Potential Multifamily deal - Rehab cost question

3 Replies

Hello all,

I've been in the market for a multifamily (duplex) property that I can house hack in my area (North NJ) and may have stumbled upon a potentially good deal. There is a house for sale at around $150K in a desirable area. It has 2 units - a 3 Bedroom and 2 Bedroom. With some minor cosmetic changes the 3 Bedroom unit could generate over $2K / month in rent possibly 2500. 

The problem is the first floor, which contains the 2 bedroom unit, is completely overrun with mold. Its coming from underneath the house, maybe pipes have burst I'm not completely sure. It would have to be completely gutted and replaced, probably costing in the $50K-$60K range just from a guesstimate from myself and my real estate agent. Even if the total cost after repairs for this property was $210K, I can see it being quite profitable. 

My problem - I don't have that kind of money to put into repairs at this time, is there a way to incorporate construction costs into the mortgage? I was planning to do an FHA loan to put down 3-5%, and I've heard of the 203k FHA loan but doesn't that only go up to $30K and is quite difficult to get?

I'm thinking this may be too much for me to take on with all the work it requires, but I wanted to see what options there were. Thanks!

PS - If anyone has had experiences with a bad mold problem and would like to share please do!

Hey @Zach Peart - sounds like a potentially great deal if you can make it work.  Unfortunately, most banks won't want to touch this with a 10 foot pole.  It is highly unlikely that you'll be able to get this done with only 3-5% of your own money in the deal.  A couple options that could work in this situation are a construction loan from a local commercial lender or a hard money loan.  Both will likely require 10-20+% down and you'll have to cover costs along the way and request draws as work is complete.

I have no direct experience with 203k FHA loans, but from researching them in detail 3-4 years ago there seemed to be a TON of hoops to jump through. That might be the only viable option for you to explore, but even there I think you'll need quite a bit more than 3-5% to be able to fund repairs as you go.

Thanks for the response and information @Michael Seeker . I was actually looking at more expensive properties originally, so for this case I may be able to swing 10-15% down. If that's the case I will look into the options that you mentioned.  What sort of costs along the way could I expect to run into? 

Zach,

I believe the FHA loan allows up to $35k for repair/improvement/upgrades. It's also very regulated, as is anything related to government.

Here's the link to the 203k Maximum Mortgage Worksheet:

http://portal.hud.gov/hudportal/documents/huddoc?i...

It will give you a better idea as to what is required and how to calculate it.  In this scenario, I think you're wasting your time looking at conventional financing.

Good luck!

Heather