All Forum Posts by: Luka Jozic

I recently posted about a property with lead citations and Im needing some help as Im struggling to make the numbers work. The address is 3119 W 68th Ave in 44102. Im in contract at 66K cash, my bid came in at 42K (which I think was really good). The following things would be done to the property. The citation is of course taken care of with these repairs.
I will replace the roof, windows (lower windows already vinyl), new vinyl siding (lower half already done), refinish kitchen cabinets and counter top and new white/black appliances, refinish/replace bathroom tubs, fix electrical and add GCFIs where needed, patch and pain entire interior, keep kitchen floors, replace remaining floors with LVP, carpet in all 6 bedrooms. Also taking care of some other minor things from the inspection.

Now my agent did a CRM but that was before deciding for vinyl and new roof. I also would like to get a second opinion here. Initially I thought around 130K but based on some other comps and the fact that almost everything will be new, Im hoping I could reach 140K+. Here are a few other comps for reference:
- https://www.trulia.com/p/oh/cl...
- https://www.trulia.com/p/oh/cl...
- https://www.trulia.com/p/oh/cl...

With around 8K closing and refi costs Id be all in around 116K. At 130K I could only pull out 91K meaning Id have about 25K still left in the deal. I get that I can't expect to pull everything out but 25K left sounds a little much to me. 

Quote from @Nicholas L.:

@Luka Jozic

well... include all the numbers though.

say you get 130K out.  you'll get 70-75% of that on the refi.  and you'll lose 5-8K in fees and costs on the refi closing.

and your purchase price is 66K + 35K rehab + your closing costs + your holding costs + any overruns + your staging and leasing costs.

so... it's probably closer to 20-30K left in the deal.

so you have to ask yourself if the risk is worth it.

only you can answer that.

My lender told me 4K in refi costs and closing costs shouldn't bee too much if Im buying cash. I don't have any carrying costs except like utilities which is not much. Overruns is of course a risk but I have a 5K cushion in my estimate and my GC will also give me a detailed bid tomorrow so that should be good. Im not sure what you mean by staging costs? Its not a flip so what would I be staging?

Also, if you look at 6x2 duplexes around 2000 sqft in 44102, there are plenty that sold well over 130K in way worse shape. So Im hoping I can refi at more but 130K should be pretty safe. The only thing really would be if the inspection turns up a bunch of stuff adding to the rehab budget, at which point I'll negotiate with the seller and worst case just pull out. 

Quote from @Nicholas L.:

@Luka Jozic

so we're mixing up a bunch of questions here - whether this is a good deal, the lead abatement, the financing, etc.

to talk solely about the purchase and refinance - here goes

if you buy in cash, fix up, and it appraises significantly higher, you can do a cash out refi and get all your cash back.

why do it this way?  because if you buy conventionally (which seems like it would be difficult at that low of a price point anyway?) you'll pay a bunch of fees to close and it will be a much bigger pain.

i have no idea if the ARV can be increased - but do the math and see. say for example - you buy for 66K cash and it appraises for 100K with a DSCR lender, you could cash out about 70K.

BUT

many DSCR lenders are now giving more favorable terms after 6 months.

so this is all something you'd want to work out first

HTH

My numbers are the following: Purchase price 66K, rehab 35K (includes lead abatement), appraisal 125-130K (based on my agents CMA). This is a 3x1 in each unit I see them sold for 130k+ in that area in good condition.

That means if those numbers stick, after cash out refi fees etc I should leave about 15K in the deal. Id say that’s pretty good in todays market.

Quote from @Keith Roberts:

We have several properties in the Cleveland Market.  If you have closed already I recommend moving one tenant out at a time getting the lead done, then replacing with Section 8 tenants (in Cleveland this is CMHA or EDEN) who require lead to be done before hand.  This will guarantee cashflow (no worries about them moving out) as well as give you annual rent increases if necessary.  

BUT.. if you have not closed WALK AWAY from any property where there are tenants already in there and it has been cited for lead.   Tenants are very savvy and you can get in serious trouble if one of them decides to make the lead an issue.

I have not closed im doing an inspection tomorrow and having my GC walk it to validate the repairs needed. From my walkthrough and speaking with a lead expert it doesn’t seem bad actually.

Tenants are month to month so how about this: if I wanna move forward after the inspection, I tell the seller to give the tenants the 1 month notice and by the time we close tenants are already out. That way they can’t pull anything on me. 

Eitherway I think because of all the comments about the issues the tenants can cause due to the lead I’d be better off to kick them both out and do the rehab, refi and keep going. 

Quote from @Vadim F.:

Quote from @Luka Jozic:

Quote from @Bob Stevens:

Quote from @Luka Jozic:

I am under contract on a duplex in the 44102 area at 66K that has been cited for lead by the city. My initial idea was to buy cash, vacate the property, and do a BRRRR (the property needs a decent amount of work) and refinance asap and find my next deal. However, it seems like I have the option to do conventional and since the property has tenants in both units paying like $600/mo each, I was thinking is it better to maybe do a conventional and bump the rent to maybe $750 a month? If I do that, I can't do a cash out refinance for a year. Sure I will have more money in my pocket, but I wont have enough to buy something else cash until I save some more. Additionally, if one (or worse, both) tenants move out then I will have to put money into making it rent ready, but I won't be able to refinance for another year meaning even more of my money will be tied up. I guess one solution to that is to see if I can get them both to sign a new 1 year lease but that might be hard before I take ownership. I do know both tenants want to stay, but Im not sure how they would feel about a rent bump.

Rates right now for a cash out refi are around 6.5% with 2 points which is pretty good. I don't know what they might be in a year. Im really not sure what the best play is here as I feel like there are pros and cons with either decision. 

 STILL working way to hard, and NO you should NOT buy this property, ITS BEEN CITED FOR LEAD from the city!! RUN away 

BTW 600 is terrible, 

Why would I run away? It doesn't really seem that hard to fix. And yeah its 600 because of the current condition. The idea is to add value and raise the rents.

 I would highly advise having an inspector or gc walk the property one more time before you close. This can be a huge can of worms that you don’t want to deal with as a first investment.

I am having an inspection done on Wednesday and my GC is also going to walk it and give a quote. This is not my first investment its my 3rd. I spoke to a lead expert already that looked at the lead abatement document for me and told me what needed to be done. The only items that need to be done is replacing some windows, scraping and painting part of the exterior, and replacing door casings, which someone told me I can just paint with lead enclosing paint.

Quote from @Bob Stevens:

Quote from @Luka Jozic:

I am under contract on a duplex in the 44102 area at 66K that has been cited for lead by the city. My initial idea was to buy cash, vacate the property, and do a BRRRR (the property needs a decent amount of work) and refinance asap and find my next deal. However, it seems like I have the option to do conventional and since the property has tenants in both units paying like $600/mo each, I was thinking is it better to maybe do a conventional and bump the rent to maybe $750 a month? If I do that, I can't do a cash out refinance for a year. Sure I will have more money in my pocket, but I wont have enough to buy something else cash until I save some more. Additionally, if one (or worse, both) tenants move out then I will have to put money into making it rent ready, but I won't be able to refinance for another year meaning even more of my money will be tied up. I guess one solution to that is to see if I can get them both to sign a new 1 year lease but that might be hard before I take ownership. I do know both tenants want to stay, but Im not sure how they would feel about a rent bump.

Rates right now for a cash out refi are around 6.5% with 2 points which is pretty good. I don't know what they might be in a year. Im really not sure what the best play is here as I feel like there are pros and cons with either decision. 

 STILL working way to hard, and NO you should NOT buy this property, ITS BEEN CITED FOR LEAD from the city!! RUN away 

BTW 600 is terrible, 

Why would I run away? It doesn't really seem that hard to fix. And yeah its 600 because of the current condition. The idea is to add value and raise the rents.

Quote from @Erin Church:

Quote from @Luka Jozic:

Quote from @Vadim F.:

Quote from @Luka Jozic:

Quote from @Vadim F.:

Quote from @Luka Jozic:

I am under contract on a duplex in the 44102 area at 66K that has been cited for lead by the city. My initial idea was to buy cash, vacate the property, and do a BRRRR (the property needs a decent amount of work) and refinance asap and find my next deal. However, it seems like I have the option to do conventional and since the property has tenants in both units paying like $600/mo each, I was thinking is it better to maybe do a conventional and bump the rent to maybe $750 a month? If I do that, I can't do a cash out refinance for a year. Sure I will have more money in my pocket, but I wont have enough to buy something else cash until I save some more. Additionally, if one (or worse, both) tenants move out then I will have to put money into making it rent ready, but I won't be able to refinance for another year meaning even more of my money will be tied up. I guess one solution to that is to see if I can get them both to sign a new 1 year lease but that might be hard before I take ownership. I do know both tenants want to stay, but Im not sure how they would feel about a rent bump.

Rates right now for a cash out refi are around 6.5% with 2 points which is pretty good. I don't know what they might be in a year. Im really not sure what the best play is here as I feel like there are pros and cons with either decision. 

DSCR cashout refi 3mo later. But before you even get that far, how much lead remediation work is required?

Not a ton, replacing about 5 windows, scraping and painting about half of the exterior, and replacing all wood door casings. Now for the door casings I was told I can just paint them with lead enclosed paint not sure if that’s true? 

Ok, what I would personally do is…buy in cash, raise the rents to 750 and sign them to a yr lease and address the lead issues asap. Afterwards do a dscr cash out and at 70% ltv.

 If I buy cash, then why do a cash out with DCRS? If I buy cash I can just use my normal conventional lender at 70%, no seasoning if I buy cash.

However, the issue with this is that to address the lead issues the tenants need to vacate. Additionally, to pull out as much cash as possible out I need to update both units (paint and flooring throughout and some other minor things) and to do that they also need to vacate. If I don't do that, its not going to appreciate for enough and I won't be able to pull enough out.

 Luka - Do you have to have it fully vacant to do the lead remediation? I'm wondering if it might be possible to have one vacant and do the remediation/updating, then get the other unit vacant and do the same. Are you expecting it to appraise around $150k when it's redone?

(and again, great job on the strong rent to property value ratio!)

Yes both would need to be vacated during the work. Also if I only do the lead remediation but don't take update the units themselves, it won't appreciate at the value that I need to pull most of my money out. If it appreciated at 130K, then I'll leave about 10-15K in the deal which is fine with me. I feel like I either need to keep both and hold of on the any work or vacate completely and do the full rehab, anything in between just means tying up more money in the deal.

 And thanks the numbers are good but this is based on my own 35K total rehab estimate, could be more if the inspection finds things that I missed in the walkthrough. So until the inspection is done I'll hold of with the pat on my back haha

Quote from @Vadim F.:

Quote from @Luka Jozic:

Quote from @Vadim F.:

Quote from @Luka Jozic:

I am under contract on a duplex in the 44102 area at 66K that has been cited for lead by the city. My initial idea was to buy cash, vacate the property, and do a BRRRR (the property needs a decent amount of work) and refinance asap and find my next deal. However, it seems like I have the option to do conventional and since the property has tenants in both units paying like $600/mo each, I was thinking is it better to maybe do a conventional and bump the rent to maybe $750 a month? If I do that, I can't do a cash out refinance for a year. Sure I will have more money in my pocket, but I wont have enough to buy something else cash until I save some more. Additionally, if one (or worse, both) tenants move out then I will have to put money into making it rent ready, but I won't be able to refinance for another year meaning even more of my money will be tied up. I guess one solution to that is to see if I can get them both to sign a new 1 year lease but that might be hard before I take ownership. I do know both tenants want to stay, but Im not sure how they would feel about a rent bump.

Rates right now for a cash out refi are around 6.5% with 2 points which is pretty good. I don't know what they might be in a year. Im really not sure what the best play is here as I feel like there are pros and cons with either decision. 

DSCR cashout refi 3mo later. But before you even get that far, how much lead remediation work is required?

Not a ton, replacing about 5 windows, scraping and painting about half of the exterior, and replacing all wood door casings. Now for the door casings I was told I can just paint them with lead enclosed paint not sure if that’s true? 

Ok, what I would personally do is…buy in cash, raise the rents to 750 and sign them to a yr lease and address the lead issues asap. Afterwards do a dscr cash out and at 70% ltv.

 If I buy cash, then why do a cash out with DCRS? If I buy cash I can just use my normal conventional lender at 70%, no seasoning if I buy cash.

However, the issue with this is that to address the lead issues the tenants need to vacate. Additionally, to pull out as much cash as possible out I need to update both units (paint and flooring throughout and some other minor things) and to do that they also need to vacate. If I don't do that, its not going to appreciate for enough and I won't be able to pull enough out.

Quote from @Erin Church:

First, congrats on finding a duplex with some good numbers!! I have some questions to hopefully offer up better advice. :) 

1. I'm not clear how you have the cash to purchase, but with a loan, would be short on money to rehab or carry the property if needed. 

2. What are the consequences of refinancing before one year on a conventional loan? Those don't usually have prepayment penalties. 

3. Is there a possibility to house hack/live in one of the units? You could rehab the one you live in while you are rehabbing. Not fun, but very cost-effective. :)

4. What would be the "fixed up" market rents?

 Thanks.
1. So I have about 100K to invest. At this time Im really only interested in BRRRR since I want to scale fast. In most cases, you need around 100K cash for that at least the ones Im targeting. If I buy this one with conventional, its going to be about 20K for down payment and closing costs. That means I now only have 80K left, I can't refinance for a year and 80K in most cases is not enough for a BRRRR unless I do hard money which I would prefer not to do. Hope that makes sense.

2. Like Vadim said I can't refinance a conventional for at least 12 months

3. No possibility to house hack as I don't live in Cleveland

4. Fixed up rents according to rentometer is around 950-1000. 

Quote from @Vadim F.:

Quote from @Luka Jozic:

I am under contract on a duplex in the 44102 area at 66K that has been cited for lead by the city. My initial idea was to buy cash, vacate the property, and do a BRRRR (the property needs a decent amount of work) and refinance asap and find my next deal. However, it seems like I have the option to do conventional and since the property has tenants in both units paying like $600/mo each, I was thinking is it better to maybe do a conventional and bump the rent to maybe $750 a month? If I do that, I can't do a cash out refinance for a year. Sure I will have more money in my pocket, but I wont have enough to buy something else cash until I save some more. Additionally, if one (or worse, both) tenants move out then I will have to put money into making it rent ready, but I won't be able to refinance for another year meaning even more of my money will be tied up. I guess one solution to that is to see if I can get them both to sign a new 1 year lease but that might be hard before I take ownership. I do know both tenants want to stay, but Im not sure how they would feel about a rent bump.

Rates right now for a cash out refi are around 6.5% with 2 points which is pretty good. I don't know what they might be in a year. Im really not sure what the best play is here as I feel like there are pros and cons with either decision. 

DSCR cashout refi 3mo later. But before you even get that far, how much lead remediation work is required?

Not a ton, replacing about 5 windows, scraping and painting about half of the exterior, and replacing all wood door casings. Now for the door casings I was told I can just paint them with lead enclosed paint not sure if that’s true?