All Forum Posts by: Joshua McGowan

Question about the step in the BRRRR process where Banks appraise your property in order to determine value to refinance against:

Do small multifamily (2-4 unit) investment properties typically get appraised based on comps or on Cap Rate? i.e. can I drive the appraisal value up by increasing my NOI, or am I at the mercy of what the appraiser thinks the house should be worth based on subjective assessments of condition, square footage, # of bedrooms, location, etc.?

Thanks in advance for your wisdom!  I tried searching through the forums but couldn't find this answer.

As I'm trying to come up with estimated closing costs to run the numbers on potential deals, I'm trying to turn a more critical eye to the closing costs from buying my personal home last year.  It turns out that I paid significantly higher than the $3k-$7k range I'm reading as typical.  

Roughly $6k of my costs were a combination of escrow (which I guess are not usually included in discussion of "closing costs"?) and buyer's agent fee (which I know is typically paid by the seller), but discounting those costs still puts me at ~$8k, which is on the higher end.  

Do you guys see any costs in the pictures below that I should be able to negotiate down the next time around?

If it's relevant info, I bought the home off-market in Churchville, PA for $320k with a 22% down payment.  Spring of 2017.

Thanks!

First time investor here.  Been listening to podcasts and running numbers on potential "deals".  I feel confident in my ability to crunch the numbers if I have accurate inputs, but less confident in my ability to estimate my inputs.

I'm sure that this comes as a surprise to no one, but I'm finding that in order to get my desired rate of return on a buy and hold rental property, I'll probably have to buy something that needs a good bit of work.  However, I'm very nervous to take the plunge and put large sums of money into what, at least for me, is a very uncertain venture.  How do I build my team?  What if my rehab budget is off?  How the heck do I even estimate the budget that a run-down property will require??  What if the project takes forever and I'm stuck paying taxes and mortgage on a property that I can't rent???

I'd love to hear from some people who were in my shoes and have come out the other side.  People who were dying to get into the fix and rent or flip game, but scared of getting in over their heads by risking years of savings against something they'd never done before.  

What were your first steps?  How did you build the team you needed?  How did you reach the point where you were confident enough to take the plunge?  What went well?  What went poorly?  Where are you now?  I'd love to hear your stories and advice.

Apologies for excessive spacing. First reply from my phone

@Brad Holtzman

@Brad Holtzman

"...now I can take 80% out and get $240k for me..."

"...get at least my money back..."

I don't believe that this part is accurate, even aside from the 70% LTV limit that was already pointed it out.

You can't take out $240k (or $210k in the case of 70% LTV) because you don't own 100% of the house. $210k would be the maximum total loan that you can have against the house, so if you already owe $165k, then the maximum additional loan that you can take out would be $210 K - $165 k = $45k.

If you want to get ALL of your money back out, then the following formula must be true:

(Purchase price discount + value added)x(LTV limit) > ($ invested)

aka

(Appraised value - purchase price)x(LTV limit) > ($ invested)

At least that is my understanding. If a more experienced investor knows otherwise then please correct me.

@Jonathan Dempsey I've been looking at Langhorne, Hulmeville, Jenkintown, Yardley, Newtown (though I don't often get beyond the price tag in this area...), and Penndel (anyone have any experience there?  Wondering if it is "B class" or "C class" neighborhood, and if people have had tenant issues there).

What areas have you been dealing in and where would you set your ROI expectations?

Thanks for the feedback!

Bigger Pockets investors in the greater Philadelphia area,

First two paragraphs are background, so skip them if you're the cut-to-the-chase type.

I've been listening to the podcasts and saving up cash for a down payment for a while now, and recently I've been scoping out the MLS websites for my first rental property (single family or small multi-family). Looking for something within an hour (preferably a half hour) of my home in 18966, so the suburbs north of Philadelphia, PA. Also hoping to avoid the need for any MAJOR renovations, as I'd like to get my feet wet with a simpler property before throwing a fixer upper property on top of my full-time engineering job.

I've been developing my spreadsheet to the point where I can plug in my expected rental income, reno cost, operating expenses, and mortgage rate, and it spits out the purchase price at which I'd be able to hit my desired ROI of 10%. For the properties that I've analyzed, this calculated price point has been coming in between 35%-60% of the listing price, which leads me to ask a few questions of you more experienced investors:

1)  Is 50-60% of list price a typical or reasonable offer?  I know that it's just business and nothing personal, and also that list price doesn't necessarily correspond with value, but I still don't want to waste my time (and my realtor's) if throwing out a bunch of 50-60% offers is sure to receive a bunch of rejections due to my expectations being so wildly different from the seller's.

2) Is 10% too aggressive of a target ROI for today's market in this area? 14% is roughly the number that I hear most folks on the podcasts shooting for; is this number only realistic in...
a)  cheaper markets like the midwest?
b)  the market of yesteryear when investors were getting properties at a discount after the market crash?
c)  run-down properties that scare most people off but can show promise after some serious renovation? 
... or do I just need to be persistent and wait for a 10-15% deal?  What ROI do you set as your minimum in this market?

Thanks in advance for any input you can offer.  Trying to get a feel for my market, so I look forward to hearing your experiences!