All Forum Posts by: John Leavelle

Howdy @Isaac B.

I agree with @Mike B. and @Andrew Syrios

Part of doing the BRRRR strategy is receiving positive cash flow. To answer your question I would sell the negative CF properties. It is not good business to pull income from one revenue source to cover a bad deal in another.

Perhaps you need to do a better job analyzing the deals completely prior to purchasing the property.  Make sure it projects the appropriate CF you require after refinancing.  If it doesn't then pass on the deal.

Howdy @Medi Sarwary

First know what your primary goals are. Is it building a portfolio of properties as fast as you can? Is it limiting the amount of debt you incur while investing? Do you want to build up to a certain amount of passive cash flow? or payoff all your debt quickly? If it is to build a portfolio and monthly cash flow then the BRRRR or BARRRR strategy is a good choice. If you are concerned with paying off the debt then you should reconsider your chosen strategy.

The refinance loan interest is of no concern to me.  I am not paying it.  My tenants are.  The primary concern is to be able to get all or most of my cash back to reinvest in the next property.  Secondary is to have  decent cash flow (minimum $100 per unit).  My immediate goal is to get to a point where I am earning $10K per month in Passive Cash Flow.  If I am paying down loans then I cannot achieve that goal anytime soon.

As far as your example goes it is not a BRRRR type property. Most are distressed to the point that conventional financing is not possible. The acquisition usually requires cash, Hard Money or Private Money for the purchase and Rehab. You normally buy at a significant discount because of the condition of the property. This allows you to force appreciation thru the repairs/upgrade to Fair Market Value condition (Rent ready). This also allows me to increase the rent rates to Market rates. Of course if it does not cash flow after the refinance then it's not worth pursuing. As @Aaron Cullen stated make sure you have your ducks in a row before you even purchase the property.

I use a Private Lender as apposed to his Hard Money Lender.  But, most every other thing is the same process.  Including the Advertising for tax purposes.

Again, figure out what your true investing goals and criteria are before jumping into any specific strategy.  They will influence what strategy to use.

Howdy @Talha Makki

I definitely prefer Free and Clear distressed properties with motivated sellers. If you cannot access the property to get a good idea of what needs repairing/upgrading then it is hard to estimate a Rehab budget. Getting a good estimate is critical in the BRRRR strategy.

@Mike Williams I understand getting back most of your cash back. However, this deal does not come close to acceptable cash flow for me. You are using less than desirable amounts for CapEx, R&M, and PM. You are not counting on the other miscellaneous expenses that do occur and can add up to another 5% to 8% more. Make sure the numbers decide the deal and not your desire to get a the property.

Howdy @Mike Williams

I would not do this deal as you have it currently.

 Why do you want to trade a loan with lower interest rate and lower mortgage payments for one that is higher in both instances.

I think your Cash Flow may be a little optimistic.  

Did you include Holding Costs in your Rehab estimate? Will the property be vacant during the Rehab? If yes, you will have to cover monthly expenses such as mortgage payments, insurance, utilities, HOA fees, etc. That can add up over a 4 month Rehab period and up until the property is fully rented.

@Bryce Sablotny

Believe me, you are always better to err on the side of being too conservative. When I do my initial quick screening of properties I only look for 2 things. Does the property meet the 1% rule regarding purchase price to monthly income. And will it Cash Flow a minimum of $100 per unit/month using the 50% rule for expenses. This works well for me in my Market. And when applied to SFR and small Multi family (2 - 4 units). Since this is 6 units I would have to look at it a little different because your using a different method of determining Value.

Overall I think you are ok using the percentages you are using for initial analysis. The average rate for PM is 10%. I never go below 8.34% (one month rent) for Vacancy reserves. I like CapEx at 10% until I have the property inspected to determine the current condition and life expectancy of all major components and appliances. Once I do that I can adjust my reserves requirement. R&M also depends on the age, current condition of the property and the quality of tenants. I usually have it between 5% to 8%.

Just remember, except for PM, the others I’ve listed are reserves.  You only use them when they are needed.  That doesn’t mean you spend them on something else.  Keep building the reserves.  You will need it for future loans.  Lenders like you having good reserves.

@Jimmy Solano

7 Vacancies! That's ruffly 36%. That is the number I would go with. Not 5%. Use actual numbers where possible. It greatly affects the NOI. Do you know what the local market Cap Rate is? If they let you use 15% that's better for you. The lower the Cap Rate, the Higher the Purchase price will be. At a 15% Cap Rate the Purchase price should be more like $543K ($81,470 NOI / .15 Cap Rate).

Remember you are buying based on current performance.  Not future possibilities.  I doubt $800K is a good price.  You need to question everything.  

Howdy @Bryce Sablotny

Your numbers are not adding up.

$175K Purchase price 

$35K Down payment 

$120K Loan Amount 

Where is the remaining $20K?

This is an investment property.  You normally need a 25% Down payment.  Be sure you can get a loan with only 20% Down.

Are you sure of the ARV? And Rehab estimate? Do you really want to pay $17K over the Value?

Howdy @Bryce Sablotny

First please provide comments in your post as to what you what help with.

My overall impression is this is not a good deal.  

1.34% COC ROI is terrible Return. You can do just as good with a CD.

$121.46 for Cash Flow is very risky.  That’s a little more than $20 per unit.  Plus you did not include Management in your analysis.  That would make this a negative cash flow deal.

Howdy @Jimmy Solano

You need to provide a lot more information for us to provide relevant comments.

You have 3 different Cap Rates listed.  From 6.79% to 15%.  Please explain.

You have a Purchase price of $816K and ARV of $1.2M. No Rehab/Repairs. Please explain.

No Closing costs?

No Down payment?

5.75% APR/30 years for a Commercial property? Please explain.