Very new to REI, ran numbers, too good to be true. HELP!

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Very new to REI, ran numbers, too good to be true. HELP!

Frank Crianza
Houston, TX · Member since 2018 · 5 posts · 0 votes

First of all, thank you for clicking on this thread, there are a million of them out there and I promise not to waste your time.

So here is the scenario:

Multi-Family property (4 units) - Listed @ $205,000, on market 65 days.

Estimated Acquisition: $195,000

Realistic rent: $3000/mo ($750/unit)

Property Taxes/yr: $5200

Insurance/yr: $2400

Planned Maintenance/yr: $1200

Estimate Vacancy: 5%

Down Payment: 25%

Management Fee: 8%

I have just recently gotten into the concept of REI and I've read all of the forums, blogs, etc. of investors having a hard time trying to find a good deal in the Houston area market, and I found this property quickly, in a public method of discovery with very little effort in about 45 minutes of searching.

Financing the entire investment (through very creative means, which took me MUCH longer to figure out compared to finding this deal) seems like a no-brainer to me, but I'm scared I got something wrong in the math and this is not as good of a deal as I believe it to be.

I'm a newbie, I quit my job in the Oil & Gas industry, enrolled in real estate school, completed it in 3.5 weeks and I take my test 9/4/18. I have dedicated literally everything I have to learning and perfecting my role in this industry. I would welcome any advice/suggestions, and in appreciation to that advice I would welcome the opportunity to be able to return the favor in the future.

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Tony Castronovo
Rental Property Investor · Park City, UT · Member since 2016 · 678 posts · 531 votes
8y

Your numbers seem reasonable. Part of the decision is not just “do the numbers make sense” but whether this deal aligns with your goals and investing model. For example, I don’t think you mentioned whether the property needed repairs. Is there an opportunity to force appreciation? 

My strategy has evolved to focus more on equity growth and then the cash flow will follow. That’s a different approach than focusing purely on cash flow. For someone without a W2 I would imagine this would be a pretty good investment. But if there’s no equity capture you’ll want to hold it for awhile. Hate to sell in a couple years and eat up all those cash flow gains just in commissions and closing costs.

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  • Account Closed
    Rental Property Investor · Member since 2018 · 104 posts · 44 votes
    8y
    Originally posted by @Frank Crianza:

    First of all, thank you for clicking on this thread, there are a million of them out there and I promise not to waste your time.

    So here is the scenario:

    Multi-Family property (4 units) - Listed @ $205,000, on market 65 days.

    Estimated Acquisition: $195,000

    Realistic rent: $3000/mo ($750/unit)

    Property Taxes/yr: $5200

    Insurance/yr: $2400

    Planned Maintenance/yr: $1200

    Estimate Vacancy: 5%

    Down Payment: 25%

    Management Fee: 8%

    I have just recently gotten into the concept of REI and I've read all of the forums, blogs, etc. of investors having a hard time trying to find a good deal in the Houston area market, and I found this property quickly, in a public method of discovery with very little effort in about 45 minutes of searching.

    Financing the entire investment (through very creative means, which took me MUCH longer to figure out compared to finding this deal) seems like a no-brainer to me, but I'm scared I got something wrong in the math and this is not as good of a deal as I believe it to be.

    I'm a newbie, I quit my job in the Oil & Gas industry, enrolled in real estate school, completed it in 3.5 weeks and I take my test 9/4/18. I have dedicated literally everything I have to learning and perfecting my role in this industry. I would welcome any advice/suggestions, and in appreciation to that advice I would welcome the opportunity to be able to return the favor in the future.

     I am just closing on my first deal, but have ran hundreds of numbers on properties.

    If your numbers are correct and I am assuming at least 6% interest rate for the entire cost of the investment you are looking at roughly $1,865 for PITI (which does not take account vacancy, maintenance, capex/repairs). That will leave you $1,135 a month or $285 per unit before the expenses I have said in parenthesis. In my market, that is not a good deal at all. I would at least want $350 per door before expenses for an investment property that I didn't put any money down. IF I did put money down, I would at least want $450-500 depending on the area.

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  • Jeff Wallace
    Rental Property Investor · The Woodlands, TX · Member since 2014 · 345 posts · 288 votes
    8y

    @Frank Crianza

    Congratulations on jumping into real estate full time - 

    My advice - go back to your oil and gas job!!

    It is incredibly easy to get started investing in real estate - when you have a w-2 income ....

    You can build sufficient investment income to quit your 9-5 job within about 5years - if you have the w-2 income to acquire the investments with financing...

    Unless you are cashing out a 401k to buy real estate (which I highly recommend) go back to your oil and gas job and use that income to buy your investments.

    Good luck and happy investing,

    Jeff

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  • Frank Crianza
    OP
    Houston, TX · Member since 2018 · 5 posts · 0 votes
    8y

    thanks for the reply.

    I'd like to know where you get your $350-$500/door numbers from. Is that a personal preference or is there strategy behind it based on your experience?

    Like I said, this would be my first REI and I really don't want to make a big mistake on a deal, but based on the numbers I've come up with, this property would cash flow about $500 initially while the loans are being paid back, but should generate in the area of $1800 once the loans have been repaid.

    At this point, I would be willing to take on any positive income, but I'm sure there are factors that play into this that I know nothing about. Would you be willing to share your thoughts?

    Thank You, truly. I've jumped off a ledge and dedicated myself to learning this industry. I will humbly accept any advice I can from people who are wiser than me in this endeavor.

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  • Frank Crianza
    OP
    Houston, TX · Member since 2018 · 5 posts · 0 votes
    8y

    @Jeff Wallace The position I held with my employer (while very lucrative) just didn't fit the lifestyle I had envisioned for my wife and I. I was able to save enough to be comfortable with separating in the anticipation of learning a new skill-set, and I have the ability to still finance an investment in the 250k range comfortably (after researching for many hours how to obtain financing with no proof of income, only assets). Any advice on the multi-family investment? Any tips/tricks you'd be willing to share with a newbie, like myself?

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  • Jeff Wallace
    Rental Property Investor · The Woodlands, TX · Member since 2014 · 345 posts · 288 votes
    8y

    @Frank Crianza 

    The BEST advice/tips/tricks I can give - I have already given ... research is one thing, but obtaining the financing is another - I have a boatload of assets and a ton of net worth but obtaining "good" financing is a challenge without a paycheck from an employer ... you can find short term financing with higher rates and costs based on the value of the property you are buying, but you will find it difficult to obtain good long term financing for long term long term investments while self employed.  

    - I'm sure you will be successful ... my advice was intended to reduce the difficulty of your journey .... to put it bluntly, without employment you will have an uphill battle acquiring property - A job makes that task EASY (maybe your wife has a job) .... sacrifice your "lifestyle" for a few years and then live however you want when you no longer need any income beyond your investment income - for me that was a 4-5 year process

    On the multi-family, I say if you like it buy it --- As for the specific numbers on the 4plex.... I am no help - I stopped evaluating properties beyond (1% of value in monthly rent) years ago - If I like a property and I like the location .... and I am CLOSE to 1% of value in rent, then... I buy

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  • Tony Castronovo
    Rental Property Investor · Park City, UT · Member since 2016 · 678 posts · 531 votes
    8y

    Your numbers seem reasonable. Part of the decision is not just “do the numbers make sense” but whether this deal aligns with your goals and investing model. For example, I don’t think you mentioned whether the property needed repairs. Is there an opportunity to force appreciation? 

    My strategy has evolved to focus more on equity growth and then the cash flow will follow. That’s a different approach than focusing purely on cash flow. For someone without a W2 I would imagine this would be a pretty good investment. But if there’s no equity capture you’ll want to hold it for awhile. Hate to sell in a couple years and eat up all those cash flow gains just in commissions and closing costs.

    1Reply
  • Jibu V.
    Investor · Philadelphia, PA · Member since 2014 · 134 posts · 49 votes
    8y

    Although the cash flow may be fine, you'll want to play the long game and acquire more units rapidly. Unless you have plenty of savings to cover all of those down payments, I'd recommend reading up on the BRRRR strategy. In order for it to work, you'll need to get the deal well below market and be into it, including purchase price, rehab, and soft costs, for about 70-75% of ARV. The benefit is that you'll be able to use the same funds to repeat the process for more properties without having to pay off the previous ones.

    0Reply
  • Jeff Johnson
    Real Estate Investor · La Plata, MD · Member since 2017 · 128 posts · 18 votes
    8y

    Watch Brandons video here https://www.biggerpockets.com/buy-and-hold-calculator and then run the numbers at the same site.

    1Reply
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