All Forum Posts by: Kevin Siedlecki

@Ryan W. - I just closed on a property like you are describing, except the seller didn't have much equity. My experience can give you a little insight, but it will not answer all your questions. The seller did not disclose that he was going bankrupt and that the sale would be subject to bankruptcy court approval until after we had executed all contracts. We finally closed on January 13th, and having agreed to terms on September 13th. That is a loooong time between negotiating and closing, but my understanding is that after we agreed to terms, he had to schedule the court hearing to get the approval for the sale.

It ended up working out extremely well for us, though, for reasons that go beyond the scope of your questions. I hope my experience helps clarify at least a little for you!

@Adam Drummond- yeah if that's how your strategy and market work, then that's what you've got to do. Around here I can get small multis to cash flow  like that with 25% down. 

@Adam Drummond - In my opinion, it doesn't matter how cheap the property is, $800/mo gross rent on any structure is a recipe for losing money. I like to be $1000 over the mortgage/taxes/insurance on each building. In the real world, throw out the rules of thumb and averages, if you're only clearing your PITI by a couple hundred dollars, you can get yourself in trouble when something goes wrong.

When you have to replace a refrigerator or furnace, fix a pipe or panel,  plow the driveway, cut the grass, etc... all those costs are basically the same no matter how much the property is worth. And $800/mo does not go far when you consider those "unexpected" expenses. 

Ha just realized that post was almost a year old. It popped up as recent because of the recent reply.

@Dan Gengler -

1) The roof, furnace, and paint really shouldn't affect the appraisal at all. It's a common misconception that making things a little nicer makes the value go up. It really doesn't, at least not significantly. To make a significant change in appraisal, you need to change the footprint of the property: add a bathroom, bedroom, or finish some unused space to create more living space. In addition, appraisals on purchases almost always come in just above the purchase price. If you've done your homework before buying, then it's a racket, just another middle man to pay.

2) Maybe - extrapolating from the numbers you've used at price per square foot, your ARV is at best 15% higher than your purchase price. Since I'm using the high end of the comp price per square feet, how nice or new the kitchen and bathroom are won't do much for that. You're not going to suddenly sell for $150/sq ft when the highest comps are selling for $128/sq ft. Again, doing the math on the numbers you've provided, you have a 2400 square foot house, so your ARV is $308,000. You're in it for $290,000, so even with that most generous appraisal, you can only cash out about $230,000, not even enough to pay of the first mortgage, never mind get your money back.

3) Just hold it for now. Your refinance would be for lower than your current loan - that is not how BRRRR works, but you're probably close to living for free. You have set yourself up well for a long-term cash-flowing property; you just put a little more into it than you hoped.

@Cian McCann - When you say it would bring in $600-650 a month, is that gross rent, or cash flow? If it's gross rent, that is really nothing. Taxes, insurance, and small maintenance expenses will chip away at it, and big-ticket items could wipe out years of what's left for profit. I always recommend staying away from properties with gross rent under $1000, no matter how cheap they are. I admit the $1000 number is arbitrary, and something like $800-850 might be a more practical floor, but $600 just doesn't cover much when something goes wrong. 

@Aaron Toliver - Use rentometer.com instead. That way you can look at the comps it's pulling and decide where your properties fall in relation to them. Zillow and centimeter are both skewed in some markets by short-term and/or vacation rentals, but with rentometer, they'll show the comps, so you can see if the averages are being skewed by a couple comps that are actually vacation rentals.

@Joe Farruggio - don't forget CapEx and maintenance, that'll bring you down to just a couple hundred a month. No, it's not as easy as the good-looking subsidized movie-star wannabes make it look on TV! You really have to dig deep to find the deals, screen your tenants thoroughly, and take care of the maintenance.

@Kevin Hunter - I hate to say this, but you really don't want to do that. The test is a few hundred to a couple thousand dollars, and once you know, you are legally obligated to remedy it in CT, which will run several thousand, depending on the size of the house. If you don't test for it, you have no such obligation. I would love to see the law change, and the state give landlords some help or incentive to remedy lead paint, but right now, it's cost prohibitive. 

@Joe Farruggio - Ah yeah with the HOA that high the rental doesn't look as good. Don't forget paying the realtor and closing costs when you sell. That'll take another $10-20k off your bottom line.