All Forum Posts by: Ryan Howell

Looks good. This is about my minimum criteria. I always make sure I'm 1% rule or better, >7% CoC and positive cash flow with the 50% rule (generally I'm predicting ~40%, but in case I've missed something, I stay conservative). I would say it is a good deal depending how confident you are in the repair value of $7500. If you are being conservative and have a lot of quotes, then go for it. If you are not confident in that number, rerun the analysis with a more conservative approach. If I actually think it will be $7500, I generally assume $10-12k to make sure the deal is still good if I'm wrong.

It is really up to you how much you want to pull out up to the LTV limit. My recommendation is make a decision based on your target cash flow and target equity. For me, the banks are loaning 70% LTV on my properties (currently duplexes) when I refi and personally I want to keep 30% equity in each property to protect for any market correction. This puts me at about the 1.2% rule on most of mine so they are producing some cash flow.

You may be able to pull out more but sacrifice cash flow, but you are trading risk for speed.  It's all about where you are comfortable.

The numbers look pretty good to me.  My recommendation is to run the numbers as a house hack, if that is the plan, but also analyze the deal assuming a full rental.  If I understand your analysis correctly, the numbers will only get better.  I will say at least for me, I wouldn't assume 4% increase in income though.  I generally assume 2%.

Have you talked to the seller about carrying the note for you?  

If I were in your situation, I would take the loss if you can afford to. You make your money on the purchase so I look at it as you already have a loss. Holding the property so as not to recognize the loss still means you are missing out on opportunity costs elsewhere. Also, if you compare the loss against what you would have paid in rent over that time, it probably isn't much different (depending on your market and hold time). If I knew what I know now when I bought my first property I would buy a duplex or fourplex with an FHA loan. It's a great way to get started, learn the business and minimize your risk along the way. Even if you live there just a couple years, then move and rent out both sides.

What are your goals? Are you okay with investing $66k for ~$300/mo in cash flow? The CoC return could be better in my opinion, but really depends on what your goals are.

Do you have plans to refinance and pull that money back out for another deal?  If so, how does your cash flow look after the refi?

Also, the interest rate looks really high for traditional financing.  In my area I'm seeing 5-5.5% for investment property, both residential and commericial loans.  7.5% seems high unless it is a private or hard money lender.

@Robert Medina - Sounds good.  I hope to see you soon!

Have you thought about house hacking in a duplex or triplex? That's a great way to get started and in my opinion takes off some of the pressure and risk of your first investment. You would also potentially be eligible for some better loans such as FHA and could keep a lot of your capital ready for deal #2 or any needed rehabs.

So I wouldn't buy it unless the numbers meet your criteria even if the location is great.  If you can buy it at a price that meets your criteria then see if there is a way to manage the cash flow in the short term.  I'm in a similar situation on one of my purchases where I found another deal before I finished rehabbing the first deal.  For me it all came down to balancing the cash flow until the properties are stabalized and rented at market rent.  I was able to do that because I inherited tenants and even though the rent was low, the property at least broke even while I finished the first project.  Now I'm able to focus on the new property.

Do you have an option to move into the new property and rent out your current half of the duplex? Maybe that would allow you to use an FHA loan or other means on the new house and keep house hacking?