All Forum Posts by: Aaron Ehrlich

@Dieudonne T. so, if we finance the repairs, (91.5+23)* 80% = 91,600 loan for 20 yrs will put us at $54/mo cashflow. If we renegotiate the price to (80.5+23)* 80% = 82,800 loan for 20yrs, puts us at $106/mo cashflow. 

I'm all ears for opinions on this one. This is an 1880's Single Family Home in Des Moines, Iowa. 3 Bedrooms but has 2 other rooms the could be considered bedrooms. Our goal is to get a house every 6 months, building up a nice portfolio of homes that we can then sell and upgrade into commercial properties.

Property #3 for us just got under contract a week ago. 

Purchase: $91,500

Expected Monthly Rent: $1,100

Pro Forma Cashflow BEFORE Renovation costs: $193/mo

We were just quoted $23,000 of work. Detailed below. Considering doing a cash out refinance on one of our other 2 properties to pay for this one. OR include the 23k in our loan for a 80% loan on a "purchase" of 91.5 + Repair Costs. Probably will do a little bit of both.

Plumbing - $6,000

This include a new gas water heater, adding venting to the kitchen and bathroom, fixing the shower drain (plumber said it was too small), fix the ejector pit (what is this?), sump pump, and plumb laundry into the ejector pit.

Electrical - $1,200

Pretty straightforward, replace some breakers, ground some outlets, install a fan in the bathroom

Foundation and Plaster Ceilings - $15,000

A retaining wall needs to be built in the basement and backfilled in order to prevent any issues with the soil washing out (!). Some of the plaster ceilings are falling down so going to cover with drywall.

Wall Paper - ???

Wallpaper throughout the house. It has been recommended to us to put thin drywall up over the wall paper and paint instead of removing the wall paper and painting. Not sure how much this would cost?

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We are planning on renegotiating a lower price or walking. What would you do? Financing the repairs really cuts into our cashflow, but would it still be worth it for the value add an appreciation? OR, would it be better just to pay more for a better condition property with an equally non ideal cashflow? Generally, we try to get $200 a month. OR, should we just wait for the market to cool down a little bit? (Don't really want to wait). 

Thanks for reading and for sharing your thoughts!

Aaron

Remember math puzzles like this?

John is two years older than Mary, and their ages added together equal 12. How old are they now?

Turns out this can be solved very easily using a graph and two lines. John's age is the Y-axis and Mary's is the X-axis. first you plot John's age as 2 years older than Mary's age, then you plot John's age as 12-Mary's age. The intersection of the two lines is their ages. 

(I got this from https://www.skillsyouneed.com/num/graphs-charts.html) 

This got me to think...

Could I use a cartesian graph to find the maximum price I should pay for a house?  i.e. Could I make a graph where the intersection of its lines are $200/month cashflow? 

This is where I need your help...

I have plotted a similar graph using monthly mortgage payments and monthly NOI. I want to know how you would setup your graph to calculate the ideal purchase price and rent rate. What would your X-axis be? Y-Axis? What lines would you plot?

My graph of monthly mortgage payment and monthly NOI turned out to be a single line because I just needed a simple relationship of  NOI - Mortgage = 200.  What else is possible? 

@Jim K.

(40 + 20) + (8+7)

Or rather..

60 + 15

@Darson Grantham great stuff!!

Thanks for the feedback Keyonte and Annchen! I talked to both my financier and insurance broker and they both essentially said, "do what you want and we'll make it work". Financier confirmed that the risk is if our LLC fails to pay the mortgage for this property, it would only be on me and not my partner to pay it (as I expected). Insurance said we would list the LLC as co insured when property is quit claimed to it, or we can just switch insurance providers. That is a good call on the Warranty Deed. Also, ideally we would refinance in bulk later on with more properties which should hopefully resolve the personal guarantees for all these early properties.

Hi,
My business partner and I formed our LLC in June 2020. We have 2 SFHs under the LLC, both with commercial mortgages that are personally guaranteed by my partner and I due to our LLC being 5 months old. We have found a 3rd SFH that meets our criteria for purchasing. However, my partner is also trying to find a personal residence. He asked his mortgage broker and a personal guarantee on another property will count as debt and against his ability to finance his personal residence. I have no debt besides my personal residence mortgage (and our personal guarantees).

I'm curious as to what options we have with this property. Here's what I can think of...

1. I could purchase this property under my own name and quit claim it to the LLC. How does this work? What are the risks for me with this option?

2. 100% cash purchase

3. Send the deal to someone who is in prime position to purchase and ask for some sort of finder's fee?

If you were in my position what would you do? Are there any other ways to make a scenario like this profitable? 

Thanks for your thoughts!

Great, thanks a lot @Michael Chilton!

@Chad Daniel , I received gas and water from the realtor, and have updated here: 

Looks like paying for gas really puts a damper on return..

https://www.biggerpockets.com/calculators/shared/1571828/209abb6b-a4e7-499b-be3b-60911154d1a2

Hi Chad, that'd be really great! I just spoke with a realtor for the property and got some updated numbers on rent and utilities just this morning. I will update my analysis and repost here (hopefully later today or tomorrow at latest). I started gathering some comps for other multi families in the area. Also, I would love to see some examples of single family homes to compare. Also, where can I find more information about tax abatements for Des Moines?   

@JaysenMedhurst, thanks a lot for your feedback, this was very helpful! It looks like the electrical is broken into a meter per unit, meaning the tenants could pay for their own electric. I added a 10% management fee, added $50/month in lawn/snow. I researched cap rates in Des Moines and I determined this was a C class building with a cap rate of 6.02%. I also added 2k of initial repairs, but lowered closing costs from 6k to 3k. I also changed the interest rate to 4.5% and a 25 year term. I added $100 a month in additional income as a $50 for each garage spot. I also changed to purchase price from 265k to 250k since the price has dropped even since I initially looked at the listing. With all the changes, the cash flow decreased to $481 a month - quite different than my initial look! Can you think of any other options other than lowering the purchase price to try to squeeze out higher cashflow? I'd be nice to at least have $150 /unit for a total of $750 a month.