All Forum Posts by: Dakota Hicks

@Patti Robertson thanks for responding. I have checked the rents and they were a little low. I could have dropped paying for utilities and most likely charge the same rent. The area I'm in is very rural and rent doesn't get much higher than that, except for college rentals that can charge $350 per room. I actually just went to the property yesterday and found that the property is actually split with two bedrooms on each side instead of the three, and one of the units rents for $25 less than advertised. I offered 33k for the place and I'm leaving it at that. They were asking for 100k, but a nicer duplex that rented for more just sold for 55k, and this one needs a new roof.   

@John Leavelle Thanks for looking over my numbers, I appreciate as many eyes as I can get looking out for me. The 10% down is for seller financing the owners are willing to do. I have a local lender that told me that they allow a minimum of 15% down, so if I can't get the seller financing I will go that route. Yes, I have to pay the PMI, but I think it will still be a better COC return using the smaller down payment. Also, I haven't really looked into it, but I think that after I refinanced it would drop the PMI from the increase in equity. I like the strategy you use and I believe that will offer me the greatest return in my area. It allows you to keep more of the money that otherwise would of went to CapEx for a new roof and others. Also, If a roof has 5-10 years left when you sell, I won't have anyone asking me to replace it before the sale.

Thanks again, John.

@Ed Matson Don't worry about the water/sewer. Thanks for the advice and congrats on earning 100 votes.

@Ed Matson can you elaborate on the monthly water expense? I arrived at the annual net operating income by taking the gross income minus vacancy allowance to come to net income then subtracted all of the annual expenses including the annual water bill. If I turned the water into a monthly expense then I would have to convert all of the expenses to a monthly rate and then multiply by 12 to get the annual. Either way, I get the same number for the expenses. I didn't change the PM, I increased the expenses to 10% of the gross income as you suggested to arrive at the new NOI. I included the holding costs because during the rehab I would be incurring those costs without receiving any rent to cover them while the property is vacant. In this case, there would still be tenants, but I want to make sure that is in there for using this spreadsheet for deals that will apply. I also use that number as a reserve because many banks require that to have on hand and as a note to myself of what I need to have on hand in case of a 3-month vacancy. Yes, the 10k is only an estimate, after walking through the property that number will change, and the offer price will move with that number, for better or worse. Lastly, the 12 cap is not based off hard numbers, but I've found that it brings me closest to reaching a COC return of 15% that I require. I feel the offer is low, but the income and expenses don't lie (assuming they check out).

@Ed Matson thanks for commenting! I will run numbers at the 10% for repairs. The $880 water and sewage is an annual expense (what current landlord pays) as are the rest listed under expenses. After changing the expenses for repairs I'm at a NOI of $5,910 for managed property and $7,440 for self-managed. Can you clarify if I'm correct in your assumptions of max purchase price for your area? I gathered that you do not include PM costs in your NOI and use a 9 Cap. Here are the numbers I get, which don't seem feasible.

PM NOI: $5,910/0.09=$65,667 - 10k (est. repairs) - $4,342(closing and holding)= $51,325 (max allowable offer) 

COC using PM: 2.0%

COC self-manage: 8.9%

 NOI w/o PM: $7,440/0.09= $82,667 - 10k - $4,343 = $68,324

COC using PM: -2.0%

COC self-manage: 4.2%

This is my first potential deal and I want to make sure that I'm offering the right price, and if its too far off please let me know.

Property Details: 

Split-level Duplex- 3 bed/1ba. each side

List Price: 99k

Rent: 600 one side, 675 on the other

Comps: Only one: duplex sold in last year for 55k - 2bed/1ba on each side- good condition

Offer Numbers: This is without seeing inside the property. If the repairs are more than 10k, they will be discounted from the offer price.

Operating Data: Numbers I'm using to come to Cash Flow and NOI, Seller provided utility expenses and Insurance costs.

Note: the CapEx numbers are estimated from a spreadsheet on things that will need to be replaced in the next 5 years, I plan to sell in that time frame to reduce large CapEx expenses. I budget to replace all large ticket items that will be less than 25% of their remaining life in the next 5 years ie. Roof Expectancy: 20 yr. Current Age: 10 + 5 years =15, Therefore, I'm at 75% of it's life. ,

ROI

Note: The last numbers on year 5 is the cash flow+the return on the sale assuming I sell for 65k , but at this point I don't have strong comps.

I plan to run my numbers like this on all my deals, except for the CapEx and holding period ( I may change those depending on the life expectancy of large items). Please comment about any detail you can, I will greatly appreciate it as this is a culmination of a lot of work from studying from BP and books to put these numbers together and is what I will use for my first deal (unless someone corrects me.)

My offer price is less than half of what they are listing, but I feel these numbers show the real value. BTW I use a 12% Cap Rate because I live in a very rural community and most people are trying to get out of the market due to the unstable conditions of a certain university.

Thanks,

Dakota Hicks

Okay, I called a local appraiser and they said that even though the property is rented to multiple unrelated people in multi-family zoning the property is still considered a single-family because it is one house that's not split up. The house would be compared to other single-families and if none in good condition have been sold near this property than they will search further away. Thank you all for the help.

Thanks @Frankie Woods , 

The Realtors around here treat these properties differently and only compare them against other rental properties when looking for CMA's and are priced accordingly. You're saying that a bank's appraiser would compare these properties against others of the same size, condition, etc., and compare the property with other SFR regardless if they are used as student housing because they are less than five units. In that case, my suspected property would not have to be compared to the other rentals and would be able to be compared to SFR that sell for higher.

Hey all,

I'm looking at doing the BRRR strategy and I'm having trouble finding the ARV of the property. I'm looking at investing in college rentals that are single-family houses rented by the room that are zoned multi-family. There are no sales of these types of properties that are in good shape, all of the sales are from distressed properties. I'm wondering if the bank's appraisal will only look at other multi-family zoned properties for comps, or would include other properties in this case since they are both technically single-family homes. There are other comparable homes that are nearby, but they are not zoned multi-family. Do appraisers even care what the owner is using the property for?

@Peter Bowring, @James Stevens, @Jim Adrian

Hey thanks guys, I'm going to have to check out all these resources. I haven't checked the file share, completely forgot about it. Thanks Jim for going out of your way and finding some links. Do you all recommend Brandon Turners book as well?