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I have a general real estate example that I need help with...
Let's say I found a foreclosure selling for $65k (I actually did, so I've been using this as a case study) in a neighborhood (In Austin, TX) that was built in 2007. The rest of the houses in the entire neighborhood sell for $130k-$160k. I looked through the listing and here's the problems…
The previous tenant did not take care of the property and basically destroyed it. All of the damage is cosmetic however. It pretty much needs so new hardwood flooring, carpet, spackle and paint, lots of landscaping, and some other minor touch-ups.
Let's say I put $20k into the property. I'm assuming I can get this amount rolled into the mortgage, or a second mortgage, I don't know enough to know what it would be (I'd like to know how this would work). I put 20% down.
So that's:$65k + $20k = $85k20% = $17kClosing Costs = Around $3kInitial Cash Invested = $20k
If I made the sufficient repairs to bring the property back to it's original state, would that mean the value would be close to the $130k-$150k of the rest of the neighborhood? I mean, the property would pretty much be the equivalent of the properties surrounding it.
So assuming I get the house re-appraise and the property is worth $130k now, can I refinance at $130k and pull out the (sweat) equity, minus the original down payment?
New property value = $130kMinus original Loan amount = ($85k)Equals = $45k
Can I pull this $45k out? That's what this whole example comes down to. I want to be able to reinvest this into another property.
If anyone could help me out, that would be awesome!
Thanks!Josh Rhyne20 Year Old Entrepreneur
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Assume your investment property value is $130K after one year.The bank is willing let you refinance at 75% from the property value, amount of $97,500 ($130,000 x .75 = $97,500), you take that amount then deduct for $67,165 mortgage balance ($65,000 + $3,000 closing cost = $68,000 mortgage) and your $20,000 principal investment, you get $10,335 left (profit).$97,500 - ($67,165 + $20,000) = $10,335.
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