All Forum Posts by: John Leavelle

@Quintin Gulley Jr

Conventional residential loans are 20%.  Multi family investments usually require 25% Down.

Howdy @Quintin Gulley Jr

With that low down payment (3.5%) I assume you are using a FHA loan. Therefore, you will be required to live in the property for at least one year. And since the Down payment is less than 20% you will be required to pay PMI (which you did not include). Your rental income will be based on only 2 of three units until you can move out.

Other than that the rest looks good.

Howdy @McKensie Hogstrom

Are the expense amounts numbers you came up with or did the Seller provide anything?

You may be over conservative with your numbers. Look at the Cash Flow using the 50% Rule. $569 per month is probably more acceptable to you (and me). The property looks to be newer than 70's/80's therefore probably will not require 10% of Income for Maintenance. 5% would be sufficient for now. I would leave CapEx at 10% until you can have the property inspected. Once you determine the current condition and life expectancy of all major components and appliances you can adjust the CapEx reserves requirement.

What are you including in the $200 Misc?  This number may or may not be lower.  Try to get as much actual costs from the Seller to help.

Howdy @Curtis Shotliff

I can beat that.  Population where I live is only 1,600.  However,  we have a strong demand for rentals and housing in general.

If you are saying you can get $1,382 Monthly Rental Income ($681 per unit) then that's really good. You need to figure out what the ARV or Fair Market Value of the property should be if you were to Rehab it to like new condition. It sounds like you are suggesting repairs/improvements need to be made. If so try to get an idea of what renovations would cost.

Once you get an ARV and Rehab estimate you can determine a reasonable offer.

As far as the Financing goes I am a firm believer in using as little of my own cash as possible to invest. Consider this. If you use a HELOC you will have to repay it within 20 years. Therefore, I would not use it for the full purchase (and any Rehab you may do) unless you plan to Refinance the property eventually . By the way I use a HELOC (to pay for all Rehab, Holding, and Closing costs) with all my investments. I also use a Private Lender for the initial purchase of the property. Once the property is in rent ready/like new condition and fully rented I Refinance it to payoff my lender and HELOC. Then I can do it all over again. This is commonly referred to as the BRRRR strategy.

If you are looking to grow a portfolio to gain passive income to replace your current income this is a perfect strategy to use.  You might think about using a combination like I use.  

Hope this helps.

Howdy @Jane Johanson

I agree with @Chris Svendsen based on your numbers this is not a good deal.    Negative $700 plus in Cash Flow is not my ideal of a good investment.  With a Refinance loan amount of $300K you should have monthly rental income near $3,000.  If that’s not possible in that market you need to look elsewhere.

I see other issues with your report.  1.  What type Acquisition Loan are you using?  Conventional or other?  Is the property considered rent ready/livable?  If not a conventional lender will not fund the loan.  Is the P&I payment actually principal and interest or interest only?

2.  You did not include a Refinance closing fee.

3. Many of the expenses you use in your Cash Flow analysis are way to low. You need to stay conservative with your Analysis. I never use less than 8.34% (one month rent) for Vacancy when analyzing properties and in my budget forecast. If it ends up lower then I received more income for that year. 1% for CapEx, Repairs, and Management is unrealistic. 10%, 5%, and 10% is more acceptable. Yes, 10% for CapEx is probably high with the Rehab you have planned. However, until I have a property inspected and know the current condition and life expectancy of all major components and appliances I will not lower it. Once I receive the report I can determine what to include in the Rehab and what can be deferred. I then will adjust my reserves requirement.

Howdy @Dakota Hicks

What type of financing are you using with the 10% Down payment? FHA or some type owner financing? You will be required to pay PMI (for anything less than 20% Down) until you have the property refinanced. Are you going to live there for one year? Investment properties usually require 25% Down.

Good job including the appropriate Holding costs.  You do need to account for the Refinance Closing costs/Fees.

I use a similar investment strategy. I currently only use the BRRRR strategy and target Distressed properties. I Rehab to like new condition. I too pay close attention to current components and appliances condition and life expectancy. Anything not projected to last a minimum of 5 years is replaced/upgraded. I sell the property around 5 years after the Refinance. Then 1031 exchange for a larger multi family property.

Although I agree with your calculations to produce the offer price.  I doubt you will get a positive response due to the good condition of the property.

@Steve S.

For calculating CCR using the BRRRR strategy it is still basically the same. The main difference is you are including more costs into your cash invested. The following should be included;

Acquisition costs (Deposits, cash purchase), Rehab costs, Closing costs (Purchase, Hard Money Loan Points, Refinance Fees), Holding Costs (Mortgage payments, taxes, insurance, HOA fees, utilities, etc that occurs during the Rehab period and up until the property is fully rented).

I did not see you include any closing or holding costs.  These can add up significantly.  If you did not include them then this may not even be a good Flip.

Back to CCR Calculation. I cannot derive a reasonable Cash Flow analysis using your data since you left out several key numbers. Once an Annual Pre-Tax Cash Flow is determined you can do your CCR calculation. CCR = Annual Pre-Tax Cash Flow / Actual Cash Invested x 100%. Using the 50% Rule for Cash Flow analysis your going to be negative.

Howdy @Steve S.

You did not provide rental income information. What are the rates like in the area? This does not look like a good BRRRR deal based on the numbers you have provided. With an ARV of $205,000 your All-in Costs should be closer to 70% ($143,500) to 80% ($164,000) depending on what Refinance LTV you can get. Meaning purchase of $93,500 to $114,000 or a lower Rehab costs.

Howdy @Brian Dickerson

More and more investors are getting into these deals making it harder to find great ones. Although I always want 100% cash-out I don’t always get it.  Sometimes I leave enough in to get an acceptable Cash Flow.  I would not recommend consistently leaving cash in your deals.  Your original pot of cash will eventually dry up.

@Jason Toledo

Hate it when that happens.