All Forum Posts by: Wes Brand

@Alison Kovac If it would assess at 225k you should be able to cash out refi it after 6 months and pull at least 157k(being conservative and leaving 30%/67k in the property; you can probably do 20 or 25%) back out -- using the same 30% down on the smaller townhome means you pull out 97k(leaving 41k in the property) so your actual out of pocket cost difference between the two is only ~25k. Mortgage payment on the more expensive property would be ~740/mo, on the cheaper one ~460+75, or ~535, though that doesn't matter as much -- where it comes into play is "what are the financials of the HOA like?" If the HOA has a million in reserves, you probably don't need to worry much about rates going up or special assessments. If they have $10 in reserves there's probably a special assessment or rate hike coming up.

Second, and far more importantly: What is the market for condos and SFH like in Cedar City? Which is more in demand? Which will appreciate more? (or will one depreciate?) Which one is in the better part of town? Which will be easier to rent? Keep your exit in mind even if you don't plan to sell -- if the appraisal is higher you can cash out refi as much $ as the rents will support.

If that first one is interesting to you (915k in San Ramon) you can look in the SF market itself as well...you'll be down near the Glen Park and Balboa Park BART stations, but there are fix and flips in that area in the 700k-1mil range.

 You're missing the point -- You're a fool to make an offer on it because of the cap rate. The cap rate gets you interested, you make the offer based on other factors. Let's say the cap rate on a property was 25%, with market being 10%. Sounds great, right? But cap rate doesn't take deferred maintenance or capex into account...let's say our 25% cap rate property needs a new foundation...and our current tenants are moving out in a year and are paying significantly over market rent. And in the 10 years since they moved in, central air became standard in office buildings so you won't be able to re-rent it unless you add in central air. Oh, and it's getting to the end of it's useful 30 year commercial building lifetime, so you might need to teardown and rebuild soon.

All the sudden you have a ton of extra expenses and some real risk about what ROI you'll end up getting on your property, despite the cap rate. If you made an offer based on the cap rate you're paying significantly under market, but if you take everything else into account it could be a terrible investment.

@Sam Leon this is the reason subleasing was created. Unsure of the laws where you are, but I'd say you don't terminate her tenancy...allow her to sublease to a qualified renter.

@Account Closed you might be interested in the adjusted rent prices chart for SF in the above link

What do you plan to do with the property / why do you need him gone?

@Calvin Kwan You can evict tenants from an illegal unit because it's an illegal unit in San Francisco. I'd suspect Oakland is the same. While it does mean you'd have to remove the kitchen/bathroom/whatever unpermitted work was done, and wouldn't be able to rent it as a separate unit, it also means that you can legally kick out all people renting illegal units without having to owner-occupy. No idea what that does to future rentability, however. Check with a lawyer, but I believe if you do that immediately on taking posession you won't be liable for rent paid on an illegal unit.

Yes. That's not a cap rate. The divisor for a cap rate is the property's value to the market, not how much you paid for it. It may or may not (hopefully not) be his actual ROI.

This is wrong. 

He is not receiving an 11% cap rate. He's receiving cashflow equal to 11% of his purchase price; his ROI could be considerably higher or lower than that depending on rehab / cost of value adds / depreciation of the property / etc. His cap rate remains at market, 7%.

This is the wrong way to look at it. It will not be an 11 cap or higher. You will have increased the value by increasing the NOI, not changed the cap rate. If the market cap is 7, your property is still 7, it's just worth more money now.

For example, if you have a property that you bought 100k and has a NOI of 10k, and you increase that NOI to 20k you have NOT increased the cap rate on the property -- that makes no sense, since cap rates are a property of the open market. You *have* increased the value of your property to 200k by doubling the NOI. The cap rate is still 10% even though you double the NOI.