All Forum Posts by: Andy Sabisch

Hopefully we provided you with some points to consider on the next deal . . . . post any questions and the BP family will be here to help

One more thing since you are looking at renting the property out and then refinance it when the renovations are done.  Have you run the payments versus what you can get for rent?

With the $435K purchase and 20% down at 3.75% for 30 years, Principal and Interest alone will run you $1,612 / month.  Then add taxes and insurance and your typical variables (maintenance, capital and vacancy). 

To make the BRRRR model work, you will want to season the property and then refinance to pull your money out. The $435K + $35K remodel costs means you will have $470K in and are hoping to get it appraised for $522K in order to pull out 90% (assuming you can find a 90% refinance lender). A $470K loan would bump the PI payments to $2,177/month.

Will your market support rents in that level to cover the payments and remain positive in terms of cash flow? The BRRRR model is a great way to build passive wealth but the rents need to keep you in the black . . . if you are negative each month with a tenant, you are in a bad position.

"The $35k is an estimate based on a recent renovation my realtor did on one of his own properties"

Again to add that much usable finished space plus your other renovations you have planned, that number seems low. Can you be specific as to what you adding to the property for the $35K? You can share the BRRRR calculator here without an address which may give us a chance to look over what you are figuring for the work budget. Adding a full bath (which is what your initial post indicated you are doing) without any complicated plumbing work would likely be a $10K investment having a contractor do the work. Always be leery when someone that wants you to buy a property tells you what the cost will be to do the renovations . . they may have done similar work but then you find that their contractor was their brother in-law and did the work for free after hours.

So a few things that need some clarification. When you say it needs work, is it livable as it currently sits or is there work needed to get to that point? The reason is that if the loan appraisal sees it is not livable, you may not get the funding. If you are going with a conventional lender, make sure you are clear on that aspect. There are HML's that focus on this type of loan of you need to make it livable so make sure you are not into the loan funding phase and find yourself with no funding and trying to find it.

As far as using the BRRRR calculator, what you also need is the ARV (after repair value) for the property. You are taking it from a 3/2 1260 ft2 to a 3/3 2,000 ft2 unit which means the comps are going to be significantly different. On a st2 basis, you are paying $345/ft2 . . . what is a 3/3 with the larger footprint going for in your area? Simply scaling the value up based on ft2 will not work unless the other properties in the immediate area are larger as well since using $345/ft2 would work out to be $690K value. Make sure you get the current comp (since that is what the loan will use) and be sure what the ARV value will be as that was missing from your post.

If you are adding almost 800 ft2 of finished space plus rehabbing the existing unit, $35,000 seems light. We are wrapping up a flip and without going crazy on finishes, the cost was more than we had initially estimated simply due to the prices changing every time you go to buy something anymore.

If you share what your rehab numbers look like and what the pre and post rehab comps are, the BP family can give you a backup review to make sure you have not overlooked something or if there are more questions you need to ask the seller or your contractors.

You have gotten some good advice in the replies to your post.  Sometimes you have to stand back, assess the situation and realize that cutting your losses is the best option.  You have learned a lot from the situation and those lessons can carry you through your next project without the financial lessons you learned here.  They include:

• Make use of BP as you did here but hit us up before you sign on the dotted line so to speak.  There are a lot of great contributors here that can help guide you to avoid getting into a bad situation
• Find out how the permitting system in the area(s) you are interested in investing in operate.  Some a sticklers and others are easier to get things done.  We did several flips in a small Michigan town and we were forever getting called out by the city code people for nit picky issues and paying for permits for everything.  We moved about 2 miles away into the township and their code enforcement staff was very supportive especially in that we were improving the properties.  So do some homework and you might be surprised at the difference a few miles makes.
• See if you can connect with fellow investors in your area - look for any Real Estate Investment groups and make some friends through that avenue.  There are plenty of deals to go around and most are willing to help you get through the wickets on the way to the sale and payday
• Have you met with the code people in your town that you feel have you on their radar?  It sounds like there is more to the story or as the late Paul Harvey said "the rest of the story".  I would meet with them and see what their beef might be and see if they have a solution that might work for you.  Make an appointment with the head guy and not one of the enforcement people.  I have seen where they are flat wrong but would not admit it and had to go to their boss.  Pull up the codes online and see where they are coming from in advance so they know you have done some homework.

As far as a wholesaler goes, they will buy your property (or get it under contract) and then hope to resell the contract to an investor.  If you can find the investor directly, you cut out the middle man and put a few dollars back in your pocket ($5,000+).  Try posting on one of the Facebook groups that serve your area or even on the Find Deals section here.

Good luck and remember, you have a support family here that can help avoid some of the mines out there.

What line are you looking at using . . . we just got a full kitchen in from Lowe's and actually got them 2 weeks before we were ready for them.  Go into your local store and ask the person in the cabinet section which ones are available and which are back ordered . . . might need to adjust your selection but both Home Depot and Lowe's have some ready to ship.

Great responses so far . . . . another saying that definitely holds true in real estate is that EVERY property has a price that makes it a good deal.  Factors such as damage, location and comps dictate that price.  You need to make sure you know the numbers going into the deal to see what your profit is on the back end.  Use the Fix & Flip calculator and see where you need to be in terms of a max price to pay and if that number is not acceptable to the seller, find the next deal.  We have walked from a few deals that while the two of us were close in price, we could not meet where I needed it to be.  Remember, you make your money when you buy not when you sell.  Overpaying and then hoping you can either cut costs in the rehab even after you have run the estimator or sell for a higher price than the comps support is a sure fire recipe to come up short.

A few things about fire damaged properties. 

1. In most cases the owner received payment from the insurance company which plays in your favor to buy it.
2. Be sure to check with the city to see if there are any issue with buying and renovating.  When we lived in Michigan the city we lived in had strict inspections that had to be conducted for a fee to redo burned homes.
3. Realize that while you can encapsulate some of the burned wood to eliminate the smell, the heat does change the structure of the wood and may dictate replacement - again factor that into your offer. 
   
4. Be sure you make sure that any contractor you choose is versed in fire damaged restoration.  You might get a recommendation from a fire service company such as ServPro or the like.

Good luck . . . just be 100% sure of your path before signing that contract

Good point on watermarking photos . . . easy to do and will do that in the future.  Is there a way to 1) contact someone that has a brain with Facebook and 2) can explain why we were cancelled / blocked.  Makes little sense as we simply made a new account to get access to the service but am curious as to what exactly happened and what the basis for the decision was.

We recently (10 days ago) closed on a triplex in PA and posted two of the units for rent on Facebook Marketplace.  We received a dozen inquiries within a few hours and setup appointments to meet them and walk through the units.  So far so good . . . . until mid-way through the showings.  We received a call about the apartments and invited them to swing by and then they asked if they needed the $800 in cash or would a money order work.  We had no idea what they were talking about and were told that the Facebook ad said they needed to pay $800 to see the unit . . . since neither unit was renting for $800, we were confused.  They said the phone number was a CA number and the person was firm on the amount upfront. We tried to pull up the listing and found out that we were now blocked from Facebook Marketplace and the ad had been removed.  We have tried reaching out to Facebook for an explanation but only received a message that their decision was final as we had violated their policy . . . not sure what we violated other than having someone clone / hack our account.

So the question is has this happened to anyone else and if so, any thoughts on how to get access to the Facebook Marketplace again since we use it often in renovation where we can sell or give away material rather than paying for a dumpster.  Bizarre that someone woudl do that but welcome to the cyber world I guess . . . thanks in advance for any assistance or thoughts.

I would do it after you do any other renovation and painting to avoid impacting the new flooring.

As far as a ballpark cost, are you doing it yourself or having it installed?  We use LVP pretty much everywhere and use Trafficmaster Allure from H-D or equivalent.  It goes down quickly and does not need an underlayment or preparation.  Cost is $2.89 down to $1.79 depending on the style selected.  Since we do not pay for that installed, I do not have a firm number but based on other flooring, add about $1.50 to $2.00 a ft2 for installation.

Hope this helps