All Forum Posts by: Khari F.

Hi BP Community,

I just created my first practice deal analysis and thought I would share with you all in hopes of getting some feedback. My goal is to find fourplexes in B (ideally) or C neighborhoods that cash flow at least $200 per door with financing. This property fell just short at $191.40 per door. 

This is an actual fourplex that is currently pending sale (not to me). Each unit is a 730 square foot one bedroom. I found it on realtor.com here. It is in the College hill neighborhood in Cincinnati, which appears to be an up and coming B/C neighborhood according to this post. I am assuming that it went for asking price and that I would be able to get a similar deal in this market if I had the down payment and other upfront cash ready to go. I made a ton of assumptions here, the biggest of which is probably the rent. Cincinnati investors please let me know how far off I am on any of these figures or if I am missing anything! 

Thank you!

Matthew 

why did you choose quantarium? not familiar but im curious how to use for anlysis

Investment Info:

Smull multifamily / Fourplex

Purchase price: $105,000

Fourplex that had been vacant & boarded up for several years, there was significant water damage due to a roof leak & vandalism.

What made you interested in investing in this type of deal?

The property was the worst looking on a cul-de-sac of decent looking properties.  The units had combo central air & heating which is not common in this class of rental.  Although the property was in poor condition, the owner had received it in a divorce settlement with no debt on it and several of the units already had new windows & cabinets in the kitchens. 

How did you find this deal and how did you negotiate it?

I paid a bird dog that contacted me on Craigslist $500 for the lead. I made contact with the owner and negotiated a price based off the condition of the property & an ARV which turned out to be low due to the strength of the ABQ multifamily market.

How did you finance this deal?

Local non profit lender that specializes in multifamily loans 

How did you add value to the deal?

Nearly a complete cosmetic rehab in all of the units plus a new roof, new electric meter, stucco repair / new paint, new windows, added gas lines for the ranges.  

What was the outcome?

Purchase price $105k, Remodel / Holding Costs / Closing Costs & Loan Fees were approximately $95k, after 6 months we started a cash out refinance on the property at an appraised value of $360k. At 80% LTV we will be getting a check at closing for approximately 120k.

Lessons learned? Challenges?

Reliable contractors that are affordable are an ongoing challenge. We had to work through a title issue on the property with the seller that took about 6 months to resolve before we could close. Out of state retail investors have dramatically driven up the prices of small multifamily properties in Albuquerque, this property a few years ago would have had an ARV in the mid 200's.

Yes, but it's 70% Of ARV, minus repairs....not 70% Off ARV. The 30% of ARV is supposed to cover your closing costs, carrying costs and profit.

You calculate it using comps as usual but many flippers when starting out are too optimistic regarding what they can sell the property for. It's better to underestimate than overestimate ARV. Another common error is to "hold out" for a higher price which may eventually happen but it can actually reduce the total profit compared to a sale done sooner at a lower price. Then sometimes people will wait even longer to sell because they're trying not to lose more money and wind up doing just that.

@Khari F. I’m not a tax advisor, but my understanding is that if you have owned and used the home as your primary residence for at least two years you do not have to pay capital gains on it.

The “of the previous 5 years” that you hear is an additional caveat that gives you some extra time to sell the home capital gains free even if you moved out already. So for example you buy a house 1/1/2022 and live in it until 1/1/2024 then you move out but keep it as a rental. As long as you then sell it anytime before 1/1/2027 you won’t have to pay capital gains up to the limit.

Hope that clears it up for you. Here’s a link to the IRS page about it: https://www.irs.gov/taxtopics/tc701

@Khari F.

Look at the inspection report and estimate how long something will need to be replaced.

@Kathryn Click rules of thumb like the 1/2% rule are just meant to be rough guides to make a quick decision on whether it is worth looking into a property in depth. Those rules do not apply to every market. They are particularly less relevant if you are house hacking.

Getting a house hack that allows you to live for free and cash flow would be amazing, but my understanding is that can be tough in an expensive market. Instead think about from the standpoint of how much the deal can reduce your personal living expenses. If you currently pay $1000/month in rent, but a fully rented house hack will only cost you $600/month out of pocket then you are saving $400/month. After two years of the rents have not gone up enough to allow you to cash flow if you move out, you can sell the property and not pay capital gains.

An alternative that could take is using you money to do long distance investing in a cheaper market and continue to rent in the Philly market.

All 4 Units are 2 bedrooms 1 Bath. both 1st floor units are remodeled and going for 1300 Monthly. Top units going for 1200 and 900 (older). Just completed cash out refinance and got all my money back I had originally put into the deal to fix the units up. Now onto the next!! Have 400K into building and appraised for 565K. Cash Out refi at 75% LTV.