Investor · Wichita Falls, TX · Member since 2010 · 3k+ posts · 603 votes
Hi everyone,
I am wondering how others evaluate deals when they buy distressed properties with cash, rehab, then refinance afterwards with the new ARV appraisal. Not factoring in holding costs and everything.
Quick/Not Exact Example: Purchase: $35k
Rehab: $30k
Settlement Costs: $5k
Total Initial Investment $70k
ARV/appraises = $100k
Refi @ 30% LTV to take out My Initial $70k
Market rent = $1400
Now, I know I should definitely aim to be cashflowing for sure even AFTER the new debt service is in the equation.
But where do you draw the line?
At the purchase price of $70k, the numbers are phenomenal.
When doing the deal analysis for the property at $100k it would be less phenomenal BUT I would get the property for practically no initial investment and can move on to the next.
Obviously anyone would take it if it cashflowed positive even after the mortgage. And as of right now I wouldn't do the deal unless it did. But I'm interested to hear your opinion/logic since I'm a newbie. Would you take it if it broke even? How about $50 negative?
Just hoping crystallize my strategy for my next deal (#2).
Rental Property Investor · Oxford, MI · Member since 2013 · 98 posts · 18 votes
13y
Mehran...I'm new to this as well. I am taking a very conservative approach until I get my feet wet. I would want at least $100 cash flow due to all the unknown factors that may arise.
Good luck.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Personally break even cash flow is a non starter for me. If I am all in for $0 I would expect at least $1,000+ cash flow per year. Even that would be tight.
More importantly I wouldn't even consider this in the first place because I am not counting on the ability to refinance for years. Of course every area is different but Most new investors don't know how tough it is to get financing right now.
Fortunately because there is no Financing in Baltimore, Cash goes a LONG way and prices are dirt cheap.
Back to your original deal, without $1-2,000 a year in cash flow I would be very concerned about unexpected costs. Murphy loves real estate investors.
A key question is your financial situation. If you have income and cash reserves to cover the unexpected, having your tenants buy you a building is a good deal. good luck - Ned
Investor · Wichita Falls, TX · Member since 2010 · 3k+ posts · 603 votes
13y
Thanks for the quick responses. I mean breakeven after the 50% rule is applied, with the new debt service already in play (assuming the financing is obtained.)
My thoughts are, since I've just done the rehab, the chance of something unexpected coming up right away would be "slim." Giving me time to build the emergency maintenance/repair fund to about $6k or $7k to handled future problems.
Now, again I agree with you both, just fiddling with ideas/possibilities here.