The first Investment Property 2010
5 unit Apartment site.
I made our first investment of the new year. I closed on a five unit apartment site in late January. There are very good real estate deals available and I expect to do several deals this year. In order to do several real estate deals this year and as a future business model, I will be using a real estate LLC as the business model.
This first project is a 5 unit apartment property. When fixed up we will have about $105,000 in it. After the apartments are remodeled and the leases expire, and when the new leases get in place, the properties income will increase to $2,500.00 a month. That will increase the returns even more then I have estimated here.
This deal is extra profitable, most deals return 15% to 20% a year. In which case investors would double thier money in five years.
Here is the numbers on this first deal.
Cost bases $105,000
Five rental units
Mortgage $65,000
Rental income when full $1,875 per month
Taxes $2,676.00 a year
Tax Value $127,500
Value based on income $159,000
Payment on $65,000 mortgage $447.00 month
Annual income $22,500
vacancy allowance - $1,875
taxes - $2,676
maintenance - $2,000
management - $2,250
net income $13,699
Return on purchase cost 13% (13,699 divided by cost $105,000)
Payments - $5364
Net cash flow $ 8,335
Return on net cash flow 20% ($8,335 divided by $40,000 equity cash)
Estimated value in five years $200,000
Estimated return with appreciation over 5 years 300% Plus
UPDATE: 1-25-2010
Now that the property has actually closed we have more accurate numbers, here are the new projections on this deal.
Pro forma financial Projections*
Income Year 1
annual rent income $22,700
vacancy - $1,875
taxes - $2,555
maintenance - $1,800
insurance -$1,450
management - $1,135
net income $13,885
Return on cash 34% annually ($13,699 divided by $40,000 equity cash)
Payments - $6,417
Net cash $7,468 Return on cash flow 18% ($7,465 divided by $40,000 equity cash)
Income Year 2
annual income $23,500
vacancy - $1,875
taxes - $2,555
maintenance - $1,800
insurance -$1,450
management - $1,135
net income $14,685
Return on cash 36% annually ($14,685 divided by $40,000 equity cash)
Payments - $6,417
Net cash $8,268 Return on cash flow 20% ($8,268 divided by $40,000 equity cash)
Income Year 3
annual income $28,800
vacancy - $2,500
taxes - $2,855
maintenance - $2,000
insurance -$1,650
management - $1,440
net income $18,355
Return on cash 45% annually ($18,3555 divided by $40,000 equity cash)
Payments - $6,417
Net cash $10,087 Return on cash flow 25% ($10,087 divided by $40,000 equity cash)
This is an actual deal that was purchased January 2010.
Anyone interested in real estate limited partnership please feel free to contact me at jglasgowsr@yahoo.com
I am working on a basic syndicators manual and will put in the articles section soon.
Update 6-6-2010 The remodel work is going slow, we are paying cash as we go and buying another property at the same time. The reason for paying cash for the property improvements is two fold. First; we want to show everyone that it does not take deep pockets to get rich. Second; we want the maximum amount of equity when we go to refinance this project this fall. We are refinacing to take out cash for a larger project. We want the property to appraise for $180K, using our maximum 66% leverage rule, we will refinance for $116K that will free up $52K (the differance between the $116K new loan and the current note balance). That money will be used to buy a property with a $250,000 value, we want to pay about $150K for it. It will take some searching to find such a bargain, but we will.
Update 10-24-2010 Slow but steady progress and the cash flow will be better then expected. See update article link here.
Update 8-2011: Re-Financed
We refinaced this property: cGem Rentals re-fi of Seguin Property
It had been are intention all along to refinance the five unit apartment property we acquired last January (2010) The project has run behind schedule and will be six months behind when completed in July. We where paying cash out of pocket as we went for this work and the $5,000 a month gets old quick.
On the plus side we had little debt ($66,000) against a property that will bring in $2,900.00 a month and net about $29,000 a year for a value close to $300,000 on the net spendable. If we sold it and if got the full price we would have doubled our money. As we are in the cash flow business, and not the cash out business, we are not selling (for five years anyway).
We did re-fi the property to get more cash for more properties and to stop us from putting in more cash on a monthly basis. With the new cash we will be able to fast track the rest of the re-hab work and get done in the next seven weeks. We (the owners) will still put in more cash if need be, and we are still paying all out of pocket business expenses, out of pocket. We put all in-coming cash right back into more projects as this is a five year plan.
The Re-fi is for $150,000 at 8% compounded annually for five years. No monthly payments, one balloon payment at note end. We will have to repay $223,000 in five years. We will use the $150k to finish the project, and for down payments on two more four-plexes.
Update on Seguin project 9-2011
I am way late on updating this blog. Lots has happened over the summer. So l will get started
Let me first remind everyone of this five year projects goals. The goal is to create $2,000,000 million in equity with net spendable free cash flow of $160,000 a year. My partner thinks it should be $240,000 a year divided by two, I won't argue with that. Each property purchased must produce $200 to $300 free spendable cash flow a month (per front door). The debt to equity may not exceed 66%.
The re-hab of the 5 unit property in Seguin is almost at an end. It has been a long process. We will be out of this project by October first. The only thing left will be the parking lot. You can read more about this re-hab in the Gem Rentals articles.
This was our first project that we took on in January 2010. The reason we purchased it was to get started, getting started as soon as possible after you have made up your mind you are going to be in the cash flow business is important. The other reason we purchased this property was that the bank was willing to finance it with 10% down. We paid $66,000 to purchase the house and four unit apartment building and we spent about $130,000 on the re-hab. The income will be $3,000 a month. Our payment, taxes, insurance and utilities comes to $1,100 a month. Giving us a cash flow if $1,900 a month. The value of the property after the top to bottom remodeling is $$285,000 I will post before and after pictures next month.
We re-financed this property taking out $150,000 in cash to buy more properties. With that money we finished the re-hab of the 4-unit building, purchased three more properties and a real estate note.
First we purchased a 2 bedroom, 1 bath house that someone had added a room to but stopped at the shell stage. We will make this one a 4 bedroom, two bath property that will rent for $900 a month. Cost was $26,000. Cost to re-hab will be about $20,000.
We purchased a first lien real estate note for $7,500 with a balance owed of $20,000 payable at $350 a month with a balloon note due December 2012.
We purchased a 2 bedroom, 1 bath house with a one car garage. We will make this one a 3 bedroom, 1 bath property that will rent for $750 a month. Cost was $23,000. Cost to re-hab will be about $12,000
We purchased a 3 bedroom, 2 bath manufactured home of about 1,800 square feet on a corner lot. We will clean this one up, slap on some lipstick and new carpets, new landscaping and sell it on an owner carry note for $90,000 with $5,000 down at 8% or 10% interest. Cost was $25,000. Cost to re-hab will be about $10,000 maybe $12,000.
The property in Poteet, Texas is still rented to the same school teacher,
To date,(assuming we get all these projects completed) we will have net equity of $385,000 in all the properties. So sense January of 2010 we have purchased 5 single family homes, 1 four plex, 1 first lien note. These properties will produce $6,450 a month in income. The net free cash flow should be about $3,500 a month. We have spent $48,000 in cash another $40,000 in trade and we borrowed $249,000.
Our debt to equity is 41%, Total rehabbed value of properties and notes is $605,000. We can borrow another $150,000 and still be at our 66% debt to equity ratio. We will do that to free up money for more purchases. Three of the six properties are debt free and can be used to secure new loans. Our return cash on cash is 40% a year. I am making the assumption that we will complete the projects and get the intended rents. So far renting has been easy and I have been doing this a few decades, so I am confident of my numbers.
We wanted to have 16 front doors at end of year 2 of our plan and it looks like we will end up with between 10 and 12 front doors. We currently have 10 front doors on 7 properties (counting the note receivable as one front door). We will need to add 12 or 16 more front doors next year to stay on track.
I put more importance on the free cash flow per front door, and the debt to equity ratio, then I do on just the total number of units rented out.
One must keep in mind that you make your money when you buy, you gain equity when you rehab, and you need free cash flow to grow as well as to have spendable net income. The net spendable cash flow is what allows you keep your loans paid during extended vacancy periods. It allows you to pay for unexpected expenses and generally keeps you out of trouble. So when I look at a property to buy I want to double my money (purchase and re-hab cost), I want a free cash flow of $200 a month or more, assuming I will borrow up to 66% of the improved value at 8% interest. If a property will produce that it is considered. So far we are beating those numbers.
I will post pictures of all this as soon as time permits.
Remodeling cost Guadalupe property 12-12-2011
Here is the cost of re-habing this property.
Remolding Cost
724 and 728 Guadalupe street
Seguin Texas
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|
2010 |
2011 |
Total |
|
|
Material |
$49,878.00 |
$34,402.00 |
$84,280.00 |
|
|
Labor |
$21,285.00 |
$30,629.00 |
$51,914.00 |
|
|
Misl. |
$390.00 |
$458.00 |
$848.00 |
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|
Appliances |
$1,180.00 |
$886.00 |
$2,066.00 |
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|
|
|
|
|
|
|
Remodel Total |
|
|
$139,108.00 |
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|
Cost |
|
|
$66,000.00 |
|
|
Total cost |
|
|
$205,108.00 |
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|
|
|
|
|
|
|
Rent income monthly |
$3,000.00 |
|
Rent income Annual |
$36,000.00 |
|
Net Income annual |
$28,500.00 |
Current value based on income at 10% cap rate $285,000.00