Sorry for the long post. Need some help in analyzing a deal, or going over gotchas that I may be missing. This would be my first deal.
Location: Small town, about 2 hours from me. I have contacts in the area. Though rents are relatively low per unit, rental demand is strong due to no larger rentals (apts, condos), and folks can't get mortgages in the area. Many tenants stay 5+ years in a property. I've discussed this with a local loan officer (who conveniently can get me sub-$50K loans), 2 realtors, and a contractor to make sure the listing agent wasn't feeding me a load of baloney. They all agreed rentals do well there, though rents aren't that high.
Neighborhood: For that town, I'd say B-.
Details: Seller owns two adjacent parcels with three buildings.
- ParcelA - Listed at $25K; ARV best guess is $40K
- Building1
- Up/down duplex, formerly SFH.
- Would need ~$7-9K to get rentable & decent. Carpet, paint, outdoor woodwork, some kitchen things.
- Rent estimate of $850 ($375 up, $475 down)
- ParcelB - Listed at $45K; ARV best guess is $50K
- Building2
- SFH, 3/1.
- Needs a ton of work. Haven't gotten an estimate but I would say $25K.
- Rent estimate of $500, perhaps $550 if I put in central AC/heat.
- Building3
- Small side-by-side duplex (2br, 1br).
- Already has tenants
- Renting $650 ($300 one side, $350 other)
Total estimated monthly rent: $2000.
OK here's where it gets interesting. The list on these is $65K combined. But after talking with the realtor I am fairly certain I could get all of it for $30K, potentially $25K, due to the condition of Building2 and sounds like the owner is just sick of it.
So my plan would be as follows....
1-Buy both parcels (w three buildings) w cash @$25K
2-Fix Building1 for $8K, do a cash out refi/delayed financing on ParcelA ($28K/$40K). More assumptions below.
3-Fix Building2 for $25K, do cash out refi/delayed financing on ParcelB ($35K/$50K). Assumptions below.
4-After the dust settles I have $5K more than when I started? This of course assumes these numbers hold.
- Purchase: -$25K
- Fix Building1: -$8K
- Building1 Cash out refi: +$28K
- Fix Building2: -$25K
- Building2 Cash out refi: +$35K
Cash flow of:
- Building1: $2700/year
- Building2: $3600/year
Assumptions
- 70% LTV on cash out refis
- 30 year term, 4.5%
- 15% capex/maintenance/cleaning reserves held back
- 8% vacancy
- PITI accounted for
- PM @ 10%
- Water bill of $50/door/mo
Questions.....
1) Would this be using cashout refi or delayed financing? What's the difference?
2) When I buy the properties outright up front, what is the waiting period on cash out/delayed financing & how does that work? I have read different things about seasoning, difference between cashout refi/delayed financing, and I am a little confused on it.
3) When I do the cash out/delayed financing, is it based on the purchase price? Or the appraisal value?
4) Should I get the properties inspected and appraised myself *prior* to even making an offer? It feels as though I should, since so much of the deal hinges on an accurate rehab estimate + accurate ARV appraisals with the cashout refis.
5) Will a bank do two cash out refis/delayed financings in a row back to back with no issue?
6) 15% capex/maintenance sound reasonable? This would be $3600/year on 5 doors.
7) The $/door here is not overly impressive after everything is taken out, just $105. But if the numbers work, then I have no money in, and $6300/year net out. Even if rehab takes $10K more and ARVs are a little lower I am still seeing $6300/year on just $5-10K in. Will this really work?
