All Forum Posts by: Jasraj Singh

1. After 1 year, you have paid down the mortgage a little bit.
2. The home is valued at $110k, minus your loan of $63.5k. The difference is your equity.
3. You would have spent $10k in housing in that year, but you didn't, so its in your pocket now.

Can a property go up 10% in value in 1 year? Sure. Will it happen to every home? No. This is an exaggerated scenario with perfect numbers. You would have to HUNT to find a deal half as good as this in the current market.

@Jasraj Singh, look at historical annual appreciation in your market and calculate for the average. With COVID, obviously there is uncertainty in the market, but this isn't the first time there has been uncertainty. Over time, you will stick close to that average. Appreciation is really just a guess, just like all of the other calculations you are accounting for- you don't know exactly what rehab will cost, or exactly what your capex or vacancy will be- you use the averages and adjust as you go. 

Best of luck!

@Jasraj Singh

Brandon’s numbers are always rounded, but your looking at the concept more than the numbers.  Yeh he was off a bit on the 63,500 v 64,000.  This is about improving your net worth which in turn creates wealth.  I bought a property for $95,000 put 30K into it and it appraised for 164,000.  That’s a net worth of 39K.  Cash flows 450 a month that’s 5400 plus mortgage pay down of 195ish per month (2340).  These numbers work for the long term investment.  I have plenty of examples if you need more clarification.

Good answers from Scott above. Just to add to it- my market has appreciated around 15% for each of the last couple years. If you bought a house for $200k this time last year, it's worth about $230k today without lifting a finger or spending a dollar. If you were to buy a property that needed some updating, you could force more equity than that. I have worked with clients that bought a house for $210k, put $10k in to it and had appraisals in the range of $250-275k a year later. If you can learn and build on deals like that, you can scale fairly quickly with little to no cash. 

Good luck!

1. I'm not sure either why $63,500 was used instead of 64k because 20% of 80,000 is in fact 64,000.

2.  He mentioned that actual value of the home was 100k and that it grew in value by 10% due to a combination of forced appreciation (renovation work) and natural market appreciation. So this means after 1 year the value of the property was 110k.  Using those numbers, if the property value of 110,000 and you have a 63,500 loan then you have $46,500 in equity. 

3. He adds in the $10,000 of positive cash flow collected during the first year to the total equity of the property to calculate total net worth.  

4.  Absolutely. Last year I purchased a property for $107,500 and did 10k of rehab on it.  It appraised less than a year later for 152k which is about a 28% increase in value so it can absolutely be done. 

The best way to get this information is to check with your local NARPM chapter. They track vacancy rates in local markets all over the country- they data provided by local property managers and updated every quarter. Just google for NARPM in your area, and if you don't find what you need, go to a few local property manager webpages. Once you find one with a NARPM affiliate logo, call them and I am sure they will share a vacancy report with you. 

Best of luck!

Here is a good blog post from our very own Brandon Turner: 
https://www.biggerpockets.com/blog/vacancy-rates

@Jasraj Singh

One potential downside is higher vacancy rates as the tenants will most likely be more affluent and desiring to purchase their own property sooner than tenants in lower class neighborhoods.

It can be extremely profitable, depending on the market. In South Tampa, homeowners undergoing renovations of their homes as well as buyers of custom builds are desperately searching comparable properties within their market to rent during the construction term which is always a year or longer. They're not willing to "camp" so the more comparable it is, the rental price becomes less of an issue and is simply seen as part of the construction cost.  

My recommendation - since you've share that the market there doesn't have rentals - would be to call a few builders to gauge if there might be a referral opportunity for such a property as well as talk to a few high-end property realtors.  I personally like to invest in these properties because the tenant pool is more financially stable.

Hope this helps...