All Forum Posts by: Deandre P.

I think house hacking would be the best solution. First step if for your son and daughter in law to talk with a lender to see what they can get prequalified for. If they cannot get qualified on their own, explore the option of you and your wife getting on the loan with them to help them get approved (assuming yall are willingly). FHA would likely be their best option, as it will allow for a lower down payment (3.5%). Then if they can find a duplex/triplex and sell their trailer to put towards their down payment. Again, assuming yall are willingly you can help assist with the down payment/closing in the form of a gift.

Quote from @Klemont Wright:

Hi all.

We have a couple opportunities ti purchase a couple properties (one is a single family, the other is a duplex)

Both of them are new construction but only about halfway complete.

We have learned of the reasons why they were not finished.

My question is how do we properly gather value on these properties?

Do we value them according to “completed” comps as we normally would as part of the formula, and apply a “% complete” (ie, 50% complete) split?

Obviously, considering our construction completion cost, but does this make sense to arrive at current value for our purchase price consideration?

How have you guys approached this situation?

Given the % complete, I suggest approaching utilizing the "top down" method.

After Repair Value
Less: Remaining Construction cost to be complete
Less: Entrepreneurial Profit (I typically use 20% of remaining cost)
Equals: Purchase Price/As Is Value

Quote from @Ryan Braman:

Does anyone have an alternative way of calculating the value of a BRRRR in terms of future income - present value? Annuity, perpetuity, zero-coupon bond with a speculated maturity value? What I'm trying to solve is finding a present value baseline to compare the BRRRR'ing a property vs selling. Am I overthinking this? Does anybody have a simpler way of comparing the two scenarios?

Specifically, I'm in for $230k on a property that will need another $60k to finish renovating. Once completed, I can cash flow without refinancing, around $22k annually. If rates drop I can refi cash out...dependant on rates. A neighbor has given me an unsolicited offer (no $ amount mentioned) to buy the house so they can level it and improve their property value. I'm trying to analyze what the property is worth to me, in order to sell it?

Thank you!

 The analysis you are looking for is a discounted cash flow analysis. Figure out your holding period (typically 5 to 10 years) and estimate the annual cashflow for each year of your holding period.  Discount each year by your discount rate and add the cumulative total.  This will get you the present value of the future income stream. This is a brief summary of how a DCF analysis works. A few things you will need to consider are income growth, expense growth and appreciation.  Also, be sure to include the net sale proceeds in your cashflows at the end of your holding period.  Lastly, your discount rate should reflect your preferred rate of return (consider risk, timing, etc.).

Both are good options.  Personally, I would go option 1, after you obtain your real estate license that is (represent yourself and earn the commission).  Run the #'s and try to find a deal that will allow the other units to pay the mortgage.  So effectively you will still be getting the benefit of living rent free, however you will also have your first property and the experience from your first deal.  

Depends. If the HELOC provides sufficient funds to purchase and renovate, and still allows you to have a set aside for reserves/contingency I would do option 1. Reason being you can save on origination fees/closing cost, high interest payment, etc. that is associated with hard money. If the purchase/renovation does not leave you with a set aside for reserves, then I would go Hard Money.

Are any of the needed repairs covered by your insurance? Do you have a home warranty? Assuming the property is worth holding onto, can you cover the repairs with a credit card or small personal loan.  If you can sell and turn a profit, that would be your best option.

Quote from @Joe Villeneuve:

Quote from @Joe Villeneuve:

Quote from @Greg M.:

Quote from @Joe Villeneuve:

1 -  Cash in (your total cost) = $47k

2 - Net Cash Flow per year from both houses combined = $6,312
.....drum roll....
3 - How long will it take until you start to make a profit = 7 and a half years

No, this is how long until he recovers his initial investment.  

If you want to use initial investment in relation to profit, you need to divide the initial investment by the useful life of the property. Therefore, if the property has 50 years of useful life, he'd divide $47,000 by 50 and apply $940 in cost against the $6,312 profit. 

Profit comes after cost is recovered.  The only cost to the investor on a positive cf property is the cash that comes out of pocket. It's not that complicated 

 That is an incorrect way of looking at a cash flowing property.  The cashflow is a return ON investment.  In this scenario the $6,312 in cashflow is a return ON the initial $47,000. If you look at it over a 5 year period (assuming no growth or appreciation) the cashflow would look like this (Year 0 $-47,000, Year 1 $6,312, Year 2 $6,312, Year 3 $6,312, Year 4 $6,312 and Year 5 $53,312).  It is important to remember that the $47,000 (less closing cost) is invested as equity, which if values hold steady he would receive back when he sells. 

With option 1, where would you live? Would you have to rent and if so are the rental rates in your area near/higher than your mortgage? Do you have any equity in your WA home where you can get a HELOC? Or Do you have any equity in your OK home where you can do a cash-out refi to use for another investment property?

Like many mentioned above, they are 3 completely different markets.  If you are looking for growth and appreciation I would suggest Temple.  I think over the next few years ,Temple will see a lot of growth with Meta being built.  I believe Killeen to be a stable market, with FT hood next door if you can get in at a good price point, should be able to cash flow fairly well depending on the area/neighborhood. Also, I believe you mean Copperas Cove.   

Honestly, not to many benefits for the landlord other than they get to fill a vacancy.  They may get a longer lease, however that doesn't add much security to me because if the arbitrage isn't successful the tenant is likely to cut their losses and just stop paying rent.  Starting out, I attempted arbitrage and would try to entice landlords by offering to pay 3 to 6 months of rent in advance or a higher security deposit.