If this Was your Deal, What would you DO??

Rehabbing, Fix and Flip, Rental Properties
1

Hey guys,
I’m an ardent reader/follower of the forums. I am also new to the REI business, and ready to take the plunge.

My partner and I are currently looking at a couple property’s, and will make an offer Wednesday evening. We have some numbers, and are stuck on what to do next. Below is the information, and I’m asking for your input. Pls Help.

1st property
865 sq.ft, 2 beds, 1 bath, dining area in living room, laundry room, enclosed backyard.
Rental income $400/month
HOA fees $72/month covering lawn and garden care, roof care, trees trim, garbage on streets, basic external maintenance

2nd Porperty
1300 sq.ft, 3 beds, 1.5 bath, dining room, laundry room, dishwasher in kitchen, enclosed backyard.
Rental income $630/month.
HOA fees $72/month covering lawn and garden care, roof care, trees trim, garbage on streets, basic external maintenance.

Combined income of 1030. (price will be reduced further if we do a combo deal)

third property is already fixed up, seller is working with a Realtor[b][b][b][b][/b][/b][/b][/b] on this one, 3b/1.5baths, with everything new in the house, property is for sale for $119,900 which we can be reduced if we do a combo deal from us (i.e including all three properties). Rental income from this one was at $775/month and now with all updates, we could easily get $850/month.

Any suggestions.
PS: We are wholesalers, currently working on building earned income. Any creative financing ideas to incorporate?
Thanks

2

(Someone here will tell me if I’m doing these calculations wrong)

On this one, I used a mortgage calculator at 6% interest 30 year fixed, using the 100% financing and the 50% rule:

PP: $119,000

gross rent: $850
minus exp:($425)
= $425

  • $713 (monthly payment)

= negative $315 cash flow per month – no good

You would need to pay in the neighborhood of $60,000 or less on the third property to get $100 cash flow per month on this (adjust based on your actual interest rate)

3

I didn’t do the first two you listed because I don’t know how to factor in the HOA. I would be interested to here what people here think about that-- would you use a percentage lower than 50% for that?

4

Remember, all the expenses are supposed to be covered with 50% of the gross rents. If they’re not, you either need higher rent or a lower purchase price. He didn’t list asking prices for the first couple, but if they’re anything like this last one - none of them are deals. That third one is way too high for the rent. Someone buying that for that price is either gonna lose their tail or they’re hoping for price appreciation.

5

thanks a lot guys.
For the first deal with combined income of 1030, the asking price is 77,000 and he is willing to reduce price…the HOA fees when added yrly will amount to about 1738 on both properties, and also about 1800 on estimated expense maintaning both properties…amt to 3538 for its yrly expense. Those are the numbers i have.

6

Several things-

You talk about the 3rd property is already fixed up, but seem to imply the 1st and 2nd need “updating.” How much?

For the poster that asked, you should treat the HOA as an expense.

For the two:

GR - 1030
Exp 515
= 515

Assuming a 6%/100% mortgage at $70,000 payments would be $461.65 so that would be a $55/month cash flow.

I would consider this to be low - partly because this is two units but also because of the potential for a higher than normal 50% expenses due to the HOA fees.

If I thought the rents could be raised significantly - either through updating or that the current rents are below market, I might look at this at $70k MINUS any costs to renovate/update. If rents are near market, I MIGHT be interested at $60k MINUS rehab.

7

I’m not so sure you should add the HOA fee to the 50%. He will never have to replace the roof, replace or paint the exterior siding, and never landscape. And $72 is cheap. That’s gotta have some value?