All Forum Posts by: Jim Hiler

You may need cash in the form of a HELOC, Private Lender offering to loan you the cash, Hard Money Loan or bridge type financing, partner with cash- but may not need the actual cash in your bank account. As in every case it all depends on the deal, how much rehab is required, who are you are buying it from (wholesaler - definitely cash or hardmoney) traditional seller off MLS financing possible. Typically in order to get the BRRRR method to work you have to buy a deeply discounted deal - which usually means purchasing with some type of cash- and then once rehabbed, rented out and cash flowing you approach a bank to obtain a cash out refinance. If this is done correctly (by not paying too much, completing the rehab, achieving market rent) you should be able to do a CASH OUT refinance of approximately 75 - 80% of the ARV (after repaired value) of the property. At which point you can pay off the higher cost financing (hard money, private loan, other HELOC, pay yourself back) and then take the money and repeat the process.

The caveat is that in that due to the current state of the market it's not easy to find deals where this works. I.E. if you pay too much for the property you may not be able to refinance enough to pay off all of your loans. OR after you refinance you will be left with little to no cash flow on your rental because your new mortgage payment is too high.

Sure it's reasonable if you compensate them in some way. I've heard of people using a few different strategies. 

- Paying a newer RE agent hourly, per site visit ($150 per trip?) a lump sum, or a small percentage of the total rehab budget to oversee it. I would say depending on what you're asking them to do somewhere between 1-3% .Depending on their background they may not be offer to much "supervision" other than progress reports and photos etc.

- Some property managers offer "Construction Management Services" for rehab work on a property that they will be managing but expect to pay about a 10% of the cost of the work as a fee - which I roughly what I charge as a General Contractor. The benefit to this is that the PM should have good relationships with local subcontractors and vendors

- Try to connect with a BP member in the market you choose that may be a newer investor with not enough of his/her own money to do their first deal.

Maybe not so obvious but I would highly recommend making at least two or three trips to the market you select in order to meet and vet not only your "Boots on the Ground" but all of your team members (Agent, PM, Contractors, Lenders, etc.).... in addition to touring properties, driving neighborhoods etc.

There are numerous good markets in Florida due to overall population growth of the state. You'll have to do you're own research and make a decision based on numerous factors. I would start by just googling "growing cities in Florida". In my opinion here are the top considerations when choosing a new OOS market. 

1. Population Growth

2. Job Growth

3. Employers/Industries in the area and the diversity of the local economy.

4. Do you prefer to have more cash flow or better chance for appreciation. Florida is microcosm of the country in that the coastal markets are typically appreciation markets and the inland markets are more for cash flow.

5. Market Size / Inventory - Is the market large enough and have properties available in order to to expand. Also is the market large enough to be able to find a qualified property manager.

6. Boots on the ground - Do you know anyone in the market. You'll need a go to team member in the market to help find, evaluate and manage your properties. That could be your property manager or even your RE Agent, or just another team member/partner/friend that you work with that knows and lives in the area. 

7.  Misc other factors - Hurricane risks, insurance costs, etc.

7. You may want to consider a place you may like to visit. Don't choose the market based on that, but it can be an added bonus.

They do underwrite a HELOC similar to as if you were buying a house but not as in depth. So yes they verify income, debt, credit score, etc.

I just pulled a HELOC on my primary from Third Federal Bank thirdfederal.com a few months ago . I was able to land a good rate at 1- prime (4.5%) which is obviously not fixed but at today's rates is pretty good. I believe that the rate cannot increase by more than 1 point per year. So worst case in 2 years it would 6.5%...However I'm not sure if they have the 12 month requirement as I've been in my house for a few years now.

I would also call as many local lenders as possible as they will be the most flexible on terms.

@Julie Noone First I would look at your primary financing. A commercial loan at 7.2% and 2% sounds similar to bridge financing terms on a distressed property. You mention the deal is "turn key" - I assume it's in good shape, no deferred maintenance, 100% occupied at or close to market rents. If so You should be able to go to local community bank and get at least a 70% LTV loan (possibly even 75-80) at around 5% interest, for a 20 - 25 year term. Those are roughly the terms I'm seeing in my area for smaller multifamily deals.

Then use the private lender to fund the remainder of the down payment and repair costs etc. I would agree with @Timothy M. 4% is a very low interest rate to pay a private lender. I think you should assume closer to 8%...unless you already have someone (a friend or family member?) lined up who has agreed to it.

I also agree w/ @Taylor L. that your purchase price may be the issue and at $990,000 you're paying too much for the deal. I'm not sure which area you're in but there are a lot people asking and paying for deals in top markets that are in the 4 - 5 cap range - just to park their money somewhere safe and gain some tax benefits. Typically they are high net worth individuals or groups (sometimes international) willing to buy something all cash and accept a minimal COC return for nice building w/ little maintenance etc. Typically those deals do not work for smaller investors using creative financing and acquisition strategies. That's why most of us target value add deals in B and C class apartment space.

Lastly, in my opinion I would be careful projecting/expecting a rent growth of 6-8% because of where we are in the market. Again I don't know which area  you're investing in but that sounds a little aggressive.

Good luck. 

@Timofei Kadkin You need to start by determining your WHY? Why do you want to become an investor? Turning a quick profit? Long term wealth? Passive income and more freedom? Tax benefits? Financial freedom - quitting your 9-5?  

Once you figure that out it will lead you to the right strategy...Here are the 4 most popular. 

1. Flipping - Typically bigger profits faster, more effort required, less tax benefits, requires some cash or an investor partner.

2. Buy and Hold - Slow game, passive income, more tax benefits, less effort required (after your property is rehabbed and rented.) Typically less cash required upfront.

3. Wholesaling - Smaller profits but fastest way to generate cash (from deal undercontract to realizing profit) Although it takes a ton of effort to get up an running. Marketing (cold calling, direct mail, etc.) , finding buyers for deals. Requires little cash.

4. Multifamily - Also a slow game but result in bigger profits long term. Great tax benefits. Typically more work upfront in finding deals, raising capital, etc. 

Once you decide on your strategy you can then decide if your market is a good fit or if you should look in other markets. I.E. California may be a good market to flip due to appreciation but may be difficult to make the numbers work on rentals. You also may want to consider where we are in the market cycle when choosing your strategy.

Good luck

@Jerry Rice - I'm thinking in line with @Danny Randazzo, meaning I would market this more like a commercial deal. First I would go on loopnet.com find a similar smaller MF property and download the Operating Memorandum. Which is basically a marketing package that commercial brokers use when listing properties. 

The "OM" typically includes: 

1. 1. Brief description of the property. # of units, SF, construction, roof type, heating source, etc.
2. 2. Interior and exterior photos. 
3. 3. Listing of any improvements recently done.
4. 4. Brief description of the neighborhood / market etc. and mentions of it's benefits. List local employers, retail etc.
5. 5. Your proforma financials - showing what the current and / or projected NOI.
6. 6. Rental comps backing up what you are stating as the market rent in your proforma.
7. 7. Sale comps backing up your asking price.

Once you prepare your own version of an OM market it on BP marketplace for starters, craigslist, ebay, facebook, instagram, ForSalebyowner, loopnet, and possibly try Redfin who I believe offers a reduced commission for listing properties.

Lastly print out your OM and go to local REIA meetings and pass out to other investors.

Good luck.

All good strategies...Here is my take..

1. Brokers - I agree loopnet is great way to find them. Reaching out to them can be challenging - you may have to call several times before you get a call back. Depending on where your target market is I would guess that the on-market deals are overpriced. It will most likely take some time and building of rapport before brokers start sending you the off market deals. You will need to evaluate several of their on-market deals and explain to them why they don't meet your criteria, (returns too low, no value add component, building characteristics, neighborhood, etc.) The more you can prove to them you know what you're looking for and are serious about finding it the sooner they will start sending you deals.

2. Driving for dollars - Is a great strategy to locate properties but you then need to use either direct mail or cold calls to contact the seller. The key in both is follow up.

3. Direct Mail - Can be a good strategy but takes some time before you see results and some money. I haven't tried it myself but I've heard from others that it takes 8-10 touches before you get a response. Also I've heard success rates (deals closed on / properties mailed)varying  anywhere from  .5 - 3 %.

@Eddie Gonzalez. I would be interested in this deal. It may be a deal, but will need some more info. Are you wholesaling it? Buying it yourself? Are you an agent? 

Again let me know. I may be interested.