All Forum Posts by: Roy Palmer

@Roy Palmer Typically a high IRR deal will have much shorter timelines and typically would involve a fairly heavy value add. Generally higher payout potential in a much shorter timeline and with higher payout potentials & shorter timelines come higher risk.

We have high IRR deals with our new apartment builds but look for a greater CoC and long term deal timeline when we syndicate existing apartments.

IRR or CoC depending on the business plan of the property. Lately we've been leaning more on cash flowing deals.

The 1004 form is an appraisal form that conveys the property valuation to a lender using recent sales of similar properties. As the form states: "The purpose of this summary appraisal report is to provide the lender/client with an accurate, and adequately supported, opinion of the market value of the subject property."

The form also has provisions for cost and income valuation methods, but these are generally not used. 

@Roy Palmer -- While everyone wants cash flow and appreciation, most people lean heavily one way or the other when making that either/or decision. So, you'll have different people analyzing deals differently. For the people who use ROI % or cap rates of some sort, the one word of caution is to have a minimum actual amount of cash coming in....so for lower priced deals, the % returns need to be higher than for higher priced deals/rents. If you want to clear say $400/month net, then you need to do the math like Chris Martin did. If you want appreciation, just ask Zillow what the market is going to do next year!!

For most of my investment career, the general formula was/is: 

#1 Net Income, assuming full leverage at current market rates, after non-cash expenses, should be greater than $0. #2 Acquire at a discount to a 1004 comparable sales valuation, generally at 20% or more. 

This is an old example, but should get the point across:
100K single family acquisition on 130K valuation, 82.5K improvement, 17.5K land

Depreciation is $3,000 per year ($82,500 / 27.5) or $250 per month. At a (mortgage) rate of 6%, P+I payment on $100K is $600, interest roughly $550 per month. taxes and insurance $100 per month, reserves about $100 per month, repairs and vacancy about $100 per month, and Property Management and incidentals about $100 per month. 

Adding it up: if we could get $1200 per month in rent or more, we would acquire the property.

It may be hard to believe now, but in strong buyer's markets we could achieve these numbers in the Raleigh NC metro market on a regular basis. 

Roy,

My advice is do not use your own money use the banks money when ever possible. 203K loans are a decent options but can be a nightmare if you are not familiar with the GC or builder. You generally need 2-3 quotes in order to get the work order and costs approved and the processing can be tough with conditions. You also have other options like doing a renovation loan combined with an FHA or Conventional loan.

@Roy Palmer if this is your first house ever I would highly suggest just buying a property that needs no rehab work.  Buying a house is one of the most stressful things you can do.  Seriously, when they study these things #1 is a family member dying.  #2 is public speaking.  #3 is buying a house.  If you buy and house AND become a project manager at the same time...well, it's a lot to take one.  You can do what you want of course but that's my suggestion.

@Roy Palmer

If using your own funds for the rehab will NOT place you into a precarious financial situation, then use your own funds. 

The FHA 203k loan is a great option for people who are not as liquid as others and want to leverage debt.

If you do a 203k, make certain you have a lender who is experienced with the 203k as well as a 203k-experienced contractor such as a contractor with the accreditation as a Certified 203k Contractor. 

Hope this helps!