All Forum Posts by: John Leavelle

Howdy @Chris Sweeney

Please explain your financing plan for the Acquisition and Refinance of this deal. If your ARV is correct I suspect you will only be able to get 75% of that amount for the Refinance. Most assuredly you will not be getting 100% on a Cash-back Refinanced Loan.

Howdy @Stephen Armstrong

Most everything looks good except for the financing.  This is considered an investment property.  Most lenders will require 25% Down and your interest rate will be closer to 5% if not more.  Did you get a quote for that rate and down payment?   As long as that is not an issue for you I would proceed with getting it under contract.

Howdy @Kevin Williams

This analysis needs a lot of work.  

How are you financing the acquisition?  What kind of loan?  Is the rest cash?

What is the Refinance loan?  0% Interest?

What type Multi Family property is it?  What are you basing your $90K Rehab estimate on?  I’m pretty sure that big of a budget will take longer than 2 months.

Your tax and insurance numbers are way off.  I can’t imagine it’s $1,000 per month for taxes.

What is your goal with this deal?  You planning to leave $68K cash in the property?

Howdy @Diego Mugica

To purchase under your name or LLC is a personal choice at this point. The primary reason most use a LLC is for Liability protection. You can achieve the same protection with Umbrella liability insurance. You can choose to do that until your assets reach a certain level. Evaluate both options. See what the pro's and con's of each are. What is the effect of the different financing options. Then make your decision.

As for your report it looks a little too optimistic for me.  First you did not include anything for Property Management.  10% for PM. Regardless if you plan to self manage or not it is recommended you include it.  After all your time is worth something.  Also If you plan to increase your portfolio you may want a PM Service in the future.  If you don’t include it now it may be difficult to add it later without affecting your cash flow.

Is the property in pristine, like new, ready to rent condition? You did not include anything for Rehab or CapEx reserves. Nothing lasts forever! You will need to hold money in reserve for the eventuality of those repairs. CapEx at 10% until you have the property inspected. I would also increase Repairs to at least 5%.

If you make these adjustments that puts your cash flow in the $300 - $400 range.  Still doable in my book.

Howdy @Lewis Yuan

I agree with both @Thomas Glenn and @Brent Coombs. You say the property is 90 to 100 years old. That is even more of a reason to increase CapEx and Maintenance reserves. When I initially analyze a property I automatically use 10%/5% respectfully That's until I have the property inspected. I want to know what the current condition and life expectancy of all major components and appliances are. Once I walk through with my GC and receive the inspection report I can decide what to include in the immediate Rehab estimate and what can be deferred. I then adjust my reserve withholding. Remember, it is money you are holding for possible future repairs. That doesn't mean they will occur. But, you will at least be prepared if they do.

Older properties require more frequent maintenance.  Do you know if the plumbing and electrical are up to code?  If not that’ can be a big expense.

Strongly recommend you stay conservative going into any deal.  It’s much better being pleasantly surprised with less than expected expenses.  Versus getting hammered by an unexpected repair.

Howdy @Matt Shields

Yes, this does not look good based on how you filled it out.

First, this is a 6 unit property and therefore is considered a commercial property. That means you determine value using NOI and Cap Rate. You need to know what the market Cap Rate is for that area. Then you have to scrutinize the Sellers data to validate their stated NOI. Disregard their asking price. Did they list a Cap Rate and NOI?

Financing is also affected.  It requires a commercial loan.  The down payment will be more like 25%.  The terms will be 15 - 25 year amortization with a Balloon payment in 3 to 5 years.  The interest rate will be higher than Residential loans (over 5%).

Now for your report. You should break down the income by unit (or unit type) and any additional income (coin laundry, parking garage, etc). Are your Expense numbers that were provided by the Seller or your own? Why is there 2 electricity expenses? Do the tenants pay for any utilities? Your Vacancy and CapEx numbers are to low for my taste. At least until you know actual data. You also have a typo I believe for the ARV ($46,000). Closing costs will probably be more than $2K.

Have you determined what the Rental Rates are in the local market for these type units?  How do the current rents compare?

Howdy @Daniel Kent

Your Cash Flow may not be as good as you think.  What happens if the property goes Vacant for a full month?  That’s $600 not accounted for.  I never go below 8.34% (one month rent) for Vacancy reserves.  If you have less for the year, great!  You made more money that year.  There are additional miscellaneous expenses that will occur.  Accounting, Legal, Pest Management, administrative, etc.  Are you planning to self manage the property?  Paying yourself 5% is fine.  However, if you are going to use a PM Service either now or in the future you need to increase it to 10%.

I agree that the low CCR would not be worth it to me.

@Phil T.

I use local banks and credit unions for my deals.  You need to shop around.  Call every small bank in your area.  These portfolio lenders have better leeway for their underwriting.  You can also check with Brokers.  They may be able to line you up for the acquisition and refinance loans.

Howdy @Oluwaseyi Lapite

First let's calculate your All-in Costs. This includes the Purchase price, Rehab costs, Closing Costs (Purchase and Refinance Closing, plus HML Points), and Holding Costs.

$70,000 Purchase price 

$30,000 Rehab estimate 

$2,500 Purchase Closing Costs 

$2,700 HML Points

$2,500 Refinance Closing Costs/Fees 

$ ???? Holding Costs 

$107,700 All-in

- $84,000 Refinance loan 

= $23,700 Cash remaining in the property 

If your goal is to have zero cash invested after the Refinance, then, you need a lower Purchase price.

Not sure why the Points are included in the HML. It might be the way you entered the data. I do not use the BP calculator much.

Howdy @Rene Dunnagan

Post your analysis report here so we can see what you did.