REAL ESTATE

Seeing Greene: Flood Zones, New Builds

14


Have you ever thought about buying rental properties abroad? It might surprise you, but investing overseas could bring in much more cash flow and appreciation than you thought possible. Bobby, a real estate investor from Arizona, moved his money down south, buying in both big cities and small tourist destinations in Mexico. He’s here to share everything you need to know about buying international investment properties and how you, too, can beat the US housing market by moving your money elsewhere.

It’s time to practice your Spanish because, on this Seeing Greene, señor David Verde and Rob Abasolo are here to talk about investing in Mexico’s cash-flowing coasts and appreciating capital city. Bobby details finding properties for sale when investing abroad, how to get a rental property loan (and today’s mortgage rates), the challenges American investors will encounter, and the tourist markets to look for. Plus, we’ll answer some questions from the comments and listeners about buying in a flood zone, financing an ADU (accessory dwelling unit), and how to run your numbers on a build-to-rent property.

Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can jump on a live Q&A and get your question answered on the spot!

David:
This is the BiggerPockets Podcast show 9 57. What’s going on everyone? This is David Green, your host of the BiggerPockets podcast. Today I am going to be joining you from Austin, Texas where we have a Seeing Green episode, and I brought in my good buddy Robbie Aboso to help Rob, how are you today?

Rob:
Very good. Excited to jump into today’s episode because we kind of talk about something that my mom did in the real estate world that making me sweat a little bit after talking to Bobby today. So for anyone that’s thinking about investing in Mexico, you’re going to want to listen up.

David:
That’s right. We’re going to bring you mama drama clarifying IDU financing from a previous show, building duplexes in flood zones, what to analyze when you’re considering building the rent, as well as calculators that can help you on that process. If

Rob:
You have questions that you ever need answered, you could always ask them on the BiggerPockets forums and let the community answer them for you. Or if you want a chance to ask your question on the show, you can head on over to biggerpockets.com/david. The link is in the description, so go pause this, send your questions, and let’s jump back in.

David:
He’s in Houston, I’m in Austin. We’re coming to you from Texas. Do us a favor, count the y’alls that come up on today’s show and put the number that you got in the comments on

Rob:
YouTube. Thanks y’all. Sorry

David:
We had to get one.

Rob:
I just wanted to kick off the counting.

David:
Alright, now let’s get to our first Coler. All right. Rob and I are here with Bobby, a Mexican American from Arizona who has bought two properties in Mexico in the last year, and I’m very interested in this. He’s going to be breaking down how Americans can invest in Mexico and how that compares to being a citizen of Mexico, as well as if Americans should consider putting their money abroad. Bobby, welcome to the show.

Bobby:
Absolutely, no thanks David and Rob. I appreciate the opportunity and happy to provide value where I can.

Rob:
Man, I’m really excited to talk about this because my mom just bought a house in Puebla, Mexico about a year ago. Nice. And the process that she walked me through was very scary. It was basically like, oh yeah, I’m showing up to this house with the briefcase of money, and then there will be a lawyer there who signs the papers and I’m like, mom, this can’t be true. And she’s like, it is. It is. And luckily it actually ended up all being legit, but I was terrified of the process. So I want to clear up my perceptions of what it’s like to actually buy real estate in Mexico.

Bobby:
Okay. Well that’s an interesting story right there for sure. My experience was a little bit more standardized, I would say. I hope. I would say it’s very similar to United States with some little nuances for sure. Obviously there’s no hardcore MLS out here, so when you’re even doing competitive research and whatnot, I did it by just being boots on the ground, just actually doing my own research for a good first year, understanding which lonas are popular, what’s happening economically, stuff like that.

Rob:
Yeah. Well, we definitely got some questions for you, but before we jump into sort of the nitty gritty here, tell us a little bit about what you own and some of your portfolio in Mexico.

Bobby:
So with everything that changed the United States with inflation and whatnot, once I was in Mexico, that’s why I instantly started looking at the real estate market here, because you could buy two bed, two baths and stuff like that for 140, 150 K by the beach type of deal, for example, in master fund and whatnot. So that’s what kind of started everything. So because I was living in Mexico City first, I looked at the real estate market here. I saw where foreigners were usually staying. I saw how much the properties were appreciating as well. It’s definitely way more than the US in terms of the percentage of how much they appreciate. So yeah, so that’s why I said, okay, you know what, I’m going to buy one first here. That was just a loft here in Romao, which is pretty much right in that area of ESA and Roma and whatnot. Nice. And the second one is in Malan, and that one is two blocks from the beach in a co colonia called SLO Country.

Rob:
Very cool, very cool. Yeah, I mean, every time I talk to people not in America about financing and loan programs, it always seems like the American way of financing is very different from pretty much how all countries do it. So tell us a little bit about the financing in Mexico. How do loans work? What are the different options out there?

Bobby:
Yeah, for sure. So do you have your standard mortgages from big banks, which is whether it’s HSBC, stuff like that. Now these banks are opening up with foreigner mortgage loan programs and whatnot, so they’re opening up their products, their suite of products for foreigners. The one thing that I did consider was a company called Moxie that is headquartered in the United States. They specifically will do mortgages for Americans looking to buy a purchase property in Mexico. And so they take care of really simplifying the process and whatnot. They have their requirements of how they finance. For example, they’ll require still 40% down, 30% down, and then they’ll finance the 60 or the 70% type of deal and moxie, they might have changed that stuff by now since the last time I spoke with them. Now, the way I did it was, there’s two scenarios. The first one is I actually used the HELOC from the United States, and so technically in Mexico for R Suit, this was paid cash. And the second one in master plan, that one I did finance through HSBC. That one I went through a loan officer that I was recommended through just like in the United States, there’s real estate agents. Those real estate agents have their networks of who they recommend for mortgages and whatnot. And so that’s how I got connected with Hector. He ended up doing tremendous of a job, really walking you through the process and everything really educating me. And so if you meet the right people, it should go pretty smooth to be honest.

David:
Okay. What about ownership Can Americans own in Mexico? How do those have to be structured to take title?

Bobby:
If you’re a foreigner purchasing, you have to go through a process of submitting basically a permission to purchase property in Mexico, and that’s going to be through the Secretary of exterior relations. Basically the notary in the process, the notary is the entity that uras the title, all that stuff like that. Well, they are also in charge of submitting that request to that secretary of exterior relations, and that document will outline all the specifics of the property you’re looking to purchase, even the size of it, where it’s located, the dimensions, I mean the integrated outlines everything. And so that is the extra step that a foreigner has to take to purchase property in Mexico. Now, I was going to go through that direction, but since my grandparents were born in Mexico, by the time that we got to that phase, I had already applied for my Mexican citizenship. So I learned about that process, but I didn’t have to go through it because I was able to obtain the citizenship route.

David:
All right. Now when people are buying there, you mentioned that they don’t have an MLS, so you’re kind of looking word of mouth. Are most people buying vacation rentals? Is there a long-term market? Is a burr possible and if so, is there different databases people are going to look for these different kinds of deals?

Bobby:
Yeah, for sure. Great question. So there is a popular site called tro.com. That one is the one I specifically used. The only unfortunate thing about that and so I would recommend to a lot of people is you got to watch out for scams still because there for sure are still fake properties on there and stuff that just my mom, it’s a scam. Yeah, it’s just a scam. So you got to do your homework and stuff. I mean I’ve literally, it’s unfortunate, but if I submitted a request or inquiry that I was interested about a listing or say about eight listings, I’d probably get three real estate agents back that would follow up with me and that were professional and stuff like that. And then the other six would just fall off. And so in terms of MLS, there is a database, but it’s not accessible to the public. I know the real estate agents have that system, but it’s not like the us. It’s not like you could go to Redfin and Web is made. The GU through is probably the closest version to that so far. I know it’s getting better for sure, but that’s probably the closest version to that so far.

David:
Well, I like the name of the website. It sounds like David Verde Vent Cuatro, which is also a wonderful website, which Rob makes fun of me for all the time for picking the most boring name. And now I’m vindicated as it’s very popular in Mexico. Rob, I think you should take a look at that.

Rob:
You are vindicated, you are selfish, you are strong. Yeah. What’s the name of that? Just a little slower?

Bobby:
Yes, in, so INM in web ti cuatro 20 four.com. In web is the word for basically properties.

Rob:
Got it. Got it. Coming up, I’m curious what challenges investors will face going out of the country and what big opportunities you see. So we’re going to talk about that right after the break. So I’ve got a question about sort of the tourist scene and everything like that. I mean, I think you mentioned short-term rental or you mentioned it’s very touristy and so obviously that’s got to be a booming short-term rental market. These types of places can seem like they could get oversaturated with very similar types of listings, beachfront or very close to the water. Are there any tips or tricks for standing out in the short-term rental market out there?

Bobby:
It’s all about the photos of course, just like, so we’re just doing everything through Airbnb. Long-term rentals are nice, but you don’t make, obviously the cash flow’s not the same as nightly rentals. And so I just stick to Airbnb for these two and it’s all about the photos. And I would say this, it’s kind of silly, but it was even as basic as having a smoke alarm and monoxide detector. If you go on Airbnb right now and you look at properties in Maitland, you’ll see it Xed out and no one has that. And so it’s like interesting. It’s like little things like that that I’m like, okay, well it’s probably a good idea to have that and foreigners would appreciate that. So

Rob:
Is there a reason why carbon monoxide detectors are not common?

Bobby:
I don’t know. I scratched my head on that too.

Rob:
Oh, okay. Got

Bobby:
It. Yeah, so

Rob:
Photos and carbon monoxide detectors, the two tricks of the trade.

Bobby:
And you know what, the other thing too is just think about your digital nomads or remote workers and just making it comfortable for them specifically these two, they’re comfortable so that if someone needs to do remote work and stuff there they can because that has grown a lot obviously the last three years. That’s grown a lot in Mexico.

Rob:
You mentioned the down payment for some of these loans. What are interest rates like in Mexico at the moment? Are they comparable to the United States?

Bobby:
They are higher. So interest rates for a normal one will end up being around 10 to 12% interest. Wow. And so it’s definitely much higher, which is why I use the HELOC route the first time around. The only reason why I actually did the mortgage on the second time around here with the HSBC for the master plan apartment was because the cashflow actually made sense. So after paying debt service and all that stuff like that, I knew that this property master plan would still be positive cashflow by 40 50%, which that was like, okay, well the numbers make sense. So this actually is still a pretty good bet. Now since it was my first mortgage here and I technically don’t have credit history, they only financed the 70% and then I had to come up with a 30%.

Rob:
Got it.

David:
So Bobby, you mentioned your cashflowing at 50%. What’s your ROI on this deal? And if you weren’t going to use your heloc, if you were going to go finance the property, just give us a rundown of what somebody could expect to put down on a property and what kind of cash on cash return they’d get on some of these short-term rentals.

Bobby:
Great question. What I’ll use is the master plan example, since that one has even a little bit more history. So the mortgage on that is 1200 a month call. It depends on where the best was sitting on, I guess the dollar of course. And so we’re talking about 1200 a month. I only put about six grand into it after purchasing the property to uplift it, so call it 13 or 12 and change after maintenance costs and even utilities and stuff. Let’s just round it up to 1300 a month. That property will cashflow two grand to call it 2,600 a month, and it’ll be booked about 20 days out of the month. So you’ll still your ups and downs, but if you take probably a whole year, that’s where it would average out is to where the costs are 12, 1300 and you’re bringing in two grand to 2,600 around there

Rob:
On $140,000, you’ll put 30% down, which is 42,000. You said you put $6,000 into it, so you’re all in the 48,000 to $50,000 world and you’re doing 20,000 to 24,000, something like that. That’s pretty good.

Bobby:
Yeah. That’s the main reason why I said I’m going to focus on Mexico right now. The thing is you still, and this is why I would tell everyone, it’s still not like you could just go find a property and you got to still do your research, be boots on the ground, stuff like that, and look for opportunities. For example, the one in Muston, that property had been sitting on the market for seven months and the guy was already ready to sell because he was like, dude, I need to get this money into another property that I’m trying to do. It was like, and so when we purchased it, the property valuation came at 2.7 or Yeah, no, no, it was almost 2.8 and we purchased it at 2.5. So even just purchasing off the bat, we had equity made. And so it’s just kind of looking for those opportunities too. All the context there matters.

Rob:
Awesome. Yeah, so higher interest rates, but still possible in Mexico today in 2024 to do okay on real estate out there. Very cool, man. Thank you so much for coming onto the show. We appreciate your insight and we’re going to hit the next segment now.

David:
So Robbie, we just talked to Bobby, what did you think?

Rob:
I think my mom got scammed out of $56,000.

David:
You scared me a little bit when you started talking about how your mom showed up with a briefcase full of money and met some guy at the house, was like, there wasn’t a title office, there wasn’t a business.

Rob:
I’m telling you, bro. I called her and I was like, mom, listen to me. You cannot do this. And she’s like me, this is how it’s done. And I was like, I couldn’t get her up, but she’s still living there. So I think it’s fine until someone shows up and they’re like, what are you doing in my house? But all jokes aside, I do think that it’s really nice to kind of hear this because you hear, I’ve been really interested in the international investing scene. I’ve just never done it. I have a lot of people on YouTube, they’re like, oh, tell us more about investing internationally. And I’m just like, truthfully, I don’t do it. I don’t know why I’m so scared of it because when I talk to other investors, they’re like, dude, it’s the same exact thing. There’s no actual difference here. You find a realtor, you go through a bank, you finance it, you build your Airbnb Avengers just like you do with all your houses in America, and you run your property 20 hours away versus 15 hours away, but there’s no real difference. So it’s kind of reassuring after hearing Bobby talk about it that I actually think it’s really not as crazy or not as scary as one would think.

David:
Well, I mean the fundamentals are going to be the same. I think the biggest differences that we covered would be financing. You’re not going to get 20% down, which frankly 20% down is a problem for a lot of people right now. And so if you got to put more than that, that could be a problem, but that may be offset by the lower cost of the real estate,

Rob:
Right? 140 K.

David:
Exactly. 140 K was not much. Even two 80 K is not that much compared to American real estate prices and then the interest rates were higher, but that’s offset by lower loan balances. Higher rates don’t hurt you as much when you’re borrowing less money. They make a very big deal when you’re borrowing a million dollars, not so much if you’re borrowing $200,000. And then the management of it, obviously if you don’t live in the area, you won’t have as many connections. It’s going to be harder to put your Avengers together. But if you follow the principles and long distance real estate investing, which would apply to out of the country, not just out of state, you get your core four and those people have referrals for you that you slowly put things together. So I really think in the future you’re going to be hearing a lot more of this because American real estate is becoming so expensive and there’s not enough supply. I think you’re already seeing it. Basically people are going to other countries, they’re buying vacation rentals there. They’re going to start moving to those countries. You’re going to see a lot of Americans that build up their wealth in America that see the inflation that’s going on and they’re going to move to other countries, make their dollars stretch further.

Rob:
Well, in the time that you said all of that, I have looked up a mansion on the water for $895,000 and I texted it to my wife and I said, should

David:
Maybe we sell Scottsdale and we 10 31 into that

Rob:
Weo into that one. There you

David:
Go. Very nice. Thank you. And also everyone, if you’re listening to this dm me personally on Instagram as I’m setting up a GoFundMe account for Rob’s mom to try to get her back some of the ment that she undoubtedly just lost the Mexico,

Rob:
Mexico help her.

David:
Alright, thank you everybody for listening. We would like to have you featured on an episode of Seeing Green. Simply go to biggerpockets.com/david as in me, and you can submit your question there and we will get that answered At this part of the show. We like to go through comments that we’ve got on YouTube sections of previous episodes. Sometimes we get into the BiggerPockets forums and we bring you out what the people are saying. Remember to comment and subscribe. If you’re listening to this on YouTube and if you’re listening to this on a podcast app, make sure you subscribe. Our first comment comes from Michael Sockwell who says, am I the only one pulling my hair out that they ignored the entire premise of the A DU question and went on a tangent about how to spend $210,000. He said he had a way of doing it for 10 to 15% of the 210 K, and he cannot buy a 400 K property or build a house with $30,000. I really wanted to hear a rational thought on that one too. Now Michael here is referring to the BiggerPockets podcast episode number.

Rob:
I think it was number 9 32.

David:
Very nice, Rob. Thank you. That’s exactly why we keep you around. You get a mind like a

Rob:
Steel trap. Yeah, that’s right. Yeah, I think that,

David:
And in that show, we had one of our Seeing green guests who was asking us, Hey, if there was a way to put less than 20% down and build an A DU on your property, would you do that or would you put 20% down on another property? And we didn’t answer the question because there is no way to put 10 to 15% down on an A DU, at least not on a 30 year fixed rate mortgage that any of us are aware of. I own a mortgage company. I’ve never seen anything like that. In fact, it’s one of the things I’ve been looking for is a lender that would do it, see a DU starts springing up everywhere if that were the case. So we ended up answering the question as far as, well, does it make sense to put the full cost of an A DU to just build it with all cash or to use that money as the down payment on another property?

Rob:
Yeah, the asker of the question, his name is Kyle, right? I believe that he started off by saying, Hey, if I found a loan program that allowed me to put down 10 or 15%, what are your thoughts on doing this? I guess if we want to just make Mr. Michael Sockwell 76 0 2 here happy, yeah, I would do it. The return is great if you could put 10 to 15% down, but that’s not really much of an answer if it’s not actually something you can do. So yeah, I think we did an okay job answering a more realistic version of that question,

David:
And if somebody’s wondering, well, why don’t they offer 30 year fixed rate mortgages on ADUs? It’s because the A DU is still part of another property. It’s still part of the main property, and there’s usually going to be a first position lien on that property. So if you wanted to get another loan at a 30 year fixed rate for the A DU, the lender isn’t looking at it, it’s a second property. They’re looking at it. It’s a part of the original property. It’s an improvement to them. It’s not any different than if you’re putting a new roof on a house or you’re going to remodel it. People don’t give you 30 year fixed rate loans to go remodel your kitchen. So they’re not going to do the same thing on an A DU. This would have to be some separate company that comes along and offers loans in second position to build ADUs with low down payments. But those people don’t do 30 year fixed rates. That’s usually happens because the government sponsors Fannie Mae and Freddie Mac loans. So because the government’s involved and they buy the loans, they end up as mortgage-backed securities. They can offer you 30 year fixed rates and sell the loan to someone else, but in most cases, that doesn’t happen. So there you go.

Rob:
I mean, if they were going to offer a second lien position on it, their interest rate would probably be mega high because it’s a little bit riskier.

David:
It’d be way higher, and it wouldn’t be for 30 year fixed rate. It would be like a adjustable rate mortgage type of a thing.

Rob:
Yeah, I mean, even if you got a private money lender to lend the money on that, you’d put the down payment, but then you’d still have some probably eight to 12% interest rate that you’d be paying on top of whatever the amortized rate is. So you’d still have to work that into your numbers to make sure that cashflow and all that good stuff. So it’s really not even all that accessible I think for the everyday person. That’s why ADUs are kind of a cash game unless you’re doing a new construction loan from the beginning and building both the main house and the A DU at the same time.

David:
Exactly. There you go. Because it’s the first position, lean on the property. Great point, Rob. All right. Our next comment comes from Player GN three DC who says, I heard an ad on Spotify trying to tell people to open a HELOC to help pay for groceries. It’s so over, and that was followed up by a comment from KRE 4 1 4 2 that said, that’s not the worst it gets. McDonald’s is sending out ads to help people split fries at their chain, like maybe don’t get fries if you need to split the cost

Rob:
Fair.

David:
Alright, when it comes to using a HELOC to pay for groceries, terrible advice. This is the stuff that got people in trouble in 2010 or before. This is the stuff that gave HELOCs a bad name, frankly, because for a long time when you said heloc, everybody immediately cringed and we’re like, oh, that’s how you lose your house. We don’t advocate here for people using HELOCs for anything other than something that adds cashflow or adds value to your portfolio unless it’s like a credit card consolidation type play or something. And even that’s dangerous because then once your credit cards are paid off, you can go run ’em up again if you’re not disciplined when it comes to your finances.

Rob:
With that said, I agree, HELOC should really only be used for real estate or something that’s going to cashflow. I mean, I think the other argument to be made, I’d be curious about your thoughts here. I mean, the other way that people use it is for emergencies, right? Some kind of medical thing, some kind of emergency where you literally just have no other form of getting out of that emergency. But there’s not an ROI there other than that. It’s helping you in a really, really tough spot. So yeah, man, it’s a HELOC real estate. Just use it for that. Use it for leverage that will pay you. That’s the only way I can really endorse the use of a heloc.

David:
And if you’re someone who’s listening to this podcast and you’re thinking, I’d like to learn more about financial independence and saving my money to go with my real estate knowledge, well, kudos to you. You can learn more about that by listening to the BP Money Show, hosted by Scott Trench and Mindy Jensen who are helping our community reach fire financial independence, retire early. You can also listen to us on how to get deals done once you’re in a financially stable position. I say it all the time, owning real estate and being in a financially sound position go together. I’m not a huge fan of trying to use real estate to get yourself out of bad financial habits, but I am a fan of using it once you’ve got good financial habits. All right, we’re going to take a quick break and then come back with two questions about building to rent instead of buying to rent.
So stick around, we’ll be right back and welcome, come back. Thanks for taking the time to support the sponsors that help us bring you this content. Our first question comes from Deonte Hill, a pro member in BiggerPockets who says, I’m looking to do my first deal and have decided to go the route of building a duplex. I’m faced with a decision of paying more than 50 K to purchase a lot in the regulatory flood zone or more than 70 5K to purchase a lot that’s not in a flood zone. Obviously as investors, the numbers matter. So is this an action I should enact on or should I avoid the flood zone and purchase the higher price property and take the risk? Alright, Rob, so does he buy the cheaper property that is in a flood zone or the more expensive lot that’s not in a flood zone? I

Rob:
Guess there’s a couple of qualifying questions there, right? Are we talking like a 20 year flood zone, 50, a hundred, all that good stuff? I would say if he’s got the ability to do it extra $25,000 for peace of mind that you’ll never have to deal with. Floods is pretty nice if you ask me and I think probably worth it in the long run because yeah, even if it’s a dunno 15 or 20 year flood zone, that just means that’s kind of the general frequency. But floods could happen pretty much at any time. So I don’t know. I don’t know if it’s really worth the savings there because it’ll end up costing ’em a lot more in the long run.

David:
Well, when you look at it like 50 to 70 5K, it’s about 50% more expensive to buy the more expensive lots. So now immediately you’re like, Ooh, I don’t want to do that. But when you look at it at the total cost of the project, the lot is probably going to be a very small portion of this. You’re going to spend 50 to 70 5K on the lot, but then you’re going to build a property that’s going to be like a hundred and 150 K, maybe up to 200 k depending on how big it is or where he’s buying it. Now, the $25,000 seems like a much smaller deal. And then when you think about the fact you’re going to be financing probably 80% of that, it makes way more sense in my mind to go and not buy in the flood zone and not have to deal with it. And that’s only strengthened by the fact that I see insurance rising every single year.

Rob:
Yeah, breaking news here. Turns out he is in Houston, which I’ll tell you man, Houston had been hit with some floods in recent history. So yeah, knowing that it’s Houston, I’d probably say, yeah, just spend the extra 25 grand, especially if you can leverage it just like you’re saying at a 80% ratio.

David:
Yeah, we used to tell people, well just get insurance to cover yourself, run the numbers that way, but now you don’t even know what numbers you’re running on insurance. I’ve been saying for years the rent that you run the numbers on when you buy the property is not going to be the rent in five years or 10 years, but the insurance wasn’t really changing a lot. I’m almost looking at your expenses that way, like, well, yeah, you’re underwriting it at this insurance cost right now, but what’s that insurance going to cost in five or 10 years of inflation and natural disaster? So I would err on the side of caution here and spend a little bit more to get the lot in the better area. Good question though. Thanks Deonte. And our last question comes from pro member Anna Catron, who writes in the exclusive forums on bp.com.

Rob:
So can you just break that down? What is a exclusive forum just for anyone at home that doesn’t know what that is? Well,

David:
Sometimes wealthy people like Rob travel in airports and I do the same. And when I travel in an airport, I sit in a normal chair with normal people and I rub elbows with the common folk, but Rob does not. Rob goes to, what do you call those places? These VIP exclusive,

Rob:
The lounges.

David:
The lounges, yes, Rob travels first class and he sits in lounges, oh boy, where rich, wealthy people cozy up to each other and talk about things like 401k plans and tax changes and Rolex watches. The pro forums is the equivalent of a lounge in the BiggerPockets website, but you could get in for only like $350 a year. It’s very, very cheap. It’s one of the best deals in all of real estate. So Anna is asking her question from the lounge while all the rest of us are sitting out there lifting up our legs for the people to vacuum the cheezit crackers from underneath us while we’re waiting for them to call for a flight. And Anna says, Ola, we’re in Fort Worth, Texas and building duplexes to hold and rent. We’ll build with cash and then finance out into a 15 year note. So she’s going to spend 150 K to build, then pull a hundred K out of that and finance it on a 15 year note.
I like the sound of this already. Our numbers are pretty solid as we already own a prototype in the same area. Is there a calculator for this and do you have any ideas? Okay, Rob, so you’re going to be building $150,000 property. You’re then going to pull a hundred thousand dollars out. So this is a bur method, but instead of buy, rehab, rent, finance, repeat, it’s build rehab, rent. I guess rehabbing is part of build, but you know what I’m saying? Yeah, for sure. And then you’re going to pull money out. What are some things that you’d be looking at to run your numbers?

Rob:
So I’d be looking at ar v after repair value, and basically that’s going to be the total worth of the house after the house is built. And then I’m going to be looking at what my cash out refi amount is going to be typically. I mean it was for a long time, 75%. I think maybe right now I’m sure it straddles between 70 to 75%, and I’m really just trying to calculate how close I can get to pulling out all the cash I invested into it, but I’m fine with leaving a little bit of money in there so long as the actual cashflow amounts to a return that I’m happy with, which could be anywhere in the 10 to 15% range for something like this. What about you? Yeah,

David:
That’s really good. The first thing you’re going to look at is cashflow. So obviously if you’re going to be refinancing into a 15 year note, your numbers are going to be higher than on a 30 year note. So you want to make sure that you’re going to get some kind of cashflow. The next thing you want to look at is just like you said, Rob, well, how much of the money are we going to pull out if we can build for 150 K? Do we only want to pull out a hundred K? Because what if you build for one 50 but it’s worth 2 25 or it’s worth two 50? You could pull out your whole one 50, get all your money back out. So that’s going to be limited by how much the property cash flows because you probably don’t want to pull more out of the property than what the rents are going to be supporting.
So that’s the second thing that I would look at. The third thing I’d look at is how much equity am I creating on every deal? If I’m building for 150 and it’s worth 150, if you’re getting cashflow, it’s worth doing, but I like it a whole lot more if I’m building for 150 and it’s worth 200, now I’m adding 50 K of equity every time I do this. So I’d be looking at how can I make this as sustainable as possible If it turns out it won’t cashflow on a 15 year note, I’d put it on a 30 year note so that I could keep getting that 50 k of equity smart. If I’m not getting the equity now, I maybe look at the 15 year note instead of 30 so that I can pay it off faster and I can build my equity that way. Since I’m not buying equity, I’d be getting it through the loan pay down.

Rob:
Yeah, great answer. I would say she said that she’s looking for a calculator for that. I’m relatively certain that the Burr calculator on BiggerPockets should do that. Now obviously a burr is technically different than a new construction, but very similar mechanics where you’re investing a certain amount of money to improve the value of a property, and then you’re cashing out that final value of the property to figure out your return. So I feel like she’s pretty closer replicating a new construction calculator with a Burr calculator, I

David:
Think. Yeah, and if she already knows the numbers to build, she’s at 150 K. That makes estimating your rehab costs super simple because the contractor’s already done it for you, so you wouldn’t even need to worry about all of the part that is usually the trickiest part to get down, which is your rehab cost. I think this would be a pretty straightforward calculation in the Bur calculator would be your best bet. And since Anna is a BiggerPockets Pro member, she gets unlimited use of these calculators. If you would like to learn more about those, head to biggerpockets.com/calc and you get a couple free uses of all the calculators, then you could decide if you want to go pro. And folks, that is our show for today. First off, we just want to genuinely and candidly thank you for listening to this. We really appreciate it, especially that you’re here on Scene Green with us.
We could not have a show without you. So if you’d like to have a question featured on Scene greed, head to biggerpockets.com/david and ask it there. Rob, I’d also like to thank you for being here with me today. And if you guys are listening to this anywhere you listen to podcasts, it’s a huge deal. You have got to go and subscribe to get notified when the podcast comes out. And today’s show we brought just for You buying in Mexico and questions you should ask when buying abroad, as well as how US investors can get into other countries clarifying a DU financing from a previous show, building duplexes in flood zones and calculators for building to rent, which I think we’re going to see more people doing as the existing supply of homes gets thinner and thinner. Thanks everybody. We appreciate you being here. We’re going to let you get out of here. This is David Green for Rob Cinnamon Toast Crunch, ABBA Solo signing off.

 

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