I'm trying not to get caught in the infamous real estate purgatory with the analysis paralysis situation.
I have found a property which I think is an excellent deal. I need advice on funding the deal.
I currently have limited funds (due to the Dave Ramsey pay off debt snowball), so it's making closing this deal a little more difficult.
Here is the deal
Tri-Plex Ã¢ÂÂ 11.8% CAP Rate ÃÂ¢ÃÂÃÂ 20.56% COC ROI
Purchase Price $105,000 ($2,000 non refundable deposit to secure this property)
Current Gross Rents = $1925/month
Expenses = $8328 (Taxes, Insurance, Utilities, Maintenance)
Value Add in expenses by charging monthly fee to tenants for Water and Gas current owner pays and is in above expense.
Washer/Dryer in units.
Top Floor 1 Bed 1 Bath - $650/month - $40 Late fee starting on the 5th of the month
Middle Floor 2 Bed 1 Bath - $725/month - $40 Late fee starting on the 5th of the month
Basement Unit - 1 Bed 1 Bath - $550/month - $40 Late fee starting on the 5th of the month
Rent = $23,100
5% Vacancy = (1200)
Expense = (8,328)
NOI = $13,572
Cap Rate = 11.08%
CoC = 20.56% after debt service of 75% LTV
Returns calculated with $15,000 in renovation expenses once tenants vacate. Each unit will need a nice make ready for new tenant carpet, paint, and may need new appliances.
Does anyone have any idea how I can fund this deal with limited funds?
Thank you so much!
@Luke Cachia looks like you need 30-40k for down payment and closing costs? Do you have a primary residence to re-fi or get a HELOC on? How about finding a hard money lender in your area?
For your value add, are you sure you can divide and sub meter the utilities? Some areas require the landlord to pay for water and sewer. Also, depending on how it is piped, you may need to do some plumbing reconfiguration to separate the units. Do you need to provide W/D in units? If you have any common area space, you could put in coin-op W/D's to recoup your electrical and water costs.
For you expenses, have you accounted for landscaping/mowing, CapEx beyond normal repairs (roof/HVAC/etc), and property management? If you aren't figuring in property management and planning to do everything yourself, be aware that you are buying a job, not an investment. That may be fine to start, but it's not scaleable and the wrong tenants will drive you bananas!
While I am new and have only analyzed a handful of deals, this looks like a great find given your current numbers!
I would factor in a property management fee as well and maybe overestimate on your cost to turn the units before re-renting them. Even still, this is a great deal and worth pursuing by find some OPM. Leverage all of your connections and since it is your first deal be generous in sharing in the profits if you bring in people on the equity side of the investment. Good luck!!
@Luke Cachia - This could be a really good deal, make sure you understand why it's not a deal for current owner.REI has lately become like stock market where it's win-lose. I think I have seen this from some other investor.
Not sure how well "Dave Ramsey" and "Investing in Real Estate" go together. One is anti-debt, and the other almost certainly requires it.
With hard money, expect to set aside 20%-30% of the total costs to make the deal work. This includes down payment, closing costs/fees, interest reserves, and some money to start the initial rehab. The rehab can be financed into the loan, but it's a reimbursement, so you won't get any money up front for the rehab work.
Or you can try to find a partner to bring in the money.
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