Portland, ME · Member since 2018 · 3 posts · 0 votes
Hey guys,
I am new to the investment property world, and am currently investigating my first property in Portland, ME. I have identified a 3 unit, each 3 bed/1 bath. The listing price is 560k, but I believe I can get it for 515k. It will require 150k in rehab costs.
After expenses (mortgage, insurance, repairs, capex, taxes, city fees), I expect to make a minimum of $250 per unit, and build 7k in equity the first year, increasing year over year from there.
The issue is, to make this deal happen, it would require 25% in + rehab costs, or around 295K stuck IN the property when complete.
Does this deal make sense to anyone else? Assuming if purchased for 515k and 150k goes in, the property is worth 700k afterwords, what are the best options to recover my cash tied up in the property to work on project #2...? Refinancing leaves the mortgage payments a bit high and crushes cash flow. Would a HELOC be a reasonable alternative?
Hi @Adam Gerber - My first thought, is that this is a very large project for your first deal. $150k in rehab is a serious venture. Don't let this discourage you, but keep in mind there will be a lot of unknown unknowns. I would make sure you have a solid contractor. Make sure to budget in reserves for overage and carry costs too.
I would plug all your info into the BP rental property calculator to see your returns.
Is the property currently occupied or all the units vacant? What are your total rents? If you calculated everything right that $250 per unit is per month correct? If so, you are looking at $9,000 per year in net. $9k into $295k is like a 3% return. I personally would pass on it from that standpoint.
If you can buy ($515k) plus fix up ($150k) and be into the deal for a total of $665k, and it would be worth $700k. It's not a grand slam, but you would have created $35k in equity on a buy and hold deal.
HELOCs are tough to get on an investment property. I would try to figure out what new loan terms would be on convention financing for an investment property. Get the 30 year term with a fixed rate.
With just the little info you provided, I would say it looks like there is potential a making of a deal and I would investigate further.
Adam, I agree with Andrew. It's a large deal for the first time. One other thing I like to contribute: If you are saying its $150K in renovations, I would suggest to be prepared to ultimately end up with $175K, maybe even more. Renovations are hard to estimate and in a large project a 10-20% overrun due to unexpected discoveries and expenses is not uncommon.
Moire details would have to be known to really help more but it sure is brave to consider this one as your first.