Our first offer - Any suggestions?

6 Replies

My wife and I just made our first offer on a bank-owned property.  We were dragging our feet after viewing the property twice (once with agent, second time with contractor and agent).  Got a message today that another offer was coming in on the property so we quickly put in our best offer.  From what we can tell, once this property is all fixed up it will be a cashflow monster for the price.  Details:

Property Type: Multi-family (3 units + separate garage)

Offer: $25,000 cash (can't find a mortgage for that low)

Estimated Rehab: $30,000 (2 units cosmetic, appliances, and flooring - $15,000, 3rd unit - major repair - $15,000)

Total income: $2,000 (Garage = $250, 1st Unit - 3 story, 2BR/1Bath = $675, 2nd Unit - 2BR/1Bath=$500, 3rd Unit - 2BR/1Bath = $575)

After Repair Value: Range between $65,000-$75,000

I was hoping to only put 25% down on the property and do a mortgage/loan but can't find a mortgage for that low of an amount. I currently have $20K readily available to use for purchase/rehab and a few options to come up with the rest. When I run the following numbers I am coming up with over $825 in monthly cashflow (accounting for 15% vacancy, 10% capex, 10% repairs, 10% ins, 8% management) and 17-18% Cash on Cash ROI.

What do you think?  Are there things that I may be forgetting to look at or think about??  Thanks for any and all advice!

Originally posted by @James Canoy :

Taxes?

 Yes, I have 6% factored for the researched property taxes.  Thank you!

@Andrew UMphrey I might be late to the party but I agree with 18% if all the assumptions are correct.  Have you thought about:

  • Closing costs.  I know theres no mortgage but who pays title search/insurance, recording fee, inspection, etc.
  • Snow removal/landscaping costs
  • Utilities.  Which do you pay?

Otherwise sounds like a cash-flowing beast.  If you are doing major rehab it might be a good idea to do the work to have utilities metered separately for each unit.  Best of luck.

Originally posted by @Derek Kirkwood :

@Andrew UMphrey I might be late to the party but I agree with 18% if all the assumptions are correct.  Have you thought about:

  • Closing costs.  I know theres no mortgage but who pays title search/insurance, recording fee, inspection, etc.
  • Snow removal/landscaping costs
  • Utilities.  Which do you pay?

Otherwise sounds like a cash-flowing beast.  If you are doing major rehab it might be a good idea to do the work to have utilities metered separately for each unit.  Best of luck.

Thank you so much for the response @Derek Kirkwood.  You are not too late!  They did accept our offer and we are doing a home inspection this upcoming week.  I did factor in about $2,500 for closing costs in my calculations.  Snow removal and landscaping was not something I specifically calculated for.  At the home inspection I plan on asking the inspector and my contractor how exactly the utilities are set up.  There are separate electric meters for sure.  I would like to get as much of it separated out as possible.  Natural gas is available in the city but it is currently set up on oil.  Is that worth switching?

@Andrew UMphrey I'm not sure what you're seeing for mortgage minimums, but look at this site:

https://thelendersnetwork.com/fha-203k-streamline-...

The 203K loan is an FHA product that is for purchase with renovation and according to that site has a minimum loan of $5,000.

Full disclosure: I have no relationship with that website and receive no compensation from them.  They were one of the first results that came up in a Google search.

@Andrew UMphrey   Congrats on getting this under contract!  I don't know much about oil heating but here is the same discussion:

https://www.biggerpockets.com/forums/742/topics/488598-oil-to-gas-utility-conversion

I bet the inspector would have some thoughts on it too.  Either way you want to determine what utilities will be paid by you and which will be paid by tenants.  Could have a big impact on monthly expenses.  

Good luck, let us know how it goes.

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