Financed SFR breakdowns with real numbers?

Question

New to REI - looking to finance a SFR and was wondering what kind of margins people are getting who purchased at current interest rates in B-C areas? I'm planning on BRRRRing with a HELOC on my primary to cover DP and rehab and hopefully cash out refi to recoup the majority of my investment to move on to the next prroperty. With current prices in my area (Bentonville, AR... Walmart HQ) and interest rates I'm struggling to find a deal where I can actually cash flow (or even come close) after PITI and operating expenses at ~40%

The average 3/2 in my area is renting for $1,500-$2,200 but to purchase a similar house with 20% down I'd be right around $2k PITI. Most of these houses were purchased 3-4 years ago for half the price and a lower rate if I had to guess and that's why they're able to rent for so cheap...

Should I hold out until rates drop even though home prices will most likely rise?

Thanks in advance

Andrew Postell · Answer

@Brandon Stiles yeah, you can't find properties that cash flow right now. That's impossible....ok, maybe not ENTIRELY impossible - but you would need to leave about 40% equity in a property to cashflow. Which would make it impossible for just about everyone. I wrote an entire post on this topic (with the reasons why you should still invest in real estate) that you can read HERE. Please understand that if the year was 1973 and you were asking if you should wait...you would be waiting 20 years. Oh, and real estate quadrupled in value during that time. Waiting isn't usually the answer but feel free to ask any questions you think of. Here to help.

Thanks!

Henry Lazerow · Answer

From my clients experience a single family will be about $150 cap/ex a month averaged over many years. So forget using any percents and use $150 a month. Most of my clients self manage, I have not seen numbers work with management since 2018 or so. Single family can net 5-8% COC pretty easily here atleast in working class areas. I still always recommend 2-4 units you get a higher return and it's more consistent.

Ryan Blackstone · Answer

@Brandon Stiles We should talk, but I would say take action now. You will figure it out and there are plenty of investors in our market making deals now. Honestly, I am loving VA, FHA, and RD loans because they are fully assumable. Which means you can get rates as low as 2.7% with a VA loan even though you aren't a veteran. That's pretty crazy right?!?! My buddy Just closed on one this month in Gentry just like that! My second piece of advise is get with an agent or broker that really knows the numbers and can think creatively to be able to help guide you on the numbers. Rent rates in this area will and have to continue to go up.

Joshua Christensen · Answer

Consider going direct to seller and working out a Subject To scenario utilizing their underlying note with lower rates.  If you can rehab it in a reasonable time and then refinance it, there's gold in them thar hills.  Finding these deals you're looking for are not going to be on market deals.  You'll need to look at distressed foreclosures with a lot of margin & work needed to accomplish what you're looking for.  Otherwises find sellers with distressed homes that you can do something with them being your "lender".  You set the terms you want.  In markets like this, you have to create your own deals.

Andrew Postell · Answer

@Brandon Stiles yeah, I know what you mean...especially when so many videos and tickytockers say they make "this and that" on properties.  And maybe they do...but the rest of us have to work really hard at this stuff.  And real estate is not a "get rich quick scheme" no matter what anybody says.  Usually, real estate investors that need to make money right now flip homes.  Or maybe they will wholesale.  Those are the 2 most common techniques in raising capital through real estate.  If you want to create long-term, generational wealth...that's through buy-and-hold real estate (basically, rental properties).  But that takes time.

If you do want to continue on this journey it's really a math formula.  The math isn't hard, but I just need to know HOW to do the math.  So, if you find a property that you can BUY and REHAB at 75% of the ARV...that usually means you are coming out of pocket just closing costs and holding costs to acquire it.  So, if you have the money to acquire...then you decide if you want to flip it for immediate money or keep it.  If you keep it, that means all of those holding costs and closing costs are gone from your bank account.

If it's over that 75% threshold then we need to use some other strategy with it.  Wholesale, subto, etc....or maybe it's not a deal at all.  I usually make 100 offers per year to do 2-3 properties per year.  Results may vary of course but that's where I'm at with it.

Brandon Stiles · Answer

@Andrew Postell Thanks for the advice! It's defintely frustrating with the current market I'm in. I'm ready to jump in and get started on flips or SFR but I'm just not finding any deals that seem promising. I'd like to start driving for dollars or direct mail but I'm not sure how well that works when you're financing properties vs paying cash? I assume hard money loans would be just as affective as cash but what if I tried to finance with conventional loans?

Thanks

Financed SFR breakdowns with real numbers?

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