Hey BP fam!
I'm in Keene New Hampshire and finishing up a BRRR investment that has gone really well. I'm currently looking at a deal and thinking about putting about 60% of my currently available capital up for it and wanted to get some feedback. Hoping I can get the price down a bit but it's been on the market for over a year and fell out of contract twice, FSBO, and the listed price has only dropped 5k. Im focusing only on buy and hold at this time so the ARV isn't super important to me (in fact I'm ok keeping it down since the tax rate is ridiculous!).
2 story duplex, 2/1 on first floor, same on second
15,000 rehab needed (nothing immediate, but within 2-3 years, deck/exterior stairs, roof, junk garage, couple small floors, chimney/vent)
1800 total rents (900/900)
1200 all expenses (mortgage, insurance, taxes, vacancy, water/sewer)
Turnkey. Centrally located, walk to downtown, two local colleges. Good floor plans. Basement laid out very well for all the split utility systems, easy to access and work on (a first for me!). Ample parking. Next to main bike path in town. Easily add third bedroom on second floor unit, 1500 cost, add ~150/month in rental income.
No laundry in units. House to one side not falling apart but is a hot mess.
Hi @Jason Woodson ! Just some initial thoughts based on what you posted:
1) $15,000 rehab seems far too low for replacing a roof, a deck, some flooring, and dealing with a chimney (also noted that one side of the house is a "hot mess"... so don't know how much to budget in for that)
2) You listed all expenses as $1200/mo including mortgage, insurance, taxes, vacancy, and water/sewer. While those are some of the big expenses, you also need to be budgeting in a portion of your rents for R&M, a portion of your rents for upcoming capital expenditures, a portion of your rents for a management fee (because you're either paying someone else to manage your property, or you're paying yourself to manage your property), and whatever your vacancy factor is. This means you should be factoring in at least 18% of your gross rent as "budgeted expenses" (5% management, 8% R&M, 5% CapEx) and perhaps even more if you're not self-managing.
3) $165,000 is a pretty high ARV considering the current list price and the length of time its been on the market. Not knowing how you arrived at that number, I'd be cautious of assuming this is the actual ARV of the property. If it takes that long to sell, I'd be wary and assume there's some large issue that's going to cost a lot of money, or the value might not be exactly what you think. Based on a $165K ARV, that's assuming a $82.5K/unit price which seems pretty high for a market like Keene.
Not trying to dissuade you from purchasing... but I always prefer to take a property and look at why it won't work instead of trying to play with the numbers until they do work. Let me know if you find this helpful!
@Matt Lefebvre I'm the same way, I'm trying to find as many reasons I can why it won't work before deciding to move forward or not! :)
That $15k number is accurate, luckily I have some great resources within my family where I won't have to pay labor for anything except the roof which already has a couple estimates. I'm ok with the ARV; even if it is off I'm not looking to resell but based on comps it is probably higher (I'm always super conservative with my numbers). Keene is a weird market; the property I'm rehabbing now was $62K, put in $20K and 4 months of work, now at 140K (conservative estimate, appraisal for the refi is next week) and that sat on the market for over a year as well. Most investors in the area focus on the college rentals or large apartment buildings.
I apologize I'm not sure what you're referring to for R&M?
@Jason Woodson R&M stands for repairs and maintenance. I define it as "the money spent keeping the property in its current condition by dealing with day-to-day wear and tear".
Doesn't sound like a bad deal then! Just make sure all the variables are accounted for, and you're probably doing okay from a cashflow perspective. Are there tenants in there already?
@Matt Lefebvre Ahhh, that makes sense, in my mind I think of it as OpEx lol. One tenant in the lower unit with a lease that expires 12/31, top unit it empty. My goal would be to have occupied with people I've vetted (current could stay or leave if they pass screening) by Jan 1.
BTW thank you for taking the time to provide feedback on this!!
@Jason Woodson I have looked at that house twice. We were dissuaded by seeing daylight through the foundation and the roof. I suspect it needs roughly 20K in rehab to start, less I guess if you have friends who can help. I looked back at my analysis and see roughly 1400 in expense without mortgage. Biggest is $491 in taxes per month. That is why we have not moved on it. We found a deal that needed less work and had higher cash flow. On the positive side that location is killer, walk to school and shopping, so I think it will bring in around 1100 per month per unit after fix up. Another expense you may want to factor in is management. We factor in 10% even though my wife is the manager at the moment. Also that contractor you asked me about didn't want me to give out his info because he is swamped. I'll let you know if he changes his mind.
@Bradley Tetu we checked out the foundation, and there was an inspection done that didn't find any issues (a friend of mine had this under contract before). If you don't mind sharing, I'd love to see your breakdown and compare it to mine to see where we are thinking differently. Where did you guys end up buying?
Thanks for reaching out to your contractor, and I really appreciate your input!
@Jason Woodson Just sent you my analysis. Our rehab number is generous since we prefer to do a lot of up front preventative work. Also we planned on updating the kitchens and bath to attract higher quality tenants and get the rents up to market.
We ended up getting a three family in Claremont under contract, closing just got postponed because the current landlord is evicting a tenant. We hope to close by the end of November, but we'll see what happens. Its in a good neighborhood, and our best friends live across the street. The price was right and the condition was great. It made a lot of sense for us.
Out of curiosity why are you steering away from the BRRRR strategy that you said just worked well for you?
@Bradley Tetu That was really helpful for me to look at and plug my numbers against, thank you so much!! I'd love to hear how things end up going on your Claremont property.
@Brian Garrett The main reason is that it's really exhausting, and relies so heavily on my step dad to pull those types of numbers. I'm sure we'll do others in the future, but we all need a break. I want to get one as a traditional buy (that was the idea for this one), and FHA into another from the proceeds of this then reanalyze from there.
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