McGuire Neighborhood - Richmond, VA

[Tyler Willson]

Hello everyone,

I would like some help analyzing this deal that I have come across in McGuire neighborhood of Richmond, VA. I'll start with the numbers that I plugged into the rental property calculator.

Purchase price - 25,000

Closing costs - 1,250

Estimated repairs - 25,000

Total project cost - 51,250

ARV - 65,000

Down payment - 10,000

Loan amount, rate, and amortization - 15,000 @0% over 10 years

Monthly P&I - 125.00

Total Cash Needed: 36,250

Monthly rent - 800.00

Expenses (including P&I) - 503.00

Vacancy - 64.00

CapEx - 80.00

Management - 64.00

Prop tax - 72.00

Rep - 40.00

Ins - 58.00

P&I - 125.00

Cashflow - 296.00

CCR - 9.83%

Right off the bat, I will say that this property needs a lot of work. It needs a new roof, new windows and doors, interior and exterior paint, floors need to be buffed or refinished, new refrigerator, new flooring in the bathrooms as well as new fixtures, new lighting fixtures throughout the house, needs some patch work on some the downstairs ceilings, and some landscaping on the outside of the house. The estimated repairs is definitely a ballpark estimate at this point.

I believe I could get the owner to come down on the purchase price and down payment. This would be an owner financed deal with very good terms at 0% over 10 years. I know the owner personally, and he really just wants to get rid of this house which has been vandalized and vacant for a significant time now. He doesn't currently have the money to fix it up and has no mortgage on the property.

I am concerned about both the crime and schools in the area. The house was previously Section 8 and pulling in $850 a month. I am not sure I would want to go this route again, but I am also not sure what kind of tenant I would be able to get in here regardless of whether or not it is Section 8. I am not sure if the VA Hospital does any leasing of housing for veterans who need to be in the area for medical care; the McGuire VA Hospital is right next to the property. This would be my first deal; I believe it is a big undertaking and risky. I feel that I would learn a lot and it could turn out well, but I would greatly appreciate some feedback on this.

Let me know if I should post some pictures that I took with my phone if that would help.

Thank you!

[Matthew Maggy]

Be sure to apply for property tax abatement through City of Richmond. It will dramatically increase your cash flow. Go to the Assessor's office website and pull the form. Basically, you pay $125, they come out before rehab and appraise it, then come out after rehab and appraise it... and for 10 years your property tax basis is frozen at the pre-rehab assessment.

I have a property of E Broad Rock that I am in the process of BRRRing. I probably overpaid a little bit, but not that much and my numbers are similar.

I would count on more money for CapEx if it's long term. For properties in this neighborhood and at this price level, I usually use 17-20% (about $160/month). If you do the math on these things, it works out to a lot more than 10% cap-ex. Capex as a percentage of sub $60k properties is a higher percentage than on more expensive ones.

I've had good luck with Section 8 tenants so far. And with many lower level jobs automating (see the Southside McDonalds) the lower income tenants are at risk of losing their income.