Can someone please explain me about this blog I've mentioned?
Member since 2020 · 295 posts · 56 votes
I was reading an interesting blog
https://www.biggerpockets.com/...
written by Brandon Turner but I did not understand couple of things from this blog which was =
1. How is our loan for $63,500 after paying 20% of $80,000 in Year One. Shouldn't it be $64,000.
2. In year one how is our equity $46,500 in year one?
3. How is our total net worth $56,500 in year one?
and can a property really be appreciated by 10% in one year by doing some minor repairs and improvements in it?
Can some one please explain?
1. I'm not sure either why $63,500 was used instead of 64k because 20% of 80,000 is in fact 64,000.
2. He mentioned that actual value of the home was 100k and that it grew in value by 10% due to a combination of forced appreciation (renovation work) and natural market appreciation. So this means after 1 year the value of the property was 110k. Using those numbers, if the property value of 110,000 and you have a 63,500 loan then you have $46,500 in equity.
3. He adds in the $10,000 of positive cash flow collected during the first year to the total equity of the property to calculate total net worth.
4. Absolutely. Last year I purchased a property for $107,500 and did 10k of rehab on it. It appraised less than a year later for 152k which is about a 28% increase in value so it can absolutely be done.
1. I'm not sure either why $63,500 was used instead of 64k because 20% of 80,000 is in fact 64,000.
2. He mentioned that actual value of the home was 100k and that it grew in value by 10% due to a combination of forced appreciation (renovation work) and natural market appreciation. So this means after 1 year the value of the property was 110k. Using those numbers, if the property value of 110,000 and you have a 63,500 loan then you have $46,500 in equity.
3. He adds in the $10,000 of positive cash flow collected during the first year to the total equity of the property to calculate total net worth.
4. Absolutely. Last year I purchased a property for $107,500 and did 10k of rehab on it. It appraised less than a year later for 152k which is about a 28% increase in value so it can absolutely be done.
1. I'm not sure either why $63,500 was used instead of 64k because 20% of 80,000 is in fact 64,000.
2. He mentioned that actual value of the home was 100k and that it grew in value by 10% due to a combination of forced appreciation (renovation work) and natural market appreciation. So this means after 1 year the value of the property was 110k. Using those numbers, if the property value of 110,000 and you have a 63,500 loan then you have $46,500 in equity.
3. He adds in the $10,000 of positive cash flow collected during the first year to the total equity of the property to calculate total net worth.
4. Absolutely. Last year I purchased a property for $107,500 and did 10k of rehab on it. It appraised less than a year later for 152k which is about a 28% increase in value so it can absolutely be done.
That's great! Thanks a lot man for responding clearing my doubts!
I really appreciate it!
Good answers from Scott above. Just to add to it- my market has appreciated around 15% for each of the last couple years. If you bought a house for $200k this time last year, it's worth about $230k today without lifting a finger or spending a dollar. If you were to buy a property that needed some updating, you could force more equity than that. I have worked with clients that bought a house for $210k, put $10k in to it and had appraisals in the range of $250-275k a year later. If you can learn and build on deals like that, you can scale fairly quickly with little to no cash.
Good luck!
Brandon’s numbers are always rounded, but your looking at the concept more than the numbers. Yeh he was off a bit on the 63,500 v 64,000. This is about improving your net worth which in turn creates wealth. I bought a property for $95,000 put 30K into it and it appraised for 164,000. That’s a net worth of 39K. Cash flows 450 a month that’s 5400 plus mortgage pay down of 195ish per month (2340). These numbers work for the long term investment. I have plenty of examples if you need more clarification.
Good answers from Scott above. Just to add to it- my market has appreciated around 15% for each of the last couple years. If you bought a house for $200k this time last year, it's worth about $230k today without lifting a finger or spending a dollar. If you were to buy a property that needed some updating, you could force more equity than that. I have worked with clients that bought a house for $210k, put $10k in to it and had appraisals in the range of $250-275k a year later. If you can learn and build on deals like that, you can scale fairly quickly with little to no cash.
Good luck!
Thanks for responding!
Absolutely! but it's a bit confusing to estimate if my property is going to appreciate in a particular area or place or not. Let me know if you have any suggestions!
Brandon’s numbers are always rounded, but your looking at the concept more than the numbers. Yeh he was off a bit on the 63,500 v 64,000. This is about improving your net worth which in turn creates wealth. I bought a property for $95,000 put 30K into it and it appraised for 164,000. That’s a net worth of 39K. Cash flows 450 a month that’s 5400 plus mortgage pay down of 195ish per month (2340). These numbers work for the long term investment. I have plenty of examples if you need more clarification.
That's great! but don't you think there are little chances of a property to appreciate in some area's? like how do you determine if a property is going to appreciate in a particular area?
Thank you!
@Jasraj Singh, look at historical annual appreciation in your market and calculate for the average. With COVID, obviously there is uncertainty in the market, but this isn't the first time there has been uncertainty. Over time, you will stick close to that average. Appreciation is really just a guess, just like all of the other calculations you are accounting for- you don't know exactly what rehab will cost, or exactly what your capex or vacancy will be- you use the averages and adjust as you go.
Best of luck!
I was reading an interesting blog
https://www.biggerpockets.com/...
written by Brandon Turner but I did not understand couple of things from this blog which was =
1. How is our loan for $63,500 after paying 20% of $80,000 in Year One. Shouldn't it be $64,000.
2. In year one how is our equity $46,500 in year one?
3. How is our total net worth $56,500 in year one?
and can a property really be appreciated by 10% in one year by doing some minor repairs and improvements in it?
Can some one please explain?
@Jasraj Singh, look at historical annual appreciation in your market and calculate for the average. With COVID, obviously there is uncertainty in the market, but this isn't the first time there has been uncertainty. Over time, you will stick close to that average. Appreciation is really just a guess, just like all of the other calculations you are accounting for- you don't know exactly what rehab will cost, or exactly what your capex or vacancy will be- you use the averages and adjust as you go.
Best of luck!
Alright! thanks a lot man!
I was reading an interesting blog
https://www.biggerpockets.com/...
written by Brandon Turner but I did not understand couple of things from this blog which was =
1. How is our loan for $63,500 after paying 20% of $80,000 in Year One. Shouldn't it be $64,000.
2. In year one how is our equity $46,500 in year one?
3. How is our total net worth $56,500 in year one?
and can a property really be appreciated by 10% in one year by doing some minor repairs and improvements in it?
Can some one please explain?
1. After 1 year, you have paid down the mortgage a little bit.
2. The home is valued at $110k, minus your loan of $63.5k. The difference is your equity.
3. You would have spent $10k in housing in that year, but you didn't, so its in your pocket now.
Can a property go up 10% in value in 1 year? Sure. Will it happen to every home? No. This is an exaggerated scenario with perfect numbers. You would have to HUNT to find a deal half as good as this in the current market.
Right! but I didn't understand the third one but I'll figure it out!
thanks man!
I was reading an interesting blog
https://www.biggerpockets.com/...
written by Brandon Turner but I did not understand couple of things from this blog which was =
1. How is our loan for $63,500 after paying 20% of $80,000 in Year One. Shouldn't it be $64,000.
2. In year one how is our equity $46,500 in year one?
3. How is our total net worth $56,500 in year one?
and can a property really be appreciated by 10% in one year by doing some minor repairs and improvements in it?
Can some one please explain?
1. After 1 year, you have paid down the mortgage a little bit.
2. The home is valued at $110k, minus your loan of $63.5k. The difference is your equity.
3. You would have spent $10k in housing in that year, but you didn't, so its in your pocket now.
Can a property go up 10% in value in 1 year? Sure. Will it happen to every home? No. This is an exaggerated scenario with perfect numbers. You would have to HUNT to find a deal half as good as this in the current market.
Right! but I didn't understand the third one but I'll figure it out!
thanks man!
I was reading an interesting blog
https://www.biggerpockets.com/...
written by Brandon Turner but I did not understand couple of things from this blog which was =
1. How is our loan for $63,500 after paying 20% of $80,000 in Year One. Shouldn't it be $64,000.
2. In year one how is our equity $46,500 in year one?
3. How is our total net worth $56,500 in year one?
and can a property really be appreciated by 10% in one year by doing some minor repairs and improvements in it?
Can some one please explain?
1. After 1 year, you have paid down the mortgage a little bit.
2. The home is valued at $110k, minus your loan of $63.5k. The difference is your equity.
3. You would have spent $10k in housing in that year, but you didn't, so its in your pocket now.
Can a property go up 10% in value in 1 year? Sure. Will it happen to every home? No. This is an exaggerated scenario with perfect numbers. You would have to HUNT to find a deal half as good as this in the current market.
Right! but I didn't understand the third one but I'll figure it out!
thanks man!
He is saying you made $10k by renting out the other three units in the building. If you saved it all in the bank, you increase your net worth by $10k.
Alrightt! got it!
thanks man