All Forum Posts by: Drago Stanimirovic

You’re absolutely right, Matthew!

While cash flow is often romanticized, equity and debt paydown are where real wealth is truly built. Investing in B-class properties in stable areas yields better long-term returns due to appreciation and higher-quality tenants. Chasing high cash flow in C-class properties often results in poor outcomes, especially when investors self-manage to save costs. Equity growth over time is what ultimately creates wealth, not chasing short-term cash flow.

On BRRRR Strategy..
BRRRR is indeed a powerful but complex strategy. As you pointed out, new investors often underestimate the skill required in areas like construction, market analysis, and financing. Even seasoned investors like yourself end up leaving 15-25% in the deal, which is a smart approach when you’ve mitigated risk with major upgrades. Expecting infinite returns is unrealistic→ equity is what drives long-term success.

If you ever need assistance with financing or structuring deals to maximize equity, I’m here to help! Best, Drago

Yes, using the equity in your paid-off rental as a down payment for another property is something many DSCR lenders can facilitate. This would typically involve taking a cash-out refinance or a home equity line of credit (HELOC) on your current rental to access the funds needed for the down payment on the new property.

Regarding the lender fees, having two mortgages, one for the cash-out refinance and another for the new property, could result in additional fees, but it's not necessarily double the cost. DSCR lenders might offer flexibility in fee structures, so it's worth exploring whether they can streamline costs if you're using the same lender for both transactions.

If you take out $50k for the down payment on the second house, you can always tap into the remaining equity in the future, but doing so later could result in additional fees, as you'd likely need to refinance or apply for a second HELOC. Many investors prefer to take out the full $100k upfront, even if they don't use it all right away, as it avoids extra costs down the line. In your case, this might be beneficial given the uncertainty of finding another deal in the near future. Having access to the funds without needing to refinance again could save on fees and give you flexibility when another opportunity arises.

However, if you're cautious about carrying extra debt with no immediate deal in sight, taking only what you need now might provide peace of mind. It's a balance between having immediate liquidity and avoiding unnecessary borrowing costs. Discussing this with your DSCR lender can help you determine the best strategy based on your financial situation and the market conditions.

If you need further guidance or help, feel free to reach out!

Regards,

Drago

Seller financing can certainly benefit the seller, though the reasons are often misunderstood. While some point to tax benefits or the potential for higher interest rates compared to banks, the real motivation is usually the perception that the seller can secure a higher price by offering financing. Sellers believe that by providing flexibility, they can attract buyers who might not qualify for traditional loans and, in turn, command a better price for the property.

This perceived advantage can sometimes lead sellers to agree to terms that heavily favor the buyer, such as zero-interest loans or accepting second-position liens. The focus on achieving a higher sale price can sometimes blind sellers to the risks involved, which savvy buyers may exploit to negotiate highly favorable terms.

From a seller's standpoint, offering financing can be a smart strategy if approached carefully. It allows them to secure a higher price, but it's crucial that they ensure the buyer has a significant financial stake in the deal. Sellers need to be mindful of the time value of money, using realistic interest rates and structuring the deal to protect their position, whether through securing a first-position lien or obtaining a personal guarantee from the buyer.

In the end, seller financing can be a win-win, but it requires a balance. Sellers must be careful not to become so focused on price that they overlook the importance of securing their interests over the long term.

Best,

Drago

The question may also be how to maximize your investment with DSCR loans?
While DSCR loans offer a unique advantage, success hinges on selecting properties with strong rental income potential. Focus on properties in high-demand markets where rent rates comfortably cover expenses. It's also important to account for factors like maintenance, vacancies, and unexpected costs to ensure your investment remains cash flow positive. Understanding your lender’s required DSCR, typically between 1.0 and 1.25, will help guide you toward the most suitable investment opportunities.

Hi Tim,

DSCR loans are ideal for investors because they focus on the property's income, not personal financials.

Pros:

• No Income Verification: Lenders focus on the property's cash flow, not your personal income.
• Flexible Qualification: As long as the property's DSCR is typically 1.0-1.25, you can qualify.
• Faster Closing: These loans can close quickly, ideal for competitive markets.

Cons:

• Higher Interest Rates: Typically higher than conventional loans.
• Larger Down Payment: Usually requires 20%-25% down.
• Cash Flow Requirement: Only works if the property generates enough income.

For new investors, DSCR loans are great if the property has strong cash flow but come with higher costs. Let me know if you need help with lender options!

Best,

Drago

Hi Evelyn,

Congrats on securing a great deal! You're right to think about the tax implications of paying for the roof before owning the property. Here's a strategy that could work:

Escrow Agreement or Seller Credit

One option is to negotiate with the seller to either escrow the funds for the roof replacement or structure the deal so that you fund the roof but receive a seller credit at closing. This way, you would be paying for the roof as part of the property purchase, allowing you to claim the tax depreciation once you take ownership.

Delayed Closing with Roof Contingency

Another approach is to add a contingency to the closing that allows you to replace the roof before closing but delays the actual closing until after the roof is installed and insurance is in place. You’d still be using your funds, but by delaying ownership transfer, the expense would fall under your ownership period, making you eligible for depreciation.

Discuss these options with your tax advisor to ensure everything is structured properly for IRS purposes. Let me know if you need help with financing or structuring the deal further!

Best,

Drago

Hi David,

Yes, you can refinance into a conventional loan during the 5-year term if interest rates drop, provided your seller financing agreement allows for early payoff without penalties. This would protect you from being stuck with a higher rate when the balloon payment is due.

After 5 years of interest-only payments, you'd still owe the full principal. If you're house hacking, you could refinance into a conventional loan with as little as 5% down, assuming the property value and your financials qualify at that time.

Make sure the terms allow for early refinancing, and keep an eye on interest rates to refinance when it’s advantageous. If you need help structuring this, I can assist.

Best,

Drago

I see your point, but calling mid-term rental arbitrage “terrible” overlooks its potential when executed well in the right market. Yes, there’s upfront risk, but with smart sourcing, furnishing costs can be lowered, and the margins can be better than they seem, especially in high-demand areas.

Co-hosting and property management are solid alternatives, but they limit upside. Arbitrage offers more potential for returns, though it’s not for everyone. It's about finding the right opportunities, which are rare but not impossible.

It’s not inherently a bad model, just one that requires careful execution.

Have a good weekend!

Drago

Hi Zahcary,

Congrats on planning to buy your first investment property! When it comes to hard money lenders and rehab costs, it's common for lenders to require you to pay a portion of the rehab costs upfront. Typically, lenders fund around 80-90% of the purchase price and rehab costs, with you covering the rest.

Finding a lender who will pay 100% of the rehab costs up front is rare. Most hard money loans work on a draw system, where you pay for part of the rehab initially, and the lender reimburses you in stages as work is completed. They do this to limit risk.

However, some lenders may be more flexible if the deal is particularly strong, and your experience or financials are solid. Still, expecting a full 100% rehab payment upfront is less likely without significant collateral or a great track record.

If you need help finding hard money lenders or structuring the financing, I’d be happy to assist! Regards, Drago

Nice example here Travis, but calling mid-term rental arbitrage “terrible” might be too broad. 

The $11k you spent on furnishings is high-many operators cut those costs, which can reduce your break-even period.

While 1.5x long-term rents is typical in places like Oregon and Texas, some niche markets (e.g., corporate housing, traveling nurses) do achieve the 2-2.5x multiple. It depends on targeting the right demand.

Owning offers appreciation, but arbitrage provides flexibility without long-term market exposure, which some investors prefer. It’s not about the model being flawed, it’s about finding the right fit. Best, Drago