All Forum Posts by: Amanda G.

I read an outdated book that had a rule of thumb for estimated $/Sq ft for renovation costs. Does this idea seem legit? How do you estimate when you can't get into the property before you make a bid?

Most people don't have a clue what their home is worth. If you anchor them with a low number, you might be pleasantly surprised. You might also try giving them a range, with the top of the range being the number you actually want to buy it at.
"Mr. Seller, looking at local houses like yours, I'd say your home would go for (super low) to (price you like). Cash offers usually are for less than the max because I can make it easier for you to sell in a short period of time. Is that something that is important to you?"

I learned my local credit union is associated with a loan processing company. Their fees for closing are a lot less because they are member owned.  Maybe $9k is unavoidable in your area, but it might be worth checking. 

I'm glad to see someone else putting all their numbers up for review. Are you happy with self-managing? You're probably already thinking about this, but there isn't much margin if you want to hand it off. Good luck!

Understood. The current owner has delayed a heck of a lot of repairs. I was deliberately over-estimating at 20k, because I know things always cost more than expected. My rough numbers were:

$3-4 k can't be avoided stuff like a new water heater, fixing plumbing and electrical, water damaged ceilings, and exterior stairs to upstairs apartment, etc.
$3-4k because the upstairs HVAC is from 1980 and can't be trusted not to die any minute

slightly less than $5k- replacing all the windows. This one is avoidable-at least in the short term- as long as at least one or two work for fire exits. They aren't cracked, but the seals are broken and they fall out of the frames.

$5-6k, cosmetic stuff like removing all the damaged carpet and replacing with laminate and fixing sheet rock/painting and other pretty-ness. This would let me raise rent. $600 might be a stretch, but $550 seems doable.

I left the seller with an offer for $55k. If I do the unavoidable and the cosmetic afor $10k and left the rent the same, the COC would be something like .24. With the cosmetic stuff I would be gambling that higher rent to help cover the eventual HVAC and windows, or a BRRR to take cash out.

I don't expect the seller to take the offer. He has a price stuck in his head and his realtor isn't succeeding in persuading him. Maybe I'll see if it is still on the market in 6 months to make a new offer. But there are plenty of other options to consider, so probably not.

Aha! I just figured out how to tag previous comments. What numbers would make this work for you? Would you lay out the steps so those of us at home can follow along? Thank you, both.

I think $600 in that part of town is doubtful. Thank you for the input. Jay, Derek, would you share the thinking steps that got you there?

I believe my loan person locked it in at that rate, yes. It helps that it is 25% down.

Duplex in C+ neighborhood that is not far from where some major white-collar industry is going to be soon-ish.

$65k price tag

Rents are currently $450/mo. That is low for the town, but maybe not for the area. One of the tenants has a year long lease, the other is month to month and would need 60 days notice to vacate. Tenants currently pay all utilities.

Needs about $15-20k in renovation, new windows, HVAC, water heater, lots of minor stuff and then all the cosmetic improvements

Tax $76/mo, with a 25% down loan at 4.75, the PI would be about $240

Thoughts?

It seems to me that Cap Ex is a very important part of evaluating a deal which investors tend to under-estimate. My current rule of thumb is to plan $1,000/year per unit.

First- do you agree with that as an estimate?

Second- That's all good for evaluating deals, but in real life, how much reserve do you keep in hand for roofs and AC and the other big items?  I imagine that this changes with the scale of your portfolio. With 1-3 properties, you probably want to keep a portion liquid. But with more does your ratio change? 

Third: I imagine that HELOC's are a good option for this kind of thing. What is your experience?

A story that might be relevant on the negotiation end of things:

I was the grader for a large college math class. The professor handed back student assignments. One of the students came up to argue about his grade. The professor listened and said "I see your point, I'll give you 5 points back."  The student kept going. The professor said "Ok, 3 points."  The student paused in shock, and then shut up and took the 5 points.

This particular deal may look great to you, but remember, you are the one with the money to spend. There will be lots of other options. If the deal expires, you can either offer them a deal that is less attractive than the one they just passed up, or you can walk. Walking away from a bad situation is a win.

Good luck! I hope you will post how this turns out.