All Forum Posts by: John Leavelle

Howdy @Joshua D.

So you are able to purchase this property with no money down and no closing costs?  Also why 15 year amortization?  Why not 30 years for a rental?  Do you manage all your own rentals?  And don’t pay yourself?

Howdy @Kien Gallwey-Grant

If you are using multiple loans to Purchase and Rehab the property it is not possible to include both in the BRRRR calculator. Unless they have the same interest rate and term length. If that is the case you simply combine the amounts into one. That is one reason I cannot use the Calculator either. I use a Private Lender and HELOC or Personal LOC combination. I use a different program for my calculations and reports. It was created by another BP member. PM me if you would like more information.

Howdy @Todd Powell

@Dave Foster  @Richard Sherman

This is where structuring your entities in a Series LLC (Parent, Child, Child), as Richard did, as apposed to individual LLC becomes beneficial. Suggest you go that route going forward. Nice job Richard.

@Stephen Waldroup ARV should not be determined by using Tax Assessment Value. You need to use recently sold comps. What have similar properties been selling for? Tax assessments tend to be quite different from sale price.

Since this is a foreclosure I assume it is currently vacant. How did you determine the rent rate? For a good Cash Flowing property the rent rate should be at least 1% or better of your ARV.

Are you planning to use all cash for the acquisition and rehab?  Just wondering.

Have you included Holding costs in you Rehab estimate? These include loan payments (if you had them), taxes, insurance, HOA fees, utilities, etc .. that occur during the Rehab period and up until the property is fully rented.

I understand your reasoning for the 60% LTV to gain better cash flow. I have done this a couple of times using the BRRRR strategy. However, it is not a good practice to get into. The whole goal of this strategy is to use the same bucket of cash over and over. If you keep leaving cash in the deal your bucket will eventually dry up. Just be careful and do not get stuck in this as a routine occurrence. Unless you have other cash you plan on adding every time.

@Stephen Waldroup you will find yourself passing on a lot of deals in order to meet investing criteria when using the BRRRR strategy. How did you arrive at $49K for the Purchase price? And $120K for the ARV? ARV is the most important number in this process. The offer/Purchase price is derived by working backwards from the ARV. You first determine what your max Refinance loan amount can be (ARV x 70% LTV). You then subtract the Rehab estimate, Closing costs, and Holding costs from that amount. This will give you your Maximum Allowable Offer (MAO).

You seem to be using 60% LTV to improve your projected Cash Flow. Many times I find the first part of the deal will result in getting 100% of my cash back. But the Cash Flow analysis fails to meet my minimum criteria. I too have reduced the amount of the Refinance to make it a better Cash Flowing deal. But not very often.

Try not to get fixated on the CapEx percentage thing. 5% or 10% of one property can be vastly different from another property. The problem is the actual cost of many CapEx item cost the same for both properties. It is much better to use actual numbers. For me I maintain a minimum of $75 per month. That is also why I stressed determining the condition and life expectancy of each system. I find that's the most reliable means of establishing my CapEx reserves.

Howdy @Stephen Waldroup

I agree with @Michael Noto concerning your CapEx number. First, you say you have not seen the property yet. So how do you know that your projected $25K Rehab will cover every possible CapEx item. You don't! Therefore, it is much wiser to go into the deal with a more conservative estimate to cover CapEx (10%). Once you have a property under contract have it inspected to determine the current condition and life expectancy of all major components and appliances. From that report you can decide what will be included in the Rehab and what will be covered by your CapEx reserves. The actual amount may end up being lower than $120. Remember it is a reserve. Not an actual expense. You only use it when it's needed. If you don't save enough you may regret it later.

The rest of your Analysis looks ok.

Howdy @Kenneth Rieder

Your numbers are really borderline for me. Since it is 2 Duplexes located on 2 different streets I would want to know the numbers for each individually. That's ARV, , number of bedrooms, rents, expenses (including any utilities), conditions and estimated repairs costs, etc ...

Why?  Because they could be vastly different.  One in good condition and one not.  They say both are currently rented.  Were they recently vacant?  5% for Vacancy is too low until you establish a history for yourself.  Why did you title the report as a 4-Plex when it really is 2 Duplexes on separate streets?  Look at the 50% Rule Cash Flow.  I use it as a filtering tool.  You should know there are more expenses than what you list on these reports.

Not enough information for me to say thumbs up or down yet.  

Howdy @Jon Horton

Wow.  Talk about jumping in over your head.  Where can I start.

  Financing.  How would you plan to finance this deal?  A commercial lender would not take this for several reasons.  You would have to put at least 25% down.  You also be required to have a cash reserve.  You do not have either.  So would the seller provide owner financing?  If they did you still need a cash reserve.  The lender may also require you have experience managing properties.  Your best option is to find an experienced partner.

Your CapEx budget will be astronomical. Why? Because you must be prepared to repair/replace 96 roofs, HVACs, Water Heaters, Refrigerators, etc. Along with covering mortgage payments when properties are vacant. That's why you need a cash reserve.

Property Value.  We do not use the tax assessed value to determine the Fair Market Value of properties.  Appraisals are used to determine the current value.  Zillow is not a good source either.  They do not keep their data up to date.  That being said.  If the seller is using the assessed value for the Asking price that's good for you.  Appraised values are almost always higher.  Strongly recommend you find a good "investor friendly" Realtor/Broker and a good Property Management company to help assess and manage this type deal.

Finely, there are many BP investors (myself included) who stay away from these type properties (small/$30K homes). Mainly because of the potential CapEx cost compared to the minimum income they produce. That's not to say we haven't purchased properties for $20K - $25K. The difference for me was after I Rehab them the value is closer to $100K.

The bottom line.  If I were you I would not jump into this by myself.  Try to find a partner experienced with this type of deal.  Learn from them.  Good luck.

Howdy @Adam L.

I don't think you are being too conservative with your expenses.  You are being realistic.  You are discovering some of the possible downfalls of buying a properties under $50K.  Are you sure you can get $900 rent for a $25K House?  Are most of the houses in that area Valued at around $39K?  

When analyzing properties it is ok to see what the potential income can be.  However, you are advised to use current income and expense information as much as possible.  Use current rent.  You do not know how long it will take to get the $900.  It is common practice to raise rents to market rates.  I would not do it all at once.  You could reduce expenses by requiring tenant to pay for utilities.  Of course that also depends on what the common practice is in that area.  Are the taxes really that high?  $216 month for a $25K property, Ouch!

Even with raising the rent your analysis show almost no cash flow.  Yes you are being very conservative.  I like that.  It keeps you from making bad investments.  I would trust your numbers and move on from this potential money drain.  There is a reason most banks will not lend money for properties under $50K.  I recommend you keep looking for better deals.  They are out there.

Howdy @Christian Laines

Your Cash Flow analysis is missing Three key expenses used in evaluating properties. Insurance, Property Management, and Private Mortgage Insurance (PMI). You can get a free quote for the insurance. It is recommended you include PM when analyzing for two reasons. First, if you are planning to self manage your time is worth something. Secondly, if you plan to expand your portfolio you may eventually want to use a PM Service. If you did not include it in your original analysis it will be difficult to add it later and remain a good Cash Flowing property. The average PM cost is 10%. PMI is required by lenders when you have less than 20% down payment. The cost is a percentage of the purchase price. Typically between .3% and 1.5%.

After adding these expenses into your calculations you may find it doesn’t cash flow quite as good.  Just look at the 50% rule cash flow to have a conservative view.

Do you know if the tenants pay for all utilities?  

Remember when you use an FHA loan product you are required to live there for a minimum of one year. Which means the income you are showing will be cut in half while you are there.