Baltimore BOTE Gut Check

[Bobby Akines]

Hi BP Universe,

See an email I sent to my wife outlining a strategy for investing in Baltimore. Would appreciate any feedback on the info below!

• Goal is to invest in three properties in Baltimore in 2021

• Target investment is 3-unit rowhouse in need of repair
• Target submarkets could include (in order of my interest):
  • Hollins Mark/Popplton/Franklin Square/Union Square
    • Hollins Market
      
    • HM Now Open!
    • UMB BioPark
    • UMB Community Engagement Center
      
  • Charles Village/Charles South
    • Neighborhood Overview
    • Greysteel Report
  • Bolton Hill/Reservoir Hill
    • Innovation District
  • Hampden
  • Harlem Park/Sandtown-Winchester
• Average renovated value, After Renovation Value, or "ARV" = ~$200k
• Average renovation costs of around $50k
• Hard money lender will lend at ~70% of ARV, or $140k
• Purchase price of up to $125k, total costs $175k ($125 PP + $50 reno)
• Equity required per investment: $175-$140k= $35k
• Refi proceeds = $200k refi at 80% = $160k
• Net refi proceeds = $160k-$140k hard money loan repay = $20k
• Equity after refi = $15k
• Potential income from property:
  • Gross Rent: $3,000/mo, $36k/year
  • Expenses, $1,000/mo, $12k/year
  • Net Operating Income (NOI) $28k/year
  • Loan Exp** $850/mo, $11,000
  • Net Cash Flow: $17,000
  • Return on Equity 113%, 1.13x multiple

**Assumes the loan at 80% LTV per above, $160k, on a 30 year amortization with a 10 year term. The loan is not self-amortizing, meaning you have a "balloon payment" at the end of the term to pay off the remaining principal balance. At that point you either sell the property or refinance again. If you refi, you likely harvest additional capital.

Note the above numbers are not a perfect BRRRR (Buy, Renovate, Rent, Refinance, Repeat) deal - that would be getting 100% of your equity back, but still getting 60% of your equity out is pretty good!