All Forum Posts by: John Brodeur

@Greg R. you build all this out in your analysis. The most recent property I am under contract for involves a construction loan and rehab period. I ran the numbers with an assumption of interest rates being higher in a year as well as an expansion of cap rates (this is an over 5 unit building). If the property still works financially under those higher assumptions you can feel more confident that you won't be stuck in a poor position. If the property no longer works financially with different assumptions you might want to pause to see if you still have a deal or if the price is too high.

@Abdul Lateef, Similar to any real estate strategy BRRRR is as scalable as the business, model, team, and systems you put in place. I know a lot of investors focus on scaling the BRRRR strategy by moving from sfh, to small multi, and then large multi.

Hello Hussain, 

Good luck in your rental property journey! Philadelphia does require rental licenses for all rentals within the city. There are a bunch of different requirements for proper use and occupancy, rental licenses, and zoning restrictions. If you are new to investing in Philadelphia, I would recommend working with an experienced PM in the area who can help you navigate the process, and handle the heavy lifting to ensure you comply. I have copied a link below from the Philadelphia Government website. DM me if you have any specific questions and I would be happy to help. 

https://www.phila.gov/services...

@John Teachout, agree! The tenants will find out eventually and then you have proven to be distrustworthy. If you don't want to be the one showing the property or don't have the skills to show and screen tenants you should source this part of the business either with an agent or with a PM.

@Steven Barr, I am not familiar with your individual locality, so you would want to look at the zoning and local municipality ordinances for what type of building this would be considered. Most towns and cities or counties do have their property records online and searchable, so this would be a good first place to go to do some additional research on how the property is currently set up. 

One of the properties I own does have a detached two car garage. It was permitted, and allowed as part of the residential property and it is rented out separately from the apartments (although I allow tenant's first opportunity to rent if they want to.) Even though this property has 2 separate garage bays it is still zoned and considered a duplex according to the municipality. The property can only be used as a residential property so there is limited use for the garage. AKA it can't be rented out for a commercial business use, but could be rented out for typical residential use (storage of a car, extra stuff, lawnmower etc.) This has never impacted the ability to get a loan on the property, although it does increase insurance cost a bit as the insurance needs to account for the separate structure. 

Are you currently working with a realtor? I would say these are great questions to ask your agent as you are performing due diligence on the property. If you are working with an agent who is familiar with investors / investment properties they should be able to help guide you in this process.

@Steven Barr, I would suggest doing some due dilligence, by looking at rental comps and purchase comps in the area. You can do this using a number of online tools (zillow, realtor.com, rentometer, and if you have a buyer's agent ask your realtor to pull info from the mls.) If this is a property on market I would highly recommend you working with a buyers agent who is familar with investment properties who will be able to help you wade through this process.

As this property is under 5 units it's value would be determined based on comparable sales and not based on the NOI like commercial properties. So being able to increase rents does make the property more attractive to investors, but it's not necessarily equal to 100k. It might be or it might not...it all depends on what similar properties have sold for recently in that area.

All that being said if you do your due dilligence and it makes sense for you to purchase go forward with it, but don't just trust what the seller is telling you.

@Aaron Kaminer,

People often use commercial loans or portfolio loans when they reach thresholds that exceed normal bank conventional loans. There are small credit unions and regional banks that offer portfolio loans, ad well as large national non-bank lenders.

These loans operate much more like commercial financing where they will lend on the performance of the property NOI vs. your personal finances (debt to income ratio). Sometimes they are called debt service coverage ratio loans, and for sfr, or small multifamily you can often get similar terms to a conventional bank loan (30 yr fixed), but you will pay higher interest rates and often higher closing costs.

DM me if you have additional questions as I just started using this type of lending and there are some additional differences and considerations.

@Joe Villeneuve , I used Detroit as a decline in rents. Agree that Detroit is a unique case that has a ton of other factors at play.

I was simply using the example that the spreadsheet math often works within the context that many BP investors have seen (myself included in my REI investing journey). If you've bought within the last 12 years you have likely only seen increasing rents and appreciation. Increasing rents and appreciation can paper over risky strategies like not carrying enough reserves to cover major expected expenses.

I agree that many poorly capitalized firms end up going out of business when credit dries up, their working capital suffers a short term decline, and they don't have enough cash to weather the storm.

When the tide goes out many will be stranded or caught without their swim trunks at least. Lol

@Lesley Resnick, this works very well in an up market. Rent increases, and appreciation happening year over year. What ends up making this strategy riskier is if there is an overall market downturn, or a slide in rental price increases, or decreases is rent (ask folks who bought in Detriot in 1999 what happened in 2008 to 2010). What happens at this time is if you have major cap ex happen at a time that coincides with a downturn your working capital might dry up. This is why lenders, professional investors, and folks underwriting deal preach having reserves. There are creative ways to make those reserves work for you, but they act as an insurance policy for major expenses. And ideally you run the numbers of what these major expenses are likely to be (roof life expectancy, major systems, hvac, plumbing, siding, brick maintenance etc.) And then either set aside that amount in reserves plus extra for vacancies up front or budget for them on a monthly basis. Not factoring in these items in your analysis "hides" your actual return as these expenses will come up eventually.

Also the benefit of scaling your portfolio, as it looks like you are doing is that it makes these expenses more predictable. Alot harder to know exactly when a single roof will fail, but if you have 30 properties you'll start to see these expenses with a level of regularity that makes it easier to budget for.