I am closing on a duplex soon where I will be moving into. I have also found another very interesting property a 4 plex costing 160,000 from a wholesaler.
The 4plex needs roughly 22k of work (i saw the property , it probably needs more) Carpets, ceiling , appliances, paint electrc etc need to be changed.
The 4 plex can rent for 850 each, its in a very decent area on the East side suburb of Dallas, even with the 50% rule it will cash flow nicely.
161,000+ 30,000 = 190,000
190,000@6% = 1157k
Gross Income = 850*4 *12 = 40,800
Net Income = 20800
Debt service = 13885
Cash flow = +492
Since its going to be just fixed up, the maintenance at least for 1 year should be almost 0 then the cash flow will be close to 1000.
My question is this, I have got a loan for the duplex which is where I want to live , i am thinking of strategies to acquire the 4plex.
a)Can I take another loan so soon?
b) Can I include the repairs into the loan for the 4 plex if I qualify for it?
c) Can trusted contractors be held accountable for delivering on time?
d) What is the chance of finding more problems during the fixing stage?
e) Any precaution I can take for that?
Or would it be prudent for me to wait and establish myself in the duplex (this is my first investment prop) and then hope for a deal like this to come by again.
thanks a lot.
PS : The duplex will NOT cash flow when i live there, it costed 220,000 I put 2.25 down and will rent the other unit for 1100.
I will probably live there for a few years, after which I might refinance and rent and then make some good cash flow or even sell it. It will easily appreciate to at least 260,000 in 3-4 years time.
I noticed a couple of things about your posting that need to be addressed. First of all you will not be geting a 4 plex loan at 6% if it is NOO. Even if you get a fantastic deal you will still be looking at 6.5- 7%. Second of all you did not give the ARV for the property so it is impossible to tell what LTV you will be at once it comes time to refinance the loan. Third you did not include taxes and insurance in your calculations. Here in Dallas you are looking at a tax rate of around 2.5%. Which when multiplied by the 190K comes out to $4750. $4750/ 12 = $396.00 per month. In addition to that you will have insurance as well which could be anywhere for $100 to $150 a month. So as you can see your $492 per month profit has just gone up in smoke. Here are the answers to your questions.
a)Can I take another loan so soon?-Yes, you can apply for another loan immediately after closing. However if the NOO side of the duplex is not rented out you will be required to qualify for the property based on you paying the full payment yourself.
b) Can I include the repairs into the loan for the 4 plex if I qualify for it?-You can include the repairs for the property in the loan if you get a rehab or hard money loan. Keep in mind that a rehab loan will most likely require you to put down up to 10% and a HML will require the property to be at 65-70% ARV.
c) Can trusted contractors be held accountable for delivering on time?-Only you have the answer for that. You said they were “trusted” so why would you assume otherwise?
d) What is the chance of finding more problems during the fixing stage?-There is no way to know the answer to that without reviewing the property first. Have your general contractor come out and look at the property first before you purchase. He should be able to give you the answer to your question.
e) Any precaution I can take for that?-Get a thorough inspection done.
So I guess the answer to your question is no this is not a deal. You would be wise to get yourself into the duplex and see how that goes. Also, because you are purchasing the duplex as owner-occupied refinancing in the future as a rental is not a smart idea. Unless rates get a whole lot better your payment will go up not down upon refinancing. Even if you were to rent out both sides of the duplex at $1100 per month because of the loan amount it still may not cash flow. Based on your posting it sounds like you bought this duplex at 100% of appraised value. Which is NEVER a good deal. If you were buying this thinking it was going to be an investment for you in the future it should have either A) cost you around $154K or B) been worth around 300K ARV. Sorry to be a downer but it sounds like you did not get a good deal on this property either.
Thank you Christopher - You are right abt the interest rate 6.5 is the lowest.
I thought the 50% included taxes and insurance and maintenance.
Gross Income = 40800
50% RULE Net Income = 20,400.
Even assuming 6.5 still a +~300 cashflow. (Debt service ~ 14k p.a. for 190k@ 6.5%)
Also I thought the 50% rule was a safety ballpark just to estimate lowest possible cashflow, I assumed actuals were usually higher on an average.
About the ARV value, a similar complex is on sale for 295k and another for 265k and another was sold 3 years ago for 240k. I dont really know what the difference is but that this one requires work and was acquired through a distress sale.