A little help with a quad-plex review?

Question

I think I did this wrong, I should have calculated it as a BRRRR.

Nonetheless, I walked the property, and, in my opinion, the rehab numbers are solid. This is available from a local wholesaler. Buyer pays all closing costs. Cash, hard money, or private money only; no conventional loans. Close quickly. Tired landlord.
I'm a newbie, and I am trying to get into this game, so any help that anyone can offer would be greatly appreciated.

Thank you!

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*This link comes directly from our calculators, based on information input by the member who posted.

Thomas Franklin · Answer

@Joseph E Caucci II Many Investors that flip homes use the 70% Rule that says 0.7 x ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.

I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.

ARV - Desired Profit - Closing Costs to Buy - Repairs - 10% of Repairs - Holdings Costs - Concessions - Realtor Fees - Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).

ARV: After repaired value or what you think it will sell for once repaired.

Desired Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be. As a General Rule, my Desired Profit is $20,000 or 20% of ARV whichever is greater. To have an offer accepted, one may need to adjust their Desired Profit; however, it should not be below $20,000, or what one feels is acceptable.

Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.

Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.

Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, property insurance premiums, property taxes, loan payments, HOA Fees, etc.).

Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.

Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 6% of ARV.

Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.

This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.

Nicholas L. · Answer

need more info

purchase price, rehab, why you think you'll be able to manage a big rehab as your first deal, why you think you'll be able to boost the ARV, what you'll refinance into, etc.

Nicholas L. · Answer

depends on the ARV

Dan H. · Answer

Is this a quad?   If so maintenance/cap ex is far too low.  Can you really find PM all in at 5%.  My belief is not close to 5% PM at that rent point ($1250/unit if a quad) and you should probably use 10% for PM. When you use more accurate numbers for these, youR initial cash flow vanishes.  It may take a couple/few years to have actual cash flow.

The rehab will not justify a refinance.   It also will not recover the initial investment.  I would probably just consider it a value add and leave the value added in the property until a point in the future that appreciation or rate reduction (or combination of the two) justifies a refinance.

good luck

Nicholas L. · Answer

@Joseph E Caucci II

assume a rate in the mid 8s to mid 9s.

if you want an actual quote just call some lenders and ask where they are right now on LTV and loan rate.

Alexander Murillo · Answer

@Joseph E Caucci II hey man, I'd love to help you analyze this. If it's a good deal, there are people who will help you fund it (including myself). Send me a dm with the numbers you have and I'll ask you to find anything that might be missing (and I'll tell you where to look).

Nicholas L. · Answer

@Joseph E Caucci II

good breakdown of the numbers!  that's why I mentioned ARV so many times.  when you refinance you'll get out 70-75% of the ARV.  (i haven't been able to find 80 anymore... it's probably still out there somewhere but most lenders are doing 70-75%).

so even with an ARV of 750K you'd be refinancing out just 525K to 563K minus closing costs - so say 515K to 553K.

so with total costs of 633K that's 80-120K you'd need to cover with cash and any lower than 750K and it's even more than that.  make sense?

Joseph E Caucci II · Answer

again, my apologies, I am new to this platform, so I didn't realize how much info this post holds back when making it public. rehab costs are $90k. The plan is to buy and hold. Buy for $475k. Rehab for $90k. Based on that, I think it will cost about $7,600/month to hold. based on that, I think I will need to borrow a total of $633k. As far as comps, they are kind of all over the place in Jax because the area it's in really makes a huge difference. This one is in a good area. Reasonably similar compas are between $575-750k. The ones that are in the $100's are in the HOOD. I don't know what the max cash out can be on a DSCR though. here's my work:

Holding CostsLoan service: $6k/mo (I'm using this based on what you said $475 would cost me)Elec: $500/moWater: $200/moInsurance: $500/moTaxes: $400/mo

Total holding costs (6 months): $7,600/mo

Buying costs: Purchase price: $475kClosing costs: $10kRehab: $90kCost to refi into DSCR: $12k6 months of holding costs: $46k

Total amount borrowed: $633k

Thoughts?

A little help with a quad-plex review?

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