I have a fixer upper single family house in Chicago. I plan on fixing it with the intention of living in it for 2 years and then rent it out. My questions are:
1. What are the best options for financing the rehab process. I thought about getting a home equity loan of the house I'm living in now that does not have a mortgage but also does not have a lot of equity.
2. I got the house from Wells Fargo, which had existing violations such as mechanicals not being there, problem with garage that is no longer there. I asked the city on how I can clear them, the response I got is to fix up the place and call them for an inspection so they can clear the violations. My question is can I start te rehab process without getting the city permits?
3. What kind of agreement can I make with the General Contractor? I have contacted a Contractor who is a family friend, he is willing to partner with me but basically I don't what kind of agreements are there.
Any suggestions are greatly appreciated.
The house by the way I paid cash with my retirement funds. Thanks again.
What do you mean by this?
The house by the way I paid cash with my retirement funds.
The answer to that will affect replies to your question. Do you mean you borrowed from a 401k to buy this? Or you have a true SDIRA and that SDIRA bought the property?
Jon Holdman, Flying Phoenix LLC
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Hi! I was a Chicago contractor for about 25 years. Hated dealing with all the permits/payoffs and out dated codes, so I moved the business 100 miles west. Anyway, this is my take on 'partnering' with a contractor...
You both make a list of what you see as needing repairs/remodeled, then sit down somewhere quiet and discuss materials, estimated time and costs, which ones are doable by him personally, which ones need subs, which ones need permits/inspections and all the rest of the fun stuff. The lists will give you not only a cost basis, but help make sure things get done in the right order. Its easier, for example, to have the new outlet in the wall BEFORE you drywall. Just sayin'.
As to paying the contractor, its the Holidays and winter - the time of year A LOT of guys in the Chicago area will work a little cheaper just to fill their dance card. Others are collecting unemployment and cash is king...I'm not advocating doing anything illegal or immoral, but, "tis the season".
I did a lot of "flip" jobs in past winters for half pay and a bonus upon sale, and some folks have paid me through PayPal and their credit card, to stretch out their payments and assure I got mine in a timely manner. Its times like this you find out how good a family 'friend' that person really is...
Good luck and let us know how it all works out.
This is the 64 thousand dollar Question.
I did my first house piece meal one room at a time paying for them as i earned the money because i didn't have the cash on hand. I did the kitchen last because it is the most expense. I bought my cabinets and appliances on the credit card real close to finishing so as to not have to carry a huge balance long. It works but takes longer. The upside is when you are done its all paid for.
There is a construction loan program available for owner occupant residential properties and is called a 203K construction loan. Existing homeowners don't have to have equity in the home, they can consolidate their existing mortgage and the cost of the rehab into a new loan up to 97.5% of the "after-rehab" value of the home.2. If you'll take this type of loan, the contractors (which have to be approved by the bank that is loaning the money) will also perform the work necessary to remove the violations. 3. The contractor agreement will be prepared by the lender, as they will bring in an independent FHA consultant to make sure all the work that is contracted is done, and also will look at the contractor's bids to make sure they are in line with the going prices. The FHA consultant will perform inspections and the lender will pay the contractor after the work is completed. The lender will protect your interests and make sure all the work is perform and is performed correctly before the last payment to the contractor. Let me know if you have any questions!
@Lumi Ispas , I have a question. I'm thinking about using this type of loan when I purchase my next personal residence. Would you happen to know a lender Illinois who specializes in these type of loans?
@Brian W. I actually know a mortgage broker that is responsible to overview all the 203K loans in the country for Guaranteed Rate.
I will message you her info.
By the way, her company is also doing purchase with construction loans for investors with only 20% down. The requierement is that the buyer has to have great credit, nothing bad in the credit at all: no foreclosures, short sales or bankruptcy in the past.
@John Holdman I took half of my traditional IRA funds to pay for the house. I should have not done it because it penalized me with 20% of the amount I took. I'm trying to get smarter of where to get funds by connecting with BP and learning as much as I could.
@Tom Lane. Thanks for the wonderful tips and for sharing your experience. The contractor is originally from Pensylvania who wants to start anew here in Chicago. So the other problem is that he needs to get a license here in order to start. Do you know how long that process is and what are the requirements?
@Lumi Ispas thank you for that wonderful information. Can you give me the contact number from Guaranteed Rate, my email is [email protected] Thanks.
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