Triplex possible purchase

8 Replies

Hi all,

So I just got done refinancing a SFH after a successful BRRRR. Its about $250 cash flow with a 7% cash on cash return. Not a home run but a solid blooper for now in the market I'm working with. Anyway, I was tipped off to a possible other opportunity by a guy who did some work for me on the wall heater in the previous SFH. It is a triplex with all its own separate metering so tenants all pay their own utilities. She wanted 200K but has come down to 190K. I think I could get her down to 185K. The units all rent for $600 each totaling $1800 a month. Market price dictates at least each unit could rent for $700 each but I would only go up $50 for now, making the total income $1950, and this is being conservative. I have the possibility of private financing and if not I will use hard money as I did on the previous property. I am planning to put down 20k and pay the private investor 8% amortized over 40 (do people structure this way usually?) years until I get to 25% of the purchase price so I can refinance and pay out the private lender. I have two question, first does this seem like a good deal, and second how could I structure the deal so we hit the 25% mark withing a reasonable amount of time. 25% of purchase price is 36k and note I am already putting 20k down from the beginning. She is open to owner finacing but it has to be short term and she still owes on the property, so she would have to take a second on the property, and I do not know how much the current balance is on the loan. Any suggestions would be great.

https://www.biggerpockets.com/calculators/shared/605051/3fc57d16-1735-4df2-b78d-fdd4f40cfd8d

Howdy @Brett Hearn

Need more information. What is ARV? Rehab estimate? How old is the property? What condition?

If $200K is FMV then this is not a good BRRRR deal. You must be able to force appreciation through Rehabbing a distressed property.

@John Leavelle , thank you for your response. The house was built in the 1930's about the same timeline as the previous house I just rehabbed and rented (Pushed about 40K of equity depending on the appraisal, and only spent about 13K for the rehab) the ARV on the new triplex is about $230k with about $10-15k, all together worth of rehab work as each tenants leases come up, and I'm talking basic interior paint, some vinyl floors throughout except bathroom, and any nick-nacks throughout the units, not a full scale rehab as I did before. Looking to purchase the property at $185K. As mentioned before their is 3 units all renting out for $600 a piece. But once each tenants lease comes up let them know that we are doing small work to property and raising the rent by $100 bucks, or maybe more. The area is grossly under market for rent. The property is across the street from a middle school on one side and a church on the other side of the street, I would give the area a solid C+ to a B-.

Anyway, I was thinking I could just save up enough with my partner and myself, both have good high paying jobs, and scratch together whatever we need to come up with a 20% down conventional loan.  If we have to go to family for a little extra if we can't make it, then we give them a percentage X for, say another 20K and pay them back at the end of the seasoning period on the previous property I just rehabbed and rented.  As mentioned before pushed about 40k worth of equity into that thing so surly we could take 20K out, renegotiate the mortgage payment, and make the loan bigger.  As long as we have 25% equity in the previous property we should be good to us this strategy?  If I have run on sentences I do apologize.  

@Brett Hearn

Your information is confusing between your two posts.  First, disregard anything to do with your previous success for now.  Let’s concentrate on the current one.  Each deal is unique unto itself.  The link you provided in the original post does not work.

You talked about acquisition financing using a Private Lender, Hard Money Lender, and Conventional Loan.  Please clarify which you are pursuing.  Provide a breakdown of each (Interest rates, term length, points, interest only payments, and balloon payments).  Also provide your expected Refinance loan terms.

Clairify your down payment projection.  $20,000, 20%, 25%?  20% of Purchase price is $37,000.  25% is $46,250.  Not sure where you are getting $36,000?

Regarding the Refinance loan amount for the Triplex. If your ARV of $230,000 is accurate, then, the maximum loan amount (75% LTV) would be $172,500.

Regarding your first successful BRRRR deal. You stated in the original post that you just refinanced the property. In your last post you talk about using equity in that property "after the seasoning period " to pay back family lenders. If you already refinanced then there is no seasoning and no equity to use for that. So my question is what the heck are you talking about??

Let me clear things up from what I can piece together.

Property:  Triplex built in 1930.  $190,000 Asking price.  Current rent $1,800 ($600 per unit)

Your link in original post does not work.

BUY:

$185,000 Purchase price 

$20,000 Down payment? (TBD)

$164,000 Acquisition loan Private Lender (8%/40 years? Interest only? Balloon payment? Or Hard Money (Terms?)  Or Conventional Lender (Terms?)

$5,500 est. Closing costs 

$$ Mortgage payment?

Rehab:

Did you walk the property?  Property inspection?  Condition?  Up to code (electrical, plumbing, lead paint)?  Stated cosmetic only rehab $15,000.  As tenants leases expire.  When?  Will you evict/not renew?  Time expected to complete rehab once started?  Total Holding costs expected?

At

ARV $230,000. What are you basing this on. Comps?

RENT:

Currently rented.  Seasoning period starts at Closing.  Rent after rehab $2,100 ($700 per unit)

Refinance:

$172,500 Cash-out Loan (75% LTV)

Example mortgage payment $874 month (4.5% APR/30 years)

Original All-in Cost Basis $205,500 plus

$172,500 - $165,000 (payoff acquisition loan) = $7,500 remaining for cash back to you!!!!!

With these numbers this is not a good BRRRR deal. You basically will not get any of your own cash back. You will be better off going with a regular Buy and Hold strategy using a conventional loan.

@John Leavelle thank you for your response.  I realize that I seem a bit schizophrenic with my analysis but with all that, I do think that going with a conventional loan and long-term buy and hold is the strategy. 

I do understand that, pending the deal looks good from all of the angles you mentioned above, I will have to come up with 25%=$46,250.  I plan on coming up with $20,000 on my own and my partners are coming up with $10,000.

I am planning on approaching family for the last, roughly $17,000 that I will need for the down payment. 

I have not walked the property, only drove by the location so I can not speak to some of those vital questions that you inquired, but the location is really good, and the structure from the street seems solid, with a newer looking roof on one of the units.  Other than that, we really have to do a walk through.

1st Tenant; Currently $600 a month and now at a month to month.  Plan to tell them upping the rent by $150 but will be doing some work on the unit to justify. 

2nd Tenant: Currently $600 a month and only has 5 months left on the lease.  Plan to do the same to them when lease come up and do the same as previous.

3rd Tenant: Owner wasn't clear but I think we might have to wait a year on that one.

Anyway, John I agree that a BRRRR strategy would not fit for this project, but what I was proposing was tapping into the equity of the previous property at a years time to pay back my family with an 8% on their money. So, if they let me borrow $17,000.00 then they would get back $1,360.00 plus their $17,000.00 in a years time.

I would get that cash from the 1st property by pulling out cash and renegotiating the loan, or doing a cash out refi to get the $17,000.00 plus the 8% interest that I owed them.  I have, after the appraisal, over $72,000.00 in equity into the property.  

Yes I just refinanced, but that was to get out of a Hard money loan.  But why could I not refi again later to pull out $18360.00 to pay back family on my first property. Basically the mortgage company would be making my loan bigger and it would only tack on about $100 to the mortgage.  The cash flow is around $250.00 now on that property so I am comfortable with it coming down by $100.00.  

Is this making sense now.  In short, I'm not completely sold on if the Triplex is a deal or not because I don't have enough information.  I am trying to figure out, if it was, how I could get the funding and how I could pay back the lender using the equity in the 1st property I purchased.   

Thanks for your patience John.  Hope I did not scare you off. 

@Brett Hearn

Ok.  I think I might be getting it.  To make it crystal clear can you provide more detail on the first deal.

What was HML amount to payoff?

What was the appraised value at Refi?

What was the LTV percentage and new loan amount?

Did you pull out any additional cash over the amount of the HML?

The reason I’m still confused is if you already completed a “Cash-out Refinance “ is I want to know how you can possibly build that much more equity in just one year?

@John Leavelle

I'm Refinancing the first property now, and not doing a cash out as I would have to wait a full year for that for the property to season. I'm am doing a straight up refinance to get out of the HML and into a lower %.

HML amount to payoff $56,500.00.

Getting appraisal Friday, but hoping for minimum of $125,000.00, being conservative and hoping for better (my real estate agent thinks $135,000.00 but I think that's being ambitious.)

I don't think I will really know the LTV till the appraisal is done but assuming the appraisal is $125,000.00 I should have 45% equity into the property, as there will be no cash out, and the new loan will simply cover the HML loan at $56,500.00, plus closing costs $1350. Paid $77,000 for property originally.

Unless I am confused, and I would not be surprised if I am. 

Thanks John

@Brett Hearn

Ding! Ding! Ding!

NOW everything makes sense.  LOL.

Your original post and several others stated you just got done refinancing the first property.  However, it has not been completed yet.  Big difference.  Why did you not take the cash out now verses going through another refinance process?  It would have made everything much simpler.  I agree though you can cash out in another year as you had planned.

@John Leavelle

Hahaha, yeah I was writing in the future tense I suppose. The reason I am refinancing now rather than waiting for a year to do a cash-out refinance is because of just that, I would have to wait a year. I want to get out of the HML, plus my interest goes from 10.5% to 5.2%. That takes my cash flow from $4.30 to $200.18, (of course after cap ex, vacancy, repairs, property management, P&I). I figure a lot of things could happen in a year. Heck I could find a private investor or something, one never knows.

I will pony up the closing cost to do a refinance with cash out in August if this deal goes through an I need the cash to pay back family. 

Thanks for the piece of mind.  Good talking to you John!

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