All Forum Posts by: Nicholas Morgan

Hey everyone! 

I have an opportunity to purchase a property that has good numbers for a flip and I also have an opportunity to purchase a property that will be buy/hold. As we're coming into fall soon and the buying market tends to slow down as well as people moving for a rental, what do you think is a better option due to the time of year we're in? I do plan on purchasing both of these properties, just curious on which one I should do first. I feel like selling a flip will be more difficult than placing a tenant - what do you think? What would you do? 

Perhaps it makes sense to do the buy/hold property first. I could get a tenant in place during fall with a short term lease so that it will re-up in spring. Even if I list it at a little cheaper rent than normal just to get it rented. Then in the winter (Feb 2020 timeframe) start on the flip property and have it ready to go by springtime for buyign season. 

What are your thoughts?

Thanks,

Nicholas 

@Jeff Ronningen @Josh Adams @Michael Ealy @Brett Holton

To the guys that are local, this property is in North College Hill area. In the neighborhood by the Kroger at the corner of Ronald Reagan Hwy and Hamilton Ave. To me, this seems like a B+ neighborhood - do you agree? 

That's good to know about the Hamilton County tax reassessment coming up. I was unaware of that. Also, I'll have to look into the water bill situation. My plan was just to require the tenant to handle that, but that may be problematic if I'm required to be on the bill.

I've attached an image to give an idea of what the neighborhood is like.

 Good call! Thanks for the reminder. You're right, in the future I hope to turn over all assets to a property manager so I'll definitely want to account for that. Thanks!

Thanks for the insight everyone! It's great hearing all the perspectives. 

To those who are against the deal, what would make it good? If rent was $1200/mo and I set aside 7% for maintenance, 7% for CapEx, 8% for Vacancy, and I only pulled out what I need to pay back the current owner the cash flow would be about $220/month. Do you think that this then would be a good deal? To me those numbers seem very good. I understand the concerns a lot have brought up about the cash flow being too low to weather any storms that will arise. Unfortunately I haven't yet got a good handle on the market rents for this area. I'v had some family stuff going on this weekend that took most of my time.

@Michael Sjodin

If I leave the 5500 in the property as equity as a lot of folks have suggested and assuming all the numbers work out as I've listed, I'd have 29% equity in the property which comes out to right at $38k.

As for tax benefits, I don't have anything defined at the moment.

I appreciate all the advice and knowledge shared in this thread! Thank you!

I do feel like $78 is too low, but wanted to see what others thought. Wanted to know if I was being too picky for my first deal. To me, it doesn't seem $78/month is worth the headache/s of a tenant and as many of you have stated it isn't enough cushion to help when crap happens. My goal when looking at investment opportunities has been at least 12% Cash on Cash ROI and $300/month cash flow. This house doesn't meet my $300 cash flow number.

I am going to try to go see a rental one street over that rents for $1400 to see how it compares. Rentometer doesn't show a lot of rentals near by tho I know they exist. I'm not sure how Rentometer pulls its listings. Anyway, if I could justify rent for $1200/month that would boost my monthly rent to around $250/month which to me I wouldn't hesitate on moving forward with. Also, I have good credit score and I would hope to get an interest rate of around 4.5% which would then put me right at $300/month cash flow (if I recall correctly - currently not able to check my spreadsheet). But I like to crunch numbers on the conservative side so I can be happily surprised vs disappointed/screwed.

As for appreciation...I have no indicators that this neighborhood is going to take off and appreciate wildly. I also prefer to not look at appreciation except for just as a bonus. I don't want to bet my financial plan on appreciation.

I have no problem leaving money in the deal except for I don't have a lot of capital to deploy into an investment like this. My wife and I are saving with the goal to purchase a house hack in 2020 and have $10k saved thus far. I would prefer to not tap into that for this property so that's why I'm looking at BRRRR. If I need to leave 1k-2k in the deal, that's fine. But I don't want to significantly dip into our househack savings.

What cash flow amount would you look for in this deal to make it worth your time?

 This property is 15min from my primary residence. I would feel safe living here. 

I do admit I need to do better research on current rent in the area. Rentometer doesnt show a lot of rentals in this area, but I do know a large portion of the houses in the area are rentals. So I need to dig into that more. Perhaps go driving again and hope to see a For Rent sign. 

Hey Everyone, 

Thanks for the input! 

I apologize for some of the confusion I caused. Let me clear some of this up....

My friend has held this property for 8-10 years or so and it's been a good cash flowing rental for him. He bought it at the market drop back around 2010. He wants to sell this property and purchase a property closer to his primary residence. He's in no rush to sell, but willing to work with me for a win for both of us. We haven't ironed out all the details yet, but the arrangement may look something like this: 

- Friend pays off remaining mortgage balance of $62k 

- Friend deeds me the property for free 

- Friend funds the rehab - he expects $15k - $3k for each bathroom remodel and 7k for kitchen and 2k for misc

- ARV = 130k - potentially more. Non-updated properties nearly identical are selling for 130k right next door (cookie cutter house neighborhood)

- My friend would get reimbursed for his mortgage payoff, the rehab loan, plus $15k (this number hasn't been officially determined yet, but 15k would be the upper end of what he gets)

- I would get any remaining money from the cash out plus be left with the rental property. 

- Should be a win-win: he offloads his property with no work and I get a rental for the work I do (all of it I'll do myself)

Property numbers: 

Mortgage balance: $62k

ARV: 130k

Cash out 75% = $97,500

Expected Rehab: 15k

Pay friend total of $92,000 = 62k(mortgage payoff) + 15k (rehab) + 15k (cash)

Remainder for me: $5,500

--------------------------

Rental numbers: 

- Current Rent: $995/month

- Monthly Property Tax: $151 (from auditor's website)

- Insurance: $65

- Vacancy: 8% = $80

- CapEx + Maintenance = 10% = $100

- Mortgage (5% , 30yr) = $529

Cash Flow = $70 (I was away from my spreadsheet when I posted initially, so I was off on cash flow value)

-------------------------------

Another option my friend is open to is flipping the property and just selling it after the work and splitting the profit 50/50. However, I think we'll both be hit with capital gains tax. But maybe that's a better way to go.

Thanks everyone for the insight,

Nicholas

Hello everyone!

I have an opportunity to potentially do a BRRRR deal where the current owner of the property funds the whole rehab (refresh 2 bathrooms and a kitchen) and I pay him back when I do a cash out refi.

After I pay back the current owner/lender, I'll be left with potentially $5,500 cash in my pocket and the monthly cash flow will be $78/month. Would you do this deal?

This would be my first rental property and a great learning opportunity. I wouldn't have to pay anything out of pocket during the process.

The $78/month takes into consideration a 30yr mortgage at 5% interest rate, 18% of rent set aside for vacancy, maintenance, and CapEx, property taxes, and $65/month in insurance.

I haven't fully assessed this, but I feel rent may be able to be raised. Hasn't been raised in over 6 years. But at a conservative estimate, $78 isn't a whole lot.....but it would get a deal under my belt as a learning opportunity.

What do yo think?

Hey everyone, would like to get some input on this opportunity. We've only discussed this over lunch once and have plans to continue to flesh out a plan forward. Hopefully your input will help us.

I have a friend who has a rental property he wants to sell to purchase rentals closer to his residence.

Property details:

-Remaining loan balance: $45k

-Current renter has been there for ~7 years and is month to month

- rents for $900/month (rent hasn't been raised in 7 years)

- my friend speculates about $15k rehab needed to get to an ARV of $100k

Goals of friend:

- get rid of property with a bit of a cash in pocket. Would fix up and sell it himself, but then would be knocked with capital gains taxes and recuperation taxes from depreciation over the years

- doesn't have much time or desire to rehab the property himself right now

Here's the potential plan forward:

- the tenant is given some amount of time to move out.

- my friend pays off the remaining mortgage note of $45k

- my friend deeds me the property

- my friend pays for all rehab

- my job is to do all the work (I'm handy) and handle logistics of rehab if a contractor is needed.

- once I finish rehab, I'll put a renter in for $900 (or raise to market rent at this time. If this is fall/winter, would probably rent for lower price on a 6mo lease to fill quickly and get me to May 2020 timeframe and raise rent then)

- I'll do a cash out refi for ~75% LTV...so $75k cash out which will all go directly to my friend. This will repay his 45k+15k for rehab +15k cash in pocket.

- I'm left with a cash flowing property with none of my own cash in.

Alternate strategy would be to sell the property for $100k instead of renting and split profit 50/50 (~$15-20k each). But I believe if be hit with a massive capital gains tax then too. Plus I'm focusing on buy/hold so flipping isn't my first choice.

What do you think of this plan? What are we forgetting? This seems like a win-win, but I want to make sure there isn't something major were missing.

Thanks in advance!