First Deal :)

14 Replies

I don't post here VERY often but I thought that I would post some information on my brother's first deal (I manage the account).

Anyways, many people here have said in the past that it's impossible or very hard to find good deals on the market that are listed by real estate companies/Realtors.

Anyways, we purchased a little SFD property for $46k (w/ $1700 BCC). Total repairs to date have been around $3,000. Went into it with $3,000 down , so a total of $6,000.

$675 per month in rent currently with pretty good renters. Appraisal came back today at $70k so now we can cash out some equity.

Not too bad for a listed property i couldn't sell to a anyone but my brother (For some reason, no one around here wants rentals).

So, $675/month rent less 50% for operating expenses gives you $338/month NOI. Payment on $43,000 (7%, 30 year) is $286. Monthly profit about $50. If your brother is managing it himself, he's putting the management fee in his pocket, too. So, not too bad of a deal. Certainly a LOT better than many deals I've seen around here where you would pay up towards $200K for a place that rents for under $1000.

But, I don't how it stays a good deal if you refi. If you go to 80% of the $70K appraisal, your payment (P&I) goes to $372. You get $13K in your pocket, but now you're losing money each month.

Jon

We've worked it a few different ways.

Current interest on the property is 6.35% on a 30yr fixed.

Our current expenses are less than 50% , taxes and insurance are quite low (Less than $100/mo for both).

After everything is said and done, after the equity loan on top of everything, we're still looking at $175/mo in income.

Hmmm. I calculate your first payment at $267. Assuming you take out 13K at 9%, that's another $100. You say you're making $175/mo. So, that leaves $125 a month for expenses. So, I'm sure that does cover taxes and insurance. But sure doesn't leave much for property management, maintenance, vacancies, advertising, make ready after a vacancy, legal fees, utilities you pay, or anything else. I'd sure be socking that $175 in the bank to cover the expenses you are going to have at some point.

Most likely, we expect that, the refinance is going to pay 5% on a 4plex that can be converted to a 5plex for about $100 (What a great deal).

The 5plex is expected to rent out at a total of $600 per unit at a purchase price of $125,000 with no immediate repairs needed.

Originally posted by "schockergd":
The 5plex is expected to rent out at a total of $600 per unit at a purchase price of $125,000 with no immediate repairs needed.

Now that's a good deal.
Jon

That's what i said when i saw it too. Property also has 2 long-term renters (Past 4 years) that don't take issue with a rent increase every year.

Originally posted by "schockergd":
Most likely, we expect that, the refinance is going to pay 5% on a 4plex that can be converted to a 5plex for about $100 (What a great deal).

Did anyone check into financing and the impact of converting the property from residenial to commercial? I am assuming that the local zoning if fine with the density.

John Corey

Zoning is ok with it being a 5plex, it has been a commercial property in the past (Small town, no formal zoning).

Originally posted by "schockergd":
Zoning is ok with it being a 5plex, it has been a commercial property in the past (Small town, no formal zoning).

Great.

Did the buyer look at the commercial loan terms in case they later want to finance the place after it is converted? Shorter term, higher rate, lower LTV is the norm.

John Corey

Yes, there's a local bank we deal with for commercial stuff, they're always pretty great about commercial. 7.5% fixed for 5 years, baloon at 10 years, amoritized for 30 years. 75% LTV....They get "Creative" if they have to.

Originally posted by "schockergd":
Most likely, we expect that, the refinance is going to pay 5% on a 4plex that can be converted to a 5plex for about $100 (What a great deal).

WOW that's awesome. What do you have to spend the $100 on to convert it from 4 to 5 units? Are you just moving a partition or adding one some where?

The current owner lives in a 4br 2.5ba section of the home, at one time it was a 5plex , but they converted it to a 4plex for financing reasons. To do that, they had to put a door that allowed access to both sides...Door has to be blocked to make it a 5plex.

Originally posted by "schockergd":
The current owner lives in a 4br 2.5ba section of the home, at one time it was a 5plex , but they converted it to a 4plex for financing reasons. To do that, they had to put a door that allowed access to both sides...Door has to be blocked to make it a 5plex.

Great find. I bet your brother will be thanking his Realtor.

Too bad most Realtors like working for 3% of less when the real money is being a principal. Then again I like not competing with the Realtors.

John Corey

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