Scared: I bought three distressed houses with no money for rehab.

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Scared: I bought three distressed houses with no money for rehab.

Vickiel Woodard
Investor · England, AR · Member since 2015 · 53 posts · 20 votes

Hello BP! 

I've been grinding for the last several months, with two jobs, family crisis and a caregiver for my sister. My plate has been overloaded But, I love real estate and make time for it somehow every week. While trying to get my finances together and pay down my personal debt, some deals came through that I could not pass up and my low offer was accepted! Two tax lien deals and an abandoned property. All three properties will rent in my area for $600+ and cost me about $30000 which I paid with credit cards and some of my cash. The debt I just paid down made room for the investment but now I have high debt ratio again. City code enforcement had already started gunning  for these properties and now all I can afford to do cut the grass and clean up the exterior. I applied at a local bank but high debt ratio  and low value of the property hurt the deal. I'll keep looking in my network for the money, but does anyone else have any insight? 

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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y

@Vickiel Woodard If they are truly great deals too good to pass up then wholesale one or two off to other investors for a profit and use that profit to get back into a solid financial position.

22Reply
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  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    9y

    Start selling one at a time on Craigslist there are people willing to pay cash.

    8Reply
  • Matt Vezina
    Rental Property Investor · Bennington, VT · Member since 2017 · 79 posts · 60 votes
    9y

    More information would be helpful to other's suggestions.  Is/was code enforcement gunning for the properties for issues beyond the dilapidated exteriors that you have fixed?  Can they fetch ANY amount of rent currently, or not inhabitable without rehab?  If they can't generate any income without a lot more from you I agree with the sentiments to get rid of the properties and clean up your personal debt before taking on more real estate.  Maybe you'll even generate a little cash out of the deal if you sell them separately with cleaned up exteriors.  

    3Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Vickiel Woodard If they are truly great deals too good to pass up then wholesale one or two off to other investors for a profit and use that profit to get back into a solid financial position.

    22Reply
  • Account Closed
    Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes
    9y

    @Vickiel Woodard  sell one, keep two, repeat until rich :) 

    10Reply
  • Account Closed
    New York City, NY · Member since 2016 · 420 posts · 172 votes
    9y
    Sell the properties. Save the cash then pay.
    0Reply
  • David Crutcher Jr.
    Nashville, TN · Member since 2016 · 99 posts · 28 votes
    9y
    @Vickiel Woodard what were your exit strategies for the properties? As stated before if possible could you rent out any of properties in its current state? If these are truly good deals, wholesale two & use money for payments on credit/rehab on remaining property. Bold move buying three houses in a D class neighborhood (assuming the price). Hopefully you'll net a profit to go along with this valuable lesson about to be taught. Tackle this fast!!!!!!
    1Reply
  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    9y

    Can you apply for a credit card with 18 month introductory no apr? that would give you 18 months to fix one up and then sell or refinance. then use the proceeds to fix up the other two

    also consider borrowing from friends or family, and offer the property as collateral

    2Reply
  • Josh Caldwell
    Investor · Dallas TX, United States · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    What is the ARV on these houses? How much rehab do they need? What is your monthly payment? I need more info.

    1Reply
  • Jazmine S.
    Fort Lauderdale, FL · Member since 2016 · 146 posts · 27 votes
    9y

    If you search 'Arkansas "rehab only" loan' online, you will see a couple of companies that state they lend money on just the rehab costs alone. This is also called gap funding and difficult to find but it's out there. Make sure you keep "rehab only" in quotes or you'll just find a ton of HMLs.

    1Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Vickiel Woodard As another suggested: keep the best, sell the other two, and use those funds to complete a rehab. Maxing out credit cards (which I'm guessing you did) hurts your credit score which will hurt your ability to get a loan down the road. Post rehab you will (hopefully) be able to finance the property and use those funds for a second purchase.
    3Reply
  • Linda S.
    Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
    9y

    @Vickiel Woodard,

    I would do a super simple rehab on 1 of them, to and sell it via CL for cash to pay off the debt, and then rehab the others when you can.     I was in a similar situation, where we bought a house for $5K, turned out to be a POS,  and I just flipped it on CL for $10K.. if I was smarter, I would have done the painting and put in appliances and sold it for $20K! 

    6Reply
  • Christine Kankowski
    Real Estate Broker · Temecula, CA · Member since 2014 · 994 posts · 783 votes
    9y

    Sounds like you need to sell one of them so you can afford to maintain and improve the other 2.  do it asap.  You need to start getting soem rent out of these places.

    1Reply
  • Kyle Eckert
    Realtor · Saint Louis, MO · Member since 2017 · 228 posts · 174 votes
    9y

    As an alternative to the above advice:

    Assuming all 3 properties are keepers, find a partner with the resources to get the properties up and running.  Not a lender, but someone who can get in there and get them producing income.  Give them a stake in the properties to compensate, win win for all.

    4Reply
  • MJ Hall
    Real Estate Broker · Atlanta GA; Huntsville, AL · Member since 2017 · 43 posts · 15 votes
    9y

    Hi Vickiel, 

    Sorry to hear that you are going through a lot. However this could be a great space, it will force you to get creative in your approach to your situation. You could totally sell one and keep two! Perhaps @Rod Stanback could be of some assistance in the financial department. Check out his website

    http://www.flipfunding.com/loan-options/

    Hope this helps,

    MJ

    1Reply
  • Alex ShaughnessyPro Member
    Real Estate Investor · Spring Valley, CA · Member since 2016 · 288 posts · 98 votes
    9y

    I would find a contractor that would work for a percentage of each property

    4Reply
  • Jarrod Kohl
    Boston, MA · Member since 2017 · 209 posts · 126 votes
    9y

    When you say they will all rent for $600 is that as is? If so I would get the properties cleaned up and get them rented asap. 

    Otherwise as others have stated, pick 1 (maybe 2) and sell the other properties. Do minor rehab to fix them up, or just do the clean-up/demo if they are in rough shape and sell them for a small profit. 

    Ideally if you have three, you clean up one outside and in and sell it to an investor.  You take the second one and fix it up enough to get it rented so it is generating cash.  The third and best one, you use the money from the first two to either do a full reno, or if you are still short, fix enough for a rental and get more cash flow.

    Here is the caveat though.  I would not rent any of them until you are sure that they are in ok shape.  If you scrape by and have no money and rent one, you could put yourself in a very bad spot.  If you have a tenant who stops paying (eviction lawyer) or a major appliance/furnace breaks, that could spell trouble.  So I would still recommend selling one of the properties and trying to grab some cash for it.  

    0Reply
  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    9y

    @Vickiel Woodard,

    Good for you for doing SOMEthing. Now, let's see if we can figure out your next steps.

    You could just sell them off for a little profit as others have suggested.

    Another option to consider might be finding private lenders who could help you bring these to closing (sale).

    Start by listening to family, friends, neighbors and others and listen when they complain about their 401(k), IRA, etc. and not getting the returns they would like or that their accounts are at risk on Wall Street.

    At the same time, learn about self-directed retirement accounts so you can teach those other people how put their money in a position where they can have greater control and get greater returns with less volatility.

    Then, learn how to introduce people you know to self-direction. Learn well, develop your knowledge - chances are, you'll know more about money than many of the folks around you before long. This will help develop the trust you will need to partner with them on these deals you need to rehab / resell for profit.

    You'll need to be able to show prospective private lenders how the deal works, how and why it produces profit, how their investment is protected, and where their profit comes from.

    That's just a thumbnail sketch, of course. Lots of details to learn.

    3Reply
  • Linda WeygantPro Member
    Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    What a great problem to have!  Some possible scenarios:  

    Get a renovation partner in for whatever percentage makes sense based on total reno costs needed.  Keep all three, split the rental profits with your partner.

    Get a hard money loan.  Many people will lend 100% of reno costs if you've got skin into the acquisition.  Since you've got 100% skin in the acquisition, you're in a pretty decent position on this.

    As others said, sell one or two, keep the rest.

    Podcast Guest on Show #244
    3Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    Get out of them.  

    0Reply
  • Charles Johnson
    Bronx, NY · Member since 2014 · 103 posts · 9 votes
    9y

    see if the city or state will lend for reno or give grants. some areas will do that because they don't want blighted properties in the area. or what about 203k loans

    1Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    Advertise them as "rent to own" and 1,000 people will be begging to give you money for them, especially new investors. Let them fix them up, sub-lease them and you get cash flow without the expense of repairs.

    1Reply
  • Jonathan R.
    Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes
    9y

    I would see if you can find a portfolio lender. The one I use in my area will loan to people that have a W2 income and the only criteria necessary is that the borrower can get a credit card too if they wanted. They will loan to people with credit that is not great. I would also try and get a loan with a credit union, they are pretty easy to deal with. Crowd funding might be an option if you write an introduction to your problem, I think people will get behind this. I would also apply for a credit card with Home Depot and Lowes (they are pretty easy) and swing that hammer myself if need be. If you have a 401k, take out a loan on it. I'd love to keep all three properties if I could, but I'm a greedy pig.

    1Reply
  • Eric Pinter
    Investor, Attorney, Broker · Little Rock, AR · Member since 2016 · 67 posts · 41 votes
    9y

    owner finance.  sounds like you have no mortgages on the property since you used credit cards (terrible idea) and cash.  put them on craigslist, try to get 20% down, hold a 1st mtg position.  have to have more info to help with pricing, terms, yada yada.

    2Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    9y

    @Vickiel Woodard

    First, congratulations on taking some VERY positive steps under difficult personal situation.

    I would guess from your post that you have some expenses to incur for repair, rehab and carrying costs, before you begin receiving income.

    If your intent is to hold as rentals for good cash flow, a fix n flip type lender (where most SFR investor lending is available), will probably not be interested unless they believe you plan to sell after rehab.

    As you stated, you won't qualify for a conventional or institutional loan, not only because of credit but also because of loan size.

    The suggestions made by posters so far are some version of

    (1) sell as is one, two, or all

    (2) sell one and use proceeds to fix up other two

    Not bad advice, depending on your goals.

    These lower end houses will sell for a VERY low price in relation to their rental income because (1) tenant types will most likely be a problem or at least be high maintenance, i.e. chasing them for rent, high turnover, life crisis, employment problems, etc, and (2) unless area undergoes gentrification price increases will be non existent (3) effective outside property management is probably not available.

    So, if you are able and willing to manage the property and tenants yourself, keeping the properties as cash flow rentals can be a VERY lucrative activity.

    I would find an experienced contractor, and talk him into either (1) partnering with you by providing his services as a contribution for buying an equity interest in the houses or (2) accepting a lien on the properties in lieu of immediate cash payment to perform the necessary rehab and either making monthly payments to him to pay off the lien once the units are rented or paying him off by refinancing once the properties are rehabbed and income is established, though as mentioned a loan would be somewhat difficult to accomplish.

    An alternative is to attend your local REIA meeting, and discuss a partnership with some of the more passive investors.

    BTW, are you paying typical credit card interest rates of 12-24%, or did you get an introductory deal giving you a low or no interest loan for 6 -12 months?  The answer to this question may help define the best path available to you now.

    Again, congratulations on taking a positive step under difficult circumstances; sometimes its important to take the big plunge, even before we have a definitive plan for the next step.

    Good luck!

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    I would suggest have a plan or exit strategy for the properties and your own personal finances so nothing comes as a surprise.

    0Reply
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