All Forum Posts by: Russell Gronsky

@Care Peel, I'd say try not to worry about what the other investor bought it for. Sounds like you wanted to BRRR the property while the other guy might have wanted to wholesale it or flip it. Another idea is he might not have needed to finance the down payment. He could have had cash for the down so his note would have been $310, not $719. That's about $370/mo net! At that monthly profit, you can recover $6000 in the first year and a half. Absolutely worth it!

Let me give you some thoughts on BRRR and the idea behind it. It's a great investment strategy but it's rules are not set in stone. The idea of the refi is to get your money back out of the deal.....OR get back out as much money as possible. It's not so much about getting every last dime back out of the deal, it's about getting as much as possible so you can have cash in your pocket again to get another deal.

So going back to your example, lets assume all the numbers stay the same, except that you didn't use a HELOC for the down payment. Lets assume you used cash out of your bank account. So now your monthly note is $310 and your net income is about $370/mo.

Now, you go to refi to pull your cash back out but your 80% LTV kicks in and you have to leave $6000 in the deal. It will take you just over 16 months to recover that $6000. But more importantly, the cash out gives you $56,400 in your pocket to go find another deal! You put in $8,280 of your own money and a few months later, you got back $56,400.

Don't beat yourself up. This scenario wouldn't have worked for you because of your additional HELOC cost but the example does illustrate how it's okay to leave some money in a deal. Don't get hard up on getting all your money out, rather, first, look to see that all the payments due each month are covered by the rent income when factoring in the note on the 80 LTV cash out on the ARV numbers, and second, will the cash the bank gives you enough for down payments on another 1, 2 or more properties.

@Casey Roberts, hmmmm...it's odd that a leaky flapper and bad wax ring caused that much water flow and that high of a water bill. That must have been a crazy leak. To have the wax ring and flapper fail at the same time AND run up such a high water bill...definitely sounds like a black swan event.

With a bad wax ring and flapper, you could have still reused your same toilet. Like I said, the flapper is $6 and a new wax ring is something like $10. You'd also probably want to get a new water line from the wall to the toilet as you generally don't want to reuse those. That will be another $4. I'm sure you are asking more along the lines of how you could have prevented this or how you can prevent it in the future but it sounds like the handyman messed up when installing the wax ring. IT could have happened to even an experienced plumber. I'd just say talk to your PM and have her notify you of any issues that happen so you are aware and you can call her a few days after the repair is made to have her check on your place and make sure things aren't leaking.

@Casey Roberts, two points:

1. The story doesn't add up. A toilet will leak onto the floor from 3 places: the water line connecting toilet to water line in the wall, through the bolts holding the tank onto the bowl of the toilet or from the bottom where the wax ring sits between the toilet and drain in the floor. I guess the fourth option is the porcelain could crack but the only scenario I can imagine where this would happen without the toilet being dropped/hit with something is if the handyman over-tightened one or both of the bolts connecting the tank to the bowl.

If you ran up $1,600 in 10 days, that was A LOT of water. Unless the connection between toilet and plumbing in the wall busted after they left, it would be surprising to get that much water. Also, I'd think $1,600 would buy you enough water to flood your entire house, not just the bathroom. At that point, the $1,600 water bill would be the last of your financial worries.

2. Although the PM should have notified you the toilet is leaking 9 times out of 10, she is doing you a favor by replacing the flapper inside the toilet, which is one of the most common places toilets leak. The flapper is $6 and takes less than 20 minutes to swap out. A toilet is about $200 and takes 45mins-1 hour to install, and has a higher chances of being installed incorrectly because you have to swap the wax ring and seat the new toilet on top of it correctly so it doesn't leak when flushed. Not sure if you ever swapped wax rings before but they are a pain in the A$$. 

So as others have mentioned, the water company may give you a break on the bill and reiterate to your PM to notify you as soon as she uncovers a problem but if it was just a matter of swapping a flapper and it turned into a black swan event, well, just got to suck this one up. If it happens again though, there may be carelessness in her staff and that is not the people you should trust to care for your dwelling.

@Kevin K. now I understand what you're saying. It sounds very similar to the exterior version, except you need to bust up less ground to install the french drains. I'll check that out and see if the slab is the issue.

@Kevin K., thanks for the tip. I truly hope, with every once of my being that I don't have water coming up through the slab. That sounds very expensive!

From the several times I've seen the basement flood, was after we get a good amount of rain and the water came in from between where the basement floor meets the cement block wall. It did not come up from the sump pit (existing sump pump is broken so it would not have pumped any water out), which I think would happen if I had a high water table/ground water? 

Hey BP,

Some of you may recall my rant about legal structures and advice from pros in a post a few weeks ago. After reading all the constructive, helpful comments and processing the frustration of working through everything, I decided to figure this out once and for all. I am still in the process of figuring it out but I've read through a ton of threads and blogs that came up in bigger pockets search, internet search and referencing back to what the pros told me. There is one thing in particular that isn't talked about very much: The out of state Parent LLC that owns the subsidiary LLC doing the actual business.

Most threads/blog posts talk about benefits of setting up LLC vs S-corp, or setting up an in-state LLC vs out-of-state LLC. To me, from an asset protection standpoint, it doesn't sound like it matters much if the LLC (or S-Corp) is in or out of state as even an out-of-state entity can be sued in the state where it does business. So evenan NV or WY LLC can be sued in MD, CA or any other state as the court can establish personal jurisdiction fairly easily over your LLC if it owns rentals or flipping in the court's state. So the plaintiff doesn't have to file/travel to the state where your LLC is, in order to sue your LLC. You would also have to set up a registered agent in the state where the LLC does business and pay fees annually.

But, what if you set up a parent LLC in NV or WY and set up a subsidiary LLC in the state where you are doing business? For example, if Jon wants to flip houses in NY and protect his other interests, he can set up a parent LLC in NV and a subsidiary LLC in NY. The NY LLC handles all the flipping business. If someone wants to sue the NY LLC because the house that LLC sold to the retail buyer had faulty electrical, that plaintiff could only go after the assets the NY LLC has, not the NV parent LLC. BUT, if I am understanding this correctly, the plaintiff would have to file/travel to NV in order to sue the NY LLC under NV laws, since the NY LLC is a subsidiary of the NV Parent? Is that right?

If this is correct then this structure seems superior to simply having a single out-of-state LLC (or S-Corp) or an in-state LLC (or S-Corp), however, this seems too good to be true. What am I missing here? Double taxation? Extra tax filings? Something else?

I actually just uncovered a similar problem in one of my flips. I'm very happy I found it now, while the basement is not finished so it didn't damage any drywall, finishes or insulation. 

We are getting ready to install the exterior french pipe system and apply the liquid rubber. Hopefully, that solves the problem. Going to try and get it done before next week as we are supposed to get some heavy rain and that will be a great test to see if the effort pays off.

@David Baker Jr, highest profit will come from a bank loan, like a 203K. Rates will be better than hard or private money but the paperwork can take up a large chunk of time. You will also need to have a licensed GC to do the renovation. But, since you've been in construction for a while, you probably have a solid GC already picked out.

If the bank loan is a no-go, perhaps you can find an asset based lender who will fund you. Not all will do this for flippers but the ones that come to investor meet-ups are willing to play ball. One of these guys who fund local deals told me they average 9/2 on their loans which is better than HML. This was a quote from about 3 months ago so can't say what they would charge now.

Private money is a complete craps shoot. They could be okay with 7-8% return, or they could want 15%. Since this is your first job, they will probably want 12-15% plus points. 

HML will probably quote you something similar to the high end of private money. Over time, the interest and points could go down, once you establish a track record and have a relationship with the people. I know this isn't what you were hoping to hear but that's the price of getting in the game. Brandon Turner agreed to 12% interest and 12 points on his first flip...but it got his foot in the door, so weigh the pros and cons once you get some idea of what rates/terms you are looking at.

As for your second question....you always want to have money ready to deploy when you contact sellers, mainly because if the deal is good enough, you need to be ready to pull the trigger immediately or you will lose every solid deal to flippers with cash in hand. 

@LaMont Washington, is there an HOA? There will be a monthly fee for that. Don't just rely on redfin for that info. Who will maintain the lawn? Mowing the grass is about $40 per month. Also, keep in mind your property taxes will most likely go up next year so hope your rents will still cover that. Your HOA fees will probably go up too. I also like to plan for 8% vacancy as well as 8% for CapEx but that is one of those points where every person you ask will tell you something different. Finally, I hope you do have about 4-5k left in reserves after you buy the duplex because an A/C unit can go out the day after you bought the place and you won't have your maintenance account filled up with the cash to fix it. No A/C in Texas is a disaster.

One last thought: are there any special inspections, licenses or approvals you need to have if you are offering student housing? I've never owned student housing before so not sure if certain inspections or something else is required, in order to carry the student housing title?

@Latimer Luis, you are right about one thing, you are a beginner. This is only your third investment...you definitely haven't seen everything that can go wrong. 

I actually had the same thing happen to me on my very first deal. Except in my case, the monthly PITI payment went from $1,200 per month to $2,000 a month and this was on a 30-year note. I saw this as I was sitting at the closing table with pen in hand, about to sign final docs. I literally walked out and never came back. Lost my deposit but it was well worth it to me.

And you know how people say this gets easier over time? That's over a long period of time, when you see many, many more problems than what you've seen so far. And it's not like all those problems magically stop happening as you get more seasoned. Some you'll learn to avoid but you'll still get a fair share of them. The difference is that you'll have experience in dealing with them so they won't seem so difficult to deal with.

Take a few months off, let the PM fill the duplex with tenants, watch a few months of cash start rolling in and you'll feel a lot better. Then jump back in for your next deal.