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Author Topic: Would you do this deal?  (Read 3993 times)

Offline bluechipdc

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Would you do this deal?
« on: April 20, 2008, 03:59:10 pm »
Purchase Price: $200,000.00 5BR, 2.5BA
Rehab Cost: $75000.00  .....it is closer to $60K, but being conservative with contingency.
All Other Costs:  Purchasing, carrying, refi costs, etc: $25000.00

Total Cost = $300K

Back-End Appraisal from bank came in at $450K, Wonderful location.

Bank will refi for $335K at completion, allowing us to pull $35K equity out.

We will get an $18750 tax credit, and a 10 year tax abatement, or property tax freeze.

Have a group near the college who has put a deposit down to lease it for $2800 per month.  They pay all utilities.

Just curious as to if you guys would do this deal.  Permanent Loan, taxes and ins. will be approximately $2300 per month.

Offline takeastep

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Re: Would you do this deal?
« Reply #1 on: April 20, 2008, 05:50:57 pm »
Purchase Price: $200,000.00 5BR, 2.5BA
Rehab Cost: $75000.00  .....it is closer to $60K, but being conservative with contingency.
All Other Costs:  Purchasing, carrying, refi costs, etc: $25000.00

Total Cost = $300K

Back-End Appraisal from bank came in at $450K, Wonderful location.

Bank will refi for $335K at completion, allowing us to pull $35K equity out.

We will get an $18750 tax credit, and a 10 year tax abatement, or property tax freeze.

Have a group near the college who has put a deposit down to lease it for $2800 per month.  They pay all utilities.

Just curious as to if you guys would do this deal.  Permanent Loan, taxes and ins. will be approximately $2300 per month.

Ok, so you will have $115,000 in equity, and will be at 75% LTV.
You will cash out $35,000
You will have a positive cash flow of $500 per month.

It looks good to me so far.
How strong is the rental demand for that rent range? If they back out, can you find another party in a short period of time?
What are property values doing in the area?
Is their a good possibility the value will decline 10-20 over the next 2 years?
Is this more of a formal approval subject to closing. How confident that these terms will be delievered from the bank?

If the value is based on current comps, t, and the bank will give yo
Tony Salazar
Consumer Direct lending
[email protected]

Offline bluechipdc

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Re: Would you do this deal?
« Reply #2 on: April 20, 2008, 06:01:34 pm »
Hi Tony,

Thanks for the reply.
The rental demand is high.  Mostly Med Students looking for good student housing off campus.  If we were not able to rent asap, we would probably dump it fast for about $420K, but the rentals are strong in the area.  The bank actually, like most of them, has tightened up but they we have several who like the rentals in the area and will do the 75% ltv.  The comps in the area are coming in between $460K and the highest and most recent is $487K.

Thanks.
Chip

Offline takeastep

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Re: Would you do this deal?
« Reply #3 on: April 20, 2008, 06:14:56 pm »
Banks are changing guidelines daily for the worst, and property values are dropping. In certain areas of Ca. we will see at least another 20%+ correction.

If your appraisal comes in lower and the bank won't deliever the LTV you need, then you will be screwed on two of your major components. Less equity, and less or no cash out.

So I would study property value statisics in that area, and if they are soft, that 25% equity can be eaten up quickly.
Make sure your financing terms are solid with a couple of banks since most are lending based off purchase price instead of market value.


Tony Salazar
Consumer Direct lending
[email protected]

Offline exodallas

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Re: Would you do this deal?
« Reply #4 on: May 30, 2008, 10:11:50 am »
This is a good deal IF you can sell if for $375-$400K.  However, DO NOT RENT it out.  Rent at $2800, and total payment of $2300 is not a $500 cash flow a month.  That's fuzzy logic that wholesalers, and realtors try to tell you.  You have to apply the 50% rule for your EXPENSES.  And don't say, "I just rehab, there will be no other expenses!".  Renting to college students (I know Med Students), but students all the same.  They will tear that place down, and you will have another $50K rehab in a few years. 

It's a good flip though, if you undercut and price it to sell fast.

Exo

Offline furnishedowner

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Re: Would you do this deal?
« Reply #5 on: May 30, 2008, 10:18:40 pm »
I would check the market and see if you could increase that rent by furnishing the property.  What are the rental options for those Med students? Put yourself in their shoes...
Med students are real busy--will they pay double or triple the rent for furnished units with you paying the utilities?
This could be a nice niche market.

I rent a lot to medical personnel on short term assignments of 1-6 months. They or their agencies pay about triple unfurnished rents for furnished with utilities paid. This makes life very easy for the agencies--they don't have to pay utility deposits, turn utilities off and on, rent furniture, etc.

Since you must be right by a teaching hospital, where are all the medical travelers staying? They also make good solid tenants.

Just a thought.
FurnishedOwner

Offline tatertot

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Re: Would you do this deal?
« Reply #6 on: May 31, 2008, 01:12:06 am »
A 5 bedroom house full of college students? 1 per room? 2 per room?

You are a lot braver than I am.

It sounds like the lease is already signed, so if the students have seen it like it is, I wouldn't put $60,000 into renovation. It would get paint and a promise, plus repair any water leaks and call it good.

If you plan to re-sell it, then it gets the full renovation, but you do not put any tenants in it while you sell it.

 




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