All Forum Posts by: Alex Mitt

thanks, everyone for all the messages, a lot to learn from this experience.

My CPA confirmed that up to $25,000/year I can deduct the loss for a sale of a rental. I'll keep you posted on the development!

Quote from @Theresa Harris:

Are you still going to cash flow if you hold it and rent it?  Remember rents go up over time (as do some expenses).

 yes but only $150. I also got into phantom cashflow, because i had the veyr bad habit of not counting well capex, maintenance fees or vacancy. 

Mortage with insurance + taxes is $1,450. Rent is $1,900.

Quote from @Chris Kendrick:

Quote from @Alex Mitt:

Quote from @Chris Kendrick:

Quote from @Alex Mitt:

Hi, community!

I'm down to my 4th single-family deal, I am an out-of-state long-term investor and I'm still learning a lot. My last one is not turning out great. I take all this as a learning lesson on how to not do things in the future and I'm still very optimistic. My other 3 deals are cash-flowing nicely over $700/month, even though one took a while to stabilize to get there.

Here's some information about the deal:

- Purchase Price with closing costs: $138,000 

- Expected Rehab: $30,000

- Expected ARV: $210,000

- Expected rental: $1,900

- The Rehab turned out to be $55,000 --> a lot of unexpected problems, broken pipes, mold, roof, city requirements and overall bad due diligence on my side. I still would need to put in another $10k to pass the inspections (the city is asking for a lot, like changing the garage door). 

- The Appraised value came back at $175,000  --> we got delayed on the rehab and the latest comps didn't help, and pushed the appraisal down

I paid with a Heloc, so holding costs are interest-only for ~$1,000/month for 5 months. So now I need to decide:

- I listed the home on sale for $195,000, and in just a few days I got an offer at asking. Now the buyer is of course asking for $5,000 in credits. My total expense right now is over $205k, so selling for $195k, plus all the fees and credits, I will lose ~$20k on this deal. I think I can offset this from my w2 income, so at least there's that.

- The other option is to refinance. I locked a rate for $6.8%, and I would be getting $145k back. So I would have a lot more of my own cash in the deal than I would have liked it. Then I could rent for $1,900. Mortgage + Insurance + Property tax is at $1,450. Now add capex, vacancy, etc...the real cash flow is very low.

I would like to see what the community suggests in this situation. Would you sell for a loss, or rent leaving a lot of your own money in the deal and playing the very long-term game? 

Thank you all

So basically what went wrong is the rehab cost,  but why did it appraised so low, just trying to make sure i dont mess up, 

I didn't get a quote accurate for the scope of work and the city requirements. We discovered mold and broken pipes and then the city asked for many more items than initially expected. Bad due diligence on my side, hard sometimes handling this from another state.

The appraisal got lowered given the big delays that I got on the rehab and recent sales in the area at a much lower price.... especially two sales in the same street! That didn't help with the comps.

 Why were the houses lower, or went down, 

 the area is experiencing a pricing correction. Several are sitting for weeks in the market and it is common now to see price drops. It is a class C neighborhood, so it is "expected" to see the price going down a bit quicker in these areas given the current situations, right?

Quote from @Chris Kendrick:

Quote from @Alex Mitt:

Hi, community!

I'm down to my 4th single-family deal, I am an out-of-state long-term investor and I'm still learning a lot. My last one is not turning out great. I take all this as a learning lesson on how to not do things in the future and I'm still very optimistic. My other 3 deals are cash-flowing nicely over $700/month, even though one took a while to stabilize to get there.

Here's some information about the deal:

- Purchase Price with closing costs: $138,000 

- Expected Rehab: $30,000

- Expected ARV: $210,000

- Expected rental: $1,900

- The Rehab turned out to be $55,000 --> a lot of unexpected problems, broken pipes, mold, roof, city requirements and overall bad due diligence on my side. I still would need to put in another $10k to pass the inspections (the city is asking for a lot, like changing the garage door). 

- The Appraised value came back at $175,000  --> we got delayed on the rehab and the latest comps didn't help, and pushed the appraisal down

I paid with a Heloc, so holding costs are interest-only for ~$1,000/month for 5 months. So now I need to decide:

- I listed the home on sale for $195,000, and in just a few days I got an offer at asking. Now the buyer is of course asking for $5,000 in credits. My total expense right now is over $205k, so selling for $195k, plus all the fees and credits, I will lose ~$20k on this deal. I think I can offset this from my w2 income, so at least there's that.

- The other option is to refinance. I locked a rate for $6.8%, and I would be getting $145k back. So I would have a lot more of my own cash in the deal than I would have liked it. Then I could rent for $1,900. Mortgage + Insurance + Property tax is at $1,450. Now add capex, vacancy, etc...the real cash flow is very low.

I would like to see what the community suggests in this situation. Would you sell for a loss, or rent leaving a lot of your own money in the deal and playing the very long-term game? 

Thank you all

So basically what went wrong is the rehab cost,  but why did it appraised so low, just trying to make sure i dont mess up, 

I didn't get a quote accurate for the scope of work and the city requirements. We discovered mold and broken pipes and then the city asked for many more items than initially expected. Bad due diligence on my side, hard sometimes handling this from another state.

The appraisal got lowered given the big delays that I got on the rehab and recent sales in the area at a much lower price.... especially two sales in the same street! That didn't help with the comps.

Quote from @Travis Biziorek:

Hey Alex, sorry to hear this one hasn't gone as planned.

What was the original intent with the home? It sounds like you wanted to keep it as a rental, yeah?

If so, I'd stick to the plan. Real estate has a way of bailing out bad outcomes over time. I've been there and almost threw the towel in on one but fast forward a couple years and all my cash is out and it has been headache free.

 yes that was the initial idea, to buy and hold long term. I feel like I could use better the $50k+ that i leave in the deal and i'm in a high tax bracket in california and I could deduct the loss from my w2.

Hi, community!

I'm down to my 4th single-family deal, I am an out-of-state long-term investor and I'm still learning a lot. My last one is not turning out great. I take all this as a learning lesson on how to not do things in the future and I'm still very optimistic. My other 3 deals are cash-flowing nicely over $700/month, even though one took a while to stabilize to get there.

Here's some information about the deal:

- Purchase Price with closing costs: $138,000 

- Expected Rehab: $30,000

- Expected ARV: $210,000

- Expected rental: $1,900

- The Rehab turned out to be $55,000 --> a lot of unexpected problems, broken pipes, mold, roof, city requirements and overall bad due diligence on my side. I still would need to put in another $10k to pass the inspections (the city is asking for a lot, like changing the garage door). 

- The Appraised value came back at $175,000  --> we got delayed on the rehab and the latest comps didn't help, and pushed the appraisal down

I paid with a Heloc, so holding costs are interest-only for ~$1,000/month for 5 months. So now I need to decide:

- I listed the home on sale for $195,000, and in just a few days I got an offer at asking. Now the buyer is of course asking for $5,000 in credits. My total expense right now is over $205k, so selling for $195k, plus all the fees and credits, I will lose ~$20k on this deal. I think I can offset this from my w2 income, so at least there's that.

- The other option is to refinance. I locked a rate for $6.8%, and I would be getting $145k back. So I would have a lot more of my own cash in the deal than I would have liked it. Then I could rent for $1,900. Mortgage + Insurance + Property tax is at $1,450. Now add capex, vacancy, etc...the real cash flow is very low.

I would like to see what the community suggests in this situation. Would you sell for a loss, or rent leaving a lot of your own money in the deal and playing the very long-term game? 

Thank you all

More information about Property 2, it is also in the suburbs of Chicago but not in my favorite area, and not growing too fast. 

- Purchase price: $105 as-is

- Rehab budget: $27k

- Closing and loan cost: ~$8k

- Down payment: $28k

The appraisal as-is came back at $113k, and after renovation, the appraisal is $150k.

To finance the deal I used the Finance of America acquisition & rehab line of credit at 8.5% with a loan of $77k initial and then rehab holdback of $27k to fund the renovation.

Similar situation:

Option 1: Flip and sell it right away after the rehab is completed in a few weeks

Then at this point, I would have spent:

Total cost = $105k (cost of property) + $27k (cost of rehab) + $13k (closing cost buy & selling fees) + $2k (holding costs 4 months) = $147k

Selling price = $170k (per the realtor

Profit = $23k


Option 2: Rent and hold

Loan monthly payment at 8.5% = $874/month

I would then cash-out refinance. I would be able to get $28k+$27k * 80% = $44k in cash for another deal

The new mortgage at 3.6% rate would be $480/month and I would rent the property for $1,500/month. I would cash-flow ~$1,000/month, but I would have still to pay on top taxes and property management since I am out of state, so the cash flow would be around $700/month.

For this the cashflow looks a tiny bit better.

Thanks for the replies! For those telling me "if you need the cash, sell now".... isn't doing a cash-out refinance giving the cash anyways, tax-free, and keeping the property?

@Michael 

@Michael K. I'll give later today the scenario for property number two!

Hi all!

I've been a long time watching videos on Youtube and reading here. I just decided to get started and last May I bought my first two properties, I would like to share a bit more about the first one to get some advice.

The property is in the suburbs of Chicago, near Oak Park:

- Purchase price: $165k as-is

- Rehab budget: $75k

- Closing and loan cost: ~$8k

- Down payment: $46k

The appraisal as-is came back at $165k, and after renovation, the appraisal is $293k.

To finance the deal I used the Finance of America acquisition & rehab line of credit at 9.24% with a loan of $118k initial and then rehab holdback of $77k to fund the renovation. 

Now the questions I have is what to do with the property:

Option 1: Flip and sell it right away after the rehab is completed in a few weeks

Then at this point, I would have spent:

Total cost = $165k (cost of property) + $77k (cost of rehab) + $15k (closing cost buy & selling fees) + $6k (holding costs 4 months) = $263k

Selling price = $290k

Profit = $27k

*Holding cost for 4 months = $4,192 + $1,900 (includes mortgage 4 months, utilities and taxes)

What concerns me a little bit is that I am in a high tax bracket so I will have to pay quite a lot of taxes + short-term capital gain.

Option 2: Rent and hold

Loan monthly payment at 9.24%  = $1,640/month

I would then cash-out refinance. I would be able to get $46k+$27k * 80% = $58k in cash for another deal

The new mortgage at 3.6% rate would be $890/month and I would rent the property for $1,700/month. I would cash-flow $810/month, but I would have still to pay on top taxes and property management since I am out of state, so the cash flow would be around $500/month.

What is interesting about this option are the tax deductions that I can get, as I mentioned above, I am in a high tax bracket and this could help lower my taxable income.

First of all, if you read till here... thanks! Would be great if you could confirm that assumptions and options are good and what would be your recommendation for my situation? what would you do better next time? I am new and willing to learn from all of you!