Does this deal make sense?

Question

Hello,

I'm a newer investor and I'm trying to plan out my next deal properly so that I can maximize my ROI. Currently I still work full time at a 9-5 type job, so that eats up most of my free time. What I figured I would do is buy one rental with cash. The value is approximately 100k, but I am going to shoot to close at 75k all fees included, (already listed at 82). Then open up a HELOC. Without the property bring seasoned I can only get 45k, but I would use that and another 30k to buy another similar property. From there I would have enough income to comfortably replace my income from my job and was going to do a quick flip. 45k for property, est 15k in reno, and comps are going for 100k, so I have plenty of leeway in my budget for a couple unexpected fixes. From there I would have all three properties rented and held for 6 months before doing a cash out refinance.

So by my math, I will have invested a total of $210k, but after seasoning the properties and refinancing at 75% of the full value of 300k, I should get $225k back, which after paying back my LOC, that should leave me +$15k. And with my rents @$1,300/month each, factoring in PITI and capex, etc. I should also have a good $1,380/ month in income.

What am I missing?? Ha. It sounds too good to basically get paid to earn a residual income every month.

Corby Goade · Answer

I like your ambition- good for you! Sounds like I'll be learning from you in the very near future. Feel free to PM me if you ever need any direction. Best of luck!

Sam Shueh · Answer

A good plan. However, it sounds there are many ifs and conditions. Suggest one project at a time. What do you do if all 3 are unrented?

Brandon Hurlburt · Answer

Corby,Thank you! I just might have to one of these days. Ha. It's always nice to have that third party insight on a deal to make sure you aren't missing any loose ends.Best of luck to you as well!

Brandon Hurlburt · Answer

Sam, Well, I am paying cash for them... so the 240 a month for the two remtals to cover tax and insurance, and 100 a month on the flip for taxes isn't really much of a concern. I would still have plenty of cash reserves to sit on them for a good year without going back to my 9-5 job if I had to.

Brandon Hurlburt · Answer

Corby, Thank you for the reply. My goal is to own 50 properties by the time I'm 30, and a small town by the time I'm 50 😎. Ha. In all seriousness, yes, I agree. If the properties cashflow great, and I have the funds to keep going, I can have them managed and sit back and think about my next investment strategy. Glad to hear you have a similar process of acquiring rentals. That makes me feel pretty comfortable about the $160k I'm about to spend out of pocket while I hold these properties.

Corby Goade · Answer

This strategy is more or less what I do. The numbers in my market are different, but the principles are the same. What is your end goal? My two cents- when you get a property that cash flows at a rate that covers all expenses and additional cash that you are comfortable with, why would you sell it? Isn't that the end game?

Brandon Hurlburt · Answer

Matt, Thank you for your reply. These are three properties that do actually exist. Home values are just numbers I got from comparable homes that recently sold in the same neighborhood. Rents are mainly estimates. They "should" be able to rent out for that price. They are a bit on the higher end of the average scale, but definitely not off the chart. The renovation costs are my personal estimates. I just saw the place on Thursday after work. I personally used to do roofing, carpentry, and drywall for a living. I'm currently an HVAC journeyman, so I like to think i have a pretty good eye on what I need to to and what the actual cost will be. Plus I have all the tools and knowledge to do it. Ha.I guess even if the home values dip a bit, and the flip comes out a little above budget, I'm still looking at getting these few rentals for next to nothing. I just never have personally done a more complex deal like this. The couple I have done were simply buy and holds of already rented out properties.

Matt Jones · Answer

Brandon, Are these three hypothetical properties or are there three properties in your market that match these numbers and you have your eye on? Also, where did you get your numbers for home value, rents and Reno costs? If all goes according to plan it sounds like a great deal but make sure you’ve done thorough due diligence.

Brandon Hurlburt · Answer

Bump 🙁

Kathleen Messing · Answer

You can find decently safe properties for 75-82k that bring in $1,300/month in rent? I am VERY curious where that is. What are you basing their supposed 100k "value" off of? Isn't the value the consumer is willing to pay/just recently paid for the home going to bring the appraisal back down nearer to true market value?