too bland. 
The first two are pretty dark and make the room feel heavy.

Thank you all for your insight! It gave me a lot more to consider and brought up some good things for me to be aware of now and in future decisions. I appreciate all the BP community support!

Hi everyone! I think I'm ready to make my first offer on my first rental property in North Providence, RI. It's a 2 bed, 1 bath unit in a relatively small condominium. After running the numbers using the awesome BP calculator, it looks like it will Cash Flow $200/month. My main concern here is after talking with the owner (my friend), she said there was previously a bad management company who didn't respond to owner concerns and who did not offer to pay for repairs that occurred outside of owner's control. For instance, this unit is the top floor. The roof partially caved in and damaged her ceiling. She paid for the repairs out of pocket and the management company refused to compensate her. HOWEVER, it is now under new management and they did compensate her for the repair price. So she said the management communication and upkeep is getting better. She said there is a leak in the apartment below her and the tenant and owner keep going to her to pay for repairs even though the leak seems to be stemming from poor flashing around their window. 

Big question: Is this a common issue in condominiums?