All Forum Posts by: Robert Palladino

@Kevin Button, yes, the plan is to buy more properties. The HELOC in my case would be around 6% vs. 3.75% refi. Running the numbers, I would still save over $100k in interest doing the HELOC over the refi.
what do you think of the pros and cons that I listed above?

Hello All,

This is my first entry on the BP forums, and my first move into real estate investing. I'm not a finance guy so I’ll try to stay coherent. I bought my current home in Philadelphia back in 2012 for $130k, and has since appreciated to roughly $350k (bought in the path of progress). It was a real dog when I bought it, but have since put a ton of sweat into bringing it back. The plan is to build on top of my 1-story garage to create a 750 sq.ft. 1-bedroom apartment. For many reasons, that I won’t get into, I feel that building onto my current property is the best first move for me. (If anyone is interested in that, just ask).

For the sake of these calculations, and simplicity, I did not factor in changes in insurance, taxes, maintenance, etc. Also, I attached a spreadsheet for reference.

Here are the facts:

* If I do nothing, my current mortgage will be fully amortized in 11 years. The interest rate is 3.5%

* I currently have an open HELOC on the property for $95k (no balance). I can do a fixed-rate cash advance for 6.125% for 20 years.

* Speaking to a loan officer, based on my current income & the equity that I have in the house, I can do a cash-out refinance, and pull $175k in cash out at a 3.75% interest rate.

So my options are:

OPTION 1: Keep my current mortgage, and use the fixed-rate HELOC to pay for the addition. My thought is that I can increase the Heloc on the property once the addition is complete to use toward my next purchase.

Pros:

- Total cost in the end is far less than any other option (by over $100k)

- Monthly payment is reduced by $900 after 11 years

Cons:

- Can’t pull money to make another purchase until apartment is constructed, (if the market will still allow).

Option 2: Pull the trigger on the cash-out refinance now while I can, and take the $175k to invest in the addition and a future property. The plan would be to pay the minimum payment until the apartment is rented, then begin to pay the higher amount to be paid off in 15 years.

Pros:

Locked in low interest rate for this and future investment.

Lower monthly minimum payment would reduce risk during months that the apartment is not rented.

Cons:

Would end up paying roughly $120k more in interest

Option 3: Do a cash-out refinance for $192k. (That number is the 95k HELOC + My current mortgage Balance, meaning I would cash out $95k). I used that specific number to make an apples-to-apples comparison to option 1. The payment plan would be the same as option 2.

Pros:

My minimum monthly mortgage payment would only increase by roughly $100, which would make this initial investment very low risk.

Cons:

Would have to rely on the higher interest Heloc for next investment. (Assuming I can pull another HELOC due to the increased property value).

Thanks in advance for any advice you can spare, and if you see another option that would trump any of these would be greatly appreciated.

Hey Hampus,

I live in the Fishtown/Old Richmond, and am currently converting my single family home into a duplex. Aside from the fact that I I previously rented rooms to cover the mortgage, This will also be my first move in investing. I can't offer much in investing experience, but it might be beneficial to chat, and keep up with one another's progress. 

One piece of advice that I can give you with regards to purchasing a multi-family in Philadelphia, it is imperative to always check that the rental license is not only active, but supports the amount of units that is currently on the property. There are many duplexes & triplexes in the city (even one's built years ago), that are not zoned for their particular use. They are only grandfathered in if the rental license has been maintained (which many are not). The quickest way to check a property's license is the the following:

1) click the link below, and enter the property address, then select the "Licenses & Inspections" tab. The renters license number will be under "Business Licenses". Copy the license number. 
https://atlas.phila.gov/#/1234%20MARKET%20ST/
If there are no licenses listed, stop right there. If there is no license, it gets a little more complicated to find out if the property supports the use, but in that event, I'd be happy to analyze that for you.

2) Once you have the license number copied, click the link below: 
https://eclipse.phila.gov/phillylmsprod/pub/lms/Default.aspx?PossePresentation=BusinessLicenseSearchByNumber&IconName=Contract_Mag.png
paste the license number in the search bar, and it will tell you how many units are supported under the rental license.

I can't emphasize how important this is. The listing agent doesn't always know, or disclose this information. I am an architect in the city, and a large portion of our client base are investors. I can't count on both hands the amount of clients that have come through our doors that purchased multi-family buildings, only to find out that they actually can't pull a permit, or get a rental license. You can most likely get it approved through a zoning variance, but it is not a quick process.

I hope this helps

I would add to that list an Architect, or at least a code expert. 

As an architect who’s client base is made up largely by real estate developers and investors, I have come across many who purchase properties in which the new owner assumes they can do one thing, and find out later that for one reason or another, that it can’t be done. For example, The particular zoning for the lot may allow for a multi-family dwelling, but due to certain building code constraints, may not actually be possible. 
I see it all of the time on the MLS. I see a vacant parcel in philadelphia, in which the agent has listed it as being able to build a 4-5 family building, but one look at the lot dimensions and access to public rights of way tells me that that's impossible. Most people who aren't familiar with codes (which is most people) can easily be taken advantage of.

I think at the very least, it would provide some grounded knowledge that every investor should be aware of. 

@Derek Cheng Landmark Architectural Design is a full service firm with in-house expediting service that handles these types of applications routinely, and handle from start to finish. (Full disclosure, this is the firm at which I am employed). I hope this is not a violation of the forum policies.

Unfortunately I have very little investment experience to date, but fortunately do have a fair amount of experience with the zoning process in Philadelphia. I am an architect in the city who has experience taking projects like this through the appeals process (not selling my services, just giving context). I am actually currently in the process of obtaining a variance to convert my own property which is in a RSA-5 district into a two family dwelling. 

to start: the current zoning board is very developer friendly, so you have that on your side. the other factor that you have on your side is a genuine hardship. You are purchasing an existing four family dwelling, but the seller only has license for 3. It will cause you a financial hardship to convert it down to a 3-unit

This is a rather lengthy process. You're looking at about 3-4 months. The ZBA is backed up at the moment, and they are currently assigning hearings 2-3 months out.

Step 1: submit a zoning application to L&I

Step 2: Wait the 21 working days for the examiner review. upon completion he/she will send you a comment letter stating that your proposed use is not permitted by-right, and will ask if you wish to receive a "Refusal". You say yes, and will be sent the refusal, and instructions on how to file an appeal, along with an appeal application.

Step 3: Once you file the appeal, and pay the appeal fee (usually a couple hundred dollars) you will receive Paperwork for what needs to be done leading up to your hearing date. see next steps.

Step 4: Contact all affected Registered Community Organizations (RCO) to schedule a neighborhood meeting to present your request to the neighborhood. You will need a letter of support from the RCO to send to the ZBA. Don't worry if you don't get their support. It is helpful in most situations, but not a deal killer.

Step 5: The city will provide you with a list of addresses of which you must mail a letter with all of the information regarding your project, and the upcoming neighborhood meeting. The city will supply a template of how this letter should be formatted.

Step 6: hire an architect or draftsperson to draft the existing floor plans, and prepare a presentation. You must have drafted floor plans to provide to the ZBA.

Step 7: This is important. If the property is owned by an LLC or something other than your name, you MUST be represented by an attorney at the ZBA.

Step 8: Attend the ZBA hearing. 

Step 9: Let's say you got the thumbs up from the ZBA, and you're approved, there is one more step, and this one is a pain. Now you have to obtain a building permit for the 4 family dwelling, even if you are not planning on doing work there.

This was as simplified as I could spew out, but my recommendation would be to hire an architect who does these types of application routinely to take care of the whole thing. It may cost you more money than you were planning to spend, but trust me, it's worth it.

I hope this helps

P.S. please excuse any misspellings during my stream of consciousness.....

Any chance this property is located on Leidy Street?