All Forum Posts by: Greg Kasmer

Angel - I would increase the interest rate to about 6.5% if going with a bank/credit union and perhaps 5.5-6.0 if using Fannie/Freddie loan. I would also suggest a slightly higher management fee (6%) as well as adding in some costs for water/sewer/garbage. Could still be a very solid deal afterwards, but probably worth adding in those costs. Good Luck!

Mario - I would aim for an area you want to live in (i.e. Phildelphia suburbs) and analyze the local rents compared the home values in a particular set of zip codes or county. I think being open to the entire state may be too much to narrow down, so I would suggest looking at a few counties where you want to live as a starting point. 

Patrick - I have a couple of open lines of credit that I use for short-term funding for projects. On the back end, I get a mortgage/loan and then pay back the line of credit. This works because I'm buying properties that need renovation and I can force the appreciation so by the time I get a long-term product the valuation of the property is much higher than when I purchased it. Therefore, there is 25% equity in the property when the long-term mortgage is on the property. In your scenarios you're describing it looks like the values at purchase and the value six months later is the same (or nearly) the same. Not sure how to avoid putting up continual down payments in that scenario. My suggestion would be to change your target properties to those that need renovation and you can force appreciation so there is no/less down payment required when the loan is fixed. 

Joseph - Your assumptions for capex, vacancy, and repairs/maintenance seem about right to me. Do you also have other expense included in your analysis? In particular, thinking about: insurance, utilities (water, electric, heat), garbage/sewer, and turnover costs. Did you incorporate those into your analysis? If so, then I think this is a viable opportunity for you. Good Luck!

Michael - I think you need to get a better sense of cap rates in this area. You can call a few brokers to see what they would say...They might even give you a BPO (Broker Price Opinion) to see what they value they would place on it. However, that might be different from a bank... which you could also call and see what they would say about cap rates in the area. However, I would call more regional/local banks as they would have more knowledge on the local area, especially as things are changing now in the market. Good Luck! 

Jacob - By your estimates it look like you're coming up with about $2,000 in cash flow a month. However, did you consider property management, repairs/maintenance? They could add another $1000 - $1200 per month easily. Also, to answer your question about to take a few months to turnover, you need to factor in a vacancy factor. Typically is about 5% of gross rents, but if you think it will be 2-3 months on one of the units that might be closer to 7-10% per year. So, I would discount the revenue by that amount to incorporate the vacancy. (FYI - You could also add the cost to find a new tenant if you utilize an agent to secure a new tenant). In the end, I would add in the other costs I mentioned and recalculate the cash flow on a monthly basis. For example if the monthly cash flow drops from $2,000 (currently) to $500 (new pro forma), that is a different story. In that scenario you'd have to determine if your $192k down payment is worth getting back $500 on a monthly basis. That's about a 3% Cash on Cash - that's not a lot from my standpoint and therefore I'd likely pass. 

Mandy - When using the BRRR strategy you might also want to ask what your capacity is for deals at the moment. If you're able to complete two at a time then perhaps using some cash and some loan would be the way to go in order to enable you to scale more quickly. To me, the benefit of using all cash is, 1) That you can (most times) get a better price because you not putting in a financing contingency into the purchase agreement, and 2) You also have loan costs associated once. Otherwise, if you use a loan on the purchase you'll have to pay those costs as well as costs associated with the refinance. Good Luck!

Emilio - I would investigate lenders that provide loans on DSCR (Debt Service Coverage Ratio) and not rely on personal credit to determine "lendability." You'll pay a higher rate, but that will be your best option to refinance.

Matt - In most counties the assessed value is multiplied by some tax rate to actually give you the overall taxes due from a monetary standpoint. Now, the trick is how to determine the potential assessed value of the property. The approach to determine assessed values vary by county, but usually are some percentage of the overall actual property value. (sometimes this translation from actual value to assessed value is called a "conversion ratio" or "Common Level Ratio"). So, I would suggest you research the conversion or common level ratio in the county where this land is developed and then do you best to determine the actual future value of the property. With those estimates in mind, I would then call the county assessor office and ask to speak to them about this "example" to understand how they would assess the value. Surprising enough, most assessor offices are fairly open to discussions if you approach it with an "teach/educate me" perspective. Good Luck!

Marcus - Is your question what you should do after 5 years? My guess is that post-recession rates might drop and therefore I would hold onto to your existing loan and refinance when rates drop. Typical recessions last 18-24 months, so the odds are within a 5 year time rates will drop again in order to help stimulate the economy. I would hold on until you can refinance.