All Forum Posts by: Tony Castronovo

I don't put too much emphasis on these "rules of thumb".  But to level set on the definition...I have considered the 1% rule as:  rental income / (purchase price + rehab).  With that definition all but one of my properties exceeds the 1% rule.  My properties are in Katy, Cypress, and Jersey Village areas.  The more important thing is whether they cash flow.

Interesting site @John Warren.  Thanks for sharing.  

@Michael Anderson there are two main drivers.  1) Selling them individually would likely take much more time, and 2) tax implications (I would like to 1031 exchange into a MF property).

Welcome to Katy and BP!  In general, the strategy seems fine.  Not sure I understand the first property.  Do you intend to rent it at some point....or always make it your primary residence?  Are you looking for a fixer-upper or move-in condition?

Sounds like cash flow is not your goal, but rather equity and wealth accumulation.  Just be careful if you put your rentals on 15-year notes.  It may be tough to cash flow them, especially if you get close to or over $200k as I have found that rents don't usually fit the 1% rule in the area.  I have a home worth $220k in Cypress and can't get much more than $1700/mo (it's flip-quality rehabbed).  You might be able to command higher rents in the Cinco Ranch area, but much harder to find homes at that price point....unless you are willing to take on a flood project.

Even if cash flow is not your goal, you do not want to be dipping into your pocket every month to cover the mortgage, taxes, insurance, etc.  What would happen if you lost your job or encountered a major unforeseen expense?  Cash flow is what allows you to hang onto properties while you are building equity.  At least break even on cash flow....and make sure you deduct for maintenance, vacancy, capex, property management, etc.  My 2 cents.

Haha...that’s my favorite kind too!

I’ve added you to the list of love @Travis White. I expect chocolates on Feb 14th!!!

Sounds like you are doing the right things.  Welcome to BP and let me know if I can help.

I am currently preparing to sell off my portfolio of single family homes and assembling an offering memorandum / marketing package.  As an investor who might be interested in purchasing a portfolio, what would you expect/want to see highlighted? 

One key question I was wondering about was whether to include the cash flows. Cash flows and ROI's are very relative. For example, all of my properties are financed with specific rates/terms. My buyer may get better or worse terms, making the cash flow much different. Also, I have actuals on my P&L vs. projections based on deductions for vacancy, maintenance, etc. These figures can vary of course, so not sure the best way to present the profitability.

Lastly, I realize a serious buyer will go through due diligence and I'm happy to provide sufficient details.  What is the right level of detail to include on the initial pitch?

What I normally do is acquire with HML or private money under my personal name, rehab the property, then refinance within 60-90 days (50 days is my personal best). I do have an LLC but have not moved my properties to it (I know...shame on me). When flipping I buy with my LLC, but for buy & hold it is under my name. My understanding is that lenders require a personal guarantor. You can then transfer the deed to your LLC. You have the risk of the loan being called due given the "due on sale" clause, but I have heard most lenders do not exercise that option if they have a good mortgagee.

I do not have seasoning requirements for the refi as I am not doing a "cash out". It you are refinancing to replace a cash purchase or trying to pull too much money out of your equity then you will need seasoning. Because of this strategy, I am never able to achieve a true BRRRR. But I can usually cover closing costs and maybe some rehab costs. For example, I just closed on my latest refi....purchased at $108,500 with a private money loan (100% financed), paid $25,500 out of my pocket for the rehab and refinanced with a conventional loan at $115,500. I left the closing table with money coming back to me. The trick is to drive the ARV. I got this property appraised at $167,000

Now, if you are doing the math....something to consider is that at 75% LTV I could have gotten a refi loan north of $125,000 ($167,000 X 75%). That would have paid off my original loan and leave me with about $17,000....which would have covered much more of my out-of-pocket costs (better BRRRR). But because of the cash-out rules I would need to have some seasoning. Since my strategy has been to exit the private/hard money quickly that doesn't work. I might try to find a longer-term acquisition loan to bridge the seasoning requirements. There is several more months of higher interest....but could be worth it to replenish the cash reserves. Hmmmm.....

Wouldn't you normally purchase, rehab, and refi in your name...then switch the deed to your LLC for long term asset protection?

Will add you to the list @Jorge Quintero. I usually visit my existing properties every 3 months and often have a rehab going for new properties. Will keep you in mind for future opportunities.