-How can I estimate reno costs if I don't have a clue on prices and I don't bring in a contractor until after I buy the home? I'm so afraid to underestimate costs.
So, if you have no experience with that then I would not estimate it yourself. Lots of times you can meet an agent in. the market that can at least put you in a ballpark. But Generally speaking the parts of the rehab process are:
Demo/Clean out/exterior work
Mechanical/Roof
Sheetrock/Kitchen?Bath/remodel
Paint interior
Floors/rugs
Finishes
If you need the entire list that is a big job, 100k+. Probably $90/sqft or more. I have overseen many rehabs now. I can tell you a bathroom let's say that is getting an overhaul: new toilet, new vanity, new tub, new tile you are looking at 8 - 10k. For a kitchen that needs new sink, new range, new fridge, new white shaker cabinets, new granite countertops, new tile backsplash you are looking at 12k+
For LVP it is maybe 1.25/sqft and then figure another 1k - 2k for installation.
I learned first by calling and asking. Anyone in the biz should know their price per square foot: Flooring, painting, sheetrocking, tile, they should all have a price per square foot that they can tell you. So you look at the house and see that it is 1200 square feet, you estimate that you will need 800 square feet of LVP and you know you can get that for $1.25/sqft plus 1k installation so that is $2,500 for floors. Anything unknown can be learned, that's with anything not just this industry.
-If you do a long term rental, how do you pay back the hard money lender/private lender (if you use one)? I understand for a flip they will get a percentage of the profit, but I'm not sure how they benefit from a buy and hold. If they get a percentage of the monthly cash flow, won't that cut too much into my profit?
So, no one is getting a percentage of the profit. When entering a bridge loan, you are applying for a 12 month, interest only mortgage that includes escrowed funds for rehab purposes. How do you pay that off? 99% of the time it is paid off at the closing table of the sale of the property (post rehab) or at the refinance (after you have a renter). You'll request a payoff statement from the lender, you'll hand that to the title company handling the sale/refi and when wired funds come in from the buyer/lender financing refi funds are wired to the payoff servicer to service that loan. The other 1% of the time people, who are liquid, can pay the loan off by doing the same thing: request a payoff statement with wire instructions and then send in the wire.
-What's a good monthly passive income when calculating a deal? For example, is $150/month enough to be worth it with potential maintenance costs? $200? $300?
You are talking about DSCR: Debt Service Coverage Ratio. What makes a good rental? When the rates were low, in the 3s, lots of houses worked as rentals. Since they have doubled it is tougher. I price out many 30 year DSCR products for people, lots of times they need to take a leverage cut to make the DSCR work if it is a single family. The SFH are not cash flowing well. If you can clear $200 per month after all costs for a SFH you are doing something special. I recommend to my clients to use the SFH markets to generate short term income and wait to catch a 2 - 4 unit property and when they pop up throw those in the portfolio. Having more than one rent payment on a single mortgage matters a lot. I helped a client get into a triplex recently. He bought it for 130k, needed 100k in work, he refi'd out at 80% with a credit union at 335k. That's 268k. His payoff for the bridge loan was 204k and that loan cost him a 26k down payment plus 8k in holding costs so that is 238k, he git 268k so now he is +30k and he has a rented out triplex at 1500 per unit (4500/month), his 268k mortgage has a 2800/month payment. He's cash flowing 1700/month. That's a solid portfolio piece. I'm not in the camp of holding to hold. I like my clients to stay liquid and rinse and repeat money constantly.
