All Forum Posts by: Derek Daun

People have been saying that about Oak Park for longer than that. Everything changed after the housing collapse though; as all the speculators were wiped out, and the new price points suddenly made a lot of sense for flippers and their new buyers.  You really have to understand the block to block variance to identify the good offers.

I just signed on an Oak Park deal from the MLS. One of the worst ascetic houses on a fantastic block. In this case they weren't accepting FHS financed offers, so it was significantly less competitive.

Somewhat off topic, but I wonder if this is a sign of things to come:

Commuting suburb with poor job market, farther away, and over developed  track housing developing gang and crime issues. 

With urbanization and infill developments, are these the new ghettos?

In my area, Redfin trends about 10 - 15% higher than I think it should. Zillow on the other hand, seems to appraise about 10 - 15% too low. Nothing beats doing the legwork yourself, though, and walk around looking at houses. It's crucial to see a sample of houses to calibrate for yourself how accurate the estimates are. The most useful information from either site is going to be past sales. You're likely to get burned if you rely on face values from either site for your calculations.

I'm in a similar situation. I invested 20k in CA and now have two SFH worth a total of about 500k at about 50% equity. In my particular case, I've decided to keep them for now because of the location. They are right on the gentrification line in Sacramento, and have potential for double digit appreciation over the next couple of years assuming there isn't a significant downturn. I've spent a lot of time thinking what I would do once I thought the market was peeking. One plan I've considered goes against common knowledge, but might fit your goals if you really think things might peak.

• Sell
• Take the tax hit 
• Use the money to pay off the principle on my primary residence
• Get a line of credit on the primary ready to execute at a moments notice
• Sit back, have a beer, and relax without thinking about rehabs, tenants, or refinances
• But keep an eye out for deals

If the market peaks, I'll be in a great less leveraged place. I'll see $1000/month in cash flow based on saved interest payments. Six months later, I'll be chomping at the bit to get back in the game regardless. No stress about 1031s. Take the time to find the perfect deal. Read, research and fantasize about the mobile home park. Have another beer. Yes, this doesn't yield the maximum return, but is much more fun.

I'm much more interested in Sac than Indy anyway!

For refinancing, you'd be looking at a conventional loan, but would be paying a 1/4 to 1/2 point higher on the interest rate due to it being an investment property. 

For a true BRRRR, the goal is for the property post rehab to appraise high enough that you can take out enough money to fund your next deal as well as paying off the original loan. Most big banks will lend 75% of the appraised value for a cash out refinance. That 75% number is the key to understanding if you have a good deal, a mediocre deal, or no deal.

(Post Rehab Appraised value) X .75 - Loan value = Cash out

Most people start the BRRRR process using their own seed money saved up from their day job. That way they can do conventional financing. This requires having enough for 20% down payment, and rehab.

Then next popular option is private money. Offer family and friends 10% interest for a 6-12 month loan. There are a couple of advantages of going this route. First, you'll only need enough for the down payment and rehab, and not full purchase price. You'll just need to have the money in your bank account two statements before applying for the mortgage so the bank doesn't track the money back to being loaned. Additionally, you won't have the hassle and paperwork of dealing with a HML, as well as more flexibility if things don't go exactly as planned.

Another option is a loan against your 401k if you have funds there and your employer offers loans.

And finally there's HML as you mentioned. I can only speak from what I've read on Bigger Pockets. I suspect you might have some issues getting hard money for you first project, even more so with great deals being hard to find. I think the first step is really doing your homework so you have a complete project plan laid out to prove to a HML that you know your stuff. Then search the forums to find a group that might lend in your area.

I think I can make this one!

Rio Linda has a reputation for being kinda backwater and a little "methy". Many old neighborhoods in Sacramento have bad reputations though, but many are improving. I can't speak first hand if that's the case with Rio Linda or not though. I will say that it is fairly far away from the areas seeing the most revitalization.

My suspicion is that you'll need to up your vacancy and maintenance expectations to get accurate numbers. Maybe someone more seasoned in the area can chime in to what they use for vacancy rates.

Did you find this place on the MLS or how did you locate the property?

An update to my post.

My broker at the time (first time using him) refused to work with me on a rebuttal to the appraisal. (Never calling him again). I went to a different bank that my old broker had switched to. Paid for another appraisal. New appraisal came in at 550k compared to the faulty appraisal at 464k. Refinance in progress. In all honesty, I think the second appraisal came in a little high, but I won't complain.

My take aways:

• Quality of the your broker makes a much bigger difference than what bank you work with
• Know your neighborhoods and comps. Be willing to put your money where your mouth is if you believe your appraiser missed something.

I should also note that this was more than me having a different opinion than the appraiser. I respect the appraisers on the forum and don't use the word "faulty" lightly. In this situation the first comp used by the appraiser was sold as a "contractors special" at a discount to flippers. The MLS information was quite clear. Had he even bothered to drive by rather than use a google map picture he would have seen the house was boarded up. The second house wasn't even a comparable property. It was a 2:1 on a half lot with no basement, compared to my 3:2, on a full lot, with a 1100sqft finished basement. All in a neighborhood of small houses where space goes for a premium. He actually had other comps listed with higher prices, but instead focused on the first two.