Pigtown, how would you go about it?

Question

Hey guys,

I'm fairly new to REI (one property rented to family, looking for another) and I want to get the hang of the analysis. I come from the financial field (used to trade stocks) so enjoy number crunching.

I went by the place today, the listing said it was move in ready at first. Here's what I'm looking at:

O = Original loan amount

P = Principal paid per month - 58,900/360 = 163.60

N = number of years owned - 12 years. Sept. 2003 - Sept. 2015

X = Estimate of loan owed still

O-(P*N*12)=X

X = $35,340 amount estimated still owed on the loan.

• 50k (at least) to get it in shape.
• ARV around 120k-170k (wide range because of area). 130k is what the city appraised.

Investors want to buy at 75% ARV - which is 90k. Assuming the loan is what's above, the property can be picked up for 28k or close (banks go for 80% on principle remaining in short sales). After fees, we’re looking at $7,728 if wholesaling.

How do my numbers look? Feedback is extremely welcome. I'm more interested in learning from this than making money on it - how and why it would/wouldn't work.

Link the mock up : https://docs.google.com/document/d/15Hqobkb4pPSEeF...

A buy and hold investor might be interested in the area. It's in Pigtown very close to Fells. Right behind the stadium and very close to the casino. This rented for $1500 before with room to improve (investor 2 doors down rents for $2100 with not much difference in house).

Ned Carey · Answer

@Adam Leech I haven't worked Pigtown in a while but I'll give you my thoughts.

First of all what part of pigtown? It makes a big difference.

No that is not what the city appraised it for. The city hasn't appraised it. That is the tax assessment. It has no relation to the true value. It could be low, it could be 400% to high. $1500 to $2100 rent seems extremely high to me and I would not expect those rents.

What kind of finishes is your ARV based on and what kind of finishes do you expect for a $50 renovation. If you are talking about what was a $250-275K house that now is worth $150-170K now you are probably not going to get it renovated for $50K. The landlords I know are not going to buy in Pigtown for $90K

Tons of properties listed in the $35K range there right now. If you want to wholesale it for $35 you are competing with a lot of listings. a $50 spread in ARV is too much. You need to nail that number down better.  This comes from knowing your market. Since numbers are all over the board there, you need go into properties and see why one is higher than the next.

To learn the  market look at lots of deals. Go to some auctions of properties there. You will see in real time what investors think something is worth.

Russell Brazil · Answer

Im not a fan of Pigtown. I personally wouldnt buy there. @Ned Carey May have some thoughts on it though.

Adam Leech · Answer

Thank you @Russell Brazil, that's very good to know.

Russell Brazil · Answer

One quick thought to throw in here....keep in mind that your ARV may vary dramatically based on the type of renovation you do......but the amount of rent you can get will not vary as dramatically.  There may be an incremental increase in rent if it is nicer, but not nearly the kind of variance you will get on a sales price.

I see beginner investors make this mistake quite a bit on buy and holds...they over renovate, and dont understand why they can only get $25 or $50 a month more than the very plain rental next door.

Adam Leech · Answer

@Ned CareyThank you! I'll definitely keep that in mind. Thanks for all the help on this one as well. Just an update, I decided to not pursue it based on your help and a local investors help. Went to a meeting this weekend like you said and asked for feedback from them as well.

Very much appreciated!

Ned Carey · Answer

@Adam Leech it kind of depends on how you look at it.

• Based on the level which you renovate there is only 1 ARV.
• However given that how well you renovate the property can vary tremendously, there are a variety of ARVs depending pm the end result.

So yes, to generalize a property renovated to a rental level would have a different ARV than a property renovated for a retail buyer, which could be different still then a fully pimped out renovation.

Now any ARV may be a range, as no one knows exactly what a property is worth  until it sells.  Even then you don't truly know; as and it would depend on  the terms and  conditions of the sale, how widely it was marketed and  the buyer may have been willing to pay more.

Richard Dunlop · Answer

I assumed a 5% interest rate on your $58,900 original loan amount payment amortized for 30 years is $316.19 per month PI only. After 144 payments the loan would be paid down to $44,974.41. But again somewhere along the 12 years there may have been extra charges that were not paid and added to the loan amount.  Was it ever in foreclosure? Are there late payment now or previously?

In the above scenario the first payment of $316.19 would pay $245.42 Interest and  $70.77 Principal

The 144th payment would pay $187.93 Interest and $128.26 Principal

As the loan gets paid lower the amount you owe in interest each month gets lower enabling more of your payment to go toward paying off the loan.

Adam Leech · Answer

@Ned Carey What my ARV was based on. I'm wondering if there are two different ARV's, one for being rentable and one for retail sale. I was asked what my ARV was based on, just wanted to be sure.

@Richard Dunlop Thnaks Richard. For future reference, how'd you get to 45k?

Ned Carey · Answer

I don't understand the question.  What are you referring to?

Pigtown, how would you go about it?

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