Tri-plex/ Not sure how to use my money options

Multi-Family and Apartment Investing
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Tri-plex/ Not sure how to use my money options

Matt Friesz
Rental Property Investor · Oldsmar, FL · Member since 2019 · 48 posts · 15 votes

Hi BP world, 

I went and looked at a Tri-plex yesterday. Two units are currently rented, we met the tenants, and they let us in to look at the units, which are in good shape. The other (vacant) unit will have to be rehabbed at a cost of $6k, and the exterior needs about $3k of work. Roof is newer (est 2019) no permits found as of yet. I know that it's in a flood zone (AE). 

List is $239k. Cash only.  Current rents are at $1000 for the front downstairs unit, and $800 for the upstairs unit, potential $800 for back bottom unit.

I'm thinking of offering $225k being that it needs some work, flood zone etc...

I have a pre-approval from a hard money lender for $200k, $100k Heloc, and $90k cash. How can I structure this deal to work out with the money options that I have. I want to keep as much as I can or recoup as much as I can, so that I can get into my next one.

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Kevin Romines
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
4y

Nice project, let me help you with the numbers. 

You have a $200K approval from hard money, a $100K HELOC and $90K cash. You will only need your hard money approval and your HELOC for this. You wont need your cash. You use $39K for the remainder of the down required along with the hard money. You will typically pay 4-5 % or points for hard money closing costs, so another $8-$10,000.00 in purchase closing costs, and you tell us the rehab is projected at another $9000.00 so in total, you will use $56-$58,0000.00 from your HELOC to complete the deal.

When the rehab is done, you will then refinance into a Fannie Mae or Freddie Mac loan at up to 75% no cash out, meaning no more than $2000.00 cash in hand. The rest goes to pay off the mortgages. However with such a small rehab, I'm guessing you wont be increasing value that much over the amount you bought it for, so I estimate a new value of $250,000.00 X 75% = $187,000.00 as your max. loan amount. This will leave $68,500 to $70,500 on your HELOC. Basically your skin in the game. I estimate your mortgage payment to be approx. $1295.00 with taxes and insurance. Your HELOC payment should be approx. $293.00 a month, but you will be collecting $2600.00 a month in rents if self managed. This leaves you with $1012.00 cash flow per month which is a 17.22% COC return. If you put all the cash flow back into your HELOC it will be paid back within 70 months or 5.83 years and from that point on your minimum cash flow will then be $1305.00 a month assuming you haven't raised rents.

Is this a good deal, in my book it is, I would pursue this deal. 

I hope this helps.  

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  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    4y

    These numbers sound very attractive, and you have lots of potential financing combinations/options in this scenario.  

    While you want to minimize the financing costs, it also has to be worthwhile for your HML, so you might consider using $100k in hard money, then using your HELOC and/or cash (in whichever order you're more comfortable with) for the rest, keeping enough in reserve for the repairs and renovations.

    Just make sure you know the cost of flood insurance and other operating expenses. 

    Copeland Morgan LLC4.770 Reviews
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  • Matt Friesz
    OP
    Rental Property Investor · Oldsmar, FL · Member since 2019 · 48 posts · 15 votes
    4y

    Hi Jeff!

    Thanks for the reply! I'm a newby and I'm trudging through paralysis by analysis. By my calculations using the bigger pockets rental sheet, My CoC return is at 5.73% which is not that good. I'm having a hard time understanding how I'm going to get my money back out for the next property. Any help would be appreciated.

    So glad to see that you manage properties, as a property manager is on my list of people to contact. I own a home inspection business in the area, and real estate investing just makes sense to me.  Any chance we could meet up?

    0Reply
  • Andrew FreedBusiness Member
    Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    @Matt Friesz - Can you house-hack it with a FHA or low down payment conventional loan? If you do that, your cash on cash return would be dramatically improved leaving you more funds / opportunity for your next deal. You'd probably only have to tap into your HELOC or cash for $15-20K. You would also be able to rent out your current primary which hopefully will cash flow.

    If you're looking to BRRRR it, make sure the repair costs / ARV make sense to pull the funds out during the refinance because from the sound of it, this property seems relatively turnkey.

    [email protected]781-964-3200Podcast Guest on Show #69
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  • Matt Friesz
    OP
    Rental Property Investor · Oldsmar, FL · Member since 2019 · 48 posts · 15 votes
    4y

    Hi Andrew!

    Thank you for your reply. I can't house hack being that I still have a senior in high school at home and my wife doesn't want to mess with all that. House hacking might be a thing in the near future though! You're right about the BRRRR method. I don't think I'd be able to get much out of the refi. I'm waiting for ARV?

    0Reply
  • Kevin Romines
    Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
    4y

    Nice project, let me help you with the numbers. 

    You have a $200K approval from hard money, a $100K HELOC and $90K cash. You will only need your hard money approval and your HELOC for this. You wont need your cash. You use $39K for the remainder of the down required along with the hard money. You will typically pay 4-5 % or points for hard money closing costs, so another $8-$10,000.00 in purchase closing costs, and you tell us the rehab is projected at another $9000.00 so in total, you will use $56-$58,0000.00 from your HELOC to complete the deal.

    When the rehab is done, you will then refinance into a Fannie Mae or Freddie Mac loan at up to 75% no cash out, meaning no more than $2000.00 cash in hand. The rest goes to pay off the mortgages. However with such a small rehab, I'm guessing you wont be increasing value that much over the amount you bought it for, so I estimate a new value of $250,000.00 X 75% = $187,000.00 as your max. loan amount. This will leave $68,500 to $70,500 on your HELOC. Basically your skin in the game. I estimate your mortgage payment to be approx. $1295.00 with taxes and insurance. Your HELOC payment should be approx. $293.00 a month, but you will be collecting $2600.00 a month in rents if self managed. This leaves you with $1012.00 cash flow per month which is a 17.22% COC return. If you put all the cash flow back into your HELOC it will be paid back within 70 months or 5.83 years and from that point on your minimum cash flow will then be $1305.00 a month assuming you haven't raised rents.

    Is this a good deal, in my book it is, I would pursue this deal. 

    I hope this helps.  

    2Reply
  • Christian Sack
    Lender · Austin, TX · Member since 2021 · 2 posts · 0 votes
    4y

    This sounds like an ideal situation to use a hard money lender and leverage your capital. 

    There are several HML I know that can move very quickly and allows borrowers to only put down 10% to 20% and will finance 100% of the rehab costs on 12 to 24 month loans.

    I would highly recommend shopping around various HML in this situation to ensure you're getting the best rates and leverage.

    0Reply
  • Matt Friesz
    OP
    Rental Property Investor · Oldsmar, FL · Member since 2019 · 48 posts · 15 votes
    4y

    Thank you for your reply Kevin!

    There is smoke coming from the top of my skull at the moment! Thank you for drawing the picture for me. I'm waiting to see what the flood insurance quote is going to be, and then I'll decide what to do!

    0Reply
  • Matt Friesz
    OP
    Rental Property Investor · Oldsmar, FL · Member since 2019 · 48 posts · 15 votes
    4y

    Thank you Christian! Three validating responses...I'm 99% there! Just waiting to hear back from my insurance agent about flood insurance cost. 

    0Reply
  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    4y
    Originally posted by @Matt Friesz:

    Hi Jeff!

    Thanks for the reply! I'm a newby and I'm trudging through paralysis by analysis. By my calculations using the bigger pockets rental sheet, My CoC return is at 5.73% which is not that good. I'm having a hard time understanding how I'm going to get my money back out for the next property. Any help would be appreciated.

    So glad to see that you manage properties, as a property manager is on my list of people to contact. I own a home inspection business in the area, and real estate investing just makes sense to me.  Any chance we could meet up?

     Yes, happy to meet up after Thanksgiving (the next couple of weeks are crazy). I'll also PM you some resources you might want to check out. 

    Copeland Morgan LLC4.770 Reviews
    WebsiteView Page
    0Reply
  • Matt Friesz
    OP
    Rental Property Investor · Oldsmar, FL · Member since 2019 · 48 posts · 15 votes
    4y

    @Jeff Copeland Awesome! I just put in an offer of $220k. I’ll reach out to you after Thanksgiving!

    0Reply
  • Matt Friesz
    OP
    Rental Property Investor · Oldsmar, FL · Member since 2019 · 48 posts · 15 votes
    4y

    Ok! Flood insurance quote came in at $4800yr plus and Home owners at $2000yr. The only policy my guy could find is a severe repetitive policy being that there has been a claim on the property because of flooding. What do you guys think? 

    0Reply
  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    4y
    Originally posted by @Matt Friesz:

    Ok! Flood insurance quote came in at $4800yr plus and Home owners at $2000yr. The only policy my guy could find is a severe repetitive policy being that there has been a claim on the property because of flooding. What do you guys think? 

    1. $4800 per year is a lot. That is painful. 

    2. Severe repetitive losses are even more painful.

    Personally, I would walk away. Or at least take a very hard look at the "severe repetitive losses".

    Our primary residence was flooded in Tropical Storm Eta in 2020, so I have recent first-hand experience. 

    Imagine having to move out your tenants (who are angry and shell shocked because all of their personal belongings were destroyed), rip out your flooring and drywall, dry out for a week or two, and put everything back together - All while dealing with a remediation company who has 15 other jobs on the go at the same time as yours, and a GC who also has 15 other jobs on the go at the same time as yours, and dealing with your insurance adjuster (remember, the whole neighborhood got flooded, not just you). The process is easily a 6-week+ nightmare (all while collecting no rent at best...Or paying for alternative accommodations for your tenants at worst). 

    Now imagine doing it again a couple of years later. And you're paying an extra $5k per year for the privilege!

    I'm not a fan of flood zones, except for niche business models such as beachfront rentals where the risk is baked into the higher returns.  

    Copeland Morgan LLC4.770 Reviews
    WebsiteView Page
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  • Matt Friesz
    OP
    Rental Property Investor · Oldsmar, FL · Member since 2019 · 48 posts · 15 votes
    4y

    @Jeff Copeland I have walked away…I’ll connect after Thanksgiving!

    0Reply
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