All Forum Posts by: Alex Heidenreich

I've evaluated multiple deals like this and I like to make sure that it is cash flow positive off the bat even if it is lower than market rent. Then I also run numbers on market rent. I want to make sure both numbers work for my business. What is the current lease situation? Are they month-to-month? If so, it shouldn't be hard to get rent up. Does the property need a lot of rehab?

Why would it take 40 days to replace an oven??

You need to check with your local ordinances and landlord tenant laws as there are certain things that landlords are required to provide to make a residence "habitable."

In Ohio our code stipulates, "(4) Maintain in good and safe working order and condition all electrical, plumbing, sanitary, heating, ventilating, and air conditioning fixtures and appliances, and elevators, supplied or required to be supplied by the landlord;" It sounds like appliances fall under that and you may be in violation of your landlord obligations until it is fixed. I would consult an attorney in your area if you are unsure. 

What is the renovation budget/estimate? That is going to heavily determine what you do. With an ARV of $115k you could potentially cash-out refinance roughly $86k. That would mean your renovation budget would need to be under $11k in order to recoup all your cash in the deal. With that being said, you would then have to factor in your hard money lender as well. Do you have an agreement with them based on a flip? Is there an allowance for a refinance? That will all factor into your deal analysis.

In his book "The Millionaire Real Estate Investor" Gary Keller says, "There is always a number that makes it a deal." Do the analysis and find out what that number is that makes it a deal and offer it! You will regret not pursuing it.

That's a good question and one that you would need to find out from your lender. Typically during your loan application process, they will ask you if the property you are applying for the HELOC is your primary residence. I'm not sure what happens if it is no longer your primary residence, but it may or may not be an issue.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $184,000
Cash invested: $55,000

We purchased a Duplex as our first deal to get into the game and start learning by doing.

What made you interested in investing in this type of deal?

We liked the idea of the Duplex to help mitigate vacancies on one side or the other.

How did you find this deal and how did you negotiate it?

This was an MLS deal

How did you finance this deal?

We used traditional financing

How did you add value to the deal?

We fixed minor issues around the property and did cosmetic updates.

What was the outcome?

We were able to raise rents

Lessons learned? Challenges?

Double check everything and verify with the tenants. The leases we were given stated that the tenants paid ALL utilities. When we went to have them sign their new leases, they both told us that they have never paid water. We ended up having to pay water and we had not budgeted for this.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, we worked with Chloe Teasley and Remington Lyman with Reafco

If you are just looking for a cosmetic rehab, I'm not sure that really falls into the BRRRR category. I would think that a light cosmetic rehab could be handled after a purchase with a conventional loan.

Do you plan to live in the property? That is the biggest question you will need to answer if you want to use an FHA. Also, know that some investors do not like dealing with the complications of an FHA loan. So, a cash offer would be much more appealing.

If you are planning to BRRRR, you should know that most banks will only give you up to 75% cash-out refinance on a property. For an ARV of $115k that would only amount to around $86k. So, any money that you put into the renovation will likely stay in the property and you will not be able to recover it.

If I were looking at this deal, I would likely try to finance it by using the HELOC as a downpayment and then also using the HELOC to rehab. You can get great rates right now and the payment on a mortgage that small would cause the cashflow to look really good. This assumes I would not be living in the property.

We just did this exact thing also in Ohio. The tenants had signed leases previously, but were both currently month-to-month. The previous landlord didn't really interact with them at all or do anything to the property. We evaluated fair rent for the area and also got to know them as @John Erlanger said. We decided that we were willing to keep both residents (Duplex) and actually asked them what was important to them. One side didn't want anything, but was adverse to a large rent increase. The other side had a laundry list of issues inside the residence that the previous landlord had never addresses and really wanted the old carpet removed. We wrote a letter to each side with multiple options from month-to-month, to two years, and even an option that included carpet removal with an even higher rent. We gave the first tenant a new lease with a minimal increase and that was that. The second tenant, we rehabbed the bathroom, fixed most of the issues around the property, and then presented them with a lease with a decent rent increase. We had a rider in the new lease that we would remove the old carpet within 90 days of the lease signing. 

We recently did this on one of our rentals. If the residence has a basement, moving as much as possible to the basement is helpful. Then talk to the contractors that you plan to hire and see what they normally do. The contractor I worked with was willing to help move heavy items throughout the residence, but was not willing to touch anything inside closets. So I asked the residents (who wanted to the new flooring) to remove everything from the closets ahead of time and move it to the basement. The contractor then assisted with everything else.