5 structures 7 total doors NEED ADVICE

[Michael Cosstephens]

Currently looking at a deal that includes 2 duplex and 3 SFH. Old man died and the wife wants to sell the portfolio. Columbus, Ohio market

Currently the asking price for all the structures is roughly $700,000. The ARV on all of them is around $1.3M I am a general contractors and have done about 6 Flips over the last few years, so this would be my first stab at having rentals.

I have estimated that it will take about $150,000 to rehab them all over the next 2 years. They currently have long term renters that have been in the properties for over 10 years well below market rents.

Current rents are around $4000 per Month. Market Rents would be around $7000 (conservative Estimate) 

I have the comps, Iv dug through the deal for hours each night trying to find an issue, but my limited experience leaves me staring at the screen with no real direction

Finance proposal is this

$400,000 HELOC from my primary residence at 10% (broker deal)

$300,000 Seller Finance at 5% for 5 years based on 20 year schedule. Monthly payments until month 60 then pay the deal off.

This will leave me with about $100k in the bank of working capitol to upgrade the houses and have a safety net for something that goes wrong.

The question is will this thing cash flow? Can I get on top of this in year 2 or 3 and get these large debts paid down or refi so Its digestable.

The $700k in loans with these terms are going to swallow up all the $ early on from what I can tell, but then again I really cant see the finish line. Everyone I speak to says this is a great deal, but they also have limited experience.

If I need to offer more info I am happy to do so.

[Jaycee Greene]

Quote from @Michael Cosstephens:

Currently looking at a deal that includes 2 duplex and 3 SFH. Old man died and the wife wants to sell the portfolio. Columbus, Ohio market

Currently the asking price for all the structures is roughly $700,000. The ARV on all of them is around $1.3M I am a general contractors and have done about 6 Flips over the last few years, so this would be my first stab at having rentals.

I have estimated that it will take about $150,000 to rehab them all over the next 2 years. They currently have long term renters that have been in the properties for over 10 years well below market rents.

Current rents are around $4000 per Month. Market Rents would be around $7000 (conservative Estimate) 

I have the comps, Iv dug through the deal for hours each night trying to find an issue, but my limited experience leaves me staring at the screen with no real direction

Finance proposal is this

$400,000 HELOC from my primary residence at 10% (broker deal)

$300,000 Seller Finance at 5% for 5 years based on 20 year schedule. Monthly payments until month 60 then pay the deal off.

This will leave me with about $100k in the bank of working capitol to upgrade the houses and have a safety net for something that goes wrong.

The question is will this thing cash flow? Can I get on top of this in year 2 or 3 and get these large debts paid down or refi so Its digestable.

The $700k in loans with these terms are going to swallow up all the $ early on from what I can tell, but then again I really cant see the finish line. Everyone I speak to says this is a great deal, but they also have limited experience.

If I need to offer more info I am happy to do so.

@Michael Cosstephens Just my 3 cents, but I wouldn't touch this deal with a 10 foot pole. even if you were able to rehab the property from the start so you could raise the rents to $7k/month, it still wouldn't cash flow. I also question if you can really get a $1.3M ARV after only putting $150k into the rehab.

I suggest you focus on the debt yield, which is your annual NOI divided by Debt, to "size" you debt load. Most lenders I work with target at least a 10% debt yield. So if you end up borrowing $700k for this deal, you would need annual NOI of at least $70k. At $84k in annual rent, I suspect that will be very difficult.