All Forum Posts by: Jay Dewberry

Welcome to BP Matt. I'm not an authority on these matters, so I will defer to other seasoned investors. However the top things that come to mind are to see about refinancing at a lower interest rate and/or using the line of credit in the HELOC to get the necessary repairs done. Are you able to recoup any of the negative cash flow in depreciation claims on your taxes? Perhaps it offsets it a little. BTW, if I'm not mistaken, the roof repairs can be written off on the taxes as well reducing your taxable income. Are rents at market? Perhaps they can be increased as well. Also, I'm not sure I would trust Zillow fully with the "Zestimates". Nothing beats good ole hard sales comps in the area. But nevertheless, those are my initial thoughts. Hope it helps.

Hi Nicholas. Welcome to BP. To determine a property’s valuation, you would want to get recent sales comps(comparables) near the property. The market determines value. If you find recent sales for homes near you with very similar features (year built, sqft, bed/bath, garage…ect), this will give you an idea of what a buyer is willing to pay for your property.

As for if a property will go up or down in value, this is also determined by the market. However, the only way to possibly know future value is to follow trends in a particular market. This will give you a clue. For instance, perhaps there was an announcement in the news that a new Walmart or Fortune 500 company coming to the area. When new businesses come to an area, there’s a tendency that more people will want to rent/purchase homes in that area creating an upward interest and in turn, an appreciated value for that market. Vice/Versa, perhaps in a market, there is an announcement that several schools would be closing or several jobs will be leaving the area. This may prompt an exodus from a particular area as well, thus creating a depreciated value in an area. Other than websites that offer some sort of property trends research, I’m not aware of other avenues. Hope this helps.

Hi Dennis,

I’ll start by answering your latter question first.In my opinion, it may be best to pay an attorney or title company (depending on your state laws) in order to get a report on any adverse actions that the property may have incurred. Many times they will have the resources to cover a thorough search. If concerned, you may also want to consider title insurance in case there are any errors/omissions.

As for your first question about finding comps, one way would be to contact a realtor and ask them to put together some sales comparable for your market. Since they have access to MLS, it shouldn't take them too long. Just give them your specifics. Other than that there is no super quick method of determining accurate comps (that I'm aware of) other than sitting down with the recent property sales and locating like-for-like properties that are close by. Perhaps using websites other than Zillow such as realtor.com, www.crsdata.com, or perhaps your local assessors / state page may have this info. Just my thoughts. Hope this helps.

Hi Clay,

Welcome to BP. My first thoughts are that we would need additional numbers to see if the deal works. What are the taxes, financing costs, ect. Are repairs needed on the other five? If purchasing as a whole, would the owner consider a discount? Can the rents be increased based on the market? Using the BiggerPockets Rental Calculator would help you as well. But assuming the following numbers, I think this would not be a profitable deal....UNLESS...you have a different exit strategy, perhaps such as the property appreciation over time. Either way hope this helps:

Purchase Price:$42,000.00

Purchase Closing Costs:$3,000.00

Estimated Repairs:$5,000.00

Total Project Cost:$50,000.00

After Repair Value:$50,000.00

Down Payment:$1,470.00

Loan Amount:$40,530.00

Loan Points:$0.00

Loan Fees:

Amortized Over:30 years

Loan Interest Rate:5.000%

Monthly P&I:$217.57

Total Cash NeededBy Borrower:$9,470.00

Monthly Income:$500.00

Monthly Expenses:$507.57 

Monthly Cashflow:-$7.57 

Pro Forma Cap Rate:5.04% 

 NOI:$2,520.00

Total Cash Needed:$9,470.00 

 Cash on Cash ROI:-0.96%

Purchase Cap Rate:6.00%

Hi Andrew. Welcome to BP.

I would have to agree with @Zachary C. with building rapport. This could go a long way when you let on to the owners about an interest in buying the property. If you build enough, they may even consider a reduced price or even perhaps owner financing which could solve your financing concerns.

Secondly, if it were me, I would analyze the property based on current and potential performance in conjunction with the market. Then you can make an informed offer that you can justify based on physical numbers. That would involve analyzing to obtain the following:

NOI(Net Operating income)

CAP Rate

Income and Expenses (This does NOT include debt cost)

Cashflow

CoC Return (Cash-on-Cash) return

In my opinion having these numbers goes a long way to determining valuation and being able to present an offer based on you return goals.

I’ll try to add on to this later…gotta make a run…but hope this helps.

Hi Steve,

Perhaps it would be helpful if more information about the acquisition could be posted for other B.P. members to analyze. Rental Comps would be helpful as well.

I’m not the foremost expert on these matters, but I do know that having a good property manager that does thorough background checks is imperative. Many times tenants like to skirt the administrative process and in the long run they become nightmare tenants. You want a company that will weed out these potential occupants and put in valuable tenants…even if you decide to make your property available to section 8 tenants.

IMO, the goal is to provide a clean, well maintained, property at comparable rents, in exchange for a long-term, established tenant(s) that respect the property and pay on time. Just thoughts, but perhaps run the numbers through the B.P. Calculators.

Hi Greg,

Please correct me if I'm wrong, but you said you have an attorney working on this matter? Is he/she a Real Estate Attorney?...or does he/she specialize in a non Real Estate capacity? I ask as this is definitely a matter for a qualified lawyer that specializes in Real Estate contracts and real property issues. He/She should be the one giving you all the legalities and your legal options. I know you're anxious to resolve this issue and I can definitely understand your concern. However getting appropriate legal advice seems to be the best course of action at this time...even if you have to get a second opinion from a different firm. Afterwards, perhaps your attorney can pursue legal action against the loan officer/firm to recoup any damages incurred. Just thoughts...and I hope this matter gets resolved in your favor. 

Ahh, I think I understand what you're getting at. You would like to learn more on estimating and how it affects home value. Well one book that's highly referenced here is J. Scotts book on Estimating Rehab Costs. Otherwise obtaining the assistance of an appraiser would be my only other thought.  

Hi @Christian Clark,

Welcome to BP. Is there any particular reason for wanting a book for determining ARV? I ask as generally the After Repair Value is determined by the recent sales comps(comparables) in a particular market. Homes with similar features such as square footage, bedrooms, baths, structural type...ect are sought to analyze to get the best idea on what a home will sell for. Even though you may not find an exact home, you want to get the closest home, in a similar/same neighborhood that has the most recent sales data. For more info...check out Brandon (Bigger Pockets guru...lol) video on the subject:

BP Video on ARV

Hope it helps.

HI @Rocky Jones. Welcome to BP. From my initial look at your numbers, I would have to agree with @Frank Eimiller that this doesn't appear to have great figures as a rental. However your long term goals may differ. What sticks out to me is the asking price (more specifically the price per unit) seems steep in relation to the gross rents. Also, those taxes are a killer as well, however this could be normal for your market. Have you ran the numbers as a Flip/Wholesale/BRRRR? Perhaps there's a long-term strategy that makes this profitable in the future. Lastly, you have $0.00 for repairs...if this is the case, perhaps run the numbers again with a lower Vacancy/CapEx/Repairs. Just thoughts. Good Luck.