All Forum Posts by: Peter Ricca

Thanks Eric! I think I am dramatically over estimating the repair costs, it's not a total gut, the floors and walls actually look in decent shape. Just needs new kitchen and bathrooms, appliances (not sure about home systems like furnace and electrical though). 

Biggest challenge here is we are rehab newbies, so the largest variable is somewhat of an unknown until we start getting quotes. 

I think our first step is going to be to get estimates before inspection so we can get out of the contract if the estimates get out of hand. 

Thoughts?

Ok BP I’m house hacking currenty in NJ and now ready to buy my first out of market in Ohio (partnering w my brother who lives in market).

Found a SF house in a rapidly appreciating neighborhood for $60,000. Needs about $50,000 of work, comps are selling from $140-160.

Two Questions:

1. If we can do a cash purchase, should we or is financing a better idea? Leaning towards a mortgage just in case we run into unexpected rehab costs.

2. Assuming we run our numbers correctly and this works out smoothly is flipping a better strategy than BRRRR to fund the next deal?

Before we move forward we want a clear strategy. Long term the goal is to build a portfolio of positive cash flowing properties, but I want the first deal to fund the next and so on (will be my cash invested initially).

Thoughts??

- Peter 

Sounds like an awesome deal, great job! Which market was this in? 

Any tips on when/how you started the rehab process? How close was your contractor's estimate to the actual $85,000 you put out? 

You mentioned the whole deal was $60,000 (house) plus $85,000 (rehab), but "used" 25k cash? Was that the borrowed portion? Was that on top of the 60+80K? 

 Can you elaborate so fellow investors can see the guts of the deal? How did you secure the borrowed cash? Family loan or an actual lender? 

I think it looks like this -- let me know if I'm close to your numbers: 

House = $60k

Repairs = $85K

Total cash out = $145k (25k borrowed, but how?)

ARV = $240,000

Rent = $1750/mo

Some quick assumptions in the BP Calculator show your numbers around this:

$1,750.0 0MONTHLY INCOME

$815.00 MONTHLY EXPENSES

$935.00 MONTHLY CASHFLOW

4.68% PRO FORMA CAP

$11,220.00 NOI

$147,500.00 TOTAL CASH NEEDED

7.61% CASH ON CASH ROI

18.70% PURCHASE CAP RATE

@Jaysen Medhurst all excellent points - I considered this before I purchased and figured the immediate reduction in cost of living plus appreciation, tax shelter, and equity building was worth it. 

If I move out in 5 years the plan is to maximize the house income as a vacation rental (or sell if it had appreciated enough). Yearly rentals won’t provide the cash flow I need as you said (although I might be under estimating the rental rate for the 3BR house).

At $5101/mo total I’m on the hook for about $62k/year. I should be able to generate around $4500 week in the summer for both combined units, so I’m going to have to hustle hard to keep it filled for 13.7 weeks to cover that nut.

Winter rental I can draw about $2700/mo between both units which would be $18,900. 

With the winter income I only need to rent the house for 9.5 weeks in Summer to cover my nut.

All great points and exactly the type of feedback I was looking for. I won’t let this be a disaster since I can always stay put! :-)

 - Peter 

@Lizzie Carver @Kirby Davis @Ryan Murdock @Ray Fisher 

Wow everyone, thanks for the awesome feedback and tips, I'm definitely feeling more confident about the purchase. 

I am single, but moving in with my girlfriend (she will be chipping in too towards mortgage) so I really wanted some more space (plus I work from home a few days a week so I need a home office). 

@John Callaghan -- It's so cool I didn't think there would be local neighbors on here. Yes all great points, I figured the shore town would be shielded from major downturns (wealthy New Yorkers will still come and rent our houses during the summer even during a down turn). Let's grab coffee soon, shoot me a DM. 

I did consider living in the back house and running an AirBnB in the front, but that would require CapEx on furnishing both houses. Plus the time commitment to manage a vacation rental isn't really an option for me since I travel a ton for work.

Once I move out this place (plan is 5 years) I will definitely be on the Summer Rental MLS listing. Realtors have told me I can get ~30k for the entire season if I find the right tenant (usually from Connecticut or New York) so I'll be giving that a shot at some point.

Thanks again everyone, looking forward to hearing about your real estate ventures!

- Peter Ricca

Hi Everyone, brand new here and just made my first big purchase in a pretty expensive area (stable/growing property values, also a desirable seasonal vacation rental town).

 Last week I closed on a completely gutted and renovated Two Family home in a Beach town in Monmouth County, NJ. I will be moving in to the 3BR 1.5B front house and I just leased the detached renovated 1BR bungalow for $1650/mo (tenant pays electric). I paid $649k and the house appraised at $665k. My plan is buy and hold. 

My question here is about how you all would evaluate this scenario. I had been renting a smaller house for 4 years at $2,020/mo (plus gas/electric) in the same town and felt like I was wasting my money. 

My initial math and logic went like this:

My mortgage + taxes/insurance on this house is $3508/mo -  $1650 in rental income = $1858/mo.  I'm now paying $162/mo less to live in a much bigger and better house (and building equity). 

I plan to stay in this house for at least 5 years before I find a tenant to replace me. 

How do I objectively evaluate this investment if I'm living in the front and not paying "rent" per se, rather just covering the rest of the mortgage. Fair market rent for my portion of the house is around $2,950/mo.

I did part with $109k down payment (including closing costs), but I've been saving for quite some time so I still have some fairly healthy cash reserves, and I'm actually looking get another property within the next 6-12 months (most likely out of my expensive market though). 

Please be critical -- how did I do here? What could I have done better? 

- Peter