Buying a $39,000 house all was and refinancing

3 Replies

Hi Guys,

I found a house in Memphis, TN that I'm planning to purchase from a wholesaler. It will be MY FIRST PURCHASE. I would need to buy all cash $39,000, remodel the property for about $20,000, the ARV would be about $80k. I would want to rent the property out, refinance the property, and pull out my cash as fast as possible so I can move on to another project. What would be some potential issues I run into?

Originally posted by @Brandon Peters :

Hi Guys,

I found a house in Memphis, TN that I'm planning to purchase from a wholesaler. It will be MY FIRST PURCHASE. I would need to buy all cash $39,000, remodel the property for about $20,000, the ARV would be about $80k. I would want to rent the property out, refinance the property, and pull out my cash as fast as possible so I can move on to another project. What would be some potential issues I run into?

So much can go wrong!  

Often without a loan, people are not diligent to really look at the property.  Is the title insurable, will you get title insurance?  Does the home have undeclared issues?  Will you get a full inspection?  Can you really fix it for $20k?  What about the materials and new HVAC being stolen as soon as they are brought on site?

Have you personally looked at the house and neighborhood?  Is it a safe upcoming neighborhood or one going downward?  Population in Memphis is declining will this be a desirable area for renters to live?

Is the ARV accurate or pie in the sky? Will you be able to get a loan for the refinance? Sometimes lenders are not too keen to lend on lower priced homes at all, and sometimes they will not consider a much higher value when it recently sold and was fixed. Have you talked with lenders to see if a refi is doable? And a few back up lenders?

Contractors are a dime a dozen, but good ones who will work unsupervised with good quality work are hard to find.  You could easily lose lots of money and time with a contractor.  Do you have a contractor lined up to do this work?  Have you talked with a few?

Is the offered price what dumps are selling for in that area?  Often when houses are in the ghetto and a dump, they go for virtually nothing--back taxes--.

Have you check with the County?  There is a program to buy these dumps for a very small amount through the County because they want to get the houses fixed and on the tax rolls.  I'm guessing you can get one much cheaper on that pathway.  Look up Shelby County Land Bank.  These are properties now owned by the County for back taxes that can NOT be redeemed.

Generally, the sub-100K market is harder to sell to, largely because most banks will not finance anything in that amount. This will work best if you are going to owner-finance this. Are you prepared to do that? That will get you the good cash-paying worker family that need this help the most, but you play bank. If your credit is strong, then you will have options to BRRR this with a lease-to-buy. Check the market area with a local agent. Memphis has a lot of pockets in recovery and many that are fully recovered and producing big numbers. Are you able to hold this if it doesn't sell immediately?

Good luck on the deal, it sounds good :-)