Thank you everyone. I'll be closing today. Final wire was sent yesterday. A few of you reached out for details and I wanted to provide that. Listing was on the MLS initially and popped up under my saved search info. Crown Hill neighborhood on the north side of Indy. 3br/2ba per side with a garage on the rear off street. Rent should be 750 at a minimum and up to 900 depending on amenities. That means it competes with 3br units, but has another bath, fenced in yard, and garage. Listing amount was 99k. Once renovated it should income at 1500-1800/mo. I did all calculations at the minimum income levels to make sure it would work. Over inflated vacancy and counted on property management along with other fundamentals. I offered full value and worked directly with the selling agent. I read the disclosure and learned it should have good wiring since the 2nd bath was an add on. I agreed if everything was as listed, we'd pay full value.
This was key bc I found the electrical was not upgraded as the seller thought and needed another 10k in repair. This allowed me to go back and have the sell price negotiated to 89,900.
I confirmed a number of assumptions with a PM company and they thought it should rent easily at 800/mo and allow pets for another 50/mo. we could rent the garage to 1 of the units and charge a small amount for it. This changed the fundamentals to the 1600/mo plus 50-100 in extra income. The property needs renovated and I have a spreadsheet with every thing in the inspection being corrected, and cosmetic issues. These were all guesstimated on the high side, rounding up to the nearest thousand. This told me renovations including the 10k for electrical (already written quote) would be a minimum of 30k and up to 50k depending on if I wanted to correct every deficiency.
The selling agent said many investors reached out to her and low balled her, as to be expected. Many shied away from the tenants in place paying only 500/mo, and others from the reno costs. I'll be offering cash for keys and give the tenants a 90 day notice that their month to month lease will not be renewed for March. That's more lenient than I am required, but renovations can wait until the spring and they're currently paying.
I may be wrong on all of this and I'll leave cash reserves in place for awhile. Financially I'll be able to pull 70% out on a mortgage and it should appraise at 130k at a minimum, that leaves me with a mortgage of 91k and only out the reno costs. Based on the financials above that leaves 35k in reno for cash outlay once refinanced. Cash flow 1650/mo at 8% vacancy is 18.2k annually minus expenses of PM, insurance, maintenance etc. NOI 12.5k debt service at 91k with 25yr and 6% (hope for better) is 7k annually. Cash flow 5.5k for a CoCr of 15% and the property pays the mortgage with only 1 unit rented.
I've had better deals and I've had worse deals, but for a property that should cash flow, listing 35k under ARV was the first step. Knowing what it would compete with in the market is huge, bc that extra bath and garage allows it to compete better for tenants. Do the math and error on the side of caution. Had we not agreed on 89900 and they stayed on 99 I would have walked bc of the electrical. So I'd be out all of the work and an inspection charge, that's the price of doing business. I offered full price bc the financials worked, but agreed to renegotiate if the info was wrong.
Sometimes this is similar to poker, if you're an investor there is some gambling involved. I locked up the contract and paid the inspector. I had a good hand and was paying to see the flop, if the cards were bad I'd fold and play the next hand. cards are good, play on. You dont go all in with what you're dealt, the deal develops.
I'll be documenting all of this and getting it onto youtube soon. This is my full time job now, so best if I treat it as such. Hope this helped. Fell free to ask anything. Happy holidays!
