All Forum Posts by: Ryland Taniguchi

A question also is how much experience do you have finding deals for a rental property. A lot of people get into real estate with knowing what they are doing. 

1) Knowledge is power. I consistently pick up ten 1% rule + properties a year with no money out of pocket using the BRRRR method and a combination of my own rule 506(c) fund of money and gap funding.

2) Watch out for fees. Double check the self-directed IRA custodian fees if you go this route. I have reviewed many custodian where the investor thought they only were paying $600 fee and the math showed they were paying $18,000 in fees over 5 years. If you qualify, you will find much fees in a self-directed solo 401(k).

3) You always get wealthy through arbitrage. Get money at a low cost of capital and invest at a higher return on capital. If you take a loan, make sure you have a good arbitrage.

Why would the refinance on a BRRRR take longer than the flip listing and sale? I do both BRRRR and flips and it's faster to refinance than to list and close. In both BRRRR and flips, hard money costs eat up the profit substantially if the rehab is not completed quickly. It's the same amount of work. Why not get your downpayment money back and keep a rental?

Both Flips and BRRRR require capital. If the All-In Cost is at 70% LTV and surpasses the 1% rule, it would probably always be better to BRRRR than flip. You flip because you have 70% of ARV minus construction costs but the All-In Cost does not surpass the 1% rule.

I just raised $30 million and will be launching a combo loan that does the hard money and the BRRRR upfront in one loan. The take-out loan will be 70% LTV, asset-based, 6.5% 30-year fixed. One of the benefits of BRRRR versus flip. Accumulating assets with cash flow and 30% instant equity is the fast road to using this portfolio as collateral to securitize bigger money raises through a reg D rule 506(c) private placement.

Welcome to BP. After doing real estate investing for 16 years and doing hundreds of deals, I can tell you that it is impossible to know everything. You learn new things about real estate everyday. 

Welcome to BP. Does your business have employees? If not, a self-directed solo 401(k) can be a great way to get tax write-offs in your business up to $53,000 a year and then use it to invest in real estate. 

To make BRRRR, you need to be have your All-In Costs need to be at 70% of ARV and fit the 1% rule. So you are looking to meet the flip rule and the 1% rule.

 Here in Seattle the auction is a very risky place to purchase properties. I personally would not buy a property at the auction. 

The problem that investors have is that they do not understand how to estimate from the general contractors point of view. Most investors estimate for direct materials and direct labor but investors do not know how to estimate for risk.

And by the way, I am an investor myself and not a general contractor for others.

What I found from years of experience is that if I estimate direct labor and directs materials for let's say $10,000 then the contractor's cost for risk is double that (another $10,000). The GC mark-up of let's say 15% then goes on top of the $20,000.

Here are the risk management aspects of being a contractor.

- Clients that change their mind.

- Clients that want to add items to a Punchlist

- Clients that don't pay for change orders

- Dealing with the labor department

- Liability related to asbestos

- Liability related lead based paint

- Liability related to electrical compliance

- Liability to warranty the work

- Liability for worker injuries

- Training for safety meetings and other regulatory compliance

- Insurance to cover liabilities

In the short run, it may seem cheaper to be your GC. But if you many projects, the costs related to risk management will be way more expensive that you could ever imagine.

I would rather pay a GC and let them take the liability for the risk management. So, I now hire GC for rehabs because I get no cost savings doing it myself with my own crews. But I am a GC on my development projects because I can save money on new construction doing it myself. 

I am consistently getting 1% rule cash flow properties here in Seattle but I don't necessarily think it is can be easily done by newbies. The niche I found was $50 k to $75 k properties in areas like Tacoma, Olympia and Tumwater. But a recent email from a wholesaler explains the challenge, "Why would I see you a house for $70 k, when other investors would pay $110 k for it?" The wholesaler is correct. They can get more money for the property than selling to me at $70 k.

So the first problem is finding the deals. In my case, I find most of them with my own direct mail and door knocking team.

The second problem is the construction part. Tacoma is where I am mostly buying but this year permits have taken me 3 - 5 months. One of the reason why I decided to raise my own fund of $30 million versus partner with other investors. I have learned that no matter if you cannot control things like permit review, partners tend to blame for the time it takes to get them. Just human nature. In construction, other issues are overregulation by LNI if you have your own workers and inconsistency from subcontractors if you this route. 

I know lots of experience rehabbers getting killed by construction this year. The good contractors are booked for months and charging $75 per sq ft. You can find a cheaper contractors at $40 per sq ft but it reminds me of playing craps at the casino. The problem is that if you have over 8 employees, the contractors must account for risk management such as LNI, permits, injuries, OSHA safety meetings, aesbestos, lead based paint, safety logs, unions, suncontractor delays, and hiring expensive construction managers. Only the smaller under the radar contractors can deliver $40 per sq ft work and it is hit and miss. A good contractor who is managing risk will cost $75 per sq ft for a full gut out rehab. 

But the benefits to BRRRR locally are an instant 30% equity, a rental market with not enough inventory and appreciation.

I have bought many properties from out-of-state turnkey providers and it is a viable option if you find reliable providers. Some providers do "lipstick on a pig" construction that looks nice but doesn't fix all the deferred maintenance issues. I feel like the prices out of state have gone way up and the cap rates have compressed. Harder to find 2% rule turnkey properties now versus a couple of years ago.

When investing, you need to know how to calculate an Internal Rate of Return for yourself. A cap rate factors in your Net Operating Income with 100% cash. A cash-on-cash factors in your leverage. The Internal Rate of Return uses a T Table to factor in cash flow and appreciation based on your exit strategy.

When you learn how to calculate an IRR, you can compare the local BRRRR returns to the turnkey providers. In my opinion, I would try to find 2% rule turnkey properties but you also have to know the locations well.

 I haven't used Hiline or Coval but Reality Homes has done a good job on these entry "copy and paste" homes. They have templates for houses on slopes as well and I have even used them on a luxury home (but did finishes myself).

Welcome to BP. There is 1% rule cas how deals in areas like Tacoma but it is not a passive investment like the out of state turnkey rentals.