Yesterday, I got a call from one of the first people for whom I ever brokered a deal.
He is in the process of refinancing the mortgage on the small apartment building I helped him buy. He was calling to see if I had any tips for his upcoming appraisal.
As I always do before an appraisal, I pulled the comps to see where the value was likely to come out (and maybe provide the appraiser with some PARTICULARLY relevant comparable transactions).
Before I tell you where value came out, let me set the stage. He bought his ~3,000 sq ft building in Echo Park for ~$730k. He put down ~$36k (was an FHA loan) and spent maybe $75k on renovations.
The comps are showing a valuation range of $400 / sq ft. That implies a value of around $1.2MM. (Though, of course, who knows where an appraiser will come in!?)
So, ignoring transaction costs and not accounting for loan amortization since the transaction (because I’m being lazy), his $111k investment is now worth ~$506k.
How did this happen? Pretty simple, really: Lots of leverage and spectacular timing.