1st fix and hold - How did I do?

Question

Greetings,I wanted to post the results of my first fix and hold. The property is a two family in Albany, NY. Each unit has three bedrooms and one bath. It was vacant foreclosure at the time of purchase. I used a HELOC to purchase the property "cash" and did a cash out refiniance after six months. I was able to pay back most of my HELOC debt using the refi and payed the rest out of pocket. Purchase Price: $127,000Rehab/holding cost: $54,000Total: $181,000After Rehab Appraisal: $225,00070% LTV cash out Refi: $157,500. The remaining $23,500 on my HELOC I payed off so my balance is down to zero and ready to be deployed again. Monthly Rent: Unit 1 - $1,100 Unit 2 - $1,000 Monthly Mortgage (with tax and insurance) - 1,524Monthly Cash Flow - $576Lessons learned:- The total rehab took about 8 weeks. Two - Three weeks longer than anticipated. - The foundation had issues which I knew would be expensive to address but these costs crept much higher than anticipated.- Building departments can be difficult to deal with.- The house was broken into twice while it was being worked on. On the first instance they just took copper piping I was replacing with pex anyway. On the second instance they knocked over and broke my newly replaced water heaters. Next time I will start with improved lighting and try to fortify windows and doors. My goal at the start of the project was to have the post rehab refi cover all the money I invested. I ended up having to leave $23,500 on the table. I like this strategy but would also like to move onto bigger multifamily apartment investing. Let me know what you guys think. I attached a few before/after pictures below.thanks,Bob

Ahmad H. · Answer

@Robert McConnell Small world! I think I offered 127.5k for this house April of 2014 but it was rejected. I remember it having a weird driveway with some foundation issues but it was in a good location next to St. Peter's hospital. I am glad a BPer got it! It must have stayed on the market for a long time.As Ian T. mentioned, your cash flow will likely be lower due to vacancy and expenses. I own a 2-F close by and from my experience I estimate your cash flow to be in the 250-400 range. If I were you I would keep it for a year and push the rents up, if you can get them to 2300 I would keep it, if not I would sell it @210k and put the money down on a 3+ family with nice cash flow.Good job on the rehab and best of luck.

Robert McConnell · Answer

Thanks for the advice Ahmed. I do think I will be able to push the rents up a bit. Yeah same house. The foundation issues scared a lot of buyers away. I was fortunate to be put in contact with a engineer and contractor that had some experience with these issues.

Robert McConnell · Answer

Thanks for the replies. Ian - I did not test the market much. I did a good amount of screening but wanted to get someone in asap as both units were vacant and I was paying back the heloc at the time. I will test the waters a bit more the next time I have a vacancy. I gave some thought to structuring the leases April to April. I wonder if the student rental market drives rents higher in the Spring in Albany? I am near Albany Med/Albany Law.College of Pharmacy.

Lesley Govan · Answer

Congratulations!! Good job!!

Joe Fairless · Answer

@Robert McConnellexcellent! Congrats on the successful first project and love the creative financing.

Ian T. · Answer

Hi Robert,Thanks for sharing the details. I agree with Paul and would say you did ok. The $576 for cash flow doesn't include all of your expenses so it's actually lower when you factor in any owner paid utilities IF you have them, snow removal/landscaping, vacancy/credit loss, property management if you are not self managing, maintenance, etc.I like your strategy for renovating and doing a cash out refi. I have a 4 unit and 5 unit in Albany and did an extensive renovation on the 4 unit before doing a similar cash out refi on both.One thing I have been able to do is get much higher rents than what I was getting when I assumed the leases in the 5 unit, and much higher rent than I was told by several realtors when I was getting ready to fill the 4 unit. My gross rent on the 5 unit was $4200/month almost a year ago when I purchased it. With turnover and lease renewals I'm at $4700 and should be at $4900 in a year and a half. For the 4 unit I was told I could get $950 for each of the 2 x 2 bedroom units. I actuall filled them at $1115 and $1150 each and this is with tenant paid utilities. There is off street parking and laundry in the apartment which helps making them more attractive.With that said, I'm curious if you tested the boundaries of what you could have commanded in rent, which may have been affected by the neighborhood.All the best- Ian

Paul Mendel · Answer

Greetings from Albany!Albany is a tricky market,, and the host cost to rent ratio is all over the place just a few blocks apart. I have 2 of the 3/1 flat houses in Albany myself.Depending on the neighborhood id say you did ok, the 1000/flat is about typical as long as your not including heat..Let me know if you ever want to connect!