All Forum Posts by: Mike Klarman

I am renting a house at the Jersey Shore.  Ventnor, NJ.  The house next door to me is up for sale.  16 N. Newark Ave, Ventnor, NJ.  It is a 6 bedroom duplex.  3 baths.  Upstairs deck.  2.5 blocks from the beach.  10 min car ride to Atlantic City.  20 min car ride to Ocean City NJ.  I called the agent on the sale sign, he didn't answer.  Zillow estimates 524K.  If you put 76k into this thing and make it a 600k project, you will sell it for 700k the second the work is done.  The last time this property was on the market was 2001.  It sold for 116k.  LOL.

Property values here are skyrocketing.  I know someone who bought a single family that was rehabbed close to here, but a block further from the beach and it has less bedrooms and less bathrooms and it cost him 600k.  This will go for 700k all fixed up, maybe 725k.  

If you can get 90% of the purchase in a fix and flip, you will have to float 60k including fees for like 5-6 months and then it will sell in less than 60 days brand new inside.  Can't touch properties down here right now.

If you can afford this deal, it is a can't miss.  If you have the cash to close and 680 credit call me and I'll get you the money for it.

https://www.mashvisor.com/blog...

You can have the title agency do a quitclaim deed and transfer ownership to your LLC at closing so you can start the loan even though you are registered owner.

We offer 75% cashout refi based on sales comparison approach.  So whatever the appraised value is, you can get 75% of that.

I want to share a deal with you that I am doing with a beginner. It's in Pittsburgh PA. It's on Kincaid St.

The Borrower is a 0 experience but has the 680 credit score.

She has a property under contract for 175k. With 140k in work, it has been appraised to be worth 400k when finished.

Loan Amount: 280k

Int Rate: 12.14%

Payment: 1,395/month

Borrower Costs: 35k (down payment), 6k lender fees and closing costs, figure 7k for 5 months of holding the debt. 

Borrower will float 48k for 5 months.

After 5 months, borrower will sell for 400k. Payoff old loan of 280k. Left with 120k. Recoup the 48k laid out. Left with 72k gross profit. After sales fees figure 68k net.

We closed a fdeal in Pittsburgh in March. 4410 Sherrod Street. Our offices are not there but we loan all over that area. Sale price was 160, borrower who had experience put 160k in so the project cost was 320k but the ARV came in at 482k so it was a great deal.

We have a good Fix n Flip program.  With experience (combo of holds and flips last three years = 3) you'll get 90% of purchase and 100% rehab.  So the borrower only had to float 16k plus 3k in fees and closing costs and they are getting a +162k gross profit.  If a borrower is not a 3 yet in experience then they'll get 80% of purchase.

Feel free to reach out.  I'd be happy to discuss your investor group and what their needs are.  Below is a pic of the Sherrod Property.

If you want rehab money you have to use hard money.  I've never seen a credit union of primary bank lend an investor on a purchase and then just throw in rehab money too.

To do the BRRRR strategy in Southern Cal would be very expensive. You'll be tying capital up with every deal, so the question is how many bullets do you have? Don't frown on doing the BRSR - Buy Rehab Sell Repeat.

Two investors do their first deal and it costs them 25k between down payment and fees. Their ARV is 30k above as-is +rehab let's say. In three months they carried the debt while the work was being done and now it is, so you made 3k in payments let's say - so now you are in 28k. One investor wants to refinance and put this baby in the portfolio and the other wants to sell and take that 25k net profit and now have his 25k investment and 25k more. His account now says 50k, the other investor will refi and get maybe 8k out of it and have maybe 200/month pos cash flow coming in - but you can't do anymore deals while the other investor is on to flip two and when he/she is done they will have 75k in the bank the other guy will still have 8k and will have collected 600 in cashflow. Fast forward a year from now. The flipper did three more deals and now stepped it up. 300k as-is and better now cause you get 90% of any purchase and 100% rehab. You can float 40k for four months no problem, you'll have 120k by then. The holder is still there with his 12k let's say if he's a saver and he collected 2400 in cashflow over the year. Which investor would you wanna be?

Right now sell, sell, sell. Especially if you are just starting. Get a couple flips under your belt. Gain experience, create some liquidity, and then any bank would take you serious and now you can even by a 4 unit building under a fix n flip 12 month loan, get 90% of the purchase and all the rehab money. If it costs 600k and you are putting 150k in - you'll be able to afford that after about 5-6 deals. That first investor will never, ever be able to afford that. Now after the work you refi based off the ARV which will be 950K and now you hold it and now you have four doors. That first guy still has one door and waiting until he has 28k again so he can just do a 100k as-is value property. The other guy now has 4 doors and he can still operate at that 300k as-is property level.

This game takes money my young investors.  These deals, if you have zero experience, will cost you 25k - 30k.  Each time you do a deal that's what you'll have to float.  If you wanna do a Jesus move and turn one loaf into enough loaves to feed a crowd then don't tie up your one bullet.  Cash it out with a little extra and grow it like a snow ball rolling down the mountain.

Most have to start in the minors, in the 100k - 130k as-is value properties. Even those deals are expensive when you just start because you have to lay out 20% of the purchase. You gotta pay your dues, but if you do you will be rewarded. The story of that second investor who sold to build liquidity then held when he could afford 4 unit buildings that could be any of us. Shoot, after working on the loan side of it for a while, don't think I ain't got dreams of doing some flipping of my own. I'm gonna open my real estate LLC and save up my first bullet just like any of you.

Can't use Hard Money for primary residence, but you can refi your investment properties and pull equity out. The properties would have to be in the name of an LLC and you should do that anyway.

Wow.  First, congrats on going to school and working at the same time.  That's a lot.  Do you mind giving me a range as to what your credit is and what amount you have saved?

I want to make sure I give you the right advice.

I've seen a little comeback on the ARM deals. When rates were in the 3s like 8 months ago, no one did ARMs. But now with having to spend 4 - 5 points to get that bottom number on a pricing chart which is only 6.4% or so now, I see people paying less fees for an ARM product and not get locked into a rate for the longterm right now.

Hard Money is great for the fix n flip because of the included rehab funds, so if you are a contractor or have a great relationship with a contractor then you can just churn out those 25k - 30k profits every 3 - 4 months.

For Long-Term Rental products, HML is good but you can get better at your personal bank or credit union as far as a mortgage price, but those lenders will not lend to an LLC and they have all kinds of qualifications. Nobody loves what's going on with the volatility of the rate right now. 401ks are nosediving, the cost of borrowing money is skyrocketing. This is one of those times of survival. You have to know how to survive. Use Hard Money for it's strengths: the short term loans with rehab funds and then sell, do not hold. So, not BRRRR but BRSR - Buy, Rehab, Sell, Repeat: You bank money and gain experience. With money and experience you get treated like a player by banks.

Can you afford to tie up 105k? That's what you need to ask yourself. And since you have 60k I'd say the answer is no. Man, you have 60k to get your RE Investment career going, and I am guessing you are newish because Hard Money seemed new for you and someone told you to borrow 100% from a HML and that just doesn't exist.

You need to build liquidity if you wanna play the game at the 500k as-is value range.  Even fix and flips at that level will cost 50k plus fees if you have experience.

You have a pathway in front of you to get there but you can't start there.

If I was you, I'd look for properties with an as-is 150k value that with a little work are worth 210k or so.  You cut your teeth there.  You hold nothing.  You float 30k-35k for 3 - 6 months and then sell and get your money back plus 25k - 30k profit.  Do that three times.  On deal four you will get 90% of purchase and 100% rehab funds with a low rate and now you'd have 130k in the bank.  Now, if you wanna park the 130k in the down payment in a property worth 600k that produces X amount of dollars per year.

If you have 680 credit and 60k you can start.  Get going on that first flip.  Get the ball rolling in 18 months - two years, you'll be where you want to be.

You really should not park liquidity until you really can afford to do so because these deals are expensive.  Down payments, fees, holding costs, it's not a cheap game and liquidity is one of the biggest deficiencies among new investors.  People call me all the time and tell me they want to buy a property worth 250k lets say and I'll say ok, what's your credit score - 620 they say - then I'll say well how much capital do you have for down payment - and they'll say 15k.  For a 620 credit score the deal would cost 75k plus fees.  You can maybe rehab a Honda for 15k.

One of the barriers to entry is liquidity.  Most have just enough for one deal so the most you should do is tie your liquidity up for a few months at a time in these fix n flips and then in a year or so you are in a different liquidity position and now you have experience too.  Now you can play with the big boys a little and be a respected borrower at a big lender.

Like I always say, anyone who wants to get that ball rolling and has 0 exp - get yourself to a 680 credit (so there are no leverage deductions on you) and come in being to afford that first deal and I'll help anyone get the ball rolling.  I love creating new investors and helping people getting into the game.