Real Estate Deal Analysis & Advice

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Matt Lefebvre
  • Real Estate Broker
  • Manchester, NH
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I'm 22 & just bought 2 properties for the price of 1 @ a 29% ROI!

Matt Lefebvre
  • Real Estate Broker
  • Manchester, NH
Posted Jun 28 2019, 09:48

Preamble

I've been lurking on BiggerPockets for over 6 years now... Listening to amazing podcasts, reading informative posts, and connecting with great people.  Now finally, after leaving big life decision to strangers on the internet and asking "Should I get a college degree or sell real estate full time?" , writing hundreds of posts with feedback about if that property is really "a good deal", and "passionately" sharing my opinion at least once on some threads... I can finally say that I am a real estate investor!

I've been working as a real estate agent full-time for the last four years.  I've sold dozens of investment properties and my business has grown exponentially year-over-year.... but boy is it hard to get a loan when you're self-employed!  As of yesterday at 3:30 in the afternoon, two weeks after my 22nd birthday, I've officially closed on a two-family and a four-family in Concord, New Hampshire.  Let me break down the deal.  Let me break down the deal:

How I got the deal

I was texting back and forth one night with my former boss of the first real estate team I worked for.  She had asked me for some advice about a really good deal with an owner who had two properties to sell and how to make it work... after some back and forth conversation, she let me know the addresses of the properties and the prices the seller was looking for.  It was a no-brainer that I just had to find a way to buy them... in this market there was no way I'd get a deal this good.  I set up a showing immediately and met with her and the 82 year old seller who had one property in his family for 45 years and the other for 77 years!!   After listening to lots of stories and admiring the pristine 60's-style apartments, I wrote a full price, as-is offer with a promise to close in less than two weeks... after having to physically track down the seller multiple times (he had no phone, no email, and just went off places sometimes) the contract finally got signed.  

The numbers

The seller wanted to net one price for both properties that I could allocate however I chose.  I had to cover all transfer tax and the broker's commission... Here's the quick overview of my numbers and projections with more detail in screenshots of my excel spreadsheets:

Purchase Price:  $365,000

  • Price Per Unit:  $60,833
  • Two-Family:  $121,667
  • Four-Family: $243,333

Rehab Estimates:  $60,000 ($10K/unit) 

Estimated After Repair Value:  $575,000

Loan:  90% LTV (of purchase price) @ 12% interest for 6 months with 2 points paid on exit

Projected Cash-On-Cash Return:  29.35%

Projected Internal Rate of Return:  51.02%

Here's a picture of the current rent roll (two units were vacant) and my projection of the rent roll

Current Rents:  

(more details considering the numbers don't tell the whole story)

Two-Family

  • Unit 1 (2BR+):  VACANT - son-in-law lived here and moved out prior to closing
  • Unit 2 (2BR):  VACANT - empty when I walked it... he was "finishing" it

Four-Family

  • Unit 1 (2BR):  $200/week H&HW included - one bedroom is painted entirely black, multiple windows are broken, and other weird things...
  • Unit 2 (1BR):  $780/month H&HW included - only "normal" tenant in the building
  • Unit 3 (Studio):  $150/week H&HW&E included - complete hoarder... floor to ceiling with junk except for a small path from his bed to the bathroom and the fridge
  • Unit 4 (Studio):  $155/week H&HW&E included - smokes in her apartment without a care in the world... had a lit cigarette while I was walking through

Projected Rents:

Two-Family

  • Unit 1 (2BR+):  $1,400/month (OWNER-OCCUPIED) nothing included
  • Unit 2 (2BR):  $1,200/month nothing included

Four-Family

  • Unit 1 (2BR):  $1,200/month H&HW included
  • Unit 2 (1BR):  $1,100/month H&HW included
  • Unit 3 (Studio):  $1,000/mo H&HW&E included
  • Unit 4 (Studio):  $1,000/mo H&HW&E included

Here's how the numbers broke down for cash in and cash out:

Actual and projected expenses for the properties (I was given a single sheet of paper with hand-written numbers).  The numbers are slightly high because they're inclusive of me as an owner occupant, contributing towards costs like management, vacancy, repairs, etc.:

Actual and Projected Income (no tenants have leases... everyone was verbal and I had to have them all sign letters of estoppel prior to closing.  All other numbers based on my estimates of market rents).  I'm assuming I'm paying myself market rent here for the unit I occupy:

The return profile of my investment with the cash-on-cash return modeled as if I bought these fully stabilized for "25% down":

And the return profile based off of having only $41K in (which is the overage that I've paid after all of my other costs have been wiped out by the refinance):

Conclusion

So that's my first deal in a nutshell!  Or at least how I hope its going to go... still have to get through the renovation, evictions, and refinance process... all of which come with their own challenges.  Always always always be conservative in underwriting your numbers when looking at deals like this.  I've bought two properties in an extremely hot seller's market.  I'm trying to buy "smart enough" that even if I screwed up my numbers royally I'll be safe and have ~25% equity in my investment to work with.  

And yes... because I've managed to invest only ~$40K in once everything is said and done, I'm going to be seeing a 29% cash-on-cash return and, including principle repayment, a 51% IRR! Not bad for my first one!

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