New to Real Estate · NYC · Member since 2019 · 12 posts · 3 votes
I just bought a property (I've posted about this already), and it has been appraised at $26k over purchase price. I'm struggling to figure out the math (not my best subject in school) and what to do to spruce it up enough, without doing too much, to take that equity and roll it over.
I guess I'd like advice in three areas: 1. What should I be calculating to see if it is worth it? Obviously my money down and loan amount are in there, reno costs, and...? What else? 2. Which is the smartest way to get the equity out- HELOC, cash out refi, etc.? 3. I'm afraid of redoing a bathroom and/or kitchen but it not adding enough value to make it worth it. Three of the comps were a bit over the price I purchased for. I'm assuming I need an in depth analysis of the comps to figure this out, but I'm afraid I'll go down an abyss and then end up doing nothing.
Warner Robins, GA · Member since 2016 · 244 posts · 167 votes
5y
Yes, you need to know comps whatever you decide to do. This will help you determine ARV. ARV is the basis for all other analysis. Start there and work your way backwards.
1. Costs to consider for either BRRR or flip
a. Purchase costs (closing costs, inspections, etc) - you said you have already purchased so you should know these
b. Renovation Cost
c. Holding cost - what it will cost to hold the property until completion (sale or refi): Taxes, insurance, HOA fees, Utilities, loan interest/payments
Once you estimate these, subtract from you ARV. That is your break even number.
2. How to get equity out depends. A few options 1. sell 2. Refi 3. HELOC. there is a lot to consider on sell versus refi/heloc, such as taxes, long term goals, property prospects etc. As for Refi vs Heloc, it also depends on what you want to use the money for. If you refi, you will pay more fees up front, as well as interest on that money whether you put it to work or not. However, once you pull the cash out there is no time limit (as well as fixed interest rate). For example, if you wanted to use the cash for a downpayment on another property, as refi may be better. A heloc will have fewer fees up front, and you only have to pay interest on the money when you put it to use. However, they typically come with a time limit (some are 5 years before you have to renew) and variable interest rate. These would probably be better used for shorter projects, such as another rehab, BRRR or flip.
3. Start by estimating what a kitchen and bath rehab would be. Then look at your comps. if they all have nicer kitchens and baths than yours, then dont expect to get the same amount. Sometimes its hard to quantify, but usually the return on kitchen and baths is higher than the investment (with many caveats). Look for the middle ground if it makes sense, such as a light spruce up instead of full reno. Maybe you can paint cabinets, paint the bathtub, paint walls and install new hardware and make a big difference.