All Forum Posts by: John Leavelle

@Peter Bui

His total Project Investment was $52K ($20K Purchase price, $2K Closing Costs, $30K Rehab estimate).  He is using all cash for the Acquisition and Rehab (no loan).

The Down payment of $20K is the Purchase price.

The Refinance loan amount is $50K. 

$52K - $50K = $2K Cash remaining in the property.

@Jason Gott

That definitely looks better.  Now for some fine tuning.

 When I said the All-in costs includes Closing costs that means “All Closing costs and fees “.  Acquisition (Purchase), Refinance Fees (normally $2K to $3K), and Hard Money Points and Fees (if you use them).

The BP reports do not show your Rehab Estimate breakdown. In this Calculator Holding Costs are included with the Rehab. Some are automatically transferred from your Cash Flow expenses (water/sewage, insurance, property taxes) while others (electricity, HOA fees, etc) need to be added by you within the Rehab worksheet. They should be automatically multiplied times the number of months you indicate for Rehab time. Double check that is correct.

You might want to reevaluate the amounts you are holding for CapEx and Repairs. 15% together is probably sufficient. Maybe even a little less depending on how much deferred maintenance you anticipate after the Rehab.

Would I pursue this deal.  Let’s see;  a property worth $80K, you only have $2K of your own cash in the deal, tenants are paying for your mortgage, and you are receiving positive cash flow.  Hmmmmm.  What do you think.

@Jason Gott

The link you provided doesn’t work.  Try again.

Howdy @Jesse Ballou

I have not watched that podcast. However, one of the first things I do after identifying a property is establishing a solid ARV for that property. The rest of the analysis numbers are dependent upon the ARV.

When putting your Rehab estimate together be sure to include some buffer.  An additional 10 - 15% .  Something almost always goes wrong.

Try to get your Refinance loan lined up as soon as possible.  I get prequalified before I even purchase the property.  Helps knowing the rate/term you should have.

Take lots of pictures before and after the Rehab. Provide a packet to the Refinance appraiser that includes copies of the pictures, a detailed list of the work you did, and copies of the comps you used to arrive a your expected ARV.

Start marketing the availability of the property for rent as soon as you start the Rehab.  You want tenants screened and ready to occupy the property as soon as the paint dries.

Try to segregate Rehab Expenses to as small amounts as possible.  $2,500 or less.  This helps distinguish between Capital Expenses and Repairs.  Mainly for tax reporting (Depreciation vs Operating Expense).  Talk to your CPA about this.

Howdy @Nickolaus Cabcabin

You need to do some explaining for this deal.  Not sure how you think you can spend only $19K and magically it is worth $80K.  Is the current Asking price $64.6K?

Howdy @Monica Bustamante

You might want to edit your report.  $220K for Closing Costs is a little excessive.

I agree with @Michael Randle regarding the $725 Purchase, $80K Rehab estimate, and $725K ARV. Is $80K a random number you put in or an actual estimate? You need to walk the property (or someone do it for you) before you just put an estimate in. Once a property is under contract have it inspected to determine the current condition and life expectancy of all major components and appliances. You can then decide what needs to be repaired/Upgraded up front and what can be deferred. Use the deferred items to establish your CapEx reserves requirement.

No matter what you should always have CapEx included in your analysis. You also left out Maintenance/Repairs from the analysis.

I also agree your Vacancy amount is low.  I never go below 8.34% (one month rent) for analysis and budgeting.  If the actual amount is 3%, guess what, you made more cash that year.

You would be wise to stay conservative when analyzing these deals.  Look at the Cash Flow using the 50% rule in your report.  -$306 per month.  That is a big red flag to me.

Howdy @Josh R.

I never go below 8.34% for Vacancy reserves.  That equals one month rent.  If the actual Vacancy turns out to be lower, guess what, you made more money that year.  If you want to stay conservative with your analysis stick with the 50% rule for Cash Flow when you are initially evaluating a property.  If it meets your minimum cash flow criteria with 50% expenses then it’s probably going to be a good deal.  Start digging deeper into the numbers.

Once you find a Realtor have them run a CMA (Comparative Market Analysis) to establish a good ARV/Fair Market Value for the property.

Is $179K the asking price? Ideally you want the Total Cost of the Project to be close to or below the ARV. It is becoming a Sellers market in many areas. So this might be harder to achieve.

Howdy @Jason Gott

The first thing you need to get right is the ARV. Why would you spend $90K (Purchase and Rehab) for a property valued at $60K? That is the biggest problem with this deal.

What you are trying to do is commonly called the BRRRR strategy here on BP. You should be using that calculator to analyze your deals.

If your objective is to recover all your cash to use for the next deal then you need to change your method of calculating/analyzing these deals. Establishing a solid ARV is the first step. Then you work backwards from there to figure out what the Maximum Allowable Offer (Purchase price) should be. When you go to Refinance the property to get your cash back the lender will give you a loan amount that is 70% to 75% LTV based on a new appraisal. Hopefully the appraisal and your ARV are the same. You also need to use that percentage to determine your All-in costs amount, which includes Purchase price, Rehab costs, Holding and Closing costs. It looks like this:

ARV x 70% = All-in Costs Target

- Rehab Costs 

- Holding Costs 

- Closing Costs =

Maximum Allowable Offer or Purchase price 

If you can follow this formula you should always be able to get all or most of your cash back.

Now to make sure you have positive cash flow you still need to be as close to the 1% rule as possible.  You should try to obtain a Refinance loan that has a reasonable rate (@5%) and amortization for 30 years.  That will keep your P&I payment much lower than the 15 year you have in your report.

Howdy @Brian Gallagher

A Duplex is still a residential property. Therefore, you should be able to get a conventional Cash-out Refinance at 5% - 6% APR/30 year amortization. It would provide a lower mortgage payment increasing your cash flow. Have you tried the BP BRRRR Calculator? That is exactly what this deal is. Your problem is you will not be able to get all your cash back out since your costs are already are 83% of the $185,000 ARV or 80% of the $195,000 ARV. I would expect more like 70% to 75% LTV. ($129,500 to $135,750) or ($136,500 to $146,250) depending on the appraised value.

Shop around with local banks and credit unions for better deals.

Howdy @Jeremy Sharp

Lots of questions and comments.  

1. What type property is it? SFR? 2, 3, or 4 unit? More than 5 units? Rental Income of $5,200 would appear to be multiple units.

2. What is the age and current condition? Your CapEx may need to be more depending on the answer.

3. The first thing you must do is determine the ARV! Have your realtor (get one if you do not have one) run a CMA (Comparative Market Analysis) to find the Fair Market Value once the property is rent ready.

4. If you are using a 5 year ARM, then, you will need to refinance the property eventually, right? You might want use the BRRRR Calulator for this deal.

5.  Are you using cash for the $50,000 Rehab costs?  or do the repairs as cash becomes available like your first deal?

The property looks to have good income.  However, I would need more clarification on the details.