To Buy or Not Buy Triplex in Houston

[George Gao]

Hi BP,

I recently came across a triplex in south Houston near Medical Center area. It consists of two separately buildings on one lot. The front SFR is 925sf with 3bd/1ba that's half rehabbed (still needs kitchen, bathroom, flooring and some electrical). Plus there is a duplex in the back with 1,500sf that has 1bd/1ba each, but is down to the studs and needs complete rehab. I guesstimate the total rehab will be around $45k to bring it up to rent-ready conditions. There has been a recent appraisal done by a HML for $150k ARV. Asking is $75k.

The good news is I think the 2% rule almost works on this one. Rent on the front house is approx. $850-900/mo. The duplex can get around $550-600 each side. Total rent income should be around $2k. If I purchase for $75k plus $45k plus 10% closing costs (since I plan on using HML for financing).

Refinancing into a perm loan will be tight for BRRRR strategy. Typically, conventional lender with max out at 70% ARV, which mean I'll be coming out of pocket for at least $30k for this deal.

Also, the neighborhood is C-, D+ at best (but not war zone). It’s trending in the right direction around that area, but still sketchy at night. There are 2-3 boarded-up houses nearby. This will be the first rehabbed house on the block.

Lastly, the parking situation is kind of tight. There are only 3 spots available between the front house and the duplex that has to be shared by 3 families. The lot is not big, so no room for parking expansion. Plus the street is not that wide. Should that be a big concern?

Overall, the deal is not a home run, but should cash flow well (1k/mo after PITI) and generate a great return on paper.

A couple of private money lenders already turned me down due to the neighborhood and also because it's harder to comp multi-families in that area. But I know HML would do the deal.

Is this something that you would consider?

[Nikolas Ferreira]

@George Gao not related to doing the deal or not. do you have numbers from your hardmoney lender already? and the reason im asking this is a "higher" risk property for them, how many rehabs have you done? 

10% HML seems a little low. are you accounting for the points for the loan origination as well?