All Forum Posts by: Michael Doherty

@Clayton Cerer for 24 units you may want to consider Buildium. I would switch to it but am not at the unit level yet where it makes sense. It's not free like the other programs mentioned but for larger scale management I know a lot of people who like it. I currently have 9 units and use Cozy.co. It's ok, I am not in love with it but it gets the job done. 

@Jay Hinrichs yeah I do. The property is located in Middletown, Ct- about a 15 minute drive from my house. Definitely helped out being close by from a management/communication standpoint. 

@Jazmin Galvez So the cash flow I stated is the income after Debt Payment (PITI). The operating expenses that would come out of the cash flow is: repairs, cap ex, lawn/snow, water, electric (if there are common lights). Traditionally, I would account 5% of gross rent for repairs, cap ex, vacancy. However because I completed most of the deferred maintenance during the rehab that figure is smaller (2-3%). My cash flow has been pretty close to that $700 mark since completing the project.

I do all the small maintenance requests myself as well as cut the lawn. I wrote into the lease that tenants are responsible for snow removal because this house has 2 separate driveways. 

As far as estimating what I could get for rent- that just comes from being familiar with the market. I know in my market that you don't increase your ROI from granite counter tops or top of the line appliances. If your investing OOS and not familiar, I would use rentometer, speak with local realtors or just go on realtor.com and see what the going rate is. You could also use the MLS to search for (closed/deposit) houses that have rented.

@Brandon Rouer I would consider a few things before I did the Delayed Financing. If your 2 months in and rehab is fully complete I would first shop around for a lender who requires no seasoning (they're out there and I can recommend a few). If your 2 months in and still have a month or so to go on rehab I would just look for a traditional refi lender. The reason being is twofold:

1. The whole process from identifying a lender to closing takes about 30-45 days (personally what it took me). So you can start the process even though you haven't seasoned it for 6 months. 

2. From my understanding in delayed financing you can only pull 70% LTV out. I would personally rather wait the extra month or so for the additional 5% and perhaps market appreciation to have more money to pull out.

Delayed Financing works best to cash out RIGHT AWAY. After already holding for 2 months I personally would just wait rather than have a to pay for 3 closings... 1. when you bought. 2. for the delayed finance closing 3. when you refi again in 6 months

@Fernando Sciessere glad this helped! Just keep looking and submitting offers. It can be very discouraging at time's but it's a numbers game... submit your highest and best offer to the point where the numbers (still) make sense and your OK/Comfortable losing the deal if outbid by a few thousand dollars. Feel free to reach out with any questions along the way.  

@Michael Noto thank you Mike for all the advice, tips and help along the way. You were 100% imperative to the success of this deal. I would recommend you to any friend/colleague/investor looking for an agent in Ct. 

@Account Closed thank you for the kind words- reach out with any questions! 

@Kevin Sobilo that's a great idea, I will probably do that on the next one!

@Olu Oyelade thank you!

@Adrian Maynard anytime! It was posts like these that helped me fully understand the process too! Reach out anytime with questions. 

@Minya Irby thank you!

@Clifford Paul thank you! Hopefully they all get a little easier.

@Ehsan Rishat thank you sir! 

@Mel S. thank you- good luck with your search in Ct- let me know if you have questions along the way!

@Edwin L. thank you!

@Sharlene Burch I absolutely will! Some before and after pics soon to come. 

@Andrew Syrios thank you!

@Mel S. hey Mel- I wrote a pretty detailed analysis of my first brrrrr here in ct. You can check it out here

https://www.biggerpockets.com/... 

Here's a recount of my first BRRRR (Buy- Renovate-Rent-Refinance-Repeat) deal with specific details/numbers. This post is long and detailed, but for those who spend the time to read through it, I hope it helps.

How did I found the deal:

I found this deal on the MLS. It was a foreclosure and soon after submitting my offer, I found out another investor outbid me. It wasn't until 2 weeks later, my agent informed me the original investors financing fell through and my offer was accepted.

The Property and Location:

The property is an oversized two family house right next to a major Hospital and University in Middletown, Ct. Unit 1 has 3BR 1B and Unit 2 has 3BR 1B with 2 large rooms in the finished attic. From a location standpoint, I was pretty familiar with the area and believed it would be sought after in 3-5 years. I have already started to see many restaurants and breweries popping up in town.

Financing:

Listing: $130k 

Purchase Price: $118k

Financing: Hard Money Lender to fund 90% of the Purchase Price, 90% of the renovations for 3pts and 11.5% interest for 12 months no prepayment penalty. I had only done 2 prior deals (no flips) so the rate was slightly higher.

Rehab Budget: $30k

ARV (estimate): $215k

Rent (estimate): $2,800

• Scope of work: 
  Convert Unit 2 from electric to gas heat. Unit 1 had already been converted so I knew gas lines were in place.
• Install new on demand hot water system for 2nd floor unit. 
• Install Luxury Vinyl Plank flooring (LVP) throughout both units (Home Decorators Collection Blue Cedar Grey from Home Depot)
• Install new counter tops and cabinets in 2nd floor kitchen
• New Vanity/shower for 2nd floor unit
• Install 3 new windows
• Install Sump pump in basement
• Update washer dryer hooks (each unit)
• Paint all ceilings/walls/ trim ( Agreeable Grey from Sherman Williams)
• New appliances for 2nd floor kitchen (used from Facebook Market Place)

Holding Costs: $8,271

• 4 months of $1,284 interest only payments
• Taxes
• Utilities
• 6 months Builders Risk/General Liability Premium

After all said and done I spent $28,397 (not included holding costs) and was under budget!

Rent:

I was able to rent the top unit for $1,400 and the bottom unit for $1,375 totaling $2,775.

Refinance:

Because the renovation only took 3 months, I was looking for a lender who would refinance the deal without a seasoning period. After doing some research I came across a lender (found him here on Bigger Pockets) who would do a 75% cash out refi, 30 yr fixed @5.965% for 2.5pts, No seasoning.

When I originally financed the deal with the hard money lender I received two appraisals. The first was an as is appraisal for $120k. It also included a projected appraisal (including the scope of my work) for $220k (5k higher than my ARV!!)

Unfortunately my REFI appraisal came back at $201,500- 17k under the projected appraisal.

My lender then agreed to change the terms to 80% LTV to make this work. Two days before closing they changed their mind and could no longer do the 80% LTV, only 75% LTV. They would not budge and did not let me dispute the appraisal so I ended up dropping them and starting my search over. Moreover, I ended up finding another lender who would finance 75% cash out, 1.5pts, 30 yr fixed at 6.6% no seasoning. Their appraisal it came back @ $200,500- 1k less than the original!!!! At this point I figured I was sh** out of luck and should just eat the difference. However, I ended up writing a very detailed letter to the appraiser explaining why I think certain comps should be used vs others and he ended up increasing the value to $205,000!!!.

So after all said and done here is was the numbers look like:

Hard Money Loan

Hard Money Loan Payoff: $134k

Cash into the deal: $24k (includes 10% down on loan, 10% of rehab costs, closing costs)

Refi: 75% of $205,000= $153,750

Cash out: $153,750- $135k(hard money pay off)= $18,750

Closing costs: $9k (escrowed taxes and Insurance)

Cash left in the deal= $14,250

• Math behind it: (18,750-9k)= $9,750 (24k-9,750) = $14,250
• In other words, I was able to walk with a check for $9,750 even though I received $18,750 cash out from the bank. After my initial investment of $24,000- $9750 (check) leaves me with $14,250 left in deal as mentioned above.
• The house could conservatively sell for $220,000 in its current state. If you were to put a traditional 20% down you would be $44,000 out of pocket w/o closing costs instead of $14,250. THAT is the power of the BRRRR.

Monthly Debt Service

PITI= $1,501

Income: $2,775

Monthly Cash flow before expenses: $774

What did I learn?

Always, Always, Always have a conservative ARV. The appraisal part of the process is the only part that is completely out of your control. Another human is determining your properties value and it is completely subjective. It still boggles my mind that we do not have a automatized system for appraisals yet.

Don’t be scared to fire your contractor at any point in the process. I would personally rather pay a higher rate for a contractor that does not eat up my time/money and can execute the job correctly.

I will most likely use the delayed financing technique described in the forums on my next BRRRR.

Trying to find a lender who does not require seasoning and still has a competitive rate proved to be a challenge

DO NOT let you emotions get the best of you. It's a business, treat it like one. If I didn't get so angry with my REFI lender who changed his terms from 80% LTV to 75% at the last minute- I would be left with a 30 yr fixed rate @5.96% instead of 6.6%.

It still costs money to complete the BRRRR. You need working capital and should have reserves for the unexpected.

What’s next?

I plan on holding onto this asset. Since completely the BRRRR process, I honestly think it is one of the best methods in REI to scale and build wealth. It is NOT a get reach quick scheme, but a way to have a cash flowing asset with all the deferred maintenance complete without having to put the traditional 20% down. I have since partnered with someone and purchased a 3 family. Our intention was to BRRRR but the lack of comps in the area have steered us towards a flip.

Please comment with your thoughts, tips, advice and stories.