First good deal or is it?

Question

Hello BP,  I am writing you to get your vibe on a deal I am involved with.  It's a 4 plex in deep south Texas.  I am looking to burr with ARV at 300k.

1. Financing 279,000 at 25% down so loan is 209,250.

2.  Rents are low at 670 for each door they should be at $725.

Income 2675 i will move eventually to 2900. Have estimated 5,000 in repairs not including HVAC.

3. Good location.  Fully occupied all leases are expiring within year.  4. After inspection new roof was not done correctly, HVACs all units old(20yrs),  orginal appliances, other small repairs.

5. The seller agreed to fix roof with 9,000 concession including a purchasing  year home warranty ($1145) on all appliances including HVACs.

6. My analysis shows Cash flow is at 423.00 after all expenses paid.

NOI 16,774,  CoC is 8%.   I'm in the negotiating stage does this counter sound reasonable?  I still worry about having to replace aircons.  Thoughts?

Jim Cummings · Answer

@Ronnie Galindo. Account Closed. Ronnie noting your comments about HVAC. There is definitely a different need (necessity) for HVAC between (temperate)  Napa, CA &  (steamy hot) Mission, TX.

Ronnie Galindo · Answer

Account Closed partially. The numbers for me have to work for me to push forward with a deal. This does not mean that you "make" the numbers work. They either work or they don't. It is a sellers market for sure BUT there are deals everywhere and thus, you have to do your due diligence or else you will make a mistake and lose money. If you have calculated in all the costs (I would use the bigger pockets calculators if you haven't already) and if it makes sense to you and you are ok with it all then go for it! I would also have an HVAC guy come to the table and give you a quote so I know what I am looking at (I like to have all the information). Here in CA, I know a full system can be $8k+ for a SFR but replacing just the units and no ducting will save a lot. Just to replace the A/C unit though is roughly $2,500. So if you need to replace all HVAC, that could be a costly item.

All I am saying is just factor in everything and ensure you have the capital because as a landlord, you will be responsible for ensuring they have working HVAC (since it is present now).

Tom Nguyen · Answer

@Jay Juarez This is a seller market almost everywhere in the US so you either buy or not buying. After you have already done your calculation and it makes little sense, BUY IT. Seller will not wait for you to take your time and making a decision. With so many buyers jumping on the market now, they may take other offers and you left with all your paper with all the numbers and no property.

Also Replacing air-con or other items in the house is a small little thing in investing. Don't get caught with those small items and prevent you from doing a big things.

Ronnie Galindo · Answer

Account Closed I would be nervous of the money being left in the deal. This is not a BRRRR if you are leaving in the initial 25% in the deal. I am not too concerned for the HVAC (seeing as how mine here in CA has lasted 30+ years). but the loss of your capital (the 25%) is hard for me to get by. With a BRRRR, the main goal is to leave as little as possible in the deal. Also, with cashflow only being $423, that is only just over $100 per door. I would work towards at a minimum $200 a door, unless you are seeing a crazy appreciation rate and that is your overall goal. I would be happy to speak more about this if you would like. Good luck!

Account Closed · Answer

@Ronnie Galindo. Ronnie, I appreciate your thoughts.  I have considered the HELOC in my Calc. The first 10months will be tight..  i will refinance down the road in 10months where rents are where they need to be.  I am hoping for amARV to be 300k b/c of increase income.  I am planning the Heloc payment will go away after the refinance period.

Account Closed · Answer

@Tom Nguyen I appreciate the input.  I will definitely not these things detour me from my goal.

Account Closed · Answer

@Ronnie Galindo. Ronnie. By the way, the 25% is a HELOC and I am planning on refinancing in 10months to get back my capital in deal.  Thoughts?

Account Closed · Answer

@Ronnie Galindo. Thanks Ronnie, the growth rate here in deep south Texas has been at 10% yoy Average It's been a growing area like other areas like i.e  San antonio.

Caleb Brown · Answer

That doesn't seem bad for the location. Texas has been growing like crazy so a 8% COC isn't bad but not amazing.

First good deal or is it?

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