All Forum Posts by: 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.

0 Votes

Cleveland, Ohio

Quote from @Erin Church:

Quote from @Luka Jozic:

Quote from @Vadim F.:

Quote from @Luka Jozic:

Quote from @Vadim F.:

Quote from @Luka Jozic:

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

0 Votes

Cleveland, Ohio

Quote from @Vadim F.:

Quote from @Luka Jozic:

Quote from @Vadim F.:

Quote from @Luka Jozic:

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

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.

0 Votes

Cleveland, Ohio

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.

0 Votes

Cleveland, Ohio

Quote from @Vadim F.:

Quote from @Luka Jozic:

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

0 Votes

Cleveland, Ohio

1 Vote

Cleveland, Ohio

Quote from @Bob Stevens:

Quote from @Luka Jozic:

I am looking into ways to find better deals to BRRRR and have been looking into auctions. It seems like its a bit risky but also potential for great reward. I understand that I have to pay cash and can't run an inspection. It seems like the best I can do is go to the property and look at the outside and potentially peek through windows. Now of course there could be tons of hidden issues but I feel like if you can get the property at a deep enough discount, you should be covered for the most part. Now some of the questions I have are:
- Other than going to the property and peeking, is there any other way I can get a sense of its condition or hidden issues?

- What are some other things to watch out for that I maybe haven't thought of?

- I see there are some Auctions posted on the MLS that usually include pictures, whats the difference between those and the ones on the County Sheriffs website?
-What other due diligence should be done before joining an auction for a particular property? I mean other than the usual due dilligence?

- Lastly, o you guys think off market or auctions can provide better deals?

You are working way to hard. You cannot buy at auction as you are not there. Whos going to view the property for you ? I have purchased about 150 from various auctions there. All you need to do is is connect with those doing deals, allow them to handle all. Paying up or down 5 10k is irrelevant in the long run and much less stress.

All the best

I have some boots on the ground that could help. When you say pay 5-10K for someone to handle all, what is all?

0 Votes

Cleveland, Ohio

Quote from @Chad U.:

Quote from @Luka Jozic:

- What are some other things to watch out for that I maybe haven't thought of?

- Lastly, o you guys think off market or auctions can provide better deals?

Run title to make sure there you know which lien you are bidding. Also check involuntary lien searches such as code enforcement, utilities, etc.

I see that you're in Cleveland. Recently we had a loan there on a property which was vacant that accumulated 32K in water bills, likely due to a leak. The city would not do anything to abate it.

I've read about that. So the first question is how do I do a title search in the most efficient and cost effective way? Also, could you elaborate on the stuff about lean searches?

Regarding that leak, since you were not the owner of the property when that water bill accumulated, why would you have to pay for it?

0 Votes

Cleveland, Ohio

- What are some other things to watch out for that I maybe haven't thought of?

- Lastly, o you guys think off market or auctions can provide better deals?

2 Votes

Cleveland, Ohio

Quote from @Andrew Postell:

@Luka Jozic thanks so much for posting. You have some terrific responses above. All very good. Real estate is one of those things that is very difficult - despite whatever those books and podcasts say. But if you can figure it out, then it will change your life.

Just to add a little math on to what was said already:

1. If you are an "average" person who is trying to buy a rental property you need 25% down (or so) to buy. On a $300,000 home that's $75,000. So if you buy a $300,000 home for $35,000 out of pocket, is that good? And it is...as long as you have the $35,000! Early in my career I didn't even have that so I had to negotiate very strongly to get my deals to work. Make offers. It's not your fault someone is asking too much for a home. Keep making offers and make them to where you are comfortable with it.

2. Cash flow - Now this one I could spend a ton of time on.

Here's what I want you to understand about “buy and hold” residential real estate:

Let’s use a single family home with a property value of $300,000
Let’s use an initial loan amount of $240,000
Let’s use an interest rate of 7.25%
And I’m going to give you $150 of cash flow per month
Use a 5% appreciation amount for your property

Let’s see what happens after 5 years:

After 5 years…

$150 of cash flow per month = $9,000
Your mortgage has been paid down to $227,000 = $13,000
Your property is now worth $382,000 = $82,000

So that’s $9,000 of cash flow, $13,000 of principle buy down, and $82,000 of appreciation. We make money in 3 ways with “buy and hold” properties…and cash flow is the smallest piece!

Will you cash flow in this environment currently? No, you will not. At least, I want that to be your expectation. Make your offer a little lower because of it. Also, don’t forget you will increase your rents in year 2, year 3, year 4, etc. So you WILL cashflow eventually but go into the property expecting not to cashflow now. And then you are still going to make $95,000 on a property. Remember Brandon Turner’s article on “How to Make $100,000 per year” – you can read it HERE.

Hope all of that makes sense. Feel free to post anything else if you need. Thanks!

Really appreciate your response as well as other responses. And you do make a very solid point. I also listened to an episode of the BiggerPockets podcast today about exactly this, and they seemed to all be in agreement that finding a BRRRR where you can pull all your money out and still have cash flow, well lets just say you're gonna need some real magic to make that happen. So I think its more of pulling as much as possible out and as you said, not really expect cashflow but if you can get $1-200 a month thats great, 5 years from now that cash flow will be more.

1 Vote

Cleveland, Ohio

All Forum Posts by: Luka Jozic

Luka Jozic has started 25 posts and replied 115 times.

Post: Help with duplex, BRRRR or continue renting

Post: Help with duplex, BRRRR or continue renting

Post: Help with duplex, BRRRR or continue renting

Post: Help with duplex, BRRRR or continue renting

Post: Help with duplex, BRRRR or continue renting

Post: Help with duplex, BRRRR or continue renting

Post: Questions regarding County Sheriff Auctions

Post: Questions regarding County Sheriff Auctions

Post: Questions regarding County Sheriff Auctions

Post: Trying to understand the numbers for BRRRR