All Forum Posts by: Alex T.

You definitely need Builder's Risk + GL for any legitimate flip. For GL, I match the limits of my GC. For Builder's Risk, I insure the maximum I could lose on the very last day of construction. So if I'm estimating I am in for 500k on the last day of construction, but the land I could package and sell for 300k (conservatively), my Builder's Risk is essentially a 200k policy. Lastly, for a big renovation project, I'd take things a step further and go through the city to close down the sidewalk along your frontage. It can be expensive, but it's another layer of protection that people rarely talk about. The city may not even allow it, but if you're on a smaller street, not closing the entire block, and can provide alternative routes for pedestrians, this is a great option to further limit your exposure and also make it safer for neighbors and workers.

@Lisa Yang Good idea to split mortgages between you and your spouse. My wife and I do the same thing.

In terms of finding multis, I'd stick to the usual channels. I search relentlessly online. Categorize the properties based on my interest, and those at the top of the list I see as soon as possible; those at the bottom, I wait for price reductions. Try to hook up with an agent that has good off-market access. I personally like doing deals through conventional channels. I rarely buy things off-market, from sheriff sales, etc. Everyone has their own strategy. I like to make a lot of aggressive offers on market properties...and see what sticks. 

If you're looking for even more REI experience, perhaps find a SFR that's zoned multi and convert it to multi. Those can be very lucrative deals.

@Lisa Yang I certainly think netting $500/property is doable, but of course it depends on your market. In my market (Philadelphia), I can very easily find SFRs that I'm all-in for 100k that rent for $1100-1200. If I do an 80% LTV, my monthly expenses are around $550 and my NOI is around $600. Obviously, there are more factors at play, but I'm just saying your desired cashflow - to me - isn't the big concern. The concern is finding banks willing to do 80% LTV each year when you become less and less desirable as a lendee. Your debt to income is going to get more leveraged, your credit score may take a hit, and as the markets continue to tighten, I think it's going to be difficult to get reasonable rates on a new rental property every year.

As some other folks have pointed out, I'd look more towards multi-units. Perhaps in a year or two you're able to find a multi that you can owner-occupy. Ultimately, with economies of scale, having a quadplex in your portfolio is likely going to be a much better investment than four individual properties. Good luck!

Tori, it's tough to answer this question without knowing what the "5-year plan" is for your property, but I'll give you my two cents. First of all, don't think about it as you're investing with a friend. Either you guys are partners (i.e. both of you are active participants in the investments), or one of you is active and the other is passive (i.e. an investor versus a partner). IMO, investing with a partner whom you trust can be beneficial because it (1) gives you a new perspective on every decision that needs to be made, (2) gives you double the manpower to do work to the property, research the market, etc., and (3) is valuable financially (i.e. more cash to the table, able to shoulder more debt, etc.). However, investing with partners or investors does make things more complicated. For example, if you're LLCing it - which may make sense for a partnership - that'll make it more difficult to get a conventional mortgage.

Like anything in real estate, if you're going to be including or working with another individual, you'll want to sit down with a good lawyer and put contracts together that protect both parties in the event that something goes awry. Good luck!

I don't think the pricing seems crazy, but why not work with someone willing to give you a fixed job cost? Everyone has their own style, but for me personally, I never pay labor by the hour. Every time I have, they end up motivated to take their time, round up, etc. I'd much rather pay a fixed cost and build something into the contract that gives an allowance for time. Assuming you have a trustworthy guy, maybe you don't save a ton of money with a fixed cost route, but at least you know exactly what you're committing to - barring some catastrophic find with the plumbing - when you start the job. Just my opinion. Good luck.

Absolutely, you're right. From a cash flow perspective, those income taxes on the flip are going to further boost your case for holding and renting...but it's only a delay since you'll obviously have to realize the gains at some point! But sure, better to leverage your taxable assets now to make money today versus tomorrow.

Like many things in RE, there are different ways to think about it. I view your situation as two separate investments where you bought a house, flipped it, sold it, then bought a rental and rented it. That's how I think about it, because the reality is you had the choice to sell 100% of the flipped house and use that money towards another investment instead of taking out 30% and renting it. I view your mortgage as no different than you finding another rental to buy for 440k and putting 30% down to make that investment happen. You can think about it however it makes sense to you. If it makes sense to say you only have 3k left in the deal and because you're making 15k pre-tax then it's 500% COC, that's fine. My point is that I think it may do a disservice to you when evaluating other investment opportunities. Regardless, it's a great investment!

Nice work, but I think you're looking at it the wrong way. You said you're in for 305k cash. You cashed out 70% of the appraisal for 308k, so it sounds like you ended up with your entire 305k cash back, another 3k cash "bonus", and then 30% equity in a 440k duplex that generates around $1200/month NOI. On paper, you have to view it like you paid 30% down for this new investment, which is 132k. So your upcoming cash on cash is around 11%, and ROI is around 15% (assuming 5% interest on the mortgage). Those both sound good to me. The cap is 7-8, but frankly, it doesn't mean much without knowing your market.

Now if you want to look at the total ROI of your investment right as you're about to start managing the duplex, it's simple. It's just the 440k appraisal minus what you put in, divided by what you put in. So (440k-305k)/305k=44% ROI over X period of time. Everything here is phenomenal as far as I'm concerned, but nowhere would I say your cash on cash is 512%.

Really, the only question to ask yourself is what you could have done with the extra 30% of 440k. If you had another deal you projected to generate more than 11% cash on cash per anum, then you should've sold this. If not, then you made the right call.

Of course, this is all predicated on the property actually being worth 440k. As other people have mentioned, it's only worth what someone is willing to pay, which could be far less than 440k. Either way, it's still fine to use the 440k number as the basis for your calculations...because it's the best thing you have at this point. Anyway, good luck. I would kill for something that good...and in your shoes, I absolutely would have held the duplex.

Alex, my personal advice is that there's no better way to learn the market than fix and flip...assuming you can stomach the roller coaster and risk. In my opinion, you'll learn a lot more over 2-3 years doing a handful of flips versus managing a couple of units. But if this isn't a full-time job, then cash flow properties is a better place to start.

Regarding rentals, Philadelphia is an interesting market where the cap rates vary drastically from one mile to the next. We can find a stable 5 cap in Rittenhouse Square or drive a mere 2 miles into North Philly - for example - and easily get 15 caps, albeit much riskier. If you're set on cash flowing, then take on some risk and go after larger caps. If you're willing to play the long game and see value through loan amortization and appreciation, then get into a more stable market like Point Breeze, Fishtown, etc.

Thanks! What you're saying makes sense, but I'm still a little confused because it seems like in most cases the footers are wider than the foundation walls. So to dig down, it seems like you'd demo the slab and then subsequently remove a portion of the footers (the portion that's "inside" the foundation walls). If you don't remove that "inside" portion, wouldn't you just end up with a "bench" around the perimeter? See the attached picture. I imagine blue is your standard basement foundation with footers. Green seems like what you're supposed to do, but you end up with a bench width that depends on the width of the footers. Orange is if you dig straight down along the foundation walls, but it seems like this would be invasive to the footers and thus not what you're supposed to do. We have a stone foundation, and according to the contractor, we don't have typical footers. The stone at the bottom is the same width as the rest of the foundation walls, so I guess this isn't something I have to worry about, but still curious what happens when your footers are wider than your foundation walls.