Help with this deal!

[Jennifer Fernéz]

I need help analyzing this property.

Address:

2542 Glenn Terrace, Mount Penn, PA 19606

Asking Price: $209,000

Taxes: $5087 (they are really high in my county)

Renovations: $10K-$15K

Mortgage: Conventional

Credit Rating: 712 median

1. I have an interior design background and can make this property really cute, but is it worth it? I have to front a ton of capital.

2. I was thinking about getting the property, renovating it, and then cashing out 80% of the ARV to get some of the money back. Good idea or no?

3. What do you estimate the ARV? There is a 'comp' listed for $200,000, but it was sold as-is and needed great repair. I think if I make this house really cute, I could potentially get $240K ARV. But I don't know. What do you think?

4. What do you think you could rent this for? I have no idea. I think I could get at least $1700. Maybe $1800? $1900? $2000?

I don't want to spend all my capital, but I think I could potentially refinance and get some back. But then my cash flow won't be high, and when trying to get another property my DTI won't be great because 75% of the rent won't meet the mortgage. However, I like that there isn't a lot of work to do and I could still make the property really cute with not much risk.

Inventory is so low. Any help appreciated!

[Addy Chupa]

Quote from @Jennifer Fernéz:

I need help analyzing this property.

Address:

2542 Glenn Terrace, Mount Penn, PA 19606

Asking Price: $209,000

Taxes: $5087 (they are really high in my county)

Renovations: $10K-$15K

Mortgage: Conventional

Credit Rating: 712 median

1. I have an interior design background and can make this property really cute, but is it worth it? I have to front a ton of capital.

2. I was thinking about getting the property, renovating it, and then cashing out 80% of the ARV to get some of the money back. Good idea or no?

3. What do you estimate the ARV? There is a 'comp' listed for $200,000, but it was sold as-is and needed great repair. I think if I make this house really cute, I could potentially get $240K ARV. But I don't know. What do you think?

4. What do you think you could rent this for? I have no idea. I think I could get at least $1700. Maybe $1800? $1900? $2000?

I don't want to spend all my capital, but I think I could potentially refinance and get some back. But then my cash flow won't be high, and when trying to get another property my DTI won't be great because 75% of the rent won't meet the mortgage. However, I like that there isn't a lot of work to do and I could still make the property really cute with not much risk.

Inventory is so low. Any help appreciated!

 @Jennifer Fernéz I run sum numbers for you with our tool, see comments and pics below before refinancing and post refinancing .

Financial Breakdown:

• Purchase Price: $200,000

• Mortgage (LTV 80%): $160,000
• Interest Rate: 6% (30-Year Amortization)
• Mortgage Monthly Payment: $959

Upfront Costs:

• Down Payment (20%): $40,000
• Closing Costs (3.5%): $7,000
• Renovation Costs: $15,000
• 1 Month of Carrying Costs During Renovation: $1,548
  Total Upfront Required: $63,548

Year One Rent:

• Monthly Rent Income: $2,000
• 1 Month Rent Losses during renovations (-$2,000): -$167/month distributed over 12 months
• Total Rent Income: $22,000 per year => $ 1,833 per month

Monthly Expenses:

• Mortgage Payment: $959
• Property Tax (Assuming $3,000/year): $250 per month
• Property Insurance (Assumption): $100 per month
• Utilities (Hydro, Gas, Water): $275 per month
• Assuming 5% Vacancy: $92
• Assuming 0 % Repairs & Maintenance first year because unit has been recently renovated
• Total Monthly Expenses: $1,676

Monthly Net Cash Flow: $157

Post-Renovation Refinancing Strategy after 12 months:

So far, we’ve purchased the property, completed renovations, and rented it out.

Next, you can approach the bank for a refinance to consolidate a portion of your initial investment into a mortgage. Typically, the banks prefer to refinance one year after the initial purchase.

To get to the ARV of $250,000 , I am assuming as follow:

Because you spent $15,000 in renovation, I am assuming you increased the Initial value of the property at 30,000 bringing it at $230,000

Add a 8.69% home appreciation for one year $20,000
Estimated Home Value After 1 Year:$250,000

Refinancing Breakdown:

• New Home Value (Post-Appreciation): $250,000
• New Mortgage Amount (80% LTV): $200,000
• Existing Mortgage Balance after 12 months: -$158,035
• Assuming 3 Months Interest Penalty for Breaking Existing Mortgage: - $2371
• Total Cash Pulled Out: $39,594, allowing you to recover to pay a portion of your initial investment of $63,548, leaving $ $24,015 in the deal.

Many new investors mistakenly believe the BRRRR strategy ends after the cash-out. It's crucial to evaluate how the deal performs with the new mortgage:

Updated Financials After Refinancing:

• Market Value: $250,000
• Mortgage Amount (80% LTV): $200,000
• Equity: $50,000
• Interest Rate: 5% (30-Year Amortization) Assuming after 12months the rate will drop from 6% to 5%

Monthly Expenses:

• Mortgage Payment: $1,074
• Property Tax: $260 (4% Adjustment from last year)
• Utilities: $309 (+3% Adjustment)
• Insurance: $104 (+4% Adjustment)
• Vacancy: $105
• Repairs & Maintenance: $105 (now after 12 months we can assume we have repairs at 5% factor on annual rent)
• Total Monthly Expenses: $1,957

Rent Income after 12 months assuming annual rent increase at 5% : $2,100

Cash Flow: $143 per month 😊

Year 2 Return on investment

• $2,951 Principal Paydown year 2
• $20,000 Property Appreciation (assuming 8% per year)
• $1,720 Yearly Cash Flow (this will increase as rents rise)
• $50,000 Initial Equity

Total Gain $74,671 with just $ $22,789 remaining in the deal. 

Year 3 and Long-Term ROI:

• $3,102 Principal Paydown year 3 (this will keep increasing each year as you pay off your mortgage
• $21,600 Property Appreciation (assuming 8% per year)
• $2,568 Yearly Cash Flow (this will increase as rents rise)

Total Gain Year3: $ $27,270 giving you 113.55% ROI on your $ $24,015 left in the deal.

This is a good investment in my opinion.

Feel free to reach out if you have any further questions or need additional clarification!