All Forum Posts by: Cole Swartz

I agree with Matthew, taxes definitely seem low.

Also, it seems that the GRM in this case uses the projected GSI from after rehabs are completed but then uses the purchase price in the numerator. If you are going to use the projected GSI for when the rehab is complete, shouldn't you also use the ARV of the home for your numerator as opposed to the purchase price?

Based on local comps, what do you think you'll be able to rent it for after you fix it up? You intend to rent it out as opposed to flip it? Besides debt service, what other expenses do you foresee (Cap Ex, Maintenance, Vacancy, Property Management, HOA fees, etc)? Based on these numbers, what do you expect to be your cash flow?

The two books you are referring to are The Book on Rental Property Investing and The Book on Managing Rental Properties, correct? You should then be able to do the above tasks pretty easily and will better enable folks here to critique your deal. 

I would also get a familiar with the condo HOA before jumping into this deal. Some folks here tend to stay away from condos because of the unpredictability of the HOA. On the other hand, some folks build their whole strategy around condos. Just be aware that when dealing with condos, a lot of time the HOA is an extra variable that you need to pay extra scrutiny to as a few bumps in the fee can quickly eat away at your cash-flow.

No problem.

And if you already have a true investor friendly agent on your team, then you are already ahead of the game. As many folks here can attest to, they are certainly not easy to find.

Sounds like a solid plan. Know of several folks who have been very successful in Southern Wisconsin utilizing a similar strategy of buy below market, rehab, rent, refi, and repeat. Only suggestion with that strategy would be to make sure you are spot on with your ARVs as you don't want to get caught off guard with an unanticipated appraisal value, especially with your next deal being dependent on the cash from that refi.

Also as Tamara points out, if you are buying using the 70% rule, that should also give you a viable alternative exit strategy of flipping if you wish to pursue it.

Maximum Purchase Price = Sales Price - Fixed Costs - Profit - Rehab Costs

What makes you think it will be a good flip? Not questioning you by any means but by getting your rationale for pursuing this deal, I think folks will be better able to help you.

I take it this is a distressed or at least slightly distressed property. To start of do you know what comparable fixed up properties are selling for in the area (comps)? Using these comps, you need to figure out what ARV is (After Repair Value)? Also, how much profit do you want to make on the flip? These things will determine the price point you need to get the house at.

For a lot of folks who flip, as a general rule they use 70% of ARV - Repairs as a guideline for the maximum amount they would be willing to pay for a property they intend to flip. Since this would be your first deal, I would suggest you use 65% or even maybe 60% of ARV - Repairs to leave yourself more leeway.

Also, since it appears you are in San Antonio. Danny Johnson is a local flipper in San Antonio (was on Podcast #18 and #144) and he has an awesome ebook on flipping in the SA market. It is free and can be found at his website:

https://www.biggerpockets.com/users/dannyj

http://flippingjunkie.com

No problem man. You seem to be doing pretty well based on the supplied numbers. Best of luck to you.

First off, welcome.

I haven't personally been in your shoes, but here are some threads that from folks who were/are in your shoes regarding having to decided between investing and repaying loans:

https://www.biggerpockets.com/forums/519/topics/22...

https://www.biggerpockets.com/forums/519/topics/15...

https://www.biggerpockets.com/forums/48/topics/285...

Also, it is very much possible to get your feet wet without starting to actually do deals. Get to know your local market and what kinds of strategies work best there. As you said, start attending local REIAs to network and learning how to run the numbers. BP is an incredible resource and there are tons of great books out there:

https://www.biggerpockets.com/renewsblog/2013/04/1...

If you are able to find good enough deals and you know the right folks, you will be able to make things work out in one way or another. That is what is so amazing about REI and differs from other investment opportunities, you can leverage your own creativity.

Are your tenants paying for utilities or are you? 

So your Debt Service + HOA is $2,023 and thus you are negatively cash flowing at $323/mo and that doesn't even include anything else such as repair expenses, insurance, utilities (if you're paying), cap ex, vacancy contingency, taxes, property management (if using), etc?

Unless you are unknowingly renting far below market value or can do something to dramatically increase rent (highly unlikely, and even if so, you have a huge gap to makeup $500+), I would get rid of the property as fast as I could. 

If you are worried about short selling because of what it might do to your credit, that is up to you. But if you don't want to sell it because you feel you will be losing good money as you state, I'm going to have to disagree with you there. If you were right on the margin then it might be worth trying to turn it around and hold onto it, but you have a huge gap to make up. Sometimes it is best to cut your loses, learn from your mistake, and move on. As painful as that might be.

Value = NOI/Cap Rate

No clue on the accuracy of your cap rates, but assuming they are correct:

Building 1 = $319K

Building 2 = $322K

Building For Sale 1 = $500K

Building For Sale 2 = $656K

So seems you are pretty close with your values except for Building 1.

The 2% Rule is simply GSI/Market Vale (or purchase price, or ARV, or whatever you want to use). You don't have your GSI, but assuming you applied vacancy rate of 6%, we can figure it out from the given GOI. Gross Operating Income (GOI) is Gross Scheduled Income (GSI) - Vacancy Allowance. GSI = Total Rent value of all units in the property.

Building 1

GSI = $54,600/12

$4,550/$319,000 = .0142 or 1.4%. You aren't too far off and keep in mind it is often extremely difficult to meet the 2% rule in many markets. While the 2% rule is a great metric to use, it shouldn't deter you, especially if the property will cash-flow well.

Meanwhile, the 50% Rule is simply that your expenses will be about 50% of gross fair market rent for the area. All of your properties seem to meet this metric and that is only using the GOI you give as opposed to the GSI.

Building 1

GOI = $52K

Expenses = $19K

50% Rule = $19K/$52K = .365 or 37%. So you easily meet the 50% rule. 

But based on the numbers you supplied, all of your properties appear to be meeting the 50% Rule.