All Forum Posts by: Brandon Roof

Itemizing is always better, in my opinion, as properties can very often differ. There are so many variables that can affect your expenses. Who covers utilities, is there a basement, how many windows are there, what is the pitch of the roof, what are property taxes like, are there HOA fees, and so on. It's OK to utilize generic percentages when conducting initial analysis, but once you identify a property that may be worth pursuing, I always feel it's best to know how large of a furnace i'll need based on the square footage, what the current state of the plumbing and electrical are, does the home have large decks or long driveways that will eventually bear large expenses that you may not incur elsewhere. Sure, it takes a little more time, but it at least allows you to account for as many variable as possible.

I think you've done quite a good job accounting for your expenses, going a little high on cap ex and repairs (which I like), and including your well and common area electric.

Now, for the big problem which you've already alluded to.  The purchase price.  At $300k, there's just no way, and even at $200k it's slim at best.  You are looking at less than $100/door and if you decide to hand off the reigns to a property manager, you can kiss most, if not all of your cash flow goodbye.  I'd prefer to have much more breathing room in a deal like that, though cash flow can be expected to be somewhat low with only putting 3.5% down.  I'd like to think though that you'll be able to find a better deal than this in the near future.  Best of luck with your pursuit!

Hi Calvin!  Unfortunately, there are too many other variables in play to determine whether or not this will be a good deal.  Things such as property taxes and insurance will have a material difference, as will the utility situation and whether or not you are responsible for any portion of them.  In addition to the repairs you intend to do now, how much of that is cosmetic and how much is addressing big ticket items such as roof, windows, HVAC or appliances?  If not addressed now, within how many years will they be?  Is the historic district robust or are housing values declining?  All of these things can affect your analysis of the potential deal.

Cap rate is area dependent, so it may in fact be good based on that metric.  The cash flow of approximately $50/month however, I don't believe would be considered very good in any market.  And again, with your vacancy set so low and not accounting for cap ex, your projections and cash flow will look even worse once these are adjusted.  Cap ex alone will turn your cash flow negative from $50 to -$75 really quick.  I believe your property taxes may not be accurate either ($680 on a $215,000 property).  I could see these easily being $1,000 higher/year.

@Zac Vaughan

Hi Zac! Unfortunately, you wouldn't be able to cash out refinance for quite some time as that requires a certain amount of equity in the home. The exact amount may vary by lender. In this scenario, you would have less than $1,500 worth off the bat, but that would grow with every passing month.

However, if you are able to live there rent free while working, you may be able to save enough for the down payment of your next potential investment. Best of luck!

@Mike Celli

Unfortunately, this would be a losing investment even as you have projected it, and you still haven't factored in cap ex. Vacancy is also too low and very likely won't be achievable. Hopefully the next possible investment that comes your way will provide a better opportunity.

Unfortunately, this is one of the many questions that receives "it depends" as a response.

A conventional loan will allow you to utilize cash for the down payment and possible immediate renovations, leaving the remainder of your cash on the sidelines, ready to be deployed for the down payment on your next property.

With cash, it may set you apart from competition when putting in an all cash offer, allowing the transaction to close quickly. You'll also get a better overall return on the property in the long run and maximize cash flow, but your cash is now tied up in the single investment and can't be used elsewhere. That is, unless you BRRRR or obtain a HELOC.

BRRRR, if executed correctly, obviously allows you to recoup most, if not all the cash in the deal to redeploy, thus being more effective than a conventional loan when trying to scale, as you typical leave 20%-30% of your cash behind. This is easier said than done though as you need to balance the amount of work you put into the property in order to get the desired appraisal. Not only that, but you have to find a lender that will provide a loan on ARV and not 70%-80% of what you have put in or the appraised value.

A HELOC allows you to go the cash route, obtain a HELOC and use the cash again to buy the next property. The drawbacks here are that you may only be provided a line of credit for 70%-80% of the home's value, leaving some money still in the previous deal, and the interest rate on a HELOC may very well be higher than a conventional loan.

So, to address your initial question, you really need to ask yourself what you hope to accomplish.  Some people don't like the leverage and would prefer to pay in cash while others want to lever up and scale.  I don't believe there is any one right answer, but hopefully you will find a method that best suites you ambitions and risk appetite.

@Juan Rosado

Short of being able to negotiate the price much lower and/or significantly raise the rents, this deal is way too thin and could easily be derailed with a couple unforeseen or untimely expenses.

If you yourself are having second thoughts at this point, paired with the projections you've provided here, is certainly enough to convince me that you're better to move on from this deal. Best of luck with your decision.

@Mohammad Nur

If you decide to proceed with this property, a structural engineer is going to be your best resource. They will be able to assess the current state as well as potential implications of the sagging ceiling. They aren't cheap and will likely run $300-$500 for their professional opinion. That will at least help put any worries you may have to rest.

To remedy the issue, a contractor who specializes in these repairs would have to open the ceiling, jack up the sagging joists and sister them to new ones. Look up "sistering joists" on YouTube to get a feel for this process. From my understanding, this is something that could run a few thousand dollars, plus the refinishing of the ceiling. Good luck with your decision.

If by some chance the flooding and roof damage were a result of the same event, such as a series of severe thunderstorms, you may just be able to tack the roof onto the existing claim for the basement.  This may be tricky though dependent of the timeline of these two occurrences.  I would also tend to think that it will be difficult to get the entire expense associated with the new roof covered.  Unless it can be shown that this is a relatively new roof that was a victim of ice damming or a hail storm that affected the surrounding region.  Covering spot repairs may be a little more likely.

Best thing would simply be to contact your insurance provider with the information you have available and voice your concerns.  If you are in an area that experiences a number of flood and storms then your provider may already have expect claims such as this and already have it built into you existing premium.  That's not to say that your premiums won't rise, but maybe your fear of losing coverage entirely isn't warranted.  Best of luck.