All Forum Posts by: Daniel Stegelman

Daniel. Sorry, my loan is a 5/1 ARM with a 20 year term. Sorry about the confusion.

Investment Info:

Single-family residence buy & hold investment in Muncie.

Purchase price: $35,000
Cash invested: $7,000

Rent 550/Month

What made you interested in investing in this type of deal?

Making passive income.

How did you find this deal and how did you negotiate it?

This house was part of a 4 house portfolio that I heard about through a real estate agent that I know well in town.

How did you finance this deal?

5/20 ARM

How did you add value to the deal?

Rehab

What was the outcome?

Worked out pretty well. I have cash flow after expected expense, management fees, mortgage, property tax, and insurance.

Lessons learned? Challenges?

I learned a lot about commercial loans and options for financing.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Real estate agent.

We are a couple (in our late 20s and early 30s) with stable incomes, good credit scores and $80K to invest in real estate. We are a big fan of the BRRR strategy and have decided to make this our focus. Our goal is to acquire as many houses as we can in the next five years. We currently have 4 SFH that have $800/month cash flow.

I am very curious to learn what you would do if you were in our situation? Would you use the capital to put as a down payment on a large property, or would you use that to buy house cash, fix them up, rent them out and refinance?  We live in the Midwest area where we can easily acquire properties for less than $100k. 

Thank you for your time!

Adrien, thank you for your reply.  My calculated cap. rate with at a purchase price of $330,000 would be around 3.4%.  Using the calculator on this site, I would have a negative cash flow of -$584/month.  Even at a 80% of gross, the cap rate would be 4.3% and a negative cash flow of -$264/month.  This is obviously this is better than paying my $700/month rent at my current apartment, but I feel like I should be able to get a better deal.

These numbers above are derived from the following factors: 3.5% down payment with a loan rate of 3.99%.  Closing cost and repair cost at initial purchase of $5000.   Actual numbers from info. from real estate agent factored:  Water/Sewer $89/month, Insurance $264/month, property taxes $434/month, other monthly expenses $100/month, $260 repairs/month,  $130 cap. expend./month <-- I don't know if this is too high, but it is the rate which is recommended, and $260 management/month.  I will have a manager as of now because I am new to renting and I have a time intensive main job. 

The complex currently has long term tenants with contracts of $800/month rent. If I lived in one unit the gross income would be $2600/month. Even if I eventually moved out and rented all the units at a rate of $800-900/month, I wouldn't be making money even at 10 years into my investment. I don't know if tenants around her would pay $1000/month for rent in this area. I could be wrong though. All the numbers above are calculated with a purchase price of $330000.

I would be able to invest 20% at a purchase price of 85%, so this would greatly help the cap. rate, but I'm still at a neg. cash flow up until 10 years out. The only number that would make this property purchase make sense is if I could get the seller to go down on the price. Like 80-85% of the list price. Even then, I would be barely making any money w/ renting out all of the units at the current rate. Only around $2,200 annually at the 10 year mark. I would have to do around $900-$1000/month on all units with a purchase price 80-85% of the list price for this to make sense.

Thank you for the reply and your numerical analysis. I am considering living in one of these units if possible, so that will definitely effect the cap. rate.  I would love to rent out all four units and get another property, but I'm just starting out and don't yet have the capital. There aren't many comp properties around this area.  I've seen a few other multi-family properties in my town, but they are older properties and they are not in the greatest areas. I'm starting to get a sense that this property may not work for me right now.  This would be my first real estate purchase and I know that I may be ambitious in starting out with this property. 

The multi-family that I have presented above is owned by a contracting company. They also have a duplex that they are also selling, but I feel that the cap rate (I calculated the cap. rate with the rental calc. on this site) for the duplex wouldn't make sense for the price that they are asking which is around $230,000. 

If the company is willing to sell either property at a much lower price it may be worth it, but they probably wouldn't accept a much lower offer in this type of market.  Although, you never know until you ask...

Also, thanks for the offer for representation. I'll keep you in mind.

I may be confusing/using wrong definitions.  The total operating cost w/o the 5k taxes would be around $7300.  Total cost to seller w/ taxes would be be around $12300 a year.  The owner pays for water/sewage ~$1065/year.  Heat/Fuel=gas/forced air. Sorry for the confusion.

 Thanks Ted. I'll take your advice. 

Ralph, thanks for the information. I really appreciated the post. I'm looking to own this long term and increasing rent. I think I may be able to make an offer on this property that will make sense for my long term goals. I'll just have to see if the seller is willing to sell it for the price I'd offer. 

 I used the calculator 

Filipe, what do you feel would be a safe price to offer for this property? Do you have a specific cap rate in mind that you use or do you use other metrics to assess properties?   I was looking to ask for a lower offer, but I don't know how much I should negotiate down. I'm new to real estate negotiations and I don't want to offend the seller. 

Other important information , the owner is also the contractor of the property.