All Forum Posts by: Brian Larson

Wow Rob, those are great numbers to work with. I may hit you up to see if they can assist me with my deals as well.

I know one thing I have learned about the regional and smaller banks is that being local is a big deal. I get why, but it is a bit of a downer as an out of state guy looking to invest. I have been turned away from a few banks that others on these forums have worked with because I am not a KC native. Again, I get it, they are like how banking used to be. Lend local with people you know in order to make your community better.

Thanks for posting those numbers, local is not thought of often but can be a HUGE part of your strategy.

@Brian Smith

@Michael Faulk laid out the foundation but if you want more detail Brandon wrote a full blog entry that lays it all out for you.

Blog

@Jerod Smith Hopefully I answered your holding period question above. You should be holding for about a year.

As for not finding a BRRR deal, take a look at your cost of money. That is what will kill you in that first year. Brandon says to just make a little bit of money in year one so you can refi and make solid cash flow in years 2 and on. I personally have a minimum amount of $50/door for year 1. The reason I can go so low on CF/door is because I can minimize vacancy in 1 year due to a 1 year lease thus my expenses drop a bit in that year and it gives me a little air cover.

As for figuring out a solid BRRR, you have to buy well under market value and create a ton of value with a rehab. As an example, I bought a place for $32k, rehab for $24k and the ARV is $80k. Without cost of money, rent, etc the numbers there work because $56k is right at the 70% of ARV I need to get all of my money back on refi (less closing costs).

Cheap plug, but I made a specific BRRR Calculator and uploaded it. I use this all the time as it helps me quickly input a few numbers and see if the deal works.

You can grab it here

I have a newer version but have not scrubbed it and put it up. If you want to see a version of a real property let me know and I would be more than happy to share. Just DM me and I can send it to you so you can see a real world scenario from Kansas City or Indianapolis.

@Wayne MackYou can absolutely use HML to do this BUT there are a few things you may have to consider.

#1 most people covered above... its expensive money with an HML (i.e. 10% rate, 3 points orig fee)

#2 This may not be a hard and true rule but what I have found with almost all conventional lenders I have spoken to about this..you need to season the property a year and then do a rate and term refinance. This is a Fannie Mae thing, not something most banks (unless not selling the note to Fannie) cannot alter from. You will find some that say they can but double check.

The next question may be 'what the heck does #2 mean?' :) Basically when you purchase a property for cash, rehab it for cash (yours, HML, your pet turtles piggy bank) you then want to refinance out and get your cash back (the big R at the end of BRRR) BUT there is a catch. Lenders want you to have skin in the game so if you want to do a cash out refit right away (within 6 months of purchase) you can BUT that refit will only be for 70-75% of the purchase price... not the ARV (or value at the end). This sort of defeats the purpose. Generally if you season a year then you can get a better refit.

In order to get around this I have deployed this strategy.

• Buy house for Cash (mine)
• Rehab for cash (mine)
• Get it rented
• Carry a Trust Deed loan for 1 year, i.e. get a private money loan that is recorded on title with the county (these loans are generally less puts to originate and a cheaper rate as it is more secure because the rent is coming in, the property is rehabbed already and I can provide an ARV)
• After 1 year I will do a refinance. The property is now 'seasoned' for a year so the bank is happy and what I am doing is a Rate & Term Refit, not a cash out. There is a big difference. Basically the bank will look at the amount I want to refinance, get an appraisal ordered and if I am under 70% ARV (some folks can do 75% but I have too many conventional loans so I get bumped down to 70%) with the amount on the loan I get approved and refinanced into a shiny 30 year, sub 5% loan.

Now, with that said, finding the private money is harder than it sounds and you need to bake those terms into your numbers to make sure you holding costs make sense while you are seasoning.

Great post and definitely summarized from someone with experience. I do have one nitpick and its just a personal pet peeve of mine. You write "unfortunately those economic conditions don't exist". I get where you are coming from as an investor, but one thing I really strongly believe in, is that an investor has an opportunity (maybe even obligation) to help people out. That is true when the economy is bad but we need to have the same mindset when the economy is good and not wish for the bust days.

Again, I understand your take and I myself hope I am in a better situation to redistribute some wealth at the next downturn but ALL UP, we should be happy we are not in 2008 again.

I don't know, maybe its just what I tell myself so I can sleep at night not thinking of myself as a manipulator or taking advantage of others.

BTW, I am in NO WAY trying to drop a holier than thou statement here, I am simply stating that when I hear other investors wish for 2008 it makes me cringe a bit. I get it, if you were wholesaling or acquiring rentals pennies on the dollar you might just miss that, but I would rather leave some $ on the table and have a solid economy than wish for a bad one.

It doesn't matter anyways because the cycle says bad is coming so maybe we will all do 'well' at that time.

**I realize this isn't the topic of this discussion but I figured we were enough off topic over the past 4 pages I could keep us there with this... ha**

Hey @Gavin Delmas If you bought the book you can download his spreadsheet but the formula is actually really simple. Its the numbers to get there that the book really helps with.

In Excel (you can probably use google but I prefer the real thing) you simply use the IRR function like this:

=IRR(range) where range is your excel cells used for calculation.

In order to populate that range you simply put in your cash flow per year held. I.e.

-15000
1200
1200
1200
25,000

This range is saying that your initial cash flow in year 1 is negative 15,000 (lets assume you make nothing in cash flow that year and put down $15k for DP)

Then for 3 years you made $100/month which would yield $1200/year for those 3 years

Then in year 5 you decide to sell as a profit so you have $25k in profit (yes that would be amazing appreciation and doesn't deduct selling costs but go with me on this one..ha)

So, if you put those numbers in cells A1 through A5 you could calculate the IRR in cell B1 by writing =IRR(A1:A5) and it would kick out a number.

It should be 19.1% if the calc comes back right.

I hope that helps. Unfortunately you need Excel or some old school ways to do it with a calculator but once you understand the what for the IRR calculation it is simple to calculate with Excel.

I think you are right @Shawn Holsapplethus that 41st bday is quickly becoming the new norm.

do you know anyone that can help me achieve my goals? ;)

thanks

b

Update - Made an offer today on a place in KC. Its a little low but its the right price for the amount of work needed and my goals. I will update if we get acceptance and share numbers if folks care (once under contract/purchased)

Also, I have a place I closed on in Indy on Friday (a last year deal based due to how I account for fiscal year with my birthday) and my team has an initial estimate of work. They think they can get the thing turned around and marketed 12/1. again, this is a last year deal but lapsing into this year. So it doesn't count for my 2016 acquisitions but that's ok, it all hits the bottom line :) the numbers were tight on this one but I like the area and based on conversations with my wholesaler and rehab/pm team it made sense even if not crushing the numbers I like. Sometimes you want to get the ball rolling with the teams and test the model. This is #1 for this model in Indy. if it goes well I can see a lot of deals due to good wholesaler network and my team on the ground from a rehab/rent perspective.

ah, I got it. thanks for clarifying @Michael Hong

So here is what has been interesting. I have been doing this with more or less focus for 13+ years. I would say the past 1.5 has been very locked in with the previous few years beign distractions (you know, marriage, kids, moving states, small stuff. haha)

Anyways, in April of 2014 i said to myself that i had to get serious again and began locking in goals. My initial goal was to retire by 50. My friends said i was nuts but also know my track record when serious and thought it was doable.

After reading some great books and listening to podcasts and comments from folks like @Brandon Turner i said no to 50 and made my stretch goal 45. It didn't feel real and was only a stretch goal BUT that's where I drew the line.

So, with that, I setup a plan. add x doors per year at x numbers. In order to do that I would need to save X $ per year and do X flips in order to generate enough income to fund those deals.

Now, with BRRR the game has totally changed. As I have locked in more and started setting tangible goals 45 has actually become easier and based on a tweak in my strategy in the past few months I believe I MAY be able to actually accomplish 'retirement' closer to 41/42 (i.e. 3-4 years out). I may not get there but through focus I have been able to set a more rigid goal structure and the results are tightening up that stretch from 'maybe 45' to 'wait a second, maybe 41' Its CRAZY but awesome.

anyways, if you ever want to compare notes just hit me up. I am on here reading ALOT :)

brian 

@Brandon ConnellI am not sure they are going to close out the thread but that's ok. I think its clear you have all of the answers. Not sure why you posted to the forum as you have it figured out. Lots of ideas from great people on here on what to try but it seems you have tried them all.

Good luck on getting back on your feet after the messy personal stuff.

Brian