All Forum Posts by: Randy Janoe

Hopefully some on here are interested in quant or statistics and how it can be applied to rents. If it intimidates you, don't worry, I will attempt to be concise and provide a laymens terms summary.

Basic statistics crash course:

Obtain as many sample rent data as possible (Zillow works)

Define alpha for null hypothesis testing ( 0.05)

Run multiple regression analysis (#bed, #bath, sq ft) against active rental list prices.

Observe P-values for each metric

Result:

#Bed - 0.02

#Bath - 0.04

Sq ft - 0.02

All are below or equal to 0.05, reject null hypothesis (statistically significant).

Create multiple regression line using coefficients for each metric.

Input variables from project property and solve for rent!

Summary:

It makes sense directionally that a 3/2 1400 sq ft rents higher than a 2/1 800 sq feet, right? 

Have you ever looked at a rental comp and said well this one is 100 more sq feet or mine is a 3 bedroom and not a 2? Those comps may feel like poor properties to compare to but they are valuable data points.

The regression line will answer exactly what the extra 100 sq ft or bedroom is worth!

This can prevent two extremes: under pricing below market and over pricing and having an idle asset.

I believe this method will provide a proxy rent strong enough to do deal analysis with, particularly in a well diversified portfolio.

Let math do the heavy work and massage as necessary for finishes and how fast (or slow) the unit needs to be rented.

Be confident in your rehab costs or give yourself a buffer. Fortunately 70% of 110K gives you several more thousand in case expenses run over or financing is tied longer than anticipated. 

Another consideration is if those numbers do pan out, flip the property and get two more projects working in the same manner.

Unsure what rents are for your area but those sound like they could be increased. 4 more units can certainly do the trick.

An area of opportunity I commonly hear is whether utilities can be submetered (if they aren't already). 

Obviously I dont know what you can buy it for but it sounds like from vacancy alone you should be able to pull equity back out at a minimum refinance and probably rehab as well.

Nice job! 

I used to restore old cars and trucks, I can relate to your need to salvage and fulfill potential in the property!

Is the cabinent source local to Ohio or an online vendor?

Keep in mind that Habitat typically requires that if the owner intends on selling the home there is typically a duration period (10-20 years). They will typically buy back property at par of purchase plus a small inflation adjustment, from what I'm sold.

My concern is that if the home is sold, where can they live for the nominal mortgage payment a 30K house provides? I'm not sure of anywhere one can rent for a couple hundred dollars in Charlotte metro.

You can still have an inspection by a professional if you are out of state. I doubt majority of buyers on here walk roofs, attics or crawlspaces anyway. Maybe I'm wrong :)

 No problem, connect with me and let me know how it goes!

 I would have to see if my commercial banker will take on customers outside of NC.

Deals are ROE/RAROC price adjusted so pricing varies but an example would be 80%, 5/1, 240 am (possibly 300), prime plus a half or one percent, maybe a point to close.

Cons: Not as aggressive of terms on the mortgage side.

Pros: That commercial lender can accommodate the bigger deals down the road. Flexibility, UW speed, commercial bankers also cross pollinate other investors.. possible syndications. 

Based on your figures, you are around 80-85% now so PMI could be removed or nominal at best.

If the debt ratio is an issue:

Do you have a relationship with a commercial lender? Since commercial loans are based on DSC (Debt Service Coverage) instead of DTI (Debt to Income) it can be favorable for leveraged borrowers, particularly those with adequate or high NOI. Essentially they have a minimum DSC (1.30x) and back solve maximum payment based on NOI. They will take the lesser or DSC, purchase or appraisal. For REFI DSC or Appraisal.