All Forum Posts by: Peter M.

You could but unless it is already in move in condition I would not. I think of renters as having no imagination. If they see a place not fixed up, even if you tell them all the nice things you will do, they will be skeptical and just move along. Plus they might see something and think it is something else, like dirt they think is mold, then they will always question "did my landlord actually get rid of that mold? I have a cough now so it must be from the mold, I think I'll stop paying rent until its fixed" Even if it is fixed up, how will you show it? If you do this, don't take money from anyone. You can collect applications but don't do the paid services like credit and background checks until you own the property. 

I use Veritex. I started with a bank called Independent that got bought by them and just kept on going. They are a portfolio lender and have worked out pretty well for me so far. I did a construction loan refinance and am getting a LOC using my equity right now.

Why do you have to disclose it? Is that the law where you live? I wouldn't tell the sellers that, its none of their business and yes, it makes your offer look weak in my opinion. If they have other offers they will ignore yours because of it. 

The risk you run is both offers getting accepted but you simply back out of one during the inspection period. Worst case scenario you have your earnest money on hold for a couple weeks. 

What is the purpose of this closet? Where is the door? Is it a coat closet that opens on the other side? Is it the only storage besides the bedroom closets? Is it structural? It seems like a weird place to have a closet so the builder may have put it there because he needed a load bearing beam and this was a way to hide it. There may be ducting or something else in there that you won't know about until you tear off the sheetrock. Also depends on your budget but I would just take it out to make the kitchen flow better. 

I think you are kinda putting the cart before the horse. Unless you are a builder who can do it at cost, it will take a while to see a return in most markets. 

Ok here goes. First of all let me say I wish I could get your insurance rates down here. $800 might cover 2 months of insurance premiums for 3 triplexes in Texas. 

Assumptions: Year one rental income of 3k per month while you do repairs/get the units fully leased with the 15k. 240k loan at 5% with a 20 year am like Jeff Holst said comes to $1570. Year 2 rental income of 5k with 10% vacancy. If you did the 25k most of that would be cap ex and would not change your expenses, you would just depreciate it so I am going to ignore it but in reality some of it could probably be considered repairs you would just have to ask your CPA. Year 3 you can raise rents again based on the 25k you spent so lets make gross rental income 6500. Assuming expenses increase 2% per year. Here is what I get:

Year 1-Monthly rent 3k

Loan: 240k, Down payment: 60k, total cash invested: 83,684, total investment: 323,684, NOI: 23,600, expenses: 12,400, CFBT: 4,770, $40/door/month, CoC Return: 5.7%, DSCR: 1.25 (banks want at least 1.2 so that's good), Operating expense ratio: 34.44%(less than 50 is good), Positive leverage: No, Simple ROI: 1.47% (not good but CoC matters more since simple ROI is just 4770/323684 which includes the loan), Cap rate 7.29% (I usually ignore Cap rate because it doesn't apply here since you are not paying cash).

Year 2-Monthly rent 5k, 10% vacancy

Total cash invested: 108,684, Total Investment: 348,684, NOI: 41,352, expenses: 12,648, CFBT: 22,522, $198/month/door, CoC Return: 20.72, DSCR: 2.2, Operating expense ratio: 23.4% (very good), Cash break even ratio: 52% (if vacancy drops to this number you would break even, 52% is very good), Positive leverage: Yes, Simple ROI: 6.46%, Cap rate: 11.9%

Year 3-Monthly rent 6.5k, 10% vacancy

Total Cash invested: 108,684, Total Investment: 348,684, NOI: 57,552, Expenses: 12,900, CFBT: 38,470, $321/unit/month, CoC Return: 35.4%, DSCR: 3.04, Operating expense ratio: 18.38% (unheard of), Cash break even ratio: 40.68%, Positive leverage: Yes, Simple ROI: 11.0%

So these numbers make it look but I think you're estimating expenses way too low. However it seems like a good value add situation. You also don't have any reserves but if you have 25k in year 2 maybe you have more money just standing by? Otherwise a new roof on one of these buildings could put you in the red. But if you can make it to year 3 without any major problems you could start building up reserves. However with 10 units you have 10 HVAC systems, 10 water heaters, 10 sets of plumbing and electrical systems, 15-25 toilets, 3 roofs, etc= something will go wrong every year. 

All in all it looks like a good deal once you get those vacant units fixed up and rented. 300k for 5k per month is pretty amazing in most markets. You'd pretty much break even the first year save any major catastrophes but I have a hard time with the 20% operating expense ratio. If this were one single family home that you fixed up nice, sure I might believe 20% would make sense but not 10 units renting for 450-850. The quantity and quality of tenants will drive that way up. 

You should also evaluate these individually. In the aggregate it looks good but you may notice one is propping up the other two or one is dragging the others down in which case you could choose not to buy all or fix in flip the problem building. Good luck

p.s. if you reply to this put the @ before my name so it notifies me. I almost forgot about this thread. 

@Jeffrey Holst @Michael McCorkle

Is he cashflow positive right now? If he sells how much will he pay in taxes? What will he invest in with the proceeds? There are a lot more questions to answer than just the local market. If he is cash flow positive, even if the market cools will rents change significantly? Trying to time the market whether it be RE or stocks is a fools errand. It is tempting to try to sell high but if he is confident in his investment stick it out. It is just like value investing in the stock market. If he wants to hedge, sell the worst performing one and either pay down the other two or invest it in something he's more confident in. 

If the couple is going to move out and didn't do any damage, let them go. Sign a new lease with the old and new tenants. I just don't understand why/how you are renting a 3/2 to 4 different people? Just make all the tenants pay in one payment so they figure out the splits, you just collect one check. Seems like a stressful situation for one house. I wouldn't rent separate rooms in a house to people who did now know each other. I also put lease break fees into my lease for situations like this but if the sisters are willing to cover the whole month, you may luck out and not lose any money or have to go to court at all. 

I am using Veritex right now. I am using a rental as collateral though, not a personal home. 

Well welcome to BP. Sorry to hear we lost a Texan to Illinois though. Now, I am not a wholesaler but from what I know it tends to be a bit personal because you have to convince people to sell their house. Kinda hard to do remotely, especially here where a handshake means more than in other parts of the country. Other than that, it sounds like you have a good plan. Good luck.