Rental Property Investor · Killeen, TX · Member since 2017 · 338 posts · 100 votes
Hello everyone, I'm a soldier in the US army but have big ambitions and don't plan on waiting to get out of the army to start. This is my first lead and a promising one. Here are the numbers.
- I am planning on using the BRRRR strategy on this one
- Duplex w/ 2 bed and 1 bath
- Seller price $124,000. After calculations my offer = $90,000.
- needs $20,000 (rough estimate)
- both units would rent about $1,100
- ARV $200,000 (rough estimate, based on similar properties around it)
I guess my biggest concerns are the repair costs and ARV. I've never done any construction work, although I know this is an easy fix coz I could just ask a contractor to give me an estimate and also with the ARV, I could just bring in an appraiser however just with the estimate I put up, would this be a sound deal?
oh, based on BRRRR calculator, on Initial Rental Period my Cash on Cash would be 289.36% and on Refinance it would be 213.70%
I always want to help out a fellow Service member/Vet. For J Scott's book and others look here on the BP Bookstore. Go to the menu, then click on Education, then books.
You will not be able to use your VA loan unless you plan on living in one unit (House Hacking strategy).
You also may have a difficult time getting a Hard Money loan. With you being a new investor (no experience) they may not give you a loan. Or they may only fund part of the deal. You will definitely need to have skin in the deal. How much were you planning to cover? Also what is your time estimate for the Rehab? 3 months? You really will not know that until you have the contractor's estimate.
Try to find a local REI club or meet-up group in Fairbanks. They are a great source of information and help.
For your BRRRR Refinance planning purposes you need to try and keep your all-in costs (Purchase price, Rehab costs, Closing and Holding costs) to no more than 70% of your ARV. As you stated the Refinance Lender will give you a loan that's 70 - 80% LTV based on a new appraisal. Typically it is 75%. If you target 70% it leaves you a 5% buffer encase the appraisal is lower than expected or your Rehab costs are more. The closer you are to 70% or lower the better chance of getting 100% of your Cash out.
Do not be concerned about asking stupid questions. That's how we all learn. And it's much better than finding out the hard way.
If your buying this with your VA loan and somehow roll your repair cost in the loan then I guess I can understand your cash on cash return but it would be meaning less. However, given the numbers that you are proposing, and assuming you will have very little trouble renting out the units, then I think you have a superb investment opportunity.
I second Joe ^ ... Need to get multiple opinions from contractors, to ensure there are no unforeseen issues with the property. But, based on your projected numbers (always be conservative with projections to get realistic returns) you have a very strong investment in front of you.
Adrian, I'll go one step further: If your numbers are correct, this would be a good investment even if you paid asking. But you need to make sure you are good to go with repair cost, and your rental projections are tight with little trouble renting. I flew A-10s out of Elision AFB and I can just imagine if you have a vacancy in the winter it could be hard to fill. Numbers look good, verify verify verify.
@Joe Scaparra Thank you for your input. About that, I wasn't gonna use the VA loan on this one because the loan requires me to use this property as my primary residence. If I did then that would throw the numbers off as I'll be staying in one of the units and I think I would get less cashflow.
@Kyle McGee I would definitely do that. As you suggest so would my next step be to find a local contractor, contact the RE agent for the property and request for a inspection?
@Adrian Fajardo If I were you, I would ask around and find a well respected realtor to represent you in the transaction before I just called the realtor that has the listing. Often times realtors have access to good local contractors in the area. But, before you get too far in the details you need to get it under contract first. If it's as good of a deal as your numbers suggest, I would be very surprised if it sits for long.
Is this property in Fairbanks? If your not using your VA what are your out of pocket expenses. I think your cash on cash numbers are way off. 18k for downpayment, 3k closing cost, 20k repair, I don't see any way to get cash on cash numbers you calculated. However, if your initial numbers are correct you have a good opportunity.
@Kyle McGee I see. That is valuable information but as for the "sitting too long" part, ironically it has been sitting for too long. According to the MLS it's been in the market for more than a year now but I do see your point and I'll make a move soon. Thank you for your quick response and valued input.
@Adrian Fajardo Then there is likely something going on with the property... structural issues, unmotivated sellers, etc. Something doesn't add up. Good luck!
An appraiser will not be able to help you with your ARV. They will give you an appraised value based on the current condition. The ARV needs to be based on recently sold comps. Get a Realtor to help establish the ARV. You will need to establish a relationship with one so start now.
It would be smart to use a contractor to establish your Rehab estimate. You should also get J Scott's "The Book on Estimating Rehab Costs". It will give you a good understanding of the whole process.
What is your financing plan? Cash? Hard Money? Private Money?
Are you saying both units rent for $550 each ($1,100 total)? Or $1,100 each? What are current rents? What are the Market Rental rates for the area?
Don't forget to include Closing and Holding costs in your calculations.
What is your Refinance plan? Try to get prequalified for the Cash-out Refinance loan prior to purchasing the property. Knowing what the end result will possibly be makes your strategy much more successful.
Good catch on the rental rates. If your only getting $550 a side then I retract ALL of my previous comments. I'm not sure this is a good opportunity if that is the case. If the property is in Fairbanks, then you had better assess the rental market in the Winter months which go from Oct to April. What are the challenges if the property goes empty in the winter? I hope you are getting $1100 a side as that is what I based my opinion on.
@John Leavelle Oh, my mistake about the ARV. I'll definitely do that first then.
I'm not sure if were on the same page on this one but I've read J Scott's MS Word doc about estimating costs. It's like 3-4 pages so I wouldn't consider it a book but if there's a book, I'll look into it too.
I plan to use hard money. I haven't brought them the deal yet coz of course I'm making sure all the numbers work out. If that doesn't work then I'll be looking for others means for short-term money lending.
I apologize for not working it right but yes EACH of the units will be $1,100 therefore a total monthly gross income of $2,200 for both units and yes I've based it on similar rents in the area with similar properties.
Yes, I've included the closing costs and holding costs. That's the part that scares me actually only because I live on a soldiers salary and it's not the best of them all but I'm living well below my means to make this deal work.
As we speak, my prequalification on a loan is under processing. If all works out well the lender said I could use the VA loan to refinance which is kinda nice coz of the benefits that comes with the loan. I do get what you're saying though about the value and that's what I'm waiting for as I read throughout this post, the bank only finances 80%-70% of the value? am i correct? so that's another thing I'm hoping to consider that refinancing would cover the initial loan.
John, I'm truly grateful for all the tips. You brought out some important details plus some that I even missed. Thank you..
@Joe Scaparra Oh, yes. I meant to say each one would rent out for $1,100. So a total of $2,200 Gross per month. I initially didn't consider the winter season coz the property is so close to the base that most likely my tenants (future) would be military and we don't go any where during the winter season anyway. But that is something to consider though if I do get applications for civilian tenants. Thank you for that.
I feel a whole lot better. With 2200 monthly rent this is a very nice opportunity. The last concern if they ever close the base it could put you in a tough situation. However, you can't plan on that happening, can you?
Double your estimate and time since you are green and helpers seem to have their own agenda. You almost always overrun your cost. I suspect your ARV is over stated. I doubt any home sellers will sell 60 cents on a dollar value. So you need local realtor help... You get 45 cents on a dollar.
As for renovation, I doubt the cost of materials and labor are lower in Alaska than in CA. 4 brm, 2 bath, two kitchen will run over $50K here. I am not talking about roof, exterior, attic, heating systems yet. So you need a contractor or two estimate cost.
@Sam Shueh Sorry but this might be a dumb question but I don't get what you mean by "Double your estimate and time since you are green and helpers seem to have their own agenda. You almost always overrun your cost."
Yes, first things first. I would consider a Realtor and a Contractor to help with accurate estimates. Also to be clear, this place doesn't need major cosmetics. Probably new paint and carpeting. Probably new counter tops too but nevertheless I'll have a contract give me an estimate with what I want accomplished to the place. Thank you by the way with the detailed tips. I really do appreciate it.
@Joe Scaparra unfortunately not, that info is way above my pay grade. The good thing is I still have close to 3 years here and I only need 1 year. After I pay off the short-term loan and refinance, I think I have an exit strategy.
Your numbers still do not gyrate. A kitchen w new counter top w/o new cabinets? New appliances. New bath. If you think it takes $20K I can assure you will go over that estimate easily. Again the whole sale price of 45 cents on the dollar purchase sounds very challenging. There must be reason why the price is that low and AVM is projected way higher. In our area, tenants expect very much completely renovated interior these days. I have never had a job not running over schedule and cost beyond control. I doubt in Alaska it is the same.
I just moved to Eielson AFB recently, and was searching for a deal myself. If you're referring to a property located in Fairbanks, is it the one on 18th (not interested in it for myself, just wondering)?
I always want to help out a fellow Service member/Vet. For J Scott's book and others look here on the BP Bookstore. Go to the menu, then click on Education, then books.
You will not be able to use your VA loan unless you plan on living in one unit (House Hacking strategy).
You also may have a difficult time getting a Hard Money loan. With you being a new investor (no experience) they may not give you a loan. Or they may only fund part of the deal. You will definitely need to have skin in the deal. How much were you planning to cover? Also what is your time estimate for the Rehab? 3 months? You really will not know that until you have the contractor's estimate.
Try to find a local REI club or meet-up group in Fairbanks. They are a great source of information and help.
For your BRRRR Refinance planning purposes you need to try and keep your all-in costs (Purchase price, Rehab costs, Closing and Holding costs) to no more than 70% of your ARV. As you stated the Refinance Lender will give you a loan that's 70 - 80% LTV based on a new appraisal. Typically it is 75%. If you target 70% it leaves you a 5% buffer encase the appraisal is lower than expected or your Rehab costs are more. The closer you are to 70% or lower the better chance of getting 100% of your Cash out.
Do not be concerned about asking stupid questions. That's how we all learn. And it's much better than finding out the hard way.
@Sam Shueh gotcha. Definitely, I'll do the calculations again with a more conservative approach and once I'be gotten accurate estimates. Thanks again for your help. Much appreciated!
@Osmany Linares Welcome to Alaska! Hope you settled in just fine. Sure, yes it's in Fairbanks and on the 18th. I'm practicing my property analyzing skills but hopefully if I do find where everything works out then I'll make an offer. If you do have a deal going on, do you mind if I tag along? I mean, I just wanna shadow you and see how a deal goes on? Anyway, again Welcome and I hope you have an amazing experience here.
@John Leavelle That's very kind of you to say sir and I appreciate you taking the time to help me out.
I'll go ahead and have a look on those books.
Yes, I have a feeling what you're saying is going to happen. At the most I can only put out $5,000 but the good news is I'm not going to let that stop me. If this deal really is a diamond in the rough then I'll find ways to finance it. I'm not going to stop just coz I don't have the funds. As a matter of fact, I'm not going to let anything stop me in doing what I set out to do :)
Correct on the rehab. I did estimate for 3 months but not till I do a thorough work around the property I won't know how much work is needed to be done on it.
Will do. I think I'll have a good idea of my area through people on those clubs.
Understood on the BRRRR points. I guess that's why the ARV is so important and must be as accurate as possible. As you've stated on your previous post, I'll get a realtor to help me get an accurate ARV.
Thanks again for all your help. I wish you luck sir!
I took a look at that property a while back ago but never found the courage to pull the trigger. I don't have much advice on the numbers because here in FBX everything seems much trickier than in the lower 48 but I do have a tip for you. Get a realtor and ask them to send you the associated documents on the property. If it is the one that I think it is, it should have at least an inspection sheet attached to it. It has been on the market for a while so if anybody was interested in the deal and did an inspection on it, here in FBX they're obligated to attach the paperwork to the property. I'll post on here once I find something. Let us know for sure if you end up following through with this property.
Hey @Adrian Fajardo, you might want to look into getting an AHFC rehab loan as well. You can talk to someone at Alaska USA for details on the loan. It is 10% down. I have a friend that is finishing his rehab on a duplex in Fairbanks right now. It sounds like a good loan program. You don't need a General Contractor (like you do for the FHA 203k rehab loan) and you only need one bid for each part of the work (electrical, plumbing, etc.) versus 3 different bids for the FHA 203k rehab loan.
This loan may save you on holding costs as well. Here in Anchorage, HML's (Hard Money Lenders) generally charge 5 points (5% of purchase price) up front and 12.5% interest on interest only loans (take loan amount times 12.5% and divide by 12 to get the monthly payment amount).
Also, $124,000 is a very good price for a duplex in Fairbanks from talking to my friend, so I would suggest performing a very in depth inspection of the property since it has been on the market for a year already at that price.
@Adrian Fajardo Just an FYI, I just renovated a 2br 1 bath side of my duplex, with a brand new kitchen, bathroom, new flooring throughout, new paint, and a bunch of random repairs like drywall and such. I did all of my own work and I used builder grade cabinets and I made my own custom counters and STILL that work cost me about $21,000. and that is only for 1 side of the duplex. So I bet if I paid a contractor to do that it would have costed up around $45k.
@Osmany Linares Thanks for the tip. I'll make sure to look for those papers when taking a look at the property. Definitely, I'll post how it turns out when I get further ahead.
@Connor Maloney I just finished reading about the loan. It's a really powerful tool man. I just checked on eligibility and it states on Alaska residents though :( .. I would've liked to take advantage on it. Is your friend a resident? Thanks for the input and good luck on your projects too.
@Nathan Jabaay Most definitely, I'm dealing with the folks at Madden right now. Would you recommend them? Or is there anyone else you would prefer?
@Cam Jimmy wow! that is kinda pricey. Well I really haven't gotten the chance to walk around the property but thank you for giving me an idea. Quick question, have you been doing all your renovations yourself? I guess what I'm trying to find out is, should I also do it myself if it's easy enough or hiring out people with experience is the way to go?