Storm damaged home (1st rental)

Rehabbing, Fix and Flip, Rental Properties
1

Hello all, long time lurker, first day poster.

I recently bought a Katrina damaged house a few doors down from our own house ( owned by my GF). I plan on renting it out. I was wondering if I could get some advice on a few things.

Some info: Purchase price was 23k, (badly damaged), costs for repairs is to run $55k, appraised @ 132k after repairs. Was going to rent it out at for about $1200-1250 a month. It will have all new electric, plumbing, walls, roof, floors, alarm sytem, etc. 3bdrm, 2 full bath, about 1350 SqFt.

I think I did good, especially for a first time investment. But I have a few questions. Should I LLC the property, being that it’s my only one? My goal is to find another damaged property and do the same thing, rent it out. I don’t want to take the loss of 43% flipping, and am willing to try my hand at landlording. So I have committed myself to getting a few rentals.

What is the best way to take advantage of my instant equity when the home is repaired? Should I finance the 78k-88k that will be the actual amount owed, or finance more, like up to the 132K and use the cash for the next project?

It turned out that I didn’t need any money down for this deal, somehow. I was told I needed 5% at closing, but the day before closing my banker said he was gong to finance 100%. I assume he would do the same for my next project? I plan on finding some more damaged homes, and taking advantage of the excellent contractors I have and fix them up also.

Thanks for any advice, I am a total newb in REI.

Steve

2

First of all I would try to rent this thing out for $1250 which would give you a monthly cash flow of $52. Just incase you don’t know how to calculate your cash flow I’ll demonstrate.

For a loan of $78K @ 8% interest for 30 years your monthly payment will be $572

REAL WORLD OPERATING EXPENSES range from 45%-50% annually, so divide your gross rent by 2 and whatever you have left goes to pay your mortgage/your pocket.

$1250 / 2 = $625
$625 - $572 = $50 positive cash flow

Perhaps you have a better interest rate and you’ll have more profit?

I don’t know how to answer your equity question as I am a newb myself.

The reason you didn’t need a down payment for this deal was because when houses are bought REALLY cheap, the bank uses it’s own appraiser and will finance up to 100% of the appraisal. Pretty sweet huh? Good luck with everything else.

Adam

3

Thanks for the reply.

I was told I qualify for around 6% when I refinance after renovations are done.

Everything is, or will be brand new, so I think, at least for the first couple of years, my repair expenses will be at a minimum. The house is walking distance from our house. The taxes are going to run $2200 a year, unless I can somehow file for homestead exemption without living there. And my insurance is about $1200 a year, with liability included.

These figures help any in figuring my cashflow? I planned on flipping it, since I would have an instant $44-$54k in equity when repaired, but reconsidered after realizing the tax hits I would take. And I certainly hoped this rental would provide more cashflow, being that I got it so cheap. I guess my real payoff will come when it’s paid off and I can then sell it? Or wait two years to not worry about capital gains?? I’m so confused. lol