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Hello Peter! Once you finished your explanation from the 3rd property and added up the cash flow and the amount of money pulled out of the properties tax-free, my head was spinning!! I have been thinking about the cash-out refi strategy all wrong. You made it so clear and I am now interested more than ever in this exit strategy.
First! I love your videos, I am a 27 year old looking to start my Real Estate journey. This channel provides in-depth content covering all aspects of CR. I'm from the UK, I'm just trying to see if the US real estate market is similiar to the UK so I can apply what I learn from this channel to the UK
I hope he replies but I’d say the theory works anywhere, just have to chat with local folks about the finer points. Btw at 27 you’re very fortunate to have a mindset like this. Be well.
@@howelljordan3469 Hi Howell Jorden, thank you for your kind words. My family has been left out of pocket from rogue builders and lost life savings. I'm trying to do something different and look after them in the future.
I’m 40, from Canada. Yes!!! Got. My first commercial property 2022. Had i known better (or encountered this channel) would have gotten first commercial 3 or 4 years ago...
I would add when interest rates are "bad" like now it is much easier to find good value add projects. Especially because these same owners your buying from are coming up on balloons and facing the same loss of cashflow youbare trying to avoid by buying with low interest loans. Further more, if you underwrite your deal when your getting 4% interest your taking a much higher risk because 5 years down the road you can be getting 50% added to your payment because money tightend on you. Tldr: I 100% agree with Peter invest and build wealth in the part of the deal you have control over. The purchase price and operation of the asset.
Great video but question. In my experience most local banks will do 20 maybe 25 yr loan with 5 year balloon. Agency debt has prepayment penalties and extra fees. Your examples are based on 30 yr amortization. While stabilizing and rehab are you using bridge or hard money then refi into agency for long term debt?
First off, I have combed resources for this material all over including bigger pockets, and I believe you explain CRE the best and most simply of anyone! Thank you for this. I totally understand this is possible and am all for it! My concern is the initial 25% for the 600k house, plus the value add costs. How do you suggest I get that capital to start this cycle? Saving would take a while, and i imagine that if I used partners to fund, I wouldn’t have these results as early as you describe.
1. It is not for a house. It is for commercial real estate only. Apartments would be 5 units or more. 2. How do you get the money? If you can find the deal you can find a partner or at least get a commission. Bigger Pockets is a good place for this. Local real estate groups could be an option. Asking were to get the money is a horrible sounding question. It makes you sound entitled or lazy. You could start flipping stuff on ebay. Reduce your living expenses. Do a house hack. Essentially you are going to have to sacrifice and work your ass off. Or get lucky; good luck with that.
Thank you for the information, my question is how do you know when you increase the rent money. Which is better way to use to increase rent money for the tenants. By using comparable market rate for the area , or you will use the high inflation . Thanks
Doesn't a cash-out refi affect the property tax assessment? Property taxes go up anyway, but if a property increases in value by 40%, that new value would have to be recorded with the county where the property resides and wouldn't that result in higher property tax payments that might reduce the NOI more than keeping the existing loan? Not trying to sound defeatist here, but wondering if we should consider this in our long-term investment strategy.
Not necessarily because the tax authorities only reassess properties after they’re sold. Since you didn’t sell the property, but only refinance it, the increased appraised value that your cash out is predicated upon is not a sale of the property and will not cause a tax reassessment….
I have done this multiple times and some town assessors do record the higher value and raise your property taxes. Most of the time this will only effect your bottom line by a couple thousand a year. Def not something to be worried about when you are completed larges BRRRs like he explains in the video. Love the BRRR strategy, just make sure this is in your stabilized numbers when holding long term and you will be fine.
@@babatundefafiyebi9669 any time the property value goes up then the tax assessors see this value but your taxes will not go up until the town assesses properties in the area. Some towns are very lazy with this and do it every couple years or longer. Other towns do it every 6 months.
Maybe Im missing something, on the 2nd property you value-add and the new cashflow is $6500/m, then you refi and your monthly payment on the loan is $7485/m. You are -$985/m. And then you do the same thing with property #3, value-add to $10k/m CF, then refi with a $13.7k monthly payment. How are your lenders ok with this amount? You have +$2700/m from the first property which floats the 2nd property's loss, but I feel like you are speaking very generally to make the point in the theoretical.
So… each property can only do once cash out refi. When we start spending the $975k, that will start drawing down the “principal” just like 401k. That means we have no choice but keep refi & buying to keep the ball rolling.
@@johnp999 isn’t commercial property building value based on the Cap Rate? If you cannot increase the NOI, how can you refinance without drawing down the principle pay down?
I have a question. In each of those cycles the cash flow was less than the mortgage until the value-add went into effect. And you said it can take years to increase the CF. So does that mean you're losing money during that time?
Please expound on how a property that has negative cashflow, can be considered to have been bought “well”? What factors that would make this possible am I missing?
@@anthonyj.4756 This video provides an example of making BIG profits from distressed properties: ruclips.net/video/cSRPX0BIMco/видео.html When the value add opportunity is big enough, it can warrant short term negative cash flow.
What happens when you have a five or ten year commercial loan and rents compress and interest rates increase and now you are forced to refi or sell the property and the principal has not decreased much over that period. This situation could happen very easily but every time I ask this question I do not get a real answer. I no you want Cash flow when you purchase but many have been buying properties that have very little CF or even negative CF, "I know because they have been buying properties that I have passed on", and when time comes at end of loan period its going to be bad for many "investors".
Due to monthly mortgage payments including a principal payment, the remaining principal will be lower than the original principal at the time of refi. This provides the first buffer against higher interest rates. Rents always trend up over any multi-year period in most markets (except where there is no growth, which Peter teaches to avoid). Peter also teaches to look for "value-add" opportunities which typically means that the rents are below market when you buy (thus, there is "upside potential," which provides an immediate buffer against the possibility of short-term rent contraction. Stretch this out over any 5 - 10 year period, and if you purchased a value-add property and maximized the upside potential by being a good operator, then it will be hard to lose when you need to refi. The worst-case scenario is that you lose a bit of monthly cash flow and wait for larger long-term gains. In this video, Peter is clearly suggesting buying properties that will provide immediate (or quick) cash flow by maximizing the upside potential, rather than overpaying for turn-key properties that could get you stuck (as you described) and place you completely at the mercy of market dynamics.
You can not do any of this with a single family start up could you. I have a bad start with my single family. Should I do an heloc then got multi family the corfi? Because this strategy starts off better than what I’m doing. #help
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Become a successful commercial real estate investor in today's market with the help of the right mentor. Apply to be my next Protege here: www.commercialpropertyadvisors.com/protege-program
Hi Peter,
All of your videos are very educational. But this is one of the best ones!
It’s great to see a real life example!
Hello Peter! Once you finished your explanation from the 3rd property and added up the cash flow and the amount of money pulled out of the properties tax-free, my head was spinning!! I have been thinking about the cash-out refi strategy all wrong. You made it so clear and I am now interested more than ever in this exit strategy.
Another great, and very informative video Mr. Harris
First! I love your videos, I am a 27 year old looking to start my Real Estate journey. This channel provides in-depth content covering all aspects of CR. I'm from the UK, I'm just trying to see if the US real estate market is similiar to the UK so I can apply what I learn from this channel to the UK
I hope he replies but I’d say the theory works anywhere, just have to chat with local folks about the finer points. Btw at 27 you’re very fortunate to have a mindset like this. Be well.
@@howelljordan3469 Hi Howell Jorden, thank you for your kind words. My family has been left out of pocket from rogue builders and lost life savings. I'm trying to do something different and look after them in the future.
@@WaiKoH OK, well you're on the right track. Continue seeking knowledge.
I’m 40, from Canada. Yes!!! Got. My first commercial property 2022. Had i known better (or encountered this channel) would have gotten first commercial 3 or 4 years ago...
@@FundiWaStima Good stuff... are you planning on continuing with the refi to purchase your 2nd property?
I truly appreciate your videos thank you. I’m working on something myself and I will definitely keep you informed.
I understand it now after rewatching the video. Thanks for the video Peter
I would add when interest rates are "bad" like now it is much easier to find good value add projects. Especially because these same owners your buying from are coming up on balloons and facing the same loss of cashflow youbare trying to avoid by buying with low interest loans.
Further more, if you underwrite your deal when your getting 4% interest your taking a much higher risk because 5 years down the road you can be getting 50% added to your payment because money tightend on you.
Tldr: I 100% agree with Peter invest and build wealth in the part of the deal you have control over. The purchase price and operation of the asset.
You're a gifted instructor. This video completely blew my mind. New subscriber!
Guess what time it is?
Walk away!
God Bless Sergeant Harris!
❤
Good stuff! Thanks for sharing Sir!
Great video but question. In my experience most local banks will do 20 maybe 25 yr loan with 5 year balloon. Agency debt has prepayment penalties and extra fees. Your examples are based on 30 yr amortization. While stabilizing and rehab are you using bridge or hard money then refi into agency for long term debt?
First off, I have combed resources for this material all over including bigger pockets, and I believe you explain CRE the best and most simply of anyone! Thank you for this. I totally understand this is possible and am all for it! My concern is the initial 25% for the 600k house, plus the value add costs. How do you suggest I get that capital to start this cycle? Saving would take a while, and i imagine that if I used partners to fund, I wouldn’t have these results as early as you describe.
1. It is not for a house. It is for commercial real estate only. Apartments would be 5 units or more. 2. How do you get the money? If you can find the deal you can find a partner or at least get a commission. Bigger Pockets is a good place for this. Local real estate groups could be an option. Asking were to get the money is a horrible sounding question. It makes you sound entitled or lazy. You could start flipping stuff on ebay. Reduce your living expenses. Do a house hack. Essentially you are going to have to sacrifice and work your ass off. Or get lucky; good luck with that.
Thank you for the information, my question is how do you know when you increase the rent money. Which is better way to use to increase rent money for the tenants. By using comparable market rate for the area , or you will use the high inflation . Thanks
Doesn't a cash-out refi affect the property tax assessment? Property taxes go up anyway, but if a property increases in value by 40%, that new value would have to be recorded with the county where the property resides and wouldn't that result in higher property tax payments that might reduce the NOI more than keeping the existing loan? Not trying to sound defeatist here, but wondering if we should consider this in our long-term investment strategy.
Not necessarily because the tax authorities only reassess properties after they’re sold. Since you didn’t sell the property, but only refinance it, the increased appraised value that your cash out is predicated upon is not a sale of the property and will not cause a tax reassessment….
I have done this multiple times and some town assessors do record the higher value and raise your property taxes. Most of the time this will only effect your bottom line by a couple thousand a year. Def not something to be worried about when you are completed larges BRRRs like he explains in the video. Love the BRRR strategy, just make sure this is in your stabilized numbers when holding long term and you will be fine.
@@babatundefafiyebi9669 any time the property value goes up then the tax assessors see this value but your taxes will not go up until the town assesses properties in the area. Some towns are very lazy with this and do it every couple years or longer. Other towns do it every 6 months.
GREAT VIDEO!
Another amazing video 😂
Thanks for another great video!!!!
great video!
Maybe Im missing something, on the 2nd property you value-add and the new cashflow is $6500/m, then you refi and your monthly payment on the loan is $7485/m. You are -$985/m. And then you do the same thing with property #3, value-add to $10k/m CF, then refi with a $13.7k monthly payment. How are your lenders ok with this amount? You have +$2700/m from the first property which floats the 2nd property's loss, but I feel like you are speaking very generally to make the point in the theoretical.
Should there be a stress test in place as you continue to refi to make sure you’re not overextended?
Absolutely!
So… each property can only do once cash out refi. When we start spending the $975k, that will start drawing down the “principal” just like 401k. That means we have no choice but keep refi & buying to keep the ball rolling.
@@johnp999 isn’t commercial property building value based on the Cap Rate? If you cannot increase the NOI, how can you refinance without drawing down the principle pay down?
I have a question. In each of those cycles the cash flow was less than the mortgage until the value-add went into effect. And you said it can take years to increase the CF. So does that mean you're losing money during that time?
In some cases, there is temporary negative cash flow.
Please expound on how a property that has negative cashflow, can be considered to have been bought “well”? What factors that would make this possible am I missing?
@@anthonyj.4756 This video provides an example of making BIG profits from distressed properties: ruclips.net/video/cSRPX0BIMco/видео.html
When the value add opportunity is big enough, it can warrant short term negative cash flow.
In this video cash flow would mean after all expenses, otherwise he would of put income instead of cash flow.
@@anthonyj.4756 you can buy vacant property with zero cash flow and still being killer deal , also many more scenarios ….
How can I refinance commercial land??
What about when the interest rate is higher then cap rate? Are is everything you are buying a 7 cap or higher?
Very hard to find it…
What happens when you have a five or ten year commercial loan and rents compress and interest rates increase and now you are forced to refi or sell the property and the principal has not decreased much over that period.
This situation could happen very easily but every time I ask this question I do not get a real answer. I no you want Cash flow when you purchase but many have been buying properties that have very little CF or even negative CF, "I know because they have been buying properties that I have passed on", and when time comes at end of loan period its going to be bad for many "investors".
Due to monthly mortgage payments including a principal payment, the remaining principal will be lower than the original principal at the time of refi. This provides the first buffer against higher interest rates. Rents always trend up over any multi-year period in most markets (except where there is no growth, which Peter teaches to avoid). Peter also teaches to look for "value-add" opportunities which typically means that the rents are below market when you buy (thus, there is "upside potential," which provides an immediate buffer against the possibility of short-term rent contraction. Stretch this out over any 5 - 10 year period, and if you purchased a value-add property and maximized the upside potential by being a good operator, then it will be hard to lose when you need to refi. The worst-case scenario is that you lose a bit of monthly cash flow and wait for larger long-term gains. In this video, Peter is clearly suggesting buying properties that will provide immediate (or quick) cash flow by maximizing the upside potential, rather than overpaying for turn-key properties that could get you stuck (as you described) and place you completely at the mercy of market dynamics.
You can not do any of this with a single family start up could you. I have a bad start with my single family. Should I do an heloc then got multi family the corfi? Because this strategy starts off better than what I’m doing. #help