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Anil Samuel
  • Investor
  • Baltimore, MD
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2nd FL Rental Property - LESSONS LEARNED

Anil Samuel
  • Investor
  • Baltimore, MD
Posted Jul 20 2014, 14:29

Background:

So I just got a tenant in my 2nd rental property.  I closed on May 23rd, 2013.  Tenant moved in on July 19th, 2014.  There were some things I had to take care of: change front and rear door locks, replace mailbox, paint entire interior, pressure wash and paint exterior, install new hot water heater, replace flooring in utility room, professional cleaning for all rooms, carpet cleaning in MBR.  Overall it cost me $2500 to get this property rent ready.

This property was a foreclosure which I had to bid on via Ocwen Loan Servicing/AltiSource who was selling this for the bank.  Originally the auction price was around $52k which ended up going to $79k (Hindsight 20/20 the original bid price is the most I should of paid but my emotions got the best of me).  There was a buyer's premium of $3555.00 (4.5% PP) and a $299 technology fee as well.  Originally Wells Fargo added the buyer's premium into the loan until the settlement company found this at the last second and removed it from the loan amount.  I got at least 3-5 cash to close amounts from the bank and settlement company on how much I would need for closing. Of course they always say we can never correctly estimate how much I will need for closing so the GFE and HUD-1 are usually slightly different.

I had to put an EMD of $3,950 (5% of purchase price) (required by Deutsche Bank) and then come to settlement with $19,886.61. I knew I had to come up with 20% down, I just never knew how quickly all the others costs would add up.

Since I did not want to pay insurance and taxes monthly I had to escrow 1 year of home insurance at settlement which changed significantly from my GFE amount.

Lessons Learned:  

Never use a big bank like WellsFargo - I thought since my primary residence's mortgage was from WellsFargo that would give me an "in" for the next time around.  I spoke with a supervisor there and he said each time I get a mortgage from them will be like the first time I have ever applied, something about new rules or something like that.  the WF team was very unorganized and everyone was scattered all over the U.S.  I first talked to a loan specialist, then the loan officer, and finally the loan underwriter.  The funny thing was I had to push out the settlement date because Wells Fargo was taking too long to process my loan, even after I gave the loan "officer" all my paperwork twice since the underwriter need to proofread everything.  The loan "specialist" also said the down payment was 25% then changed it to 20% so I was pleased, but this still caused some confusion.

Even when you think the property is move in ready there will be extra costs that come up which you will have to fix.

Never underestimate how much money you will have to bring to closing.  BEWARE when buying an auction property there are extraneous fees you may now be aware of like the buyer's premium and technology fee.

Next time I will negotiate everything. I will put down less for my EMD if possible, I will choose my own title and settlement companies and I will use a small bank where all professionals are in the same building.

Underestimate how much you will rent the house for and overestimate how long it will take to get a good tenant. I thought I was going to rent the house quickly for $1200 but instead it took me about a month after I fixed up everything to rent it for $1000.  This doesn't come near the 2% rule but I will try to improve this next time.  I will look to raise rents in a year hopefully to $1100.  

I am looking into investing in Baltimore City to see if I can betters rental that more closely align with the 2% rule.

Let me know your thoughts on this deal!

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