First Time Investor with questions
Hello All, I am a first time poster, but have scoured these forums and read a lot over the last year. I still have some questions. First off, I do own my own communications company currently, but am looking to expand into real estate as my side business/ 2nd business. I do have some capital to use, but still looking at some Hard Lending options/Rehab to Rent options.
#1 - I currently live in CT and looking to rehab in the state. I have 3 realtor connections in place that have been sending me listings on rehab SFH, MFH and Condos. Would you recommend getting a pre-approval letter from a Lender Before looking at any of these properties or is it ok to go in, write up an offer and put the purchase as OTHER - Hard Money then get approval?
#2 - I have several contractor connections within the state including electrical, plumbing, construction, masonry and roofing. Having owned 2 properties in the past and currently owning a SFH as well as a current business owner I can judge most rehab prices pretty well and can form budgets as well as project manage. When dealing with a HML do you always over-budget your rehab cost for unexpected issues or would you recommend keeping a pretty accurate rehab budget to the HML?
#3 - Since we are headed for or currently are in an economic/housing downturn would you recommend doing more of a rehab to sell or rehab to rent type of investment? Our rental market inventory here is very limited. I am figuring this would be a case-by-case basis, but just trying to get an overall opinion for a newbie and I have never been a landlord before.
Thank You in advance
1. I always recommend to my clients that they get preapproved first so you can act fast when a good deal pops up. I know it's not as crazy as it was a year ago, but good deals still go fast, at least in my area.
2. I have only used a hard money lender once, but I would say always try to keep it accurate and then add a cushion. If they ask for details just be clear on what each line item is, including the cushion.
3. I would say rehab to rent is better at this time, rents are still pretty hot because so many people are priced out of purchasing right now. You're right though, if a good enough deal pops up I'm sure you could make a rehab to sell work.
Message me if you have specific questions about being a landlord. My wife and I manage around 150 units.
1. Always best to have a pre-approval or relationship with a commercial/private lender prior to putting in an offer.
2. Including a contingency/allowance is always a good practice. Taking that a step further if its continually killing deals you may want to consider qualitatively if it makes sense.
3. I would recommend establishing a strategy that is not fully dependent on market timing. You could establish and implement both strategies in some form protecting you long term.
@William Philipp so every client has a unique risk tolerance and different income needs. The basics that I can tell you, is make sure it is a good deal. This is why many are into pre-foreclosures, when you can get a property 30-50% value you are going to win all day.
You have to evaluate:
Your current employment income vs bills and longevity / foreseen relevance. What is it's volatility?
Reserve $, rainy day fund
Your investment $
Cash flow vs. sale TVM and importance to you
Family goals
What other questions do you have?
Hey @William Philipp - I'm an investor and a realtor, happy to share some insights.
1. Yes, get a preapproval. It will help all parties take you more seriously.
2. I haven't ever directly worked a deal with a HML, but most private/hard money lenders are open to you accounting for 10-15% for project overrun costs. I know a few private lenders, and this is the feedback I've heard.
3. Depends on your market. Here in NYC and LI, although demand has dampened, so has inventory. Things are on the market for longer, but still being bought/sold.
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@William Philipp re: #3. I've done BRRR's in the past, but personally, I'm not currently pursuing any strategy that hinges on hitting an ARV because--as you mentioned--the market is changing fast, and will likely continue to change...I'm always surprised (and a little worried) by how often I see newbies on the forums talking about wanting to flip or BRRR in the current market.
As for rehabs, whenever I look for a rehab candidate, I'm not just looking to make aesthetic improvements. I'm also looking for a property that can be functionally improved (with as little effort and risk as possible).
For instance, I recently did a rehab on an 100+ year old house that had sat on the market because it was on a somewhat busy street, and it had a funky floorplan (but, because it was in a trendy, A neighborhood, I knew that the busy street wouldn't deter tenants...and I knew I could improve the floorplan).
The house originally had an unusually large entryway that was basically a waste of space. I added a bathroom in that space, and expanded a bedroom into part of it; creating a really nice master suite. Then, I built a mother in law apartment in the (very spacious) basement. Before I did that work, the property would have lost about $400/mo as a rental...today, it cashflows about $1k/mo, and the value is also significantly higher. It's rented to top-notch tenants; an MD resident, a doctoral student, and a physician's assistant--all of whom are the best tenants imaginable.
It all boils down to: take the house that nobody wants (but which is in the best neighborhood in town), and turn it into the house that everyone wants.
Of course, the downside of this approach is that there's a lot that can go wrong when changing the floorplan/functionality of a property...tearing down walls often isn't as simple as HGTV would have us believe. Understanding the routing of electric, ducts, plumbing, identifying load bearing walls, asbestos, LBP, etc. is all critical for finding a good rehab candidate.
Good luck out there!