All Forum Posts by: Richard Davis

I have an opportunity to buy some investment properties (studio condos) at well below the price for which they will appraise. I may be able to get a sales price of $80k on a condo that will appraise for $120k.

This would give me $40k ($120k - $80k) of 'instant equity.' That's 33% of the appraised value ($120k), which puts me above the 70% LTV mark the bank requires for refinancing an investment property. So I could buy the property in question with a 20% down payment on a conventional loan, and then wait 7 months and turn around and refinance the property with the very same bank at 70% LTV.

The thing is, though, the bank knows all this at the time of closing. They know that, on closing, I will already have 33% instant equity in the property. So will the bank let me, somehow, in effect, do both steps at once: close on the deal and 'refinance' (effectively) with the bank at 70% LTV? This would save me 7 months of waiting, and I'd get have to pay closing costs a single time instead of paying closing costs once and then paying refinancing costs as well 7 months later.

Another way to ask the same question: If the difference between the appraised price and the sales price ensures that, sans down payment, I will already have 30%+ of equity at the time of closing, will the bank somehow run the transaction, on the basis of this equity, without requiring a down payment from me at all?

Seems like it ought to work. But not sure it will. Thanks in advance!

Thank you, John. You're right - I just want to gamble well. ;)

@John Morgan

That's encouraging! Your post sparked me to do some simple research: I checked Zillow and Apartments.com for any 4 bedroom rental listings in my area. I found a grand total of 4 comps. The good news: the cheapest rents for $3250 (well over the $3k median for 3/2's from Rentometer), with the next cheapest at $4k. The bad news: All the comps are nicer than what I'd be offering. They have much more square footage than mine, and they each have a larger living room than mine would be left with after walling in the fourth bedroom. Still, it leaves me confident of getting at least $2500 for mine, which keeps me slightly above water level on cash flow. So it seems like this might be worth trying. If I get the $3250 + utilities, I'm doing great; if only $2500 (all-in), I'm not drowning.

@John Morgan A $100 month is enough to matter on my scale. With that said, it wouldn’t be worth it to me if I had to spend $1500 refurbishing the garage. Have you found that having an extra bedroom makes it harder to find tenants who want to rent out the whole place?

@Mason Hickman That makes sense. Supposing I get the average rent per room this way, I could either just multiply by 4 to estimate rent for the 4/2 condo, or I could subtract some on the assumption that the average student bedroom rents for more than each of mine will. (Mine are large and have good views, but most bedrooms have access to a living room - mine won’t - and enjoy a higher ratio of bathrooms to bedrooms. So I’m assuming each of mine will rent for less.) Any thought as to how to approach that calculation?

@John Delano The 2nd bathroom will remain accessible to everyone. However, with or without the new room, the master bath is accessible only to the master bedroom. So unless I carve through some closet space to draw a new narrow hallway to the master bath, we’d have three bedrooms on one bathroom and one bedroom (the master) on the remaining.

Thanks, Jon. Those are helpful tips to help me start digging.

@Mason Hickman

Definitely students and young professionals. Family rentals are very rare in this neighborhood.

I'm familiar with how to estimate rent for an entire unit (assuming it's 3 bedrooms or less), but what would you suggest for getting average rent per bed? I suppose I could divide the rent for a 3 bedroom unit by 3, and then assume a little less. Do you know a better approach?

I recently read this article about the median rental prices of studios and bedrooms across different cities in the United States. Notice the large chart that gives median data for each type of rental by city? That kind of information is useful. Does anyone have an idea where that data comes from? Where I could find more of it? I'd like to be able to get similar numbers for means instead of medians, or for 2- and 3-bedrooms.

Thanks for considering!

I own a 3/2 condo unit in Midtown Atlanta. Currently it has two small bedrooms that share a bath, as well as a largish master bedroom with a bath of its own. The unit also has a massive combined living room/kitchen space that is accessible to everybody.

If I were to build a single new interior wall and install a door in it, then - poof - most of that spacious living room would instantly become a fourth bedroom, and quite a large one at that. It would have broad windows, an excellent view, and a big private 12th floor balcony.

Doing this would greatly reduce the common space. Still, there would actually still be enough footage left for a common area nook with a couch, book shelf, and side table - maybe even a TV that swings down from the ceiling. Now, though, the kitchen and remaining common area would have NO windows instead of its former great view. And now no one else could get to the balcony, except by going through the new bedroom. Lastly, this puts 3 bedrooms instead of 2 sharing a single bath. (However, I could fix that last bit by turning some closet space into a narrow hallway that would make the master bath accessible to everyone.)

What I'm mainly wondering is the following: Would this change be likely to increase my rental income from the unit? And can you suggest any ballpark figure on how much? For context, my HOA requires me to rent out the unit as a whole for at least 12 months at a time, so no renting room to room, and Rentometer tells me the median rent for a 3/1.5+ condo in my area is $3000. Also worth considering is that it's on the same block as MARTA (Atlanta's subway/rail system) and just 2 blocks and one interstate bridge from GA Tech. It's an overwhelmingly 'young professionals and college kids' area of town (like 99.7% according to neighborhood scout; kids? what are those?).

So my main question is whether I can increase rent (and by how much) by turning this 3/2 into a 4/2 by cannabalizing the living room, deck, and kitchen view into a new large bedroom. I'd also love to hear any general thoughts on whether this is a good idea, or things to keep in mind while going about it.

Thanks for considering!