All Forum Posts by: Jonathan Bombaci

Hi Scott, you’ve got some options but we need to know more about your situation. 

What’s your overall financial situation? Do you have a downpayment saved up 20% = $10,000. If not, how much do you have? Do you already own a home? Can you pull equity from that to buy it or come up with the down payment? 

If you owner occupy the  initially you can do a 203k or bridge loan and get the $15,000 for repairs right on the loan. If not owner occupying try talking to a couple local credit union sometimes they’ll do Reno loans but they typically want a 20% down payment.

Have you asked the seller if they’d be willing to finance you the downpayment? 

How’d you find the deal? If working with an agent you can ask them if they know any investors that could be interested in partnering up on a deal like this. If not then try to find a real estate meetup and talk to some folks just make sure to be over prepared with numbers and comps for the property. 

Hard money should be your last option since interest rates are pretty high.

30% down + $250k repairs you’re going to be into it for $850k - $1m. $58k- $73k of annual cashflow on that amount of capital seems low but I know CA market is pretty crazy. 

With ARV the way you describe I think it's a do-able deal but I wouldn't call it a Homerun. As you said it comes down to your risk tolerance which is a very personal thing.

I’m a very risk adverse investor, but that’s what happens when you spend 10 years in the insurance industry. Personally I wouldn’t tie up $850k-$1m in a deal with this much risk. If you said 10-15% downpayment then I’d probably think of it differently. But everyone’s risk tolerance is different and based on your answers you know what you’re doing you’re just looking for us to confirm what you already know.

There appears to be enough room here that I’m pretty confident if you move forward you’ll find a way to make $$ on it. You just may need to be flexible with your strategy and ready to bail if things start to go sideways. 

Hi George, I guess the first question I have is what’s your risk tolerance? And what’s your experience with investing?

2nd have have you talked to an insurance carrier and are they able to bind a policy for you? If it’s really in bad shape getting insurance could be difficult. No insurance = no deal. 

If the 2nd contractor can be believed then based on your numbers $2.6M -$3.0M (assuming go over budget) for something you can sell for ~$4.5M puts you at +66% ARV with some upside. Worst cast scenario you sell it cheap for $3.5M and make some quick $$

I would get a 3rd contractor out to take a look and see which one is to be believed. Rebuilding from the ground up would, in my opinion, be a BAIL as fast as possible. 

Cash flow looks good and owner financing is great, even though 6.5% is a bit high. What are you giving him for a deposit? 

I’d be tempted to go with option 1.5. Close, put the $250k you planned into it to fix any health or safety concerns then use the cash flow to fix up the building or redo units as tenants turn over. Focus on the repairs you would need to do in order to get traditional financing. If you can get a bank to underwrite it then you’re securing your exit strategy should it turn out to be more than expected. 

No rent increases for 15-20 years means once you increase rents you’ll have a lot of unhappy tenants. Be prepared for plenty of turnover/evictions in the next couple of years and budget accordingly. 

Good tenants = no problems. 

1 bad tenant that you let slide because you felt bad and wanted to give them a chance = problems. 

You have a few red flags there. No job, bad credit, and a prior eviction. Any one of them with a good story in this scenario and I may let it slide (with an double deposit), but that’s the unholy trinity.  

When someone is applying for an apt they put their best face on. Once they’re in the apartment their true colors come out, but by then it’s too late. Move onto the next applicant. 

I was thinking something similar but more small detached condos for people looking to downsize as they retire to NH. The market for those is pretty crazy right now but I was thinking they’d be 2 bed 800-900 sqft ranch style homes, which I think is no longer a tiny house lol.

I love the idea I think it’s more than just a fad, but I don’t have any experience or advice to offer since I never actually got past the idea stage on this one. 

Best of luck let us know how it all turns out. 

As a BRRRR property this doesn't make a whole lot of sense.. there just isn't enough margin to make it worth while and get your capital back out with a refinance. But as a buy and hold rental your numbers look pretty solid. $217 of monthly cashflow, 30% cash on cash return, and 11% cap rate. I like those numbers but you're going to be leaving money in this deal if you do it. I buy and hold and I don't mind leaving money in a deal so I'd be tempted by something like this. But if your goal is to reuse this capital or grow it and compound it for the next deal, a core principle of BRRRR then this could end up slowing you down.

Do you have a mission statement for what you plan to invest in and why? If not write one, and look to see if this deal meets that criteria or not. I think you’re asking good questions and I don’t think it’s a bad deal, it just won’t align to everyone’s investment strategy. 

I’ve see some we’ll priced property on the market in Saugus. If you want to be a bit closer and flood zones don’t scare you Revere could be an option. If you’re willing to go a bit further out there is a very big rental market in Lynn and inventory has been pretty good out there. 

Ohio to SD should be a fun time. There is a real estate team that Ive worked well with in SD. I’ll PM you their contact info. 

$50k should be plenty to get into the game with your first deal. It sounds like you're looking to buy and hold for rental income which is what I do. In my opinion there is no need to get fancy with marketing yet. Work your network as an agent and tell everyone you know that you're looking to invest in real estate. You'll be surprised how many people you know are or were involved in real estate at one time. And keep an eye on MLS, I still find deals there occasionally. See if you can find a motivated seller and if $50k is not enough for a 20% down payment in your market you could househack or try to get some seller financing. MLS deals may need a little tweaking to work, but a 10% price reduction with some seller financing goes a long way. I'd say start there, and save your marketing $ until you need a firehose of deals on tap to make your business run.

The transition from contracting to real estate probably won't be that bad since you'll start out just working as a contractor on your properties on the side. You'll need to decide what you want "full time" in real estate to look like. Will you just be rehabbing your own properties, will you be doing property management or self managing your properties, will you be acting as an agent helping others buy/sell property, or a combination of them all?  No need to make a decision now though just jump in part time and see how it goes. You'll figure out pretty quickly what you like/dislike. 

Goodluck the first step is the hardest but once you get the first property it will quickly snow ball. 

To echo the other respondents, be fair and ethical and everything will be easy. If you find out things about the property that you didn't know or expect then get estimates for repairs and use those to renegotiate your deal. It isn't unreasonable to ask for closing credits or $$ off the price if there are real quantifiable issues with the properties. 

The last property we bought we knew there were issues so we negotiated the property hard and waived $20,000 worth of inspection items as part of the contract. During the inspection we found out the electrical was not to code and all the panels needed to be replaced, along with new meters, and lots of wires. We got a written estimate from a respectable electrician in town of $30,000 - $35,000 worth of work that we were not anticipating. The other larger repair Items (plumbing, furnace, fire escape), stuff we were expecting, more than covered the $20,000 that we waived during negotiation, so we ended up renegotiating for a $30,000 price reduction. Having the repair estimate in hand from a licensed professional makes it difficult to argue and at the end of the day they would encounter the same issue with ANY buyer. 

If you find large inspection Items and can get reasonable repair estimates then it's easy to renegotiate after the inspection. If you try to nickel and dime your way to a "discount" then the seller, and their agent, will see through it and respond accordingly.

Congrats on getting the house under contract. Now the real fun begins!