All Forum Posts by: Steve K.

@William Collins was just discussing his first 9 successful purchases/refinances here:

https://www.biggerpockets.com/forums/223/topics/445367-full-time-employee-multiple-brrrr-side-hustle-2875-to-goal

@Spencer Herrick , search these forums for "BRRRR" method.

If you purchase a buy and hold rental property, you'll likely put 25% down payment and take a loan for 75% initially. If you buy a bargain/distressed property and you remodel it, you ideally get to buy it at a price such that your costs are 70% of the ARV (after repaired value). So, after remodel, if you apply for a refinance of the property, you get the new appraisal for the ARV, the lender will let you borrow 75% of the higher appraisal, and like magic, you extract cash that's about equal to your initial investment. (i.e you made 30% of "flip" profit by buying smart and adding value in the remodel), and then you do the final "R" of the "BRRRR" and "repeat".....it lets you acquire more rentals as fast as possible for the small initial capital you have to invest.

@Dale Carlson , my first thought is that you're not "stuck", you're a hero to every newbie here.

That's a stellar purchase! You have a 23.8% cap rate on a triplex. Congrats!

You have a cash purchase $42,000 that nets $833/month (without a mortgage). You merely wish you could finance 75% or so with the refi. I don't know your numbers, but let's say you your purchase+rehab was 70% of expected ARV. You wanted a $60,000 appraisal. So, why is that appraiser seeing your place equivalent to the $38,000 comps? Did you really get a steal and add value by your rehab, worthy of the 30% appreciation? Or are your costs really 110% of ARV?

I don't pretend to know your market....but you seem similar to @William Collins here:

https://www.biggerpockets.com/forums/223/topics/445367-full-time-employee-multiple-brrrr-side-hustle-2875-to-goal

He's getting purchase/rehab at 70% of ARV and getting nice ~2% of purchase in gross rent.

I hope some more experienced lenders weigh in. Even if you had paid $60,000, the cap rate calculates at 16.7% and is stellar. Your cash flow should qualify you for a commercial property-type appraisal of $60,000.

Have you looked into the B2R nationwide lenders? I think they take the quality of the cashflow into account.

@Tom Smart , as @Thomas S. infers, you are misinterpreting the "rule of thumb" for retirement withdrawals of 3-4% of your nest egg per year.

If you had your retirement funds in conventional stocks/bonds, diversified for age appropriate retiree, the recommend a higher proportion w/ age into the bonds making 3-5% APR and less in the stocks making 7-8% average over decades....then they say "it's safe to plan to live on 3-4% withdrawals"..... in any given year. When the markets are flat/down, you're dipping into principal withdrawals, and your nest egg is shrinking. When you get a great year of conventional returns of 8% or 12%, if you only took out 4%....you'd replenish some principal. So, that's some expert's guess at how to statistically not outlive your money. But it's a blended portfolio trying to average 7% or so.......now, compare that with your expected real estate returns and see what gives you a better return on your money.

If you pay cash for one rental, and earn 6% return.......compare with instead, buying 4 rentals with 25% down, and 75% mortgage....your now making way better returns on the "leveraged basis". I agree, I don't plan to pay off the mortgages on my rentals.

I also agree, if you're behind on retirement savings, your goal is to first be self sufficient for your own needs. Leaving my kids an inheritance is icing on the top, only if it happens.....it's not my focus. My legacy is to have raised them well, to be responsible, productive adults, not to hand them an inheritance that they wouldn't know how to manage.

hope that helps

@Carlo Rodriguez , a couple of your statements struck me as paradoxical.

(Not to pry, but to help; I used to teach get out of debt seminars for helping in my community a decade ago).

• On the one hand, you seem to feel "wealthy"; you have a ton of equity in your house, (that's off limits?)
• You appear to be spending beyond your means, to the tune of $80k over a few years. Two cars financed (1 remaining auto loan), some medical bills....student loans, and poor tax planning(?) on the family business that led to $10k tax bill owed with penalties and interest to the IRS?
• You've stopped saving into your 401k. (did you give up employer matching funds? if your employer matched 100% of what you deposit, didn't you just forgo 108% return (i.e. mutual funds to make 8% and doubling your deposits with match?)

Congrats on the discipline to pay down $40k in a few months; very commendable.

If you're that disciplined, why not take the HELOC loan, and pay off the $40k.....then make the $3k per month payments to yourself (paying down the HELOC balance). Won't you be paying 4.5% on the HELOC, and saving 18% interest on credit cards, and something like 11% interest to the IRS? If your student loans are 5%-ish, I wouldn't pay them off, just keep making the minimum payments. (however, if they are higher than the HELOC, perhaps "refi" them in the HELOC.

I'd rethink your 2 autos. If the 2 car payments cause you to bust your budget and outspend your income, cause you to use 18% credit card debt, then, effectively, you're incremental purchase of the auto is costing you 18% interest. Consider cars that fit in the budget.

Now, go about building your wealth (home equity included) and stop paying high interest to loans. Hope that helps.

@Jairhad Hemmons

You're describing "house hacking" in a duplex or triplex (often spoken favorably here on BP....search if you haven't read those posts). You live in one unit and the tenants in the other unit(s) subsidize your housing costs, allowing you to save more and invest in more real estate.

Grandma would be selling you the duplex, subject to the existing mortgage. Most mortgages don't allow them to be assumed by another party, and the "subject to" runs a risk of the mortgage company requiring the loan be paid off (i.e. for you, refinanced) (search "subject to" or "subject2" here on BP).

Is the duplex worth more than the loan balance of $100K? If so, is Grandma "gifting" that you to you too?

Check your local City/County building codes and zoning codes before planning on the basement rental. Not all properties are lawful for adding a 3rd unit as you desire. Even if it must remain a 2-unit rental, seeking to acquire properties with unfinished basements is a good strategy; usually, the basement can be finished economically....you could make either or both larger units, at a minimum, and gain a 3rd unit in the best case.

On the surface, your deal has merit, you should seriously consider it. (House hackers look to do the same paying full price)

Good luck

@Scott Otis

I'd be attracted to a duplex in one of these historic neighborhoods of Denver, too.

I'm familiar with a property in that vicinity that might be yours. I saw Seller saying $720k for $4,000 per month rent.....and I passed. (0.56% rent to purchase).  But it's hard to find 1% rent in Denver. The $5000 rent properties don't sell for $500,000. You might be able to cash flow with 0.7% rent/purchase. Funny thing is, Denver appreciated almost 10% last year. That duplex could have been ~$650k last year?!??!

I'm curious why you think this is a flip candidate for you, as a contractor? It looked like the Seller had remodeled it. Wouldn't you have a competitive advantage in looking for a fixer-upper property?

@Suzanne Roberson

Not to pry, but to help: before the $90k inheritance and idea to flip houses, how well do you have your retirement plan covered? From personal finance perspective, if your mortgage is not paid off at age 65, will you be able to retire without this flipping income? Is your desire to make more an urgency to rebuild a retirement nest egg that's short, or could you afford to remain more conservative and still retire? (advice here would vary depending on your answer).

 @Austin Fruechting is in favor of flipping....(he's famous on BP....retired at age 32 after 7 yrs RE investing....search for his post elsewhere), and you both have skills to make it work. If you can make $25k flipping, your $90k investment would be earning 28% yield (if it took a year) or 56% (if you could do it twice a year). Many investors would strive for 56% yield, instead of the 4% yield you get by prepaying the mortgage. 

@Jamie C.

Everything is possible in such a JV. An investor with the cash, vision, deal-locating-knowledge and taking all the risk, would keep all the reward if they merely hired a quality GC.....and directed the design/selection of floor plan/scope/finishes themselves. If you try and pay your quality GC too cheaply, he'd get attracted away to another investor or retail client(s).

A quality GC with a reasonable knack at finding a deal could do without you if he knew a hard money lender, and could finance it.

I'd encourage you to consider "where does the value get added?"....is it mostly in finding the deal? Is it mostly in executing the plan quickly/keeping on budget? Does the contractor add value in designing the floor plan/scope/finishes that you can't do? Is it mostly in providing financing? Which tasks are worth $15/hr and which are worth $200/hr.....not all time is necessarily valued equally. If you spend 2 days finding and negotiating a deal that locks in $10k extra profit margin, would you trade that 16 hours of  "value adding service" for 16 hours of manual labor? If he spends 8 hrs  collecting subcontractor bids, that might be "expected" in his % profit sharing. If he added value by saving $2,000 on materials/labor, would he get a "bonus"?

It might be helpful for you to think of it as if there are 3 partners:

1. Jamie1 with the money, and taking the risk of financial loss, applying for loans, insurance,
2. Jamie2, contributing hours and knowledge on deal-finding and some project management and/or hourly labor, or hours at accounting?
3. GC-Brother, contributing hours and knowledge as general contractor and some hourly labor

Jamie1 feels a little like a hard money lender. He might be entitled to all of his money back first and x% interest, for taking the risk (and/or a % of profit). After paying all costs (including Jamie1) the other two can split the profit in proportion to their time/value adding, might be 75/25 or 50/50 or anything else.

You might also consider what the going rate for a full service contractor is. What if, for example, all materials and labor are paid by "investor" and GC gets paid 8% or 10% of that amount for GC management services. Maybe Jamie1 gets paid first, GC-brother gets 8% of hard construction costs (minimum) and the rest is the profit to be shared y%/z%.

Good luck

@Devin Mills

...the pros/cons of paying down the 4.25% mortgage (in your case 15 vs 30 yrs) were recently discussed here:

https://www.biggerpockets.com/forums/48/topics/443301-why-not-snowball-the-debt-on-real-estate-investments

(yours truly would recommend the 30yr mortgage because you can earn more than 4.25% on your next REI project, rather than paying down debt). Have you read about the BRRRR method?