All Forum Posts by: Jaysen Medhurst

Hi Beily, 

You're missing a few items from your expenses:
Repairs (~7.5% of Gross Income) $4770/year
Capital Expenditures (~7.5% of Gross Income) $4770/year
Utilities, there will be some, if just lights in the hallways/outside
Lawn care/snow removal
Trash removal?
Property Management (10% of Gross Income) you should include this, even if you'll do yourself
PMI, is that included in your $2700/month mortgage payment

Not looking like a great deal from my POV

Hey Duane, might be a good plan, but few things to keep in mind.

$100/month profit to rent out your current house is tight. I month of vacancy and you're in the red for the year. 1 or 2 things go wrong (HVAC, roof leak, who knows) and you could be in a world of hurt.

Breaking even in the duplex might just work as a house hack.  Just be careful not to assume it will continue to be a good investment after you move. Often 2 units just aren't enough to spread the fixed costs across and still turn a profit. Costs the same to cut the grass whether it's 2 units or 4.

Finally, are you okay downsizing? Moving to a smaller place, becoming a landlord and having neighbors RIGHT next door can be a lot of change all at once. A lot of stress on a relationship. Make sure you've talked it all through with your partner/family.

Hi Fred, I just got 3.5% on a 5/1 ARM. The fed has indicated they intend to raise rates up to 4 times in 2017, assuming no major shocks to the economy. I'd refi and lock in for another 5 years or, if you can afford it, do a 15 year. That would be around $1300/month at 3.125%

Hi Evan, Cap Rate is one of the benchmarks for valuing RE investments (except 1-4 unit properties, which are based on comps). Is it the best way...

Not to get hung up on semantics, but value and price are 2 different things. Value is theoretical and price (the actual amount of money that changes hands) is not. Something can have "sentimental value," but I've never heard anyone talk about "sentimental price."

Sure, the terms are often interchangeable. For the purposes of RE investment, you may well offer a price that is below the value you think a property has.

Last point, the 2 formulas above are really intended to do 2 different things. The 1st is from the POV of an owner who wants to sell. The 2nd is the POV of a buyer trying to determine what should be paid for an investment.

Hope that helps.

Hi Andrew, you'll probably have trouble getting a hard money loan on your 1st investment. Typically those lenders want to see a successful track record (even just 1 or 2) before they get on board.

Also, a bank usually won't give a conventional mortgage if you're also borrowing DP and construction costs. You'd be borrowing more than the value of the home.

Have you looked into FHA, VA, or other 1st time buyer programs? 203(k) loans even allow you to roll in some renovation costs.

Hey Dan, I'm having a little trouble duplicating your numbers on my end. Maybe it's just late.

A HM lender is going to want a couple of points and rate of 10-12%, maybe more. All well and good if you can recoup those costs at the time of the refi. Look around in the forums for some better insight there. Lots on HM.

Are you happy with your repair estimates? If you need $20k in mold remediation, that only leaves $19k for everything else. That will go fast.

My biggest concern with the property is it's a triple without the advantages. Meaning, you've got 2 structures, so there's little economy of scale. I've always had trouble making the numbers work on duplexes because of this. 

Personally, I like BRRRs that allow all or most of the initial investment to be recouped at the time of refi. With these numbers, you'll be lucky to see any daylight between total cost and ARV (factoring in the cost of debt with a HM lender).

I'd run all the numbers again and be brutal. Don't forget the holding costs while the works being done. Especially, the cost of the HM.

Seems really complicated and at the end of the day you're trying to obscure the true use of the credit your seeking. That may be illegal and it's definitely bad business.

You're real goal is to get financing for flips, right? Have you worked with/talked to any hard-money lenders? If you've done successful flips, they're probably willing to lend.

Have you talked to the neighbors? They may know what's going on. Maybe even make a connection. The personal touch goes a long way.

If not, a hand-written letter is probably the best shot.

Hi Chris, I think you need to define your goal a little better, because there are a lot of ways to get to $360k revenue. Also, make sure you're clear about the "before taxes, etc." part. Personally, I would define my profit and profit margin goals, let that determine what the revenue should be. Who cares if you bringing in $30k a month, if you're spending $29k?

But to your real question: I think real long term income comes from being a smart buy-and-hold investor. Not only do you get to make money 4 different ways (cash flow, appreciation, mortgage pay down, and depreciation), but the taxes you do pay are typically at a lower capital gains rate, not the higher rate for income that you pay on a flip. And you can use 1031 exchanges to defer taxes indefinitely. Disclaimer: I'm neither a tax lawyer nor an accountant.

Think of it this way: To hit your goal with flips you'd have to do 10/year at an average of $225k sales price, assuming a 16% profit margin. And keep doing that every year...forever. 

If instead you use the BRRR strategy to buy and hold 10, 4-unit properties every year at an average monthly cash flow of $150 per unit, guess where you are after 5 years? 200 total units and a yearly cash flow of...$360k. On top of that, you're making money 3 more ways.

Either way, 10 properties/year is an ambitious goal. You could certainly ramp up to that, but it will take time. You could mix them up in the beginning. Use the flip profits to fund the B&H.

Hi Garmeon, 

Commercial properties are valued based on annual NOI/Cap Rate (so, a property that turns $10k/year and is an area w/ a Cap Rate of 10 would be worth $100k). Even if this is a property with less than 5 units (i.e. not "commercial"), that's still a good evaluation tool.

Doesn't matter what the comps are if you can't make money.