All Forum Posts by: Robert Leonard

On my personal residence (a property I plan to rent out eventually), I have a conventional 30-year fixed mortgage with Wells Fargo. I purchased the property back in April 2018 and only had to put 5% down. Due to some recent sales in our neighborhood, the comps have increased the value of my property and given me the 20% equity (80% LTV) needed to remove PMI. However, when I spoke with Wells Fargo an hour ago, I was told that in order to remove PMI, the value of the property must be increased due to "significant improvements made to the property", not through natural price appreciation.

Has anyone come across this before? What are your thoughts?

I was told that Wells Fargo isn't able to tell me what's considered "significant". It is up to the appraiser or broker (if I chose to do a Brokers Price Opinion). I've put in a new hot water heater (about $2k) and put about $10k into fencing/major landscaping (bringing in equipment, etc). I'd consider this in total to be significant, but the idea of "significant" being determined by a third party seems a bit "gray"...

Robert Leonard

Thanks, @Timothy Wolfgram!

@Megan Kline given where I believe we are in the cycle, I shoot for a minimum of $250-$300 per door, for properties I manage myself. However, the CoCROI must also be strong, above 20%.

Robert Leonard

@Dan McCauley On paper, based on your information, looks like a good deal. My only comment would be that your vacancy is a bit low for my liking - I generally aim for 8-10%, but other than that, looks interesting!

Good luck!

Robert Leonard

@Logan Graham One of the biggest issues you'll run into is with financing. Renters likely won't care if it's a manufactured home or a traditional home if they're in equal condition and location, but lenders do. This is important for you on the front-end, but also important when you go to sell the property. It will be more difficult to sell if/when you decide to.

Robert Leonard

@Michael Parks It seems like an interesting deal, not great, but not bad. CoCROI of 12.5% and about $150/unit in monthly cash flow is acceptable. At this point in the cycle I am looking for more out of both of these figures, providing a larger margin of safety, but the levels of this deal are acceptable.

Your vacancy is a bit low for me, I generally estimate 8-10%, and would likely be more towards 10% given your description of the area. Your management fee of just 5% also seems low. In my experience it's been closer to 9-11%. I'd revisit these figures.

Robert Leonard

@Jamel Scott At first glance, your monthly holding costs seem far too low. I'd definitely revisit that.

Robert Leonard

@Bevin Morgan monthly rental income of $1,500 seems a bit high for a property worth only about $80k, especially when you're living there. If this is after you leave the property, it might be an interesting deal, however.

Robert Leonard

@Jonathan Cope A $725 monthly HOA??

But, that aside, no, it isn't a very intriguing deal based on the numbers you provided. That being said, it depends what makes up your monthly expenses. What does this consist of? Could you be overestimating something and therefore lowering your expected cash flow? Could you be underestimating something and therefore overstating your expected cash flow? It's truly tough to say without knowing what makes up the "initial monthly expense".

Robert Leonard

@Tamara Rodenbeck The biggest time you wouldn't want to use the BRRRR strategy is when you're not 110% confident in the ARV and/or when the ARV appears to be too low for you to get out a satisfactory amount of your initial capital.

Second, to that, you will want to avoid a BRRRR property when the numbers make sense at the beginning, but not at the end. Often times investors run the numbers at the beginning of a BRRRR deal and forget that in order to achieve their estimate rents their mortgage expense is going to increase on the back half when you refinanced for a higher amount.

Robert Leonard