All Forum Posts by: Ben Cohen

Thanks for the reality check :)

Do these seem like more appropriate numbers?:

- Roof = 12k (roof lasts 20 years, so 12k/240 months = 50/month)

- Fridges: 4x1000 = 4k (fridge lasts 12 years, so 4k/144 months = 27/month)

- Stoves: 4x1000 = 4k (stove lasts 15 years, so 4k/180 months =  22/month)

- Water heater = 4k (water heater lasts 10 years, so 4k/120 months = 33/month)

- Furnace = 12k (furnace lasts 15 years, so 12k/180 months = 67/month

- Driveway paving: 4k (driveway lasts 12 years, so 4k/144 months = 28/month)

Total: 50+27+22+33+67+28 = 227/month, so right around what you said! I can allocate 250/month to that then.

So therefore my overall numbers are:

Operating expenses + mortgage + cap ex = 1574 (opex) + 6142 (mortgage) + 250 (capex) = 7966 (Before refinancing out of fFHA)

After refinancing out of FHA, this number goes down by 1100 to be 6866.

Rents are currently 6950, but are below market rate. If I were to not raise rent, I'd be losing around 2k a month while living there while still on FHA. If I can raise rent to market value of ~9k, I break even while living there and cash flow 1k when leaving.

Question: Where would I factor in things like: touch ups in between tenants, flooring, plumbing, remodeling a bathroom/kitchen if I want to raise the rents between tenants?

Does this all check out? (I hope!!)

The rents are currently 1600 for a 1/1 and 1750/1800/1800 for 2/1s. These are large apartments with medium size kitchens and parking spots, which the tenants are currently not paying for. The rent on its own should be closer to 2200-2250 in normal times, plus 150 or so for the parking spot use. Is it too ambitious to increase rent for current tenants / find new tenants from 1600 -> 1800 for the 1/1 and 1800 -> 2400 for the 2/1? I know Covid has reduced rent prices but this just seems way too low, even for Covid.

I'm wondering if maybe renting by the room would be a good way to increase rents here. What do you think?

Hey Aaron, thanks for your response and insight!

You’re right, I did not account for cap ex.

There are 4 units, none of which have dishwashers. But yes, 4 fridges and 4 stoves.

The roof was replaced 2 years ago and is the kind that you can walk on (there is a staircase to the roof from the 2nd floor). It is about 1600 square feet.

I think there is 1 water heater, but there are 4 meters, one for each apartment.

So rough numbers, a little higher than what I found online just to be conservative 

• Roof: 15k 
• Fridges: 4x 1000 = 4000
• Stoves: 4x 500 = 2000
• Water heater: 600
• Furnace: 1500
• Paving driveway: 6000

Total: 29k

Monthly total over 30 years: $81

Does that sound right? It seems sort of low, am I missing something here? Do I need to include calculations of a bathroom/kitchen remodel, or like if the shower stops working?

Good point about show shoveling and landscaping. How much do those run generally? Is it possible for one of the tenants to shovel the snow in exchange for lower rent?

Do you think I will have a hard time increasing the rent with the current tenants?

Thanks!

Hi everyone!

After a lot of learning & reading I've made my first offer on a 4 family building in Brooklyn, here are the numbers:

Price: 1.28M (FHA 3.5% downpayment = 44.8k, closing costs = 32k -> total money down: 76.8k). Very little rehab needed, around 5k from what I can tell. New roof and water heater.

Mortgage: 5042 (P&I) + 1100 (FHA insurance) = 6142

Operating Expenses: Property Taxes (10,390) + Water/sewer (1442) + Gas/electric (3253) + Insurance (3803) = 18,888/year = 1574/month

Total Expenses: 6142 (Mortgage) + 1574 (Operating Expenses) = 7716

Rents are currently (month-to-month tenants, presumably because of Covid):

2/1 (1800) + 2/1 (1800) + 2/1 (1750) + 1/1 (1600) = 6950 total rent

However, considering the location (Brooklyn) + the fact that each unit has parking, rents should actually be:

2/1 (2400) + 2/1 (2400) + 2/1 (2400) + 1/1 (1800) = 9000 total rent

So, monthly:

Rent (9000) - Total Expenses (7716) = 1284 cash flow, this is for the case that I am not living there. While I am living there I would live in one of the 2/1s and bring in a roommate to pay 1200, so rent would be (2400+2400+1200+1800) = 7800. So cash flow is 7800 - 7716 = $84 per month, so I basically break even.

Of course, I did not account for vacancies and maintenance. But even so, on a monthly basis my housing cost would be < $500 while I'm building equity in a 1.28M property. And, once I refinance at 15% or 20% equity, I can get rid of the FHA insurance, right? Doing so would increase my cash flow by 1.1k a month.

Other potential sources of income: tenants currently go to a laundromat near the building. I could put in a coin-operated laundry machine in the basement and charge 2.50 for wash and 1.50-2.50 for dry, doing so would make a few thousand a year. Obviously not a make or break thing though.

My main concern is raising the rent up to the market rate. The tenants have been there for a long time, so that might get pushback, and I'm concerned about getting market rate rents during Covid. Is this a valid concern?

Would really appreciate any insight here as this would be my first deal ever. Thanks!

Thanks, Rich. I think I've decided to put this idea on pause, once I have the property and have cash flow I will consider it. I think I'll revisit it in a few years. Will definitely reach out when I get there!

Hi everyone,

I'm in the process of finding a house hack in NYC and just saw a 4 unit MFH home (2 floors, 2 units/floor) that has the FAR to add up to 2 additional floors, for 8 total units. I'm thinking of using a HELOC on another home to fund such a project, which would be overseen by my father who is a contractor. Then refinance and buy more properties. So sort of a BRRRR where the "rehab" is adding more units.

Has anyone in the NYC area (or frankly anywhere) had experience adding multiple floors to an existing MFH building? Would love to know about:

- Cost

- Are permits required? What’s the timeline like? Is there a lot of bureaucracy?

- Can the tenants on the second floor (the current highest floor) stay there during construction?

- Any recommendations for good architects?

- How long should this take?

- The building is semi attached, and the other building is the same height. The rubber roof is divided by a mini wall. Does this pose any problems?

Thank you in advance!

@Walter Key yes that makes sense, thank you! Really appreciate the clarification. When we go to purchase the investment property, do we need to let the agent know that we are buying with a HELOC, or is it considered a "cash purchase" for all intents & purposes? Also, before we start the whole process, we should identify a lender that will be able to cash out refinance our property, right?

Ahh, that makes sense, thanks for the explanation! So generally you'd only want to refinance enough to pay off the HELOC and get it back to 0? I.e. the goal would be to keep as much equity in the property as possible? Or would we want to refinance as much as we can, pay off the HELOC, and if there is additional cash, use that towards the next property?

Thanks for your response, Walter. Yes, 90k is all their cash. 

If I'm understanding properly, is this how it would work:

- Buy: We find a property that needs rehab, purchase price is 100k, rehab costs are 30k, ARV is 170k. We pay for the property + rehab with HELOC (130k)

- Rehab: We do the rehab

- Rent: We put in tenants

- Refinance: We get a new appraisal, then cash out refinance the property. We get 170k in cash from the bank from the cash out refinance, we use that to immediately pay off the HELOC back down to 0, 170k - 130k = we have 40k cash left over. We now have 0 equity in the property, so now we have a mortgage on the entire value of the property, is this mortgage 100k or 170k?

- Repeat: We use the 40k cash we earned from this property + the HELOC, which is back to 0, to do this again.

Is that all correct?

Hi everyone,

My parents are interested in starting to BRRRR for investment properties, as my dad is a contractor who can oversee the rehab. This will be their first investment property purchase. My question is whether they should use cash or a HELOC on their primary residence to finance.

The options are:

- 90k in cash, i.e. putting down 90k as a 20% downpayment and using a private lender to finance the other 80% + rehab cost

- HELOC on their primary residence. Their home is worth around 450k and they have no mortgage, so assuming an 80% LTV they would be able to get a HELOC for 360k.

What would it look like to use a HELOC to BRRRR? I'm assuming that they would buy 100% cash with the HELOC and then the cash out refinance would eventually pay off the HELOC? It feels like the HELOC would be a better option since they wouldn't have to use their own cash, but let me know if I'm missing something here. Thanks!