All Forum Posts by: John Leavelle

@Meredith Witzel

I do not use the BP calculator. However, I believe that some Holding costs are automatically transferred/included in the Rehab budget from your Cash Flow expenses. Such as Tax and Insurance. Other costs must be entered by you in the Rehab estimate section (like water/sewage, Electric, gas, lawn care, HOA fees, etc). These amounts will be multiplied times the number of months you indicated for the Rehab time (6 months). If you financed any of the acquisition or Rehab costs, then, the monthly P&I payment would also automatically be included. Holding costs can be a lot more than people think. Mine average around $6,000 for 2 to 4 unit properties.

Howdy @Meredith Witzel

The numbers and calculations you provided look good. However, I would caution you to be sure of those numbers. You did not include any information on the type of property, the current condition, or what is included in that $14,942 Rehab estimate. Be sure it will get you to the condition and finish other properties sold for that ARV. Did you include Holding Costs in the Rehab estimate? Utilities, Tax, Insurance, HOA fees, and other expenses will occur during the Rehab period and up until the property is fully rented.

Howdy @Steve Uhlig

Here is the way I go about it:

1.  Locate distressed property.  

2.  Determine if property currently meets the 1% rule (Asking price vs Monthly Rent)

3.  Does the property meet my minimum Cash Flow criteria ($100 per unit) using the 50% rule.

4. Get comps to determine Fair Market Value (like new condition or ARV)

5.  Develop Rehab estimate 

6.  Use 70% rule to determine my All-in cost limit (Purchase price, Rehab cost, Closing and Holding costs)

7.  Determine my Maximum Allowable Offer 

ARV x 70% - Rehab Costs - Closing Costs - Holding Costs = MAO

I also check how the property will Cash Flow after the Rehab and Refinance.  Most properties I buy are under Market rent rates so the new mortgage payment usually does not wipe out the Cash Flow.  If I cannot meet my minimum criteria I may adjust the Cash-out amount to reach the minimum.  If too much of an adjustment is required I may have to pass on the deal.

Howdy @Fausto Ramos

You need to provide additional information when you post.  Like what is it you need help with, the type of property (number of units), the age and condition.  

I agree with the others regarding the loan information and low CCR. You also seem to have fudged the expenses to make it look good. 8% vs 10% PM, plus you left out 2 of the most critical expenses to account for, Vacancy (8.34%) and CapEx (10%). That's an additional $550.20 per month. It puts you into negative Cash Flow ($328.31 - $550.20 = - $221.89).

Howdy @Cody Swainston

You are on the right track for analyzing a House Hack deal. Analyze it as if you are not living there using the loan information from the House Hack (assuming FHA loan). If it meets your Cash Flow criteria then it's a good deal. If not... keep looking.

Once you find the deal then you can adjust the rental income and expenses to account for you living there.  You will most likely have negative Cash Flow.  That is why it is best to find a Triplex or 4plex to House Hack if possible.  You have a good chance of breaking even or having positive Cash Flow.

Howdy @Chad Holden Sutton

I recommend you always stay conservative when estimating anything dealing with investments.  In this case stick with the 50% Rule for your Expenses until you have had factual numbers.  If it can meet your Cash Flow criteria using 50% for Expenses then it stands a good chance of being a good deal.

As far as individual Expense Items; I never go below 8.34% ($104.25) or one months rent for Vacancy reserves ($104.25 x 12 months = $1,251). I use 10% for CapEx until I have the property inspected to determine the current condition and life expectancy of all major components and appliances. Then I can adjust to a more accurate withholding amount.

Where did you get the $130K ARV from? The sellers asking price is $169K (not saying that is right either). You need to use recently sold comps to establish the Market Value.

Howdy @Derrick E.

Provide appraiser with a information packet.  Before and After pictures, list of work completed, even comps you are basing your Rehab on.  Most will appreciate the information.  It makes their job much easier. 

Howdy @Caren Klein

Here are a few comments and questions.

Always provide some information in the report or your post regarding the current condition of the property. Your CapEx amount may need to be higher depending on the property age and condition.

Why is the ARV $220K when you did not include any repair/upgrade costs?

I would raise the Vacancy Reserve to 8.34% to cover one month of rental income.

You might want to include exactly what you are not sure of.  What is it we need to look at for you?

Howdy @Chris A.

There was something wrong with the BP Report links around the time you posted this.  It is now working.

To answer your direct question about estimating Rehab costs it is difficult just by looking at a single picture.  You should provide a list of items you believe need to be repaired/upgraded.  Better yet I strongly recommend you get J Scott's book "The Book on Estimating Rehab Costs" available here on BP.  It will provide you with step by steps guidance how to do it.

Howdy @DJ Lee

You need to provide more information in your post.  A report is not enough.  What type property is it?  What kind of Financing are you using for the Acquisition?  Why is there $60K surplus in the down payment?

Do you really think you can do $60K Rehab in one month?  Not likely.

Your expenses may be a little low.  Hard to say without additional information.