All Forum Posts by: Deandre P.

Just looking at the numbers, the cash flow is really tight and doesn't leave much wiggle room for first time mistakes/unexpected cost.  I tend to view appreciation as "extra" and do not tend to rely heavily on it in my decision making process.  That being said, I know the DFW area is poised for growth and rent/value appreciation is expected, so If you do move forward, I'm sure the deal will smoothen out over time but the first few years I would expect minimal cash flow.  Just something to consider.

Your return is on the low end and doesn’t leave much of a spread. If you are projecting $3,300 in rent, with a $2,750 monthly payment, leaves you with a max cash flow of $550 per month, $6,600 annually. Your initial investment is 57k, (27k closing + 30k reno), which yields a cash on cash return of about 12%. This doesn’t include any expenses like management fee, repairs, utilities, etc so your actual cash on cash return is likely to be less. Also, with the renovation not much equity is being created, as you are spending 30k to generate an additional net 10k to 20k in equity. Unless this is in an area of appreciation and you expect rents to increase over the next few years, I think there are other deals you can consider that would yield more of a return.

Sidenote: At $3,650 the deal does look better, however I tend to analyze based on conservative figures and never go off top market rents.

@Kyla Nicole Nickerson Jones It really depends on the cash flow difference on the conversion of townhomes vs single family. Do you have an idea on how much cash flow you can get once they are converted to townhomes? Vs how much cash flow you can achieve once they are renovated? You can compare the two different scenarios with the estimated cost and see which scenario will give you the better return. Outside of return, I think the townhome scenario may be the harder of the two to accomplish (lender requirements for tear-down/new construction). While $110k seems like a lot, the ARV (after repair value is likely well above that, and you can do a BRRRR on each home and make a good profit. My suggestion would be (If the ARV allows) to do a hard money loan for the repairs, do the repairs, get it rented, and then do a cash out refinance for the hard money loan. The amount you will walk away with at closing depends on the ARV but assuming each property ARV around $200k you could potentially walk away with 20k to 30k for each property.

I do think your downpayment is on the higher side.  If you are looking for cash flow, you should look at the deal over a 5 to 10 year pro-forma to get the full picture.  A lot of the larger markets here in TX (Austin, DFW, Houston) have seen higher prices, but rent increases have been steady.  Cash on cash return may be low year one but as rent increase 3% to 5% you may see higher returns in the latter years.  

Thats a 4.1% cap rate, so unless there is some upside in the income and rents can be increased or the expenses can be lowered significantly.  I would say put your money somewhere else and get a better return. 

@Davaris Bennett Like others mentioned I would look into credit card/personal loan, etc for the purchase and if possible for the repairs. If you could keep your $4,000 as reserves that would be the best as it will keep you covered for unexpected cost. Based on the #'s you provided your cash on cash return is likely in the range of 8% to 11%, so you could potentially leverage higher debt and while this will eat up your initial profit it would atleast allow you to get the deal done. Also, the property truly can generate $1,000 a month in rent after repairs, the ARV of the property is likely above $46,000 ($36,000 purchase + $10,000 repair), so it seems this may be a good BRRRR, and may give you some additional cash after you refinance which you can put to another deal.

Hey Daniel,

My first tip would be to really think about your goals and what you are looking to get out of real estate investing. That will help you narrow down your strategy, whether your primary focus will be fix n flip, buy n hold, BRRRR, etc. In regards to the area, I am in TX and am very optimistic about the market here.

Typically, utilities are covered by the tenant (water/electric). I find it best to have the tenant cover these expenses as they fluctuate, and you can be at a disadvantage if you try to include it in the rent amount and they increase past your projections.  Also, it increases liability as the owner (tenant not paying). It is still appropriate to include some expense for utilities as you are factoring in 8% vacancy, so you would have utilities expense during turnover, downtime, etc.  Regarding the 1% rule, as mentioned its a general rule of thumb, however it does not consider a lot of factors and should be used as a quick analysis.  I tend to perform for of a cash flow analysis for every deal, rather than rely on the 1% rule.  

So on the LLC that I have it's just me and my business partners. On the LLC they create when funding the deal, it is them and they would put me as a managing partner. So basically, they will have ownership of the LLC, which may make it faster to take control of the property if somethings goes wrong, but makes it a little difficult when finding the deals.

@Jay Hinrichs No, they actually create the LLC for each specific property. I already have an operating LLC, which the contract is under. Each deal they fund, would have a different LLC, for example if I was looking at two properties, they would form an LLC for each different property. At least that is how it was explain to me.