[Calc Review] Help me analyze this deal

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[Calc Review] Help me analyze this deal

Axel Norvell
Investor · Houston, TX · Member since 2019 · 66 posts · 58 votes

View report

*This link comes directly from our calculators, based on information input by the member who posted.

Hi guys! This would be my first deal and I'm trying to get comfortable pulling the trigger on it.

The property is a great area in Houston. I walked the property and it needs quite a bit of work, but nothing really major. At a glance, the structure looks good, it looks like a new roof and most the problems are cosmetic (AND it really smells bad, like cat pee).

I've personally estimated about $20,000 in repairs assuming I do majority of the work. I'm budgeting for $50,000 in repairs as a buffer in case things go sideways.

Here's the overall numbers (please reference the calculator above for more details):

Purchase Price: $200,000
Repairs: $50,000
Expected ARV: $300,000 (based on comps selling in the area).
Expected Rent: $2,700 (I can convert the property into two units, bringing in around $2,700 / mo total)

Initiate Purchase
Down Payment: $50,000
Loan Amount: $200,000
Loan Fees/Points: $1,901.00
Amortized Over: 30 yrs fixed
Closing Costs: $5,468
Loan Interest Rate: 4.975%
Total Cash Needed at Purchase: $57,369

Refinance after 7+ months
Loan Amount: $240,000.00
Loan Fees $4,850.00
Amortized Over: 30 yrs Fixed
Loan Interest Rate: 5.000%
Monthly P&I: $1,288.37
Total Cash Invested: $20,476.46 (I'll get around $30k out in cash).

Would this be an investment you would make?

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  • Tim Herman
    Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Axel Norvell unlikely you can refinance to $240K most cash out will be 75% ltv.  unlikely you will have vacancy of 1 month out of 4 years on a duplex. In your narative you said income will be $2700 but in the report you used $2700. 

    0Reply
  • Axel Norvell
    OP
    Investor · Houston, TX · Member since 2019 · 66 posts · 58 votes
    7y

    @Tim Herman Thanks for your insight.

    I actually have a lender that can do an 80% LTV which would be $240,000 of the $300,000 ARV.

    What vacancy percentages do you typically do for multi-family/duplexes in the Houston area?

    0Reply
  • Brian Alfaro
    Multifamily Syndicator · Houston, TX · Member since 2018 · 188 posts · 192 votes
    7y

    Hey Alex!

    Any reason you wouldn’t use Hard Money on this one and bring less cash to close and pay contractors to rehab your property and be in and out of the loan into a 30 year fixed in a month or so? You’re spending more $ and doing more work by doing it yourself (unless you’re a contractor). 

    0Reply
  • Tim Herman
    Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Axel Norvell I use 8% 1 month out of 12 for vacancy but I am not in the Houston Market. 

    0Reply
  • Axel Norvell
    OP
    Investor · Houston, TX · Member since 2019 · 66 posts · 58 votes
    7y

    @Brian Alfaro - Originally I was trying to cut costs by doing the majority of the rehab myself. But you are right, that will take a lot more time and effort, and the time saved by having a contractor I could be searching for another deal.

    This would be my first deal though, so I'm not 100% confident I'd be trying to close another deal in tandem.

    I also wanted to get my hands dirty with the rehab as I absolutely love fixing things and making them nice again. I also thought it'd be good to get first-hand experience of how much effort certain things were to do.

    I've already done a few things in the past like:
    - Tearing out carpet and replacing the entire floor with wood laminate
    - Painting an entire interior
    - Painting kitchen cabinets
    - Resurfacing a laminate countertop with concrete
    - Replaced a toilet

    I'd like to learn a bit more, like:
    - laying tile
    - replacing a window
    - replacing a light fixture / switch
    - potentially retiling a portion of a roof

    While I don't see myself doing all these things for future investments, I think that having a good understanding of what it takes to do each one gives me good leverage and experience when negotiating with contractors.

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    The deal looks marginal to me . You have tried to rationalize this with bad math . What is the real rental amount as it sits without being converted over to a duplex ? If it’s not atleast 2500 a month I wouldn’t waste my time 

    0Reply
  • Axel Norvell
    OP
    Investor · Houston, TX · Member since 2019 · 66 posts · 58 votes
    7y

    @Dennis M. I think you are right. The property wasn't really as good as I thought it could be.

    I re-checked the rental comps in the area, and getting $2500 for the property would of been a stretch.

    What the property had going for it was the potential to convert it into 2-units. 1 main house, and a back-side apartment that would be good for a business/office rental.

    The location was also very good and exactly where I'd like my first investment to ideally be.

    I was considering offering $150,000k cash for the property which would of be $70k below asking price. All in I would been at $200k with a ~$300k ARV (based on comps in the area).

    For these types of deals, do you guys typically find the purchase price that makes sense, and make the offer (even if it's ridiculously below their asking price)? I'm assuming if you do this 100 times and you get at least 1 person to accept the offer, the strategy would be worth it?

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