All Forum Posts by: Steve K.

@Charlie V. , sorry, I didn't mean to put all the emphasis on scrape & build new duplexes, to be sold as "half-duplexes".

A landlord that owns the full duplex (might be 50 or 100 yrs old) could divide the deeds and sell off the halves. The market to own one townhome (retail residential homeowners) is likely higher than selling the whole duplex to the next landlord. An arbitrage potential uplift.

@Nick Kendall , my first thought is that you and your wife would be better off doing a small BRRRR or even house hack (low down payment because you're owner-occupied)....why dilute yourself with a partner and take 1/2 of a small deal? The first deal is likely to be small enough; you'd be growing your wealth faster if you can do the whole deal, and spring forward into 2 or 4 or 8 in the coming years. The exponential growth works twice as fast if you start with 100%, instead of 50%.

Have you read what @Billie Miller did by living in a duplex (house hack)....I don't believe they needed a partner? (search her posts here on BP, look up her personal website/blog for the success story.

Or here's three successes I enjoyed reading about...using BRRRR (Two did it solo as couples, One admittedly used a partner).....see if you get additional inspiration from their success of @Joshua D. , @William Collins and @Austin Fruechting did in 5, 2.5 years and 7 years, respectively, buy using BRRRR (Austin was also featured in BP Podcast #239)

https://www.biggerpockets.com/forums/223/topics/459415-500k-net-worth-in-5-years-im-30-today?page=1

https://www.biggerpockets.com/forums/48/topics/429980-officially-financially-free-at-32----exciting-day

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

@Charlie V.,

Yes, in Denver, I've seen many examples of the duplex getting divided into two separate deeds and sold off as two individual "half duplex" or "townhome" or "single family attached dwelling". Most benefit from not needing an HOA fee. A party-wall agreement is put in place that covers the cooperation needed by the two owners.

Since land is so expensive, I've seen folks buy a $400,000 SFH on a lot zoned for duplex, they scape the home and put a new duplex in place. Each half can sell for $600k to $700k (once the deeds are divided).

So, when one of those divided properties hits the MLS (or is re-sold 5 years later), yes that listing is just for one-half.

@Sam Rust ,

in the refi step of BRRRR, learn all you can about "seasoning" of the property before refi with cash out. I didn't fully understand it on my first purchase. Know your exit from the HML and be pre-approved for the refi.

I chased a couple duplex and quad-plex this past several months. They get 30 bids in the first 24 hours....if you don't have a cash offer/quick closing, you can't compete. So, yes, you may need to use HML. Try to avoid the 4pts and 15%.....that's really expensive just to avoid the 15% down.

Since I have a full time career, my REI is part-time, I conceded to using a property manager to be able to even try the fix/hold rentals. So, it needn't be an overwhelming learning curve on landlord...

@Sam Rust , I'm a big fan of the BRRRR method of fix and hold rentals. Have you considered it?

You still try and buy a 70% ARV property, but instead of selling (and suffering realtor commissions, closing costs and highest tax rate), you hold and rent the property for positive cash flow. The cash out refi gives you your capital back to "repeat".

You have precious capital to use to grow wealth with, and seem to be ready to use REI toward that goal. You have two buckets:

a) $35k ready to invest and try and earn 10% or 20% IRR

b) $230k equity that's helping you to avoid 3.625% to 4% APR payments. In other words, its' earning a 4% yield (only)

I wish I'd discovered BRRRR 35 years ago. Have you read some of the real life success stories on BP? Several taking a modest starting point and becoming financial free (i.e. retired) in 5 to 7 years?

Most would die to have the equity you have to begin. I'd recommend Scenario #1.

It's really hard to find a 70% ARV fixer-upper in Denver these days....so much competition. Most of the wholesalers I see are really acquisition + rehab at about 83% of ARV. Or, do your own due diligence....vet the ARV and rehab estimates yourself.

When I BRRRR a fix and hold, I have 4 profit streams:

a) I try to make 20-25% "fix profit" that's stored in the property (tax deferred)

b) the tenants are paying me a monthly net cash flow (after mortgage and all expenses); this is tax-efficient, after expenses, interest and depreciation)

c) the tenants are paying off the mortgage over the next 30 years....significant equity (also tax deferred)

d) Denver is appreciating nicely at 10% per year the last several years. With 75% leverage, I own/control more real estate that gets this appreciation (tax deferred until I sell)

When I flip & sell...I only get "a", then pay closing costs and higher taxes.

good luck!

@Account Closed , 35 years ago, I use to advocate paying off the mortgage first. I've re-thunk it!

I, too, want my retirement nest egg to grow faster than afforded by stocks & mutual funds. Thus I entered REI 5 years ago.

I"m a strong believer in the BRRRR method, and am comfortable with the extra leverage....to help wealth grow faster.

So, I'm looking for fix and hold rental properties that will earn 10% to 20% IRR. If I leave a ton of equity in my primary residence, that money is earning a yield equal to the ~3% or 4% APR mortgage. So if you're truly playing catch up on retirement, you have your precious capital in two buckets:

a) equity in the house earning 4% only

b) REI earning 10% +

Then, it's the same argument on prepaying the mortgage ....you're sending a couple hundred dollars to the bank to avoid 4% interest. Don't do it; put the max in "strategy b". Buy, only you can decide if you're on fast growth or slow growth mode, and if the risk/reward of extra leverage is right for you. 

@Frank S. 

if you're experienced enough in your REI, and have closed enough transactions and loans that you are comfortable doing your own analysis, comps, negotiations, contracts.....then, yes you can represent yourself.

I bought a property 18 months ago, wherein I represented myself. I wrote in the offer that since I was not represented by a Buyers' Agent, the Seller would be saving 2.8% commission.....and I got it for 2.8% less than others. Even though I've always been told "the Seller pays the realtor" for my adult life....in my case, I got a deal.I saved the Seller 2.8% and he passed the savings on to me.

I"ve since become a licensed agent for my own buy/sell only (I'm not providing retail services to anyone else).....I save this 2.8% in all my REI.

@Account Closed , I"m a big fan of the BRRRR method. Once you see that you can get a refi mortgage for 75% ARV, and if you can buy smartly wherein your purchase+rehab costs are under 75% of ARV, the cash-out refi can essentially return all of your upfront down payment to you. It is the 75% of ARV on both fronts that makes this beautiful music called "BRRRR" work.

After refi, you have 25% equity in the property, but that ideally is your "rehab" of "flip" profit. So, with your original down payment back in your hands, you then repeat. You grow wealth fastest, because you essentially have 100% financing on your rental.....none of your precious original capital tied up.

Back to your original post, during the 6 months on HML, you likely are paying interest only payments to the HML....then he gets his principal back at the refi.

Beware of "seasoning" requirements. Look into this further, so it doesn't trip you up. Some lenders will only do cash out refi if you've owned the place 6 or 12 months. Some lenders will say they won't use a new appraisal for 6 or 12 months, but loan you on "costs". Some lenders are happy to do a "rate and term" refi with no seasoning...but that is a variation wherein you take no cash out. So, in your example, they refi you, you've solved your 6mo time clock on the HML....but your $23,250 could be stuck in as extra equity.

Consider getting a HML that lasts more than 6 months....so, if you need 6 mo seasoning, you can refi in 7th month.

@Roshan K. , I see, with the dental school student loans you have a deep hole (but as my daughter says (MD), you have a pretty big shovel with which to dig.)

Your devotion, discipline and delayed gratification will serve you well. It's inspiring that a young dentist is willing to also work a part-time "side-hustle" job of REI to improve your chance of financial freedom earlier.

1) You could just concentrate on growing the best dental practice possible....live frugally, save a little, take what comes.

2) You could add a hobby of trying to invest smartly in stocks, bonds mutual funds to try and grow your wealth faster (without sacrificing your dental practice)

3) You could buy a couple rentals and try a relatively passive REI that beats #2, but doesn't detract from your main dental practice

4) You could get even more involved and hands on in REI, to really try and beat #2 and #3 with higher IRR% REI.....but how much of this "hands on" can you handle part time before it becomes relatively passive long term rental. You might consider buying fix/hold BRRRR properties.

5) Try to beat #4 by building a new quad.....hard to do part-time with a dental practice?

Good luck.

PS: if your investments in #2, #3, #4, $5 beat your APR on the student loans, I challenge you to think if paying them off fast is the fastest way to growth. I'm personally a big fan of BRRRRR.

@Frank Bee ,

There is a continuum of perspectives on whether to use leverage (i.e. debt) on the passive rental properties or pay all cash.

On one end of that continuum, I know a widow lady in Denver that used her life savings to buy a $250k rental duplex for cash several years ago. She indeed is a REI. She is happy that she has no debt, and her monthly cash flow is large (has no mortgage payment). She's also seen great appreciation in Denver....her property has probably doubled in value in 8 years. But, she is averse to debt, and she's on a slow path to wealth building.

Elsewhere, a different REI could have used that same $250k and put 25% down on each of 4 such properties (i.e. 75% LTV mortgages). Arguably, that REI is on a faster path to wealth building. They control $1 million in real estate. They have tenants paying off 4 mortgages over 30 years, but due to mortgages, monthly cash flow is small (after PITI). If that were in Denver 8 years ago, the properties have appreciated to being worth about $2 million now. (vs. the Widow's $500k). Admittedly, in times of recession, this investor is subject to suffering a % decline in $1 million invested, vs. $250k). But if you're comfortable with the risk/reward of what leverage can help you to grow, I'd consider it.

The same issue comes up from time to time on BP, wherein someone asks "should I pay down my mortgage early and retire the debt early"? If you're buying rental properties with great IRR%, then why would you put $$ into the mortgage that in effect, yield the 3.5 to 5% APR of the mortgage? This is the same argument as putting 25% down or all cash.

In fairness, many successful BP'ers will advise you they sleep better with no debt....or less debt. But I'm personally comfortable with the leverage.

On the fastest growth end of the continuum, read about the BRRRR strategy....it allows you to essentially have 100% financing on each rental property (after cash out refi; provided you rehabilitated the property and have 25% equity). There are many BPers that have used BRRRR to become financially free in 5 to 7 years.