Buy/Fix/ReFi/Hold Approach?
I am just starting out in Real Estate and purchased my first property a Month ago, looking to close on my second unit in December. I feel I have a very solid approach to starting out investing and would like some feed back on anything that seems out of line or may not add up - it seems to be too good to be true (which means it usually is) and haven't heard anyone else mention this approach before.
Idea is to purchase a rental property (I'm looking at 2-4 units but wouldn't rule out SFH) at about 30% below appraised value that cash flows a min of $150/unit after ALL expenses including repairs/vacancy factor/Management/mortgage etc and that the monthly income is at least 2% of the purchase price. I purchase the house with 20% down and put any additional cash into the property to get it up to snuff, then refinance the property a year later and pull out my entire original down payment plus added repair costs and keep the property to cash flow. I basically get 130% of my investment back within one year, don't have to bother with finding a buyer to get my money back (flipping), have a cash flowing property of at least $100/mo per unit and am left with 20% equity on the property. In my book that equals a free cash flowing house with built in 20% equity? All I need to do is sit and collect my rent while I wait a year.
These are the numbers I have on my first house
3bd/1ba Duplex that rents for $630&$750 per month
Purchase Price $55K - Repair Costs $8K
Down Payment + Closing Costs $12K - Remodel Costs $6K (All in at $18K)
Mortgage $44K - Bank Appraisal $78K (Zillow Estimate $85K)
Wait 1 Year until I'm allowed to Refinance and then pull out the 80% of the appraised value (78K*80% = $62,400-$1000 in Closing Costs)
$61,400 - $43,000 Mortgage = $18,400 (Just a little over my original investment) and enough to do this process all over again
This is currently cash flowing $435/mo and will still cash flow $335/mo after the new mortgage at the higher value.
Expenses include: Taxes $170/mo, Management Fee $85/mo, Maintenance $180/mo (13%), Utilities $60/mo (Water), $40/mo Insurance, $115/mo Vacancy Loss Factor (8%)
I would have collected $5,200 in profit the first year (30% ROI) plus refunded 100% of my investment on top of that - then take all this cash and REPEAT!
My second approved offer looks like it will have similar numbers as it is a TriPlex for $59K that should come in around the $85K appraised mark and currently has 3 occupied tenants paying $1400/mo
Thoughts on this Buy/Refinance/Hold approach? I have a modest income but have budgeted $1000/mo to put away for real estate investing. Original plan was to buy 1 house per year and reinvest ALL rental income profit but with this new approach I feel I will be buying dozens of houses in just a few years. Would this approach spread myself too thin even with a 20% equity buffer and a health cash flow even after the higher mortgage payment?