First offer on a Buy and Hold property.....Too Risky??

Question

Hello BP!

I found a Multi-Family property that was obviously priced way below market value at 20,000. This is a bank owned property and it is in good condition! All it really needs is some minor updates, paint and flooring. I am anticipating multiple offers....

Here are the numbers based on a purchase price of 35K     These are very conservative numbers

I used the BP rental calculator to estimate:

ARV: 70,000

Monthly income- 2000.00

Monthly Expenses- 1900.00

Monthly Cash Flow- 58.00 until year 3 or 4, then it will be 1,083.00

YEARS 1-3

ROI-4.25%

YEAR 4

ROI- 80.06%

FINANCE TERMS:

I plan to mainly use credit cards to purchase this property. This would be at 3% simple interest and then 0% for 12 months. Which means after the 1st year I would have to transfer balance and pay another 3% transfer fee in order to maintain 0% interest for an additional 12 months.

I believe my debt to income ratio would be too far out of whack to get approved for a home equity line of credit on this property. I currently make a very modest income on purpose while attending college to acquire a degree in Business.

Any input would be helpful:) Thanks in advance!!

Charles Morgan · Answer

Good luck! If it makes sense at the lower numbers just imagine how it will do with a couple of cheap upgrades and a bump in rents next year...

Steve Vaughan · Answer

I have some serious sticker shock - buying a $2k/mo multifamily for $35k?  Whoa.  What's the neighborhood like Account Closed?   I expect to pay at least 100x rent in my area for anything half-decent.  Is this a 4-family or?

Curious how the expenses are $1900/mo?  Even using the 50% rule after the cosmetic updating, there should be $1000 per month left for debt service and cap ex, right?

I have used cc checks/loc's for purchases before.  Worked out fine for me back then but wouldn't do it again.  They can raise you up to penalty rates at any time based on your higher credit use on other cards.  Use caution there!

Sounds like a good find with pretty low risks.  I've read about $30k pigs in OH, good and bad.  Please keep us posted!

Account Closed · Answer

@Jeff Bridges yes I did include the 3% fee.....

I have multiple credit cards with zero balances on them that I can write cc against....It is tight however I have a cushion if needed so I won't end up being hung out to dry. I prefer not to have to use it but it provides a safety net just in case....

Submitted best and last offer Thursday. We did not get an answer yet so it will wait until Monday.....

I told my realtor that if I get the house the first thing I am going to do is S&%$ my pants....haha  !!

This certainly takes me out of my comfort zone......

Thanks everyone for your help!! I will update on Monday .......

Account Closed · Answer

@Charles Morgan That's because it was a dream....I did a more thorough evaluation of the rents in that area and at the high end I may be able to get 800 per unit however I am running the numbers on the lower end @ 650/700 per unit just to be safe.....even so it is still a positive cash flowing property....

Originally I was given the numbers from a realtor and I was a bit over zealous with excitement!! Once I settled down a bit and really did my due diligence these are more accurate numbers:)

I should hear something today....

Account Closed · Answer

@Steve Vaughan Well funny enough the appraiser made an error.....he did not look inside the comp that he compared this house to and if he had he would have realized that the comp was completely gutted inside....to the studs...

The expenses include my loan payback amount which would be $972 in order to pay off in three years...otherwise the expenses would be closer to 1K ( including fixed & variable expenses)

This house is in a C+ neighborhood.....SFH get 1000 to 1200 per month...two families get 600 to 1000 per month....so I had to change my rents to 750 per unit rather than 1000 just to be safe.....these units are larger than most and there are a lot of very large closets in each unit.....each unit also has 2 beds, 1 bath and kitchen and dining area.....The kitchens are sizeable too....killer basement and new 2 car garage....private fenced in yard in the back.....

Still a good deal.....if I want to pay off the loan in 3 years then it would put me in the negative for the first few years....

Thanks for sharing! Will let you know how it pans out.....

Jeff Bridges · Answer

Did you include the 3k you'll pay in interest via the 3% BT fee in your expense estimate? Would that put you into negative cashflow terrority and if so, would your regular job income support that 3 years without hardship? How are you getting one card to supply you with 35k in 0% BT plus rehab costs? The ones I've applied for usually max out at around 10k limits for the Balance transfer and thats with really good credit only.

Charles Morgan · Answer

Wow, sounds like a dream to me! I just payed $26,000 for a mobile that I expect will only make me $2-300/month cash flow. Would love to hear how you do!

First offer on a Buy and Hold property.....Too Risky??

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