All Forum Posts by: Brandon Roof

Difficult to say without knowing the specifics of the lease.  I know some cleaning fees are intended to address annual cleaning of the residence as opposed to making sure it is nice an clean for the next tenant to move in.  This is particularly the case for steam cleaning carpets, which see a lot of traffic over the course of the year, especially if pets are allowed.  So even if a resident doesn't move out at the end of their initial lease, this cleaning fee still remains to make certain some areas of the home remain clean year in and year out.

Again, this is all speculation on my part though as maybe your landlord is surprisingly springing this expense upon you due to what sounds like possible roommates that haven't maintained the landlord's expectations of cleanliness.

It may be best to take a close look at your lease to see how it addresses the charges associated with cleaning the home.  If it is a formal lease, my guess is that there will be a section that covers it.  Best of luck.

Unfortunately, any bank you find likely wouldn't front you the cash to purchase and perform the rehab, but rather would refinance 70-80% of your debt, so unless you have the cash to buy it up front and perform the rehab, that leads you right down the high interest path of a hard money lender and the whole plan falls apart. If you have any equity built in a primary residence, you may be able to secure a HELOC, then obtain a mortgage at a lower interest rate to pay off the HELOC payments.

Also, I'm not a big fan of estate sales.  The sellers, which in this case might be the children of the homeowner, may want to unload the property as quickly as possible, but homes as a result of an estate sale I always find to be ridiculously overpriced because the people are too emotionally tied to it and assign an unrealistic price that doesn't resonate with what the market is willing to pay for.

It is probably best to walk away from this one rather than trying to force a square peg through a round hole.

You may want to allocate more to both cap ex as repairs, like two to three times as much, and I wouldn't rely on realty sites for the insurance either as it is providing you a very generic rate based on an owner occupied unit.  As an investor, I believe most insurances tend to run, on average, around 25% higher (i.e. so if you pay $1,000 for your homeowners insurance, expect to pay something more like $1,250 as the owner of a comparable rental property).

Within the HOA expenses, you'd also want to make certain of everything that is included within that. Lawn maintenance, snow removal, what about sewer? A few of these things that end up not accounted for could have a material difference.

You'll also need to find out what the HOA expects of you. There are some that go as far as dictating allowable interior renovations, right down to the paint color. You may do something that later has to be redone or gets you hit with a fine which is all extra money out of your pocket not accounted for within these projections.

In my opinion, without even looking at the report, this would very likely be a bad idea getting stuck paying on $34k of hard money, and the percentage that represents is way too much for a BRRRR deal. You should be able to find a smaller regional bank that will provide you one mortgage that will include all your expenses (purchase price plus rehab costs) and will have a much lower interest rate than hard money, and you may end up having less than $34k left in the deal as well.

However, if your objective is to recoup as much of your money as possible, which is generally the case with any BRRRR deal, then the purchase price for this property and/or the amount of money it requires in repairs, is simply to much for this to be a viable option.

Best to move on from this option unless you think you can buy it for less than $100k.

You are not doing anything wrong with the calculators.  You did a great job.  Others may argue that you could bring your cap ex or repairs down a little, but I personally prefer to be a little more conservative with my estimations.  I'd much prefer finding out that I overestimated expenses than underestimated them once I purchased a property.  That may mean occasionally passing on what may be a viable deal but I'd much rather find a deal where the numbers work out with the added buffer.

As for this property, it doesn't look to great on the surface but you may be able to refine a few things.  For the property taxes, is that figure truly representative of the actual expense or did you simply choose a percentage of your expenses to allocate to that figure as well?  Property taxes are available on any major platform (Realtor, Zillow, Trulia, etc.) so you can really hone in on that number.

Are you planning to house hack this property?  By the size of the down payment you input it looks as if you may plan to reside in one of the four units.  Is this the case?  If so, it may affect your rent and property management line items.

@Ryan Fehr

I come from more of a stock investment background and I constantly find myself pitting the two against each other. The main arguements against stocks are the lack of control you have over the companies in your portfolio and their ability to lose a significant amount of their value in major economic downturns.

With real estate, you maintain much more decisionmaking control and although we experienced a wicked housing collapse last decade, many real estate investors can still argue they maintained cashflow and that their respective market didn't feel the same pain others did.

The knocks I would have against real estate is it is significantly less liquid and the fees are much higher when it comes to buying, selling and financing.

With the introduction of Robin Hood, it's a race to the bottom as brokerages have been slashing trading fees in recent years.

In my mind, there is nothing more passive than buy and hold stock ownership, though you may be relying more on capital appreciation, whereas many real estate investors prefer passive cashflow.

@Munir Hassan

I wouldn't beat yourself over it as I believe the end result would likely be the same whether you provided an offer months ago or not. The owner was in a legal situation and sounds like she was letting it play out at the advice of counsel. It was probably a done deal from there that any shot you had at it would be the same as everybody else when it became listed. I think you did an exceptional job building a relationship with the seller, and I don't believe they were leading you on. Hope your next property leads to a more fruitful resolution.

@Bradley Cine

I'm guessing you just need to change closing costs to $12,000 and repairs to $3,000 as opposed to making those a running total, because doing so in the first calculation showed those expenses plus the purchase price as more than $750,000, which I'm guessing isn't the case and it is supposed to be more like $260,000.

@Justin Kalieb Bartram

I'm afraid your property taxes feel low unless the home is very dilapidated and in a less than ideal part of town. You should be able to find the actual figure on any of the major listing sites.

I'm also uncertain as to whether or not you have insurance factored into your equation anywhere, which unfortunately will vary from property to property.

@Bradley Cine

I believe you need to rework your closing costs and rehab then recalculate to get a better ouput.