All Forum Posts by: Adriel Hsu

Hello BP,

A 22 unit complex came one sale by the owners. It is in what I would say a C neighborhood.  School district is absolutely terrible (rated a 1 on Zillow). I would not touch single families here, but I feel with property management and enough scale for cash flow, I should consider it.

They are asking $705,000 and my realtor saw they purchased the property back in 2013 for $649,000

Right now, the current actual gross rent per month is $12,788.  Two units are Vacant right now.

They have laundry machines on site that bring in an average of $300 a month (or so the P&L sheet claims)

If i brought all units to market rent, and 100% occupied, it would top out at $14,000 monthly rents. 

They provided me a Profit & Loss statement of the last 22 months. 

The Average monthly: 

• Repairs: $1953
• Make Readies (turnovers): $321
• Property Management (current at 5%): 671
• Background Checks: $59
• Dumpster: $355
• Electric: $369
• Natural Gas: $52
• Water: $1033 (paying for tenants)
• Taxes: $1085
• Insurance: $624

So $13,088 subtracting all the actual monthly average costs brings me at $6266 monthly.

If I wanted to cash flow $150 per door given it is a less desireable area, that would leave my monthly mortgage payments at $3266

If i paid 20% down, at 4% interest amortized over 25 years, my monthly payments at a purchase of $700,000 would be $2956.

If I did a estimation based on typical percentages,

$13088 - $1085 (actual tax) - $624 (actual insurance) - $1278 (10% Vacancy) - $958.5 (7.5% Repairs) - $958.5 (7.5% CapEx) - 1023.04 (8% Property Mgmt) - $1868 (actual utilities costs from above)

That would equal to $5293 and if I wanted the same cash flow and assume the same loan terms, I would need a purchase price of $472,000 to bring my monthly mortgage payment to $1993.

Obviously this is a huge discrepancy, and I would lean towards the actual percentage as it is a less desireable area and Im not sure I would keep the current property management.  

Am I analyzing this wrong? How would you guys analyze it?

Thanks

@John Newhall

Wow, I am truly honored John!  There are tons of information on here and a lot smarter investors, I still feel like I don't know very much and feel like a complete beginner still.  I'm glad you feel my story provides enough value and insight to be forwarded! Appreciate it!

@Mayo Oshin

Bro, that was my biggest challenge too! The best way I learned was just doing it! I read J. Scott's book, I tried calling inspectors. But prices are just so different in every market, you won't know until you have an actual scope for contractors to bid on.

Another reason I took on this deal was because by the end, I would know every single cost in my area, from roof to foundation, to re-plumbing everything, to a new central A/C unit installation.  So going forward to my future deals, it'll be a lot more accurate estimates to make my offer.

Also I had no idea about my ARV either. I first though it was $120,000, but then thought it was only worth $100,000, but then my final appraisal came out at $131,000. Being able to look at the detailed breakdown of how my appraiser valued certain items will know let me make much more accurate ARV comps in the future.

The first deal was just a leap of faith.  Now I'm hungry for my next one to make right all the wrongs I did here!

@John Moon

Hey John,

If you look under the numbers at loan interests costs, you see I have parents listed there with $262.5

In september, my parents had closed on selling one of their rentals, and they loaned me $15,000 at 7% interest.

I forgot to add that to the detailed story

So currently at $85,000 ($20k + $20k $30k + $15k) in just borrowed money.

I had $11k spread throughout my credit cards. (Thank god the plumber took credit cards. Also earned 120,000 Hilton points, 55,000 American Airlines points, and 30,000 southwest points for free technically) 

$8k of the charges were in late october/early november that showed up as my most recent statement. I had the refinance end of November so i was able to pay it off without accruing interest.

The other $3k was on a 0% APR credit card which I made minimum monthly payments of $20 throughout the rehab.

So now that puts me at $96,000

That still leaves $9000

As I mentioned, I've been working a well paying, full time job the whole time, and over the span of the 4 month rehab, the last $9000 was out of pocket. That comes out to $2250 a month. Let's just say my post tax monthly pay is double that. So i was able to cover that and my own living expenses.

The $5500 in closing costs were just taken directly out of the refinance loan, so i only got around $99000 deposited into my account.

Hope that answers your questions!

Adriel

@Megan Hirlehey The first deal is going to be scary no matter what! I couldn't sleep for 2 nights  and barely ate anything after I signed the contract with the wholesaler. I was scared to death trying to figure out financing.  

Hopefully my mistakes can help other beginners make their first deal less scary and stressful!

@Wendell De Guzman Thank you for the feedback and glad I could bring back some rookie memories! haha

Yes, plumbing always seems to be an issue! It's reassuring to hear that it still happens to everyone, not just beginners.

I want to tell you, your podcast was very helpful in my education and inspirational!

I have thought about lease option and would like to implement it with my next tenant potentially! I'll be sure to research more about the setup of such a deal.  My market is very transient, with a lot of oil & gas and manufacturing industries that bring in workers for 2-4 year jobs, so many are not looking to purchase homes, but rather rent.

@Mike Reynolds Yea, I definitely need to shop around for a honest and fair contractor.  As far as electrician, HVAC, and plumbing go, I called every company in my area and they all charge homeowner prices.  Not sure where I can find wholesale prices on these services in my area.

@Sam B. Yes, I'm in $5500 but I do have the 20% equity which is definitely worth much more than $5500.

Yes, I made it flip ready, as my backup strategy was to just flip it. Also, if I decided to sell in a few years, it's already renovated to the level where I dont have to do more work. 

Besides, the modern and nicer finishes helps it rent quicker, and compensate for the lack of garage and fenced in yard.

The property is actually in Nederland, so NISD. That and PNGISD seem to be the most popular in the golden triangle.

@Kevin Siedlecki Thank you for the input on the exit strategy! I agree, with the small amount of cash invested, it's not as valuable to look purely at % for returns.  

I like to keep the numbers conservative, but yes, if I can exit this house in a short term hold, it'll actually be a solid first deal. I just like to not touch the money budgeted for vacancy, capex, and PM until i've exited for sure.

@Lisa Misuraca Yes, I was definitely frustrated in only finding retail pricing for contractors. I am in a relatively small area, (roughly 100,000 population) so it's harder to find wholesale prices. That's no excuse, I'll work harder on networking and finding materials and contractors at wholesale costs.

Do you have any tips on how to find or negotiate for these prices? I'd greatly appreciate those!