All Forum Posts by: David Fernandez

Hi @Leonid Sapronov, how big is the sunroom? 

The cost to install LVP is usually around $4 sq.ft. (material and labor). You are probably paying half of that to install carpet, right? If your sunroom is 250 sq.ft., the difference between LVP and carpet is about $500 

Being a local investor as well as a real estate agent in the area where your house is located, I won't hesitate to spend the additional $500 to install LVP over carpet. In our market, buyers prefer solid flooring to carpet in common areas and they are willing to pay a premium for it.

When preparing your home to sell, you want to position it to appeal to the largest audience possible. When I list homes, I make sure the home shows great, it is priced right, and it is marketed to where the buyers for that home are. Your goal should be to get multiple offers within the first 10 days of listing it to drive the price up and have the upper leg when negotiating the contract. 

Saving those $500 might cost you a lot more at the end: more days on the market, fewer offers, giving more negotiating power to buyers, etc.

Hi Josh,

If you want to stay in NOVA, there are some areas here that work great for house hacking.

I usually find good house hacking properties for my clients in Reston and some pockets in Fairfax. Townhomes with low HOA fees are your best bet for this strategy in this area. We target townhomes with at least 2 BR (with the possibility to add a third) or preferably 3 BR (with the possibility to add a fourth), a walk-outbasement, and close to a metro station or major commuting routes to allow for "easy" commute to DC, MD, or any other area in Northern VA. I try to stay under $400k.

While it’s true that it is hard to find cashflow properties in NOVA, it is a good area for house hacking due to high rent prices. You can rent each room for $800-$1,000/month (depends on location, condition, and private bathroom), which can definitely subsidize and more for your living expenses in one of the most expensive areas of the country. 

Hi @Dev Paul,

If I understand correctly, you would want to purchase a property for less than $425k in NOVA or the greater DC area that you can house hack for the time being and convert to a rental in the future, correct? 

I will consider a townhome with low HOA fees in the Reston/Herndon area. It is a very desirable location, close to new business and the IAD airport, plus offers easy access to the Dulles toll road and there is a metro line that can take you to DC in ~45-50 min (although you work from home, your tenant pool and what you can charge for rent will be considerably higher thanks to easy commuting options).

Some of my clients have bought in that area for less than $400k (you can find properties in the low $300s if you are willing to put some work on the properties). We targeted properties with 3+ bedrooms, basement with separate entry and full bathroom. Depending on the location and the condition of the property, you can rent each room for $800-$900/month, so two roommates pretty much eliminate all your housing costs. You can also Airbnb (when allowed) rooms for $70-$100/night targeting airport/business travelers. These properties are not new construction, but their ROI is quite good for a property in NOVA that you want to house hack.

@William C., I hardly run into properties that are priced well. Some pro-formas I look at are borderline fraud, the best ones are just VERY optimistic.

So, I run my numbers and I offer what I need to meet my investment criteria. If it happens to be the asking price, great, but I usually go with option B (lower price), but offer cash and no inspection contingency. I don’t buy volume. I buy two to four deals a year (10-25 doors) and I want them to be great, not just good.

The last property I bought, there were two other offers, one was at asking price, the other $5k over. I came $35k under asking and got it accepted. I was the only one who could pay cash and close in two weeks. It’s better to understand the Sellers’s motivation to sell and solve their problem/s. Sometimes money is not the most important factor. 

@Farhan Khan, the best approach is to understand why he/she is selling part of his portfolio and solve his/her problem. Does he/she need the money to buy more/bigger properties? He/she won’t be interested in Seller financing. Does he want to unload some properties that he/she can’t manage? Is he/she selling because he/she thinks the market is too hot and would like to wait a bit until a new buying opportunity comes? What is he/she going to be doing with the sale proceeds? If you understand his/her motivation to sell, you will be able to put together an offer that works best for him/her. 

If you are not sure, you can also give him the option to chose what works best for him, so he can decide. 

Option 1: $X (mention that you will be financing this purchase)

Option 2: $Y, with $Z carried by the Seller at x%, interest only, balloon in 5 years. 

You can get as creative as you want, but you need to know why the Seller is selling. What’s his/her goal. If you can answer this, you will have a higher chance of putting together an offer that works for him/her. 

Hi @Melina Gorosito, some banks have them and they are usually collected at closing. They usually range between $500 and $1,000 for most regular sized loans, so it’s in the ballpark  

If you are dealing with a mortgage broker, then tell them that they can be collected at closing, don’t pay upfront. One of my friends (he does large deals) paid $20,000 UPFRONT! to a broker as origination fees to help him get a loan he needed. Allegedly that will help him cover his underwriting costs, etc. Guess what, the broker didn’t end up bringing the loan and kept the $20k. 

So, no matter who you are dealing with, if the fees are reasonable to you, then tell them that you are ok with paying them at closing. 

@Jon K.,

Appeal the appraisal. We went through a very similar situation last month. We were refinancing a 4 unit building in Baltimore and we expected a value around $475-490k (we know the area very well and have more properties here).

The appraiser valued our property at $381k. We appealed and got a new value of $481k. I explain below what we did, in case you want to read about it.

First, he didn’t use good comps. He picked properties that were not in the same condition than ours and, more importantly, they were located in very different neighborhoods (our property is located in a B+/A area and he picked properties from D/C areas. Yes, they were close in distance, some of them 3-4 blocks away, but that’s how it is in Baltimore).

I called our banker and told him we wanted to appeal the appraisal report. He asked me to prepare a document defending our opinion. We created one that included:

1. 8 very good comps sold within the past 9 months. We did not include the value we thought our property should have, just good comps and some explanatory data summarized in Excel (monthly rent, sq.ft., unit mix, price per unit, condition, capex upgrades, etc.)

2. 4-5 comps for each of the properties in the 3 neighborhoods that he selected his comps. Also summarized in Excel.

3. Chart explaining the demographics and socio-economic differences between all the neighborhoods (income, average house sold, average rent, etc.)

4. How we improved the property since we bought it 6 months ago.

We had something else, but this was the bulk of it. About 10 days after submitting our appeal, our banker called me and told me that the new appraisal is $481k... $100K more!!! He told me that in his 15 years originating loans, he never saw such a big difference in value from the first appraisal to the appealed value.

So don’t be shy to appeal it if you think he got the value wrong. $20-30k in value makes a huge difference on what you can borrow. It’s worth the 45-60 minutes of work it will take you  to appeal the report. Good luck!

Hi @Allan Quintela,

Why do you think the single family home (SFH) keeps you more comfortable financially? I think it's the duplex the more comfortable option. Have you run the numbers to compare both options? Let's do it:

Buying a duplex:

Monthly mortgage payment = $1,560, assuming a $308,000 loan (80% of 385k); 4.5% interest; 30 year amortization

Buying a SFH

Monthly mortgage payment = $1,012 assuming a $199,750 loan (85% kg $235k); 4.5% interests; 30 year amortization 

Let's assume that the difference in taxes and insurance is $100 higher in the duplex. With this, your PITI is ~$650 higher with the duplex than with the SFH. If you can rent the second unit for $1,600, you will be paying $950/month less at the duplex than living at the SFH.

In addition, by buying the duplex you get some tax benefits from the unit you are renting (deducting expenses, depreciation of half of your purchase price, etc.). 

You also mention that when you move out you can rent your townhome for $1,500/month. Well that also applies when you move out from the unit you are living in the duplex. You can also rent it out and add that rental income to the $1,600/month you are already getting. 

Financially, the duplex makes more sense (assuming that any other costs between the SFH and the duplex are similar).

This is so true. I think most people underwrite deals thinking that they can raise rents $100/month and  still use a standard 5% vacancy rate. This can potentially lead to a very bad cash flow situation in the short term, when also using max leverage. 

In 2018 I repositioned a 13 unit building and I run a vacancy cost of 17.35% +  3.8% tenant placement commission. In addition, I had to spend money turning the units over. I knew this strategy was aggressive, but this was a moved that made sense for this building (I increased rents $475/month and my tenants are great now).  I went into it with ample cash reserves and I would not recommended doing something like this without, at least, a full year of expenses in the bank. 

@Jim Williams, you should ask that and then, during your due diligence period, verify with estoppel letters, reviewing the lease agreement, and making sure the agreed month rent is actually paid by checking the Sellers bank account. 

By doing this you have you current income. If you want to know what is the market rent, then you should ask your property manager, not your realtor or the Seller’ Realtor,  (if you have one), since he/she will be the one dealing with renting units and getting qualified tenants.