Ran out of money for the fourth one and did not see it coming

Dumb question maybe. Why can't you touch the 77k of equity? Isn't that the whole point of owning them, that the money is in there?

@rigging as I understand it he can, he just has to borrow it, which means a bigger payment on a house that's already got a payment, and the rent has to cover it. So the equity isn't money, it's a loan he's eligible for.

@keystone the partner thing is what I'd want to hear more about, since I'm reading about the paper side of deals. What was the sticking point, the split or the security?

I'd name the cause differently. The refinances did what refinances do at these rates. Your 11k overrun on house three is the event that ended the run, and 11k over on a 181k all in is a rehab you didn't have priced when you closed. Two of my last three did the same thing and it's always the same category, something behind a wall or under the floor.

I move fast on thin margins so I'm not lecturing anyone. But if you plan at 55% recovery and then run 20% over on scope, you're right back where you were. The recovery assumption and the scope discipline are the same problem twice.

@flint is right about where it went. On the rehab side the overrun usually isn't one surprise, it's twelve small upgrades nobody wrote down. Someone stands in the kitchen and says while we're here, and the while we're here list on a 43k scope is routinely 8 to 12 percent of the budget.

Fix is dull. One written scope, line items with quantities, and every change goes through a change order with a price before anyone touches it. Contractors hate it for about a week and then it's easier for them too because they get paid for the extras instead of arguing about them.

One mechanical thing that makes your 55% planning number more honest. On rental refinances sized off the property's income, the rate hits your proceeds twice. It sets the payment, and the payment sets the debt service coverage the lender will lend to, so a higher rate shrinks the loan the same rent supports even before the LTV cap binds. On a lot of files today the coverage test binds first and the LTV cap never comes into play.

Which means your recovery percentage isn't really a function of your ARV. It's a function of rent divided by rate. If you underwrite that way, houses with strong rent to value hold up and pretty houses in nice areas trap the most cash, no matter what they appraise for. Terms and coverage minimums vary by lender and move around, so get whatever your lender's minimum is confirmed in writing before you set the plan.