All Forum Posts by: CJ M.

It's all going to come back to your original goals. There are so many different types of investors. Some buy with all cash, some use as much leverage as possible. Some like a minimum of $X in cash flow per door. Some only invest in multi families, some only in single families, etc. etc...but you get my point. 

Regarding CoC %, it's a pretty important metric (if not one of the most important in my opinion when it comes to analyzing single family deals). It's the return (%) you're making on the money you invested (again, your out of pocket money). Think of it like the annual % you would make on any money you invested in the stock market. So, do you want your cash on cash return to be 7-8% like the stock market averages? Do you want it 20%? Do you want it 100%+. Again, goes back to your goals. 

CALCULATION: Annual Cashflow (before taxes)/Initial out of pocket investment. So in your case ($171 X 12)/$16,000 = 12.8%. 

That said, I don't think 12.8% is accurate for your deal.First of all,  I'm not following your expenses. When I subtract what you listed I don't get $171. Also, $50/mo is probably way too low of an amount for repairs/capex/maintenance/vacancies/management. Based off the low rents, I'd assume you'll probably spend more than that each month (I averaged around 25-30% last year). And if anything, look at it this way, $50/mo is $600/yr. If you have just 1 month of a vacancy, it will wipe that out! 

Hope all of this helps!

@Rax Gupta

Ok, we're getting there :)...so $16K out of pocket. Now what is your cash on cash return %?

NOTE: When doing that calculation, I would assume more than $50/mo for repairs/maintenance/capex/vacancies. Prob at least $150-$175/mo.

@Rax Gupta

No downpayment?

@Rax Gupta

Unless I'm missing it, you are leaving out a very important number. How much cash will it take you to close this deal? Down payment, closing costs, etc. (I.e. what actually comes out of your pocket)

Interesting update...

So I received the secured loan last week. I called SBA to ask if any future properties acquired (NOT with EIDL funds) could still be put in my existing LLC (the one on the loan that I signed collateral for), or if they needed to go in a seperate LLC. I was told "real estate properties are NOT part of the collateral, so it didn't matter what LLC I used."

Another reason I'm happy I took the full amount of the EIDL that I was approved for.

@Evan Mullen

Being new, it's probably going to be difficult. Most good contractors are working and making money. Unless you can entice them to do walkthrough (i.e by paying them), getting them to help consistently could be a challenge. Think of it this way, what is in it for the contractor by doing a walk-thru? The "hope" of a possible job? Any contractor worth his/her salt isn't hurting for work. If you can't find anyone, I would walk through a property, take pictures, figure out what the property needs, and then talk with a contractor to get a general idea of costs. And sometimes, you just need to make estimates on your rehab, bite the bullet and make an offer.

@Jay Y.

That's my understanding as well, but they were so gray, I can't be certain. I was told "normal maintenance repairs, but not rehab." I then asked, what if someone had a property sitting vacant because it couldn't be rehabbed due to covid"...the guy I spoke with didn't seem too sure how to answer.

Anyway, to be safe, I'm just going to call them anytime I'm unsure of an expense and then document (day, time, agent's name) for my records just to be safe.

@Jay Y.

No idea who phelps.com is, but call the SBA as opposed to going off these 3rd party sites. I'm learning each day that no one seems to really know what the funds can be used for because there are sooo many scenarios. In fact, I just had a conversation with an SBA agent yesterday who told me the funds CAN be used for "normal repairs" that are part of a normal business operations. When in doubt, if you're not sure about something, just call them and ask if it's approved...and document what you're told.

Quick update, I spend an hour on the phone with SBA and spoke to 2 different reps.

First rep read off an "internal" list of approved and non-approved uses, but was unable to send it to me nor point me to any documentation online that gives specific examples. He said normal repairs can be approved but you can't pay contractors as they are not an approved use. Basically said just the materials can be purchased with the funds. He then had me download a PDF on SBA.gov and told me to call back if it didn't give me what I need...it didn't.

So, I called back and got another rep. He said funds can be used for any "normal operating expense." That includes repairs (even contractors), wages and salaries, rent, mortalgage, etc.

So my conclusion is no one really has a clear answer. My recommendation is you're unclear on an expense, call them first to confirm it.