Investor · Asheville, NC · Member since 2015 · 187 posts · 112 votes
I must admit I'm perplexed by this one- $380k, 4/1 plus duplex on one lot in a super-prime spot in Westville, livable and rented now for $4k/month. Needs about $25k now IMO, and another $50k+ in extended cap-ex over the next ten years or so since most systems are aging. Should rent for more like $4300 after the above initial work, so about 1% monthly ROI in Westville- which is good considering the extremely high rent/sq footage ratio there, and nonexistent vacancy.
Still hesitant 'cause I usually go with sub-prime areas at 1.1 to 1.3% instead, and this is uncharted waters for me, on a grand scale. It would also take me out of the game for a while financially. Whatchy'all think? Maybe I can wholesale it if I don't have the cajones to jump in myself.
Sounds exciting Chris! No advice here but there are a handful of old-school investors (some are still connected with CREIA, most are "retired" from active investing) who would give you subjective advice: meaning they are not competition. GOOD LUCK!
Thanks Joy! I'll give a couple of those folks a hollar, see what they think.
Robert, you have hit the nail right on the head. An overinflated market and a bad case of Trumpanoia have me thinking exactly the same thing- and at the above numbers- no, I don't have a plan for a downturn in rent prices. I'd also lose huge amounts of equity in a market downturn, and not be in a position to buy my way out of it.
I'm also not too keen on overextending myself credit-wise in what I see as a bubble about to be actively popped from above. I think I'll make a genuinely low offer on the property and see if I can either write myself in some safety margin, or have room to wholesale the deal if I chicken out :) Wish me luck!
I'd like this much more if everything was the same but it was a duplex or triplex. In a downturn, you will still have a wide pool of renters who can afford $1k-$2k a month, but much more difficult finding nervous folks looking to part with $4k+ a month.
@Account Closed , I funded a fix and flip in West Asheville last week. We really like the area despite the concerns you mentioned. From a risk perspective, I like the investment given the numbers you've shared with us, but there is obviously a lot to consider here. If it'd be helpful, I can connect you with a very nice and seasoned investor in the area who I'm sure would be happy to give you a second opinion on the property.
@Joy Fuchs- Thanks so much to you and Brian for your feedback by phone last week- that was very helpful in easing my fears. And lets get the kids together!
@Account Closed I hadn't heard anything back from the seller and assumed she discarded my offer entirely- but she emailed back yesterday and turned down the offer (as expected since it was quite low at $341k) but she is game to negotiate, and possibly to help with the cost of some needed upgrades- so it seems like there is good potential. I think she may be game for around $360- then I'd add $25k now, and another $50k or so over the next five or ten years in addition to regular maintenance- so realistically at or slightly under 1%. If I hadn't used up all my Fannie Mae-backed 30-year fixed loans, it would be a no-brainer- but since I'm on business loans now the cash-on-cash return would be quite modest IMO.
I ran the numbers with rough and likely mildly pessimistic estimates of total rehab, based on paying $425 total to have it in good enough shape to keep 70% of rent, then assuming loan cost of 6.5% (definitely pessimistic since the last two were around 5% for me), and they aren't all that attractive-
If $425k total in-
Rent for $4200 total =
$2940/month using 70% rule
$2535/month P+I for $340k borrowed at 6.5% for 20 years
$1500 insurance plus
$2740 Taxes=
$353/month for Taxes and insurance
$2890 total MTI =
Marginal to no cash flow,
$7800 per year in paydown- so about 10% on the $80k I have in,
Then market gain leveraged X 5- This is the big wild card, and the one where I may be less optimistic than the rest of the crowd. 4% sustained yearly gain would make the whole thing seem really attractive all of a sudden- but I don't see our economy expanding in the middle class enough for this to keep happening for much longer :(
a 1% cheaper loan saves only $200/month- still weak sauce cash-flow wise.
Happy to hear any other perspectives out there, and game to pass the deal on to anyone with bigger cajones or better financing options. A low interest 30-year fixed would make this a solid deal IMO. Also, the seller is super nice and I'd like to see a good and easy outcome for her with all this even if I chicken out. :)
Brian and I would love to have you and the kiddos over anytime. With twin babies- we don't go out much. Good luck on West Asheville property- we plan on holding our properties in that area for a good long while so I'm sure we'll see you on the west side at some point in time as well.
Sounds like a pretty interesting prospect. Biggest question I would have is the extent and nature of the deferred maintenance. We just wrapped up an East Asheville rehab that kept surprising us with problems. Every time we opened up a wall we found new issues.
Since you have already identified 75k of capital items, I would recommend asking your bank to give you a mortgage that includes a 75k construction loan imbedded in it. You may have to pay an extra point up front, but you can get the bank to finance 80% of your expected rehab and preserve your cash. Plus you get the property all nice and shiny up front, so hopefully better tenants and maybe more rent.
Yes, I think that would be the plan- Dawn Morton at First Bank is doing a similar loan for a work in progress in Candler, and can probably pull that off for me. And with the exception of the ancient but functional furnace in the main house, I don't see much reason to put off repairs- so I wouldn't lose much to go ahead and do a full rehab all at once, and have a better property from the word go.