All Forum Posts by: David Alvarado

@Maria D'Aura

I just sold two triplexes in Baltimore City that were 2% deals - all in (with rehab) of $260K, and rents around $6K - $6200/mo on the conservative side. Baltimore is a very diverse city and these were located in a solid C area - not a rough area; close to the county line which typically demands higher prices. The deals are out there, but highly market and risk dependent.

Originally posted by @Phillip White:

@David Alvarado thanks so much for that wisdom. My goal is to buy and hold for cash flow. Question when you say "almost no money in the deal" you mean after i have refinanced and pulled my initial money out because i put 10 in to start.

 Yes, I mean after refinancing. If you're looking to buy and hold, it sounds like it fit your metrics as long as the refinance value pans out and your rents clear expenses with reserves and other allowances. 

Get clear on your goals and what your long term plan is. If you can BRRR the deal, and cashflow (even a little) with almost/no money in the deal it is a small win. You'll have an asset that is paying for itself with a tenant in place.

However, if you feel the cash flow you receive from keeping it as a rental, even with very little to no money in the deal is worth the hassle of managing a rental, then maybe you should renovate and sell. 

Talk to some local banks and see if they'd be willing to help. I've done multiple projects with a local bank that did 80% loan-to-purchase on distressed property. I typically would raise the rest of the money for the rehab through personal connections or use my own money. In one instance, I took out an unsecured personal loan to cover the difference.
If that doesn't work, you could go hard money and use a lender like Lima One - there are others out there. They have programs where you can roll in the renovation. I have worked with clients that were able to get 90% loan-to-cost. The properties purchased and financed using Lima One were heavily distressed.
If you don't want to pay higher interest rates and points, you could go the private money route and try to work with your network to raise the money to get it done.

Numbers look great and with that cash tied up I'd look to recapitalize and reinvest. That is the great thing about the BRRRR method. Ultimately, however, this all boils down to your risk tolerance.

If you do plan to refi, one thing you'll want to keep in mind is not over-leveraging yourself because you could end up in a situation where a property could be underwater. Based on your numbers, initial investments and current loans, it looks like getting your invested equity back would still leave enough implied equity to give you a buffer. 

One other thing you may consider is taking some of the capital returned and setting that aside as reserves so that in the event something happens as you buy more, you have capital set aside as your cash flow will decrease with the higher debt service. Just my $.02.

Hi Saimon, do you have set criteria yet? A, B, C product? How many units? Stabilized, value add, distressed, etc? What kind of returns are you looking for? 

Looks like you're planning to owner occupy? Reason I ask is I see the 10% down assumption. If that isn't the case, I'd assume 20-25% down.

Next, if your ARV is $285K and you have $10K of fix up, I'd back the $10K out of purchase price and likely another buffer to allow for other unforeseen items that may come up post closing during the fix up process.

Expenses look reasonable, but I'd confirm taxes by cross checking against the county site. Also, may be a good idea to get a soft quote from an insurance broker on what to expect. I had a 4-plex (different area) and was paying about $1500/year. 

Lastly, is water paid by the tenant? On something this size I'd assume that the landlord would pay the water bill as there is likely only one meter. You could potentially bill back something like a flat fee to recoup as much as possible if your market and leases allow it. Just some initial thoughts when looking at the numbers. 

It depends. Are you buying with any equity built in on the front end? What is the market like where this property is located? Seller finance is amortizing I'm assuming? Maybe consider looking at an amortization table to see how much you'll have paid down the loans in year 2 and where that puts you versus what you think the house would be worth or what it's been worth historically (back between 2008-2009). One thing to also consider is the cost to transact - not inexpensive to sell or buy a home so your total basis and projected net should include all transactional costs and some reserves over the period of ownership. 

I'd say if you are buying it below market value and it is an area that has seen steady growth over time then generally you should be ok, but at this time in the cycle the idea is to be under leveraged to ride out potential flattening and softening of the market. The good thing you have going is that you are getting relatively long term debt on the property so you should be able to ride out any potential issues down the line if you can't sell and make a profit in 2-3 years. 

@Mitchell Pollard

Mitchell - would love to connect. I'm local to you and working on a few things right now. 

@Aaron Montague

Yes, ARV is typically not something used in the commercial space, but there can be a new value based on improvements made to the property and increasing the NOI.

Value for commercial property when done by an appraiser is based on three approaches: income, sales comps, and cost (to construct). Generally, most of the weight is placed on the income and sales comps approaches to determine the value. Cap rates in the local market of similar property and sales comps will drive the value. Improvements made, such as a roof, would be great, but as long as the roof is not leaking or failing in some manner, it should not be looked at as a negative to the value of a commercial asset.