All Forum Posts by: Travis Hughes

Too many factors, not enough information.

Are you talking about 10% cash on cash return?  That doesn't factor in any equity that you captured by purchasing at a discount and rehabbing, your mortgage interest deductions and other deductions, asset depreciation (for the IRS), asset appreciation (here in the real world), etc.

10% cash on cash return out of a BRRR strategy, for example, is not something I would even remotely be interested in.

Or are you talking about 10% cash on cash return from a retail purchase investor who is putting 20% - 30% down on the acquisition and paying full price for the home?

Or are you talking about 10% cap rate, which is different from cash on cash return? 

At 100% LTV, you will likely be cashflow negative. Run the numbers and see what you come up with. You'll need an accurate estimate on what the rent rate would be to start. There are plenty of resources and calculators on this website to estimate repairs, CapEx, property management, etc.

Part of my strategy is to buy as an owner occupant, live in it for a couple of years, but a new one and rent the old one out, lather, rinse, repeat.  You are not likely to be successful with it if you're so highly leveraged, though.

If you need to reduce your debt service on the property, you might consider a refinance with cash in to reduce your LTV. Consult a mortgage broker to see what your options might be.

How about the licensing requirement?  It seems to me that in order to negotiate a workout / loan modification with a consumer, you would need NMLS license.  Most of the people talking about buying NPLs and structuring workouts seem to be doing it themselves, though.  Is that illegal, or or these people all presumably licensed, or is there something else I'm missing? 

Sorry to resurrect this topic.  I've got a question that you guys will probably consider super basic.  Is there any way that an unlicensed individual investor can simply outsource this item?  I had been thinking about this on the regulatory side (Dodd Frank, TILA, etc) as well as actually writing the instruments, hopefully to follow conventional guidelines so that it is easier on the resale side, in addition to meeting all of the licensing requirements.  Can an individual investor not hire these tasks out to an RMLO and just pay them an origination fee or something? 

@Bob Malecki

@Bill Gulley

@Dion DePaoli

@Andy Lesko have you filed any claims with the warranty?  Have they replaced your HVAC or other equipment?  Are you sure you won't be having any expenses when you file claims?

What is your up front cost to hold the policy?  How much is the trip fee every time you call them?  

What items will they not cover?  You are still going to have expenses. 

For example, I had an air handler replacement in which the home warranty company “covered” the new unit install, however they would not pay for the Freon recovery, installation of a float switch, installation of a filter base, and other items required to bring the house up to current code. As a result, the out of pocket cost worked out to about 65% of what would have been paid without the home warranty altogether – and that doesn’t even count the upfront cost of having the policy to begin with.

I had another situation where a tenant put in a repair request since the garage door opener was not working. I contacted the home warranty company and they said that only the door was covered, not the garage door opener itself. 

@Walmsley Gedeon I would have to agree with their advice, though I would caution against ever thinking in terms of guarantees. The only guarantees in life are death and taxes.

What was your real estate agent's opinion?  Do you have a professional assisting you? 

If you're not already comfortable with doing the transaction without an agent, that might give you all of the information you need.  There are plenty of great deals that can be done directly from seller to buyer without agency relationship involved, but there is also a lot of room for error.  The contracts that you are using may not be as secure as the ones the local association of REALTORS uses.

It's all about risk vs reward in this game. If you're not comfortable handling the transaction directly, your cost to dramatically reduce your risk is the 6% it would cost to hire an agent. There's nothing that says you can't bring in an agent to represent you to deal with a FSBO. On the other hand, if it's not worth 6% to you, then you are either comfortable with the risk going it alone or you don't actually want to close the deal.

Sounds like a home run if your numbers are correct.  There seem to be a lot of assumptions, though, and what is listed above is far too general to draw any real conclusions. 

If you figure $995/mo for 2 bed and $695/mo for 1 bed, that's $3680 per month gross revenue at 100% occupancy.  

If you figure $170k purchase + $65k rehab = $235k - $6k down payment = $229k mortgage principal at 5% for 30 years, that comes out to $1230 per month P&I. Insurance maybe $100 per month. Taxes maybe $250 per month (if we assume 1.25% tax rate on $235k value, but hopefully the value is more than that). PMI maybe $80 per month. Now we are at PITI+PMI = $1660 per month. Utilities another $275 puts it at $1935 per month.

Are there any HOA dues? Any other carrying costs outside of those listed above?

Property management may cost $368 per month for management fees plus any leasing fees, renewal fees, other a-la-carte fees, etc.  If you figure two turnovers per year, that comes out to another $2000 per year or $166.66.  So PM cost maybe $500 per month after you prorate the costs into a monthly number.  

Maintenance maybe 1% or 2% of property value annually, so $2350 to $4700 per year. Let's split the difference and assume $3525 per year or $300 per month.

Looks to me like your carrying costs are about $2800 per month = $33,600 per year.  

If we assume two weeks each of vacancy for those two turnovers, that comes out to $1000 per year in vacancy adjustment.  Gross annual rents $44,160 less $1000 vacancy adjustment = $43,160 net annual rent.

Net annual cashflow $9,560 or just under $800 per month.  

IF your cash into the acquisition is only $12,000, and IF all of the numbers that I listed above are accurate to the conservative side, then your cash on cash return appears to be about 80%.  That's a lot of assumptions, however.

Dig a little deeper.  Sounds like a good deal on the face of it, though.

Note: This information is for entertainment purposes only, and should not be taken as investment advice.  I am not an investment advisor or financial planner, nor am I your agent or fiduciary.  Reader assumes all risks. 

I don't know about PA, but for the last property that I bought here in GA, those costs are lower than what I paid.  

In the analysis spreadsheet that I developed for acquisitions, I use $1500 as the number for closing costs (title attorney only; mortgage origination is a separate line item) and I believe that will typically overshoot it.