All Forum Posts by: Manny Garcia

Typically, it's 25% down on multiple properties. It's a commercial loan, so if you can get it with 20% down, you are doing well. If the lender wants more down or wants special terms, it's because they know it's not a great deal. I am an expert on Columbus GA investment property. It's a great market, if you are in the right area and your property is clean and updated. Hot rental market.

@Manny Garcia

CoC % is important, but so is the actual cash which is why I said I would pass. I usually look for a minimum of $200/door but with room for growth. I'd consider less in an area with more guaranteed appreciation.

I don’t think I realized you had a 30 year loan option. That would put monthly cash flow at closer to $500/month which is more attractive, again, especially if there is appreciation potential in both property value and rent. And, yes, my preference is always taking the longest term available- you can always pay faster, but why would you at such a low rate?

One other thing to consider is that when using percentages to estimate repairs and capex you can sometimes short yourself on these very low cost properties. Whether you need a new roof or furnace in a house that is paying $1000/month in rent or $500/month those items in actual dollars will be the same, they are not relative to the amount of rent you are collecting. So just be sure you are actually putting enough aside for any major expenses that will come soon. Even at $500/month cash flow, a couple major expenses can wipe out the annual cash flow pretty quick.

@Manny Garcia at first glance from a CoC % perspective it is an OK deal, but not great. But I'm not fully understanding your cash invested. Is your lender financing 80% of purchase and 80% of renovations? That would be $34k in plus closing costs which looks like the $41k number you have.

If lender is only financing the purchase then your actual cash in is much higher. $26k plus the $40k in rehab.

Either way I would probably pass on this deal unless there is a very strong potential for appreciation over the next 5 years which I didn’t notice you mention.

@Manny Garcia  My costs did include the management of 10%. For me, the low rental rate and low valuation of the houses scares me the most.  I dont want my real estate investments to become a job, as such, I don't want low quality trouble tenants.  I personally actively try to develop units that avoid that.  That is not the say that you cant make money with those types of tenants.  If you put the properties with a property manager, you will avoid those headaches, but they you will have higher costs.

The purpose of the my post is to separate the cash costs from the total cost.  But, even with only cash costs your only bring in $775 per month net, which is $9300 a year.  One roof job and just broke even, that does even account for anything else like vacancy and other repairs.  Since you have 4 houses, there will always be something breaking.  I have 12 relatively new units, and 2021 was a bad year for AC units for me.  I had 4 repairs that needs to be done, each over $1k.

I think the margins are just too thin.  Add that to the low rents/low house values, and it would be a no brainer for me to pass on it.

I read all the posts- good advice here. I've been renting homes since 2004 full time. My wife tells me I should write a book of all things that can go wrong. I will not scare you - don't worry! If you want to know things to watch for, while having a razor thin margin ( after all cap-ex, vacancy., etc. are removed):

1. Mandatory: If you are buying 4 properties at one time, do not purchase without an inspection, since they are occupied. If the homes were vacant, I most likely would not need an inspection, since I know what to look for. Here are major items overlooked by lots of new investors that will eat up any profits for the year: 

Termites: Look for dirt "trails" in the lower portion of each house. Termites are eaten by ants - are there any ant trails? Any ant mounds near the base of the home? Is there any evidence of termites -inside/outside? Any cement previously drilled through where a termite company injected their chemical and patched the concrete? Any termite plastic traps (with wood bait inside) around the perimeter of the home- that look "old"?

HVAC: Do they exist?...or only window AC? Does each house have both types? That screams that the main units do not work. Guess who's responsible for the $4K+ bill when you either sell them retail or try and get tenants? 

Water heater: not as big a deal as the above...but they tend to last 10-15 years max. They will usually start leaking before stop working. Maybe the burner needs replacing - you'll know when a tenant tells you no hot water. Figure on $1100 each to replace, $300-400 if the burner needs replacing and you call a handyman/plumber.

Roof: Are you sure the roof is in good shape right now? Just because it's not leaking doesn't mean there isn't hail or wind damage to the shingles (happens a lot here in GA- I've replaced more roofs than I care to remember). A roof inspection may save you $7K per house.

Mold/radon: A thorough inspection inside will reveal a lot. I've found mold behind the baseboards - due to the tenant not running the AC in the summer months. AC acts like a dehumidifier. Humidity built up behind each of the baseboards - found out when replacing the flooring and I pulled off a board- all green mold behind it. Had to remove every one and replace. Radon- can't smell it. You're legally responsible if any exists and tenant gets sick. Also- must prove when selling retail that it is below gov't standards.

The above are most of the larger items to inspect before buying. Remember- if you plan on operating at $90/door per month, that's $4300/year with four houses, gross income- not net. Your cap-ex of 7% will help - but may not cover a large expense...depends on when something needs replacing. Also-any of the above can wipe out any profits for the next year or more. The good news...usually only one thing happens at a time, and not to all properties. Just be aware that this stuff always exists. 

For the record, if you show $356/month to cover 4 individual houses - I would not consider this. if you are able to lower the price of the purchase - it may make it more palatable...maybe. Good luck!

@Manny Garcia

I’ve run across the scenario you’ve described a few times with local banks in my market. Each institution has their lending criteria to control their risk appetite. You sound like you have found many that have similar criteria when determining their risk for cash-out refi’s.

Conservative banks like to have borrowers with cash in the deal. As investors, we are working to have the least amount left in the property after the refi. Many times these are 2 premises that will be at odds with one another.

If you acquire a property that needs a renovation and refinance, I’ve found it can take 4-6 months to complete this full cycle. In speaking with a lender yesterday, they indicated their time to close is pushing 60 days. That leaves 3 months for renovation and a month for lease up to support your estimated new value. This scenario isn’t that uncommon currently. The 6 month seasoning when taken into this context is reasonable.

I'll add one more idea to consider which Brandon Turner mentioned a lot in podcasts. Leaving $5, $10 or $20k in a deal does not make it a bad BRRRR, it just might not be the home run. A lot of us are building wealth hitting singles every few months.

Chris

Buy the property that needs repairs with hard money, cash, private money or some route besides conventional as you will run into appraisal issues. Fix the place up and in 6-12 months, refi with a conventional or loan of choice and if you did it right you'll get all or most of your money back. 

You just made another post asking people to analyze your potential first deal.  Now this post makes sense.

You are asking banks about a hypothetical refi so they are giving you a hypothetical answer.  I've never once heard of a bank relying on any county assessor's view of value for anything other than taxes.  That made zero sense.  Telling you you can get only 80% of purchase price makes sense if you have not seasoned the deal.

Plenty of people do cash-out refis every day.  The key you are likely missing is you need a real property and then you need to season the deal for 6 months before you can do a cash-out refi.

@Manny Garcia If you remove non-cash costs (cap ex, vacancy, repairs & main.) you would bring in approx. $775 per month, which definitely allows you to save for the those things. I would generally agree with others, that with all costs factored in, your getting less than $100 per door. and thats not so desirable. Additionally, with a SFR at only $500, I would be concerned that you're buying headache tenants with these units.

I assume you're insurance costs and finance costs are based on your own research, as both seen extremely low given the value of the deal and the specifics of the deal (I assume its a commercial loan since you have 4 properties in a portfolio, which I would expect higher rates).