\n<\/p>\n
Home flipping<\/strong>, wholesaling<\/strong>, and BRRRR<\/strong>-ing rental properties are all solid options in the real estate investing space. But, as most experienced investors know, different markets favor different strategies<\/strong>. In some markets, flipping outweighs the risk of renting out a property, while in others, something like the BRRRR strategy<\/a> is a no-brainer. In 2022, after two years worth of wild appreciation and huge rent raises, which strategy is the best for investors?<\/p>\n We couldn\u2019t have this sort of debate without our buy-and-hold <\/strong>expert, Henry Washington, our master house flipper<\/strong>, James Dainard, and our wholesale <\/strong>addict, Jamil Damji. Together, they each bring their own unique outlook on these strategies and give advice on which is the best to use<\/strong> for certain types of deals. Henry, James, and Jamil bring real-life deals to debate<\/strong>, and you\u2019ll hear how experts analyze properties<\/strong>, even with just basic information.<\/p>\n If you\u2019ve enjoyed listening to On The Market<\/em>, we would love it if you gave us your feedback on the On The Market BiggerPockets Forums<\/strong><\/a>. Participate in our audience feedback survey<\/strong> or give us your take on the current housing market<\/strong><\/a>. Let us know what you think so we can keep making episodes that help you on your investing journey!<\/p>\n Dave: Henry: James: Jamil: Henry: Dave: Henry: Dave: James: Jamil: Dave: Henry: James: Jamil: Dave: Jamil: Dave: Henry: Dave: Henry: Dave: James: Dave: Henry: Dave: James: Dave: James: Dave: Jamil: Dave: Jamil: Henry: James: Dave: Jamil: Dave: Jamil: James: Jamil: James: Jamil: James: Jamil: James: Jamil: Henry: James: Jamil: James: Jamil: James: Jamil: Dave: Jamil: Henry: Jamil: Henry: Jamil: Henry: Dave: James: Jamil: James: Henry: Jamil: Dave: Henry: Jamil: Henry: Dave: James: Jamil: Dave: Jamil: Dave: Henry: Jamil: James: Henry: Jamil: Dave: Jamil: Dave: Jamil: Dave: Henry: Dave: Henry: Dave: Henry: Jamil: Henry: Dave: Henry: Dave: Henry: Dave: James: Henry: James: Henry: Dave: Henry: James: Henry: James: Henry: James: Henry: Dave: Henry: James: Henry: Jamil: Henry: Dave: James: Henry: Dave: Henry: Dave: Henry: Dave: Henry: Dave: Henry: James: Henry: James: Henry: James: Henry: Dave: James: Dave: James: Henry: James: Henry: James: Henry: James: Henry: Jamil: James: Henry: Jamil: James: Dave: James: Dave: Henry: Dave: Henry: James: Henry: James: Henry: James: Henry: James: Dave: Jamil: Henry: James: Dave: James: Dave: \u00a0<\/p>\n<\/div>\n
What\u2019s going on everyone? Welcome back to On The Market. Today, we have my friends, Henry Washington, James Dainard and Jamil Damji joining me for what is going to be a very fun episode. How are you all doing?<\/p>\n
Awesome.<\/p>\n
I\u2019m doing great.<\/p>\n
So good.<\/p>\n
We\u2019re not doing as good as James because he\u2019s in phenomenal temperatures and bragging about it, but.<\/p>\n
He looks so relaxed. He\u2019s like Kathy. Yeah.<\/p>\n
Right?<\/p>\n
It\u2019s that California lifestyle, just looking relaxed and healthy.<\/p>\n
Kathy is the most\u2026 She\u2019s got the most peaceful vibe on her. She\u2019s just a roamer.<\/p>\n
Yes, that\u2019s a nice life. Nice temperatures, nice life, Southern California.<\/p>\n
Today I know all three of you are excited to get into our due diligence section where we\u2019re going to be going into deals that you all are actually thinking about or doing right now, which will be super fun. But before we do that, we\u2019re going to go into between the headlines, talk about some of the latest news impacting the world of real estate investing.
And today we are going to play a new game called fortune tellers where you need to give me a 30 to 60 second reaction and prediction about what is going to happen given the information I give you. Everyone good?<\/p>\n
Let\u2019s do it.<\/p>\n
Yap.<\/p>\n
Yes sir.<\/p>\n
All right, sweet. So the first topic is about second home sales. I don\u2019t know if you have been following this over the last couple of years, but at a certain point demand for second homes spike to 90% of pre-pandemic levels. So nearly doubling over the last couple of years. And all those gains have pretty much been reversed.
Redfin is now reporting that mortgage rate locks for second homes were up 9.1% from pre-pandemic level. So that was 90%. Now at 9.1%, basically back to where we were. Do you think this is going to impact the housing market? And do you think second home demand is ever going to spike like we just saw or was this a temporary blip? Jamil, what do you think?<\/p>\n
I think it was a temporary blip. We all got trapped in our houses during the pandemic and we had these dreams and these ideas that, oh man, I want to live near James Dainard in Southern California, and I want that other lifestyle. I want to have options, right? And I think the pandemic gave us this idea that we all have options.
And so yes, there was a great demand, but with that demand, we have all of these situations that we\u2019ve created from there. So I think that the spike in second home purchases was absolutely indicative of the time. And I think that there\u2019s no chance of us getting back there again without another black swan event that pushes us there again.
And so personally I think that\u2019s curved, but I still believe that just the general housing market with respect to rates and pricing, I think that\u2019s also playing an effect. And so I don\u2019t think we\u2019re going to see it come back the way that we had it.<\/p>\n
Henry, what do you think?<\/p>\n
Man, I 100% agree. I mean, when you think about the pandemic changing everything, you were 100%, right? You no longer had to live where you worked, right? And so people got these grand\u2026 They got bored, and then they started thinking of these grand ideas of where they could live because they didn\u2019t have to work there.
And then also you think about, you\u2019ve got people who now had to live and work in the same space with their family members. And you saw a shift too in pre-pandemic. It was all about open concept and then pandemic hits and people are like, well walls and separation aren\u2019t so bad, right?<\/p>\n
It\u2019s so real.<\/p>\n
So people started looking for homes that fit their new lifestyle, right? So the second home spike was huge because people were well like, now I need a place that\u2019s got more space because now I need a dedicated office space so I have to be working. I need to be away from my family in a room somewhere where I can get some peace and quiet or I can\u2019t get my job done.
And the last thing that people wanted to do was lose their job in those unfortunate, uncertain times. And so yeah, that spiked second home and you just got people that got bored. They got bored and they wanted to feel good. They were scared and buying a new home kind of gave people that temporary, hey, this is exciting. I can be excited about something again.
And I think you saw a spike, but this is what everybody\u2019s been saying, when are we going to return to normal? When are we going to get back to normal? Well, this is part of getting back to normal. We\u2019re going to get back to the financial normal that was before, right?
So we\u2019ve got, we\u2019ll get back to second home price sales being down, we\u2019ll get back to interest rates being where they were before that. All these things that people weren\u2019t thinking about when they meant get back to normal is part of that too.<\/p>\n
Yeah, that\u2019s a great point. James, I\u2019m curious what you think in a broader sense, but also if you believe that this will impact pricing for short-term rentals, because a lot of second homes are in the same markets where people are targeting for short-term rentals. Curious what you think will happen there.<\/p>\n
I do think that that asset class is going to be the one that deflates the most or one of the most over the next six to 12 months. It reminded me and I was talking to somebody six months ago about this because these secondary home prices went through the roof in areas that do not typically appreciate that quick.
And they were appreciating probably 10 times as fast as they\u2019re typically done. And, it reminded me of 2007 because it was the same type of concept. In Washington, we had this place called Suncadia. It\u2019s a nice golf course community. People live there, they rent it out. It\u2019s amazing. I had a BRB there myself, but I remember it inflated at almost the same rate as what it was doing right now.
And those secondary markets are the ones that popped the worst too. And so as the demand goes down, I do think that there\u2019s going to be a good 10 to 15% deflation in that market. In 2008, we saw a 40% drop in those asset classes. That was a different thing. It was a totally different type of banking crisis. But as we see things come down, yes, people\u2019s novelty of them do wear off.
They\u2019re going to start selling them and then as people start to get a little worried about inflation, the secondary market, I do think that the VRBO market could slow down as well as liquidity dries up and an inflation starts really eroding people\u2019s access to capital. The first thing that goes is vacations, going places and traveling.
And so I do think that the secondary home market, the Airbnb investor market it\u2019s going to have a little bit of trouble over the next four to six months as it kind of normalizes out. But it\u2019s what comes up must come down and the ones that hockey stick the most, those are the ones that are going to probably come down the quickest.
And if you really look at the secondary hallmark right now, as inflation\u2019s eating up people\u2019s expenses, you don\u2019t want to go buy another house to service if you\u2019re not going to rent it out. And in addition to when you factor in the new rates that are 30% higher than they were four months ago, it really affects your monthly payment to where it just doesn\u2019t become worth it. And if it\u2019s not worth it, things don\u2019t trade.
So that\u2019s where I think things are going to really settle down and come backwards. And and if you are looking for a secondary home, you\u2019re probably going to be able to get one in the near future.<\/p>\n
That\u2019s a great point, James. And one thing I\u2019ve been reading about that I think was really interesting in this Redfin article is the authors were speculating that a big reason this is dropping off as well is due to the stock market just tanking.
There\u2019s just so many people who had a lot of cash and just a lot of excess money to spend on a second home because of the stock market now that it\u2019s down 20% of the year or whatever it is as the time of this recording. That until the stock market goes back up again, which could be a while, probably not going to see that demand go up.
All right, for our second headline today we\u2019re only going to do two today. I want to talk about the lock-in effect, which if you haven\u2019t heard already is this idea that because interest rates were so low for so long that so many home buyers and homeowners have locked in rates that are ultra low. And we may not see again for a while.
We might not ever see again in our entire lives. Just to bring some context to this, for years, we were seeing mortgage interest rates at 3%. At some point in January of 2021, it actually went as low as 2.7% for a 30-year fixed rate mortgage. Now it\u2019s at about 5.3 at the time of this recording. And the idea here is that why would you sell?
If you were a homeowner right now, why would you sell your house so that you can enter an ultra competitive market with high prices only to pay more interest on your loan? And that makes sense to me, but the implication here is that inventory could remain down and that could help continue to provide upward pressure on housing prices over the next few years.
So Henry let\u2019s start with you, get your crystal ball out. What do you think is going to happen? Are people going to stop selling in large numbers and is the lock-in effect going to be a real phenomenon over the next few years?<\/p>\n
Oh man, of course you made me go first so I can say I\u2019m the jerk face. Here\u2019s my general thoughts, right? Yes, people are going to be comfortable with those lower interest rates, especially right now. They\u2019re thinking, I don\u2019t know how high these interest rates are going to go. I\u2019m going to stay put where I\u2019m at.
And all that sounds good now because they just locked in their new interest rate six months ago, a year ago, a year and a half ago. But people don\u2019t typically sell homes as a financial decision. It\u2019s more of an emotional decision, right? They are selling for a particular reason. Maybe their family\u2019s expanded. Maybe they\u2019ve got a new job and they\u2019re making more money. Maybe they are downsizing and want a smaller home.
Maybe they need to move closer to family. People sell their primary residences for more situational or emotional reasons. And does that mean interest rates or what it\u2019s going to cost you doesn\u2019t play? Of course it plays into it, but it\u2019s not the only factor that they\u2019re considering. And a lot of the times we know people see motions overrule the best financial decision point most of the time. And so will the lock-in effect slow down inventory?
Yeah, I think so. I think there are some savvy homeowners out there who are just going to say, hey, it\u2019s better for me to stay put because their lifestyle or their family situation will allow them to continue to stay where they are. And I think the ones that whose lifestyle or family situation changes, they\u2019re still going to look to buy.
I mean, as long as interest rates aren\u2019t 15% or something like that where it just doesn\u2019t\u2026 You literally can\u2019t do it. But I think if people have the financial ability to do it, their situations are probably going to dictate that they do it and they want to.
It feels good to buy a new home. It feels good to upgrade your lifestyle. And most people are\u2026 There\u2019s tons of people who just aren\u2019t thinking financially for this decision. It\u2019s just not that important to them if they can afford it.<\/p>\n
All right. James, what do you think? Do you think this is going to have an impact on prices in the housing market? Or is this just going to impact a small number of people?<\/p>\n
I think there\u2019s always going to be a section of the population that it\u2019s going to really impact or to where they\u2019re going to be fixated on the rate cost. I mean, I talk to investors all the time. They\u2019re always pricing the rate, because they\u2019re going after rate first like, how do I get the cheapest rate?
And so there is that mindset where I think people are going to lock-in. They can\u2019t see past anything else, but their rate and their uncomfortable payment and they\u2019re not going to be selling. But I do think that investors and people and just the\u2026 Or especially Americans, they live in the now.
So it\u2019s always right now, it seems expensive on the money, but it\u2019s going to get normalized in the next six to 12 months. And the more normal it is, people are just going to say, well, I\u2019m going to go do those things now. I\u2019m going to have to refi, even though my rate\u2019s going up. For the next six to 12 months, I think people are going to not be wanting to move around.
But as it gets more normal, as rates seem they stay where they should be, that people are just going to go for it or just going to get used to it. One thing I do think is that a lot of people locked in low rates. They have a lot of equity position.
And if we move into some sort of recession, which it looks like we might be doing, and then with the inflation factor eating up people\u2019s extra income, I do think there\u2019s going to be a boom of cash out refis to where people all of a sudden that\u2019s going to become the norm.<\/p>\n
Because they need it, because they need the cash rather than because the rate is attractive.<\/p>\n
Yeah, I do think that the general public has gotten used to spending money the last 24 months, or at least a portion of it. Not everybody, but people that are buying homes and they\u2019ve had access to money. They\u2019ve seen their equity positions explode over the last 12 to 24 months.
At some point though, as inflation\u2019s getting to 10% in the market, things are getting more expensive. We got these Ukraine\u2026 We got these conflicts overseas and we\u2019re going to be going into\u2026 As a recession rolls in that could be less paying jobs. There\u2019s other things that are going to eat up people\u2019s disposable income.
And I do think because people do live in the now, they want to keep going with that disposable income and they\u2019re going to be fixated on that rate until they\u2019re not. And they\u2019re just going to say, hey, look, now I\u2019m going to go tap into my good purchase and do refi it out. In addition to people, also bought homes and they went to go build them out and design them themselves.
They traded a house that they lived in for a long time. They got a new property, they got a bigger one and their bids are coming back at record high numbers. And they thought they were making the right trade, but now they don\u2019t have the liquidity to finish the rehab.
So I think there is going to be a little bit of a reset where people are going to have to pull out cash out. And so I do think people are going to do what they have to do. If they can keep their low rate, they will. And if they can\u2019t, then people get used to paying a higher rate.<\/p>\n
That\u2019s a really good point. Living in the now is a very good way to describe how people spend their money. All right, Jamil before we move on to our deal analysis, part of the show, what is the last word on the lock-in effect?<\/p>\n
I 100% percent agree with a blend of both of what these guys are saying. I think what James really nailed there was just how short-term our memory can get with respect to what\u2019s happening in life. Because look, everybody\u2019s talking about, oh my God, these rates are so high. These rates are so high is because we\u2019ve all forgotten.
We\u2019ve all forgotten that 5% mortgage rates or 6% was normal. And then we got used to this two, 3% for a little while, and we\u2019re like, oh my God, that\u2019s where it needs to be. But our brains will reset, and just like James said, we\u2019ll be in the now and we\u2019ll say, yeah, five is normal, 6% is normal. This is totally okay. We\u2019ll forget about the two and 3% mortgages.
We\u2019re going to forget about that. It\u2019s just going to take a little bit of time, and then people are going to move along in a life. And Henry was talking about, situations are going to continue to persist. Life will happen. And no matter how much we want to pretend that we all love to make these really smart and strong financial decisions for ourselves and our families, when it\u2019s time to buy some jet skis, we get jet skis. That\u2019s what\u2019s up. And so I think\u2026<\/p>\n
It sounds like you\u2019re speaking from experience here Jamil.<\/p>\n
I don\u2019t jet ski, but I\u2019m.<\/p>\n
You ever seen a sad guy on a jet ski?<\/p>\n
It\u2019s not possible. It\u2019s a smile factor.<\/p>\n
You can\u2019t be sad on a jet ski. Well, alright, so all three of you are selling the idea of the lock-in effect. I actually think it is going to play a role until the market gets less competitive because why would you enter this market? Why would you sell only to face more bids? But we\u2019re already seeing the market get less competitive.
So I think it will sort of be this trade off. As the market gets less competitive, people will be more willing to sell and get back into it. With that, we are going to move on to our next section where Jamil, James and Henry are all going to share a deal. I know that they\u2019re all chomping at the bit to talk about deals and actually get into the numbers.
This is going to be a lot of fun, but first we\u2019ll take a quick break. We\u2019ll be right back after this. All right, we are back to this episode of On The Market and we are going to do, I think this is the first time maybe in BiggerPocketss Podcast history we are going to break down some actual deals in real time. And we were all chatting before this.
And I know there\u2019s some contentious undertones behind some of these deals. So I just want to get started with Jamil first because he\u2019s got a deal and I think Henry\u2019s going to rip him apart. So let\u2019s just start with this deal. Jamil, tell us what you got.<\/p>\n
So to give everybody a little bit of backstory on me, if you don\u2019t know I\u2019m a wholesaler and it\u2019s in my DNA. And so I haven\u2019t held a lot of property. I\u2019m constantly trading. I\u2019m trading, trading, trading, trading, trading. Look at Henry\u2019s already disappointed in me. I haven\u2019t really held anything.
I hold a beach house in California and my home, personal home. And other than that, I trade everything. That\u2019s just what I do. It became really clear to me how much of a mistake that was when just for my last tax bill was just over $800,000, okay? And so my lifestyle has absolutely changed over the last few years.
Success has come our way and I\u2019m super grateful for it. And I\u2019m looking at my best friend and co-star on our TV show who is doing a tremendous amount of business as well. And he got a refund. He got a $3,200 refund and meanwhile, I\u2019m paying $800,000 plus in taxes. And it\u2019s sad, right? It\u2019s sad to me that that\u2019s the differences in our lives because I\u2019ve been so inefficient with respect to how I\u2019m approaching life.
So what I\u2019ve done is I decided I came across this deal and I don\u2019t know if we can pull it up on the screen, if not, I\u2019ll just kind of give us the deal points. This is a multi-family acquisition in the Arcadian neighborhood of Arizona. That\u2019s 85018.<\/p>\n
Is that near Phoenix.<\/p>\n
In Phoenix, correct.<\/p>\n
That\u2019s where everyone wants to live right now, right?<\/p>\n
Correct. So this is the neighborhood that I live in. In fact, this building is around the corner from my house. I can walk there in 30 seconds. It\u2019s a 53 unit multi-family all one bed, one bath. To give you an idea of the neighborhood, the annual household income, the average annual household income for this Arcadia area is $122,000.
Whereas in Phoenix, the average is about $72,000. So gives you an idea of the demographic that lives in the neighborhood. The median home sales price as of April was $1.7 million. And in comparison to Phoenix, the median sales price is $515,000. So this neighborhood is incredible. Now let me tell you about the deal. So the acquisition cost of the deal is $12.5 million. That\u2019s $235,000 a door.
Looking at the comparables of what is traded in the neighborhood with the same sweet mix, with the same sort of parameters, we have an as is value of around 280 a door without any repositioning. This is a group that owns it right now. They\u2019re out of Canada. And for whatever reasons they are deciding to liquidate.
They had started a renovation. They actually renovated 46 of the 53 units and they renovated them to incredible standards, beautiful, beautifully modern. They\u2019re incredible. Seven of the units are left to remodel. Currently the gross monthly rent is around $63,600. And the units are renting at about $1,200 a month.
Rents can increase to $1,700 a month and that\u2019s conservatively based on the style, the neighborhood and the type of unit that we\u2019ve got. So there\u2019s a large gap in a reposition there. Now, here\u2019s where my problems run. We can take this building down. It\u2019s going to require us to come out of pocket around $2.5 million for the down payment. And we\u2019re looking at a debt service of around $60,000 a month.
So cash flow, as it sits right now is negative or flat. There\u2019s not a lot of income to be made right now without a reposition. But if we renovate the last seven units and re reposition the building, increase the rents to $1,700, we\u2019re looking at roughly $18,000 a month in net income after you adjust for expenses and vacancy.
So we\u2019re looking at a total value once we reposition the building of around $17.5 million. So there\u2019s a gain of around $5 million to be made. On top of that, if I look at and do a cost segregation study on the building, I can save roughly $2 million in taxes. So when I look at this, I can put $2.5 million down to acquire the building.
That\u2019s going to save me $2 million in tax liability. Or I can take the exit strategy that I\u2019m good at and know, and I actually have a contract right now. I have a buyer for the building right now at $15 million. So I can make a $2.5 million assignment fee, would be the biggest assignment fee I\u2019ve ever made, add to my tax liability.
Or I can take the building down and do the right thing, which is, I know what Henry wants me to do. Take the building down depreciate, save money on taxes and create cashflow. So this is the deal. The risks that I see the current rental market could turn. We might see some\u2026 Our projections could be off with respect to how much rent\u2019s escalated.
I don\u2019t think so, but it\u2019s possible. We could run into some issues with project management, because this would be a deal that I really don\u2019t have a lot of experience in doing. And so we could mismanage it and we could totally fumble the ball, and ruin that just because of our lives and how busy we are.
So that\u2019s kind of what I\u2019m playing with. Do I take the $2.5 million right now, add to my tax liability and do what I do as a wholesaler? Or do I take the building down, save money in taxes and create cashflow?<\/p>\n
Well, my first question is, do you have the 2.5 to buy?<\/p>\n
Yes.<\/p>\n
Or do you have to raise money and, and give out the equity on the deal? So it\u2019s 100% owned by you?<\/p>\n
I will bring in Pace Morby as my business partner on the deal. He\u2019ll acquire it with me. So each of us would be coming in with 1.25.<\/p>\n
1.25, and then it\u2019s a 50\/50 split on that deal.<\/p>\n
Correct.<\/p>\n
I will give you $1000 for 1% of the deal.<\/p>\n
So on this deal, you\u2019re looking at a tax savings of a million in-<\/p>\n
Each, correct.<\/p>\n
Yeah, a million each on that deal. So basically you\u2019re coming up with 1.25, and you get $1 million tax savings, which is, or off the top, which is going to save you, what? In your bracket, if you\u2019re hitting 800 grand, it\u2019s going to save you 400 grand right away on year one.<\/p>\n
Correct.<\/p>\n
Or not year one, but it\u2019s going to pop back. One of my biggest questions would be, if these things are all renovated, why is the performance 25% higher than what it\u2019s at right now? If they\u2019re an investment company that stabilize it, they renovated to the highest and best used. Why they\u2019re so far below market?
And do you think that has anything to do with Arcadia being a family neighborhood and one bed, one bath won\u2019t trade well in that kind of climate?<\/p>\n
Well, they\u2019re 100% occupied and again, looking at just the rent comparables, 1700 is actually pretty conservative for a one bed, one bath in the neighborhood. You\u2019re absolutely right, it is a family neighborhood. And so there\u2019s less demand for that type of unit. That\u2019s the hands down real thing, but the schools are better here.
There\u2019s still a lot of the population here that\u2019s servicing the people that live in the neighborhood, there householders here. And so I think that just having access to that type of product isn\u2019t needed for the neighborhood, because you can just check, see by the vacancies there\u2019s a demand for it. Now, why are they so underperforming?
That\u2019s a great question, and I think a lot of the rent escalation that\u2019s happened over the last 12 months is a reason for it. I think at the time when they had increased to $1,200 a month, that that was a deal at the time. But I think that they thought that that was the highest that they were at.
And now with where rents have gone, and again, we\u2019re banking on rent staying where they\u2019ve spiked to, right? And so I think that\u2019s the juggling act that we\u2019re in right now, because if for whatever reason rents go down, we\u2019re in trouble.<\/p>\n
But how much trouble? If rents went downtown 10%, how long would it take for that 10% decline in cashflow to eat away at the $1 million in tax savings?<\/p>\n
You\u2019re absolutely right.<\/p>\n
I agree, and that was my exact thought. You think about what you\u2019re getting in savings from taxes versus what you\u2019re having to put down versus the cashflow you\u2019re going to create by finishing the renovation and putting all the units at market rents. All that\u2019s great. Rents typically don\u2019t go down, Jamil. I mean, does it mean they can\u2019t?
No, absolutely not. Sure, something could happen when they do, but the benefits of this property for you are on the tax side more so than they are on the cashflow side, and you are going to get the appreciation from this property as you continue to hold it. And the thing that I think is great\u2026 So I love one bed, one bath units.
I love one bed, one bath units in neighborhoods that are super desirable and family neighborhoods because it gives a subset of people who want to live in that super cool part of town who can\u2019t afford a house a way in. A way to say, this is where I live.
I live in this neighborhood. And so I think you just tweak a little bit of your marketing and you\u2019ll have more people wanting to live there than what to do with. Because being able to get a one bed, one bath in a neighborhood where it costs 1.5 to buy a house on the average is impossible to find, right?
And so I think you\u2019re always going to have demand because even if rents go down, it sounds like in this area, your rents aren\u2019t going to decline as much as maybe Phoenix, Metro might decline, right?<\/p>\n
Correct.<\/p>\n
And so this is\u2026 I mean, I\u2019m a buy and hold guy. So for me, this is a no brainer, right? You buy that.<\/p>\n
So you\u2019d hold this all day and you would forego the $2.5 million quick assignment fee that as a wholesaler, I want to take?<\/p>\n
Yap.<\/p>\n
I want both.<\/p>\n
So do you get 100% of the 2.5 or are you 50\/50 on that too?<\/p>\n
It would be 50\/50 because I brought Pace into the deal. I needed his money before I even\u2026 I\u2019m $250,000 non-refundable on my EMD.<\/p>\n
Yeah. So on that scenario, that\u2019s 1.25. So you\u2019re walking with 650 grand after taxes. And so it\u2019s really if you\u2019re picking up $5 million in equity, if your numbers are right and you\u2019re picking up that upside right there day one on the buy-in margin and then you get up there, you\u2019re picking up three to four million in wealth, plus picking up a million and two in tax savings all for 600 grand. And so do the math on that, you\u2019re 3X in your money at that point, but you have to wait. And so\u2026<\/p>\n
You can always exit, Jamil. Somebody will always buy this deal because of the desirability of the neighborhood and frankly, the desirability of the units. My one bed, one baths are my best performing units. I can\u2019t rent them fast enough when they\u2019re vacant and people stay forever. I love them.<\/p>\n
There\u2019s also a play where we take a portion of the building and we turn them into short-term rentals because it is a resort style building. We got a beautiful pool. There\u2019s a fitness center. I mean, it\u2019s an incredible property. It\u2019s an incredible property.<\/p>\n
Do it. Hold it.<\/p>\n
Hold it.<\/p>\n
Hold it.<\/p>\n
Hold it.<\/p>\n
All right. Is everyone voting hold? I don\u2019t know, I guess we\u2019re turning this into a voting show, but I say hold it Henry\u2019s obviously hold it. James?<\/p>\n
I think honestly it\u2019s a no brainer to hold it. You\u2019re 3X in by keeping it right away. Just keep it.<\/p>\n
Keep it, okay. Thank you guys. Every bit of me is like, you\u2019re so dumb Jamil. There\u2019s $2.5 million, there\u2019s $1.125 million that you\u2019re going to have to pay taxes on it, but it\u2019s still like, come on.<\/p>\n
I mean, it\u2019s very tempting, but-<\/p>\n
It\u2019s so tempting.<\/p>\n
We\u2019re here for you Jamil. This is-<\/p>\n
I\u2019ll be your support group for sure. I\u2019ll be your accountability partner.<\/p>\n
James, should I go raise my portion of cash that I require to get into this deal, bring in an equity partner, not be into it for cash at all and just have this as a depreciation play?<\/p>\n
I mean, that\u2019s what some people do. You can get the best of both worlds. You could package that deal up, charge an assignment fee to the deal most indicators do. So you can still get your wholesale fee, give out a portion of the equity. Typically, it\u2019s going to be, you\u2019re giving out 70% of the ownership of that building.
Keep the 30, so you can get the best of both worlds, get your assignment fee, keep 30% ownership. You can continue to get fees by managing that project with Pace, and then all of a sudden you\u2019re still making your income and getting the ownership. Plus you\u2019ll get 30% of the cost side depreciation over the tax return. So there is the middle answer of do both.<\/p>\n
Yeah, I think that\u2019s awesome for someone not in your financial position. I think you can afford to do this on your own and you need to do it based on what you just told us. You pay taxes. Might want to keep this one for yourself.<\/p>\n
Thank you guys. I appreciate the advice.<\/p>\n
All right, we\u2019re going to have to come back to this and see how you\u2019re doing, make sure you\u2019re not just going to sell it randomly one day.<\/p>\n
July 11th is my close date. So the audience, hold me accountable, ask me the questions. Henry, James, Dave ask me the questions. July 11th is the day. I\u2019m either going to be walking away with my assignment fee or I\u2019m going to be walking away with a building. We\u2019ll see what happens.<\/p>\n
All right.<\/p>\n
Or maybe both.<\/p>\n
Okay. With that, let\u2019s move on to Henry\u2019s deal. Henry, I\u2019m sure it\u2019s going to be a buy and hold after this. Tell us what you\u2019ve got.<\/p>\n
It\u2019s a similar situation too. So yeah, let\u2019s talk about it. The numbers aren\u2019t as amazing as Jamil\u2019s, but this is just one unit. So I\u2019ve got a deal. It\u2019s a three bed, one bath single family home in Bentonville, Arkansas in a very desirable neighborhood of Bentonville, Arkansas, right?
And so purchase prices 225,000. Now this area of town is a really, really highly desirable area because of a couple of things. It\u2019s near downtown Bentonville, which is where people want to live in the Bentonville area. There\u2019s so much money being poured into there. There\u2019s museums that have gone up, walking trails.
It is where people in Bentonville want to live, hang out, party, socialize shop. And then it\u2019s maybe a two to three minute walk away from where Walmart is building their brand new state of the art home office complex. And so they are building this complex to compete with the Amazons and the Apples for the talent that they need to hire to keep Walmart relevant.
And so it\u2019s supposed to be this phenomenal state of the art, and they\u2019ve already started construction. And so the purchase price is inflated because of the neighborhood. Typically, if I were going to buy a three bed, one bath 1100 square foot home that was built in the 60s in any other part of Northwest Arkansas, I would probably pay no more than a 100 grand, right?
Maybe 120 grand, but we\u2019re paying 225 for this one because the ARV on the property, because of where it is. They just built a brand new private school. They call it [inaudible 00:33:38] school. You can throw a rock and hit it from the front yard of this place. And so, because people are going to want, wealthy people are going to want their kids to go to this school, right? They\u2019re going to be looking for properties that are closer to these areas.
And that makes it a great Airbnb location too. So the ARV on this property is 550,000, right? And so we\u2019re buying it at 225 and to renovate it to the nines, which is what we would need to do to get that 550. We\u2019re going to have to put 70 to 80 into it. And then we can exit that thing for 550, which puts my potential profits after commissions and fees above 200,000, which is phenomenal for a single family flip-<\/p>\n
Off 225,000.<\/p>\n
\u2026 In Arkansas, right?<\/p>\n
So you\u2019re almost doubling your money.<\/p>\n
Yeah, absolutely. So phenomenal flip, right? But I love the location. And so I have more than one exit. And so I can look at, hey, do I whole tail this thing? Which is just sell it in the current condition that it\u2019s in. And the market says, I can probably get around 310 for that. And I could probably stick that thing on the market and have that money in my pocket in 30 to 45 days.
And that\u2019s about a 60 grand profit to do almost nothing. Clean it up, make some minor repairs, make sure that it\u2019ll pass an FHA or a conventional inspection, right? And that\u2019s about a 60K profit. So I can get 60K quick or I can make sub two or above 200 in four to five months, would be what I would think it would take me to get this done or we can rent it, which is what I would normally do.
But when you look at rents right now, I think I could only get about two grand a month for this thing. And so when you\u2019re buying at 225 and then you\u2019re putting\u2026 And now if I rented out I wouldn\u2019t have to put as much into it, but I\u2019d still have to put 30 to 40 into it, right? And so I\u2019d be sub 250, 260, 270 and renting it for 2000. That\u2019s negative cashflow, but I would get off.<\/p>\n
What about short-term? What would you get on the short-term rental?<\/p>\n
Short-term rental, I\u2019d have to put more into it, 70K probably, but I could get four to five grand a month.<\/p>\n
Before we get into this, can I just ask you Henry? How\u2019d you find this deal?<\/p>\n
That\u2019s phenomenal question. So I found this deal through direct mail. So this was a direct mail marketing driving for dollar. So I have people, I\u2019ve got about two people who consistently drive for me. So they go out and they identify distressed properties. And then I send those people direct mail. And then I also cold call. I have a cold caller that cold calls this list.
So this was one I\u2019d been sending mail to for a while and didn\u2019t get much of a response. Had a cold caller call him and then boom got them on the phone, and it was just timing. They were just ready to sell. It\u2019s funny. I went to go look at the house. So they called me and they were like, hey, we want to get out of this thing. We\u2019ve had a tenant in there.
She\u2019s not paying rent, and we just want to sell it with them in there and be done with it. And I went to go look at it and it was the first time they\u2019d been in the house in over a year. And so I\u2019m walking the house kind of with them and they\u2019re seeing the same things I\u2019m seeing.
They hadn\u2019t seen it over a year. I literally walk in the bathroom and the floor is having so much water issues that they had covered up with rugs that I literally fell right through the floor.<\/p>\n
Oh my God, just stepped through the floor.<\/p>\n
Yes, stepped right through the floor.<\/p>\n
Wow, that\u2019s ridiculous.<\/p>\n
I\u2019ve also fallen through the floor. It\u2019s a sign of a good deal. If you fall through the floor, buy it now.<\/p>\n
I was like, good timing, because they\u2019re\u2026 My price just went down when I went through the floor and they had no idea there was a problem there.<\/p>\n
I might need to get an engineer up here.<\/p>\n
Right, absolutely.<\/p>\n
So you found it driving for dollars, which is great for anyone listening to this. Obviously that works. So I know a lot of people who say they can\u2019t get deals. This is obviously a good example. How would you finance the 225?<\/p>\n
Yeah, so we\u2019re going to use a small local bank to finance the deal and they are going to finance it at 70% of the appraised value. And so as long as it apprai\u2026 Whatever it appraises for, they\u2019ll loan me up to 70%. So as long as what I need to purchase and renovate that property.
So the 225 plus the 80, if that is under 70% of that appraise value, then I won\u2019t have to bring anything to the table. The lower that appraisal comes back, the more money I\u2019ll have to put in.<\/p>\n
And so Henry, what is your plan with this property? I mean, because the math hits on a lot of different ways. It obviously cash flows well on the short-term, but not so well on the long-term. Unfortunately about 90 days ago, it actually probably would\u2019ve broke even.<\/p>\n
Right.<\/p>\n
With rates.<\/p>\n
Absolutely.<\/p>\n
I was playing with all the rates yesterday and I was like, man, this is brutal. So now you\u2019re at a point where you\u2019re not. So are you planning on keeping this? I mean, I know what I would do with it, but\u2026<\/p>\n
Yeah, I love the location. And just like I said to Jamil, I can always sell this because this new home office complex at Walmart\u2019s building is coming and there\u2019s a higher chance that that increases values than it does decrease the values. I don\u2019t think this is an area that becomes any less desirable any time soon.
So I\u2019m willing to bank on the fact that it\u2019s going to go up. And so my initial reaction is I\u2019m going to keep it as a short-term rental. And if I make cashflow every month, that\u2019s awesome. And if I don\u2019t and I break even, I\u2019m okay with that too for now. Because once they finish building what they\u2019re building and as that area continues to appreciate.
It\u2019ll be a cashflow monster on the Airbnb side. And if it decides it\u2019s not, then I can sell it at a different point and still make a phenomenal profit. I\u2019m entering it pretty well for what the ARV is.<\/p>\n
Can I ask Henry, do you have enough deal flow that if you flipped it, you would be able to reallocate that money into a good cash, other cashing assets that have a better cash on cash return than this one?<\/p>\n
Yeah, I do. I\u2019ve got other deals that I could flip it into. But I honestly, if I sold this, it\u2019d be one I\u2019d want a 1031 into something. And I like the idea of 10301s, but I think if you don\u2019t have something lined up that\u2019s a good deal to 1031 into, a lot of people sometimes end up buying an okay or not so great deal just because they have to 1031.
And then was it really that much better than paying the taxes? Sometimes it is, sometimes it isn\u2019t. And so if I had something lined up perfectly that was going to be a better cash flowing machine then I might consider doing that. I don\u2019t have anything in the pipeline for that right now. I could probably go get something. What would you do, James?<\/p>\n
So my vote\u2026 I mean, honestly, I\u2019m a guy that sells that deal. I like the\u2026 Path of progress is a great thing. You know what\u2019s coming in there, but if I\u2019m losing six to seven grand a month on that property in negative cashflow, I\u2019m going to claim the equity and reposition that profit into some other deal, or like what you said, keep it as a, I call those equity earner properties or equity in my portfolio growers, where I keep that deal for one year, I take the short-term pain.
I limp along on that property for a 12-month period. And then I 1031 it into something else. Because then you can take that huge equity spread, defer the taxes and pick up some major cashflow or trade into that same exact neighborhood with your equity position and actually get it to be cash flowing. So you\u2019re kind of moving things around.
But right now with things the way they\u2019re going, I just don\u2019t buy appreciation. And so for me if I\u2019m losing money on this deal, which you\u2019re probably negative, what? Five, 600 bucks a month on that, two grand a month on the rental, I don\u2019t like the liability.<\/p>\n
I absolutely would not long-term rent it. I would short-term rent it.<\/p>\n
And that\u2019s assuming that short-term rentals stay as robust as they are. I mean, James had a great point at the beginning of the episode that we may see some pain in the short-term rental market in the coming while. And so that could be something that could become a factor for you, Henry.
For me my vote on this would be the same as James. In fact, I wouldn\u2019t even do the renovation on this thing. I would take your first approach. I\u2019d whole tail that thing, I\u2019d make the 60 grand and I\u2019d move into the next deal.<\/p>\n
I knew both of you would say those things.<\/p>\n
I\u2019m tempted because I also am primarily buy and hold investor, but I agree that I\u2019m worried about the short-term rental market. I only have one, but I\u2019m seeing bookings seriously down from last year, and I know several other short-term rental investors who are experiencing the same thing.
These are A class properties in good neighborhoods that are seeing declines in bookings. And I think we haven\u2019t even hit a recession. So I\u2019m personally a little concerned about that. I\u2019ve never flipped a house in my life. So I\u2019m being a total hypocrite here, but I would say flip it.<\/p>\n
Oh, one thing I will say is hotels just skyrocketed the last 60 days. I went to book for work out and they\u2019re two and a half times what they were for the last 12 months. So I mean, that could protect the Airbnb a little bit, but yeah, they stepped on their pricing for sure. And these are not areas that I\u2019m going to that people want to travel to. It\u2019s just a work destination, but they\u2019re expensive.<\/p>\n
What I didn\u2019t get into with this market that\u2019s kind of aiding my decision is that Bentonville is a phenomenal Airbnb market because this is such a tourist destination for outdoor sports. It\u2019s the mountain biking capital of the world. It\u2019s got the Walmarts, the JB Hunts, the Tyson Foods, all headquartered here bringing people to come here to work and stay short-term.
And so you have a lot of people coming here to visit and you don\u2019t have nice hotels here. There\u2019s maybe two to three really nice hotels in the area, and then everything else is extended stays and LaQuintas, and people don\u2019t want those when there\u2019s nice Airbnbs. And still there\u2019s not a ton of Airbnbs and they go quick. So it\u2019s a really unique market for short-term rentals.
And so yeah, absolutely, I know I am picking the riskier strategy and I don\u2019t want to encourage everyone to take the riskiest strategy when you\u2019re doing something like this. I have a portfolio that will help me stay insulated if things turn. So I can choose to be a little riskier when the location, location, location factor is good.
So don\u2019t take me making this decision, new people, as you taking the riskiest option or the riskiest exit strategy on a deal. I have the benefit of being able to do that because I have a portfolio that will hold me up if something goes awry, but I\u2019m also willing to bank on A, the location and B, what\u2019s coming so that I can continue to cashflow this thing big time in the long-term.
And at the end of the day, if in 12 months, 24 months, I look at this thing and I want out, I know I can get out of it pretty well.<\/p>\n
All right, you convinced me Henry. I\u2019m on team short-term rental now. It\u2019s just my instinct. I mean, there\u2019s just only so many opportunities that be close to a slam dunk economic engine, right?<\/p>\n
Yeah, absolutely.<\/p>\n
If you could pick being in Silicon Valley or any of these giant things back in the day-<\/p>\n
That\u2019s what I\u2019ve been telling people.<\/p>\n
\u2026 Walmart is not going anywhere. And Walmart in a recession is going to do better, I want it.<\/p>\n
Going to do better.<\/p>\n
Hotel this to me, Henry.<\/p>\n
What I tell\u2026 Go today, James, Jamil, anybody listening go today and look at home prices in and around Microsoft\u2019s home office. Go look at home prices in and around Amazon\u2019s home office. Go look at home right around, literally less than a mile away from it. Go look at what they\u2019re selling for compared to anything else in that area.<\/p>\n
But how much is the 550 ARV? How much is that up from 18 months ago?<\/p>\n
Not a ton. That\u2019s a phenomenal question.<\/p>\n
There we go. Well, then the upside could be then Henry, I\u2019m not totally against your idea. I\u2019m not a short-term rental guy, man. That thing is painful for me. I don\u2019t know why.<\/p>\n
I\u2019ll just give it to somebody else to manage it.<\/p>\n
You\u2019ve got to have a certain thickness of skin.<\/p>\n
I don\u2019t manage it. Absolutely not.<\/p>\n
All right, well, speaking of Microsoft\u2019s headquarters, let\u2019s move to Pacific Northwest over here with James. Tell us about your deal.<\/p>\n
Yeah, Henry got me with the Microsoft\u2019s. That all of a sudden I started thinking about it. Hey, so we found a deal. We have deals in all different types of price ranged up at the Pacific Northwest. Sometimes we\u2019re spending $2 million to buy it. Sometimes it\u2019s much cheaper depending on what you\u2019re looking to get.
So this is a deal that we sourced off market. We actually hired a call room called Call Magic. And so we pound the phones on landlords that maybe want to trade out. So this guy had owned the property for a long time and it was a good time for him to sell it. What it is, is a three bed, one bath, 1,250 square foot house in Tacoma, Washington, which is about 35 minutes out of Seattle, 40 minutes out, sub market that\u2019s been appreciating at a pretty high rate.
And in addition to, it\u2019s got a 450 square foot unfinished basement on the house. So right around, it\u2019s going to be roughly around 18, 1900 square foot fully finished. The reason I like this deal all the way around is because the purchase price is actually $285,000.
The reason I like that is this is going to be a recession proof deal. So there\u2019s multiple exit strategies on this. And so as we\u2019re looking at this, we can look at three different options. The first option is we just renovate the upstairs, 1200 square feet. We put 70,000 in and we sell it for sure at 469.
We have comparables that are actually at 475 to 485, but because of what we\u2019re going into with the rates adjusting up, we actually kind of tick that back down 5%. So at the 4 69, we already baked in the cushion on the resale. Or we can put in 90 to 100,000 into the renovation, finish the basement, add another bathroom and then the value\u2019s going to be at 499 to 535.
We have three comps at 535, but again, we kind of backed down our comp to 499 to adjust for the interest rate hikes because all those comps were from February, March, and April, which the market was a little bit hotter then. So what we\u2019re looking at on the two flips is we\u2019re looking at we can make about 50,000 on the first way, the cosmetic, which we can probably get in and out in four to five months which is going to be about a 50% cash on cash return.
Or we can do the larger renovation, which is going to take about seven months and we\u2019re going to profit out about 60,000 with a little bit of upside to where we\u2019re going to get about 55 to 60% cash on cash return in the next six months. Or the third option is we can do a bur on this one. And the reason it\u2019s going to work as a burs is hitting all the different metrics.
We\u2019re getting that equity position. We\u2019re buying it cheap enough to where we\u2019re at 285 to max out the rents on this. We\u2019re not going to have to finish out the whole basement as well. So we can do a quick renovation, put a renter in there. It will rent for $2,500 a month. We have four different rental comps. One\u2019s at 2,800. So there\u2019s a little bit of upside still left in the deal as well.
And then we\u2019re going to be able to cashflow that deal about 150 bucks a month after we renovate it. We purchase it with hard money, refi it into a new conforming loan. We\u2019re going to leave about 15,000 to the deal, cashflow about $150 a month, which isn\u2019t that much, but we\u2019re picking up $100,000 equity position.
So the reason I like this deal all the way around is I look at when I\u2019m looking into transitioning markets or any kind of recession type of market that we might be going into, right? Stock markets, it now is a bear market rather than a bull. We can do this deal any which way. And we ran our numbers at our rental. The cashflows at $150 a month at 6.5% rate.
If the rate settled down, it drops down to 5.0, we can actually increase our cashflow to almost 250 to 300 a month and keep that equity position. So typically with single family houses, we own a lot of different apartment buildings, a lot of different\u2026 We go with larger rental properties typically, but I call this my portfolio builder type of purchase where you can buy this.
You can leave very, very little money in the deal, refi it, keep it for one year. And then I\u2019m planning on trading that out in one year and then reloading that into a two to four unit at that point with the $100,000 gain. Just because the tax hit on the first two flips just isn\u2019t going to be that big of a benefit to me.<\/p>\n
Can you tell us a little bit more about Tacoma? I don\u2019t know anything about it. What\u2019s the big economic engine around that area and what kind of neighborhood is this in?<\/p>\n
So Tacoma\u2019s got a lot of ports. The one big thing that\u2019s driving is the transit, has been drastically improved over the last two years and is continuing to grow. So they have a big train transit station going into all the different neighborhoods of Tacoma, especially North Tacoma. I bought a 12 unit right next to that as well.
I like to go where the path of progress is just like Henry was saying. He likes the areas where he knows there\u2019s growth. Transit\u2019s helping with the growth to get people to Seattle. It\u2019s about 40 minutes out. It\u2019s kind of like a hipster city where it has a similar vibe to Seattle, but a little bit more settled down.
I would say that the job growth is still developing down there. Most of people do commute quite a bit to Seattle. The transit is helping. That\u2019s what surged it recently. And then the affordability factor of people getting just burned out on the expensiveness of Seattle is they move to Tacoma. They can get the similar vibe. They got a similar feel.
They kind of like this more quiet in general down there, but they\u2019re paying 75% less. So people are going where the affordability is. There is some things in the works right now like in the\u2026 It is a port city. So there\u2019s more import export going on in there.
Tesla, from what I hear is looking at opening up some warehouse space. So there is some anchor businesses starting to come in through that area just for affordability reasons.<\/p>\n
Yeah, man, well, you\u2019re speaking my language as far as the rental numbers go. So for sure, I like that. I\u2019d actually do something a little different with this one, is I would do everything you said on the rental side, except I wouldn\u2019t cash out refit. I\u2019d HeLOCK it. And I wouldn\u2019t sell my equity.
So I\u2019d take a HeLOCK out on that, equity on that 100,00 get about 85 of it on a HeLOCK and then leverage that to buy something else if I needed it before then. Because if I\u2019m in a cash position where I don\u2019t need to sell or to refi something to take the money, then I won\u2019t, because your interest is front loaded on a new loan, right?
And so cash out refi and getting access to that money. It\u2019s more expensive to cash out refi it than it is to get a HeLOCK on it at like four to 5%, maybe a little less, and then leverage it that way is what I would do.<\/p>\n
Yeah, a lot of the reason we do the cash out refi anyways, or it ends up being yeah, a little bit of cash out because when we\u2019re doing that deal to buy that we need 15 to 20% of total project costs. So if we\u2019re at 230 or 285 is the buy and we\u2019re putting 70 in, that\u2019s roughly 350 grand. So we got to come up with about 70 grand to do that deal.
And that\u2019s going to finance us back all the construction costs. Reason we do that is we\u2019re setting it up with usually a hard money or soft money lender to close quick, because these are deals that to get this price, the seller\u2019s also saying, hey, close in five to 10 days. And so we\u2019re kind of beating those terms. And so no matter what we\u2019re going to have to refi anyways.
A lot of times when I am looking at if I know I\u2019m going to leave less than my down in, I can bring in a secondary partner too and line up the financing at the same time and do a rate and term refi. Because yeah, that cash out, it does bang you for half point right now.
And so that\u2019s a great thing to bring up, but yeah, so a lot of times we\u2019ll bring in a secondary lender too just to cover part of it to where they\u2019re almost\u2026 We have a first at 75% of total project cost, maybe a secondary guy at five to 10% just to get the rate and term refi done. And that\u2019ll keep your rate lower.<\/p>\n
We\u2019ve got to get you working with some of these small local banks and get you 100% financed on these things, man, on these quick flips that you\u2019re turning around.<\/p>\n
Oh, we love the local banks. Problem is they can\u2019t fund in five days.<\/p>\n
Yeah.<\/p>\n
And I\u2019m a five day offer guy. I\u2019m going to come in. I want the right price, but I\u2019m going to close quick. But yeah, local banks are the most untapped resource with a lot of small investors. Yeah, I like your program. 70% of ARV, that\u2019s a great loan.<\/p>\n
Yeah. Wells, 70% of appraised value. They appraise it as it sits, but they\u2019re in-house appraisals. So they base it on comps and usually it\u2019s pretty favorable.<\/p>\n
I was taking notes listening to the way that James is approaching this deal. It\u2019s so outside of the way that I do business. I mean, it\u2019s brilliant James and I love your approach to this. I think what Henry had mentioned getting the HeLOCK on that, sounds to me like the most favorable way to pull the money out without having to take that hit on that fee.
But again, my brain\u2019s just like, the lizard brain in me is just like, James, what kind of assignment fee could you get if you wholesale that right now?<\/p>\n
So on that, that would roughly\u2026 We\u2019re probably picking up 15, 20 grand on an assignment fee on that deal. Because I mean, there\u2019s got to be meat on the bone for that next investor. if they need to\u2026 They\u2019re going to need to get 25, 30K out of that flip.<\/p>\n
Jamil, send him a hedge fund to assign it to it like 95% of-<\/p>\n
Oh, yeah, I\u2019ll get you a better\u2026 I\u2019ll get you probably 25 or 30K on an assignment fee on that.<\/p>\n
That is true. And that\u2019s something we always factor in. We wholesale a lot of deals ourselves too where I would wholesale this. If I can\u2019t cover my mortgage, I probably am not the guy to flip that property down there. We spend a lot more times on larger projects. I like to be on bigger, more profitable deals because it eats up a lot of my resources.
And so I probably wouldn\u2019t flip this. I would wholesale it to a client at that point that is down in that market, that has the contractors that work on that type of product. But I\u2019m going to keep it because I want to build up my portfolio. Anything that I can stick inside my portfolio that\u2019s giving me a massive equity push that\u2019s paying for itself when I run in my numbers conservatively, that\u2019s something I want to stick in my portfolio.
I\u2019m going to keep it from a minimum of one year. And then again, I\u2019m going to trade it out for something else. I don\u2019t like taking on more debt on too many properties. I got that 2008 whiplash where I got kind of smacked from over levering.
And so for me, I\u2019d rather deleverage and roll it into something else just to reset. Plus I like resetting my depreciation schedule. Every time you make that trade, you can reset that and then get the more tax benefits in there as well.<\/p>\n
So you\u2019re keeping it, you\u2019re holding it for at least a year.<\/p>\n
I will have this for one year and a day, probably. It\u2019s one year and a day, get it to the 1031, get it to my\u2026 So I can save the taxes.<\/p>\n
All right, well this has been fun guys. We should-<\/p>\n
This is super fun.<\/p>\n
We\u2019ll ask our audience, but I think we should be doing this a lot. This is a lot of fun. I learned a lot. I hope everyone listening to this learned a lot as well. We\u2019ll be back in just a minute for our crowdsource section before we get out of here.
All right, welcome back. We just have a couple of more minutes. We did let that section go along, because that was just great guys. Thank you all for bringing these deals. It was super helpful. You guys learned anything?<\/p>\n
Yeah, man, I learned I need to have James review my tax strategy.<\/p>\n
I definitely get smacked with taxes. So yeah, I actually want to go check out, I was serious, I want to go check out Arkansas.<\/p>\n
Come on.<\/p>\n
I mean, I like the Walmart factor. I like the outdoor. I mean, it sounds like the Pacific Northwest, but a little warmer.<\/p>\n
Dope bro.<\/p>\n
You\u2019ve got tech. You\u2019ve got outdoor nature and you don\u2019t have 50 degree, 45 degree rainy days.<\/p>\n
Dude, this place will blow you away. We\u2019ll show you a good time. Come on out here.<\/p>\n
Done.<\/p>\n
James, let me know when you\u2019re going. I\u2019ll meet you there. Jamil, are you in?<\/p>\n
I\u2019m so in.<\/p>\n
Come on, let\u2019s just record an episode here. Let\u2019s do it.<\/p>\n
I\u2019m in. Done.<\/p>\n
Yeah, let\u2019s do one in Arkansas. That\u2019ll be a lot of fun. We\u2019ve been talking about doing it in Amsterdam, but I think Arkansas might be a little more beautiful.<\/p>\n
Same, same.<\/p>\n
All right. Well, we were going to get to some questions from the On The Market forums on biggerpockets.com, but this show is running a little long. We do have to get out of here. So I am just going to leave everyone with one call to action, which is to go on biggerpockets.com and fill out our audience participation survey.
I don\u2019t know, participation, whatever you want to call it. Audience feedback survey. We want to hear what you think about On The Market. You can vote on what your favorite episode is, what type of information you\u2019re getting the best out of it. If you have any ideas, topics you want us to cover, we would love to hear from you how we\u2019re doing so that we can get better.
Topics you\u2019re interested in, it would be super helpful for us. Just go to biggerpockets.com. When you go to the forums, one of the top forums is On The Market. We will be posting a audience feedback survey there. So please go do that. And thank you all for being here for that. I will say goodbye on behalf of Henry, James and Jamil.
We\u2019ll see you all next week. On The Market is created by me, Dave Meyer and Kaylin Bennett, produced by Kaylin Bennett, editing by Joel Esparza and Onyx Media, copywriting by Nate Weintraub and a very special thanks to the entire BiggerPockets team. The content on the show on the market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.<\/p>\n