All Forum Posts by: Austin Fruechting

Not only do you need to figure out what actual rehab costs are, you also need to figure your carry costs, closing costs, realtor fees, etc as well.  All that other stuff adds up. 

In today's market, I often make my offers without viewing the inside of a property and use the inspection/appraisal period to make sure there's nothing crazy.  Brokers and sellers want to disturb the tenants as little as possible. I do my walkthrough at the same time the appraiser does so we're only bothering tenants one time. It's very possible the other buyer was doing the same thing.  So the thing that makes the most sense to me is that they sold to someone that made an offer without checking out the interior.  I don't think that's a conflict or racism.  A bird in the hand...

Bookmark them in your browser. 

Interiors are almost done.  Appliances will be in next week. Just basic make readies for a $700/month rental.

New hot water heaters installed, HVAC's are installed.... but my HVAC guy stole the toilet. 

Exterior is being worked on right now.  

That sucks.  Did they squander the security deposits of the tenants as well?

Meeting to discuss some creative ideas for the future...

Actually a few things again. I just took it straight up it was -$87. Claimed NOI $4296. Payments $4152. Cash flow +$12 a month with roughly 60% expenses.

If he ends up with 50% expenses his NOI goes to $5250 (assuming the average of $875 rent range). Now he's cash flowing +$91.50 a month

The reason these numbers aren't wow-ing is the 15-year loan. If he was getting 5%/25yr his annual payments would be $3024... making cash flow of $106 per month at 60% expenses, and $185.50 at 50% expenses.  

So he's going to still make a good return, it's just more in equity than cashflow because he's just having to pay a higher percentage of the NOI towards the loan than normal.

@Brian Garrett - ARV is tough to really say since it's a portfolio. My best guess would be around 1.6-1.65million using different multipliers for the different properties. My bank (only after building a long relationship with them) will lend me with 10% down as long as their LTV is maximum 70% of appraised value. I'll be using an investor for the down payment, 50/50 split.

@Kevin McConnell - That's my bad, I did not see the negative sign in front of the $87 per month.  I was skimming a too quickly before running to an appointment and read it as making $87 per month.

As to the 60% expenses I was just looking at the aggregate numbers where he said NOI $4,296. Gross rents $800-950, which would be $9600-11400 a year... $4,296 is roughly 40% of the average.

Also, I'm going to assume the 15-year note because its under $50k.  Big banks often won't finance that at all and portfolio lenders will do them but often want shorter term for the smaller amounts. 

They accepted our offer, now we just need the appraisals and I need to walk the units.

Details:

• Purchase Price: $1,062,000
• Total Current Gross Rents: $16,600
• Current CAP Rate: ~8cap (50% expenses)
• Market Rents As-Is: $20,200
• Value Add Market Rent: $22,000
• Cost of Value Add: Estimated $160k - I'll know the cost of value add for sure after walking every unit. I'm assuming it's just basic cosmetic work needed to achieve those rents.
• Post Work CAP Rate: ~10cap (45% expenses & based on $1,222,000)

The plan: 

• EARLY WORK - 3 of the buildings need exteriors re-painted and some trim work, townhomes need new garage doors 
• As leases expire we raise rents to as-is market value
• If tenant does not renew and moves out, we will upgrade unit and get the higher rents