Please check my numbers on possible rental property

6 Replies

Hello BP community and thanks in advance for all advice and help.

  1. Looking at a forclosure that is listed at 16,500 in an area that supports an ARV of 45K. My repair estimate to get to good rental condition is 15K. We have a rental in the same neighborhood that is almost identical, except our home does not have a one car garage like this one does. We are currently renting our home in that area for $600/month. We have a local credit union that is willing to lend to us for "project homes" up to 50K at 5 ish percent and then we would refi after the rehab was done. Does this scenario seem to make sense? What advice can you all offer. I know there are a million things I am overlooking as far as costs etc. Also, I am located in Battle Creek, MI.

Hey @Damian Smith , before we get started on the high-level numbers, is the project homes loan from your local credit union involve the purchase and rehab costs wrapped into the loan itself? If so, 5ish percent isn't a bad rate for a rental and many banks won't lend under $100k (traditional conforming banks); just my initial thought when you said refi after rehab. Also, if you want to do a cash-out refi, keep in mind that most banks will require a 6-month seasoning period before you can cash-out, but based on your numbers, you may only qualify for a rate/term refi because the typical highest cashout amount is 75% LTV, but of course, there are instances of 70%, 80%, etc. With rehab at $15k and purchase at $16,500, let alone any holding, closing, and other costs, you're already at $31,500, which is 70% of a $45k ARV, which does not allow much wiggle room. Alternatively, with the seller's market that we're in, I'm sure many people would jump on this deal, but these are just my two cents, certainly not my comprehensive breakdown. I'd be happy to keep working through this with you if you'd like.

Thank you for your time Jason.  Yes, the loan would include the repairs and property purchase....That is why I would like to refinance to a more conventional loan when the project was complete so we can free up this 50K again for flips and fix to rent type properties.  Based on your response it sounds like rental candidates also need to be purchased at 70% to make sense?  I am sorry but I have been studying Wholesaling and Flipping and no so much on the buy and hold side. We are landlords currently as a reult of the economy. I also want to learn much more on the buy and hold side so can add cash flowing properties to our portfolio over time.

I say go for it !

You know the area and have another rental like it, you have the financials in place, and at $31,500 and $600 in rent you're just below the 2% rule so that's pretty good.

Which credit union does that for you?

on the surface, the numbers sound good.  There are spreadsheets in the FliePlace tab here on BP that you can run numbers through as well as the BP Calculators.  I wish we had these type of foreclosure deals around here.  I'd pad your rehab budget by 10% for overruns/unexpected things.

Also Damian, just because you'd like to refinance into a "conventional loan" doesn't mean that you need to go to another bank. The credit union may be able to do the refinance which would still free up the rehab loan for additional purchases. Also, without knowing their guidelines, they may be willing to do more than one of the rehab loans.  

Since you're already talking to them about the initial loan, I'd go ahead and talk to them about exit strategies ("Once the rehab is complete, what are your options for refinancing to 'free up' the rehab loan for other projects, or is that even necessary?").

Off topic: I loved the smell of Battle Creek in the mornings... I lived in a rental near the Post plant one summer. :)

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