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Updated over 3 years ago,
Question on a MFR property
OK, I wanted to run this scenario past you
Looking at a duplex (each side is a 3/1) and a decent size with both separate walk-up attic and dry basement. The rent is below market but is so because one tenant has been there for 20 years (love to have tenants like that) and the other is related to the owner. The market rent is $900 to $950 per month. Tenants pay all utilities (everything is split with their own meters).
The list price is $119,000. Walking the property, repairs that would be needed to maximize the rent to be in line with market pricing woudl be $20,000 worst case with a 15% contingency. We have flipped houses before so that number is pretty solid.
Running numbers using the BP Rental calculator with the numbers above, insurance of $1,800/yr., $2,200 / year in taxes, 5% for vacancy, capital and maintenance and 10% for property management (our agent does property management and said she charges 10%).
With 20% down and 4.5% interest on a 30 year, the property generates $523/month and shows a CoC ROI of $13.4% with a 5 year annualized return of 19.48%
So here are the questions:
1) The return numbers are based on 20% down of the $119,000 purchase price and does not include the $20,000 rehab to maximize the rent. That bumps the cash needed a good deal which we were bringing to the table. What options do you have for the non-loan amount other than personal cash? We have used personal funds for past purchases but as you can imagine, 20% into properties can deplete reserves if you start adding doors?
2) Not sure if the BRRRR option works with an ARV of $159,000. We used a 4 month rehab period and a 9 month refinance period. Pulling $127,200 out on a refinance, the cash flows drops to $375 and the CoC goes up to 30% and drops the actual ash invested to $14,500 (much better than $48,000). What are your thoughts on this option?
Thanks in advance for your insight . . . . finding properties is only a piece of the puzzle, finding the best way to make the numbers work and getting the right financing in place is just as important.
Andy
Looking at a duplex (each side is a 3/1) and a decent size with both separate walk-up attic and dry basement. The rent is below market but is so because one tenant has been there for 20 years (love to have tenants like that) and the other is related to the owner. The market rent is $900 to $950 per month. Tenants pay all utilities (everything is split with their own meters).
The list price is $119,000. Walking the property, repairs that would be needed to maximize the rent to be in line with market pricing woudl be $20,000 worst case with a 15% contingency. We have flipped houses before so that number is pretty solid.
Running numbers using the BP Rental calculator with the numbers above, insurance of $1,800/yr., $2,200 / year in taxes, 5% for vacancy, capital and maintenance and 10% for property management (our agent does property management and said she charges 10%).
With 20% down and 4.5% interest on a 30 year, the property generates $523/month and shows a CoC ROI of $13.4% with a 5 year annualized return of 19.48%
So here are the questions:
1) The return numbers are based on 20% down of the $119,000 purchase price and does not include the $20,000 rehab to maximize the rent. That bumps the cash needed a good deal which we were bringing to the table. What options do you have for the non-loan amount other than personal cash? We have used personal funds for past purchases but as you can imagine, 20% into properties can deplete reserves if you start adding doors?
2) Not sure if the BRRRR option works with an ARV of $159,000. We used a 4 month rehab period and a 9 month refinance period. Pulling $127,200 out on a refinance, the cash flows drops to $375 and the CoC goes up to 30% and drops the actual ash invested to $14,500 (much better than $48,000). What are your thoughts on this option?
Thanks in advance for your insight . . . . finding properties is only a piece of the puzzle, finding the best way to make the numbers work and getting the right financing in place is just as important.
Andy