My First BRRRR Investment Property (If Only I Had Known Earlier!)

hey everybody I'm Terrell Yarber with fixated real estate how is everybody doing right now I hope you all are enjoying your day and also join life at this moment as best as you can given the circumstances of the world today I have a special treat for you I am going to go over some burrs or eight bur buy it rehab it rent it refinance it repeat basically all you do is you buy a single-family home or a multi-family or whatever the heck you got and if it's all busted up and you buy it at a discounted rate you then buy it fix it all up right and then after you're done fixing it all up refinance it or rent it rent refinance and get a nice tenant in there and then refinance and get your money back out of the job and hopefully if you do it correctly you'll have no money left into the actual project and you have a great tenant in there and you have a brand new looking house and it's cash floating that's the key you got to make sure it's cash flowing so I'm going to show you guys today my first my first ever bird that I did I and in this first ever bird I had a lot of lessons that I learned from it we actually still own it today many years later and I want to show you what we're now also doing with this project and now that we've owned it for years so it's it's amazing to me how many houses I flipped over the years without buying rentals my biggest lesson that I had in this business was that I should have kept all the houses that I flipped so if you're like me and you fit in that boat then you're not alone so let me go back to let me go straight to sharing my screen really quick I here on this project I'm going to show you some before photos of this this project and what that is so here we go so this property we call it two koban and it was sent to us as a flip this is what it looked like before pictures there's the realtor that sent me the job I saw her sent me the house he actually had it as a he was sent to him to be basically a listing I and when it was sent to him he looked at it the place was completely trashed and messed up the seller wanted to be able to sell it very very quickly he recommended to the seller hey it's probably best if you just sell it off market because this thing's just trashed out sour trashed up so the guy wanted to close within less than ten days the realtor send it to me and said he got a commission for it the seller was super happy and it worked out great so this is what it looked like it is in Lakewood Washington and it was kind of messed up house the kitchen was of course dated it was completely filled with trash prior to us buying it you could see all this great little what's it called the man I don't remember that Cisco baking soda or whatever you put on the ground to get rid of the smell and in you can see these areas here this was all cat urine and dog urine that was on the property I and it was not looking too good and I'm happy we weren't in it when it was full of feces this is the bathroom now what I was told and this smelled you guys can't here's a here's another cute thing with these properties which i think is great is when you can smell these properties in extreme circumstances like this you can almost taste the money also right so we get really excited when a house smells really really bad because it means that we're gonna get the property at a pretty good discount and the bathroom was completely collapsed and mainly because of urine from what we were told by the owner of the property and other feces that was left there so that's exciting I'm happy that it's cleaned up once again that we before he bought it this was the main hall bath of the property and the there was no master bath this was the only other bathroom and the what else we got that's it so let me go over the numbers of the property and show you when we bought it it was a two bedroom property with no bathroom with no other with no master suite it only had two baths so two bedrooms two baths it needed three bedrooms to be able to hit the market the point that we needed so no suite and we needed to add that master suite in there so we can either take the current bath the two bathrooms and turned one of them into a master suite or do we add a third bedroom start a third bathroom as well so we didn't want to do that that's too much work it was 15 13 square feet and the it had two car garage the year built was 1947 so we have a lot of older houses in our area and it was here's the key and this is gonna be a big key that you guys will see later on this property it was a 15,000 square foot lot so I don't know if any of you guys look at zoning on properties because I never looked at zoning on properties at that time and all I cared about was flipping houses so when I was first looking at this house all I thought was can I flip this so let me show you the numbers this is what was sent to us this is back in 2016 that's how long ago this was our purchase price was a hundred and three thousand and that includes all closing costs and our rehab estimate was sixty thousand dollars we thought that if we were done with it we could rent it for $1,600 a month but here's one little secret I never once thought about renting this house out before buying it so I didn't even look at the rental estimates all I thought was flipped the house so I borrowed a note from a private money lender for one hundred sixty three thousand dollars and I assumed that we could probably sell it for two hundred twenty thousand by the time we're done so if you do the numbers on that as a flip that one hundred and three thousand and sixty thousand in rehab and then you sell it for 220 there's a good enough buffer in there that I'll probably make about thirty grand by the bit by the time I'm done so I'm cool this is a good flip and I'm gonna get in a second here I'm gonna stop sharing the screen and tell you guys some of the stuff that kind of happened but the but through that when we got done with these numbers and we initially looked at him actually go ahead and stop sharing we're good stop stirring the screen right now and when we first got after we got through this property and we're about to buy it we bought it we looked at things we're like okay what if we kept one of these properties what if we actually decided to instead of selling it and flipping it we actually like kept in and decided to do a rental so I got I kid you not I use the BiggerPockets burg calculator not pre calculate the rental calculator at the time I and I ran the numbers in there and has said that if I rented it out for $1,600 a month then I might be able to actually get about $250 a cash-flow on the property so I'm like cool let's maybe think that this is a rental so we went through the whole project again and continued to go in through it and get to knee rehabbing it I'm going to share the screen again I'm going to switch those photos of what it look like when we're done with it and so this is what looked like when we're done the we kind of figured that if we decided to keep it and we decided to cash flow 250 bucks a month on it that this would be a great project and we would continue throughout the whole project without actually you know stopping anything and then we reevaluate it after we were about halfway done with the rehab and I said okay let's instead of flipping this thing let's make this our first rental ever right so we got completely done and it looks very nice you could tell that we updated the fluorine we put the new carpets in we opened up the kitchen quite a bit put quartz countertops cabinets all that great stuff and I'm gonna get to you guys's questions here in a second so go ahead and start commenting and asking questions and I'm gonna go over some numbers here as well for how this all worked and all the issues that we had but we added the master suite so this was originally this bathroom here was a bathroom that was actually in a hallway outside of a bedroom and we decided to there's a wall right in the spot you can't really tell but in this area here there used to be a wall and we just all we did was remove the wall and made the bedroom bigger and we had a master suite so we didn't actually add any new plumbing we just changed it so if you can imagine this wall right here and there was a hallway and we just rearranged it a little bit to be able to make it into a master suite this was the bathroom that you guys saw earlier in the in the photos from the past where there was a Mason massive like hole in the floor and everything was rotted out we rearranged this a bit too and we were able to get two more bit another bedroom into this house as well so we got it became at three bedrooms so if you remember the initial numbers we bought it for a hundred three grand 63 on a rehab we thought 1600 would be the rental estimate and it appraised for 220 so instead the in 2016 so four months later roughly four must later our rehab was sixty three thousand eight ninety one we ended up renting it for 1750 so by the way going over $3,800 in rehab that was that was very disappointing but so pretty good we paid off our private money lender 171,000 right so we were able to refinance not just the the entire loan amount for the purchase amount but we also had funded the rehab so we had to leave though where was it oh I don't have that in there I we refinanced a traditional mortgage at four point five percent for one hundred seventy-six thousand our total property per purchase principal interest taxes insurance piti was eleven eighty a month and we cash flowed five seventy renting it out for seventeen fifty a month so this is looking really good in fact it even appraised for two seventy five so we were super stoked back in 2016 when this happened here's where I got pissed and this is the lesson that I want you guys to remember here I flipped hundreds of houses before this property that's how silly it was hundreds and I never kept any of them as a rental this is our first one so I'm closing what we're looking to close on this property escrow had told me I need to lead I need to wire in seventy one hundred dollars to this and my wife and I were going on a hike that day and I'm like this is dumb this house is costing me $7,100 right that's how I always seen it that's how silly I was and how despite how experienced I look looked at the time and how many deals I did I wasn't that smart of an investor and all I did was flip houses and so my wife looked at me and told me I was an idiot and said we're putting seventy one hundred dollars in there so we can cash flow five hundred and seventy dollars a month on this thing and it's got lots of equity and that's all you got to leave in it that's a ninety six percent annual return on seventy one hundred dollars right so she made me realize that I'm not the smartest person in the world like I thought I was and of course we closed on the deal in 2018 we got a tree appraised under praise for three hundred forty thousand and we raised the rent to eighteen fifty so going to stop during the screen for a second and so when that all happened we were pretty excited so we kept this rental we had some of the best tenants that were out there we were able to it's in fact it's 2020 right now and we still have the same exact tenants that we had before so they're still there they're actually military tenants we love them to death they're great people we've had maybe like two you know two calls on any kind of you know maintenance request or anything like that so so I'm gonna go back into this property here again and tell you guys the biggest lesson on this property the biggest lesson was that we owned this property for a few years and we never looked at the zoning not once not at all ever and then one day a couple years later in 2019 I decided to start like looking at zoning and I started looking at our portfolio and looking at how many houses we had and I just started pulling up the zoning in each house and trying to figure out like alright is there anything more we can do this with these properties because if not maybe I'll 1031 them or do whatever so we find something on this house I look at and I'm looking Google Earth on this house but I realized that the house is like the lots pretty big and why are all the other houses around it have smaller Lots than my lot and so I dug into some more and I got us and I got a civil engineer involved and we found out that we can actually peel off another lot on this property you're talking that I owned this house for three years before I realized that I can actually get a second hut-hut the house how dumb is that too so I'm really not that smart at all so go back and share the screen again and I'm gonna show you guys what this looks like so this is the short plat that we had created on the property and zooming in a little bit this is the house right here where says lot - this is the house that we're currently stands and on lot one you could see where there where this little building here that is a two-car garage that was always on the property it's great to car garage and we found out we can do a flag lot so this dotted line here is actually an easement so little trick when if we wanted to a flag law it basically shows let me go back it looks like this is the flagpole and this is the major flag right and then this would be a lot and this is a street so you'd have two Lots essentially we found out while we were going through this we thought that we'd make this all one lot so it looked like an actual flagpole but we'd have to make this if we did that we'd have to make this like a 30 foot wide ease like 30-foot wide setback and stuff to be able to get a road in there but we have we made an easement instead basically making this one full a lot and then doing an easement it only needed to be 20 feet right our 25 feets imma lay that so we saved 5 to 10 feet I can't remember now what can we do with this front lot so we can leave the house here we have to tear down this garage but what can we do with this front lot well we can build a duplex right so this is a duplex schematic that we had drawn up for this property that we're gonna be building on this house we put a hold on it right now because can you guess what why did we put a hold on it I don't know look around watch the news that's what we had to put al in it we were in the middle of putting it all together but we're gonna get back into this as soon as we're allowed to in the state of Washington because state of Washington sucks but sighs when the this is what it looks like as far as floorplan it would be a 3-bedroom so this is the top floor two floors bottom floor you got a one car garage duplex kitchen living room mirror image on both sides second floor three bedrooms with the master bath and another hall bath and so you got basically two and a half baths three bedrooms two and half baths two units looks super super cool and we're able to get down to the front lot so here's the original numbers and stuff on the original house original house values three hundred forty thousand dollars we owe currently 165 thousand on it new lot value if we just sold a lot by itself is 80 grand already we can do that today cost to build estimate plus entitlements for the new duplex would be three hundred eighty thousand and we believe that the value that completed duplex would be about five hundred grand in this area if not a little bit more so if you combine the two our new loans for both would be about five hundred fifty thousand that's the construction loan everything all in principle instr taxes insurance on the new loan amount we have $3,500 a month combined rents for all three units now would be fifty three fifty leaves us a total equity of two hundred ninety thousand dollars in annual cash flow of twenty two thousand two hundred dollars right now all this is great so I'm going to stop sharing the screen for a moment thank you and all this is great and it's and I want to get to some of you guys as questions here in a second really in reality like what I found despite what's going on in the market and what despites what is happening today I and some people are thinking let me dump my properties some people are thinking like we got a like basically cut our losses and go or what rentals so I have that can get rid of from my experience or from what I've seen so far in this business and I have a lot of friends that pad houses for for decades many many decades either we've had Brian Burke on a webinar that we had last week Brian Burke bought a ton of properties in 2009 after the crash he was actually there in 96 or 95 96 when the crash was prior to that as well he's been buying properties for a very long time and one of the things that he says plus a number of other people say is that in real estate I if you have issues with your properties now and you can hold on to them then just wait a while and eventually real estate will appreciate and you'll be back to normal again but you might need to wait five years 10 years who knows right but in the long run real estates always a great great value if we have inflation issues kind of stuff real estate will continue to go up if you just I guess the thing I'm trying to say is that before you cut any property that you have think through it going am I going to regret this two years from now three years from now five years from now or is this just a neat you knee jerk immediate need that I have to do to be able to sell this house right I can look at this property now and I can cut her and I could basically sell it right we could sell the lot and we can sell the house and we walk away with a good chunk of change but the long term of it I don't need to sell it right now so why why react and think something's gonna happen even if it takes ten years before the market to change or you mean if it goes down it might not go down maybe it stays good maybe it goes back up I don't know but even if it takes ten more years I'm in this business for the long run and this property I see as something that we can hold on for many many many many years to come so I'm gonna continue to hold on to it that said though if you need the cash right and you are in a position where you're like no we need the money now to have more liquidity then absolutely do your best make sure you're not using an emotional reaction to it do your best and get rid of the property if you think that it's the best thing for your business in the long run right but if you can withhold it in the short run great then I think you should because if you got 10 more years or 15 more years before you actually need the money of that property then will your future self thank you or hate you that's all I got to say on that part but let's get to some questions right before we do that I want to share my screen one more time and just show you guys really quick if you guys want to find out more about us my company fixated real estate you can follow us at fixated real estate you can also follow me at Tarly Arbor on Instagram and you could go back to on sharing the screen I just want to show that really quick thank you and we are always doing facebook lives for bigger pockets which we love to death at twelve o'clock on Wednesdays next week we have another webinar with we have Brandon Turner we have AJ Osbourne who you guys are gonna love to hear AJ and we also have J Scott next week 12 o'clock Wednesday on BiggerPockets live so be there for that we're gonna go over a whole webinar series about what's going on the market things that we're doing changing all that great stuff as a community so let's go and get to some questions and see what I can answer for you guys as best as possible and what are all these comments and understand all right so let's see location so Marla you asked me where the location was this is actually in the Seattle area it's definitely it's south of Seattle an area called Lakewood I and so it's why is Elliot messaging people and understand that all right how many homes can you have under under an LLC that comes from Matthew Paul Matthew you can have as many homes as you want on an LLC as you ever dreamed possible it doesn't there's no limit to how many homes you can have in an LLC the I guess the question to be asking is how many homes should you have in an LLC there's probably one of the better questions to ask for that because and you'll have a lot of different attorneys and a lot of different CPAs will all say completely different things in to answer your question on that what I found is a CPA will tell people that the attorneys can't do math and attorneys will tell people that CPAs can't read so that said my advice on my end I'll do I have no advice for you I just tell you what I do I typically don't allow any of my LLC's for rentals have maybe more than three to four properties in any single one of them and I have it structured in a parent company set up and that's me personally and how I handle that but I highly recommend you if you have any questions on asset protection to definitely sit down with an asset protection attorney there is a ton of content on BiggerPockets that you can go to and ask questions on that as well through all the forums plus also there's tons of BiggerPockets podcasts that have a lot of info on that and they've had a lot of great speakers and CPAs and attorneys on the BP podcast that can answer more of those as well so the Samantha Samantha award says she can't focus I don't understand why not well is it my voice I don't understand is it something that was happening I don't get it okay the what else we got mm-hmm there's a lot of laughing I don't know why my presentation was so funny let's see what else oral or gassy Chris this was actually a oil tank right initially they had an oil oil furnace that was on the property and we decommissioned that there was a bailable buried oil tank we had to get that on not unburied we had a decommissioned oil tank there's a way to do that you hire a company that specializes in that and they're able to decommission it officially they register it typically with the local fire department and your local county that's been decommissioned appropriately we then switched it over to electric heat for that property as well so it was easier for us to do that oil was a little bit more challenging there's no gas in that area so we have to had to get that piped in or not but we switch that over Tyler says why did you choose carpet for the floor over any other option for the master so what we do for our rentals and this is something we choose to do is that we use typically a vinyl luxury a luxury vinyl planking in all the major living areas right so living room kitchen if there's a hall bath we put it in there and we keep it really really simple for that LBP typically will last a very long time compared to other laminates and so forth that are out there but then the bedrooms we always use carpet right bedrooms don't have as much traffic and it's kind of make sure you'll find out like a lot it's kind of it's not a 50/50 I think it's more like 80% of people prefer carpet in their bedrooms and I just pulled that statistic out of you know the my head so because that's what I think it is so that's so you can quote me on that and basically you know fifty percent of the time I'm a hundred percent at the time right so the so I think about eighty percent yeah the sweats it but we put the carpet in the bedrooms because it's less foot traffic but the rest of the house when it comes to the major living areas there's a lot of foot traffic so we want to use something that's a lot more durable like LVP and but LVP is expensive compared to carpet so that's why we also don't put it everywhere we put it in just the major areas so I hope that answers that question so what other questions we got let's see who do you use for financing and local bank that's from Ryan pallucci as I hope I said it right so good question so for us during this house what we do now is different but during this house we still qualified for the Fannie Freddie your conventional mortgages you can you're allowed to have ten of those on your credit report as a real estate investor and so we were we only had our personal house at the time on our credit report so we still qualified for the penny Priddy loans and so on this house we also have never refinanced it so it still has the same original loan we got on it years ago and so that we did is that I highly recommend you guys if you do the bird strategy if you're using any kind of hard money or any kind of private funding that when you go to refinance with a traditional lender some of that's good to do more conventional Fannie Freddie you it's not every loan officer and that not every underwriter understands that business and they don't understand your business so it's very very important to make sure that you work with a loan officer that understands what you're actually doing even if it's just traditional so don't go to most local banks like you walk into your non-local base most bigger banks are probably not the best banks to go to a lot of times you want to deal with more the local mortgage brokers or local banks and they typically are a lot more flexible to work with you on this kind of stuff and understand your tax returns and how this all works - so do I invest in multifamily the largest multifamily that I have right now is a triplex right I almost do everything in my portfolio single family because I've just spent most of my time in the single family world so that's what I like to focus on the most because it's what I know if I ever got into multifamily then I'd be asking a lot of my multifamily friends to help me out with that which i think is the best thing I'd probably want to do a big multifamily without partner in somebody that knows how to do it already all right why did you not pull out more equity on the cash out refinance 108 so that's it this is one of those questions that is really determinate on you right right now that property based off of current areas that like with what it is if you don't include the lot that property right now is like at a 50% LTV right which yeah you can pull that equity out and you should definitely do that if you need the money and also if you want to lock it in at a low interest rate especially right now rates are super low and we've been sitting on the fence going like do we pull it out do we not pull it out now at the time though we didn't pull it out because we were doing a rate refinance and not a cash out refinance where you refinance is a lot simpler a lot faster a lot easier than a cash out refinance so for so that said that's one of the reason why we did it we also didn't need the money right so we just left it in there and called it a day and we do that with almost all our birds is that when we don't need the money we leave it in there and so that way cash flows more and then when we need it we can go refinance later or we pull out it or we have an equity line of credit on our rental so that way we can use it when there's some banks that allow you to package multiple rentals and pull one every line of credit on multiple rentals for one line which is kind of cool when you can do that and the for this particular property we never touched it we just let it sit there and move cash flowing right now it's cash flowing 600 something bucks a month because we raised around again and we have nothing to worry about so but I'm happy we never pulled out a line on it because now that we have the second lot that's been peeled off and we're going to do the development on that we now have a 300 we have a it's actually about 350 360 thousand now for the house by itself then we only owe 160 on right so there's two hundred and two hundred and a what is a two hundred thousand dollars of equity in the single-family lot and we have an $80,000 free and clear lot right we can now leverage the single-family home that for the first lot leveraged that to help build the brand-new duplex there right and we use it as collateral to so it's great so we use that we have a free and clear $80,000 a lot that is collateral right that there's no encumbrance on it because it's a separate taps a PN number now tax number and then we also have a house that has two and tells all their equity so we can combine that and get a and get it very easily get a building a building loan on it and sell our construction loan on the lot for the duplex because we have that collateral without having to put more money into it have to refinance again so I'm happy we didn't do it that's not why we didn't do it we didn't do it because just didn't need the money and I wanted to cash flow more and we just left in there so alright the what else we got the first-time rental owner we got kin do you recommend acquiring second and third properties now or paying off your first property that's a good question so and I think you have to you're saying that in alignment maybe with to the way the times are right now I would say that's up to you right it really is for me we've thought about taking some of our other properties pulling equity out and paint off one of our properties for instance and then getting a home equity line of credit on one of our properties like we have a duplex right now that's worth about half a million and it we only owe 200,000 on it so we thought oh let's pull the equity out of some of the other rentals and then bring those other rentals up to maybe 70% LTV then use the eques from some of those other rentals to pay the 200 grand off that still owed on the duplex and then pull a whole new line of credit out on the entire paid off duplex right and then we just go back and forth on that I'm a bigger fan of depending on your age and based on your photo I'm assuming that you're not you know 65 years old and about to retire I would say you're on the building mode still if you feel comfortable with the market and you feel comfortable with investing then I would say it's better to use the funds that you have to continue continue to build your portfolio up especially depending on where you are and your age right and how much time do you have if you only have 5 more years left before you want to retire whatever then and you don't have enough to retire on then yeah you do need to build your portfolio but if you got 10 15 20 years before you actually plan on living on your portfolio then you're in the building mode right now and you should be acquiring more properties smartly we're all investors and investors need to mitigate risks and right now is a time to mitigate risk and figure out what's going to be the best bet what to actually focus on and where to use where you deploy your capital and where do you not everything we do in this business is about mitigating risks so even with the time that's happening today it's no different than any other time Meeny it is very different let me back up but no different as far as fundamentals go real estate investing fundamentals those don't change right so stick to a buying criteria and and you might have to adapt your buying criteria right now and then stick to your guns and determine if you pull the trigger on buying more properties now or do you hold off and wait a little bit I can tell you that I think lending is gonna get more and more restrictive as time goes on I don't think it's going to loosen up I think it's actually gonna get harder to get loans on the on the calendar on the back end refinance of a per property so think through that to make sure you guys got your finances set up everybody if you know if your forbearance in loans also just stuff right now you might be in a rude awakening later all right although Oliver is asking do I live near my investment properties depends that's relative I think the closest rental I have is about an hour away from me and so that's that should give you some perspective we could have one we're gonna have one soon that's 30 minutes away from me but all the rentals I have are in the same state of Washington that I live in and that has nothing to do with like I thought it was a better place at best it's just where my business was and what we had at the time and I didn't need to go look out of state if I'm looking for cash flow which I am then I'm looking at a state right now and I am looking at a state right now and it's because it's cash flow is king in my opinion equity we got a bunch of different properties we can 1031 into other properties even that state so we are looking for that and it's just a system to manage and rent properties out of state even local or whatever but I think it's actually harder to invest in real estate when you're investing in your back door because that back door but back yard because you're more likely to go see the properties all time touch them feel them look at them be there versus if it's far away from you you have to build systems out to have that property work on its own and plus also you can't go if I have a product if I'm in Seattle and I have a property out in Ohio and the toilet breaks I can't it's ridiculous for me to fly out there and go fix the toilet right so it requires me to hire a systems people buy good properties that can manage that versus if it's local I might feel like oh cool I'll just save 150 bucks 300 bucks and go change the toilet out myself but what is that really costing if my time is worth like 500 bucks an hour or something then it's ridiculous so I think it's hugely important to get good at buying properties away from you or if you buy properties near you pretend like they're far away from you in my opinion okay so let's see what you got dah dah dah dah ten loans under Fannie Freddie Fannie you know it's ten loans that are more the conventional yet Freddie Fannie up is a hella good alternative to refinancing that completely depends right so I'm just gonna leave it at that I would highly recommend thinking through that because he locks can be called he locks could be pulled if you are a lot of times he locks you can't he locks you can only used on equity a lot of times you can't pay off another loan with a HELOC right so unless you're using the he lock from another property so if I a one hundred and seventy six thousand dollars on the house typically they don't refinance 876 thousand dollar mortgage into a HELOC typically you have to refinance that into another mortgage right or sorry another another traditional mortgage of some sort let's see I'm not gonna answer that one else we got just in cos you spend it quicker I don't understand that question government will begin banks to help I have a what kept right do you target ok targeted cap great question though actually I'm going to answer that so Peter is asking what cap rate do you target so cap rates for single-family homes is a little bit in my opinion a little different than when you're looking at multifamily and depends also if you're doing a portfolio of single families versus buying and individual single-family for me when I do I don't keep any property that I have to leave a bunch of money into unless it's it's typically this is where it gets weird like I only do pers so I don't just go buy a rental right the only time I've ever like bought a property that did not need to be fixed up was when I 1031 into it and we just did that on a commercial building for instance so with good timing on that by the way right 1031 into a commercial building a few months ago whew I was smart on that one too right can't even rent it out right now so the or lease it out but typically I'm looking for property that's completely destroyed right because we flipped a lot of houses so we're good at construction I'm gonna massively build up equity into it through what we can do and a lot of our rehabs are pretty heavy so we can build a lot of equity into it and then I want it to cash flow at the end I just went to cash flow even if it's only cash flowing like a hundred fifty bucks or two hundred dollars a month if I have the majority of my money out then I'm gonna keep it right because I don't need the money right now and so if I have to if it's a negative cash flow then I look at it tax reasons I'll whether it may be to keep it we had a property that we sold late last year that we only bought and held on to you for twelve months and had it rent it out for twelve months so that way we can change our tax bracket on the property because we did at ten we basically we didn't 1031 we wanted to sell it because we were gonna get about a hundred twenty thousand dollars of profit from the property and I didn't want that tax obligation hitting my books as ordinary income as a flip so I held on to it or rented it out for twelve months so they can go into capital gains instead even though it was a negative like hundred dollars a month property right so we were paying $100 a month negative cash flow on it but I didn't need the I wanted to reduce my tax basis by almost half actually less than 1/2 start more than half by keeping the property for 12 months so we did that on us in the side note flipping houses you get taxed as ordinary income not a couple of games to make sure you guys are aware that not a tax accountant or attorney so look it up or ask your attorney but I get taxed as ordinary income when I flip the house even if it's in a corporation so keep think for our sorry an escort see coops are different going down the weeds on that what stop so so I don't target its cap rate our target a how much I target a return on my money right in a sense of if I'm going to leave ten thousand dollars into a rental then actually this is go sound funny but I want forty percent return on that minimum or else I'm selling it and I'm not gonna I'm gonna flip it so that's my target for my bers right if I'm ten thirty wanting into a property completely different I look at what is my look what's my cap rate on my equity in my current rental and that's another thing to consider that can go in the weeds on so I'm going to stop doing that all right what else we got what type of cash flow do you aim for per house the market I am is very expensive so that's from Jensen great question right the the market we're into a Seattle is extremely expensive most of my properties are South CL but that we keep as rentals so we have a little bit more of a cash flow aspect so kind of repeat what I just said a second ago which was I look at positive cash flow with high equity so if I'm done with a BIR rental right and I'm done with it I can get most of my cash out then as long as it's cash flowing I'm probably to keep it right the reason why what's so great about burr by rehabbing rent refinance repeat is that the only way of a property is a good burr is if it's first a good flip you can't you can have a good burr and a good flip on the same property but you cannot have a good burr if it's not a good flip so remember that if it's not a good flip it won't be a good Burt okay but it could be a good burr and also be a good flip so a solid bird has two exit strategies minimum you keep it and rent it out or you can sell it and get your money and flip it and make profit if it doesn't do that it's not and it's not a good flip then it's just a rental at that point it's not a bird so keep that in mind if I'm buying traditionally it's another another level I better be getting at least a if I'm buying if I'm ten thirty wanting into a property then I want at least a ten percent on the equity that I put it into it which is another story for another day all right what else we got we're in the Ohio area I'm don't I'm not actually looking at in Ohio was a good location for investments after lockdown that's a good question if you find out let me know and I will be there but I can tell you right now one of the theories is that I think real estate is actually gonna still be fine that's my opinion right with what's going on I think real states could be great I think the lending industry is gonna be more and more and more restrictive so it's gonna reduce competition for investors just because not all investors can get funding if I were in anybody else's shoes right now I would be focused on how do I secure funding right now so I can buy opportunities that are out there a lot of competition has that's in the investment world has been knocked off their ability to be able to buy because hard money lenders aren't financing or what they used to finance at low rates there now financing at higher rates again which makes it more challenging so I would be focused on how do I get funding all right that's what I'd be focused on and also back in find funding for a refi and then as far as I think the real opportunity is gonna be in businesses like as far as like buying so it's in real estate real estate still gonna be there in my opinion that can be completely wrong right you're gonna make your own decisions take your own risk that's your choice not mine and my choice is I feel good right multifamily is gonna be kind of hurt right as we've heard for a while a lot of lenders aren't touching multifamily right now so watch out for that commercial is going to be definitely an opportunistic area that you can jump in in the commercial play playing field a lot of commercial retail office space is getting hurt a lot right now which means there's gonna be some discounts there for sure you might have to hold onto it for a while but think through that you're not gonna get no you know 60-day flip on a commercial building and so I think commercial multifamily will have some opportunities because a lot of people are being decimated currently in those two fields which leads to opportunities on the other side I think single families gonna be strong right I'm not worried about that in my market at least and I also think that unemployment is going to affect a lot of certain areas so keep that in mind and watch out for that in my we have we don't have we have unemployment but it's not as certain parts of our area has a lot more people that can work from home than they can't so we have a lot of tech in our areas that kind of helps and then in but a true opportunity the bigger pocket business podcast J Scott put it out of podcast a few weeks ago where I can remember there was a guy from a lament organ that they were cameras named that they interviewed and he I loved that podcast and talking about the opportunities in business that are out there right now is just going to be incredible and helping America become you know stronger again with helping the businesses grow so a business that was profitable ninety days ago and a great customer base most of those businesses will also be the same way ninety days from now once the lock downs over but that owner of the company might not be so hot and able to and able to run so they might need help they might need funding they might need a partner or they might need something to buy them out and so I look for those opportunities and help in those areas to not just commercial and multi-family all right I got time for one more question that I'm gonna be bouncing let's see what you got yeah I like this alright that's a great question Richard Wong do you have checklists for each team member involved in the Bur and if possible can you share with us right not going to share it but the right now maybe I'll do another broadcast broadcast for bigger pockets show me those checklists but I'm not going to just send them right now because there's too much explanation that goes into them I always be careful that when you use other people's systems make sure they fit your system because our system does not fit everybody system and the but yes we do have a checklist our business model is very very strongly systemized and they're very very very big we're very very big on lanes right and having lanes for people to be able to focus so we have an acquisitions team they have their lane they're in charge of what they do in that area we have a rehab team that's a charge of what they do and they have their entire lane and inside the rehab team there is multiple people that move around I'm one of them - I focus a lot on the rehab I like my my lane and my checklist and everything with it has to do with the scope of work right and the floor plan and then I work side by side with another person sarena who helps me with everything else and she helps take over the rest of the in project management so but three or the checklist right when it comes to it we're doing quality control every single week on these projects we're checking for we're checking through the scope of work the scope of work becomes a checklist right and we also make sure and there's there's so many checklists dude right there's so many there's a great book called the checklist manifesto I definitely encourage everybody to read it he'll allows you to take complicated checklist and turn them it's a very simple practical checklist and that's what we use we use a program called asana Asin a to control and manage all of that for us and the that's something that we create a templates through through these checklists that we do but we have a whole system and checklist for acquisitions that has to go through we have a whole system a checklist process for the rehab process and then the backend to be able to refinance and get it ended in there and everything else like that and then project property management has their own thing too right so each place it's just mitigating through that but I encourage everybody to death okay so I hope you guys like this we try to do this every noon next week make sure you guys tune in for sure right me Brandon Turner AJ Osborne and Jay Scott webinar right live it's gonna be broadcasting you guys 12 p.m. Pacific Standard Time here on VP live plus also some a bunch of other channels and it's going to be amazing we're to go over Brandon's gonna talk mostly about mobile home park situations AJ Osbourne invest in multiple businesses plus they also use huge storage unit investor at Idaho he's one of the largest out there Jay Scott you guys all know him we love him death I'd best achill family we're all experiencing very different parts of the market right now and very different things we're gonna have more of our global aspect discussion on real estate and the different market niches that are out there and what's gonna be affected what is being affected in today's market coming up rents due again May 1st so we'll see how that's gonna go we're gonna discuss that discuss current policies things that are going on changing daily for everybody as well so tune in next week for that that's gonna be live so hope you guys see that and besides that follow me at Tarly Arbor on Instagram make sure you guys comment like subscribe to bigger pockets and everything bigger pockets does we love BP so go to the forums listen to their podcast and we will see you guys on the next one thanks for being with me

Channel: BiggerPockets

Views: 149,478

Rating: 4.9256759 out of 5

Keywords: real estate investing, real estate deal analysis, investment property, brrrrr investment property, brrrr real estate investing

Id: v_Nrkua7NSM

Length: 42min 10sec (2530 seconds)

Published: Thu Apr 23 2020