All Forum Posts by: Kim Giannola

We tend to find them on Craigslist as well and try to target ones as close as possible.  First we hire them for something that only costs a couple hundred dollars and go from there.  If they are professional, on-time, have fair rates, and the work is good, we increase what we hire them for.  We've gotten excellent contractors that way, and the ones that weren't good we didn't lose much money on (or lost zero dollars because they never showed up).

You can also ask good contractors or other investors for referrals.  If they have a great reputation they would not want to risk it by recommending a bum.

@Nicole Jones

 Yes you can refinance later on if you like.

@Peter Mikhjian

You should still factor in 10% for property management, even if you plan to do it. At some point in your life you will want to get out of managing properties and at that time you don't want your cash flow to disappear just to pay a property manager. Logan is also right, homeowners insurance on a duplex is higher than a SFR. My broker quoted me $600 a year when estimating my monthly payment, and when I called around it was a totally different story. More like $600 per unit, depending on where you live. Also you still need to budget for capex because you property isn't just updated once and is good forever. Every major system in the home has a limited lifespan.

It's good to post your analysis on here and get feedback from others.  You will learn a ton and also save yourself for headaches in the future.  I wish I was on BP before I bought my first property!  Best of luck.

@Nicole 

An FHA 203k loan is great for someone starting out with little cash to put down. The down payment requirement is 3.5% and the interest rates are excellent, last I checked a few weeks ago 3.375% with good credit. You are also able to borrow rehab money and roll it into your mortgage, which will allow you to qualify for properties that would not otherwise pass FHA criteria. The only downside with FHA loans now is that they have PMI for the life of the loan.

I used a 203k for my primary residence which is a triplex.  I'm past the 1 year mark now but still live there.  If you have more questions feel free to PM me.

The only operating expenses that I see in your spreadsheet are taxes, $100 maintenance and home insurance.  Nothing for capex, management, lawn care, utilities, etc.

Edit: I forgot to start out by saying that it would have to be a 2-4 unit property for the "rent" R of the BRRRR.

Keep in mind that at 3.5% down you are starting out with very little equity. You are assuming that only $10k in rehab will bring your house up to an ARV of $90k. Have you done all the numbers calculating ARV? And have you accurately estimated the rehab costs? If you want to refinance out of an FHA loan into conventional the broker will require at least 15% equity on an owner occupied 2-4 unit. You also will not get as sweet of an interest rate on conventional either. Again you will still need to occupy the property.

Can you break out the expenses for us?  Do you know if the landlord has to pay for water or electricity for common areas or external lighting?  Have you also factored in 10% for property management?  How about lawn care?  It seems pretty tight.  Also, how did you estimate your rehab costs?  If the place cosmetically looks like 1988 it might cost more than you think. 

To add to what Michael said, location is probably on of the biggest factors when looking at small multis.  Typically areas that have a higher concentration of small multis for sale are lower income, so I would highly suggest making a list of a few in your price range and driving the neighborhoods before making appointments with your realtor.  It will save you both a lot of time and it will help you learn the area better.

I would also go on Craigslist and look at how much rent other landlords in the town are charging and see what they units look like.  This will help you budget.  Then learn what all the associated costs of ownership will be and use that in your financial analysis.  Utilities, taxes, insurance, lawn care, repair, capex, management (always factor in ahead of time).  If you run the numbers for each potential property you will feel much more at ease.  It's natural to feel nervous!

@Alexis Pettway

 E-mail sent.