All Forum Posts by: Austin Tam

I'd recommend doing your own DD on ARV. Check sold comps in the immediate area.

You'll normally need close to 2% rent to ARV to comfortably cash flow in Cleveland with the BRRR method due to the property taxes (based on your 20% capex & maintenance reserves). Property management will likely be more than 10% as well if you consider placement, advertising, and lease renewal fees. For SFR, you'll probably be on the hook for sewer and garbage. For multi's, add water to that list.

I'm also not sure you'll be able to find many renters that can afford a $2,850/mo SFR in that area. With the standard 3x income requirement, you'd need someone with a 100k income. Those with incomes that high could easily purchase out there.

For the Franklin property, you have an ARV of 300k and a Refi loan amount of 380k. Is that right? 128% LTV? The 300k ARV estimate seems optimistic as well. Your cash flow is negative because your refi amount is too high. I'm also fairly sure you'll have trouble finding a tenant that can afford $2,650/mo rent in the area.

@Jackson Sandland

Can you share the numbers you used to get to a cash flow of $700 with a $100k PP and $1500/mo rent?

I'm asking because I was analyzing a deal for a similar property (duplex) in Washington Heights with a 85k PP, $1500/mo rent. With a 1 month vacancy allowance, $100/mo for water/sewer/garbage, 20% capex & maintenance, taxes, insurance, 12% management, 5% mortgage, I came out with a $215/mo cash flow. 

I saw the same 140k+ comps as you were seeing so I thought it was a screaming deal, but for some reason it never sold.  

Which property are you selling?  234 Clark Saraland or 4009 Springdale? 

I had a plumbing leak in my rental property that caused damage in the wall, sub-floor and tile.  The property manager hired a contractor to repair the drywall, sub-floor and replace the flooring.  I'm having trouble distinguishing whether or not this is considered a repair or an improvement.  

@Ian Walsh Milwaukee, like Chicago and Cleveland, are one of those cities where the 50% rule doesn't really work out because of the property taxes.  

@William S. Random thoughts:

-I've found that in Milwaukee, you need close to a 2x rent to price ratio for meaningful cash flow.  With $122,500 pp + rehab, you're at 1.2%.  You're also double-paying loan closing costs because you're financing on the front end and the again when you cash out.  

-Can you even get a regular mortgage for the property in its current condition?  If it does need a full rehab, maybe not.  I also wouldn't count on the rate being 5% in 6+ months when you plan on refinancing.  

-You could explore renting out single rooms to see if you can boost the revenue coming in. 

-It sounds like you have a good team in place.  If you're confident in them, you should explore non-war zone, lower income neighborhoods where the rent-to-price is higher.  Your property manager should be able to pick winners.  

I'll agree with everyone else - It doesn't sound like a good investment.  Investing in good neighborhoods is about building equity, not cash flow. If there's no cash flow and it's not a neighborhood/city that's expected to appreciate much, then it's not a good deal.  

Neither.  

-There's an active rental listing for the property for $1100.  It was listed 30 days ago and started at $1200.  

-87k invested per unit would be a PP of 174k, not 180k. 

-In the past six months, one house within two blocks was sold for over 300k and it was a 4bd 4ba 6k sqft mansion.

-According to the rental listing, the units have 1.5 bathrooms, not 2. 

You should decide on a goal first (i.e. cash flow vs. building wealth). The analysis is a lot easier if you're a cash flow investor. Looking at projected ROI numbers can be confusing because of the baked in speculation (appreciation and equity) and additional numbers you have to consider.

If you're a cash flow investor cash on cash return should be the number you focus on.  Things to consider:

Purchase Price

Check the comps in the area to see if you're getting a good price. If you can't find a similar property, you can see what other multi-units have sold for in the area (in similar condition), find the cap rate, apply it to your property, and back out for a price. Ask how old the roof, furnace, hot water heaters are. Factor deferred maintenance into your price consideration.  The numbers might look great as it stands, but you might be inheriting a ton of deferred maintenance  which would negate any discount you thought you had. 

Rental Income

Double check the stated rent in your area.  Tenants already in place, but if they vacate you want to know you can fill it with at least the same rent. 

One of the things that could crush you is long-term vacancy.  You can run a quick check online on rental vacancy numbers in the area or reach out to property managers to get some insight. 

Costs

I try to use a worst case for all of my estimates.  Theoretically worst case could actually be worse than my worst case, but that's a risk you'll have to take.

-CapEx & Maintenance - Common practice is 10% combined for both.  I do 15%. 

-Utilities, Water, & Garbage - Who pays? How much is it? 

-Vacancy Allowance - I do 1 month of rent. 

-Property Management - Most companies charge 10%, it ends up being 12-14% if you consider tenant placement & marketing costs. 

-Misc Expenses (landscaping, snow removal, etc.)

-Property Tax - Is $1700 the tax amount you'll see after you've purchased the property? Or is it just what the current owner is paying?

-Insurance - There are sites that'll spit out an avg for a zip. Or you could reach out to insurance companies and get a quote. 

With the info above you can calculate your projected NOI. Subtract your loan payment from that and you'll have your projected Cash Flow. Divide that by your initial investment (down payment + closing costs + rehab) and you'll get your cash on cash return.

Hey Lauren,  Can you send more info to [email protected]?

Hey Jorge, can you send me more info at [email protected]?