I would like advise on a buy, rehab and hold for cashflow multi family property
I have a 4 legal unit, and 1 additional non conforming unit on contract at the moment. As I get deeper and deeper into the steps of closing, the numbers do not seem to make sense. The purchase price + rehab cost is exceeding the ARV. When I first got this into contract, I knew the purchase price + rehab cost would be closer to what I can refinance it for, but I wanted to do it anyway because of the great cash flow. But after inspection, I realize this building needs a lot more budget to maximize the rents. My dilemma now is, is this project worth taking up and do the numbers really make sense or not.
I have rehabbed and held two multi families, but this is the biggest one thus far and any advise would be helpful. I can PM you the actual numbers if you can help me figure
Rental Property Investor · Philadelphia, PA · Member since 2021 · 774 posts · 500 votes
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Swetha - Seems like one of the most important aspects is clarifying how you are determining the ARV. Are you running the ARV based on comps as a 4 unit OR are you determining the ARV based off of future NOI (operating income) and cap rate? You may want to call a lender or two and understand how they would estimate the value as you may get a different value based on the approach. Once you have a better idea of how the lenders would value it (by calling and talking to them) you have some talking points on how you can potentially negotiate the agreement. Also, some lenders offer construction funds wrapped into the loan, which greatly helps your overall returns by decreasing your out of pocket capital. Once again, a decent lender can help you evaluate the property and provide their input - especially if they are considering lending on the loan or rehab costs.
@Greg Kasmer, thank you for your reply. This property did not meet 70% value of purchase price + rehab cost, infact it was slightly > 100%. So, I determined that it would not be worth it. The cash flow was great, so I was trying to take someone's input on if they see value in losing some money for cash flow at the end of the day. But, I thought it would be smart to not over complicate it so much, and pull out of this, so I can actually set myself up for success, do more deals this year than have one huge project where all my cash would be consumed.