Investor · Reading, PA · Member since 2014 · 167 posts · 49 votes
I need help analyzing this property.
Address:
2542 Glenn Terrace, Mount Penn, PA 19606
Asking Price: $209,000
Taxes: $5087 (they are really high in my county)
Renovations: $10K-$15K
Mortgage: Conventional
Credit Rating: 712 median
1. I have an interior design background and can make this property really cute, but is it worth it? I have to front a ton of capital.
2. I was thinking about getting the property, renovating it, and then cashing out 80% of the ARV to get some of the money back. Good idea or no?
3. What do you estimate the ARV? There is a 'comp' listed for $200,000, but it was sold as-is and needed great repair. I think if I make this house really cute, I could potentially get $240K ARV. But I don't know. What do you think?
4. What do you think you could rent this for? I have no idea. I think I could get at least $1700. Maybe $1800? $1900? $2000?
I don't want to spend all my capital, but I think I could potentially refinance and get some back. But then my cash flow won't be high, and when trying to get another property my DTI won't be great because 75% of the rent won't meet the mortgage. However, I like that there isn't a lot of work to do and I could still make the property really cute with not much risk.
1. I have an interior design background and can make this property really cute, but is it worth it? I have to front a ton of capital.
2. I was thinking about getting the property, renovating it, and then cashing out 80% of the ARV to get some of the money back. Good idea or no?
3. What do you estimate the ARV? There is a 'comp' listed for $200,000, but it was sold as-is and needed great repair. I think if I make this house really cute, I could potentially get $240K ARV. But I don't know. What do you think?
4. What do you think you could rent this for? I have no idea. I think I could get at least $1700. Maybe $1800? $1900? $2000?
I don't want to spend all my capital, but I think I could potentially refinance and get some back. But then my cash flow won't be high, and when trying to get another property my DTI won't be great because 75% of the rent won't meet the mortgage. However, I like that there isn't a lot of work to do and I could still make the property really cute with not much risk.
Inventory is so low. Any help appreciated!
@Jennifer Fernéz I run sum numbers for you with our tool, see comments and pics below before refinancing and post refinancing .
Financial Breakdown:
Purchase Price: $200,000
Mortgage (LTV 80%): $160,000
Interest Rate: 6% (30-Year Amortization)
Mortgage Monthly Payment: $959
Upfront Costs:
Down Payment (20%): $40,000
Closing Costs (3.5%): $7,000
Renovation Costs: $15,000
1 Month of Carrying Costs During Renovation: $1,548 Total Upfront Required: $63,548
Year One Rent:
Monthly Rent Income: $2,000
1 Month Rent Losses during renovations (-$2,000): -$167/month distributed over 12 months
Total Rent Income: $22,000 per year => $ 1,833 per month
Monthly Expenses:
Mortgage Payment: $959
Property Tax (Assuming $3,000/year): $250 per month
Property Insurance (Assumption): $100 per month
Utilities (Hydro, Gas, Water): $275 per month
Assuming 5% Vacancy: $92
Assuming 0 % Repairs & Maintenance first year because unit has been recently renovated
Total Monthly Expenses: $1,676
Monthly Net Cash Flow: $157
Post-Renovation Refinancing Strategy after 12 months:
So far, we’ve purchased the property, completed renovations, and rented it out.
Next, you can approach the bank for a refinance to consolidate a portion of your initial investment into a mortgage. Typically, the banks prefer to refinance one year after the initial purchase.
To get to the ARV of $250,000 , I am assuming as follow:
Because you spent $15,000 in renovation, I am assuming you increased the Initial value of the property at 30,000 bringing it at $230,000
Add a 8.69% home appreciation for one year $20,000 Estimated Home Value After 1 Year:$250,000
Refinancing Breakdown:
New Home Value (Post-Appreciation): $250,000
New Mortgage Amount (80% LTV): $200,000
Existing Mortgage Balance after 12 months: -$158,035
Total Cash Pulled Out: $39,594, allowing you to recover to pay a portion of your initial investment of $63,548, leaving $ $24,015 in the deal.
Many new investors mistakenly believe the BRRRR strategy ends after the cash-out. It's crucial to evaluate how the deal performs with the new mortgage:
Updated Financials After Refinancing:
Market Value: $250,000
Mortgage Amount (80% LTV): $200,000
Equity: $50,000
Interest Rate: 5% (30-Year Amortization) Assuming after 12months the rate will drop from 6% to 5%
Monthly Expenses:
Mortgage Payment: $1,074
Property Tax: $260 (4% Adjustment from last year)
Utilities: $309 (+3% Adjustment)
Insurance: $104 (+4% Adjustment)
Vacancy: $105
Repairs & Maintenance: $105 (now after 12 months we can assume we have repairs at 5% factor on annual rent)
Total Monthly Expenses: $1,957
Rent Income after 12 months assuming annual rent increase at 5% : $2,100
Cash Flow: $143 per month 😊
Year 2 Return on investment
$2,951 Principal Paydown year 2
$20,000 Property Appreciation (assuming 8% per year)
$1,720 Yearly Cash Flow (this will increase as rents rise)
$50,000 Initial Equity
Total Gain $74,671 with just $ $22,789 remaining in the deal.
Year 3 and Long-Term ROI:
$3,102 Principal Paydown year 3 (this will keep increasing each year as you pay off your mortgage
$21,600 Property Appreciation (assuming 8% per year)
$2,568 Yearly Cash Flow (this will increase as rents rise)
Total Gain Year3: $ $27,270 giving you 113.55% ROI on your $ $24,015 left in the deal.
This is a good investment in my opinion.
Feel free to reach out if you have any further questions or need additional clarification!
The least important this you mentioned, was the word "cute". I've never heard money/profit described as cute, so it's not important.
The most important thing you mentioned, was the rent potential and ARV. The problem is, none of it is based on actual comps, and again, the word "cute" doesn't have anything to do with setting those numners.
What you need to do is a full analysis of the comps for both rent and sold in your area. They should ONLY include properties of the same size (sq ftg), and within a short distance form this property.
Lastly, your profit comes after you recover your cash you put in. It's the cash you put in that's your cost for the property. If you plan renting out this property, that cost recovery comes from cash flow (equity doesn't count). Keep in mind, adding "cute", and upgrading things won't increase your rent or ARV past what the market in that area will tell you is the max. Adding and making better could sell or rent faster, but it won't get you more than what the market ARV and rent is set at from other similar comps in the area.
...and your Interior Design background will help, if you you it mostly as an understanding of cost. Don't use it strictly as a tool to turn the property into one you want to live in. That's one of the fastest ways to lose money.
@Jennifer Fernéz, I'm not in your market. I'm further north in the Wilkes-Barre/Scranton area but here are a few general thoughts:
1. What is your goals? Are you investing to create wealth/equity? Are you looking for cash-flow? Are you wanting to grow a portfolio of rentals without coming out of pocket to acquire each? Are you investing for market appreciation?
2. What you describe sounds a little like a BRRRR (Buy Rehab Rent Refinance Repeat).
However, with a BRRRR one goal is to get back your out of pocket investment. A purchase of $209k, $15k rehab, and ARV of $240k doesn't get you any thing back after you factor in all of the closing costs to purchase and to refinance.
A $1700-2000/month rent doesn't get you cash-flow on a fully leverages (after refi) $240k property.
3. You mention DTI which is fine. That is important when considering a conventional conforming loan. However, you can get loans that are based on the performance of the rental and not your personal income and debt. Look for loans such as DSCR (Debt Service Coverage Ratio) loans.
4. If what you are aiming for is a BRRRR to acquire and rehab properties into cash-flowing rentals, you may with to try to feel less personally attached to the result.
5. Also for a BRRRR in general to create enough equity to refinance out your money and create a cash-flowing rental you usually need to start with a VERY distressed property and do a significant rehab.
For example if a single family home rents for $1700 in your area. You might buy a distressed property for $80k, invest $40k into a rehab with an ARV of $155k. A scenario like that would likely result in getting your entire investment back upon refi and also a nice cash-flowing rental to manage.
@Jennifer Fernéz, I'm not in your market. I'm further north in the Wilkes-Barre/Scranton area but here are a few general thoughts:
1. What is your goals? Are you investing to create wealth/equity? Are you looking for cash-flow? Are you wanting to grow a portfolio of rentals without coming out of pocket to acquire each? Are you investing for market appreciation?
2. What you describe sounds a little like a BRRRR (Buy Rehab Rent Refinance Repeat).
However, with a BRRRR one goal is to get back your out of pocket investment. A purchase of $209k, $15k rehab, and ARV of $240k doesn't get you any thing back after you factor in all of the closing costs to purchase and to refinance.
A $1700-2000/month rent doesn't get you cash-flow on a fully leverages (after refi) $240k property.
3. You mention DTI which is fine. That is important when considering a conventional conforming loan. However, you can get loans that are based on the performance of the rental and not your personal income and debt. Look for loans such as DSCR (Debt Service Coverage Ratio) loans.
4. If what you are aiming for is a BRRRR to acquire and rehab properties into cash-flowing rentals, you may with to try to feel less personally attached to the result.
5. Also for a BRRRR in general to create enough equity to refinance out your money and create a cash-flowing rental you usually need to start with a VERY distressed property and do a significant rehab.
For example if a single family home rents for $1700 in your area. You might buy a distressed property for $80k, invest $40k into a rehab with an ARV of $155k. A scenario like that would likely result in getting your entire investment back upon refi and also a nice cash-flowing rental to manage.
Thanks for your input, Kevin! I was going to offer $200K or $190K. Put $10-15K in to get a brand new kitchen, refinished hardwood, recessed lighting, and brand new bathroom. It's a single family home with minimal work that needs to be done. I don't need hard money because I have a lot of cash.
Those are rough numbers going through my head. So $30K spent (includes closing costs, etc) to acquire renovated property with minimal cashflow. Worth it or no?
The least important this you mentioned, was the word "cute". I've never heard money/profit described as cute, so it's not important.
The most important thing you mentioned, was the rent potential and ARV. The problem is, none of it is based on actual comps, and again, the word "cute" doesn't have anything to do with setting those numners.
What you need to do is a full analysis of the comps for both rent and sold in your area. They should ONLY include properties of the same size (sq ftg), and within a short distance form this property.
Lastly, your profit comes after you recover your cash you put in. It's the cash you put in that's your cost for the property. If you plan renting out this property, that cost recovery comes from cash flow (equity doesn't count). Keep in mind, adding "cute", and upgrading things won't increase your rent or ARV past what the market in that area will tell you is the max. Adding and making better could sell or rent faster, but it won't get you more than what the market ARV and rent is set at from other similar comps in the area.
...and your Interior Design background will help, if you you it mostly as an understanding of cost. Don't use it strictly as a tool to turn the property into one you want to live in. That's one of the fastest ways to lose money.
I also have a degree in mathematics from an Ivy League college and I'm smarter than I sound or look, so I apologize if I threw you off with the word cute. Let me articulate better. I plan to turn a run-down house no one wants into a beautiful and desirable property that other women will fight over. For barely any cost.
The question at stake here is about value. Is it worth it? (see the numbers I wrote in my other response above this one).
I am using actual comps that my realtor sent me. The problem is that there isn't a lot out there, and when looked into each comp extensively, I saw the numbers were deflated because they were 'as-is' properties with extensive damage, or properties with a well, and other mis-matched differences.
@Jennifer Fernéz, I'm not in your market. I'm further north in the Wilkes-Barre/Scranton area but here are a few general thoughts:
1. What is your goals? Are you investing to create wealth/equity? Are you looking for cash-flow? Are you wanting to grow a portfolio of rentals without coming out of pocket to acquire each? Are you investing for market appreciation?
2. What you describe sounds a little like a BRRRR (Buy Rehab Rent Refinance Repeat).
However, with a BRRRR one goal is to get back your out of pocket investment. A purchase of $209k, $15k rehab, and ARV of $240k doesn't get you any thing back after you factor in all of the closing costs to purchase and to refinance.
A $1700-2000/month rent doesn't get you cash-flow on a fully leverages (after refi) $240k property.
3. You mention DTI which is fine. That is important when considering a conventional conforming loan. However, you can get loans that are based on the performance of the rental and not your personal income and debt. Look for loans such as DSCR (Debt Service Coverage Ratio) loans.
4. If what you are aiming for is a BRRRR to acquire and rehab properties into cash-flowing rentals, you may with to try to feel less personally attached to the result.
5. Also for a BRRRR in general to create enough equity to refinance out your money and create a cash-flowing rental you usually need to start with a VERY distressed property and do a significant rehab.
For example if a single family home rents for $1700 in your area. You might buy a distressed property for $80k, invest $40k into a rehab with an ARV of $155k. A scenario like that would likely result in getting your entire investment back upon refi and also a nice cash-flowing rental to manage.
Thanks for your input, Kevin! I was going to offer $200K or $190K. Put $10-15K in to get a brand new kitchen, refinished hardwood, recessed lighting, and brand new bathroom. It's a single family home with minimal work that needs to be done. I don't need hard money because I have a lot of cash.
Those are rough numbers going through my head. So $30K spent to acquire renovated property with minimal cashflow. Worth it or no?
To me that is negative cash-flow, because I include hard and soft expenses.
You are looking at the rent of $2,000 and mortgage (Loan, Insurance, and Taxes) of $18000 and thinking you have $200 cash-flow.
You may have other hard expenses. In many places there are some utilities provided by the municipality. You typically want to include those utilities because if unpaid they become liens against your property. In my area sewer and garbage are the most municipal utilities.
Then you need to account for soft expenses like Vacancy/turnover, maintenance, and capital expenses. A 5% of incoming rent for each category is a pretty standard amount to budget.
So, your soft expenses alone would be 15% of the $2,000 rent which is $300 per month. That alone brings you to negative cash-flow and that is even without accounting for any municipal utilities.
@Jennifer Fernéz, I'm not in your market. I'm further north in the Wilkes-Barre/Scranton area but here are a few general thoughts:
1. What is your goals? Are you investing to create wealth/equity? Are you looking for cash-flow? Are you wanting to grow a portfolio of rentals without coming out of pocket to acquire each? Are you investing for market appreciation?
2. What you describe sounds a little like a BRRRR (Buy Rehab Rent Refinance Repeat).
However, with a BRRRR one goal is to get back your out of pocket investment. A purchase of $209k, $15k rehab, and ARV of $240k doesn't get you any thing back after you factor in all of the closing costs to purchase and to refinance.
A $1700-2000/month rent doesn't get you cash-flow on a fully leverages (after refi) $240k property.
3. You mention DTI which is fine. That is important when considering a conventional conforming loan. However, you can get loans that are based on the performance of the rental and not your personal income and debt. Look for loans such as DSCR (Debt Service Coverage Ratio) loans.
4. If what you are aiming for is a BRRRR to acquire and rehab properties into cash-flowing rentals, you may with to try to feel less personally attached to the result.
5. Also for a BRRRR in general to create enough equity to refinance out your money and create a cash-flowing rental you usually need to start with a VERY distressed property and do a significant rehab.
For example if a single family home rents for $1700 in your area. You might buy a distressed property for $80k, invest $40k into a rehab with an ARV of $155k. A scenario like that would likely result in getting your entire investment back upon refi and also a nice cash-flowing rental to manage.
Thanks for your input, Kevin! I was going to offer $200K or $190K. Put $10-15K in to get a brand new kitchen, refinished hardwood, recessed lighting, and brand new bathroom. It's a single family home with minimal work that needs to be done. I don't need hard money because I have a lot of cash.
Those are rough numbers going through my head. So $30K spent to acquire renovated property with minimal cashflow. Worth it or no?
To me that is negative cash-flow, because I include hard and soft expenses.
You are looking at the rent of $2,000 and mortgage (Loan, Insurance, and Taxes) of $18000 and thinking you have $200 cash-flow.
You may have other hard expenses. In many places there are some utilities provided by the municipality. You typically want to include those utilities because if unpaid they become liens against your property. In my area sewer and garbage are the most municipal utilities.
Then you need to account for soft expenses like Vacancy/turnover, maintenance, and capital expenses. A 5% of incoming rent for each category is a pretty standard amount to budget.
So, your soft expenses alone would be 15% of the $2,000 rent which is $300 per month. That alone brings you to negative cash-flow and that is even without accounting for any municipal utilities.
1. I have an interior design background and can make this property really cute, but is it worth it? I have to front a ton of capital.
2. I was thinking about getting the property, renovating it, and then cashing out 80% of the ARV to get some of the money back. Good idea or no?
3. What do you estimate the ARV? There is a 'comp' listed for $200,000, but it was sold as-is and needed great repair. I think if I make this house really cute, I could potentially get $240K ARV. But I don't know. What do you think?
4. What do you think you could rent this for? I have no idea. I think I could get at least $1700. Maybe $1800? $1900? $2000?
I don't want to spend all my capital, but I think I could potentially refinance and get some back. But then my cash flow won't be high, and when trying to get another property my DTI won't be great because 75% of the rent won't meet the mortgage. However, I like that there isn't a lot of work to do and I could still make the property really cute with not much risk.
Inventory is so low. Any help appreciated!
@Jennifer Fernéz I run sum numbers for you with our tool, see comments and pics below before refinancing and post refinancing .
Financial Breakdown:
Purchase Price: $200,000
Mortgage (LTV 80%): $160,000
Interest Rate: 6% (30-Year Amortization)
Mortgage Monthly Payment: $959
Upfront Costs:
Down Payment (20%): $40,000
Closing Costs (3.5%): $7,000
Renovation Costs: $15,000
1 Month of Carrying Costs During Renovation: $1,548 Total Upfront Required: $63,548
Year One Rent:
Monthly Rent Income: $2,000
1 Month Rent Losses during renovations (-$2,000): -$167/month distributed over 12 months
Total Rent Income: $22,000 per year => $ 1,833 per month
Monthly Expenses:
Mortgage Payment: $959
Property Tax (Assuming $3,000/year): $250 per month
Property Insurance (Assumption): $100 per month
Utilities (Hydro, Gas, Water): $275 per month
Assuming 5% Vacancy: $92
Assuming 0 % Repairs & Maintenance first year because unit has been recently renovated
Total Monthly Expenses: $1,676
Monthly Net Cash Flow: $157
Post-Renovation Refinancing Strategy after 12 months:
So far, we’ve purchased the property, completed renovations, and rented it out.
Next, you can approach the bank for a refinance to consolidate a portion of your initial investment into a mortgage. Typically, the banks prefer to refinance one year after the initial purchase.
To get to the ARV of $250,000 , I am assuming as follow:
Because you spent $15,000 in renovation, I am assuming you increased the Initial value of the property at 30,000 bringing it at $230,000
Add a 8.69% home appreciation for one year $20,000 Estimated Home Value After 1 Year:$250,000
Refinancing Breakdown:
New Home Value (Post-Appreciation): $250,000
New Mortgage Amount (80% LTV): $200,000
Existing Mortgage Balance after 12 months: -$158,035
Total Cash Pulled Out: $39,594, allowing you to recover to pay a portion of your initial investment of $63,548, leaving $ $24,015 in the deal.
Many new investors mistakenly believe the BRRRR strategy ends after the cash-out. It's crucial to evaluate how the deal performs with the new mortgage:
Updated Financials After Refinancing:
Market Value: $250,000
Mortgage Amount (80% LTV): $200,000
Equity: $50,000
Interest Rate: 5% (30-Year Amortization) Assuming after 12months the rate will drop from 6% to 5%
Monthly Expenses:
Mortgage Payment: $1,074
Property Tax: $260 (4% Adjustment from last year)
Utilities: $309 (+3% Adjustment)
Insurance: $104 (+4% Adjustment)
Vacancy: $105
Repairs & Maintenance: $105 (now after 12 months we can assume we have repairs at 5% factor on annual rent)
Total Monthly Expenses: $1,957
Rent Income after 12 months assuming annual rent increase at 5% : $2,100
Cash Flow: $143 per month 😊
Year 2 Return on investment
$2,951 Principal Paydown year 2
$20,000 Property Appreciation (assuming 8% per year)
$1,720 Yearly Cash Flow (this will increase as rents rise)
$50,000 Initial Equity
Total Gain $74,671 with just $ $22,789 remaining in the deal.
Year 3 and Long-Term ROI:
$3,102 Principal Paydown year 3 (this will keep increasing each year as you pay off your mortgage
$21,600 Property Appreciation (assuming 8% per year)
$2,568 Yearly Cash Flow (this will increase as rents rise)
Total Gain Year3: $ $27,270 giving you 113.55% ROI on your $ $24,015 left in the deal.
This is a good investment in my opinion.
Feel free to reach out if you have any further questions or need additional clarification!
Um, WOW. This is amazing. Dang, all offers were due yesterday and I didn't make one. What kind of tool did you use to analyze all that? I mean, I could try to just memorize the math..
Um, WOW. This is amazing. Dang, all offers were due yesterday and I didn't make one. What kind of tool did you use to analyze all that? I mean, I could try to just memorize the math..
The tool is called Cashflow Analyzer Pro with Deal Instant Analyzer from Asset AFC. You can find the link in my bio. If you need help analyzing any deals, feel free to reach out—I’m happy to guide you through it!
Um, WOW. This is amazing. Dang, all offers were due yesterday and I didn't make one. What kind of tool did you use to analyze all that? I mean, I could try to just memorize the math..
Hey @Jennifer Fernéz. Are you looking at other properties in your area? I have a former CFO client in Lebanon and you remind me a lot of him...you know what you like, you're very thorough, and you know your numbers!
