10/10/24 – Inheritance of property and ROI I have been running into several clients who are inheriting properties, and they are wondering if Real Estate is still a good investment. It used to be a great deal to keep every property as the property taxes were low and interest rates were lower than today, but investing in real estate is still a sound idea! My client is inheriting a property worth about $900,000 in the San Fernando Valley that needs about $100K in updates. Below is our conversation. It was nice speaking with you earlier about financing and investing. Per our conversation, below are some options for you to review. Refinance – inherited property – 30-year Fixed Rate – $900,000 value Rental Income $4200 – $4500 $100,000.00 Loan Amount – Principal and Interest $615.72 + Property Taxes $938.00 + Insurance $250.00 = $1803.72 $150,000.00 Loan Amount – Principal and Interest $923.58 + Property Taxes $938.00 + Insurance $250.00 = $2111.58 $350,000.00 Loan Amount – Principal and Interest $2155.01 + Property Taxes $938.00 + Insurance $250.00 = $3343.01 $450,000.00 Loan Amount – Principal and Interest $2770.73 + Property Taxes $938.00 + Insurance $250.00 = $3958.73 The loan amounts of $100,000 – $150,000 assume you will do the repairs and rent this property as an investment property. Or do the repairs and then sell and buy two investment properties. The loan amounts to $350,000 – $450,000 assume that you will do the repairs and rent this property as an investment property, plus take some money out to buy another rental property. Purchase Investment Property – Keeping property above – $3500 – $3700 Rent $700,000 Price – $250,000 down payment – Principal and Interest $2844.31 + Property Taxes $729.00 + Insurance $200.00 = $3773.31 $700,000 Price – $300,000 down payment – Principal and Interest $2528.27 + Property Taxes $729.00 + Insurance $200.00 = $3457.27 $725,000 Price – $250,000 down payment – Principal and Interest $3002.32 + Property Taxes $755.00 + Insurance $200.00 = $3957.52 $725,000 Price – $300,000 down payment – Principal and Interest $2686.29 + Property Taxes $755.00 + Insurance $200.00 = $3641.29 Sell property above – Purchase two Investment Properties – $3500 – $3700 Rent $700,000 Price – $400,000 down payment – Principal and Interest $1896.20 + Property Taxes $729.00 + Insurance $200.00 = $2825.20 $700,000 Price – $350,000 down payment – Principal and Interest $2212.24 + Property Taxes $729.00 + Insurance $200.00 = $3141.24 $725,000 Price – $400,000 down payment – Principal and Interest $2054.22 + Property Taxes $755.00 + Insurance $200.00 = $3009.22 $725,000 Price – $350,000 down payment – Principal and Interest $2370.26 + Property Taxes $755.00 + Insurance $200.00 = $3325.26 Analysis – Assuming 4% annual appreciation – $100-150K loan amount – keep one property – Appreciation $36,000 annually. Net rental income = $20-25K annually. Principal reduction = +/-$1400 year 1. $60K income / $750-800K Equity = about 7.75% Return on Investment (ROI) Pulling $350-450K fixing up and buying one more investment property. Appreciation: $64,000 annually. Net rental income = $10,000-15,000 annually. Principal reduction = +/-$9500 year 1. $83-88K income – $750-800K Equity = about 10.5-11% Return on Investment (ROI) Sell your inherited property and buy two $700-725K investment properties after fixing up your inherited property. Appreciation: $57,000 annually. Net rental income = $10,000-15,000 annually. Principal reduction = +/-$7500 year 1. $75-80K income – $750-800K Equity = about 10% Return on Investment (ROI) Remember that rents will rise over time, and if you have two investment properties, you may be able to depreciate the properties, but please check with your accountant on that. My property manager charges about 5% of the rent, but I never have to go and see a property, deal with a lease, or any other issues. We anticipate interest rates going down in 2025. It is very hard to time the market, but when rates go down, you can expect the following payment: When rates drop by 1%, and you refinance, your monthly payment will drop to approximately $500 When rates drop by 2%, and you refinance, your monthly payment will drop to roughly $960 When rates drop by 3% and you refinance, your monthly payment will drop to roughly $1370 The above is based on $800,000 in Loan Amounts, but will be huge to the bottom line. $500 in savings adds .75% to your ROI. $1000 increases your ROI by 1.5%. Rental income in 5 years with a 3% annual increase will go from about $8000 per month to $9292. That’s an additional $15,000 annually or a 2% increase to your ROI! In 10 years, the rent income will be $10,794 monthly, which increases the profit by about $30,000 annually and will increase your ROI by about 3.75%. How do you talk about these things to your clients? How does your lender speak with your clients about investment properties? I see 1-2 clients like this monthly, and getting them to understand how profitable investment properties can be takes work. I will review this with my client again today and see what path he decides to take. I am available all weekend if you need anything. Let me know if you have any questions or if someone is interested in buying a property. My cell is 661-714-6258, and my office line is 661-260-2970 ext. 2222. My direct line is 661-291-2222. When you text me, please text (661-714-6258) or email me at Mike@AugustaFinancial.com. But wait, there’s more! Interest rates are still having a rough month so far! Let’s turn this thing around, people! Inflation came in hot today and was saved by the jobless claims for unemployment. 12-day escrows if your buyer is pre-approved - Conventional / FHA / Jumbo / Bridge We do loans in all states, so call me with anything you need. Government Loans (FHA / VA/ USDA) are in the high 4’s to low 5’s Conventional Loans up to $766,550.00 are in the high 5’s to low 6’s High Balance Loans $766,550.01 – $ 1,149,825.00 are in the low to mid 6’s Jumbo loans above $1,149,625 are in the mid to high 6’s Bank statement loans - They are available with 10% down again, and larger down payments are in the 5’s. Profit and Loss Statement loans – 20% down – You don’t need bank statements, just a profit and loss statement! No income qualifier – 40% down with r serves In the 8’s! 0 down loans are in the high 6’s – 620 credit score min right now, up to $1,191,000.00. Private Money lenders - Hard Money Loans – 35% down! No Ratio Loans 30% down DSCR – Debt Service Coverage loans with as little as 15% down Bridge Loans - typically 7.99% with limited fees – and they get you where you need to go! 3/2/1 Buydowns 2/1 Buydowns and 1/0 Buydowns are available at great start rates! Interest rates are subject to change without notice. The above are LA County Loan Limits. Good news on Condos – I will move this section to my website when we figure it out! LOL! It’s just getting too long. All changes will still be posted here! Bad news – Condo Update? – Straight from Fannies list – 57 Projects Condo / Townhome – issues we know of now Properties can be financed with 10% down and are considered NON-WARRANTABLE: Acacia Village Homeowners Association – 147 W Acacia Ave, Glendale, CA 91204 – This project needs critical repairs and may have material deficiencies and significant deferred maintenance. Aldea Community Association – 11318 Paseo El Sol, Porter Ranch, CA 91326 – This project’s HOA or co-op corporation (or project sponsor or developer) is a named party to pending litigation that relates to the safety, structural soundness, habitability, or functional use of the project. American Beauty Condos - The brown ones - Insurance: 50 Million in coverage for 748 units is not nearly enough! American Beauty Gardens: 19% delinquency on special assessments due 19% are 60 days or more late We can do with 5% down, but others can’t! American Beauty Village West: On Fannie’s List Per Fannie, this project needs critical repairs and may have material deficiencies and significantly deferred main entrance condition. his project’s master insurance policy deductible exceeds the allowable limit. Bella Ventana -A $50,000 deductible per unit is naughty. Bouquet Canyon Village – A $50K deductible per unit is naughty! Briarcliff North Townhomes –7435 Shadyglade Ave #2, North Hollywood. This project’s master insurance policy deductible exceeds the allowable limit. Briarcrest – 12720 Burbank Blvd Valley Village – Insurance and repairs Bridgewater, Emeryville - On Fannie’s List! Insufficient Insurance Brookside Walk – Insufficient Insurance Cabrini Villas, Burbank - On Fannie’s List! Insufficient Insurance Calla and Rowan – 27513 Illumination – Fannie Mae Approval expired – New Construction. See Blog on 5/7/2024 Cameo Woods HOA - Per the litigation disclosure, the association is being sued by a homeowner for water heater damage and discrimination, and the damage is still ongoing. e received confirmation that the HOA’s insurance agency is not covering the lawsuit, and the claim was denied due to the nature of the complaint. Canyon Village – Reserves and 10% of the dues not going to reserves! Canyon Oaks – Insurance On Fannie’s List! Casa Marabella – 13951 Sherman Way, Van Nuys -On Fannie’s List! Cassia and Jasmine – 26949 Winding Trail Court – Fannie Mae Approval expired. See Blog on 5/7/2024 Cimmaron Oaks – Castaic – Insurance is too low! Cornerstone – Insurance -On Fannie’s List! Creekside – Insufficient Insurance District Community Association – Northridge – Fannie Denied – Insufficient Insurance Encino Oaks – 5460 White Oak Ave – On Fannie’s List! The Greens At Cascades Hoa 16431 W Nicklaus Dr, Sylmar CA 91342 -This project’s master insurance policy coverage does not meet the requirements. Heather Ridge – Deductible too high, not enough insurance – Fannie Naughty List! Heathercliff Manor Hoa – 15946 Vanowen Street, Van Nuys, CA 91406 – This project needs critical repairs and may have material deficiencies and significant deferred maintenance. Independence Hall – 8801 Independence Ave, Canoga Park, CA 91304 – This project needs critical repairs and may have material deficiencies and significant deferred maintenance. This project has unfunded repairs costing more than $10,000 per unit that should be undertaken within the next 12 months (does not include repairs made by the unit owner or repairs funded through a special assessment). Liberty Canyon HOA – 27409 Country Glen Road, Agoura Hills, CA- On Fannie’s List! Lindley Park Plaza 5500 Lindley Ave Unit 111, Encino, CA 91316 – This project needs critical repairs and may have material deficiencies and significant deferred maintenance. The units in this project are subject to a current or planned special assessment intended to cover the cost of critical repairs, and all necessary repairs have not been fully completed. Madison at Towne Center – Litigation – We can do with 5% down, but others can’t! Magnolia Manor – 12416 Magnolia – Lots of issues from Insurance to repairs. Mariposa: On Fannies List. Per Fannie Mae – This project’s master insurance policy coverage does not meet the requirements. Market Street Community – Corona – No Wildfire coverage Mesa Vista North Townhomes – San Juan Capistrano – 50K deductible per unit is naughty! Oak Park Calabasas – 4752 Park Granada, Calabasas, CA 91302- This project’s master insurance policy deductible exceeds the allowable limit. Orchid at Valencia – 27033 Open Sky Place – Fannie Mae Approval expired See Blog on 5/7/2024 Penn Court Homeowners Association, Inc. – 4201 Pennsylvania Ave, La Crescenta, CA 91214 This project’s HOA or co-op corporation (or project sponsor or developer) is a named party to pending litigation related to the project’s safety, structural soundness, habitability, or functional use. Princessa Estates – insufficient reserves Royal Vista Court – 10290 Tujunga Cyn Blvd – This project’s HOA receives >10% of its budgeted income from the active ownership and operation of non-incidental amenities or services made available to unit owners and the general public. Sand Hill Condominiums Homeowners Association – 8221 Langdon Ave Van Nuys – This project’s master insurance policy coverage does not meet the requirements in the Selling Guide. Scenic Hills – Insurance – On Fannie’s list! This project’s master insurance policy coverage does not meet the requirements in Selling Gu de Sec. B7-3-03, Master Property Insurance Requirements for Project Developments. Shadow Ridge – Oak Park – Insurance -On Fannie’s List! Sherman Way Condos – 17900 Sherman Way Reseda – The number of units in this project owned by one or more single entities exceeds the maximum allowed. Tara Village Homeowners Association – 18350 Hatteras St, Tarzana, CA 91356 – This project’s master insurance policy coverage does not meet the requirements. The District Community Association – 19533 Cardigan Dr, Northridge – On Fannie’s List! Tolucan Villas – 10740 Moorpark St, North Hollywood, CA 91602 – The number of units in this project owned by one or more single entities exceeds the maximum allowed. Treana - Stevenson Ranch: On Fannie’s List Per Fannie, this project needs critical repairs and may have material deficiencies and significant deferred maintenance. Tyler Villas – Sylmar – Coverage is good but non-warrantable for delinquencies Valle Di Oro is on Fannie’s List! Per Fannie Mae, this project contains timeshare, fractional, segmented, or split ownership units or other arrangements (such as mandatory rental pooling, shared interest apartments, or community apartments) restricting the unit owner’s ability to occupy the unit. Villa Valencia Homeowners Association – 6226 Nite Avenue, Woodland Hills, CA 91367 – This project’s HOA or co-op corporation (or project sponsor or developer) is a named party to pending litigation that does not meet the “minor matter” definition. Village Park Condo – It’s over the max deductible with that 50k per unit. Vista Del Canon – Insurance is too low, UGH! Walnut Gardens II – 7320 Lennox Ave Van Nuys CA – On Fannie’s List! Warner Center Condos – 5515 Canoga Ave, Woodland Hills, CA –This project’s master insurance policy coverage does not meet the requirements. Warner West Condominium Association, Inc. – 22100 Burbank Blvd, Woodland Hills CA 91367 This project’s master insurance policy does not comply with Selling Guide. West Creek Condos and Townhomes: On Fannie’s List Per Fannie, this project’s master insurance policy coverage does not meet the requirements in the Selling Guide! Hoyt Village LLC – 26 units, and 14 are owned by one entity! –13801 Hoyt St, Pacoima CA 91331- The number of units in this project owned by one or more single entities exceeds the maximum allowed under the Selling Guide. More than 15% of the units in this project are 60 days or more past due on their HOA fees/common expense assessments. The number of units in this project owned by one or more single entities exceeds the maximum allowed. Please let me know if you hear anything new on condos or townhouses. I am still available all weekend if you need anything. Let me know if you have any questions or if someone is interested in buying a property. My cell is 661-714-6258, and my office line is 661-260-2970 ext. 2222. y direct line is 661-291-2222 When you text me, please text (661-714-6258) or email me at Mike@AugustaFinancial.com. Have a great day and an even better tomorrow. Please call me when you have a client who needs to borrow! Mike Meena President | Loan Officer Click to Call or Text: (661) 714-6258 This entry has 0 replies Comments are closed.
