Sharing my first deal and mistakes, looking to critical feed back

[Andy T.]

I'm starting out as a brand new investor. Super excited to invest and have been aspiring to do OOS for a while. Currently in contract for a duplex in Milwaukee for 292k, 73k down, 7.125 interest rate. Using personal savings 20k and heloc 53k, mortgage/pt/insurance 2071, rent 1350 unit 1 (currently rented mtm) second unit vacant and could rent between 1400-1500 for context . Going in the deal I was excited and was going in head first and didn't consider the heloc payment in my calculations, huge rookie mistake. In my mind I originally wanted to do a BRRRR and use the refinance later to pay back the heloc but currently I'm looking to make some small replacements with appliance nothing huge to get back my full initial investment later on. Was stressing and getting cold feet when I realized this information and at the time had already dropped a 10k EM deposit so if I bailed I'm out 10k and no asset but holding on I'm on the hook for a mortgage and heloc payment. Thought to myself ok let's follow through worst case I sell later and break even or make most of initial investment back. I told myself I was willing to take some losses going in this deal and thinking everything through I'm stressing and learning all at the same time. I got excited about the deal because my realtor told me it was a good deal, mistake on my end was just taking his word and running with it without asking questions cause I was nervous and excited about the deal. Horrible combination or emotions to start off with I am aware of that now and missing the refinancing calculation. I was nervous to share my mistakes but I want to own them and seek feedback from the seasoned vets on here. Thank you all that take their time out to respond.

[David Mo]

Hi @Andy T.! 

I'm also an investor and realtor in the Milwaukee area. At that price point in 53207 I'm assuming it's in Bay View? If that's the case at least you're in a great area that continues to see steady growth. 

Some immediate questions I have about this situation: 

1. What's the projected ARV of this property? Did you have this discussion with your realtor ahead of time? If not, it's very important you have a target ARV in mind before going into a deal...especially if you're planning to BRRRR.

2. What work needs to be done to bring the property to that target ARV and what does that work look like? From personal experience just replacing appliances isn't going to add much value to the property. Cosmetic remodels like paint, new flooring, new kitchen/bath will add more value and ideally the units are a bit outdated so it makes sense to do these updates. It seems like your 1500 unit is already in pretty good condition while your 1350 unit has some room for updates.

3. What's your monthly cashflow going to be with the additional HELOC payment?

If the property is in great condition and you have no major capex coming up soon and you're financially comfortable and able to support this mortgage and HELOC until you pay the HELOC off, I would hold onto it. At -200 cashflow per month, that's "only" $2400 per year. Your mortgage has still been paid down more than that and while I don't have a crystal ball and you should not bank on appreciation to make a deal make sense, Bay View is in high demand. Rates are on the decline too. Does your bank offer a free refinance after 6 months? Play around with how refinancing later in this year might affect your monthly payment.