All Forum Posts by: Ryland Taniguchi

If you rented the upstairs out, what would it go for?

There is no book or website like homewyse that will reflect accurate prices in the Seattle market. Best to ask all the experienced investors what they are paying. Prices even changed dramatically from last year. Since I am always asking the top rehabbers, I have an answer good for September 2016.

$75 per sq ft here in the Seattle area for full gut-out rehab for flips that includes hvac, electrical, plumbing, siding, roofing, window, drywall, etc.

$60 per sq ft for gut-out rehabs for BRRRR.

$35 per sq ft here in the Seattle area for a cosmetic rehab including tile, countertops, carpet, paint, light fixtures, etc. The cheapest I heard from one of the experienced people was $20 per sq ft.

I would not listen to people who aren't experienced, agents, not the groups that sell your properties at the auction or their own deals.

A lot of rehabbers including myself have tried to go cheaper but keep finding not only can it cost you more but you waste valuable time.

Congratulations on taking the first step

Welcome and best wishes investing.

I am from Seattle and have looked in Charlotte to buy and it makes no sense to me right now. Charlotte is the financial center where most of the hedge funds are headquarters out of. Naturally, the hedge funds buy the same properties that you maybe interested in.

The market in Charlotte is more like the market in Seattle. Very competitive and overpriced. You can find deals but only if you have a marketing machine running or maybe more on the outskirts like Huntersville. If you're trying to diversify and get cash flow rentals, areas like Birmingham, Indianapolis or Kansas City might make more sense.

My recommendation being a seattle developer myself is to make sure you get the right information. I looked up your address for you at http://shoreline.maps.arcgis.com/apps/InformationL...

And it said that the proposed zoning for this property is going to be an R6 which is the same zoning that it is now. You would verify with the Seattle Planning Dept.

If the zoning isn't changing, then no point buying.

The last shoreline zoning meeting was on Sept 12 and the next one is Sept 26. There will be two more meetings after this and they will finalize the rezoning.

 Many ways to get wealthy. Lol

I use none of my own money for the BRRRR and can get 10 rentals a year with none of my own cash. Technically, each one of my BRRRR could also be a flip deal since it is bought 70% of ARV minus $60 per sq ft (which is what I found it costs me to do a BRRRR rehab in my market).

If I were using my own cash on the BRRRR versus a 2nd lien position GAP private loan, my return on the BRRRR would be 70% IRR. But since I am using none of my own funds, it is also an infinite return. The additional criteria on the BRRRR is the All-In Cost (cost of rehab, acquisition, closing costs and holding costs) has to be a 1% to 1.5% rule cash flow property as well.

I would argue that the BRRRR is slightly less risky than the flip because I am not paying 10% in selling costs not active income taxes, and if the market crashes my cash flow would pay for the mortgage whereas I would pay for the holding costs on a flip. I would also argue that BRRRR is more forgiving for construction delays because delays in the short run kill you but are marginal over a longer IRR calculation period on a cash flow property.

But they are both great strategies and what you do depends on your market. The flip market sucks right now in Seattle and so in my market BRRRR in Tacoma is the way to go. Other markets flips is the only way to go as the properties won't cash flow.

Actually, my suggestion is that investors take a diversified approach to real estate. 1/3 in wealth preservation strategy like performing notes at a 6% minimum tweet IRR, 1/3 in cash flow at a 18% minimum IRR target, and 1/3 in accelerated wealth like flips and development with a 60% minimum IRR target. With this diversified approach, 70% of your money is safe during a real estate market crash.

Flips are risky because during a market crash it takes longer to sell them. The math at least for myself is 8% of ARV for holding costs every six months. So if you have to pay hard money loan interest on a 24-month, it eats up 32% of ARV and the 10% closing costs is on top of that.

Also, in my case, I do know which year I will cash in all my chips and that is targeted all at 2021 (based on an 18-year real estate cycle analysis), which is one of the challenges with IRR. On the other hand, the cash-on-cash part of the IRR is more predictable.

I agree that IRR is not the only measure. IRR does not assess risk. But if you can get the same IRR on a BRRRR as a flip, the BRRRR is less risky.

It all comes down to IRR (Internal Rate of Return) and Risk. Flipping is definitely more risky than a cash flow buy and hold strategy. On flips, you also have taxes working against you, seasons where houses don't sell and holding costs.

Nothing wrong with flipping but the key is velocity. You have to be in and out of flips within 90 days. Without velocity, flipping makes no sense and is very risky. 

I think the minimum return that an investor needs to get on a flip is 60% IRR. You need a higher return to balance the risk of flipping. In my investing I am getting 70% IRR on BRRRR and 47% IRR non-recourse lending at 50% LTV to IRAs (the return doubles to 94% IRR if I use a warehouse line). BRRRR and 50% LTV lending is much much less risky than flips. In my portfolio, I would need to get 150% IRR for the flips to make sense for the amount of risk I am taking.

In Seattle, despite very good marketing systems with direct mailers and door knockers, I am not finding deals that flip at 150% IRR. In addition, I have had all kinds of trouble with finding qualified GC in a super hot construction market. I tried being my own GC and that was more of a disaster than hiring so-so GC. The combination of finding no deals and no contractors (and doing it worse as my own GC) made me quit on flips in my market. Labor and Industries overregulation and lack of quality subcontractors due to construction demand also caused us costly delays. I have done over 250 flips over the last sixteen years and can't even find one flip that will pencil nor get or construction systems in place. As a matter of fact, I acquired 52 deals since January 2015 and could not even find on flip that penciled for what I am looking for.

But I am trying to find another area in the country where I can do flips faster and get them done in 90-day, less regulation and can get a 150% IRR. The easiest way to get the higher returns is to do the flips faster.

What I don't understand is why one would do a flip at a 50% IRR if you could do a BRRRR at a 50%. The later is safer than the former.

 Yes I use some other hedges as well.

1) Life insurance with minimum death benefit  and close to the MEC limit. Whole life defined benefit plan, ESOP, and IUL. I have yet to find one licensed life insurance that agrees with doing all three. Problem with this is finding people who don't have commission breath and who know how to set it up correctly.

2) Buy gold with cash and hide it in a ditch. Gold will be illegal to own if it goes up 10x in value in a hyperinflation scenario. Gold is not an investment but a forced savings and hyperinflation hedge.

3) Diversify overseas. With US laws being so restrictive on reporting, I have not done this yet but I will figure it out someday.

Construction is not where I want to spend a lot of time and energy on. I run my hedge fund mostly focusing on 50% LTV non-recourse lending on cash flow properties. I don't like banks and don't need them. I do development to push the yield up.