In less than 30 days, when I close on this deal, this will be my first real estate purchase. My plan is to househack this fourplex.
I’ve run the numbers using the BiggerPockets calculator and my own spreadsheet. Everything points to this being a good deal. However, since this is my first deal, I’m nervous and question myself 5x a day lol. Constantly checking with my realtor, lender and property managers for their feedback on if this is a good deal. The only thing I haven’t done is post on the BiggerPockets forum. Something I've been really nervous about doing for fear of looking stupid or being criticized.
So here it is. Below you will find my full deal.
Is there something I am missing? I’d really like constructive/productive input.
Year Built: 1794
Location: Chesapeake, VA
Downtown Norfolk: 10 mins
Virginia Beach Oceanfront: 30 Mins
Airbnb Potential: Likely no due to zoning
Existing Tenants: Yes, fully occupied
Real Estate Investing Strategy: Househack
Unit 1: 3/2 | 1200sqft | currently renting at $550
Unit 2: 1/1 | 800sqft | currently renting at $550
Unit 3: 1/1 | 700sqft | currently renting at $550
Unit 4: 1/1 | 680sqft | currently renting at $450
Asking Price: $242,500.00
Negotiated Price: $230,375.00
Seller Credits: 3.7% toward closing
Approved Loan: FHA203k @ 3.375%
Rehab Estimate: $190,000 with 10% Contingency (based on the contractor I am working with)
Total Loan: $436,500.00 (or $421,950.00 if I don't dip into renovation contingency)
Closing Date 12/21/20
Appraisal: Scheduling (if the home comes in lower than we anticipated then going to renegotiate offer price or walk away)
Contractor: FHA approved Contractor Hired
Deal Analysis: BP Calculator Link
- Roof replaced in 2019 so all good there
- Crawlspace great condition
- Electrical updated to 100amp circuit breakers
- HVAC on Units 2 thru 4 needs to be replaced
- Replacing flooring with LVP
- Repainting the Interior
- Convert Units 2 thru 4 into 2 Bedroom
- Redoing Bathrooms and Kitchens since in bad shape
- Rehabbing yard and parking area
- Some other repairs to make the home competitive
Talked with 2 Property Managers and ran some comps
Desired Rents: $5,000/month.
Current tenants on a month to month lease with 30 day notice required. I'm going to let the existing tenants know they are welcome to reapply when the renovations are complete.Since I’m doing an FHA203k loan, and fully gutting the property, I will be giving all the tenants notice one by one within a 6 month time frame (since 203k renovations have to be completed within 6 months).
This will allow me to renovate while still getting some rental income and then charge higher rents when the renovation is over.
Unit 1: 3/2 $1,650
Unit 2: 2/1 $1,150
Unit 3: 2/1 $1,150
Unit 4: 2/1 $1,000
Thanks for all of your help!
Congrats! I think you are headed in the right direction. This looks to be a pretty good opportunity.
My only feedback would be.... have you verified rents post rehab? I had been leaning on Rentometer.com to model deals local to the Hampton Roads area, but I'm finding a local property manager to be much more accurate on what the market can support. I'm not overly familiar with Norfolk rents---but I'd imagine they vary depending on South Norfolk vs closer to Ghent vs near the base, etc. You may want to have a local property manager double check your assumptions.
Looking at Norfolk (and even parts of Chesapeake), you could have many more opportunities if this formula works out well. Nice!
@Russell Beach I’ve asked 2 property managers and I averaged their numbers. I also looked at Zillow and Craigslist. Just checked rentometer and the rent for the 3/2 came in the same as the numbers I had BUT the 2/1s came in lower. So I’ll run my numbers with those as a worst case scenario. Thanks for the feedback!
I am also a new investor but I wholeheartedly agree with the poster above. Some areas of Chesapeake may not support the higher rent depending on the area. I’m thinking it would be a great opportunity if it’s great bridge, deep creek or greenbrier. The south Norfolk area I’d make sure to check with a realtor or two to verify rents.
Edit: sorry I posted too slow and just saw your reply. Great idea to rerun the numbers. Keep us updated! I hope it works out!
@Jane Cerdenola the property is in South Norfolk about a 10 min drive from Greenbrier Mall.
Part of what I factored in is new appliances including w&d in each unit and there is a nice yard that I’d like to make an amenity by adding a small coal fire pit and grilling station.
Do you think there are amenities that would add value to get it to higher rents?
Sorry, I actually don’t have any multi-units so I’m not really sure what amenities would increase the rent. Maybe some utilities included might help (water, trash or internet). That would also cut into your cash flow so I’m not sure if it’s worth the trouble. 🤷🏻♀️
If you reduced the rent by a couple hundred each, would it still cash flow enough? Just in case you can’t rent it that high initially?
Hi Kim, your numbers look solid, while I’m new here I actually had a question for you, how do you find these fourplex in the area, what platforms did you use? And what setting did you search for?
@Kim Hud Ameneties are something to pay attention to, but outside higher end properties you may not see the increase you want. Coin laundry and such, that you can charge for, would give you a more reliable increase to your bottom line. You also want to pay attention to the liability you could be adding with certain amenities. That part often gets overlooked.
@Jane Cerdenola it does still cash flow but it doesn’t get the $200 per unit that I’m looking for.
@Jose Cisneros two places:
1) Zillow: I have 3 saved searches so that anytime a multi family in any of the 3 areas I’m looking at is listed I get alerted so I can jump on the deal quickly
2) My Realtor: she has me linked to her MLS so that way it automatically sends me emails of new listings that are put on there first
@Timothy Lewis thank you!
@Chris Mills that’s a good point. With the layout of the property I don’t see a viable location for a coin operated laundry room. But I’ll take a look at the floor plans again to see if one could be squeezed in.
What is your experience with coin operated laundry rooms? Do they generate a good amount of income? How about maintenance?
@Kim Hud I am new, so I don’t have any advice, just wanted to say good luck! Let us know how it all turns out.
@Kim Hud congrats
In my opinion coin op = low class. I don’t think that’s what your looking for.
also you would need a new electric meter and hot water heater just for the laundry room unless all utilities are included in your rents.
And another thing coin op laundry units are more expensive than a standard unit you can pick up all over the place for cheap.
Forget the coin op laundry not worth the $20-30 in quarters you have to physically go empty out every other week. (Once you scale to more units having to go empty the machines will be a waist of time too)
Add an out door sitting area and communal grill if there is a common space for that. look at what the newer apartments have, make something similar.
Hey Kim, congrats on finding the deal. It sounds like you have put a lot of thought into this. I do have a couple of questions.
1. You said that the repairs have to be done within the first 6 months. Now if you have a 190k rehab cost and you are gutting 4 units, then I would expect it to take a bit longer than 6 months. That is concerning to me and I don't know if you have a plan if it takes longer. I haven't used a 203k loan before so I don't know how that works either.
2. What would it appraise for after the rehab?
3. If you are house hacking this then you will be living in one of the units. Do you know what your plan is for that if you are renovating all the units? Will you be living in one unit and then moving into another unit that is renovated so you can rehab the second one?
Otherwise it looks like you have all the numbers. You might be experiencing some anxiousness because all your hard work in getting a deal is coming together and you don't want to make a mistake. The first deal isn't usually going to make you rich or poor. It is more about traction and just getting the first one under your belt. Good luck!
Hey Kim, another newbie here just wanting to congratulate you! I am impressed with your courage to share your first deal and the due diligence you have put into this. As a fellow Virginian, I wish you success with this one and am more inspired to get after it as I am looking to utilize the 203k loan as well :). The only thing I can wonder is what happens to your current tenants while the renovations take place? Other than that, love the fact that you secured a home that is a piece of American History, 1794, that's wild! Love to see this post updated as you move forward.
Congrats. Just do it, your gonna learn so much, house hack, & get your first property. It’s a win all the way around the board.
I agree with @Michael C. we removed our coin-op & put in scratch&dent W/D. Water is cheap here & I meter the electric dryer KWH ($25/month), (a gas line was a logistical nightmare). Ours is a 7 unit with 2 of the units having their own laundry rooms with gas dryers.
The original rents have tripled since we rehabbed each unit, including new (S/D) appliances, in fact a couple of units now have dishwashers. Our small studio rents for $775/month inclusive. I meter it as it's all electric & over 18 months it has averaged $40/month.
We also installed a complete fire sprinkler system throughout the entire building that requires a 24/7 high speed internet connection, so a couple of the higher priced units get free internet.
Congrats on the multi-unit, enjoy the ride !!
@Elisa Huckvale Noyes thank you! Definitely going to document the renovations
@Henriette Camara thank you!
@Michael C. I agree. The installation and maintenance wouldn’t be the best strategy for this property
@Caleb Johnson I agree that it sounds like a tight deadline. Two reasons we are thinking it won’t take the full 6 months:
1) Unit #1 just needs lipstick improvements. The bigger jobs will be Unit 2-4 and since those are smaller my contractor anticipates they will be easier to complete.
2) My contractor does a lot of 203k renovations in this area so he has experience doing big jobs in a small time frame.
Since the home is unique we couldn’t find true comps in the area. At this point we are hoping that it appraises for the post renovations price but if it doesn’t my realtor and I go back to the negotiation table to lower the sale price.
We are renovating the units one by one. With a 203k you have to move into the property within 60 days of closing. So during those 60days my contractor is going to work on exterior and then when the tenant moves out renovate unit #1 since that requires the least amount of work. Once that is complete I’ll move into that one. Then when the next tenant moves out he will work on that one.
I’ll hop around units until renovations are done on each unit until he completes the one I’m actually going to live in. I’m also thinking about listing units for rent as they are complete so I reduce my vacancy.
@HB Jenkins thank you! It is wild to think that I am going to own a home that old.
The tenants are on month to month leases that state the landlord can give 30 day notice that the lease won’t be renewed. All the tenants are going to get 30 day notice and some might get longer based on when we are going to renovate their unit.
The tenants can reapply to the apartment once renovations are complete