All Forum Posts by: Joe P.

Not for nothing, but when I see people trying to flood slightly-to-moderately-to-insanely stupid money into what they think are investments, my rear end zippers up tighter than a latex cat suit.

Deals are out there, but I run numbers and see marginal or neutral CF deals getting gobbled up before I have a chance to even finish analyzing them. Patience and value add will never be a bad buy. Blue collar areas where there are workers, families, and jobs...will always need rentals.

@Kimberly McCall hi, welcome, @Dan Gamache numbers provided above are statistically accurate.

One thing that I should mention as an alternative, if you own your home, is a HELOC. A lot of neighborhood banks can give you exactly what a HML would, but with far better rates and if you're looking to refinance, there is almost no downside. The difference in interest is significant, depending on your credit score.

A HELOC at 4% and drawing $50,000 will have an interest only payment of $166.67 per month. A HML at 10% and no points drawing $50,000 will have an interest only payment of $416.67. Both accomplish the same process, and if you can't pay it you're going to end up using some significant asset (e.g. your house) if things go sideways.

@Cindy Gonzalez it is a lot...just be conservative with your estimates and have an "oh crap" setaside (10k should do it), and you can weather most storms. Continue to save and pay down any debt that's costing you money every month.

Gosh, where do I begin?

• You're going to put 10k in and that will increase your ARV 130k? Yeah...I don't know what planet you live on, but on Earth, it doesn't work that way.
• You don't have enough cash for this deal. It looks like you're doing a 5% down conventional at 7% interest rate. Ouch.
• The taxes take up most of your actual expenses, and you don't have enough setaside for really any of the categories. 31 bucks a month for maintenance? That's laughable.

What's happening here is you have a dud of a property. It will never cash flow because if your property taxes are over $500 a month that's already 30%+ of your expected monthly rent. There's simply nothing you can do to make this place cash flow except buy it for pennies on the dollar and have no repairs or rehab needed whatsoever. You're sacrificing every single expense to try and make it cash flow -- which is bad news and will turn you into a stressed, unhappy investor.

You think you caught a whale on your line but really you've got a tugboat. It's going nowhere and you'll drown trying to reel it in. Let go of the pole and keep searching...this ain't it.

Another thing to consider is that when you buy a house, typically you don't just move in and everything is hunky dory.

You have moving costs, and in every new place most homeowners spend time sprucing up to their tastes/desires, even if its minor cosmetics or furniture.

Add to those costs the need to ensure your rental unit(s) are in the same boat. I assume people are going to want rental-grade finishes, so your budget should be enough for the down payment, enough for reserves, enough for rehab, enough to cover costs when you don't have a tenant, etc.

If you have $12,250 saved (3.5% of 350k) and THATS IT, I'd argue you are still nowhere near ready for a property like that. You've got closing costs to consider in the actual purchase, and then all of the other costs I mentioned at a minimum.

Work with an agent to mock-up a closing sheet for you assuming the FHA loan @ 350k, giving you cash needed to close and monthly payment information. I wouldn't do any deal without having at least 10k in reserves at a minimum to cover anything that unexpectedly goes wrong -- don't drain every ounce of your cash just to get started. We're at a peak market and you'll drain it all, and then the first sign of trouble could have you dipping into personal savings or checking, if you aren't prepared.

@Jeff Pickens are you sure that's the advice you want to give? Electrical knob and tube replacement is not cheap. Brand new plumbing or needing to switch over from cast iron to PVC, especially if pipes are buried, is also not cheap.

Not diminishing your thoughts on the roof being a major expense, but to say plumbing and electric are not? That seems presumptive on your part.

@Rick Ortiz thanks for sharing that info man. Do you mind me asking what your rehab consisted of and what were the big ticket items? My rehab estimate when we did an informal walkthrough was 25k...I just want to make sure its realistic.

You have some items here, for sure, all relating to electric, plumbing, and roofing. These are not small ticket items. I suspect the seller is selling to you know to avoid having to deal with those big ticket items and get whatever cash he can.

What are the comps in the area, first? It doesn't terribly matter in this case but it's a good number to have.

What are the estimates to repair the key items listed on the report?

Frankly I think those are items that should be negotiated to fix by lowering purchase price. But these are big jobs, especially the knob and tube. As per Angieslist - "Expect to pay around $8,000 to $15,000 to rewire a 1,500- to 3,000-square-foot home."

@Russell Brazil is correct that it is a fire hazard, but beyond that it is not a cheap fix. Plumbing? Replacing a piece of cast iron with PVC may not be outrageous, but if the entire line is cast iron, you could get pricey especially if the cast iron is buried underground.

So yes, you have some red flags for sure. I haven't even touched on the roofing. I hope you have solid estimates for fixing these and have planned for and set aside money for them, along with factoring them into your purchase price -- you make money when you buy the property...or you lose it -- or you could be in for a major money pit.

If you have a moment to read about a "year look back" on a duplex investment property, feel free to check out my post here: https://www.biggerpockets.com/forums/432/topics/768334-a-year-of-progressor-maybe-not-deal-analysis-after-1-year

I bought a duplex in NJ and all numbers are listed. As of this month I am very close to finally turning a profit on over 32k in cash invested...it's been 18 months. I'm still excited about the property, I think it will eventually be a good cash flow producer for me, and tenants are helping to build my equity...but 18 months to show no profit should be a lesson to us all. I didn't make enough money on the purchase when I bought it, I underestimated how "tenant-ready" it was, and I've had too many issues arise that blew out my budgets that I didn't account for. So give it a read and hopefully my mistakes can be a helpful lesson to you in determining if you should do this deal...and go back to that comp. If the comps are 200k, you have room here to handle the fixes and cash out refi, sell, or bank on appreciation. If comps are 115k, that margin is razor thin low and only adds pressure to this deal, and eliminates nearly any and all exit strategy for you to do what you want to do, which is make money.

Congrats...what are some of the other specifics of the deal? Do you have a BP calc sheet so we can make sure you've got everything? :D

Yep...I personally would have made a modified month-to-month lease with them part of the sale agreement. In fact I might have taken it even a step further to say they need to be vacated at the time of sale.

If you don't have this agreement, then I think you are SOL. If its listed somewhere in the sales agreement but not agreed to in writing by the tenant, then I think you are SOL.

You could speak with a lawyer to see if there is any legal recourse (I am not a lawyer, the information posted herein is an uneducated opinion and is not meant as sound legal advice) but I doubt it do anything.

As @Darius Ogloza said I think your best recourse is cash for keys.