Closing in 10 days! Excited and Hesitant! Let's Analyze It!

[Jimmy Epolito]

Hello All,

I am a new out of state investor and have a grand total of 1 property currently in my real estate portfolio. LOL.  It is cash flowing nicely with a good tenant who currently does not have fear of losing their job. I am under contract on number 2 and want to know your opinions. 

Location: S. Arlington Ave in Irvington

Purchase Price $74977

4 Bed 2 Bath 2370sq feet SFH

Has New HVAC, New Water Heater, Updated Electrical Panel (150A), roof is 4-5 years old with no leaks.  Water was off at inspection so there might be a need to allocate some money in the rehab budget for any discovered issues. House was a foreclosure and looks like it was possibly in the middle of a rehab by an investor.  Might have run out of money after installing new HVAC, Updating Electrical, New water heater, Paint, 1 side of vinyl, etc.

Rehab Needed: $25k (I am figuring $35k to have a cushion)

Scope of Work: Update Flooring with LVP, Update Kitchen with new cabinets, countertops, appliances, paint inside and out (interior does not need paint but has outdated color), update baths, install vinyl siding on 2 sides (2 sides already have vinyl), Replace Windows, Install new entry doors, freshen up the landscape. 

I have been told by a few people that due to the uncertainty that I should forfeit my EM and costs already put towards the process and walk away.  I think that this is panic and fear.  I feel that this property is positioned to become stable sooner than later.

My strategy is to Fix to Rent using BRRRR strategy. Purchase cost per sq ft is $32 Cost per sq ft after rehab (using $35k) $47. Median Sale Price per Sq Ft = $83. Targeted ARV Per Sq Ft. $68

Funding - HML with really good rates, low upfronts, no prepayment, can convert to 30 yr perm as soon as I have a lease signed. Expected rents $1100-1200.

I feel that we will have a tough next few months but also believe we will bounce back.  I feel that it is in a good enough neighborhood that worst case scenario I could still rent it for my anticipated mortgage pmt and take a small hit each month until the recovery happens. I truly believe it will not come to that.

What are you thoughts based on my scenario?

Thank you in advance. 

James

[Adam Sankowski]

I invest in Indy as well and Irvington is great.  I would be more fearful than you're being though and here are two issues I have with the deal: If you were funding this through a HELCO I would feel much better about this.  But this is Hard money right?  Mortgage rates are moving up right now even though the fed cut rates to zero!  Why?  Because no one will actually buy mortgage debt right now because banks are planning for a huge amount of defaults or that if people do default the government won't let them foreclose because of the crisis. I worry about you being able to refinance out regardless of what your lender is telling you. 

When is the last time you talked to the hard money lender?  What happens if you can't get anyone to move in or if you can't refinance out?  California and NY state are on complete lockdown right now.  They won't let people move, and moving companies wont't be operating so getting a tenant in will be really tough for a while.  How long can you hold a hard money loan for without getting into trouble? 

Also city of Boston, where I live, just closed down all construction projects of all sizes.  So although you might be able to go around this and have guys work inside if you need any permits of any kind there aren't any inspectors to come out.  Basically if this was funded through your own cash or a HELCO I'd say go for it. But using Hard Money right now feels silly risky to me!  This situation is getting more serious by the day and there are rumors of a national lockdown coming next week.  Good chance you'll have a property that is sitting vacant, with no one allowed to work on it, and you'll be paying hard money costs.  If that's still not a concern then go for it.  Also, I don't know how much EDM you put down but I feel like there will be a buying opportunity big time in a few months if you just hold out a bit... Just my two cents, good luck!