My first deal. In a bind!

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My first deal. In a bind!

Taylor Silker
Investor · Duluth, MN · Member since 2017 · 17 posts · 1 vote

I have recently finished construction on my first property at the age of 27. Last summer my sister and I came up with the idea of getting into possibly flipping a house. I live in colorado and she is a real estate agent in northern Minnesota. We decided I would come up with all the financing (7.5k) and she would GC the deal for her first time and basically do all the ground work and work on what she could. We then found a parcel of land which was for sale on the tax forfeit list for 17k. I put 2k down on the land and we found a modular house that has huge A-frame ceiling and a master loft so it doesn't look like a modular at all really. Anyways we put 5k down on the house and then went for financing. I received a construction loan for 309k which was an in house loan for this local bank that said they "stretched" the loan for us just in case. We didn't plan on spending all that money on construction with the budget we had planned but we all know how that goes. I maxed the budget but we are finally finished after 8 months of construction and having to finish the loft among other things. After all the hard work we put it on the market for a price that we know is a little high but obviously i would like to not loose money after closing costs and all that. We haven;'t had much luck on the mls so we figure we would do a little airbnb to help with holding cost. Heres the kicker. After only one week we are booked for 20 days in august and haven't had a vacant day yet since we've had it up. We will make at least 4k and our loan payment is about 1k on interest only as of now. 

Last time I spoke to the loan officer, she told me that we should sell the house cause she doesn't think i will able to switch to a conventional mortgage and keep the house. This has to do with my debt to income but my income has only got better since the start of the loan. Why the heck did she finance me for the construction loan if she knew I couldn't afford to switch to a conventional?! I spoke to another bank in the area and they said they couldn't finance me either. This house  is a potential 1.5% deal with good vacancy rates on airbnb. Is there any bank or investor out there that could finance me knowing this potential? 

As a young and devoted investor I would really appreciate some feedback and guidance on what i should do. I really want to keep this house!  Thank you all!

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Clayton Barnes
Bloomington, IN · Member since 2017 · 53 posts · 37 votes
9y
Originally posted by @Taylor Silker:

It's on the market for 348k. I need at least 330k to break even. Any suggestions on where I should price this?

I'm a newbie, but I think you're looking at this from the wrong perspective. It is unlikely that a potential buyer is interested in what you need to break even. They aren't evaluating you as the seller as much as they are evaluating the property against other available\recently sold properties. The price needs to be based on your local market. If those numbers don't work for you, then you'll have to determine your best option going forward.

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  • Taylor Silker
    OP
    Investor · Duluth, MN · Member since 2017 · 17 posts · 1 vote
    9y
    Ralph R. If I knew what I know now before I started, there is no way I would've put myself in this position. The good thing is that I went into this knowing I was going to learn a life lesson weather succeed or fail. If I prepare for the worst on this wouldn't that be like saying prepare for 100% vacancy? For August I'm at 68% as of right now. Anyone out there have a good idea what I can expect for vacancy? So far everyone loves the house and it's great for large groups. I'm thinking about getting a portable ice house for the winter time too! Hopefully that drives more people up for the winter. There is also a very nice ski hill nearby.
    0Reply
  • Taylor Silker
    OP
    Investor · Duluth, MN · Member since 2017 · 17 posts · 1 vote
    9y
    I'm at 68% occupancy sorry
    0Reply
  • Account Closed
    Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes
    9y

    @Taylor Silker Have you looked at any of the larger hard money lenders? Some of them have interest only loan products to bridge the gap between short term and traditional financing. Last one i looked at was Lima One Capital. The rates are pretty high, but if you're looking to keep it, its an option! Good luck

    Term Length: 2 years with 1 year extension option

    Property Types: Single-family detached residences, 2-4 unit residences, condominiums, and townhomes

    Single Property: Yes
    Portfolio: Yes
    Minimum Loan Amount: $50,000
    Maximum Loan Amount: $2,500,000
    Maximum LTV: 75%
    Minimum Credit Score: 660
    Debt-to-Income for Borrower: None
    Minimum Number of Properties: 1

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  • Taylor Silker
    OP
    Investor · Duluth, MN · Member since 2017 · 17 posts · 1 vote
    9y
    Lloyd Stanton what would my payments be for a hard money lender if I got the minimum 50k. What do the interest rates usually look like on those loans? I'm not very familiar with the hard money thing.
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  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y

    @Taylor Silker  the way I look at it there is no riding the fence. You are either successful or failing.  There is no middle ground. If you keep the house for the next year then loose it it's still a failure or the worst case scenario. If you keep the house 6 months and it becomes self supporting and hits your target as far as cash flow ( you set that goal not just accept what it decides to pay you) than its a win for as long as it's self supporting and cash flowing. The minute it ceases to be self supporting and making your goal it's a failure until you get it back on track.  The worst case scenario is that you loose the house for any reason at any time other than you sell it if your own free will. Bankruptcy or forced sale are loosers or worst case scenario no matter how far down the line they occur.  RR

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  • Account Closed
    Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes
    9y

    @Taylor Silker Loan is for 309k, if the appraised value is 348k you're at 88% LTV, no lender anywhere is going to give you a non-owner occupied loan against the house until you get it down below 75-80% LTV ($261k-$278k). At that LTV you're not going to get a 2nd position loan against the property either. Stick with your original plan, and sell it. Make a few $, and learn a whole lot of lessons.

    Kudos for taking a step back and looking at all other opportunities to profit from the property, but you need to gain the discipline to simply execute your original exit strategy. You're going to give yourself a lot of unnecessary stress if you continue to second guess your plan. I'd love to have all the $130k ARV hoarder houses that i've picked up for $20k-$30k.. but the plan was to get in, get paid, and get out..so i got in, got paid, and got out. Don't second guess yourself.

    Sidenote, never ever base your financing decisions off what it would rent for as an AirBnB.. lots of folks in my market getting burned real hard right now for doing just that, after the city put the kibosh on short term rentals.. if it doesn't make sense as a regular rental, don't do it. 

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  • Taylor Silker
    OP
    Investor · Duluth, MN · Member since 2017 · 17 posts · 1 vote
    9y
    Lloyd Stanton yes that would be horrible if I kept it and then the city disallowed Airbnb. The house is actually outside city limits so I'm pretty sure we would be safe but you never know. Sounds like the Airbnb is gonna be to be a pretty high risk situation with possible high reward. What do you guys think about for sale by owner. That could save me a ton in realtor fees and allow me to drop the price to something more sellable. They could look at it in between guests. I have plenty of family and friends in the area that could help out cause I don't think my sister can do anything after she's listed it as the realtor. She told me we don't have the agreement that binds her to the sale either. Can't remember what that's called.
    0Reply
  • Taylor Silker
    OP
    Investor · Duluth, MN · Member since 2017 · 17 posts · 1 vote
    9y
    Lloyd Stanton Could the bank switch this to a 30 year FHA where I'm only having to clear 3.5% equity instead of 20%? Does that make sense?
    0Reply
  • Allan Rosso
    Investor · . · Member since 2017 · 173 posts · 84 votes
    9y
    Taylor Silker , I believe the property has to be owned occupied in order to receive an FHA loan, so I'm not sure that route would work out for your particular situation.
    0Reply
  • Allan Rosso
    Investor · . · Member since 2017 · 173 posts · 84 votes
    9y
    Owner*
    0Reply
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