All Forum Posts by: Andres Castaneda

Hello all!

I have a pretty unique opportunity ahead of me and don't really know what angle I should approach it at. Every day I wake up, my mind changes. This is my largest project to date and right now I am full leveraging everything I can in order to buiild a portfolio / passive income.

I bought my first property 3 years ago, it was a distressed single family, renovated it and sold it after 2 years of ownership. Last year after the sale, I bought a 4 family with an FHA loan and rehabilitated an old space in the attic to bring back a legal 5th unit to the property with the equity of the sale. My renovation cost will be about 150k once completed. I will be into the building about 700k total. I just got an appraisal back and my new value is at 940k.

My initial plan was to hold onto the building for the positive cash flow and refinance to recoup my investment, if I were to sell I would only sell to purchase. With my recent appraisal, I will be able to pull out 110k(70% LTV - debt owed) from the property. Given that I am refinancing out of my FHA to a commercial loan, I will be able to re-use an FHA loan for another 4 unit purchase. My neighbor next door has agreed to hold the property to sell it directly to me at 650k (Market rate 4 family can get 720-750k) so I will have immediate equity. I also know of another 4 family owner a block over that just today also agreed to sell directly to me at 620-650k range( both I have been in communication with for over a year).

Here are my scenarios

Option 1

Sell at 940k

Profit after mortgage/ closing costs 400k

Given I'm into the bulding 150k cash out of pocket , I would be liable for taxes on 250k.

25% tax on 250k takes me down 67.5k.

400k-67.5k = 332.5k cash in pocket

Use 35k buy 4 family next door. Cash flow 2k/ month right away... At proforma would be 3500/month

Use 70k buy 4 family around the corner (Hard money) Cash flow would be identical. 2k cash flow after 3 months and at proforma 3500/ month

Leaves me with about 210k in pocket, lets say 40k in updates between both so total would be:

170k in pocket, 8 units, 4k cash flow with potential to cash flow 7k. Equity around 200-250k

Option 2

Refinance and keep building.

Cash flow 4200/ month. + 110k in pocket

Buy building next door FHA 35k

75k in pocket + 20ish repairs = 55k in pocket

9 units, 6200 cash flow + 45k in pocket. Equity around 350k

I can stop there OR go FULL leverage and buy the 3rd building (10% down hard money)

Have 0 cash from refinance left 

but now have 

13 units, 8200 in cash flow with potential to have 11,200 in positive income. Equity around 450k

Given the state of the market and increasing interest rates I am not sure if I will be able to get a higher value for some time. Do I leverage the high refinance appraisal or leverage a sale? Is the 170k+ in pocket more valuable than having the 13 units? I can use that money to buy a 3rd building with hard money but finding these deals have taken me years worth of follow ups and I know they are hard to come by. I don't come from money, I have leveraged and worked my way to where I am so the 170k in pocket would provide me with financial security I have yet to experience before.

But also, I am 26, no kids, no major expenses. Do I just say **** it and full send the 13 units and spend a few months recouperating?

HELP! I am torn. Any and all advice is welcome

 
I can't do that now as I am buying off a family friend which is why I will need to live in it for some time prior to making a decision on my next move. I also want to be as hands on with this one as possible since it is my first and the owner waited a year for me to be ready. He wants me in it as bad as I do which has made things easy. What type of marketing do you guys do to find deals?

There is a HUGE market at 320k with a light rehab. I have an offer at 300k as is from a friend of mine. I'm planning on living there for about 3 months before deciding to sell or BRRRR so time to do the rehab isn't much concern to me. Taxes are closer to 350 a month in this area. Current mortgage estimate is around $1450 principle, interest, tax, insurance and PMI. So there is room for cash flow monthly if I don't refinance.

The one thing about selling is I really do not want to get hit with capital gains tax... Only way to avoid that is to 1031 exchange into another property but I've had my reserves about having so much equity in one property. I want some cash aside to purchase another and begin working on a portfolio but I am beside myself as to how approach it.

I keep leaning towards keeping the single and renting it out and using the refi to buy a multi with 15% down.  Thoughts?

Hi BP fam!

Here again with some exciting news... I'm buying a house!! Closing is scheduled for the 27th of this month and things are progressing as they should. I am super excited as well as nervous, but feel more ready than ever. I'm here to ask... What the F*** should I do with it?!?!?! There is SO MUCH potential and a lot of equity on the line and I really want to maximize this as much as possible. This can be potentially life changing for me and I do not want to mess it up. 

Here are the details:

It is a single family ranch in a good neighborhood and hot market. Purchase price is 207,500 with 5k closing credit and 5k cash to me from seller for immediate repairs. I am financing 3.5% as I will occupy it so am total into the house about $12k with all closing costs. I plan on doing the rehab myself with the help of family and friends for about $10-15k.

Here's where it gets fun:

The house across the street on an almost identical footprint sold at 332k last summer. It was fully rehabbed and updated. My GC gave me a quote at 45k to re do the house from top to bottom with all the bells and whistles. After seeing the quote I realized I could cut down thousands of dollars in labor by doing the majority of the work myself. IE painting, flooring, tile, kitchem & demo. I have been shopping for materials and between full kitchen, full bath, interior paint and floor refinishing it will be just shy of 7k before labor(90% of that labor will be my own work, aside from electrical and plumbing which will be licensed and insured professionals). My parents are as excited as I am and have already started looking at color schemes for the home... lol. They will be helping with easy work such as painting and tiling.

The house appraised 63k above accepted offer so I will have a good chunk of equity once I close. 

My question to you all is, what do I do?! Do a very simple 10k rehab and resell at 320? Go all out and push a 350k sales price? 

I have been back and forth between BRRRR or cashing out immediately and holding for another purchase while taking the tax hit.

After it's all said and done there should be about 100k worth of equity I will be looking to repurpose. Either refinaning the home and using that cash to buy a multi that will self sustain itself OR take the lump sum and buy a multi with only 3.5% as I will occupy it. Then keep the rest for a future purchase...

Long story short. I NEED HELP ! Need a list of pros and cons for both, anybody with similar past experiences etc etc.. All constructive feedback is welcome. Thank you all in advance!

Update.... The person that bought it has it back on the market at..... 320k. Talk about hitting the nail on the head with pricing!! Let's see what it sells for...

@Dennis M. I wouldn’t hold it as a rental if I were into it 258k. I would resell. Also I could get 3k rent if fully done up

Hey everybody! Quick update: Seller is back from vacation and I should be allowed access within the coming weeks. I have my team ready to join me at the one time walk through (3 investors, 3 general contractors, 2 electricians and a plumber). I’ve been thinking about it a lot lately and one of my investors and lenders brought up a good point. Why not condo convert it? I re ran the numbers with condo comps and the resale goes from 320k to 390k with a conservative resale price of 185k a unit. The comps support it and I can most likely sell higher if ready for the spring market. Anybody know of the extra costs associated with splitting a duplex into condos?

I am more excited than before as this gives me a larger profit margin and allows me to be a bit more flexible with the rehab budget in case there are underlying issues.

 Hi Marc,

Thank you for your feedback! I will be financing the home with a conventional loan, 5% down. I do believe I will be saving a lot of money doing the rehab myself. Don't get me wrong, any plumbing, electrical, or HVAC work will be done by someone licensed and insured. That's not a risk I'm willing to take. 

What I plan on doing myself is the "easy" part of the rehab. The demo, putting up drywall and repainting, flooring, changing doors, installing cabinets etc.. For the more hands on parts, such as installing cabinets, I will have some of my contractors or handymen help oversee. I consider myself handy and feel I would have a blast being hands on while rehabbing my first investment.

I am not looking to do the work for tax benefit purposes. My main goal in taking on as much of the rehab as possible is to learn about the process, grow a sense of appreciation for what I am paying to get done, and understand the cost of work. Granted in doing this all myself, I will be saving money which is an added bonus.

Thank you! Fingers crossed.

 Hi Nick,

Thanks for the feedback. If I hold on to the property I will be paying ~2000 a month on the loan. Between 2 units at 1200 or 1500 per. I have anywhere from $400-$1000 a month in profit. The units getting $1200 in their current condition amazes me as they are aesthetically disgusting, but mechanically sound.

General sentiment around the area is that we are nearing a top. That being said, purchasing at such a low price point and having equity in the home, it would make sense to refinance and hold for the long run given the location and expansion plans with campus. There is definitely a consistent market for rentals in the area. There is a new government court house( about a 10-12 story tower) that just went up less than .5 miles up the street so I also get a feeling a lot of corporate tenants may be coming into town.

Neighborhood is up and coming, there are tons of student housing rentals up the street with similar not rehabbed units renting out at $1300-$1400 a month. Home is down the street from a market basket and within walking distance of downtown. Centrally located and about a quarter mile from a massive student housing complex(condominium style residences).

Hope this answered all your questions!

Happy Holidays!

Hi everybody!

Back again with another potential first investment purchase! My last condo purchase fell through due to family matters within the estate. 

Here are the details:

Property is a 2 family in Lowell within 3/4 of a mile of campus. Both units are occupied, tenants are paying $1200/month per 2 bedroom unit

I went to UMASS Lowell and am very familiar with the area.

Financials:

Purchase price+ closing costs :183k

Rehab Budget: I estimated 40k, contractors said to give buffer to 75k in case major issues arise

Resale: 320k

183k+75k rehab= 258k total into the property

320k-258k= 62k potential profit

62k profit- commissions, tax stamps, closing costs I'm looking at ball park 50k walk out all said and done.

Here are my thoughts. This will be my first ever home purchase and investment purchase. The fact that they are currently rented means that all major ticket items are in working order, IE heating, plumbing, electric. The home is ugly and will need flooring, kitchen, baths, windows. Vynil siding is already there which is great and roof is in good condition. Window framing will need to be addressed as some have rotted but I see those as minor. Foundation looks sturdy as well. I requested one unit vacant so I could live in the other and do the rehab myself then repeat with the adjacant unit. I have read on many forums that as a first time investor it is good to be hands on with your project so you can grow an appreciation for what you are paying for. Aside from that, I want to do it myself, I want to be hands on while also being cost effective.

My main question to you all here would be, what should I do? If the numbers make sense should I rehab, flip and sell? Given the location of this property I feel like it may be a better long term hold as a rental. Umass campus is expanding and the exchange students pay well for rentals. I am thinking after rehab I could rent both for $1500 fairly quickly. I am 23 and having a home of my own for ~500(after tenants rent) a month is a thought I am seriously considering.

My third and final option would be a cash out refinance(which makes the most sense to me given I want to hold the property and rent it while also using the equity to build a portfolio) and use the cash out to purchase another investment while holding the property as a rental generator.

Please critique me and let me know what I am missing and how I should approach this!

Thank you!