All Forum Posts by: Patrick Menefee

@John Fortunato there are a lot of out of the box answers to this question, but it depends on your starting point personally. Are you already disciplined to where you’re consistently reading and working towards your goals every day? Do you have goals set? If so are they specific, measurable, attainable, relevant, and time based? If not, start there. Get your personal house in order

The best starting point for me to get refocused was The Slight Edge by Jeff Olsen. It has nothing to do with real estate, but it’s all about the mindset to make daily progress towards your goals. Read daily, work on your business daily, etc. The difference between success and failure isn’t a single thing or event, but a series of decisions consistently over time

Also strongly recommend The Richest Man in Babylon. Get your mind right about finances before you start, or it’s all a waste

Real estate books are fantastic and I have plenty of recommendations (many have already been given), but if you’re not in the right place to act on them and put the information to good use it doesn’t matter!!

@Moritz Bode Theres a ton of fantastic advice in this thread, and while there are plenty of nuances it’s important to use some common sense as well. Styles aside, what’s important to you as a buyer or renter? (I noticed at one point you said you were looking for fix n flip, which generally has different requirements than a long term rental. So keep that in mind)

Certain things are just table stakes. Does the exterior look like absolute s#!+? Take care of it. That doesn’t have to mean replacing siding and/or paying a bunch for fancy paint, you may he able to knock it out in an afternoon by renting a pressure washer.

There are plenty of other similar considerations inside, but it’s also dependent upon the sub-market. Does everyone in the area have hardwood or similar floors? If so, keeping carpet will guarantee you lower value. If everyone has carpet, maybe you can replace flooring in a few key rooms and it changes the tone of the house.

I have a couple examples of my own units I’ve made modest improvements to where very simple things like painting kitchen cabinets and adding knobs or cleaning and painting a bathroom vanity changed the entire feel of the space, thus adding fairly significant value.

Bottom line is that there’s no single right answer, and you always want data driven responses, but a lot of it can also be as simple as basic human nature. Don’t overthink it in every case, look at what the neighborhood values and make decisions accordingly! Good luck!

@Solomon F. On your comment about line by line appraisals, is that a Texas requirement? Every appraisal I’ve had has had general explanations but nowhere close to calling out line items and saying that flooring is worth x but appliances are worth y.

Do you have any recommendations on how to get appraisers to share that level of detail?

@Kris Canaday I would look at your prop Mgmt, closing costs, and financing estimates.

Your numbers for capex and prop Mgmt could always be adjusted a little bit but are generally close, the only point I’d add on that is in regard to the placement fee for prop Mgmt. It’s usually either first months rent or half of, so if you plan for annual turnover that’s either 4.2 or 8.4% per month to account for

For financing, even if they do seller financing you’ll be hard pressed to find someone who is comfortable with receiving nothing up front. Same with the rate...bank rates on investment properties (at least in my area) are around 4.5-5.5%. I always estimate at least 5.5% to be on the conservative end of it, so i would do at least the same for seller financing

Finally, $2k closing costs is incredibly low unless you’re doing as little as possible. I usually run about $1600-1800 for attorney and title fees alone, plus $400-600 for an inspection. That’s the bare minimum. Check with your insurance agent to find out if they allow monthly payments or if they require payment in full up front. Also, check to see if the property tax bill has been paid or if you will be on the hook for it. Both of these would normally get factored into escrow, but if applicable you’ll be responsible for paying them out of pocket

Last note-even if the seller requires a down payment, you have other options. You can use a private loan, line of credit, etc. to pay for it. You’ll still have to factor in that payment and have an exit strategy, but it’s an option

Hope that helps a little bit!

@Colin M. @Matt Mulvihill @Shiwei Wang I’ll send you a message! Sorry for the delayed response

@Breelon Bryant i had a long message typed that got deleted, so let me try it again a little more concise. It’s doable with considerations depending on the initial funding:

1. Conventional loan-a pro and con is that you need an appraisal up front. Pro because you go in with confirmation of initial value (helpful if you aren't confident in calculating ARV) but con because it has to be in sufficient condition to appraise (no full rehabs, which can limit upside). You also have pros and cons in cost-you have to pay closing costs twice, but your rate is far lower than short term money so holding costs are lower. Final consideration is that you must come up with all down payment $$, it cannot be borrowed. Ultimately it's definitely doable, I'm doing this on one of my properties. But know the pros and cons

2. FHA loan-all the same considerations of conventional with 3 additions. The biggest factor is that you must now live in the property for a year (not a lawyer, close enough for my use but I'm not a lawyer). Additionally, in the higher LTV and PMI into your holding costs, which is still likely cheaper than short term money. Finally, you'll need more meat on the bone to make a refi worthwhile compared to a conventional because you can only refi into a conventional loan, meaning you must leave 25% in (could be slightly more or less depending on the lender, but that's normal). Quick example on a not perfect BRRRR-Bob and Joe both buy a house for $60k, spend $30k on rehab, and expect an ARV of $120k. Bob uses conventional funding, Joe uses FHA. They get a bad appraisal (and don't dispute it) and the house only appraised for $90, meaning they can both only pull out $67.5k. Bob put down 20% so he's still going to pull out $19.5k. Joe only put down 3.5% meaning he'd only pull out $9.6k. Closing costs on the refi are around $3k, at which point it's probably not worth it for Joe to effectively pay 50% to pull out $6k. This is a weird example and situation, but it's more about understanding the nuance and psychology of it

3. Commercial loan-these are more expensive but more flexible. With conventional loans you need to pay the down payment out of pocket, but depending on the commercial loan you don't. It can come from a line of credit, a partner, or borrowed funds. This potentially allows you to truly get into a deal with no money. Main considerations are that you'll likely need to borrow under an LLC, rates are variable and may be higher, and the amortization period is usually only 15-20 years instead of the standard 30 which means higher monthly payments. Additionally commercial appraisals are generally more expensive (although some will let you finance the closing costs), they take longer to close, and banks may be more selective on what types of properties they lend on. But they can offer flexibility that the first two options cannot. I'm currently in the process of doing a BRRRR with one of these as well

That wasn’t as short and succinct as I planned but I hope that helps. Reach out with any questions

I inherited tenants on month to month leases and notified a tenant that I would not be renewing. They did not leave, so the eviction was filed today. Ironically, the same tenant filed a maintenance request today for a door knob falling off. Should I address this request despite the pending eviction? Should I wait? Will taking one action or the other impact my pending eviction? Thanks!

@Martin Lindsay this is awesome! Great start to your portfolio and looks like a very profitable endeavor. And glad to see the progress from the Charlotte area team. What did you end up paying for that appraisal up front?

@Duncan Banks

You have a number of different options. Saving cash to put into a full down payment on every property is certainly an option but will limit your ability to scale as you’ve said. So you can do a few things:

1. House hack a primary, moving into a small multifamily (2-4 units) and renting out the other units

2. Use other people’s money/line of credit/loan to fund the down payment. This will require a non-conforming loan and will be very Bank dependent as many wont allow it, but it’s possible. The terms will be different, typically it’ll be a commercial type loan with a higher down payment and shorter amortization term. But it’s an option.

3. Partner. Find someone else who can bring some cash and get on the loan with you, and split the deal with them. 50% of a great deal is better than 100% of no deal.

4. Seller financing. Find a deal where the seller is willing to carry the note for you and requires less down, and you don’t necessarily need to use your money for that. Add value and then refinance into a conventional mortgage

5. Hard money. Going to be an expensive short term solution, so make sure you factor that into your numbers and have a plan to refi quickly

The key to all of them is finding a great deal. If you buy below market, buy value add and force appreciation, and make sure it cash flows well you have all of the pithiness at your disposal. If it’s a so so deal, not so much

Good luck, and feel free to reach out if you have questions!

@Victor Valle I'm sorry to hear that. We had a group of people at a back table in the side room, but please feel free to DM me and I can add you to our group so we can find you next time