Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
Do you guys have a criteria when you feel like its too much work for a future rental?
For instance, there is a fourplex , built in 1910. It needs new roof (10-12K), new windows (not sure how much, may be 5-10K), electrical (may be 4-8K), probably some plumbing...(its in a midwest (basically forget appreciation), not sure if its relevant) Foundation is ok and structurally ok
Price 60K seller carry 50K, I have to come up with 10K cash to put down,
three units out of four occupied, rents 2K... Landlord pays heat, water, electrical.
Technically, it will cash flow 800-1K if fully occupied.
If it cash flows and meets my criteria the rehab is secondary. I have completed rehabs for over 50K but typically try to keep it under 30K. I use private money, rehab the building (force appreciation), refinance and try to get my money back out. If I can get my money back out, then my ROI is infinity. On sfh cash flow minimum $300, multiunits $200 per door.
If it cash flows and meets my criteria the rehab is secondary. I have completed rehabs for over 50K but typically try to keep it under 30K. I use private money, rehab the building (force appreciation), refinance and try to get my money back out. If I can get my money back out, then my ROI is infinity. On sfh cash flow minimum $300, multiunits $200 per door.
Good Luck.
If you cant refinance and get your money out, here is my thought process (correct me if I am wrong)
Lets say I put in 30K of rehab and cant get the money out through refinance. Lets pretend I get 1K cash flow from the investment. Then I will need almost 3 years to get that money back from the cashflow...Thats a lot!
You need to do your analysis very carefully. There is no guarantee an appraiser will see it the same way you do. I have had appraisers comeback with low appraisals. It sucks. I had one where we had a double lot and the appraiser disregarded the second lot. It was a $35,000 difference. We challenged the appraiser and they refused to change the number. We ended up going to city and getting a letter stating the other lot was a buildable lot. They ended up revising the appraisal. We were fortunate we had a good relationship with the bank and they worked with us.
Be prepared for an exit plan if things go nit as planned. Our plan isxto get out with no money in and repeat the process. It works the majority of the time. Using your example if we got stuck with 30K in and we had $1000 cash flow every month. That comes out to a ROI of 40% on that money. 2.5 years to pay it back essentially and then our return is infinite after all the money is paid back.
You need to do your analysis very carefully. Using your example if we got stuck with 30K in and we had $1000 cash flow every month. That comes out to a ROI of 40% on that money. 2.5 years to pay it back essentially and then our return is infinite after all the money is paid back.
As far as the extent of repairs, it comes down to what's the property worth all fixed up? Work backwards from that and see if you wind up with something close to the sale price. Is the rent rate taking into account an upgraded property? Is there opportunity to get more rent or is that the market rate?
As far as the extent of repairs, it comes down to what's the property worth all fixed up? Work backwards from that and see if you wind up with something close to the sale price. Is the rent rate taking into account an upgraded property? Is there opportunity to get more rent or is that the market rate?