All Forum Posts by: Cameron Lam

Joseph I honestly didn't think about that and that's a great way to think.  The way I was justifying this was our cashflow now is $1300/mo at 4.875 % and with the cashout refi of $26K we'd be cashflowing $1400/mo and be getting money in our pockets.  Yes I mentioned to him since he is bearing the risk with the loan in his name we would follow his lead but just trying to wrap my head around being overleveraged.  Isn't leverage great if your cash flow is high and you are buy and hold long term to weather the market storms?

Do you have fear just in case you need to sell and owe more then the propertys worth? Should there be any fear if this is a long term play? 

And that's what I'm wondering.  Are you afraid of being upside because you're more levered in debt and if you have to cheapen rent to entice tenants to be there you might not cover your expenses?  How much were you considering taking out as a cash out? I'm thinking we only take out 26K which wouldn't be huge.

 Hey Mark, yes this was a home run deal.  Mortgage is $1780 + 150 for repairs and 240 for insurance.  Yes my tenants pay the utilities and even most of the landscaping bill.

Hi guys!

I'm partnered up in a duplex that has joint title with me and my partner out in Phoenix, AZ.  Our original numbers were as follows.

Original Numbers

-$309K Purchase Price at 4.875% 30 year fixed

-$278K Loan Amount

-$43K Initial Investment

-$15.7K Annual cash flow or 38% CoC (15.7K/43K)

My partner was able to lock in a killer interest rate a couple of weeks ago when the rates dipped and rolled in a few thousand into the loan amount here's where the numbers fall in that scenario.  He is going to refinance in his name only and free me up for another loan.

Refinance

-$309K Purchase Price at 3.375% 30 year fixed

-$281K Loan Amount

-$43K Initial Investment

-$18.5K Annual cash flow or 41% CoC (18.5K/43K)

Cash Out

-$309K Purchase Price at 3.375% 30 year fixed

-$311K Loan Amount

-$16K Initial Investment (Take out $26K of the initial $43K) 

-$16.9K Annual cash flow or 106% CoC (16.9K/15K)

Here's my dilemma! The appraisal for the property recently came back at $415K and my lender suggested that we could take up to 26K cash out for 75% LTV. We're currently at 68% LTV. The numbers would look insane with CoC at 106%. I've explained to my partner that we could both take out 13K each(half of 26K) and essentially have $16K total into the property versus the original $43K total. Not only would our CoC be insane, but it would give me access to some capital should I invest down the road in this market downturn or have some stashed away as extra reserves for vacancies or emergencies during the COVID-19 crisis. My partner does NOT want to do this and works in banking/lending so I'm trying to see his point of view.  Here are his main two reasons.

1.  Given the current scenario (he works in banking), he is bracing for the possibility of a reduced income up to 50% reduction(lack of bonuses or possible job transfer pay cut etc.  I'm sure everyone is bracing for this as its a real possibility).

2. Should he want to invest down the road and has to secure loans under his name only, he is fearful of adding on any more leverage. In this case his leverage in the property moves from $278K to $311K or an additional $33K. If his income is reduced significantly he wants to not add on any new debt so his DTI continues to look good.

After he explained his situation I understand where he's coming from but was curious if there is any other reason we shouldn't do the cash out refi? Even if I had to significantly reduce market rents, with higher CoC of 100+% we would be sitting pretty in the property. Also, an extra $30K of financing comes out to $2000 a year which I don't believe puts a dent really in any sort of Debt to Income calculations. I'm not old enough to have really felt the affects of the last crash but he was. Is there anything I'm missing here? Even if there was a fear of being underwater in this property and somehow the value plummeted from $415K to $300K we both agreed that we're in this for the long haul and don't intend/need to sell soon.  We could simply weather any downturns in value until the market gets hot again.  If we wait for the current environment to settle I feel like future appraisals won't be as high.

Thanks for reading this!

did you find the answer to this? I just started using stessa

@Dan H. GREAT talking points.

1.  Repairs were 10 cents a square foot per month for $240/mo.  Maybe the wrong way to do it but using methodology for a big time investor who invests locally and has 2000 units.  He uses 4 cents a square foot and I thought I'd be conservative.

2. Capex is $473/mo and I basically itemized everything and then divided by the useful life.

3.  Current landlord gave electric and trash costs at $350 mo.  I upped ours to $500 to be conservative.

3.  We had a walk today with 3 GC companies who said I could get the place to the standard I want for 60-70K.  My Model actually plugs in $87K for repairs, 25K for furniture, $8K for closing costs(credits from my realtor included). 

4. The jump in rents comes from different types of rentals. If I do traditional rental...I'll get about 15% CoC at $6K gross rents. If I do airbnb which this could easily be based on its walkable location to a major hospital for $1.4K a unit average per month...the gross rents jump up to $8.3K

@Jaysen Medhurst thanks for the response I will PM you with more details!

Here's the skinny.

After 80K in renovations and 25K in furniture cost, we project to bring in $8300 a month in gross rents.  $2381 in monthly expenses including repairs and capex and mortgage payment of $1600 for the first ten years IO.

Monthly Cash on Cash is $4300 total and 26% if the initial outlay including down payment, furniture, and renovations is $190K.  

I am just wanting to see if we can't finance the 80K in renovations over some period of time as that would definitely help our CoC numbers.

Hi guys!

I recently acquired a 6 plex in Mesa, AZ that consists of small studios and 1Bed/2bed units.  The units range from 350-600 sq feet and we are in our inspection period.  The purchase price was $460K and am using a portfolio lender at 15% down and interest only for 10 years, and then amortize the remainder over the last 20 at 5% interest.  The units are bringing in $4300 in gross rents as is but there is HUGE upside in doing updates.

We went in for inspection yesterday and it looks like 3 of the units need at least $20-25K in rehab with another 25K for landscaping. I'm projecting our gross rents to rise to $6000 with $100K in rehab or an increase of $1700 per month or $20,000 per year. Not sure if I'm calculating an ROI correctly here but all else equal...seems like a good idea at a 20,000/100,000 or 20% ROI. ROI might even be higher since our capex costs will decrease per my original model.

Here's my question.  Since my loan is already underway...what's the best way to finance this rehab?  My thought isn't to necessarily do all 3 units and landscaping right away but over time through the next year or two.  I've done some rehab on other properties I own but they were small in the 10-15K total cost that I just used cash I had saved up.

How would you guys finance the repairs? I expect ARV of the property to be $650-$700K. Purchase price of $460K + $100K rehab.

Hey Stanley thanks for the note.  I think Airbnb definitely has a lot of upside.  Just need to take into calculations the furniture cost and some slightly lower rents for the first month or two while your listing gains traction.  I'm in the process of converting some over to Airbnb as there's just too much money I'm leaving off the table.  Also the one room we have house hacked as an Airbnb stays clean and honestly is better than the rest of the house!