All Forum Posts by: Jon K.

Sales training will go a long way. I recommend starting with You Can't Teach a Kid to Ride a Bike at a Seminar.

If it's a deal and they won't go for seller financing, why not pay for it some other way? Hard money?

Your conclusion that you'll lose money either way depends on the timeframe. If you continue down the BRRRR path you will suffer a short term loss (short is relative of course) but if the property cash flows it will eventually make you whole. Hold it long enough and you'll come out ahead, even if that takes 35 years. So, the timeframe is a factor.

Selling it at a loss might actually require less additional capital that finishing the rehab in the short term. Hard to say.

I suggest talking to your CPA about both choices as well as a loss on a "flip" (which this would be if you were to simply sell it at a loss) is going to be treated differently than putting a lot of capital into something you hold as a rental. Obligatory I am not a CPA and this is not tax advice. At the amount of money you're going to have to put into this one way or the other, it's going to make a difference.

Trusting your numbers, it sounds like the current value of the property is around 155k if not less. That's 250k minus 88, factoring in some closing costs. And that's not including any kind of margin. Most BRRRR investors will want to be all in for 75% to 80% of the ARV, flippers will want a similar or greater margin. Reality is seldom so absolute so all of those numbers are not necessarily perfect but that's likely the gist of it.

Some other things to consider: Is your scope of work appropriate for rental grade? Do you have to do everything you plan to do to get fair market rent? Compare what you planned to what other similar rentals have in the same area to make sure it's all necessary. Pay attention to what finishes they have.

As far as cash flow goes, it's subjective but $2,500/month meets the 1% rule for a property valued at 250k and is generally not bad. If you're 80% leveraged that's a 200k loan. At 7.5% your monthly payment is around $1,400 not including taxes or insurance. I have no idea what they are for your property so I used $2,500 and $600 respectively which takes it up to $1,650. Using 15% of gross rent to cover maintenance, capex and vacancies and you're left with $475. Again, I had to do some guesswork and rules of thumbs here but it may cash flow decently if you dig into the math.

So what can you do? Sell it for a substantial loss: maybe 80k? Or put the 88k in, refi out of the HML which requires you to come out of pocket quite a bit of money as well, and hold it long term which on paper may eventually make you whole. There's also the option of sweat equity if you don't have the capital to pay for the remodel: In other words, buy the materials and do the work yourself over time. The downside to this of course is that it will take a lot longer and you're still paying for the HML.

Is it listed with an agent/realtor? If so, what is their opinion of the current value?

It is very curious to me that the lender lent you so much on the property without doing any due diligence of their own. I don't believe that this is a lender that just wants you to default so that they can foreclose and take the property themselves because that doesn't make financial sense for them if the numbers I put at the beginning of this reply were anything close to accurate.

Hello @Jesse Rodriguez, it's difficult to give more specific advice without more specific details. If it's listed on the MLS and it's not getting traction there are a number of reasons why that may happen but more often than not it's price.

It sounds like you listed it at a price that would satisfy your loan which means you're trying to sell it for more than you bought it. Assuming you paid exactly what it was worth the first time around, someone would have to overpay to take it off your hands and make you whole. While that certainly can happen, it may also take a while and during that time you're continuing to pay on that expensive loan.

What are the numbers on this deal? What's fair market rent? ARV? Cost to rehab to achieve that ARV?

I'll go first: I don't have an exact count but my PM tells me it's 20+ in a 1,000 sq foot townhome.

TD Bank used to do a HELOC in second position on investment properties if they were titled in your personal name. Not sure if they still do but it's worth looking into.

99% sounds like a ridiculously high and arbitrary number.

I'm sure @Russell Brazil is correct because he's Russell Brazil. But you could also call the city and they'll tell you definitively. I believe it's the office of of the zoning administrator but it's been a while and my memory sucks.

It's not the sites themselves that are misrepresenting, it's the folks creating the listings. I very much doubt those sites do much validation or moderation.

Should you stay away? No, but just verify it's legal before getting into it.

Howdy Nathan,

How much of a discount are we talking about here? There isn't going to be much of an opportunity to improve the value of a new build through a remodel so unless your discount is something along the lines of 20% or better, this may not be a good fit for the BRRRR strategy but that doesn't mean that it isn't a good opportunity for a different strategy.

Just thinking out loud, maybe it could be a good fit for a lease option or rent to own play.

The best source of funding is subjective because it's going to vary based on what's important to you.

Do you care more about the terms? Fees? Rate? Length of the loan? Loan to value %? How easy the lender is to work with? How fast they can fund the deal?

There's no right answer to any of this, it's just what best fits your preferences and the deal you have in front of you.

My go-to is private loans from friends and select family for a number of reasons. After that there's a specific hard money lender I work with who isn't the cheapest but they're damn sure the easiest.