I am new to real estate investing and new on BP. I purchased my first duplex last year, which cashflow $100. So I am currently living rent free with some extra cash in my pocket every month.
I just find another duplex on Zillow for $90,000 and it needs $30,000 in rehab. The ARV of this property is between $145,000 to $157,000. Even with property tax been pretty high $7,400, it still has a monthly cashflow of $600. I am planning on using hard money to get this deal going and I am interested in the brrrr strategy for now. Also, I already found a local credit Union that can refinance it up to 80% LTV.
I have a 9-5 with an annually salary of $41,000 which I am planning on keeping for now (mainly because banks love to see W2s). I have $20,000 in saving, which I can use in this deal.
My question is, why do you think my plan won’t work?
Thank you for your feedback!
80% ARV or 80% of present 90,000 value? Are they financing the rehab costs as well or just the purchase?
@Yollan Kitsoukou Need more numbers. You have to have a reserve account for vacancy, repairs, CAPEX. What is the gross income? BRRR 70% of $157000= $109900 cash out mortgage. According to your numbers you will be at $120000. There is a calculator under the tools section on the web site. You can use it up to 5 times before you have to join pro. You can use the Rental Analysis Template not as thorough as the calculator. Without your reserves if you need a new roof you will have to pay for it out of pocket.
Also, how are you paying $616/month in taxes, and still cash flowing $600 a month?
80% of the 90000 and they are financing 100 of the rehab.
According to rentometer.com, I can get about $1,150 up to 1,300 per unit but I ran my number with 1,050 per unit just to be careful.
With 7,400/Year in taxes, and mortgage (by my calculations based on a $90,000 mortgage) of $392/month, at the low end $50/month in insurance, and not considering other expenses. You're sitting at -$8/month in cash flow.
Factor everything else in and I get you around -$358/month in cash flow.
I think you have the taxes wrong. With your yearly taxes I have this around a $600,000 property. Did you mean $740/year?
Thank you for your feedback time.
Gross income of $2,100 ( 1,050 per unit) but according to rentometer I can rent it for a little more. I am not going to pay the asking price but even if I do, I found a local credit union that refinance up to 80% of 157,000=125,600
Wow, that one slipped by me, a duplex for 90,000 and rents at 1050/UNIT. For some reason I was thinking 1050 total. Sounds like a good idea now.
The taxes HAVE to be wrong. The property is selling/worth $90k and the taxes are $7400? (More than 8% per year?)
I have a $640k property in MN where the taxes are $5500 and a bunch of $300k properties in Vegas where the taxes are under $2200. (less than 1% per year)
Not to say that it won't work, but I would just be prepared for the rehab to be more expensive and time intensive than you would initially expect. If you think it'll be 30, plan for 35. If you think the ARV is between 145 and 157k, plan for 145. With an 80% LTV, you may not get all of your capital back out but that doesn't necessarily mean to not do the deal, it just means you should be prepared to leave some money in the deal. Still beats bringing a large chunk of savings to the table at closing in my opinion. Lastly, just be careful with hard money loan terms. If it takes a little extra up front to avoid extra fees if you go over schedule, I would just want to have that safety net.
What you have described is a series of events, that potentially involves the buying of two properties.
That is not a plan...that is a series of events.
A Plan involves, at the start:
1 - a set of Financial Goals
2 - a timeline for completion
3 - a series of events that need to take place, in a specific order, all of which are connected to eachother.
4 - a set of specific options (strategies) that will be used for each step you execute in #3
5 - a financial requirement for each step above (and below)
6 - a location or specific market that each step will be executed in
7 - a list of any and all outside sources and/or resources required for each step
8 - a list of financial resources for each step which include the amounts needed, cost to get, cost to use, and source to access from
10 - a way connect all of the above together.
11 - ...and that's just the start
Let's not get tied up on semantics of the word "plan" @Joe Villeneuve I think the guy knows that his small summary isn't his entire plan. I think he was more asking along the lines, here are the rough back of napkin numbers, is this even worth my time.
1) His financial goal is to Rehab this property that he estimates to need $30,000 in rehab so that he can cash out refinance at 147k and roll that into a new property
2) He has a property in his sights, I assume he wants to put an offer in ASAP, and start rehab ASAP, given his full time position and savings, he probably wants this project complete in less than two months so he can rent and cashflow
4) Second property, I assume he has an idea on how he wants to offer and negotiate>Credit Union to fund Purchase and rehab>I hope he's thought of how to rehab>Will probably reuse his method of renting that he uses on his first rental>Most likely plans to use the credit union to refi>Repeat
5) Has said he plans to offer lower>Find a good meeting ground>$30,000 rehab goal>$1050/Unit Goal>$140,000 Refi Goal
6) The university town is his market
7) Realtor>Credit Union>Credit Union>Prop Management/Self Manage, whichever he currently uses on his first property>Credit Union>Repeat
8) Same as step 5
9) you missed step 9
10) Each part of the process flows into the next
@Yollan Kitsoukou To Joe's point, these things need to be on the back of your mind but don't be discouraged if you don't have each of these things figured out fully. Start at the first thing in front of you and work your way through as they come along and learn as you go.
Yes it is a duplex, and I am playing safe with rent but it can definitely be higher.
I wish I was wrong but unfortunately that’s NY for you, but I am only looking at this deal for the cashflow.
Thank you for your feedback, and I will have $7,000 just in case. I agree with you that I should definitely shoot for 145 instead 157 just to play it safe.
@Aidan Mulligan @Joe Villeneuve
Thank you to the both of you guys for making things super clear for me.