Author Topic: Cash Out Refi for Higher Appraisal Value - Rental Property  (Read 1346 times)

icebox92

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Cash Out Refi for Higher Appraisal Value - Rental Property
« on: December 16, 2020, 05:35:13 PM »
Background on real estate goals: Our portfolio is all liquid investments.  We have reached FI, but for various reasons haven't pulled the plug (I will do so in a few months, my husband in Spring of 2023).  To diversify our portfolio we wanted to accumulate rental properties to provide cash flow in retirement (I also enjoy real estate).  So back in August we bought a package of off market rentals with cash, and are currently doing cash out refi's on them in order to continue to purchase rentals.  One of the homes has appraised for substantially more than purchased.  I was originally planning / expecting to simply refi at 75% of the purchase cost.  We now have the opportunity to cash out at the higher appraised value.  This would obviously affect cash flow.  The home would still cash flow, albeit barely (we also are carrying conservative expenses- approx 60% of rent before PI).  So let's call it break even... However, the additional cash from the higher appraisal value would represent approx 2 down payments on future rental homes.   What would you all do?

1) Cash out on the original purchase price and leave equity in the home.  Cash flow meets expectations.
2) Cash out on a value in between purchase price and appraisal value.  Cash flows comfortably but does not meet expectations. Additional cash out equal to one additional rental down payment / closing costs.
3) Cash out on appraisal value.  Cash flow "neutral" (basically break even). Does not meet cash flow expectations.  Additional cash out equals two additional rental down payments / closing costs
« Last Edit: December 16, 2020, 05:37:35 PM by icebox92 »

Archipelago

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #1 on: December 17, 2020, 06:28:04 AM »
What are the numbers on that appreciated rental? There's a 4th option worth exploring which is to sell it. Have to consider all angles, IMO.

waltworks

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #2 on: December 17, 2020, 07:05:40 AM »
What are your goals here? Having a bunch of rentals that don't cash flow is fine if you have a specific plan to sell them and a ton of equity. Otherwise, you're just setting up a boatload of risk for nothing.

You're already FI, too. And you *already* bought some rentals, ostensibly to diversify your income stream. If that was really the goal here, I'd pay them *down* and improve cashflow, not lever up more. Levering up is what you do when you are trying to *get to* FI and are willing to add risk.

So your question, given your situation, is weird/nonsensical. Providing more background info/case study might help.

-W

PMJL34

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #3 on: December 17, 2020, 10:50:54 AM »
Agreed with Walt.

This question is completely backwards.

Are you FI without these rentals or is the rents/equity needed to be FI?

What were the purchase prices of the homes and what are the rents? How many rentals are we talking about? How many rentals are you trying to buy in total?

Why are you refinancing it? Assuming they are good rentals (i doubt it), keep it paid off.

Given the information you have provided. My suggestion is to not refinance and not buy any more rentals and most likely sell them if they have appreciated.


icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #4 on: December 17, 2020, 12:13:52 PM »
What are the numbers on that appreciated rental? There's a 4th option worth exploring which is to sell it. Have to consider all angles, IMO.

@Archipelago, I don't think we want to sell, but you're right we should consider all angles. 

I think the numbers your asking about are just the purchase price / appraisal value?  If you are asking for the rental evaluation numbers, I can add that to the post too...  Home bought for $53K cash, Appraisal $116,000. 

icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #5 on: December 17, 2020, 12:30:27 PM »
What are your goals here? Having a bunch of rentals that don't cash flow is fine if you have a specific plan to sell them and a ton of equity. Otherwise, you're just setting up a boatload of risk for nothing.

You're already FI, too. And you *already* bought some rentals, ostensibly to diversify your income stream. If that was really the goal here, I'd pay them *down* and improve cashflow, not lever up more. Levering up is what you do when you are trying to *get to* FI and are willing to add risk.

So your question, given your situation, is weird/nonsensical. Providing more background info/case study might help.

-W

@waltworks Thanks for the input... Goal is definitely not to have a bunch of rentals that don't cash flow and hold them for the potential appreciation / equity.  This home appraised much higher than I was anticipating and we found ourselves in a unique (at least to us?) position that we could "buy" (aka refi) a home that while it may not cash flow, it wouldn't loss money, and it would provide money to expand our portfolio with two additional cash flowing properties.  I thought this would be worth considering.  We would never purchase a home originally that didn't cash flow, but this option seemed different than buy a non cash flowing home from the start. 

Yes we are FI without the rentals, we found ourselves in a position of having a little more than we needed thus we decided to set aside a certain amount to invest in rentals.  Instead of setting up a bond tent, or an equity glide path, etc., we want to utilize the rental cash flow to "smooth out" the ride of having our retirement fully invested in the market (and because I enjoy real estate).  My idea was essentially create a baseline cash flow from rentals that would support our lean fire amount, while allowing our liquid investments to mature / cover additional expenses while growing substantially.  I basically thought if we could safely create "two retirements" without adding additional time to our journey or a substantial amount of risk, why not?  Best case, we end up with too much money. Worst case we could loose one of the income streams in their entirety and still be just fine. 

I also feel comfortable with the leverage because we have the liquid funds as well.  If all rentals went to hell simultaneously, we can carry them for a good amount of time, we would be willing to cut our losses and sell, and worst case scenario (which I really don't see as a high possibility) we could allow the homes to be foreclosed on, again because we have the other retirement stream. We want to only put so much of our liquid investments into rentals, but to meet our lean fire rental cash flow goal, we need additional rentals, thus the desire to utilize leverage. 

icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #6 on: December 17, 2020, 12:45:13 PM »
Agreed with Walt.

This question is completely backwards.

Are you FI without these rentals or is the rents/equity needed to be FI?

What were the purchase prices of the homes and what are the rents? How many rentals are we talking about? How many rentals are you trying to buy in total?

Why are you refinancing it? Assuming they are good rentals (i doubt it), keep it paid off.

Given the information you have provided. My suggestion is to not refinance and not buy any more rentals and most likely sell them if they have appreciated.

@PMJL34 Hopefully my explanation to Walt helped clarify our goals a little bit. 

Yes we are FI without these rentals.  For various reasons we haven't RE just yet, and have additional money to invest... we could continue to put our money into the market, or into rentals.  We decided to diversify into rentals. 

We are purchasing in a LCOL area... homes we have bought range from $47K to $82K.  Lowest rent is $800, highest rent is $1,300.  We have purchased 8 in total, and are planning to purchase 8 additional.

We are refinancing because that was always the plan.  This home was part of an off market deal that was cash only.  We only want to contribute a certain amount of our cash to this effort.  So we wanted to do a cash out refi in order to continue to purchase properties.  Not sure why you doubt if they are good rentals or not... probably because people often come on here after buying a "cash flow" rental that leaves $100 on the table after PITI.  That's not what we have done, and while I'm sure many people wouldn't have the same rental strategy as we do, each rental meets our goals.  So I think they are "good rentals".  That being said, I'm always open to learning / constructive criticism, so I'd be happy to post case study numbers.  I didn't do so originally because I didn't think they were pertinent to this specific question... 

waltworks

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #7 on: December 17, 2020, 12:47:08 PM »
Your strategy still doesn't make sense. You have tons of liquid investments? Just use a bit of that to buy more cashflowing rentals. At the prices you're paying for rentals, assuming even a pretty low FI net worth, those places are rounding errors. Or sell the place that doubled in value and buy some more rentals.

There is no reason to have the rental if it doesn't cash flow and you aren't making a future appreciation play. You're proposing spending a bunch of time and effort cash out refinancing the place into something you no longer want to own. If you no longer want to own it, sell it.

-W

icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #8 on: December 17, 2020, 01:00:43 PM »
Your strategy still doesn't make sense. You have tons of liquid investments? Just use a bit of that to buy more cashflowing rentals. At the prices you're paying for rentals, assuming even a pretty low FI net worth, those places are rounding errors. Or sell the place that doubled in value and buy some more rentals.

There is no reason to have the rental if it doesn't cash flow and you aren't making a future appreciation play. You're proposing spending a bunch of time and effort cash out refinancing the place into something you no longer want to own. If you no longer want to own it, sell it.

-W

We don't want to use more of our liquid investments to buy more rentals.  We committed a certain amount to go towards buying rentals.  If we don't utilize additional cash to purchase homes, we need to utilize leverage to purchase enough homes to meet the goal of another lean fire cash flow stream. 

Thank you for that second point...  it helped me put it in perspective.  Like I said, we would never purchase this house at the appraised value (or one that doesn't cash flow), but I thought it might be worth considering because it gives us the ability to purchase some additional properties above our goal, or with less of our initial committed cash from our liquid investments. We were / are already moving down the path of doing the cash out refinance on the property, I was just anticipating only getting money out based on the purchase price.  So the effort is still there regardless...  I wanted to see if we should entertain the cash out on the higher value (or somewhere in between). 

waltworks

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #9 on: December 17, 2020, 01:05:06 PM »
You should just sell the appreciated rental. Period.

-W

icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #10 on: December 17, 2020, 01:25:01 PM »
You should just sell the appreciated rental. Period.

-W

Can you expand?  I absolutely understand not refi'ing at the higher appraisal value, but why should we not continue to refi at the purchase price? It cash flows to our expectations and fits well as part of our overall original strategy. 

Are you suggesting selling to take advantage of the inflated real estate market?  After the next down turn even with a buy and hold approach, we may not see an opportunity to sell for as much as we do now? 


waltworks

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #11 on: December 17, 2020, 01:33:09 PM »
If you wouldn't buy it now as a rental, you should sell it and buy some places you do want to buy. Sounds like you have a long list of them ready to go, so do it. You got super lucky with 100+% appreciation in a short time, take the money and run out and get rentals that make sense.

-W

Archipelago

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #12 on: December 17, 2020, 01:58:00 PM »
If you wouldn't buy it now as a rental, you should sell it and buy some places you do want to buy. Sounds like you have a long list of them ready to go, so do it. You got super lucky with 100+% appreciation in a short time, take the money and run out and get rentals that make sense.

-W

This was my initial hunch, but I was being cautious without seeing concrete figures. A cash out refinance on the appreciated rental is going to cost you money. My vote would be to sell it (preferably off market, without realtors involved). Save yourself some money and get into another property with better numbers.

icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #13 on: December 17, 2020, 02:26:23 PM »
@waltworks  & @Archipelago so is this something that buy & hold investors see often (or at least occasionally?).  Appreciation (quick or slow) creates a situation that rents don't keep up with the appreciated value of the home.  So while the numbers may work on an original purchase price point, the appraised value doesn't justify the rent?  Even if the rental still cash flows well because of the lower original purchase price?

The numbers absolutely make sense / work at the original purchase price.  I think we honestly got a good deal on the purchase and then saw some of the appreciation factor from the insane market.   

I'm surprised by the appraisal value, and wonder if we could actually get that for it. 

waltworks

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #14 on: December 17, 2020, 02:44:54 PM »
Yes, certainly. I sold all my rentals a few years ago and dumped the money in the stock market. In hindsight Covid meant I would have made out like a bandit by holding on, c'est la vie. I'm a Rothschild fan.

Look, the idea is to make money. If you buy a cash-flowing rental, there are 2 outcomes you're after:
1: Appreciation negligible/tracks inflation but investment spins out income.
2: Tons of appreciation, sell investment and buy other investments.

It's helpful sometimes to imagine an extreme/ridiculous example:
-I buy a place for $10,000 (my entire life savings) that rents for $1000 a month. Let's say overhead is just $2000 a year to make math easy. So I clear a sweet $10,000 a year on my investment. 100% cash on cash baby!
-Other investments (stocks, bonds) will let me draw 4% in perpetuity as per Trinity Study (or I can buy 4 $250k houses that each cash flow $1000 a month, which is easily doable even now with no mortgage).
-The place appreciates to be worth $1,000,000.

Now I have a choice - I can hold onto the property and collect my $10k forever. Or I can sell it (pretend there are no fees/taxes, I'm lazy and this is intended to be ridiculous anyway) and invest that million bucks in those other investments and be getting $40k a year.

Maybe I don't need the cash flow and I expect more appreciation so I roll the dice. Maybe I want to FIRE and need $40k a year and the million in equity isn't helping me. As far as I can tell, you're more the latter?

BTW, 8 rentals without mortages, averaging around $1000/mo gross, is a cool $50k a year or so. That's not enough for lean FIRE already?

-W

PMJL34

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #15 on: December 17, 2020, 04:27:21 PM »
Icebox,

Thanks for providing more information. But this is why it's best to do a case study off bat because I just have way more questions. For starters,

1.When did you purchase the eight 40-80K homes that you have? Recently or a long time ago?
2. Are you claiming that you can buy 8 more 40-80k homes that rent for 800-1300/month today?

If the answer is yes to number 2, then yes, refi the highly appreciated home and leverage that into 2 more properties that produce amazing cashflow. You could repeat this a few more times and cashflow 100k.

PS I assumed they were bad rentals because you said you purchased them in August of 2020 which is just 4 months ago. Clearly, I was wrong considering your amazing cashflows.

Edit: I would refi OP over selling because the cost of selling is more $$ and more taxes and just overall more work and time. A simple cash out refi should be no more than 3-4k and much simpler and quicker than selling.

I must be jealous, but I just don't see how you are purchasing properties that appreciate 100% in 4 months unless you are putting significant money/remodeling into it. Not to mention the great purchase/rent ratio.
« Last Edit: December 17, 2020, 04:40:49 PM by PMJL34 »

icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #16 on: December 17, 2020, 05:15:31 PM »
Yes, certainly. I sold all my rentals a few years ago and dumped the money in the stock market. In hindsight Covid meant I would have made out like a bandit by holding on, c'est la vie. I'm a Rothschild fan.

Look, the idea is to make money. If you buy a cash-flowing rental, there are 2 outcomes you're after:
1: Appreciation negligible/tracks inflation but investment spins out income.
2: Tons of appreciation, sell investment and buy other investments.

It's helpful sometimes to imagine an extreme/ridiculous example:
-I buy a place for $10,000 (my entire life savings) that rents for $1000 a month. Let's say overhead is just $2000 a year to make math easy. So I clear a sweet $10,000 a year on my investment. 100% cash on cash baby!
-Other investments (stocks, bonds) will let me draw 4% in perpetuity as per Trinity Study (or I can buy 4 $250k houses that each cash flow $1000 a month, which is easily doable even now with no mortgage).
-The place appreciates to be worth $1,000,000.

Now I have a choice - I can hold onto the property and collect my $10k forever. Or I can sell it (pretend there are no fees/taxes, I'm lazy and this is intended to be ridiculous anyway) and invest that million bucks in those other investments and be getting $40k a year.

Maybe I don't need the cash flow and I expect more appreciation so I roll the dice. Maybe I want to FIRE and need $40k a year and the million in equity isn't helping me. As far as I can tell, you're more the latter?

BTW, 8 rentals without mortages, averaging around $1000/mo gross, is a cool $50k a year or so. That's not enough for lean FIRE already?

-W

Yes, putting it in those extreme examples helps.  Although I now feel stupid and apologize for wasting your time with some of my questions.  HAHA...  Sometimes you can't see whats right in front of you I guess. 

Yes, we are in the later group.  Thus we should sell. Got it.

Our expenses are a little higher than 50% (closer to 60%).  Only 6 were bought with cash in the package deal, the other two were financed.  So were closer currently to the $35K/year.

icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #17 on: December 17, 2020, 06:17:54 PM »
Icebox,

Thanks for providing more information. But this is why it's best to do a case study off bat because I just have way more questions. For starters,

1.When did you purchase the eight 40-80K homes that you have? Recently or a long time ago?
2. Are you claiming that you can buy 8 more 40-80k homes that rent for 800-1300/month today?

If the answer is yes to number 2, then yes, refi the highly appreciated home and leverage that into 2 more properties that produce amazing cashflow. You could repeat this a few more times and cashflow 100k.

PS I assumed they were bad rentals because you said you purchased them in August of 2020 which is just 4 months ago. Clearly, I was wrong considering your amazing cashflows.

Edit: I would refi OP over selling because the cost of selling is more $$ and more taxes and just overall more work and time. A simple cash out refi should be no more than 3-4k and much simpler and quicker than selling.

I must be jealous, but I just don't see how you are purchasing properties that appreciate 100% in 4 months unless you are putting significant money/remodeling into it. Not to mention the great purchase/rent ratio.

1) You are correct, we purchased the first 6 in cash 4 months ago in August 2020. 
2) Yes...  to a degree.  We don't necessarily have them "lined up", but we have continued to look for and find opportunities.  I'm going to continue to do so until we can't find anymore / we reach our goal. 

The home this post relates to was part of an off market deal, cash only, we had to buy all 6.  All 6 made sense money wise, and ranged from $47-$65K.  Total cost was $320,000 for an average purchase price of $53,300.  We have put absolutely no money into any of these rentals other than routine maintenance.  All the homes were currently tenant occupied and we have retained all the tenants.  We bought the 7th in November, paid $65K, rehab $7K, rent $1,200 (anticipated, it goes on the market next week). We just closed on the 8th house, $82K, rehab $2.5K, rent $1350 (anticipated... I think this is on the higher end, but $1,250-$1,300 is entirely reasonable). 

Not sure about "'amazing cash flows" as the expenses are closer to 60%, but they definitely meet our goals and have good ROI's.

PMJL34

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #18 on: December 17, 2020, 07:51:41 PM »
Wow, those are great numbers/rentals. Pat yourself on the back, you're doing great.

lol is there something you aren't telling us? Are they in f- neighborhoods or family deals or is there 10k annual property tax? I'm only half joking.

On a side note, someone please explain why or how a 65k house can rent for 1200 in 2020?

That's the price of a fancy car/truck. I understand living pay check to pay check and having shitty credit. But I can't help but to think that even those people can afford a 3.5% down payment (2k). Their P&I is less than $350. Even with 200/month tax and 100 insurance that's half of their monthly rent.

On the flip side, if these folks are so broke, how can the rents be as high as $1200?

Just doesn't make any sense to me.

PMJL34

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #19 on: December 17, 2020, 08:19:38 PM »
Also, OP would you mind telling us more about your 6 home purchase?

I guess my primary questions are:

1) was it one owner/LLC that owned all 6 who sold to you?
2) why would they sell it if ALL 6 were VERY cashflow positive?
3) was there competition to purchase these 6 homes?

Thanks!

PMJL34

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #20 on: December 17, 2020, 09:47:12 PM »
I am talking way too much, but I just took a long hot shower and I was thinking...

1. Someone sells a pack of 6 (homes, cars, toys, whatever) because they need to. Not because they want to. If all 6 homes were great, they would sell them individually. Instead, most likely, there's 1 or 2 homes they know that no one would want, but they need to unload it. So instead, they throw in 1 or 2 great homes and the remainder are "meh" homes. This happens in sports trades, this happens in pack of pokemon cards, and in everywhere else. All that to say, how is ALL 6 of your homes great deals? That doesn't make logical sense to me. There had to be some stinkers, even if it was just one.

2. If someone has 6 homes to sell, they have to have a baseline knowledge about real estate. They aren't just newbs you can easily take advantage of. Furthermore, you say all 6 homes are income producing, so the baseline knowledge of this seller is at minimum decent if they can amass 6 cash flowing properties. Now, there are a number of reasons why people need to sell off their investments so I know it happens. However, why would this seller not get a decent return, even if it's a fire sale? He or she must have known the true value of the 6 properties and wouldn't just sell it for cheap.

3. If there was this deal where ALL 6 homes were great, why wouldn't someone else pay more than your price for it?

My apologies for ranting. I am probably wayyyy off on my assumptions. Just had to write my thoughts down. 

waltworks

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #21 on: December 17, 2020, 10:11:59 PM »
I have seen people score amazing deals (always off market) recently via:
-Family connection of one kind or another (ie, family friend sells property for way under market as essentially a gift)
-Direct mail (ie, find some senile/desperate person to take advantage of by sending out 50,000 yellow flyers)

I am not saying either of those is the case here, but the OP's deal(s) certainly are not something normal in the current market and there's probably some kind of interesting story involved.

-W

Archipelago

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #22 on: December 18, 2020, 06:36:12 AM »
@icebox92 have you looked into portfolio lending? There could be a lender willing to finance a group of properties in the same locale. I'd imagine the LTV requirements are higher but consolidating them could help keep overall costs down. When I spoke with my commercial lender yesterday he mentioned his bank is requiring 65% LTV at the moment.

icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #23 on: December 18, 2020, 12:35:46 PM »
Thanks @PMJL34 @waltworks & @Archipelago for the feedback / questions, I appreciate it.  Hopefully I answered everything below, and my multiple quotes work (I've never done that before)

Wow, those are great numbers/rentals. Pat yourself on the back, you're doing great.

lol is there something you aren't telling us? Are they in f- neighborhoods or family deals or is there 10k annual property tax? I'm only half joking.

On a side note, someone please explain why or how a 65k house can rent for 1200 in 2020?

That's the price of a fancy car/truck. I understand living pay check to pay check and having shitty credit. But I can't help but to think that even those people can afford a 3.5% down payment (2k). Their P&I is less than $350. Even with 200/month tax and 100 insurance that's half of their monthly rent.

On the flip side, if these folks are so broke, how can the rents be as high as $1200?

Just doesn't make any sense to me.

Ha... I don't think there's anything I'm hiding.  They are definitely class C properties.  No family deals.  Property taxes are high for the property value (IMO), but not extreme.  The house this post is about has taxes = $1,600. 

CONCUR on the oddity of the individuals being able to afford rent of $1200, but not the PITI of a $65K home.  It continues to amaze me.  I find it a little heart breaking honestly.  Also for what its worth, this home is not renting for $1,200 (the $65K one we closed on in November is).  Its renting currently for $900, which is grossly under market value ($1,300 -1,400).  The tenant has been there for 7 years and takes care of the place. So I'm OK with that riding for a little while longer.  We have notified them that rent will be increased, but I don't think we will bring it up to market value.  We will probably bring it up to around $1,050.

Also, OP would you mind telling us more about your 6 home purchase?

I guess my primary questions are:

1) was it one owner/LLC that owned all 6 who sold to you?
2) why would they sell it if ALL 6 were VERY cashflow positive?
3) was there competition to purchase these 6 homes?

Thanks!

1) Yes, one owner
2) Not sure... he wanted out of the game.  He bought these homes at the bottom of the market, so he definitely made quite a bit of money from the appreciation.
3) No, no competition.  He wanted $340K, we countered and ended up at $320K in the end. 

I am talking way too much, but I just took a long hot shower and I was thinking...

1. Someone sells a pack of 6 (homes, cars, toys, whatever) because they need to. Not because they want to. If all 6 homes were great, they would sell them individually. Instead, most likely, there's 1 or 2 homes they know that no one would want, but they need to unload it. So instead, they throw in 1 or 2 great homes and the remainder are "meh" homes. This happens in sports trades, this happens in pack of pokemon cards, and in everywhere else. All that to say, how is ALL 6 of your homes great deals? That doesn't make logical sense to me. There had to be some stinkers, even if it was just one.

2. If someone has 6 homes to sell, they have to have a baseline knowledge about real estate. They aren't just newbs you can easily take advantage of. Furthermore, you say all 6 homes are income producing, so the baseline knowledge of this seller is at minimum decent if they can amass 6 cash flowing properties. Now, there are a number of reasons why people need to sell off their investments so I know it happens. However, why would this seller not get a decent return, even if it's a fire sale? He or she must have known the true value of the 6 properties and wouldn't just sell it for cheap.

3. If there was this deal where ALL 6 homes were great, why wouldn't someone else pay more than your price for it?

My apologies for ranting. I am probably wayyyy off on my assumptions. Just had to write my thoughts down. 

Don't apologize, I welcome the nitpicking...  I don't want to miss anything either.

1) You are 100% correct about this.  While all 6 do cash flow, I wouldn't say all 6 are GREAT.  This original post home is definitely the nicest of the 6 pack (although not the nicest of our portfolio... the two recently purchased are the best we have picked up so far).  All the homes are fine and cash flow well, but some need a little more work, are in a little less desirable area, etc.  I'd say we got 1 great home, 3 Solidly good homes, and 2 meh.  The two meh are still rented out with long term tenants at $800 & $850, but will need some updates sooner rather than later.  I think over all the package was still a good purchase.  We are getting appraisals on all the homes, so I am more than happy to come back and update this thread with those values once I receive them. 

2) Agree...  All I know is what was told to me: He knew he could get a higher sale if he listed them, but he didn't want the hassle.  He also wasn't going to go back and forth on price (after out initial counter), or do any repairs.  The inspections were all acceptable, but it was clear that this was an As-Is deal.  I think he just wanted to cash in wheil the market was hot and he wanted to do it as easily as possible.

3) I think they would... if the homes were listed on the market. 

I have seen people score amazing deals (always off market) recently via:
-Family connection of one kind or another (ie, family friend sells property for way under market as essentially a gift)
-Direct mail (ie, find some senile/desperate person to take advantage of by sending out 50,000 yellow flyers)

I am not saying either of those is the case here, but the OP's deal(s) certainly are not something normal in the current market and there's probably some kind of interesting story involved.

-W

None of the homes we have bought have been under these conditions.  No family connection or direct mail efforts.  Just the initial 6 pack off market cash deal, followed by two on market financed purchases.  Honestly, our first MLS purchase is our best one yet.  Its the $65K purchase, $7K rehab, $1,200 rent deal we closed on in November that I mentioned above which I think has been our best pick up.  Once it get rented (goes on the market next week... worst week EVER), I'll update the thread with final rent amount.   

@icebox92 have you looked into portfolio lending? There could be a lender willing to finance a group of properties in the same locale. I'd imagine the LTV requirements are higher but consolidating them could help keep overall costs down. When I spoke with my commercial lender yesterday he mentioned his bank is requiring 65% LTV at the moment.

We considered this, but honestly we needed to act quickly on the 6 pack, and I haven't slowed down to look further into portfolio lending.  I need to though.  Its on my list while I have some more time over the holidays.

PMJL34

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #24 on: December 18, 2020, 04:41:04 PM »
Icebox,

Thanks for the clarifications.

The last question I have then is: How did you find this seller who sold you the 6 homes? It wasn't MLS or family then who? I guess the better question is how did the seller find you?

"CONCUR on the oddity of the individuals being able to afford rent of $1200, but not the PITI of a $65K home.  It continues to amaze me.  I find it a little heart breaking honestly."

It's honestly fascinating. I would love others to school me on this phenomenon.

PS your homes didn't double in value (appreciate) in 4 months. You bought significantly below market value. end of story :)
« Last Edit: December 18, 2020, 06:44:32 PM by PMJL34 »

icebox92

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #25 on: December 19, 2020, 12:30:35 PM »
Icebox,

Thanks for the clarifications.

The last question I have then is: How did you find this seller who sold you the 6 homes? It wasn't MLS or family then who? I guess the better question is how did the seller find you?

"CONCUR on the oddity of the individuals being able to afford rent of $1200, but not the PITI of a $65K home.  It continues to amaze me.  I find it a little heart breaking honestly."

It's honestly fascinating. I would love others to school me on this phenomenon.

PS your homes didn't double in value (appreciate) in 4 months. You bought significantly below market value. end of story :)

Our realtor brought us the deal. Shes been in the area / business for quite a while and is pretty well connected.

Agreed on the appreciation vs buying below market. Im sure we saw a little bit from appreciation due to some of the insanity in the market, but the significant portion was due to the purchase price.

PMJL34

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #26 on: December 19, 2020, 09:56:17 PM »
Well keep that realtor around! I think you scored amazing deal/s.

I'm still not sure I would want to deal with 16 lcol rentals in FIRE, but if they are cashcows like yours, I guess I might :)

Best of luck!

waltworks

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #27 on: December 19, 2020, 10:15:25 PM »
Yeah, you stumbled into one of the best deals I've heard of in years. Stick with that realtor!

-W

Dicey

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #28 on: December 22, 2020, 09:18:22 AM »
I would consider hanging on to them all, if only to avoid short term cap gains. Also, your newly launched plan has a strong chance of working out splendidly, why torpedo it?

theoverlook

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #29 on: December 22, 2020, 12:22:54 PM »

"CONCUR on the oddity of the individuals being able to afford rent of $1200, but not the PITI of a $65K home.  It continues to amaze me.  I find it a little heart breaking honestly."

It's honestly fascinating. I would love others to school me on this phenomenon.

A lot of people just find home ownership (and specifically the home purchase process) hopelessly overwhelming. A friend of mine was a lifelong renter but had a good job and was responsible. I offered to sell him my old house when I was in the process of buying a new one and he just laughed. Then looked into it and it turned out he could totally afford it. He's living there still and loving it.

There are also a ton of people for whom the mortgage is impossible to get. Credit problems, bad money habits, unsteady employment history (but still enough income to scrape rent together each month). The cycle is a very hard one to break, and being poor is really expensive.

PMJL34

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Re: Cash Out Refi for Higher Appraisal Value - Rental Property
« Reply #30 on: December 22, 2020, 01:58:08 PM »
"There are also a ton of people for whom the mortgage is impossible to get. Credit problems, bad money habits, unsteady employment history (but still enough income to scrape rent together each month). The cycle is a very hard one to break, and being poor is really expensive."

I agree. I'm certain there is a large population of people above. But even with credit problems, money habits, unsteady employment history they can qualify for a car loan or a 65k home loan. And if not, as in their money problems are so bad that they don't qualify for 65k home loan, how in the world can they be decent/good renters or even afford $1200/month plus inflation forever? I would assume people with that big of money issues couldn't afford $1200/month consistently.

I know things don't always make sense, but this really doesn't add up to me.