Whether it’s a podcast, a book, an eager business-minded friend, or your own ambitions, the message seems abundantly clear – “Make the first deal, and don’t give in to the tough times.”
For most aspiring entrepreneurs, making the first deal is more than half the battle. I have found myself hoping for some luck in the form of a great deal to get me off and running, but luck isn’t reliable, dependable and lies outside of anyone’s “sphere of influence.”
Right now, I find myself saving in order to build up reserves and find more ways to leverage money to meet the demands of a 25% down payment and up to 20K in rehab costs. All of this with the BRRRR (Buy, Rehab, Rent, Refi, Repeat) strategy in mind, a means to leverage banks to Refi and push all of those funds back my way for property number 2.
So how do I plan to leverage my own money? Two ways, the first is with a loan on a Thrift Savings Plan (Military speak for 401K) that holds a 2.5% interest rate with a 5 year pay off period. This account has received a steady 6% input over the span of 10 years. The second is with a good ole’ fashion HELOC (Home Equity Line of Credit) on my primary residence. I have nearly 5 years of equity on a VA loan in a neighborhood that provided already up to 50K in appreciation based on the comps locally.
Now for possible deals. It is spring, near a major military installation, so there are more homes on the market than the winter months. The number of foreclosures continue to populate the MLS and my broker continues to encourage me with the comps on properties of interest. For my first deal I am torn between the slow cash flow route of a Single Family Home (SFH) with moderate repairs or a Duplex or a possible Triplex in a less popular area.
For the first deal I am concentrating on the following:
- Cash Flow (Goal: $300 a month per unit)
- Appreciation through Rehab/Land Value
- All-in ARV < 75-85% for Cash Out Refi (After Rehab Value)
In the coming days, I plan to visit 3-5 local banks and compare small-business banking options, escrow services, and mortgage products. Be mindful, that I have a full-time job (not Real Estate related), so everything is orchestrated in my off-time. These engagements will hopefully contribute to my current plan, or educate myself on areas that need improvement in the current business plan. And naturally, a follow-on meeting with my CPA to discuss tax implications, breaks, etc.
I remain in line with my main goals by focusing on establishing systems and relationships with SMEs (Subject Matter Experts): Broker, CPA, Banker. One of the key tasks on my list is to find a solid Real Estate Attorney in order to better understand local laws for contracts, leases, etc.
With each passing week, I reexamine each one of these incremental steps taken. The original plan has seen subtle tweaks, but we are ever so closer to pulling the trigger on our first deal.
Note: This are simple micro steps needed to fulfill my macro goals. Each little task is a micro goal, but these micro goals are well nested with my desired macros.