5d ago in 馃煝 Deal or 馃洃 No Deal
VOTE - Deal or No Deal
Here's a perfect example of how to setup a Deal or No Deal post.
3 bedroom / 1 bathroom house
built in 1908
Also has a steel shop space with seperate utilites
Purchase is a Sub-to of $108k remaining @ 5.5% + $10k cash = $118k
Rehab cost estimate is $50k
ARV is $230k
Rent is expected to be $1500 on the house and $800-1k on the shop = $2300-2500
Sits on a 1.6 acre lot that another set of utilites already present from a house that's now gone.
The rest of the lot can be developed to add additional rentals.
But lets do the math with the current structures first.
ARV $230k x 0.70 = $161k
Purchase price $118k + Rehab $50k = $168k
$161k - $168k = ($7k)
So, at face value this property has a negative factor of $7k in the calculations I typically use.
But, lets evaluate cashflow.
The payment on the Sub-to is about $1000. Add taxes and insurance and we are at about $1400 per month. The property can bring in $2300-2500 per month. That's a monthly cash flow of $900-1100 per month. That's a great ROI for something that costs $10k to get into!
But what about that rehab cost of $50k? Where did that money come from?
Well, if you were smart you borrowed that from a private lender. Then you were able to borrow that money with no out of pocket costs, but you also need to repay that investor back with the time period agreed upon. Let's say that's 12 months with a 10% return. So you that individual $55k.
Time to get an equity loan on this property OR refinance with a DSCR loan. If you are trying to keep that 5.5% Sub-to deal you'll have to do the equity loan, and that only works in certain states and with certain lenders, so that will take some asking and shopping around. The DSCR loan means you'll lose that 5.5% rate to wahtever the current rate is. Let's say 10%. So let's do the math...
$161k @ 10% = $1420
Plus taxes and Insurance = $1820
Rent Roll $2300 - $1820 = $480 positive cashflow per month.
It has cost you $10k to purchase and $7k to payback you private lender. So out of pocket you are at $17k. This is assuming you haven't paid off the note at all over the year of rehab time, so we are rounding up. You'll also have some closing costs, of course, so lets just so $20k. That's a 28.8% annual ROI. That's a great return!
Now this makes even more sense because you still have a huge lot you can build on. If you do the DSCR loan you now have ownership of the lot and can get construction loans to build with. To me, this deal is a 馃煝 DEAL !!! Cast your vote and comment below and let me know what you think.
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VOTE - Deal or No Deal
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