All Forum Posts by: Alon Helman

Hi everyone!

thank you so much for all of the responses and sorry for the late reply. We found a property in 29Palms and are going to put an offer on a house as an investment property. tenants are already occupying the home. They are currently paying $1300/month but are willing to go up to $1400/month.

Considering there is nothing majorly wrong with the property after inspections, and being able to raise rent to $1400/month, we will cash flow around $270 and have a Cash on Cash return of 5.11%. We know that a healthy Cash on Cash return is over 8%, but we also read that in some markets such as CA, and being first time investors, anything over 5% is not bad.

Here are the numbers we ran and did our due diligence to make sure the numbers are as accurate as possible.

• Purchase and closing costs
• Offer price: $195k
• Down payment: 30%
• Loan rate: 4.25%
• Total closing costs (Including appraisal and Inspection): $61,300
• Expenses (monthly)
• Mortgage: $665.1
  
• Waste Management: $25
• Landlord insurance: $67.6
• Property taxes: $191.8
• property management: $0   (We will be managing for the first year since tenants are already in place)
• CapEx: $180

• Cash flow: $270.6

• Cash on Cash return: 5.11%

Hi BP community,

My friend and I have been looking to get into real estate investing for the past year and a half. We've hit a few roadblocks along the way and decided to reach out to the BP community for help. We've been looking at everything from Brrr to Duplexes-Triplex, long term rental, SFR, with ADU, etc. Currently, we're pre approved for 650k, and we are budgeting based on purchase price and rehab costs.

A little bit about our situation and what we’re looking for:

Who are we:

Longtime friends. Alon is an animator who works remotely. Charlotte is an RN working at a hospital. Both of us have zero debt, excellent credit, and about $120k in combined capital.

What are we looking for:

• Distressed SFR to rehab, inject equity and appreciation while living in it.
  • We can then sell as a 1031 exchange for another property.
  • Or we can rent out while cash flowing & refinancing to pull equity and buy another property.
• Distressed multi family properties to rehab, inject equity and appreciation while living in it and rent out the other unit.
  • Once we have rehabbed, we would move out, rent out the second unit and cash flow.
• Investment properties that can yield positive cash flow while property appreciates over several years.

Where we’re looking

• We live in California but are willing to move out of state. We have been looking in and around Oakland, Pasadena, Joshua Tree/ Twentynine Palms. We know the market in California is very competitive, esp for us “newbies”, so we also started looking out of state at places like Phoenix, Denver, Vermont, and Salt Lake City.
• General criteria are class A and B neighborhoods with reasonable commute to work.

Current challenges

• Competitive market. Homes sell for higher than asking price/bidding wars.
• Rent to value ratio doesn’t seem to work on any property.
• Capital limit of 120k.
• No access to off market listings.
• When we run the numbers, cash flow is either negative or barely breaks even.

Resources

• We have an excel sheet we plug our numbers into, but it seems that no matter what scenario we look into, it just never adds up so we can cash flow or hardly break even.
• We have also been listening to a lot of podcasts, reading forums, and talking to lenders, realtors, and property management companies .

We understand that delving into real estate is a complicated and nuanced endeavor, but we’ve been researching so much and still cannot figure out how other people make it work. We decided it was time to reach out to the BP community! Is there something we are missing? Perhaps a kind soul would be willing to provide guidance?

Your advice is very much appreciated!

Thanks for all the feedback everyone! I think you were all right. I held off on the offer to crunch additional numbers with the realtor. She had a hard time justifying some of the things she told me, so that was a big red flag. The house was snatched up a day later. I am wanting to do this as a learning experience, and making a smaller profit margin isn't something that worries me. The only thing that worried me about this was losing a large amount of money.

Now that I know what else to look for thanks to some of the comments here, I feel I'll be way more prepared for the next property.

@Arlen Chou Thanks for the feedback. I'd love to go to the meetup!

@Jim K. Thanks for the feedback. You're right, I haven't done a full scope of work on the property. I did bring a contractor who look at the property for a good hour and gave me an estimate of $45k rehab. I upped it by $7k plus the 12% overrun. Maybe I shouldn't trust the contractor regarding an estimate that he gave me, and have him do a full scope of work with me? Again, you're absolutely right about scope of work which I should do before putting in an offer. I also should have posted pictures for you guys. I apologize for that. I'm super new to this, so I'm not sure how to approach the forums. Also, reading book about flips isn't the same as doing them. I'll get on that ASAP.

As far as GC flaking and construction not going according to plan, how do you combat or deal with these situations usually? 

@Costin I. Thanks for the information. Those are all things that I just brought up with the realtor. If she doesn't know about these things I might walk away from this property and start all over with the information that I got here. I'm also going to spend a few more months educating myself with the details of it all. 

I also had a question about the loan strategy. The lender I talked to told me that it is possible to do it with a 5% down as FHA and a 5 year fixed ARM loan. She said it might be the best strategy since I'll have more capital for the rehab. I asked her if doing it with an FHA loan is risky, or will it bite me in the *** in the future. She said that since its my first flip/purchase, it should be totally fine, and that she's been in the business for over 20 years and has never seen any problems with that strategy. I'd like to hear what you guys think, since obviously you have probably ran into these things in the past.

Also, the house itself has a title issue. For some reason the owner of the house has put her grand kid on the title (Which is illegal). They now have to take it to the courts to clear it out. It might take a couple of months to clear, but it will be cleared. There's a contingency in the offer that gives them 25 day escrow, plus an additional 30 days to clear the title. In the meanwhile there will be an earnest payment of 2% made to them. If they cannot meet the 55 days, I can walk away. It sounds like a good strategy, but again, I might not be seeing the risks of this. Any thoughts?

Thank you!

@Ryan P. Kotschedoff,

Thanks for the quick reply and for looking at it. I have contingencies in the offer in case those unforeseen issues come up. Hopefully electrical and plumbing are in good shape. 

Hey everyone!

I've been following the forums here, and I have to say the the info from the community is invaluable. I gathered up the courage to put an offer on a house in Oakland for a superficial flip. I wanted to check with you and see if these numbers and timeline make sense. I would appreciate any feedback as this would be my first flip.

The numbers are conservative. The realtor said we could flip it for 10k more than what the report say, but I'm sticking to the average of the comp. All in all it's a 30k profit if everything is correct.

This is the property:

https://www.redfin.com/CA/Oakland/1745-67th-Ave-94...

These are the comps of properties sold within less than 0.5 mile radius.

https://drive.google.com/open?id=1KmdHLEAISOck9tRx...

This is the breakdown that I went over with my realtor. We covered most things, but I would like to get a second opinion from you guys.

https://drive.google.com/open?id=1gFTjHiJO2tB_mPJn...

Thanks!