First Real Estate Investment - Out of State - Analysis

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First Real Estate Investment - Out of State - Analysis

Corey ChambersPro Member
Rental Property Investor · South Florida · Member since 2018 · 4 posts · 0 votes

Hello all,

I am new to the Bigger Pockets forums, however have been listening to podcasts to and from work for months. I am a commercial credit underwriter for a mid-size bank so I have a good understanding of real estate analysis.

I currently live in South Florida and originally wanted to use an FHA loan to buy a duplex or triplex to house hack, however the South Florida real estate market has not been easy finding cash flowing properties. I am also afraid of the rapid appreciation of homes relative to median incomes in the area and current economic conditions. Therefore, after listening to various investors on the podcasts I decided to look out of state. This leads to me to the deal I found.

Property Details:

  • Listed Price: $265,000
  • Proposed Offer Price: $215,000
  • Separate duplex and triplex next to each other
  • All units are 2/1's; Property located in Tennessee
  • 100% occupied with long term tenants in place
  • The deal also includes an adjacent vacant commercial property that is zoned for multifamily construction

Cash Flow Analysis

Gross Rents:              $33,000

EGI (5% Vacancy):     $31,150

Oper. Exp. (35%*):      ($10,973)

NOI $20,378

Debt Service**:           $17,071

Excess Cash Flow:     $3,307

DSCR: $1.19x

*Operating expense ratio of 35% used to be conservative - most likely lower

** Based on 30-year amortization at 5.00% at the full asking price of $265,000

Financing (Where I Need Help)

  • I have relatively little cash and was wondering if hard money would be attainable depending on the negotiated price and ARV
  • If hard money is not a reasonable option, I was thinking about finding a partner or possibly private lending. 
  • I plan on eventually doing a BRRRR on this property to refinance out of the hard money or private lending.
  • What are the obstacles I should plan on facing when trying to find financing? Obviously little liquidity isn't much help.
  • Any advice is much appreciated!

As per the borrower:

  • All of the tenants have had a background and credit check completed. 
  • The units have been remodeled within the last five years, including a new roof on the duplex.

Thank you for anyone who took the time to read this and any ideas of advice is strongly appreciated!

I look forward to joining the Bigger Pockets forum community.

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    @Corey Chambers, I'd like to see some more detailed numbers for your expenses. Just leaving it at "35%" is troubling. You have to know about any shared utilities, what the actual taxes are, etc. 

    Also, since this is 5 units across 2 buildings you have to keep a couple of things in mind:

    1. You will probably need a commercial loan, since residential mortgages are only 1-4 units. Check with banks ahead of time, since this is a unique situation.
    2. You should expect slightly higher CapEx than if all 5 units were in one building. You're not getting a lot of economies of scale.

    All that being said, if your numbers are correct, I don't think this is a deal worth doing. You'll only be cash flowing $55/unit/month. That's way too low for me. I want at least $150-200 after all expenses and debt service.

    Hard money may be an option, but they're going to want you to add enough value for you to refi and get all your costs out, in under a year. You don't mention an ARV, just the asking price. What kind of work has to be done? How much will it cost?

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  • Corey ChambersPro Member
    OP
    Rental Property Investor · South Florida · Member since 2018 · 4 posts · 0 votes
    7y

    @Jaysen Medhurst Thanks for your reply and sorry for the delayed response.

    For my analysis, I used an estimated percentage for the expenses as I was attempting a quick and simple analysis to get a good idea of the property. I was reluctant to call the seller for more information as this is my first real estate investment experience. In the future I will make sure to get a more detailed breakdown of expenses for my analysis. 

    The properties are separated into three different parcels. Since commercial loans require investor experience I do not think that route would work for me without a seasoned RE investor partner. I suppose this identifies one of the obstacles in finding financing for new RE investors. 

    I have previously never analyzed deals on a per door basis, however after reading your response and various responses on the forums, I see that it is a very common practice. Will definitely use this in my future property analysis for consideration of deals. 

    I had not included an ARV as I am not sure how much value I can add to the properties. I did not put two and two together that the property must have a significant increase in value after repairs in order to secure hard money financing. I am unsure of what repairs would be required and the cost associated.

    Sounds like I still have much to learn and will most likely attempt my original plan of finding a duplex or similar property in South Florida to get an FHA loan and house hack. Since deals are hard to come by here, I am going to attempt to make a list of duplex properties in my target area by driving for dollars and attempting to direct mail and/or door knock.

    Thanks again for your advice.

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    Sounds like a plan, @Corey Chambers. Just keep searching and analyzing. A deal will appear.

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