All Forum Posts by: John Leavelle

Howdy @Josh O'Hearn

You might want to look at Flipping this deal vs BRRRR. The Cash Flow analysis is way too optimistic. You did not include Vacancy reserves, Property Management, and your 3% for both CapEx and Repairs are too low. Here's how I would analyze it:

Vacancy - $95.1 (one month rent) 8.34%

PM - $115 (Even if you self manage) 10%

CapEx - $80.5 (7%)

Repairs - $92 (8%)

Total = $ 382.60

Total Expenses = $382.60 + $266.67 Taxes + $70 Insurance + $526.09 P&I = $1,245.36

Cash Flow = $1,150 - $1,245.36 = - $95.36 (Negative Cash Flow)

Also you did not include Closing costs for the Purchase and Refinance.  What about Holding Costs?

Howdy @Stashoo Dorn

Overall looks pretty good.  I also have a few questions/comments.

Is this 3 unit a Triplex or 3 Bedroom House?  If it is a house the 20% Down payment is probably ok.  If a Triplex then it may require 25% Down as an investment property.

Why do you have PMI included? 20% Down payment should preclude that cost.

Howdy @Colin Charles

Did you get the acquisition loan information from an actual HML? What are the terms? Max loan amount? Down payment requirement? Points? The reason why I am asking is what you say in your post and what is in the report are not quite the same. $700 is less than 1% of $70,700. HML Points are usually more than 1%.

You say you are using a HML and $15K of your own cash. $70K Purchase price plus $20K Rehab estimate = $90K. Add both Closing costs and HML Points and that = ($6.7K + $90K) $96.7K. $96.7K - your $15K cash = 81.7K - $70.7K HML loan = $11K remaining. Who is paying for that? Not to mention you probably did not include Holding Costs . That can add up to another $3K to 6K.

Your cash needed at Purchase says $23,000 not $15,000.  Double check your information.

Howdy @Tony Mai

First I would not do this deal with the numbers you provided.   7% is a poor return on your investment.  I would want a minimum of 10%.   8.34% for Cap Rate is also low for a “C” property.  Just because that’s what it is performing at does not mean you have to purchase it at that rate.  Find out what the local rate is.  10% to 12% would be much better.

$60 per unit/month for Cash Flow doesn’t exactly get me excited.  And that is with the way too optimistic Expenses.  Take a look at the 50% Rule Cash Flow $330 per month ($36.7 per unit).  The reality is probably closer to that number.

Here's why I say that. How many times do you think a unit goes vacant for less than one month? Unless it it a hot Rental Market I would guess not too often. That's why I go no lower than 8.34% (One month rent) for Vacancy reserves. 5% for CapEx may be too low. It depends on the current condition of the property and appliances. $2,595 might not cover everything that you may have to repair or replace. 9 units! That's 9 Refrigerators, 9 Water heaters, 9 HVAC's, etc. Stay conservative with 10% for CapEx until you can have the property inspected.

You will find most Sellers numbers are not quite correct.  They are trying to make the property look as good as possible.  Stay conservative with your analysis until the numbers can be confirmed with actual data; Tax returns, P&L statements, Rent rolls, etc.

@Mariano Coccoz

Understand "Fully renovated". Is every possible component and appliance brand new? Even "New" have a time limit on how long it will last. I initially use 10% CapEx for analyzing properties. Once the property is under contract I have it inspected. I want to know what the current condition and life expectancy is of all major components and appliances. Anything not projected to last a minimum of 5 years is replaced/upgraded. Of course I do replace some items as a matter of practice.

Any remaining deferred maintenance items are included in my revised CapEx reserves requirement. I reevaluate my CapEx needs yearly. Sometimes things wear out faster than expected.

Note: My investment plan is to Rehab the property to rent ready "like new " condition. I only hold the property for approximately 5 years. Then 1031 exchange to a bigger property (more units). This allows me to build a larger cash reserves to meet lender requirements. I have very little CapEx costs. But If I need it's there.

Howdy @Stephanie Owens

This is not a good deal period. Unless you like to pay cash and have no financing. Not a good return on your investment (2.53% ROI). Most investors will finance the property. This in turn will give you a big mortgage payment. Which your rental income will not support. Example:

Purchase Price $650,000

Down payment $162,500 (25%)

Loan Amount $487,500

Interest Rate 5% APR

Amortization 30 years

Monthly P&I payment $2,617

Cash Flow = $3,580 Rental Income - $2,172 Monthly Expenses - $2,617 P&I = - $1,209 (Negative CF)

When you look for good deals the Rental Income should be as close to or better than 1% of the Purchase Price.  That way you have a better chance of positive cash flow after financing.

@James Beaver

Keep calling portfolio lenders (small local banks and credit unions).  They tend to have less stringent requirements.  Find out if you can Quick Deed the property into your name for the Refinance closing.  Did you include a financing contingency in the contract?  If not you should have.

@James Beaver

No seasoning required.  Keep that lender handy.  That’s great.

I always build a little buffer in my Analysis numbers. If I expect a 75% LTV, then, I target 70% of ARV as my All-in Cost goal. Just in case the new appraisal comes in lower than expected. I add 15% to my Rehab budget to cover potential cost over runs and delays. So far it has been beneficial because all these things do happen.

I would like to see your revised report when completed.

Howdy @James Beaver

How confident are you in only a one month Rehab time?  I would budget a minimum of 3 months, just in case.  There are always problems that pop up.   

Did you include Holding Costs in your Rehab estimate? These include mortgage payments, taxes, insurance, utilities, and HOA fees, etc. that occurs during the Rehab period and up until the property is fully rented.

Are you sure you can get the property Refinance in only 2 months after purchase?  Most conventional lenders will require at least a 6 month seasoning period.

Are you sure you can get a Refinance loan amount that is 83% LTV? 75% is more typical. 80% for some SFR investment properties.

You did not include Closing costs for the Purchase.

Double check your numbers before you move forward.

Good luck.

Howdy @Mariano Coccoz

Congratulations on closing on your deal.  

Try to keep searching for local banks or credit unions (portfolio lenders).  They should be able to provide 30 year term/ fixed rate mortgage.

As far as your report I am surprised at how much you are paying for Closing costs.  $15K for a $131K Purchase seems extremely high.  Is that normal in your area?  The $7K Closing costs/ Fee for the Refinance is also high.  I hope you considered these costs in your initial All-in Cost Analysis.

Did you include Holding Costs in your Rehab numbers?

As far as the Cash Flow it looks a little too optimistic to me. 5% Vacancy, 8% PM, and no CapEx reserves. I never go below 8.34% (one month rent) for Vacancy reserves in my analysis and budgeting. If I had less for than that, great, I made more money that year. If you have a Vacancy for a month or more you've already blown your 5% budget. You say you are managing the property now. Do you anticipate having a PM Service in the future? If so I would use at least 10%. Did you intentionally leave out CapEx? Nothing lasts forever. You still need to have reserves to cover those eventual costs. 5% to 8% depending on the current condition and life expectancy.

Good luck.  Keep moving forward.