First Deal Done - How to leverage it for the next deal?

Question

Hello BP,

I have closed on my first property and would like to thank you all for the wise words of wisdom this community provides. My question is how can I leverage myself to use this deal for future deals. Now before you continue reading I will add a bit of background below so you can understand why I selected a townhouse or you can scroll down to the deal/pictures.

Background

I am 25, an architect and located in South Florida. I moved out went to college, moved back home with parents and started saving money.The market here is....unique.It's very hard to find a duplex to house hack in an area where your car wont get stolen. I was originally looking for duplexes to house hack. Almost closed on a nice looking duplex(literally 2 weeks from closing) until the plumbing and structural inspections killed the deal. Everything on the outside looked good and yeah I learned its not always what it seems. My goal is to be financially free by 30 and I wish to use this investment as a foundation for the following deals.

The Deal

2 Bedroom 2.5 Bath Townhouse in A GREAT NEIGHBORHOOD(Like for real, they're opening a Starbucks down the corner and a town center development is in the works with restaurants/bars/stores)

Purchase: 225k Bought with FHA 3.5% down.

Interest 4.15%

HOA: $240

Total Cost: 12k including closing costs

Monthly Payment including EVERYTHING: $1649, roommate moving in will pay 750/mo

*To some this may seem incredibly high or some may say its very cheap, again I am located in South Florida Fort Lauderdale so please keep that in mind*

Rehab: I have 15k leftover for remodeling. I plan to replace flooring, repaint and possibly new kitchen. See picture below

The Question

This is my first investment and I would like for it to be the foundation for my following deals. For those who have started and gone down the path, what advice do you have a for a young investor like me looking to eventually reach financial freedom. Thank you.

Austin Fox · Answer

@Brian Ellis

That's what I figured and I know it won't happen overnight which is why I asked the question now. I'm trying to do my best now to put myself in a good position for next year and so on. Thank you for your time!

Austin Fox · Answer

@Steve Weinstein

There are many factors that would influence that price. Where will the ac unit be located in the unit, in an existing closet or will you be building one? How much ductwork is needed? Can we punch through the walls/ceiling and add diffusers? Do we need to upgrade the panel? Do you need to add soffits? Who will be reparing the wall once you remove the wall units? These are all examples of the types of questions that will influence that decision. It will be a job-specific price. Contact your local HVAC/Electrician company to get an idea of pricing.

Steve Weinstein · Answer

Approximately how much would it cost to chance a duplex (approximately 1300 sq ft) from window units to central ac?

Juan Carlos Castillo · Answer

@Austin Fox

I can draw the plans, do the calcs, and permitting, but I think it would be a bigger job than it worth. I don't think you'd ever raise the arv estimate high enough to warrant all that work.

Austin Fox · Answer

@Juan Carlos Castillo

I'm looking in the same general price range in South Florida, in what neighborhood/area did you find this property? I've been looking for duplexes in the rougher areas of pompano for around that range and it's been tough, the biggest issue i face in rougher neighborhoods, isn't the neighborhood itself but the lack of central A/C.

This property was found on the west side of I-95. Pompano, Fort Lauderdale and Hollywood are all duplex areas however many of them are in rough areas and the prices are unreasonable. I recommend speaking with an agent that knows the area well. There were times I found a nice duplex and my agent would laugh, tell me to go visit it and then be waiting for my phone call only to tell him he was right. Sometimes the older agents are better than the younger because they've been around the block once or twice.Although from an architect/contractor perspective, might be worth getting a quote from an HVAC company for a full design and install...

Yeah that's a beast of its own(duct work, soffits, etc) That's a call you'll have to make depending on the deal. I can't make that decision for you but I can draw the plans ;)

Brian Ellis · Answer

@Austin Fox You would need to do a cash out refinance in order to be a true BRRRR. The idea is to add enough equity to get your initial investment or more back. And a cash out refi is limited to 75% LTV on owner occupant, so your numbers don't work for a refinance.

In your situation youre required to live in it for a year under FHA. Save as much money as you can for the year, once you have enough for another down payment buy another and rent it out. Or if you can pocket some profit you can sell like you mentioned.

I have no experience with a messanine loan im sorry!

Juan Carlos Castillo · Answer

@Austin Fox

I'm looking in the same general price range in South Florida, in what neighborhood/area did you find this property? I've been looking for duplexes in the rougher areas of pompano for around that range and it's been tough, the biggest issue i face in rougher neighborhoods, isn't the neighborhood itself but the lack of central A/C.Although from an architect/contractor perspective, might be worth getting a quote from an HVAC company for a full design and install...

Austin Fox · Answer

@Brian Ellis

Understood and Im not 100 percent sure on the market value after rehab. According to the purchasing comps another unit sold right behind mine not 8 months ago for 240k and another for 232k. My idea is to do the updates, sit on it for a year and in that process continue to save cash flow and reassess in a year or so.

I am open to the idea of selling it or moving out/renting it out aka BRRRR. The lady who sold it is a widow and has owned it from 2004. Once the unit went up for sale, we had an offer on it that night. The rents in the area go for around 1700.

What about the thought of using a mezzanine loan for the next purchase?

Brian Ellis · Answer

Congrats on your first purchase!

It will be tough for you to use leverage on this for future investments (right now).

After your down payment your loan is $217125

If you wanted to borrow any more money from this property you would need to bring the value WAY up, or pay down a lot of the principle quickly, or both.

What will the market value be once you update?