Details of My Second Deal

On December 6, 2016, we closed on property #2. This time I say “we” because I am married. Property #1 was just me, though Tim was around to help with all the improvements. Good thing Tim is still around and committed, because we have so many improvements to make. I’ll continue to blog about the extensive rehab process.

FINDING THE PROPERTY:

I had this goal that I had to buy another single family home in 2016, so we closed just in time. While this purchase is our primary home, our only criteria was to have supplemental income like a mother-in-law apartment or detached studio. Not many of these exist in our preferred location or price range, heck, they just don’t exist. We put offers in on a couple houses that failed to pass our inspection / negotiations. When we looked at this Fidalgo house, we didn’t even consider an inspection because everything was bad and we knew everything was going to have to be replaced. I just plugged the numbers and we made an offer of $255,000 with $5,000 in closing costs. To our surprise, they accepted right away. The family was trying to flip the house but didn’t finish, so we needed to get a construction loan on the unfinished home. And our favorite part of the house, besides the great neighborhood, is the 540 sf studio at the back of the house (separated by a breezeway carport structure), and the oversized garage that will house Tim’s gym setup (we are CrossFit junkies).

LESSON LEARNED: Get an inspection. It’s worth the money because you can use it to educate yourself, and use it to negotiate the price. I’m reluctant about inspections, but it’s totally worth it!

THE FINANCING:

I would have gone with BECU (a local Washington credit union), but they don’t do construction financing. Then I went to Washington Federal and they had the perfect product for me. WaFed is a portfolio lender, meaning that all the money they loan is their, in-house funds. They don’t have to follow the strict Fannie / Freddie requirements as much. The construction loan is a one year period, with interest only payments, where I can draw money out upon completion of the work. Then the 30 year loan automatically starts when complete. It is one complete loan application, and we got a 3.75% interest rate for the total life of the 31 year loan.

THE LESSON: Shop around to find the best product for you. I didn’t shop much here, but every bank is different and it will be worth it.

THE BEST THINGS ABOUT MY FINANCING:

If you read about purchase #1, you know I hated working with my Chase Bank and the entire loan process. Here’s what was so great about my local Anacortes branch of Washington Federal. The loan officer and the branch manager was super friendly and easy to work with. We are good friends now, and having that relationship was a huge asset to the process and completing the transaction. The underwriter was a local guy at another branch, and I never had to speak with him. Unlike the Chase underwriter in Arizona who I had to speak with daily to get the property #1 loan processed. My loan officer did all the work herself and was organized. I know that nobody has control of the mysterious appraiser, by my appraiser was the best. He was called on a Thursday, I met him at the house on Tuesday (to share with him the vision for the completed project), and he had the report back to the bank on Wednesday. I know that is rare, but hallelujah for another smooth process. Also, the rates increased right after Trump was deemed winner and there was a misunderstanding if my rate had already been locked. Luckily, my loan officer was able to get me the lower rate. I think 3.75 is fantastic for a construction loan!

THE LESSON: Find someone you enjoy working with, because you will have to build trust and a solid relationship for this massive, important purchase to work smoothly.

THE CLOSING:

We arranged for 65 days to close (even though our special financing was ready in just 30), but on day 65, one of the sellers was away in Costa Rica and wasn’t able to sign. Last purchase, I was the cause of delay, so I didn’t make a big fuss that we closed a week late. He had to go into town and find a notary and send back the paperwork. That seller is actually our next door neighbor now, and is a great guy.

LESSON LEARNED: Things always arise. Even the morning of our signing, I thought we were good, but nope, there are always surprises along the way, so be ready.

THE REHAB:

The house is completely gutted and needs new everything. And I’m not joking. For my original estimate, I was trying to be conservative, but now that I’m 8 months pregnant, I am being more realistic and just want to get the subs in there to complete the work. We are the GCs of the project (I work for a commercial GC and have a degree in construction management, while my husband is a union carpenter), but we are still learning so much. I’ll write more about what we learn. And while I get stressed out about the details and some of the things that aren’t going perfectly, I am learning so much and I am actually so happy to finally have a project house to work with. So yeah, a foundation problem is maddening, but having a foundation problem just means I own a project house!

LESSON LEARNED: Just go for it, and make sure you have more than enough cash reserves for anything that comes up. Even owning a turnkey home will cost more than you want it to, so plan for maintenance and expenses accordingly.

OVERALL:

This was a great purchase process, and maybe it just gets easier the more you do. Stay tuned for more rehab stories and lessons, and how we decide to fix the foundation. You can always find progress pictures by looking up #fidalgofixer on social media.