All Forum Posts by: Erfan Haroon

BP Folks,

I am looking for some help. Please pardon my ignorance when it comes to the financing process as I am newer to it. I have learned that I want my cash on cash to be above 12% and I use the BP rental analysis tool (Thanks Brandon Turner). I am a buy and hold investor and plan to hold all properties for longer than 10 years. We have 8 properties they are paid off and I want to start using leverage but I want to keep my cash on cash above 12% by using conservative financing products. I also do not want to lever the total value of the properties above 50% (this will help immensely if there is another 2008 like downturn or any type downturn for that matter)(most conservative non-traded REITs like Blackstone use around 50% leverage as well) All 8 of our properties are very similar to this one example below.

Using 5% Vacancy, 7% Repairs, 7% Capital Expenditures, 0% Management (self managed) in rental analysis calculator 

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Property A (paid cash) Year 1

Purchase price: $80,000 Rent $1000/mo or $12,000 annual

Total Annual expenses $5,240

Total Annual cash flow $6,760

Cash on cash ROI $6,760/$80,000= 8.45%

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Property A (Traditional 30 year fixed, 25% down, 5% rate, $2,500 closing costs) Year 1 

Purchase price: $80,000 Rent $1000/mo or $12,000 annual

Total Annual expenses $9,105.12

Total Annual cash flow $2,894.88

Cash on cash ROI $2,894.88/$22,500= 12.87%

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Property A (Alternative Lender 10 year, 25% down, 5% rate, $2,500 closing costs) Year 1 

Purchase price: $80,000 Rent $1000/mo or $12,000 annual

Total Annual expenses $12,876.72

Total Annual cash flow -$876.72

Cash on cash ROI -$876.72/$22,500= -3.90%

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The one alternative lender I found does not make sense as it creates a negative cash on cash return. I could go the traditional financing route but I want to see if I can find a portfolio lender. My concern is isn't there a limit of 10 loans per person traditionally and don't they look at your debt to income which could become a bottle neck as you try to scale? I want financing to be done on like a business level as most of these properties have been held by us for multiple years now and ideally decent rates. Should I approach a credit union? I want to own 30 rentals with my buying techniques (as I find appropriate deals which that could take years) but I don't want to have to buy only 10 in my name then have difficulty accumulating others or use family members (How do we run this like a business?). I believe there are lenders that do it on a per property basis but I'm not sure their rates or terms. I'm looking for 30 year notes or maybe even 15 (15 would make cash on cash lower but also faster to pay off and financial freedom) I also have cash on hand and do not ever want to lever the total portfolio value above 50% as I mentioned before at most current valuations of the property. Hoping the BP community can guide me in the right direction. Any ideas are greatly appreciated. Please PM if needed. Thanks all in advanced!

Best,

Erfan Haroon

Hi Fellow BP folks,

I just started to invest in C to C- neighborhoods in Wayne County, Michigan. I wanted to know what many of you all use for flooring? Looking for ideas and flooring that is durable that could withstand rougher tenants and is cost effective. Currently many of my properties have carpet in the bedrooms and hallways I am looking to put something in that wouldn't require me to replace every year or after every tenant (like carpet). If you guys have links to something at home depot that would be great. Also what are you all paying for install in your areas. I was hoping people could give ideas on a round number say 1000 sqft. Cost of material? Cost of labor? in your area. Thanks for all the suggestions in advance!  

Hi Roger, 

So I came across this thread and was curious because I am from Detroit too. So I did some digging. I recently moved back to Detroit from Chicago. Growing up I used to hang out in Monroe, Michigan. I think I see the deal you are talking about. I am going to make some assumptions here. It is 9 beds so it's probably 2beds (two) 1beds (five). A good tip and way for you to check rents in the area is Craigslist. Just check out the map. It looks like Monroe 2 beds are in the range of 700-800 and 1beds are 600+ this property is even further outside of Monroe in an even smaller town to the south called La Salle which could mean lesser demand for the apts. Lets do some quick math with the 50 percent rule. Assume conservatively 2beds(2) ($700/mo) and 1beds(5) ($500/mo) = $3,900/mo close to what the MLS says approx $4,000 of income. It has been on MLS for 135 days with a list price of $300k lets assume you can get it for $280k. Say you have the units all rented out and are getting $3,900*12= $46,800/$280,000 = Gross Cap 16.7% cut it in half with 50% rule (includes vacany, capex (repairs), insurance, property tax, etc. etc.) makes your net return 8.35% based on simple 50% rule. Again your expenses may be less I am just doing this for example sake and back of napkin math. I am not sure credit qualities in La Salle, Michigan are the best so you may have people that are late on rent etc. as well. I am sure others may have other opinions on how to do the math I was just simplifying it.

I will tell you just recently in the last month we picked up a property in Wayne County, Michigan a 3 bed 1 bath for under a $100k with a gross cap of 17.1% using 50% rule net return of 8.55% there are still good deals out there they are just harder and harder to come by. I would pick the Wayne County metro pick with lesser risk (lesser capital needed as well) and it's closer to you if you reside in Detroit. Just my 2 cents. Hope you can get your feet wet in investing soon. You will learn a lot after executing your first deal. After I did my first one I did 5 more in the span of a couple years. Good luck and private message me if you have any questions always happy to help anyone.