All Forum Posts by: Phillip Rosin

I'm coming up on a cash out refinance scenario and I'm a bit confused on one topic... What do I tell the lender regarding my property's estimated value when shopping around and beginning the process, before the appraisal comes back? 

I had my realtor's appraiser give me an off the cuff estimate on my property of 350-360K, but I don't really know exactly where my property should appraise, especially as values continue to rise and this was just a very rough estimate. 

There aren't really any good comps within a 2 mile radius :

• Very few recent multifamily sales (within the last year)
• Most recent multifamily sales are in rougher areas and rougher condition or are further away (3-5+ miles)
• Most recent multifamily sales are duplexes/triplexes with fewer beds/baths per unit (2/1 vs 3/2)

I'm not approaching DTI limitations and I want to maximize the amount I can cash out. Would there be any downside to giving an estimated value above those numbers, say at 375K, and then just going lower if the appraisal comes in lower? Or could that come back to bite me somehow? I'm concerned that if I say lower and the property is worth more, the appraiser will simply come in at the value I provided.

Thank you in advance.

Thanks all. I'm obviously overthinking this.

Thanks for that feedback @Immanuel Sibero. For the adjustments, I guess I was mostly speaking to rehab where you purchase a property where everything is in working condition, but decide to preemptively replace old appliances, as an example, which are still functional enough to remain in use but leave the property less appealing and will likely require repair or replacement in the near future. I basically paid the $2,000 I would pay to replace those appliances over the next 5-10 years up front, which will reduce my actual maintenance costs during that time period and increase my "acquisition" cost. Maybe it doesn't really make that big of a difference overall. 

On the topic of property management, I was just curious if most investors include allowances for that in their COC calcs, whether they actually use it or not. I didn't mean to include this in my last statement regarding evaluating a deal. Sorry for that confusion.

I have 2 duplexes (B- Class) I purchased essentially as a package (same owner, identical and adjacent, but two separate properties) back in May 2020. Built in 1998, block construction, each unit a 3/2 and 1080 sqft, newer roofs (~8yrs). These properties were very much not maintained and the tenants were generally left to do everything themselves. Two of the tenants did an excellent job, including repainting the interior and keeping things generally clean. They both got signed on to 15 month leases, first 3 months having 1/3 of rent going to creating a deposit. Rents were increased from 800 to 1500 (decision made by the property manager and number used when I was running my calcs). The main issue is the cabinetry in all units was builder grade and is falling apart. The other two units were trashed. Got those two tenants out luckily. Each unit has separate utilities and electric.

2 units with tenants get all new appliances, new kitchen cabinets/granite counters, new light fixtures and a 'light' bathroom update (resurface tubs, update vanity and light). 

2 units that were vacated were completely gutted and redone, including the above mentioned and new shower/tub inserts and plumbing. 

One unit got a brand new AC. Another a brand new water heater. 

All units will be getting brand new windows (5) and sliding doors (1). My property manager is able to get this done for $15K, including materials. Most of the original aluminum windows are having issues operating and they are all single pane. The sliding doors are all banged up. Having lived in one of the units through the winter, I can attest how annoying single pane windows can be. My realtor and an appraiser have stated I should get a good ROI on this when refinancing, otherwise I probably wouldn't do it until absolutely needed. ***I'd like to get your thoughts here.***

All units will be getting a fenced in back yard. My thinking is this should pay off long term with being able to ask a bit more, offer something apartments in the area can't and decreasing turnover. I'm located in Clearwater, FL where it is nice to be outside most of the year.

PP was around 250K each with generous seller concessions. Estimated to appraise around 350-360K each after everything. Once I do a cash out refi, I should have around $120K left in the deal (I didn't initially approach this as a BRRR, but have since aimed to get as much out as I can). I estimate to be around 13% COC return after refi, if I take property management into account. If I remove that cost, just for comparison, I'm sitting around 16%. I am using property management, but I feel like I should look at this both ways?

One unit was purchased with FHA, other conventional. Planning on doing rate/term refi to conventional investment for the FHA and cash out primary refi on the other.

For my COC calculation, I'm including 10% for repairs and CapEx, 5% for vacancy, property management works out to around $1000 per door, pest control, lawn care, PITI. Also including projected new balances, costs and rates after refi.

I've seen so many people reporting 20%+ COC returns that I wonder where I fall in the spectrum of 'good deals'. I also wonder if they are all including property management in their calculations. The nice thing is I quickly got to 4 doors with decent COC return and cash flow of around $1,300 or $325/door. I learned a lot along the way. This was my first deal and I want to ideally do better going forward, if possible. 

Thanks in advance for your feedback! Please feel free to be as blunt as you want. I thrive on constructive criticism. 

I've been following a lot of discussion groups on social media, as well as watched multiple videos / read articles, and have a question regarding COC calculations. I've been noticing that it doesn't always seem apples to apples when I learn about the returns others are getting. The biggest inconsistencies I see are with property management and initial rehab. I find myself wondering if I should be doing two COC calculations, one for my personal returns, and the other for an attempt at benchmarking. I will elaborate below.

Not that I should be comparing myself with others per se, but I do like to know that I am generally on the right path and the best way is to see what the industry standards seem to be. 

For property management, should this technically be considered an optional/operational expense? When trying to figure out if my returns are on par with others', should I include property management, or take that into account for my personal returns/goals, but not use it when figuring out whether it's a good deal, per se? Similar to how cap rate doesn't take financing into account. This seems to be especially applicable to those with only a few properties who may not yet be using a property manager. What percentage of folks would you say probably include PM in their calculation? 

Regarding initial rehab, someone who does a full rehab (full gut, all new appliances, fixtures, outlets etc) should theoretically encounter a lot less maintenance/repair expenses for the first 5-10 years... In comparison to someone who someone who just took over and will be fixing existing items as needed. In this case, the first person's COC calculations, assuming a 'standard' 5% for repairs (or insert whatever number you want) will reflect lower returns than they will actually yield in those first 5-10 years. At that point you could technically subtract the difference from the initial rehab cost to get a more accurate gauge on COC return. How significant of a difference do you think this would make in actual vs theoretical returns?

What are your thoughts? Am I overly complicating this or could these types of considerations potentially turn what seems like a mediocre deal into a good deal, as an example? 

Thanks in advance for your input!

@Brenden Mitchum thanks for the kind words. It was my first endeavor and has been quite the rollercoaster. DTI won't be an issue at all. I just wasn't sure if there were any rules regarding using FHA loans multiple times, so long as you don't currently have one.

Scenario

I purchased 2 duplexes last year, one as my primary, using FHA, and the other with a conventional investment loan. I'm planning to refinance both properties. The FHA property will be a rate & term only refi into a conventional investment loan. The other property will be cash out refi as primary residence conventional loan. **I will no longer have a FHA loan**.

Question

If I then wait a year (or however long is actually necessary) to convert my now primary property into an investment and then purchase another property as my primary residence, will I be able to once again use a FHA loan to get a 2-4 unit primary property?

Thank you in advance.

@Cathy Svercl thank you for your reply. 

The appraiser wasn't wiling to expand the area or use any SFHs as comps. I'm not sure if a bank's appraiser will think differently. The only realtor I've spoken with so far is also my property manager (he does both). His response was simply something to the tune of "that's a pretty good increase in 6 months". However, I am overdue for building out my local network and probably should reach out to some realtors to start that relationship and also get feedback on these properties. 

I think as I go into future deals I will be more cognizant of available comps for this purpose. It's pretty frustrating that 2-4 units go off comps, instead of income. As to banks, I've only called around to get an idea of what rates and fees look like. Once I'm ready to refi, I'll reach out again. Do you have anyone at MidFlorida you recommend reaching out to for refinancing?

I have two identical, adjacent duplexes and am wanting to do a cash out refinance on one of them once I'm done with rehab. I don't know that there's enough equity in the other at the moment to be worthwhile. I'm considering making that one my primary and staying a year, to get the best rates and a better LTV. In order to get a better idea of my budget, I hired an independent appraiser to give me a value after rehab. He ran into a few things and I'm wondering if anyone else has advice or experience with this.

Each unit is a 3/2, 1080 sqft. Located in Clearwater, FL.

Purchase price $249K. Appraised ARV $315K (By comps). WIth income approach, which he said likely won't be considered, $348K.

1. There are very few recent multifamily sales in the area and the ones that have sold have less than 3 bedrooms (typically they are 2/1). Further, I'm in an area with low crime but you head a mile away and it gets pretty rough. That is where a most of these comps are located. He said appraisers will only like at like properties withing a small radius and not use single family homes for comps, so I'm stuck with those. 

For comps with 2/1 units, he only added $3,000 adjustment per unit in comparison to my 3/2. I'm wondering if this is typical, or if that seems lower than an appraiser would normally add? The square footage was adjusted by $40/sqft between buildings. 

2. Since both duplexes I own are identical, and both were purchased for the same time and price, he's using one as the other's comp. This creates an issue because they both have been rehabbed and should be worth a lot more now, but the original sale price of the other is hurting the valuation. I'm wondering if there is anything I can do here, other than try to make my case by showing the work that was completed to justify a higher adjustment?

Any and all advice on getting the highest valuation and/or maybe some sort of creative financing will be greatly appreciated! Thank you.

I just looked further into the Vikrell stuff and it looks really promising. I may just go that route.