All Forum Posts by: John Leavelle

If you were to proceed you would need to check zoning to see if building another residence is authorized.  I purchased a Duplex on a very large lot.  Fortunately, they were willing to make an adjustment to allow me to build more on the lot.  I've added a 4-Plex and contemplating adding one more.  Many areas are difficult to have zoning changed.

good luck @Jason Toledo

Howdy @Jason Toledo

You did a good job analyzing this deal. I'm sure you realized it would not work with the asking price. Using the Owner Occupy (House Hack) strategy gets you into properties with the least possible cash. However, it does tend to increase other financing costs like P&I, due to larger loan amount, and the PMI requirement. Would you be willing to accept such low Cash Flow once you move out? How long would you plan on living there? Is the property located in an area that regularly floods?

@David de Luna

Your whole analysis is off.  Starting with your financing.  20% of $700K is $140K and not $125K for a Down payment.  Unless you live there you will more likely have a 25% Down payment required (Investment property).

You should also be considering the current rent to purchase price ratio ($5,300/$700K) is .75%.  Most investors want a minimum of 1%.  Maximum purchase price would need to be $530K to get you to 1%.  

Next I would consider Cash Flow using the 50% Rule. That means $5,300 Monthly Income x 50% = $2,650 Monthly Expenses. $2,650 in your Monthly NOI. If your minimum monthly Cash Flow criteria is $100 per unit subtract that from the NOI to see what your maximum P&I payment can be. $2,650 - $400 = $2,250. Even if you put 25% down your Mortgage payment is going to be around $2,800. That puts you in negative Cash Flow.

The last thing is your 8.92% COCROI is below what I and many investors consider to be a good investment.  10% - 12% is more acceptable.

The bottom line is you have not provided any information to support this as a good deal.  I would not want you to waste such a large amount on a deal you are not sure of.

Howdy @David de Luna

Still need more information. Is the information you are providing coming from the Seller? If so be very leary of the completeness of the data. Stay conservative with your analysis. They want to present the property in the best light possible and may leave certain things out (intentionally or unintentionally). For instance you are not including anything for Vacancy even though you indicate it has a current vacancy. You do not provide any indication of the property age or condition nor include any reserve holdings for CapEx. At a minimum I would use 8.34% for Vacancy and 10% for CapEx until I have the property inspected. The next thing I would need to know is what are Comps selling for in that area. A 4-plex is typically appraised that way versus Cap Rate. You need to know if $700K is a reasonable asking price. Your financing does not look correct either. 20% of $700K is not $125K. It is $140K. However, this is considered an investment property and more likely require 25% ($175K) down. The interest rate will probably be closer to 5% (unless you already have a confirmed quote).

The bottom line for me is this is too thin for me using your numbers.

Howdy @Stephen Waldroup

Your basic assumptions are correct.  You must decide what your investing criteria is going to be and stick to it.  Do you always what 100% of your cash back or is it OK to leave a certain percentage on occasion?  What is your minimum acceptable Cash Flow?  Are you willing to leave money in to reach the minimum?  

Howdy @Barbara Caccia

The first part of the analysis looks reasonable.  I have a couple of questions.  

1. Does your Rehab estimate include Holding Costs? These include (but not limited to) mortgage payments, taxes, insurance, utilities, HOA fees, etc. that occur during the Rehab period and up until the property is fully rented.

2.  Does the Refinance loan amount include the closing cost/fee?  It can be included or paid separately.

Depending on your answer your Total Cash Invested and COC ROI may be misleading.

As far as your Cash Flow analysis I totally agree with @Derek Sperzel.  You left out critical expenses you really need to account for.  Look at the Total Monthly Cash Flow using the 50% Rule ($97) for a more conservative approach.  It looks a little lit on Cash Flow to me.

Howdy @Elizabeth Harding

To answer your question you have to consider what the goal of this strategy is.  To be able to use the same bucket of money over and over again to build your portfolio.  If you only recover a portion of your cash each time when does that pool dry up?  That’s not to say you can’t take out a lower percentage to improve the Cash Flow.  I have done this.  You must use your own investment criteria to determine what is acceptable.  I would not continuously do this, but, only on occasion.

I have used 60% also because that was all I needed to payoff my acquisition loan and recover my own cash invested.  If I did 70% - 75% I would not meet my minimum Cash Flow criteria.

@Richard Haug

The mortgage is definitely higher.  But, we include that in our calculations as part of the process.  All properties that you make significant improvements to should be assessed at a higher value.  You should consider that in all your investments.  So you are correct to include that in your analysis.

@Ricardo Kendrick

I pay a great deal of attention to the neighborhood and quality of tenants living there.  Just because a property looks like a good deal does not mean you should invest in it.  High Vacancy rates and the cost of turnover is not worth the minimum income you may or may not receive.  It is always a good idea to drive around the prospective neighborhood to see what it looks like.

Howdy @Amadeus Hladun

The most important number you need to establish is the ARV. Everything else is derived or subtracted from that number. Let me show you what I mean using your numbers.

ARV x LTV = Refi Amount - Rehab Cost - Closing Costs - Holding Costs = MAO

ARV $450,000

x 70% - 80% (LTV) = this is your All-in Costs target = x 80% = $360,000 (Refinance Loan Amount)

- Rehab Cost $50,000

- Closing Costs $ ???? (Acquisition Loan, HML Points, Refinance Fees)

- Holding Costs $ ???? (This includes mortgage payments, taxes, insurance, utilities, HOA fees, etc. that occur during the Rehab Phase and up until the property is fully rented)

= $310,000 (not including Closing and Holding Costs) Maximum Allowable Offer

Your Purchase price of $250,000 is below this amount.  That is good considering you did not provide Closing and Holding Costs.  The Cash-out Refinance loan will cover the $250,000 Purchase price and $50,000 Rehab.  That leaves $10,000 cash remaining to cover the Closing and Holding Costs.  If they add up to more than $10,000 that overage will remain in the property as equity.

You now have $90,000 remaining in property as equity.  ($450,000 - $360,000)

Yes you put $360,000 as the Refinance amount.