What AM I MISSING HERE - POSSIBLE FIRST DEAL

Question

So.... my house is worth 1.3mil. and my mortgage balance is 250k... i have some equity. I've built 3 homes, and I know my way around... (these homes were for myself, my parents, and my sister).... Now.. saw a 2 family. asking $220k. probably get it for $200-$205k by writing a check from my Heloc. needs a little work. Which i can do on the cheap. after work. Should be worth $240k. I'll want to get back $ I put in when purchasing. Someone told me you can only get 70% on a cash out refi. Which leaves me with $168k of the $200k I put in, plus a rent roll of about $2300 month. $700 month taxes-$120 insurance-$954mortgage - throws off $450 month.. WHAT AM I MISSING?? cause by my calculations that's 16% on the $32k I came out of pocket. plus the repair costs... another $10k (let's not count that for now)

Account Closed · Answer

@Joe Farruggio Multiply what it will be worth *.8 (80 percent). If you want to do a cash out refi without leaving money on the table, you should able for that amount. 240,000(what it will be worth)*.8 equals 192k. of course, you still need to take into account any potential repairs

Account Closed · Answer

@Joe Farruggio LTV for cash out refi go all the way up to 80 %. Assuming your valuation is correct, you would need to purchase it at 192K if you want to get your money bank. I'm not sure if you're aware of title seasoning, but banks will require you to hold title for at least 6 months before they let you refi. In regards your numbers above... Are you counting vacancy? You should deduct at  least 5 % from gross rents. Then you have a management fee (8-10 %), capex, maintenance, etc. At some point your HVAC, roof, appliances will need to be replaced. You'll need to paint it, replace that old carpet, do landscaping etc. Even if you're self-managing the building, you should still run your analysis under the assumption that someone else will be managing it for you.

Joe Farruggio · Answer

Account Closed I gotcha.. I dont mind leaving 8-10k on the table. house was built in 2003... so it's in pretty good condition. mostly cosmetic/marketing upgrades that need to be done. so now here's where Im at. monthly rental income $2400- 5% vacancy $120 - Taxes $700 - Ins $120 - self management $192 =$1268. if I cash out 192k @ 5.5% (that's what I was told going rate for 2 family investment was) that's -$1090 = $178 free cash flow.. Wow... what I thought was good at first is'nt so good.

Joe Farruggio · Answer

@Daniel Moctezuma how are you getting the purchase price at $192k? good point on factoring in the 5% from gross rents on vacancy, and the 8-10% when self managing.