Recent SFH Deal Numbers/Reflections

[Mehran K.]

Hey guys, just wanted to share some numbers of a recent deal I've had in the works for a few months. I came across this one via a property manager (non-BP member) that oversaw the rehab project as well. I separated the different stages/aspects of the deal below to be a "kind of" organized :)

It's a 3bd/1ba, 1140 sq. ft Ranch style home.

Numbers & estimates going in: (Pre-Purchase)

Purchase Price: $37.5k + $1.5k Finder's Fee

Rehab: $12k estimate by project manager, 1 month to complete. I budgeted $15k just to be safe.

ARV: Conservatively $70k-$75k based on solid, simliar, recently sold comps in the area.

Rent: $975/mo

Thoughts/Aim: My goal was to acquire, rehab, rent, then take out a mortgage to get most of my working capital back in my hands. I lined up financing with a local bank ahead of time so I knew I could do a 5/1 ARM, 30 yr. Amort., cash out refi at 70-80% LTV on the ARV with no seasoning.

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Actual numbers/timeline post refinance: (Reality!)

Purchase Price: $37.5k + $1.5k Finder's Fee

Rehab: $19k - 2 Months to complete (@Brandon Turner wasn't joking when he said to prepare for double rehab/time in the beginning lol!)

Appraisal: Came in at $52k only. WHAT? :) The appraiser chose the worst comps possible. He chose neighborhood boundaries that I wasn't expecting, nor do I agree with. With the boundaries he chose, many of the good comps that were closer, more recent, and that were actually retail sales were ruled out. I typed up a rebuttal/request for re-evaluation but the bank wouldn't budge, they are obviously playing it safe.

Rent: $975/mo - Qualified tenant in place pretty quickly.

Refi & Cash Flow: (quick & dirty version)

80% LTV of $52k = $41.6k Loan Amount @ 5.5% = $236/mo P&I

Applying the 50% rule: $975 * 50% = $487/mo - $236 = $251/mo

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Lessons, Thoughts & Reflections:

1. I'm glad I followed the the words of wisdom shared here on BP about having reserves and being conservative on Rehab budgets. If I had only $12k for the rehab and was spread too thin, I would've been in a bind.
2. The attention to detail, communication, oversight on the project, and many other things were not as "on point" in comparison to the smoother projects I had going on with partner and fellow BP moderator @Dawn Anastasi. I am glad though that I got the chance to experience the contrast even though it was frustrating!
3. Appraisals can be very subjective, the appraiser may not choose the same comps that you did. The only way I would've chosen the comps the appraiser did, was if I was "trying" to come in as low as possible. Going forward I will pay more attention to different possibilities of neighborhood boundaries and model different outcomes of appraisals based on that.
4. I told myself, and was prepared going in to the deal, that I would be happy with the numbers even If I wasn't able to cash out refinance at all. The appraisal coming in low sucked to be honest, but the deal is still a good one to me and I learned so much. I could've just used the roughly $20k I'm into the property as a down payment on a turn-key rental. But the experience I gained from this deal is priceless and has made me a savvier investor moving forward.
5. I love this stuff, and I'm more confident and excited about building my portfolio than I was before the project.

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Thanks for reading :)

[Mehran K.]

Update for everyone on this thread! I am refinancing out of the commercial portfolio loan on this property, into a 30 year fixed rate portfolio loan. The appraisal just came in at $88k. This is much better than the $52k it appraised for a few years ago with that crappy appraisal mentioned above. 

Justice!