The SFR Show

In this episode Michael speaks with one of the new coaches from Roofstock Academy, Ryan Minekime about performing BRRRRs remotely. 

---

Transcript 

Michael:

Hey, everybody, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Coach Ryan Minekime, who's a Roofstock Academy coach with me over here at the Roofstock Academy. And we're going to be talking to Coach Ryan about what it means to be a BRRRR remote investor and how he got his start. So let's hop into it.

Awesome. Ryan, thanks so much for joining us today. Really, really appreciate you taking the time, man.

Ryan:

Yeah, thanks for having me.

Michael:

And so just in full disclosure, you are one of our newest rootstock Academy coaches. Right.

Ryan:

Yeah. going on about three weeks now. It's been fun,

Michael:

Awesome. And loving every minute of it. Right?

Ryan:

Exactly.

Michael:

Good deal. So I want to talk today to you about the BRRRR method. Since I know that's really a big part of your investment thesis and philosophy. But before we get into that, can you tell everybody listening at home a little bit about you as an individual, your background and how you got started investing in real estate?

Ryan:

Sure. So I live up in the Bay Area right now. And I started investing in real estate in about 2014, I bought a single family house down in Downey, California as part of a partnership with my dad. That's kind of how I got into real estate in general, grew up watching him invest in real estate deals. So I bought that deal, and then invested in a multifamily deal in California. And then about two years ago started investing primarily in Indianapolis, using the birth strategy.

Michael:

And I remember when we were first interviewing you to come on as a coach, I learned that your first investment down and down, he was about 20 minutes away from my very first investment property as well. pretty small world.

Ryan:

Yeah, super small world.

Michael:

So were you living down and down at the time you bought that first investment? Or was that a remote investment for you as well,

Ryan:

I was living about 30 minutes south of Downey. And so my dad was actually managing a rental that he had, which happened to be the house that I grew up in, originally. And he noticed that the neighbor across the street was about to put up a for sale sign he had a conversation with him ended up getting the deal off market. And so we're able to cut out the agent fees for the seller, and it was a win win for both of us.

Michael:

Awesome. And so it sounds like your dad then is pretty well versed in this space, if he was comfortable enough to get help you do a deal without an agent involved. Is that fair to say?

Ryan:

Yeah, it is. And it helps that he already owns the exact same house across the street. So we knew all the comps on it. We knew the numbers when you would have been rent for so that made it a little bit easier going into it as well.

Michael:

Awesome. And so how has that property been for you today? Just out of curiosity, do you still own it,

Ryan:

Still own it still renting it? It was a California house in 2014. So it's gone up quite a bit since then it doesn't cashflow that much just given that houses are more expensive here, but it's appreciated quite a bit and planning on holding that as long as I can.

Michael:

Awesome. So let's switch gears here and talk about the bur method. And just for anybody who might not be familiar, can you give us a definition of what the bur method is or what that acronym stands for?

Ryan:

Yeah, so the BRRRR is heard all the time on bigger pockets. It's by rehab, rent refinance, repeat. And so that's what that stands for.

Michael:

Awesome. And so walk us through your first bird deal and how you landed in Indianapolis. Yeah, so

Ryan:

I actually started investing in Indianapolis, not using the bur method. So my first couple deals out there. I just bought off the MLS. And so I was buying with 20% down, and most of the ones I was buying, I was still throwing in rehab money into that. So it was 20% down and rehabbing it. I ended up putting a decent amount on each deal.

Michael:

Ryan not to interrupt you. But I don't know if you've heard but there are no good deals on the MLS. So were you just buying all junk?

Ryan:

Well, I did also this was two years ago. So it's a little bit before things got tough. But there are always still deals on the MLS, you just have to make enough offers. And ultimately you'll you'll find one that works.

Michael:

That's a great nugget for anybody listening that thinks you cannot find any good deals on the MLS. It's a total numbers game. Awesome. Sorry to interrupt, keep going.

Ryan:

And I'll come back to this but I actually still BRRRR off the MLS now. It's again, not easy these days, but still can be done. So after the first two deals, I ended up putting more cash than I wanted to into each of those then learned about the bird. Obviously, the scariest part about bur investing, at least for me at the time was throwing that much passion to a single deal.

So on the first one, I got a private money loan, and then went from there and purchased the house in cash and borrowed enough money to also have a little bit of rehab set aside to be able to do that, and put the rehab into it and then refinance out about six months later and was able to pull all but about $5,000 out of that deal. And I've been trying to just replicate that on every deal since then. So some of those are more successful, some are less successful, but my general approach is to try and replicate that strategy.

Michael:

Right on and so in that first deal, you got your private Capital loan was that for the purchase and rehab or just for the rehab.

Ryan:

So I've done it both ways. On the first one, it was for the purchase and the rehab. And I use a couple different private money investors, some are comfortable lending the rehab as well, some only want to do the purchase. So it kind of just depends on the private lender there as far as whether that's an all in loan or whether you're just getting a loan for a portion of them.

Michael:

Okay. And I want to dig in a little bit more on kind of the numbers that we can't hear in a minute. But I first want to know, how did you land in Indianapolis?

Ryan:

You know, it was just I knew a couple people that were already investing in Indianapolis, actually. So it's always easier to invest somewhere if you know someone that's doing it and success there. So that helps. I also looked at a general market factors you should always look at. So job growth, population growth, price to rent ratio, which is a came in handy for the bur method. And so just someplace that I could find an affordable house, and I could get the numbers to work. And so there's a couple of markets that hit that criteria. And then again, because I already had some friends that were investing there and set me up with the property manager, etc. It was made most sense to go into Indianapolis.

Michael:

Awesome. And that was gonna be my next question is how did you start to build your team out there? But it sounds like you leverage existing relationships for friends that are already investing out there?

Ryan:

A little bit. Yeah, I, I started out by just interviewing as many people as I could. So I joined and Indianapolis Facebook group, which was just a bunch of investors that all talk Indianapolis real estate all day long. They're surprisingly a lot out there that I invest in Indianapolis. So I started there got a couple recommendations, interviewed probably 10 to 15 property managers, which is which I, the team member that I started with, and then finally narrowed it down to three, one of those was a property manager that one of my friends was using. So it made sense to go with him, and then use him and then build out the team from there.

Michael:

Awesome. And then Who was your next addition to the team?

Ryan:

What actually all kind of fell into place with the property manager. So the property manager is a husband and wife combo, and the husband is my property manager, the white is my real estate agent. And so I guess they kind of sold me on that. But it's been been great ever since. And then from there, I started moving out a little bit, the property manager also does construction, which a lot of people have pros and cons about using your property manager to also be your general contractor and or due to construction. But so far it's worked out well. For me, another main contact I have out there. And a big part of my team is a wholesaler. And that wholesaler actually has a construction wing as well.

And so what I generally tend to do is depending on where I get that project, if I get it from my realtor, then I'll let them do the rehab. If I buy it from my wholesaler, I'll let them do the rehab to kind of keep the business within the family so to speak.

Michael:

Sure. And you mentioned that some people have pros and cons associated with having your property manager do the construction. What are some of those?

Ryan:

Yeah, I think the arguments against it would be that you just want aligned incentives. And so if your property manager is incentivized and making a commission on the rehab and or repairs that they're doing, you might think that they're incentivized to do to over repair your properties or to over rehab, your property's never going to bear commission. And so the way I got around, that was I just bid out the first couple projects. And so I got a bid from my property manager, and then took that bid elsewhere. And turns out he was either average or lower than average, as far as price and the quality seems to be there. And so once I gained this trust on that, then I just continue to go to end with every project from there.

Now, I think the the pros is just that it's one stream of communication. So when I buy a house, I send one email and they'll have a scope of work, then he'll flip it over to the property management side, get that going. And so it's just one point of contact that I have throughout the process, as opposed to trying to manage the GC and a property manager and keep everyone on the same page.

Michael:

Now, it's such a good point, it's such a good point. And I love that you went and bid that out and really forced that trust to be there. And I mean, at the end of the day, even if they were a bit more expensive, that ease of communication that you just mentioned, very well might be worth it. So if you could go spend an extra 1000 $2,000 but not have to go chase down people to do stuff, that peace of mind is well worth it in my opinion.

Ryan:

Yeah, absolutely. And I think sort of a side point of that is for example, I said if I buy through the wholesaler or let their construction wing do the rehab, when I bid them out, they've actually tended to be on the pricier side, but I've noticed the quality is higher, and they're always a faster turnaround, which at the end of the day if you're getting it rented but we faster than you would have otherwise, it's worth money. So it kind of just depends on comes down to the numbers at the end of the day and the relationship but I'm not necessarily always going with the cheapest option. Sometimes there's a faster option, sometimes better quality options. So it's just, it's good to have different options when you're going through those.

Michael:

Absolutely. And I think that's such a great point. And I just want to reiterate and kind of dissect it for a minute when you talk about speed and timing of things. So there's holding costs associated with with owning these properties at while they're not rented. And so your tax payments, your insurance payment, your mortgage payment, if you have one doesn't go away, just because of the fact that there's no renter in there. And so you want to calculate all of that stuff, something that caught me a little off guard on my first rehab was the utility costs that you're going to be incurring while holding the property.

So there's people in there working using power tools using the bathroom. So a lot of times utility costs go through the roof during a rehab project, and you just want to be aware of that. And then also on timing, I've done this too, I've gone with the cheapest option, because it was the cheapest, and ended up taking months longer than expected, which then put us into winter, which then made it harder to get those units rented. So all of that needs to be factored in when you're making your ultimate decision.

Ryan:

Yeah, absolutely. Timing is a big one that I learned about. In that if you're investing in places like Indianapolis that have winters with snow, which I wasn't used to being from California, it's really hard to get them rented and even to do the rehab if you're doing it in the middle of December, the middle of January. So definitely something to be cognizant of doesn't mean you can't do it. But it's just another factor to to weigh when you're thinking about it.

Michael:

Absolutely. It's also depending on the extent of the rehab, if you've got to put on a new roof on this property, I mean, that often cannot be done in the winter, especially if there's glue or bonding materials that need a certain temperature to add here. It's just not an option. And so you might be sitting with a vacant property for a lot longer than you anticipated because of that timing issue.

Ryan:

Yeah, absolutely.

Michael:

Something else you mentioned that I really want to come back and touch on, which I think is just great is the combo husband and wife team that your property or your property manager and your agent, something I've touted for years and I talked to a lot of students in the academy about is anytime you can find somebody where your incentives are aligned, just like in this instance, you're going to be better off. And so this is not meant to knock agents or discredit agents in any way, but they get paid when they sell. That's just the fact of the matter. And property managers get paid when they manage.

So if you can find someone that has, you know, if an agent sells you a headache, and then skips town, you might never hear from them again, you know, they're gone. But if a property manager who's also an agent sells you something that's a bit of a lemon or a headache, they're gonna have to deal with that headache just as much as you are, if not more, so. So I think that was a great decision you made.

Ryan:

Yeah, 100%. And another benefit I've noticed from that is, it's a little tricky when, because I'm buying from a wholesaler to the agent isn't always getting comped when I'm buying. And so for example, if I need comps run on a wholesale property, it's the agent isn't necessarily incentivized to help me with those comps, because of the fact they know I'm buying it off market. And so they're not going to get a cut of that. But what I've noticed in this relationship is because I'm buying that off market and bringing into the property managed by them, and then ultimately, I'm going to sell it through them. They don't necessarily care as much how I bring a property in just as long as I bring in properties in because they know I'm going to use them on the back end to sell out at some point in the future. And so it kind of helps out even the off market deals that they're not getting directly compensated on the first time around.

Michael:

That's such a good point. That's such a good point. And are you able to negotiate any kind of discount? Or Yeah, reduction in transaction fees when you ultimately do sell? Because you're you're using so many of their services in house?

Ryan:

You know, I haven't actually gotten to that point yet, because I haven't had to sell anything. And so I've kind of just been waiting until I have more properties under my belt to then have the economies of scale. So I'm sure I can have that conversation when I go to sell, but I haven't had that yet.

Michael:

What about on the monthly management fee side or on the lease? You know, new tenant placement fee side? Are you able to get any kind of economies of scale? there?

Ryan:

Yeah. So on the on the management fee, we negotiated basically a set discount based on the number of properties that I have. So starts at one rate, and then it tears down as I add more properties.

Michael:

Great. It was that just a curiosity? Was that a difficult conversation to have or an uncomfortable conversation to have?

Ryan:

No, not really it was? I mean, it wasn't difficult to have. It's a little bit hard when you're starting out at zero, because you're like, hey, when I grow to 50 properties, will you give me a discount? And I'm like, Okay, yeah, sure. But that's 10 years down the road, like,

Michael:

Sure.

Ryan:

let's talk when you're actually there. So part of it is theoretical at the beginning. But it's good to have a conversation upfront, just so you know what you're getting into?

Micheal:

Yeah, I think that's a super good point. And I think it's also super important to recognize that once you hit 50 properties for the sake of discussion, right, changing property managers is gonna be a real pain in the neck at that point. And so having that conversation up front, make sure everyone's on the same page. I think it'd be really mutually beneficial.

Ryan:

Yeah, absolutely.

Michael:

That's a great point. All right. So can we dig into the numbers of your first bird deal? I'm curious to know about the purchase price, how much rehab you added, what it rented for and then I know you said you left everything but five grand in the deal. So what the refinance price To use look like?

Ryan:

Sure. So my first one was this one was purchased through a wholesaler. So I purchased it for about 60,000 put $20,000 worth of rehab into it. So it was all in for 80. There's another call it 2500 and fees there. So my plan was around 85,000.

Michael:

And does that 20,000 include your holding costs in terms of your principal and interest payments on that mortgage and insurance, all that good stuff?

Ryan:

Yes, it does.

Michael:

Okay, so you're all in for 87 five, and then you You said you refi it six months later,

Ryan:

I actually rebuy I was able to refi in less than six months. So I was able to avoid the seasoning period. If it was a rate and term refinance. I mean, they're just paying off my private lender, they're able to skip the six month seasoning period. And so I refied it, I want to say about four months after purchase.

Michael:

Okay. And then so they reified your $60,000 purchase mortgage.

Ryan:

Yeah, so the refi came in, I took a loan out for the rehab on that one, too. So as 60, I had the loan out for all 85. And then when I went to get it appraised, the appraisal came in at 110. So I was able to borrow 75% of that, which is 82,000.

Michael:

Oh, man, that's awesome. So that's a super interesting point. So if you do a rate and term only refi, you can get it done sooner, as then if you're pulling cash out,

Ryan:

You can get done sooner, and you can still include the rehab in that first loan amount. And so it's still a rating term.

Michael:

Right. Yeah. Because they don't care what's involved in that loan. They just see it's all one loan.

Ryan:

Exactly.

Michael:

Oh, man, this opens up so many opportunities. So go, you know, it's okay to go get expensive loans, because you can refinance out of them inside of six months, you just better be darn sure that your numbers are accurate. Exactly. Yep. Awesome. And so what loan product Did you get on the refi? out?

Ryan:

So that was actually a traditional 30 year fixed. And now that was that was about a year and a half ago. So I think it was a, like a four and a half percent interest rate on a traditional 30 year fix.

Michael:

Awesome. And you still have that today?

Ryan:

I do. Yep.

Michael:

And what does the property rent for?

Ryan:

$1095.

Michael:

Well, Ryan, you can't get 1% properties in Indianapolis man quick pull in our chain. What is it really rent for?

Ryan:

1095? It ended up working out well.

Michael:

Awesome. So if you don't mind sharing, what is your average monthly cash flow looked like out of that property?

Ryan:

With all repairs and maintenance, I'd say it's about 250 bucks.

Michael:

Okay. 250 bucks. I'm just doing some quick math here. So 250 bucks, by a month by 12 months is about three grand a year in cash flow.

Ryan:

Yep.

Michael:

And your five grand into it?

Ryan:

Yeah, a little less than five grand.

Michael:

So you're at a 60% cash on cash return?

Ryan:

Yeah. cash on cash. It's a little weird when you're only investing like $3,000 in a deal.

Michael:

Right? Right. Right. Well, it's it's amazing when I talk to you about BRRRRing. And they're able to either use a HELOC or get all of their money out of a deal. And so then the return becomes infinity because they're in it for $0 or even negative dollars. They got a tax free payday as a result of it.

Ryan:

Yeah, exactly. Oh, man.

Michael:

That's awesome. So the private lender that you use to fund that deal? Are they happy to do more deals with you? Because you were paying them interest the whole time? And now you've got them their money back inside of six months?

Ryan:

Yeah. I mean, honestly, the only complaint I got was that it was within six months. It was free interest for not free interest, but he was getting the interest on it. And then he had to wait, click on another deal. So he would have just prefer that it took longer if that was the only complaint I got. But uh, but yeah, generally speaking, I have two private lenders that I use, and I pay somewhere between seven and 10% for those. And they're both more than willing to do as many deals as I can find up to a certain amount. Sure. And so I just keep going back to those two, to continually use them going forward.

Michael:

Awesome, awesome. And you mentioned that some of your BRRRRs have gone just as well, if not better, and some maybe less. So what was an instance where something didn't go as well, and are able to put your finger on why it didn't go as well. And to kind of have some key takeaways from it.

Ryan:

Yeah, I'll give an example of one that I'm in the middle of right now. I purchased one in probably September of last year, and I actually bought it off the MLS the numbers works, I thought when I purchased it, and so I purchased it for about 70,000 and the ARV was going to be close to 100. And so what are worked out I probably the math I was doing, I probably would have left about 15 grand in the deal all said and done after the rehab. But turns out the tenant just didn't want to move out. There was a tenant in there. And so now I've been sitting on that ever since with a tenant that's not paying.

So I'm paying the interest on it. The tenants sitting in there and actually as of this week, I think I'll be able to get them out. I ended up offering them cash for keys. I went back to a one time offer to cash for keys amount they said no and I just went Back again a second time offered a higher amount. And they said yes, but haven't moved out yet. So assuming they move out, the numbers should relatively work out. But I'll be carrying it for probably at least six months by the time the rehab is done and all the rents done.

Michael:

Okay. And so how would you do that differently going forward.

Ryan:

So since then, I've been trying not to just during the time of COVID, I've been trying to not buy deals with existing tenants in there, especially below market rate tenants. But if I had to do something differently on that deal, in particular, I probably would have offered the higher cash for keys up front, I was trying to kind of get cute with offering a lower amount. And they just said no, and that cost me probably three or four grands and unpaid rent during that time. And so I probably would have just bit the bullet and paid higher cash for keys up front. Again, this is all a little bit different during COVID versus non COVID. Right, probably kind of a mix of them and a non COVID time, but it is what it is.

Michael:

Right. Right. And that's a kick you when you're already down, but you lost that three, four grand and rent and then all the whole carrying costs and time as well. So when you factor that all out,

Ryan:

Yeah, thanks for reminding. You're absolutely right. Yeah,

Michael:

That's a really good point. So only buying vacant properties. What about for buying tentative properties, and ensuring that they become vacant when you purchase them is that an option that you've played around with?

Ryan:

That is an option. This one in particular, the reason I was able to get it below value is because they were selling as is. I threw out the option of trying to have a vacant at closing. But the seller rejected that. The seller also ensured me that the tenant was paying every month, which they probably weren't. But again, all learnings that went into that short, but yeah, if you're buying off the MLS, and it's not an as is purchase, typically you can put a clause in there that it's speaking at closing, which would have worked. This one in particular, I think the reason I got a good deal on it was because they didn't want to take that offer.

Michael:

Yeah, that makes sense. And so is that the current project you're working on now? Or do you have anything else up in the air at the moment?

Ryan:

Currently, so that one I'm trying to get the tenant out. And then another one I'm working on, I closed on Thursday, also invest as part of a partnership with two friends. And on that one, we close on Thursday, and then send it over to my property manager. He has a full statement of work by end of day Sunday, and we're taking off rehab today. So we'll get that one going.

Michael:

Nice. That's super exciting. Can you give us the dirty details on that one?

Ryan:

Yeah. So yeah, the newest one, also a BRRRR Indianapolis. So we bought it for 75,000. The initial rehab quote from the I bought this one from the same wholesaler, the initial rehab quote that they actually advertised was 25,000. But in looking through the pictures, it actually looked like it was in fairly good condition. And so I thought that there was a chance we could get it done for less than 25,000, the numbers still kind of made sense with the $25,000 rehab, they're just a lot slimmer.

So we move forward with the deal, I had my same property manager go and walk the property. And he said, we could probably get it done for under 15,000. So that alone saved the $10,000 on the numbers that I thought they were gonna be.

So we just got a full statement of work, like I said, from him on Sunday, came back at $10,000 plus some flooring costs. So we don't know those yet. But I'm assuming it's going to be within the $15,000 total budget. And so that'll mean we're all in for 90k plus about 5k. In closing and holding costs and 95k the ARV on that one, I'm pretty confident it's going to be about 130, which will mean that we can pull out 98,000 on that.

So if all goes according to plan on that one, we should be able to pull out all our money or potentially even pull out a couple of brands on top, that's also going to be given that it's only a 15k rehab. Now, the quote I got as far as turnaround was 15 to 20 days. So hopefully within 15 or 20 days, it'll be all rehabbing back on the market and getting it rented. We're going to try and list it around between 11 and 1200.

Michael:

Awesome, man. That's killer. super exciting.

Ryan:

Yeah.

Michael:

We'll have to have you back on to hear how that one shakes out.

Ryan:

Yeah. Luckily, there is no tenant in that one. So I don't have to worry about that on this one.

Michael:

A little bit easier on this one.

Ryan:

Yeah.

Michael:

So are you able to get statement of work ahead of time during the closing process? are you closing so quickly that there's no time for that?

Ryan:

So I usually have to give an answer back. Again, when I buy off the MLS. I do have time when I buy from the wholesaler I usually try to give an answer back within like two hours of when I get the initial email saying here's the deal, do you want it or not? And so because it's a two hour turnaround, I'm usually buying just off pictures that I got from the wholesaler which is generally speaking not recommended unless you've worked with that wholesaler a couple times. But because I have flown out to the novice, I met this whole They are a pretty good relationship with them. And so I've worked out a deal. And I trust them enough to that to where if I end up walking through the property afterwards, and it doesn't work, or it wasn't as advertised, I can back out of the deal on the phone to someone else.

And so typically, what I do is, I'll get it under contracts without actually seeing it, I'll just look at the pictures. And then once I have it under contracts, I'll schedule an inspection. And I'll have my property manager walk the property while the inspection is going on, so that not only can he hear what the inspector is saying and writing down the deal, but then he'll also give me sort of a soft float. And he'll say plus or minus, like $2,000, with the rehabs going to be. So we'll say, these are all the things I think you need to do, you should probably budget about 12k. And he'll give me that. And then once I close, then he'll go back, he'll send his full team out, and they'll give me a full detailed statement of work that says like, No, we need new baseboards mean nine sets of blinds we need, the kitchen sinks, not working, whatever the case may be, give me that full detailed statement of work after we close.

Michael:

And do you find that the wholesalers estimates are fairly accurate or at least conservative. I mean, clearly, they were overly conservative here, which is something you tend to not hear about. Usually it's the other direction.

Ryan:

Yeah, it's kind of all over the place, I would say, generally speaking, they're within 5k. And what it ends up being, but that's why you always need to get a second set of eyes before you actually close. Because it's tough to just take any one person's word for what that is. And wholesalers tend to get a bad rap AS FAR AS numbers, they're projecting etc. And so you just need to be careful and make sure that you have trust with that person as well as a second person or a second set of eyes, if you're not able to do it yourself walking through that property.

Michael:

Makes total sense makes total sense. So when thinking about just getting started, and kind of turning back the clock, what would you know, today's Ryan, tell younger Ryan, as you're just getting started, or to new investors who are looking to do burrs remotely, what advice would you give to them?

Ryan:

Yeah, I actually buying in the traditional manner of just 20% down and going through the process a couple times actually helped quite a bit. Financially speaking, it wasn't the most beneficial thing to do. But it just helped me learn the process enough to get comfortable with it.

Whereas if I tried to BRRRR my very first deal, it may or may not go as planned, but it's just, it was a bigger step. And so I feel like buying a traditional through the traditional method was sort of a baby step on the way to get there. And I think that actually helped me a lot. And so I would recommend getting one or two deals under your belt before going out and getting private money from someone else and then putting their money at risks on a deal.

The other thing I would say is, when I underwrite a deal, I'll try to my sort of threshold is if I can leave less than 15 days to deal, then I'll probably move forward with it. But there's always a chance that you could lose more than that or not be able to refinance out of that. And so just make sure you have enough reserves if you are taking private money to be able to cover that gap. So you're not stuck in an awkward position of not being able to pay that person back afterwards.

And then just to add on, I think one of the biggest things that's up in the air with bur investing is that appraisal piece. And that's one of the hardest pieces to get right. And so for example, on that first deal that I walked through that I ended up getting it appraised for one time, my first appraisal came back at $65,000,

Michael:

After the rehab?

Ryan:

After the rehab, and I saw that appraisal, and I'm like, Oh man, I just lost $50,000 Oh my god, you know what to do? And kind of in a weird way, COVID sort of happened that week. And so that lender froze all funds to the lender said, You know what, we're not going to charge you for the appraisal, but we won't lend you anymore. And so it was annoying at the time because I had to go find a new lender. But it all worked out well after that because I went to a new lender, and I researched a bunch of stuff on how things you can do to make an appraisal go more smoothly. use that for the second approach. gave the appraiser what I thought an estimated value was $110,000 and the appraisal happened to come in at exactly $110,000

Michael:

Coincidence?

Ryan:

Exactly.

Michael:

So what are some of those things not to cut you off again?

Ryan:

Yeah, no, I think the biggest thing there is just trying to make the appraisers job easier and coming up with realistic comps that you think are true comps. And so what I did was I sent a letter to the appraiser the day before they were supposed to walk the property with rental comps, comps that were pulled by my realtor. And then I put notes next to each of them like this one is a boarded up house shouldn't be used. And then I sort of use a weighted average of what I thought the right ARV was based on the comps that I saw.

The other thing I did was I gave a laundry list of projects that I did with the statement of work behind it on how much I spent on the rehab. So I could clearly show them that hey, I bought this for 60 but I also threw $20,000 into it. In the form of updates, so that they weren't just thinking that I bought a house for 60. And I'm trying to get it appraised for 110.

Michael:

That's so good.

Ryan:

So I think the combination of those two things has helped a lot. And I've done it for houses since then, including on my personal refinance that are going through right now. And it's seemed to work on all of those, as far as just getting that appraisal that is potentially a little bit higher, but hopefully just more accurate than what you would have gotten otherwise.

Michael:

That's such a good point. And I think I've heard people say something, some similar tactics, but I don't know if I've ever heard that this specifically. And I think that's so great. I mean, just making it easy for that person to say yes, essentially, or to give you what what it is that you want. I love that man. That's that's great tip for everybody listening.

Ryan:

Yeah, it's a lot harder to fight an appraisal after you get it than it is to sort of steer them in a in a direction that you would like beforehand. That has helped a lot over the course of past few houses

Michael:

Love that. We're getting long in the tooth here, man, any final thoughts that you want to share with the listeners about BRRRR investing?

Ryan:

From what I've learned, think the biggest thing is to get a team that you trust, which is true of all real estate investment types, but just get someone that you're going to be able to send out to a project and you're going to get numbers that you trust from them. And then if you're, if you're buying with all cash, or if you're trying to get under market deals, you just have to be ready to pull the trigger when the deal comes along. Like I mentioned, I'll generally try to do it within an hour or two of getting the deal from the wholesaler. So being able to pull the trigger quickly and let them know that you'll close on a repeated basis will end up having them send you more deals in the long run. So it's all about finding good deals and good under market deals. And so you just got to differentiate yourself to be able to come across those under marking deals.

Michael:

And I think that's also a really great point of just being true to your word and being someone who can perform because I think people's reputations so often precede them, both positively and negatively, you know, yanking people along or just not executing on your word. I think that gets around and that can be really tough to come back from.

Ryan:

Yep, absolutely.

Michael:

Awesome. Ryan, thanks so much for hanging out with us, man. Really appreciate you giving us some insight into your world. And we'll be seeing you in the academy I'm sure.

Ryan:

All right. Thanks, man.

Michael:

Alrighty, everybody, that was our episode for today. A big thank you to Ryan, thanks for hanging out with you man. Always a pleasure when we get to shoot the breeze and talk real estate investing. If you'd liked that episode, please please please feel free to leave us a rating or review wherever it is you listen to your podcasts. And as always, if you have any suggestions for episode ideas or topics that you'd like to hear covered, leave us a note in the comment section. We look forward to seeing you on the next one. Happy investing

It's often discouraging to see people post on social media about how amazing their properties are performing. Don't be fooled! In this episode, Michael and Emil talk about setting realistic expectations and expose why everyone seems to be hitting homers while you might only be getting base hits. 

---

Transcript

Michael:

Hey everybody, welcome to another episode of The Remote Real Estate Investor Weekend Wisdom. I'm Michael Albaum and today I'm joined by Emil Shour. And today I'm gonna be talking about some things that a lot of folks may have seen on the internet, Phantom cash flows, or people touting how much money they're making in real estate. When you break it down, we're gonna look at maybe what's going on behind the curtain. So let's get into it.

So Emil, you and I were talking before we hit record here about people on the internet talking about, oh, I'm making so much money in real estate. You know, what's the big takeaway that you've found from a lot of those people?

Emil:

Yeah, the reason behind this episode is you and I were talking about how often you'll see people projecting these cashflow numbers. And then you you question though, when you say, oh, wow, like, are you factoring in this and that, and oftentimes, what you'll find out is people are literally taking their rent, and subtracting their mortgage payment, their property tax and their insurance. And we've talked about this in many episodes, that is never what your cash flow is. Maybe if you're lucky, in a certain month, you have no expenses, you have no maintenance. And that's what you end up with.

But I mean, if you average something out over the years, that is insanely misleading, especially for newbie investors, I think if you see that you're going to be led astray thinking, those are the cashflow numbers that are A) realistic, and B) what you should be aiming for. And it's couldn't be further from the truth. So we're all following different people on the internet, looking for different advice from people just important to realize that everyone is going to anchor to a high number, and it's to look a certain way on the internet. And you should not trust those numbers all the time.

Michael:

And I think it's tough to because as investors we have, I'm trying to think of like a good word for this. But what I'm trying to say is like we have expenses that we pay regularly, and then we have expenses that we don't actually pay. So like your your repair and maintenance, your capex that may occur, or that might not occur in any given month versus your principal interest, taxes and insurance, your PITI. That's a regularly occurring expense, you know what it's going to be it's predictable. It shouldn't change much from year to year or much from month to month. And so that we say, Okay, great, I have my rent, that I take out my pie my known expenses. Well, that's it. And then we forget about the repairs and maintenance, the capex property management fees, the release fees, vacancy stuff,

Emil:

Utilities, right!

Michael:

Utilities!

Emil:

A lot of times you'll have utilities that you're responsible for, and people don't talk about those.

Michael:

So I think it's so so so important to when projecting cash flow to get a very clear picture of Okay, what are the known expenses, what are the unknown expenses, list the unknowns out on a line item and put projections next to them, and then subtract out all of that stuff, then what you're left over with, that's your true cash flow. But to say that your PITI subtracted from your rent is your cash flows like absolute garbage.

And I think that catches a lot of owner occupants off guard to while we're on the subject. Well, we got some momentum here. If you're thinking about owning and buying a property, we can evaluate it the same way as if it were an investment piece of property. And you have to take out your PITI, but you also gonna have repair and maintenance and capex and definitely utilities if you're living in the property. So don't just say, Oh, my PITI is 15 $100. That means I can afford a 15 $100 housing payment. In reality, you might be closer to two grand or 2200 wouldn't use peanut butter, spread it all out over a given year. So factor in all of this stuff. If you're not sure about what stuff should go into that equation, comm check out the rootstock Academy go online. There's tons of free resources out there, we just published to our YouTube channel, our essential series, which is a totally free real estate investing course. We talk a lot about what some of those expenses to factor in are there as well.

Emil:

Absolutely great point. I think I mentioned on a previous episode and one property I was looking at right this is a property in St. Louis. I underwrote it. And I think the cash on cash return for me was like a seven or 8% and then I saw someone else posted two months ago after they closed on this exact property that I looked at and underwrote and they were expecting a out of state investor as well so they're gonna have to pay for property management all that stuff.

I think they were projecting like a 16 to 20% cash on cash return so it's it's rampant I mean, you'll see a lot of people just not factor these things in or you know, maybe their agent whoever they're working with doesn't properly tell them all these things I think is better just be super conservative. We talked about it like always be conservative with your cap ex your maintenance, your utilities, all these things. So if anything, you're beating your expectations, you're not coming in under and wondering what happened.

Michael:

Under promise over deliver type of thing, for yourself.

Emil:

Even to yourself Exactly. It's not like you're promising it to somebody else, but your expectations should just be in a better place where else you'll you know, you'll get discouraged and stop when you shouldn't.

Michael:

Yeah, especially to when a $2,000 expense pops up to trim the trees. falling on the house and there goes your entire cash flow for the year and you're like, Oh crap, I didn't budget anything for repair and maintenance on this house because it was turnkey. Well, welcome to real estate investing.

Emil:

Yep.

Michael:

I think especially on the subject of turnkey, a lot of those turnkey providers will say, oh, there's no repairs and maintenance. There's no capex. It's all been done. Like, look, folks, there's always repair and maintenance. tenants are tough on homes. That's just the nature of the beast to have money set aside for reserves, for vacancy for rainy day funds for repair and maintenance, for things that pop up that are not covered by your insurance because this stuff happens. And so to say that there aren't going to be any expenses beyond your your known expenses. Your PITI, again, is just hot water.

Emil:

Yep, exactly.

Michael:

All right. Anything else we want to beat up on while we're here? While you're here? And I'm here? We got some steam.

Emil:

No, I think it's just the big takeaway is Don't believe everything you read on the internet.

Michael:

Yep. They see people, you know, cashing big checks or whatever. And, again, we've talked about it in other episodes that people only celebrate the big wins. No one ever talks about the losses, I know, we try to highlight them a lot, because we've had a lot of losses you Tom and I, and that's important to remember is that it's not always going to be a win.

And even the wins that are being highlighted aren't necessarily that big of wins. They're just people that want to look good, or don't want to be honest with themselves or the world around them. So again, take everything with a grain of salt.

You published an article that was I thought really great. You said look at my cash flow. We did an episode about it on the podcast, and he said, Look, these are my numbers, full disclosure. And so I think that's important to be honest with yourself. And if you're going to be posting that stuff honest with those who are asking the questions as well.

Emil:

Yep.

Michael:

Don't be misleading. Don't be one of the people out there who are misleading folks and thinking that you can make you know ungodly amounts of money and have to do any work. Don't have any expenses beyond your PITI.

Emil:

Yeah, exactly. And social media, you know, everyone wants to put their highlight reel they're not going to tell you about the furnace that just broke or you know, the hole that went through the wall or the eviction they have to do all those things. So it's really that's part of this business it's not always rainbows and butterflies and sunshine, it's it can be tough and you have to have like the right mental fortitude for it so.

Michael:

Absolutely. All right, should we get out of here?

Emil:

Let's do it.

Michael:

Awesome. Well, that was our episode everybody. Thank you so much for listening. Hope you enjoy the meals and I rant a meal and need a meal and I our rant and if you liked the episode, please give us a rating a review wherever it is you listen to our podcast, they are super helpful for us. And as always, if there's anything specific that you want to hear about learn more about here a meal Tom and I rant about Feel free to leave us a comment or episode idea or suggestion. We look forward to seeing in the next one happy investing.

Emil:

Happy Investing!