Deal or No Deal: Fourplex in Virginia

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Deal or No Deal: Fourplex in Virginia

Kim Hud
New to Real Estate · Virginia Beach · Member since 2019 · 58 posts · 44 votes

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

Insurance: $1,711

Taxes: $1,768

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

Inspection: Passed

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

Renovation Plan

- 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!

19Reply
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Most Popular Reply

Russell Beach
Rental Property Investor · Virginia Beach, VA · Member since 2020 · 21 posts · 24 votes
5y

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!

Best

R.

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  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    5y

    Whether you actually get reimbursed for water is baswecon asset class.  The rents arent much and I donrmt know for sure but in general it gets more difficult the lower you go down.  If you upgrade things and ask you might have a better shot.

    0Reply
  • Richard Lincoln
    Lender · Las Vegas, NV · Member since 2015 · 30 posts · 12 votes
    5y

    @Kim Hud

    I see the 190k rehab cost and my jaw is dropping. When starting rehabbing a typical day for me starts out I get up in the morning and I start scoping out the Home Depot and Lowe’s parking lots for the laborers and if I find them I start haggling the hourly rates. Typically I pay $15 to them, but I’ve heard they go as low as $12. I also post ads for labor on Craigslist. The best labor is on weekends because then there are all the good people who work M-F looking for extra hours. Can get really skilled people who will work for $25 on the weekend just because they got nothing better to do. Then once you keep doing this you will sort out the good ones from the bad ones and eventually have good people coming in regularly until the jobs done. While the guys are working most of the time is spent shopping for tools and materials to keep the guys busy. Get a uhaul trailer for bulky pickups and dump runs to the county landfill. Once the rehabs done return all the tools to Home Depot for refunds. This is the cheapest way. Do stuff that can easily be seen from the street last so if the inspectors see it, well most everything is done already. Probably illegal but eh.

    0Reply
  • Mark Cruse
    Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
    5y

    Congratulations. This is a very big step for a newbie and it takes a lot of discipline and heart to jump in and drive to this extent. I used to be stationed down that way. Best of wishes!  

    1Reply
  • Javier Riojas
    Member since 2020 · 2 posts · 0 votes
    5y

    @Alexander Szikla

    Cash for keys is an option instead of going the eviction route.

    0Reply
  • Javier Riojas
    Member since 2020 · 2 posts · 0 votes
    5y

    @Kim Hud

    Big congrats for getting this far... keep it up success is imminent.

    0Reply
  • Joe Edwards
    Investor · Northern New Jersey · Member since 2020 · 94 posts · 96 votes
    5y

    @Kim Hud

    Congrats on pulling the trigger! The numbers on your BP sheet look solid. However, I would most certainly run your new rent numbers from a much more conservative perspective.

    ▪︎Unit 1 you are looking for a 3x increase in rent and the other 3 units 2x. My gut/ experience tells me your numbers may be a bit of a stretch. When I see those rent number my 1st question would be why didnt a experienced local investor beat you to the purchase given your purchase terms and the market showing such strong numbers?

    So think about that and tighten up those numbers and set up a worse case scenario of rent numbers and make sure your still cash flowing.

    Now ill put on my construction hat and tell you that you might want to rethink that $190k full gut rehab budget. Your property is roughly 3400 sq ft with 4 full kitchens , 4 full baths, as you mentioned new mechanicals for all units. Given the scale of the project your going to need architecturals, permits so that will be additional cost and included in the $190k you have all the finished materials for the project as well. Plus your GC's profit is in that number.

    The budget seems a little light. The sq ft all in cost for construction and finish materials is roughly $56 per sq ft of liveable space. Up here in NJ I recieve phone calls all the time from 203k projects that have gone upside down due to budgets that dont cover actual real world cost.

    Please do yourself a favor and have a very strong reserve fund for that possible event. Also prepare with additional funds in reserves for the fees you will have to pay to extend the 203k loan past 6 months.

    ▪︎Verify those things and if everything works out you have a solid base hit for your 1st deal.

    If you have any questions or you need a experienced 3rd eye to look over your construction budget scope to make sure you are dialed in feel free to shoot me a PM.

    No cost for me to review just a experienced investor helping a new invester! Dont want you to get jambed up on your 1st deal your taking on a big deal👍🏾

    2Reply
  • Taylor Wrice-Brooks
    Real Estate Consultant · Washington, DC · Member since 2016 · 39 posts · 17 votes
    5y

    @Caleb Johnson this is great feedback! I love to see how this community comes together to help each other out. It’s in Texan’s blood for sure. Hopefully, we can get the rest onboard this way.

    1Reply
  • Taylor Wrice-Brooks
    Real Estate Consultant · Washington, DC · Member since 2016 · 39 posts · 17 votes
    5y

    @HB Jenkins I’d love to see visuals of the finished product. Definitely snagged herself a great deal and put the numbers in order.

    1Reply
  • Kyle A.
    Attorney · Cincinnati, OH · Member since 2020 · 22 posts · 22 votes
    5y

    @Kim Hud congratulations! Sounds like a fantastic opportunity.

    I know from the BP podcasts Brandon mentioned that he contracted out the laundry washer and dryer unit service and now just receives a check from the contractor each month. But he did mention that he wasn’t tracking water expense — so that’s something to consider.

    My second comment is with respect to contracting. Because of the age of the building coupled with the anticipated rehab, permitting and getting things up to code could get costly fast. Please check with your local permit office to figure out what has been grandfathered and what kind of consequences may await certain rehab decisions. Again, this is based on a BP podcast story where permitting saved one deal but ruined the subsequent deal.

    Best of luck and can’t wait to hear about your future house hacking success!!

    0Reply
  • HB Jenkins
    Member since 2019 · 5 posts · 5 votes
    5y
    Originally posted by @Tim Jacob:

    One thing I wonder is since it was built in the 1700s is it historic with restoration requirements.  On the inside Im sure  most would not take notice but there might be window and door requirements.  You might qualify for federal and or state renovation credits.  If its a registered historic building then it could be a 20% credit for renovation.  State might be the same.  I would talk to a local architect to see what requirements are.  I remember reading on here a few years back of some guy doing one in Dallas and it didnt work out well for him.  I almost guarantee if you go that road LVL is a no go.  

    Also like others have said laundry in unit is well worth it.

    Hey Tim that's an interesting point about reno credits, can you clarify what you meant by road LVL is a no go? 
    And Kim that made me wonder, are monthly leases common in that area? 

    0Reply
  • Kim Hud
    OP
    New to Real Estate · Virginia Beach · Member since 2019 · 58 posts · 44 votes
    5y

    Since there have been a lot of request for specifications on the renovation I made this post that breaks everything down in detail

    https://www.biggerpockets.com/...

    Please hop over there to discuss

    0Reply
  • Cody Covington
    Flipper/Rehabber · Madison, MS · Member since 2016 · 11 posts · 2 votes
    5y

    @Joe Edwards, or anyone else...

    Can someone explain what exactly is the 203k loan?

    @Kim Hud,

    Congratulations on your first deal. Just measure twice and cut once. Meaning, double check your numbers on the anticipated rents you plan to charge, with multiple sources, and try to anticipate any costly, unforeseen problems during the renovation.

    I’m currently renovating a 4br 2bth into a 4br 2.5 bth, adding a master suite and opening the kitchen to the dining room and living area. It’s a complete gut and remodel, including all new electrical, plumbing, sheetrock, installing beams, new HVAC upstairs, etc.

    I am over budget and haven’t gotten to the landscaping yet because the house was built in the 1940’s and there were a few things that we didn’t anticipate during the renovation planning phase.

    Just some things to think about. Good luck!

    0Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    5y
    Originally posted by @Cody Covington:

    Can someone explain what exactly is the 203k loan?

    It's a type of fha financing that covers your rehab costs in one single loan.

    1Reply
  • Cody Covington
    Flipper/Rehabber · Madison, MS · Member since 2016 · 11 posts · 2 votes
    5y

    @Victor S.

    Thanks!

    0Reply
  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    5y

    When doing those up here they want to preserve not update to a new material.  Lvl flooring is relatively new.  Additionally vinyl siding and vinyl windows were not around when many historic properties were built.  Hence they basically don't like vinyl anything.  Basically you can repair the existing stuff or use carpet or tile flooring though refinishing hardwood is best and probably cheapest if possible.  With windows and doors they usually make you keep wooden ones on the street view side and probably will on the backside if its highly viewable like if you have lake or oceanfront property.  Sometimes even if you want to replace the windows with vinyl in a place not on the historic registry they make you do wooren and the same for the door.  Hopefully that is it and you can do what you want inside but not everywhere.   Obviously if its unpermitted inside you could be ok though it would raise questions if 2 years from now you want to sell.  If I was the owber I would do a small bit of research on this before buying it and find out what is required because if you do stuff on the outside and are in violation youncould have to do a whole lot of rework let alone if more is required.  The place is from the 1700s you might want to check that.  It could work in your favor with grants like 20% federal and maybe more for the state or city.  That doesnt factor in eco credits which are already around and will probably be enhanced in the future as things go more and more green.

    Beyond that doubling rents seems a little overly optomistic.  Along with assumptions about the effectiveness of backbilling tenants water in an area where rents are only paying currently 500 or so.  

    I hope it works out though.

    1Reply
  • Bobby Nilsen
    Rental Property Investor · Los Gatos, CA · Member since 2017 · 124 posts · 131 votes
    5y

    @Kim Hud Not sure if the units have laundry in them but that would be more ideal than coin op to get higher rents. My guess is gas and electric have their own meters and water is on a master meter. If you are able to implement RUBS that would help offset the increased water expense for water.

    0Reply
  • Tawanna R.
    Member since 2020 · 4 posts · 0 votes
    5y

    @Kim Hud

    Congratulations!!!!

    If you get a chance, check this property manager and her company out. I came across her on Kris Haskin’s YouTube page. Link listed below.

    https://m.youtube.com/watch?v=55xRGOgO8zY.

    0Reply
  • Anthony Villalon
    Stratford, CT · Member since 2020 · 17 posts · 5 votes
    5y

    @Kim Hud

    Congratulations! on your deal. You have done your research and your number calculations look good.

    I would look into what the higher end rentals are offering in your neighborhood, and duplicate some of features. So you can get the cash flow you are looking for each month.

    Best of luck!! Let me know how I can help you in anyway.

    0Reply
  • Tanny Gregory
    Investor · Virginia Beach, VA · Member since 2016 · 1 post · 0 votes
    5y

    Congrats Kim, glad to see some other women jumping into rental investing...

    0Reply
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