All Forum Posts by: Kyle M.

congrats, huge accomplishment!

How did you structure the deal with borrowing from your brother?

I have a family member who would do the same, but they need some convincing.

j scott

grant cordone

joe villeneuve

joel owens

I'm going to be as detailed as possible as it is my first time using this strategy.  The example below is of an actual deal that I'm looking at.  I want to ensure that I have my ducks in a row before I proceed.  Also, I'm not expecting to get all my money back after the refinance but I would like to get some of my initial down payment back.

Deal:

List Price: $115,000

Area: B+ area, nice big schools and high quality tenants

Type: 3br/1.5 ba / Twin Home

ARV: $140,000 (sold comps from realtor)

Estimated Rehab: $20,000 - It's a guess, but I plan to get accurate when walking job with contractor

Rent: $1400

Taxes: 2500 / ($210/month)

Buy:

80% of ARV - Rehab Costs = Max Price Paid
$112,000 - $20,000 = $92,000
Conventional Loan = $18,400 down-payment,@ 5% interest
Closing Costs = $3,000

Rehab: $20,000

Rent: $1,400

Cash Flow = Rent - Mortgage - Insurance - Taxes - Vacancy(10%) - Maintenance(10%)

Cash Flow = 1,400 - 495 - 50 - 210 - 140 - 140 = +365

Cash on Cash: 365x12 = $4,380/$41,400(18,400+20,000+3,000)

Cash on Cash = 10.5% (initial)

Refinance:

ARV = $140,000 and refinance into conventional loan
Receive 28K back, meaning I'm in for $13,400(41,400 - 28,000)

New Cash on Cash Return = $4380/13,400 =32.7%

Thoughts on this is that this return is really nice and offers me a lot more profit then typical buy and hold of A+ condition properties.

Threats:

1. Don't get the value boost I'm hoping for when re-appraised.

2. Rehab costs running over budget.

3. Unable to refinance after 6 months (I have to make sure my lender will do this).

4. A lot of upfront money (I have private money to fall back on if needed).

5. Unable to negotiate a good price.  What would be your cut-off price of purchase using this example.

Questions:

How would you guys evaluate this deal?  

What are you thoughts are buying at a even higher price such as $105,000?

Any other thoughts on this would be appreciated, I tried to be as detailed as possible so I make sure not to overlook anything.

 That sounds like a good plan to keep growing.  I found a lender who approved me finally.  Do you put your own funds towards the rehab?

For my first and only rental I acquired a property in excellent condition and financed it with a conventional loan.  I have been renting it for a few months and have just been pre-approved to take on another loan.

However, another 20% down-payment on a property in great condition will leave me low on cash (although I would have sufficient reserves).  When I look two steps ahead I find myself running out of cash, and this is a BIG problem.

This had lead me down the path of Buy, Rehab, Rent, Repeat.  I have some questions about this strategy and any feedback would be appreciated.

1.  What is a ballpark cost of a refinance after getting the property re-appraised?

2. Do the best deals come from HUD and Homepath?

3. What is the best second option for finding what homes sell for in a certain area?  I assume that my realtor will get frustrated when I'm asking for sold comps for 10 different properties every day.

Any advice on this strategy would be welcome.

Personally, I would go with the lower down-payment because it allows you to use that $7,600 to get into subsequent properties faster.  

However, the $7,600 extra would eventually be overcome by the extra cash flow from the 25% down.

@Serge S.

Once your passion for real estate disappears.

There will never be enough.  Success in real estate transcends making money.  It's about constant improvement and striving to be better everyday.  There is always a way to improve and its a lifelong journey.  Once you achieve a goal there will always be another one to hit.

Also, when you give in because they beg for the 12th month free it may give them confidence to take advantage of you in other areas.

Okay, Ill play some devils advocate on this one.  I personally think its a decent idea and it will work.  However, it seems that any tenant with a brain would figure this out.

I personally would not implement this strategy because:

1. It create more potential future objections - "But c'mon I was only three days late in March, can you give me a break on the 12th month Michelle? Just this one time?"

2. It attracts lower end tenants.  Poor people are looking for freebees and may increase your frequency of tenants not paying on time.

3. It pushes away higher end and smarter tenants.  People that are well to do just want a price and don't want to worry about what months they have to pay.  They also may think its a scam and look the other way because they know there may be a "catch".  

Ex: Are you going to hire a painter that gives you a fair price? Or do you hire one that will say if he gets the current job he will give you half price on your next job?

4. It limits your pool of tenants because you will be advertising at a higher price range (as previously mentioned).

Also, if you are going to implement this you might as well up-sell and charge $990 to make it an even number and make an extra $8 per month.  I do like the fact that you can sneak an extra month rent in there but they are NOT going to be happy when they have to pay the 12th month.  And I think the goal is to create happy long term tenants and I think that this strategy may take away from that.