All Forum Posts by: Brad Noe

Someone else put in an offer last night. We're going to come in at $5,000 above ask ($45,000) since we are not paying cash. Wish me luck!

Hello @Jeff Kehl! Thanks for the reply and some great points. My strategy all along (not just for this property, but in general) has been the BRRRR method as outlined in @Brandon Turner's "Book on Rental Properties". The relative spread on this property for flip vs. rental cash flow is what caused me to consider deviating from my strategy. However, I think your point about higher taxes and higher rehab budget may have tipped the scales for me back to rentals. Thanks for keeping me on track ;)

So here is my situation and I just need someone from out there from the wonderful BP community (you're my hero @Brandon Turner) if possible, because this admittedly IS my first rodeo:

- I've been watching the MLS in this area daily for the past 6 months, so I know market well, but this is my first foreclosure I have seen that really piqued my interest. 3 bed/2 bath 1,200 sqft w/ unfinished basement and large backyard.

- Good bones, good neighborhood. Owner took off with his new girlfriend about a year and a half ago and it has been vacant ever since. Just released onto the foreclosure market yesterday. 

- Power was out for an extended amount of time which caused the sump pump to back up and flood the basement about 6-10 inches but it appears that Fannie Mae went in and cleaned everything up after getting the power restored. It is a big basement and only one corner of it is drywall/wood panel, the rest of it is concrete which they cleaned and painted already.

- Upstairs has some mold on the walls but the stench was not overwhelming and it appeared that we would just need to clean and paint.

- Listed at $40,000 and there have already been a few other investors in to take a look today.

- I am no expert on rehab, but here is my best try:

- Upstairs: clean/paint walls, paint cabinets, remove carpet in living room & refinish hardwood: $10,000; new window trim: $500

- Basement: minor mold remediation: $1,500

- Exterior: damage to wood panels above front porch: $500; landscaping: $1,500

- CapEx: roof: $8,000; furnace: $3,000

- Appliances: refrigerator: $800; microwave: $200; dishwasher: $400; W&D: $600

- Miscellaneous: clean-up, etc: $3,000

- Total: $30,000

Now, let's say I pay full price at $40,000 w/ 25% ($10,000) down. I found a great local mortgage lender that works with investors and loans money for rehab properties. That makes it about a $60,000 loan ($30 purchase, $30 rehab) with a potential $110,000+ ARV. That's a big payday for me if I chose to flip!

After repair it would rent for about $900-1,000 w/ a potentially $380 mortgage (projecting 5.5% interest). Using 50% rule, that may only yield ~$70-170 cash flow.

So my question is, as a new investor with a goal of building passive income, should I flip this home and roll the capital into future rental property investments given the apparently more favorable spread for the flip vs. the rental cash flow in this scenario? That is what I am leaning towards although my strategy has always been buy & hold to build passive income.

ALSO - is there anything anyone can spot that I might be missing in my numbers above? 

Lastly, are there any other considerations for buying a foreclosure that I need to take into consideration? I am doing some research on the process before I make an offer but thought I would throw it out to the forums to hear your expert insight as well.

Take a look at the pictures:

Thanks so much for anyone that may choose to read through this and engage me with some advice. I hope to have the opportunity to pay it forward 10X one day to the next generation of newbies!

Cheers,

Brad Noe

Warren Romig could go either way depending on the deal and the location because I live in Louisville and have a somewhat demanding 401k job so I just might need a full time property manager. I would prefer to do the bulk of the landlording myself though, if it makes sense. Can I give you a quick call tomorrow to introduce myself?

Warren Romig I'm actively looking for a rental in Jeff right now and would love to work with a good reliable property manager. Also, do you know any wholesalers and/or cash investment buyers active in southern Indiana? I would love to network with you.

Lots of renter demand with much less inventory vs. Louisville. Homes are more affordable as well, relatively speaking. Louisville homes have historically appreciated at a much higher clip, although Jeffersonville is experiencing an increase with the new east end bridge coming to fruition. I'm a new investor but have done a lot of research on Jeff and southern Indiana. Message me if you'd like to network.

@Tyler Herman thanks again.

I am definitely worried about buying a lemon, which is why we are very steadfast in getting all the information necessary to calculate profitability of the rental properties we are targeting. My biggest concern, however, is resale value. Since we are going for multi-family homes, it seems to be more difficult to find comp's and to project the future value of the property. Any advice there? Do you have experience with multi-family properties? 

Thanks @Tyler Herman for the response. I know I sound like a novice - because I am - but I am definitely doing my research. Your response was actually very helpful because my main concern wasn't as much WHAT to ask for, but WHEN it was acceptable to do so. But from your response it sounds like it is okay for me to ask for as much information right out of the gate as possible. This is what I have been doing, but the owners/realtors we have been dealing with have been reluctant to provide all the info and they sometimes act like we are out of line with our detailed questions. 

So again, thanks. Do you have a standardized form/checklist that you follow by chance to guide you through your due diligence?

Cheers!

Does anyone have any advice on what questions and information to ask for when looking at a rental property? I have found a 4-plex that my partners and I are highly interested in, but wonder if I could get some advice as to what to ask for now (haven't even scheduled a tour yet), during the tour, after the tour is done (assuming we're still interested), etc.? I just wonder what the normal course of action is. Thanks!

@Robert Burns Good old Trulia