Long-game strategy for 1st time REI

[Lindsey Andrews]

Hi everyone,

First time investor here. I'm from Virginia and am currently in the middle of closing on a good cash flowing deal in St. Louis, MO.

The only issue is that I am needing more cash up front than originally planned and I'm trying to decide if the deal is worth moving forward with. It needs more reno than expected.

I would love guidance around what my strategy could look like moving forward to continue buying properties if I start off with this property. It ties up most of my liquid cash.

Here is the deal analysis (a 4plex where I'll rent out all units as LTR, with a property manager)

View report

*This link comes directly from our calculators, based on information input by the member who posted.

I'm estimating $20k in reno right now, but I have a feeling it could go up to $30k.

Other factors:

- I went $30k over asking. I haven't gotten the appraisal yet, but I'm concerned it won't appraise for as much as I offered, much less go even higher once I put the extra reno in.

- The sellers are putting in a new HVAC system before closing. The basement was vandalized and they have also agreed to fix/replace the furnaces, parts of the plumbing, and electrical. So, it's a benefit to have a lot of CapEx items starting off new. My agent also thinks I'll have room to negotiate for them to cover closing costs.

- I am planning to fund half of this in cash, and the other half with money from investment accounts. I also have a HELOC on my current home, but I don't really want to use it and pay 9%+ interest unless it's something I know I can pay off fairly quickly. I have more money invested, but I don't want to pull much more out of there.

- Looking ahead, I hope to get this deal cashflowing at $400/month once we get through initial work and have tenants placed. I also can rent out my current place as a MTR, cashflowing anywhere from $1200-$2000/month.

How would you fund this deal and get yourself in a position to be able to scale and buy another property in the next year?

Is there 'too much' to spend on a first deal that could be a detriment to future investing? 

Here's the strategy I have in mind for now: find a BRRRR for the next one that I can house hack and rent out as a MTR. Maybe I can use the HELOC for that and aim to use an FHA and only put around $20k down. Advice?

[David Oechslein]

Quote from @Lindsey Andrews:

Hi everyone,

First time investor here. I'm from Virginia and am currently in the middle of closing on a good cash flowing deal in St. Louis, MO.

The only issue is that I am needing more cash up front than originally planned and I'm trying to decide if the deal is worth moving forward with. It needs more reno than expected.

I would love guidance around what my strategy could look like moving forward to continue buying properties if I start off with this property. It ties up most of my liquid cash.

Here is the deal analysis (a 4plex where I'll rent out all units as LTR, with a property manager)

View report

*This link comes directly from our calculators, based on information input by the member who posted.

I'm estimating $20k in reno right now, but I have a feeling it could go up to $30k.

Other factors:

- I went $30k over asking. I haven't gotten the appraisal yet, but I'm concerned it won't appraise for as much as I offered, much less go even higher once I put the extra reno in.

- The sellers are putting in a new HVAC system before closing. The basement was vandalized and they have also agreed to fix/replace the furnaces, parts of the plumbing, and electrical. So, it's a benefit to have a lot of CapEx items starting off new. My agent also thinks I'll have room to negotiate for them to cover closing costs.

- I am planning to fund half of this in cash, and the other half with money from investment accounts. I also have a HELOC on my current home, but I don't really want to use it and pay 9%+ interest unless it's something I know I can pay off fairly quickly. I have more money invested, but I don't want to pull much more out of there.

- Looking ahead, I hope to get this deal cashflowing at $400/month once we get through initial work and have tenants placed. I also can rent out my current place as a MTR, cashflowing anywhere from $1200-$2000/month.

How would you fund this deal and get yourself in a position to be able to scale and buy another property in the next year?

Is there 'too much' to spend on a first deal that could be a detriment to future investing? 

Here's the strategy I have in mind for now: find a BRRRR for the next one that I can house hack and rent out as a MTR. Maybe I can use the HELOC for that and aim to use an FHA and only put around $20k down. Advice?

I own a 3 unit and an 8 unit in PA. From my experience, you should plan to spend more on vacancy, repairs, and utilities. One unit turnover usually costs at least a month’s rent after the property manager charges their inspection, rekeying, turn repairs, and placement fees. Not to mention the lost rent during the vacancy. Repair costs with a property manager in place will be more expensive than $140/month as well. Most PMs charge a $35-50 fee just for the service call to respond to a maintenance request. The actual repair, parts, and labor are extra. One plumber or electrician’s hourly labor rate is around $100. We average 2-3 maintenance requests a month on our 8 unit. With respect to utilities, a multi-family property typically has a house electric meter for any common area electric supply (hallway lights, outdoor lights, etc). We pay about $150-200 per month for that. If you are responsible for water/trash for the whole building, $50 for each sounds low. Our water bill is $250-300 per month and trash is $35 per garbage can per month (we pay $191 per month for trash). In summary, you are probably looking at a break even or slightly negative monthly cash flow. 
I would not recommend using a 9%+ HELOC for this investment if you will need the cash flow from the property to pay off the HELOC. My 9% HELOC has a $5000ish balance and I pay $80 per month in interest. That's basically another $160/month expense if you use $10,000 on this property which makes it a larger cash flow negative deal.
If I were you, I'd seriously consider the STR/MTR potential for these units. Is there a traveling nurse demand in the area? If so you could increase rent potential that way.
I’d be cautious of doing this deal if you aren’t well capitalized to weather unexpected expenses, vacancy, and low to no cash flow for a couple of years. 
- Dave