All Forum Posts by: John Leavelle

@Dan Barman

Have you walked the property yet? Have you received and actual expense data?  This is a current rental property right?  Then it should be priced as such.  Based on current rent valuation.      The current owner/investor should understand your need as a rental property investor to be able to cash flow.  If your purchase and rehab cost cause you not to cash flow.  Then what's the point of continuing negotiations.

Use your data analysis (or lack of actual data) to justify your offer.

@Roxanne McCallister

Ok, Built 1938. So you will need to check ALL CapEx items to see when/if they have ever been replaced. Rehab cost could be way more than what you see in pictures. Obviously, that is why you walk the property with a knowledgeable General Contractor once your initial Cash Flow analysis passes.

You are wise to be very cautious.  As a Buy and Hold Investor your looking for income (Cash Flow is King) not appreciation (Just Icing on the Cake).  You want to look for great deals, not just good or ok ones.

Don't worry about List price dropping. It is probably over priced for the condition it is in.  As a Cash Flow investor you never want to pay List price or Market Value (Unless you pay cash for turnkey property).

The comps will help you determine what your target purchase plus rehab costs should be (70% of comp market value).  So when you Refinance with a bank you will have a profit for cash back if you want.

Even though the property is under contract keep an eye on it.  Finish your  preliminary analysis for practice.  If it still looks good and and it gets released then move forward in you process.  Good Luck.

@Roxanne McCallister

Hello Roxanne, I also live near a small town (pop. 1600) and know exactly what you are talking about!  Lol.  You are right you did have a long post with lots of data wanting to cover everything you could think of.  Very understandable.  Me being a country boy I like simple.  So when analyzing Buy and Hold properties I start simple.  Example (using your info):

Property Description: Address, 2BR/1Ba, Brick, 1977sf, Lot 6098sf. Date Built? (This is important), Date Last Reno (Kitchen, bath, fixtures)? (Also important). MLS# XXXXXXXX (Foreclosure).

List Price:  $15,000 (down from $35,622?)

Last Appraisal Date?  Value? Tax Paid?

Rehab/Repairs required: $2,000 (No CapEx? When was home built?)

Offer Price:  $15,000

ARV: ? (Comps)

You will not be able to use a standard Bank Mortgage Loan for the initial purchase and Rehab.  You will need to pay cash, use a Hard or Private Money Lender, or one of the other  creative finance options.  For best Cash on Cash Return use as little of your own money as possible.

I always start extremely conservative to meet my cash flow minimum requirement ($100 per month per unit).  I want to get to $200 per month after rehab, refinance, and property stabilizes.

Rent Income: $450 mo./$5,400 GSI

Expenses:  I start with 55% of income for expenses (being very conservative) until I have actual data that says something different.  I break it down like this (

5% - $22.50 Vacancy

5% - $22.50 Credit Losses (Uncollected rent and skips)

10% - $45.00 Property Management

5% - $22.50 Maintenance/Repair

10% - $45.00 CapEx (Depends on age of property)

5% - $22.50 Tax and insurance

10% - $45.00 Utilities, Landscaping, HOA fees, etc.

5% - 22.50 Misc (Pest Control, Legal, Accounting, Leasing)

Total = $247.50

Common Expenses to look for (What you provided):

Vacancy ($22.50)

Property Taxes ($30.83)

Insurance ($25.00)

Maint./Repairs ($45.00)

CapEx ($79.19 Replacement Reserve?)

Utilities ($0)

HOA Fees ($0)

Lawncare/Snow removal ($0)

Property Management ($10.00?)  This should be more! 8% - 12%

Your Total = $212.52

Not a whole lot different from my 55% estimate if you adjust PM.

Look this over and tell me what you think.  Then, I move on to the rest.  :)

@Miles Stanley

I agree with @Brent Coombs the idea of BRRRR is to get most of your Cash back to start a new purchase.

The goal in BRRRR is to purchase distressed properties at a discount, force appreciation (rehab) and use as little of your own cash in the process. Leverage your cash by using a Hard or Private Money Lender (Other Peoples Money) for the initial purchase (and rehab if possible). You will have a better chance of getting your "Cash Out" and greatly improve your Cash on Cash Return.

Once you have the property rented you still have cash in the bank to start another purchase if you want (while seasoning the first for the Cash Out Refi).

Hope this helps.  Good Luck.

@Sean Morrison

What is your goal?  Minimum acceptable Cash-flow?  With the numbers you are providing your mortgage payment would have to be $240 or less for $100 cash flow.

That would tell you what Purchase price is acceptable to you.

I would pass based on info provided.

@Miles Stanley

What type of property is it? SFR, Duplex, Triplex, or Fourplex? 2BR, 3BR?

Go to Rent-o-meter website and enter the address.  Enter number of Bedrooms (2BR).  It will give you a more accurate rent rate within that neighborhood.  That way you know if its low, high, or average.

Are you making purchase with all cash or HML/PML money?

@Shaun Dockery

Do you have any money for down payment and/or rehab?

You basically have three options:  Hard Money Lender, Private Money Lender, or Seller Finance.

@William Huston 

As far as insurance for duplex get a quote from your current insurance agent.  

Is there any expense data provided by the Listing? What do you currently pay with you SFR? PM, Utilities, Landscaping, HOA, Garbage, etc.?

Are there any rehab/repairs needed?

The way I see it is if you can get the property and mortgage payment ($280 mo) that you stated.  And need only minimum repairs.  Then it looks like a very good Cash-flow property.  Even if expenses are at 50% you still get about $207 per unit per month cash flow.

@David Stover If you proceed with this property or any future deals you will want to have a good General Contractor (maybe more than one?) to walk the property and develop a bid for all items that need repair/upgrading.  Do it after you have a contract, but, before due diligence is finished.  It will help justify any credits or discounts you are asking for (Lower than asking price offer).  Be sure to pay the GC for his time.  You may not need to complete all the repairs/rehab up front, but, but planned for within a set time frame. 

You also mentioned previously that it is a pre-1900 property.   When was the last renovation completed? What systems need to be brought up to code?  Again, General Contractor will be needed.

A good ball park number to use for your own rehab estimate is $20 - $25 per square foot for standard cosmetic rehab. Plus any CapEx items needing repair/replaced (i.e. new roof). If you are planning upgrades to some areas (higher quality) then use $30 - $35 per sf. That's why I was asking for the square footage. You will also want to know what the rent per sf is.

Example:  1800 sf property, needing full cosmetic rehab and new roof.  1800 X $25 = $45,000 + $5,000 roof = $50,000.

It may not need a full rehab which would be good for you. But, from a conservative analysis point of view it's where I would start until you can physically walk the property. Pictures on listing may not be current! And I would want to make it look like most of the properties around it to get the ARV you want.

I recommend you get J Scott's book "The Book on Estimating Rehab" to help you out.

Hope this helps.

John

Sorry ... my post got cut off.

As I was saying, I do not know how you would improve Cash-flow without increasing rent rates. 

Recommend you double check your expense data and projected mortgage info to make sure analysis is correct.

FYI ... I always am very conservative  doing analysis and use 55% for expenses.  Unless actual data is provided by Broker/Seller.  If it doesn't come close to my Cash-flow requirements then I move on.  :)

John Leavelle