All Forum Posts by: Jaysen Medhurst

The one point that I think is missing from this discussion is Return on Equity (ROE). Considering just appreciation for a moment, you will always have better ROE with more leverage (and 30-yr is more leverage than a 15-yr note). The less equity you have in a property, the better the return.

If you have a property worth $100k and see 3% appreciation, you've "made" $3k no matter how much equity you have, so:

Free and clear ($100k equity)  = 3% ROE

Owe $50k  ($50k equity) = 6% ROE

Owe $80k ($20k equity) = 15% ROE

Hi Brad,

No, there isn't a quicker way. Since leases don't have to be filed with the town/county/state (like a deed or mortgage does) there's no data base to search. You just have to be on the look out for ads that say "can deliver vacant" or "tenants on month-to-month.

Other than that, keep finding properties, running the numbers, and get the details from the agents.  

Two more ideas to consider:

1. Look at rental ads, check out the property, and if it looks interesting, call and see if the owner would consider selling. Off-market deals are usually the most promising and you know there's a unit vacant.
2. Can you push the closing of the property you already identified to Jan/Feb 2018? It's only 6 months away.

Good luck!

Jaysen

Hi Christian,

'86 the multiple lease junk. Makes sense when you live there, but not now. I would try to rent it out to a single tenant (e.g. a family) and avoid the hassle.

If you can get them to do autopay into your bank account on 1st of the month, that's far and away the best. Anyone with a checking account should be able to set that up.

Yeah, been hearing that my whole life.

I think it's short-sighted to classify a property without considering everything that's around it. You can put a million-dollar property in a "D" neighborhood. No matter how nice the house, it's never an "A" or going to get that kind of rent.

Hi Megan,

Most lenders want a personal guarantee, regardless of LLC. That means you are personally on the hook for the mortgage, even if the LLC technically owns the property. After several years of track record that may change--depends on the lender and other conditions.

What are the other numbers on the property? ARV? Expected cash-flow, etc.? If it will be worth $200k after reno, you can refinance and pull most/all of your money out.

Lastly, an LLC isn't insurance and insurance isn't a LLC. If this is your 1st property, don't get hung up on the LLC. If you don't have any other assets, what are you trying to protect?

Hi Angelica,

Since you know B'more well and the numbers work out better, keep that as your primary investment location. Play to your strengths.

Would love to see some numbers on the $99k condo. Will it rent for $1000/month or more? What are the condo dues. You have to do a full financial analysis. Also, keep in mind that many condo associations don't allow owners to sublet their units. Those that do often only for 1-2 years.

The other danger with condos is an unexpected assessment, which can wipe out a year or more of cash flow. 

Love that you're starting early. Just make sure you do all of your due diligence and triple check all of the numbers.

Hi Dan,

If you haven't done a project before, you will have a tough time getting a HM lender to finance your deal. They want to see a track record. Even if it's only one successful project.

Also, need to think through the BRRRR strategy financing with a HM. Typically, they want their money back in 6-12 months. Most banks won't refinance at market price until the property has been stabilized for a year. See the problem? These timeframes differ, but obviously you need your ducks in a row before setting off.

Take some time and talk to all the local/regional banks and credit unions in the area. They usually have more leeway on the kinds of financing they provide.

Hi Jason,

It's really as much a subjective art as anything else. Here's how I think about it:

A class: White collar/upper-upper middle class, higher-end finishes, very safe neighborhoods, good schools. Cash flow might not be great, but good appreciation and solid tenants. Lots of families, young professionals.

B class: Working class/middle class; nice, not fancy finishes. Properties are clean and neat. Everyone from the successful plumber to the young, professional couples just starting out live here. Safe neighborhoods, maybe location isn't as good as A. Good balance of cash flow/appreciation.

C class: Bit more transient, properties are not very well kept. Perhaps some cars on blocks or couches on the front porch. Really good cash flow, cheap properties, little to no appreciation. Tenants will turn over more, higher chance of evictions. Much more work in property/tenant management.

D class: war zone. not for the faint of heart.

Internal Rate of Return (IRR). Do a quick search on BP for specifics.

A negative ROI is not normal. That's not even an investment, so I suspect something is missing from your calculations.