All Forum Posts by: Fabio Busatto

@Fabio Busatto it’s very interesting to hear about a deal from Italy! Your cash flow looks small but I think there’s more to a good deal than just cash flow.

My first question would be is there a really good chance of appreciation on the property in the future? What are the fundamentals of the town/city where the property is located...population growth, unemployment, job growth, etc. Is the property in a great area that attracts the best kinds of tenants or in a not so good area? Have properties in the area gone up consistently in the past? What about rent growth? Is there a good chance of rent increasing?

Are eight year rent agreements normal in Italy? In the US many assume rent will grow each year by at least a little (depending on the area).

You may consider just flipping the property and using the profits to find one that has better cash flow numbers if that is your goal. If you can afford to leave more of your money in and it’s a great area that has an excellent chance to go up in value/rents then you could possibly do that as well...leave more of your money in to keep the monthly payment down.

Cash flow is one of five wealth generators in real estate...cash flow, equity growth from renter paying down mortgage, appreciation, ability to leverage using other people’s money at low interest (the banks), and tax benefits (tax benefits are probably a lot different in Italy).

Really the only way you’d probably want to hold is if you are very sure that value and rent will go up and you are in a personal financial position to cover any “negative” cash flow in the mean time.

Thanks Ryan :)

I will check all of this data (population growth, market appreciation, job growth...), to be honest I do not have any exact number at the moment.

Rent increase after the first 4

Quote:"If you can afford to leave more of your money in and it’s a great area that has an excellent chance to go up in value/rents then you could possibly do that as well...leave more of your money in to keep the monthly payment down"

Very interesting. I have tried to run some numbers lowering the finance amount to € 100 K (in stand of 150K) and yes indeed my cashflow is now positive. Is there any other downside a part from leaving more money on the table?

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Originally posted by @Satha Palani:

@Fabio Busatto If the lease term is fixed for 4 years, perhaps you don’t need a 4% a year vacancy reserve. Also the taxes sound very high, 2k on 10k gross income. Are you sure you have accounted for all deductions, if so is there a way to mitigate taxes by changing up ownership structure? Owning in a trust / limited liability company for example .

Thanks Satha :)

I counted for 4% year a vacancy reserve in case of any missing payments from the tenant's which is not that rare in my city. Also, it count for cost of recovering this money.

I'm checking with my accountant if there are any deductions, thanks for the suggestion.

I will also ask my accountant if there is any changing up ownership which may help me on that, thanks again for the suggestione

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Originally posted by @Alex Jones:

Originally posted by @Fabio Busatto:

Do you think rent it's the only reason why this BRRRR doesn't look attractive or the may be another reason?

Either the rent would have to increase or the price would have to come down for it to make any sense for me. BRRRR is a great strategy, but the fundamentals still have to be there.

There must be something I'm missing because this property scares the hell out of me. Is it normal for a 220k property to only rent for 900 euros a month? The scariest part to me is that you're only financing 70% of the value, have an incredibly generous interest rate at 2.55% and the property is still barely covering your expenses. Values will have to fall alot when central banks begin increasing interest rates in the next 2-4 years. I'm not sure this is the right environment to be buying rental properties. Again, I don't know anything about the Italian market though. Maybe I'm missing something fundamental here.

Thanks @Alex

Unfortunately yes, in my city it is normal for a 220K property to only rent 900 euro a month.

What do you mean for "Values will have to fall a lot when central banks begin increasing interest rate in the next 2-4 years" . Is it just relative to my mortgage rate or in general? As in my case I will have fixed rate for 30 years

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Originally posted by @Alex Jones:

I don't know much about the Italian market. In the US, we'd generally look for a property that with a monthly rent of 1% of its value. This is usually enough gross income to cover your costs while making a reasonable profit. This varies from market to market and it depends on where you are in the market cycle. In the worst parts of the recession, it wasn't difficult to find properties that rented for 2%+ of their value.

In the US, a property renting for .4% of its value would be an indication that the value of that individual property is too high. If that value is consistent with the market, then it would indicate the market is too hot to invest in. in the best case scenario, you will only have 657 euros left over every year. Thats simply not enough profit to justify your time, let alone the capital expenses you might have to make down the road. If you're buying it because you think the value will go up over time, then pull the trigger. You shouldn't be buying it for cashflow though.

Thanks Alex. Does it mean that in your market property value $ 200K would be rented for $ 2000/months?!?! That's gorgeous!

Do you think rent it's the only reason why this BRRRR doesn't look attractive or the may be another reason?

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Originally posted by @Thomas D.:

@Fabio Busatto Not sure the standard expense list in Europe, but my understanding was that in addition to property tax, maintenance, and capex, you should account for insurance, utilities (those that the tenant does not pay), and potentially property management (even if you want to self-manage, to see if the deal works from a passive investment standpoint).

Thanks Thomas. Insurance as utilities will be paid by tenant's. Yes I should have counted for property management. What I dont realize is what should be change for this deal to work throught. Is it income too low? Is it mortgage rate too high?

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Thank you for your reply @Thomas D. :)

About your question:

1)Terms for contract: 4+4 years, rent increase after the first four year based on the ISTAT (Italian National Institute of Statistics) index

2)Expenses breakdown:

Local Tax: € 112.50 monthly
Assumption for small repair: € 50/month
Assumption capex for extraordinary maintenance: € 50/month

Am I missing something? Everyone talks about BRRRR as the best possible thing to run but these numbers do not follow...

Also I just found the amount of tax I will need to pay on the income: 21% which brings my annual cashflow to negative (€ 1520)

@Brandon Turner pls help :)

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It is my first time using the BRRR strategy instead of just flipping the house and I must say I am bit concern over the number.

Here are the details:

I paid €141.750K for an apartment using private money to fund the entire purchase price. I spent about € 6K renovating the unit. My all-in cost after all of the renovation cost, financing cost, utilities, refinance fees and closing costs was about €156,000K.

The bank appraised the property at € 220.000K and allowed me to do a cash-out-refinance at 70% loan-to-value. I may take out the full 70% which came out to €155.000, leaving roughly €1K of my own cash into the deal.

I receive an offer to rent the unit for € 900/month on a 8-years lease. Here are some data based on my assumptions for the first year:

Rental income: € 10.800
Vacancy rate (4%): € 432
Gross income: € 10.368
Total expenses: € 2.552
NOI: € 7.816
Mortgage: € 7.159 (30 year loan with 2.55% interest rate, principal & interest)
Cashflow: € 657
Cash ROI: 65,70%
Equity accrued: € 3.373
Total return: € 4.030
Total ROI: 403,30%

When you look at this deal through a cash-on-cash analysis the yield looks insanely high but what I’m concern about is cash flow leaving just € 657/year on the table, exposing me to any missing payments from tenants or market correction.

What do you think about the numbers?

Thank you in advance for any and all replies.

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Pls help and thanks in advance :) What would you do if you were to make a choice between option A and option B and and WHY

Purchase Price $ 141.750

Improvements $ 6.000

Closing Costs $ 2.250

Total Cost $ 150.000

Downpayment: 0% (cash acquisition)

Cash outlay: € 1.000

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

After 24 months from completion, here are my two options:

#OPTION A (FIX and FLIX)

Selling the property for € 205.000

#OPTION B (BRRRRR)

Refinance for € 150.000 leaving € 1.000 cash outlay and renting the property. Here are some data based on my simulation;

1st Year

Gross income: € 10.368

Total expenses: € 2.552

NOI: € 1.568

Mortgage payment: € 7.159 (30year at 2.55% fix rate)

Total cash flow: € 657,00

Cash ROI 65,70%

Equity accrued: € 3.373

Total return: € 4.030

Total ROI 403,03%

Capitalization Rate 5,18%

GRM 13,98

DSCR n/a

Tax rate in Italy at: 26%

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All Forum Posts by: Fabio Busatto

Fabio Busatto has started 5 posts and replied 17 times.

Post: 100% Mortgage or BRRRR

Post: 100% Mortgage or BRRRR

Post: BRRRR Strategy - Would you consider this as a good deal?

Post: BRRRR Strategy - Would you consider this as a good deal?

Post: BRRRR Strategy - Would you consider this as a good deal?

Post: BRRRR Strategy - Would you consider this as a good deal?

Post: BRRRR Strategy - Would you consider this as a good deal?

Post: BRRRR Strategy - Would you consider this as a good deal?

Post: BRRRR Strategy - Would you consider this as a good deal?

Post: What would you do if you were to make a choice