All Forum Posts by: Kurtis Green

@Jeremy Keeler

I broke down your deal and made a lot of general assumptions but I agree with you; With purchase, repairs, points, interest, closing costs, taxes, insurance, utilities, etc. using a HML and HELOC - It may leave you still owing $20-25k. You'll have $45k in equity on the house if you refi at 75% LTV, but you will still have that HELOC to pay back. If you rent the house after remodeling and cash flow several thousand annually, you can pay down that HELOC in a few years, but that seems like a lot of effort for very little. Whats worse, is you wont have those funds available for another investment. Also, as a side note, $55k for repairs on a house with an ARV of $180k has a lot of risk factors. There is a lot of time, money and headaches that come with that size of a budget, and being 3 hours away, you are at the contractors word when he says he "needs" to do something, which will cost you more.

With regards to your comment on other investors - There are several reasons why you may be outbid, here are a few: 1) the other investor is a licensed contractor who saves on repairs by using his own laborers and getting his discount on materials/supplies. etc 2) they could be real estate agents who act as their own buyer/seller agent, paying the commission side of things to themselves 3) some of them may be true cash buyers with no high interest loans to pay back 4) The other investor may not have the same investment strategy as you to BRRRR - they may just want to flip it for a quick profit. If you run the same exact scenario as above with a purchase of $80k, $55k in repairs, an ARV of $180s, and you're using hard money, someone re-habbing to sell may make ~$20k vs. trying to refi and rent which would leave money in the investment.

My suggestion is to find deals closer to you, with a lower cost of repairs which you can get more involved with and have more control over.

@Joe Meares

While I appreciate and respect the others opinions on giving the agent nothing, to an extent I agree with them; I will however propose an alternative. 

If this agent has a good reputation, good contacts, has done a good job for you in the past, you plan to use them in the future and especially if they work with other investors who are competitors, I would think it would be a good idea to be upfront and honest with them and explain the situation.

You could offer to give them the listing on the back end, or when you have the conversation with them you could say "I appreciate your efforts so I wanted to do something for you, it's not much, but hopefully it's enough to let you know I care and value your time, I really hope we can find another deal in the future together soon" and give them $500 in cash or a gift card or something... If you're making thousands on that deal, that $500 "loss" to you now, could be tens of thousands of lost profits in the future if you burn a bridge and they start giving all of their future pocket deals to other investors. Conversely, it could be tens of thousands of dollars in gains because they might go to you before ever talking to anyone else, because you showed them you respect and value them and their time and didn't act shady.

I wouldn't bite the hand that feeds you, all I'm saying.

@William D.

The others did a good job of simplifying it, but let me try to in another way.

You purchase a house for $100... Repairs are $20... The After Repair Value is $180

You borrow $120 at a high interest rate from somewhere, lets say a hard money lender, who charges a high interest rate on a short term loan.

For simplification purposes, lets say the payment to your hard money guy is $1 a month and it takes you 5 months to complete. Your total investment into this property is now $120 for the loan and $5 for the payments = $125.

When you complete the remodel you will want to refinance out of that high interest hard money loan ASAP and hopefully recoup your $5. Refinancing with a conventional lender will get that monthly payment down to $.50 a month, because it would have a much lower interest rate over a longer term.

Now lets say your new lender will refi at 75% of the appraised value of the home. Now that the house worth $180, you can refi with the new lender, for up to $135. That money would be used to pay off your initial loan of $120 and pay you back the $5 you took out of pocket for the monthly payments. But wait... what happens to the extra $10, you ask? You can take that check to the bank and deposit it.

At this point, here is what you have accomplished.... You will have left in 25% equity in the house that you now own (25% = $45) that is your money for a later date. Your monthly payment is now much cheaper at $.50 and you will put a renter in the house who is paying you $.80 - so you will make $.30 a month in cash flow, which your girlfriend will demand you spend on her. Your renter is also paying off your mortgage for you over a period of time, the property will appreciate year over year. You also recouped all of your initial investment and even made an additional $10 to roll into another project.

Mind you that this example is a "home run deal" and is an over simplification. You will have additional costs associated that will eat into your gains like bank origination fees, closing costs with attorney fees, etc.

Hopefully that helps a little.

Kurt

@George Blower - Thank you for the quick response. I appreciate you taking the time and I enjoyed reading more info on your website, very informative. 

I own a rental property with a mortgage, and I have an individual Roth 401k... In a few years my Roth will be worth more than my note on the rental. When that time comes, am I able to use my retirement account to purchase my house from myself at less than market value (being the note amount), allowing the retirement account to own the property in full and collect rent into that account; In addition, still allowing me to maximizing contributions each year? What happens with the "gifted" equity from a tax standpoint and what happens if I decided to sell? My gut tells me it cant be done this way, but I was hoping for some insight from others, more knowledgeable than I.

I appreciate the thoughts!