Would someone mind poking a few holes in my plan?

Question

Hi BP Community,

My family has a distressed SFH in rural NC that I’m planning to use as a practice ground for my first full renovation. The goal is to renovate the property, raise the value, borrow against the equity, and then reinvest in another property in the area.

I’d like to lay out my strategy here in a few broad strokes and get any input to see if I’m missing anything or should take a different approach.

Steps:

1. Inspect and appraise property

2. Assess work needed and get contractor bids

3. Renovate the property

4. Refinance the property and take out a HELOC

5. Use the HELOC to purchase another distressed property

6. Repeat

Considerations:

1. The first property is a family property that I want to keep it and rent month-to-month when I’m away most of the year

2. The house needs serious work (roof replacement, and asbestos abatement)

3. Aiming to fund renovations with USDA 504 loans and grant as well as saved cash

Where I am currently:

1. Applied for loan

2. Researching inspectors, appraisers, and pest control

Thanks for all of your help. I hope I provided enough information. Lack of detail is simply because I’m so early in the process and I’m trying to be meticulous in my planning

Sylvia B. · Answer

I've never bought out of state, so I can't help you there. A 15 minute drive takes me from my house to my most distant rental.

We are also very hands on with our renovations, only hiring out what we can't or don't want to do.

The inspector is going to tell you what is broken, worn out, or a safety issue. You'll want to take care of those things, but there may be updates/esthetics that you will also add to your list. He'll tell you if a window is broken, but not whether you should dress it with curtains or blinds or both, for example.

Conrad Martin · Answer

Thanks for the advice @Sylvia B. To your points:

- This will definitely be a long distance project, I’ll be driving down for big milestones (inspection, appraisal, begin of work, etc.)

- As for the reno, I was going to get a definitive “to-do” list from the inspector/appraiser. Do I need to do both? The asbestos is in the ceiling insulation and I was quoted ~$3500 for the abatement.

- I’ve started a family savings fund that I’m building up to $20k not just as reserves for the loan but for additional renovations if need be.

Any advice on finding strong contractors when out of state? I’ve heard hanging out at the Home Depot pro-desk at 6am is a good tactic lol

Sylvia B. · Answer

Well, that makes it simpler. Your location says NY, so you'll be doing this long distance?

For the renovation part, you need to make a detailed plan. I start by quickly writing down everything I can think of that needs to be done, then go through the list and group things by category and priority. You mentioned asbestos abatement. Is that siding, flooring, insulation, all 3, or something else? Siding and flooring are simple - cover it up without disturbing it. Insulation is more of a problem, therefore more expensive to deal with.

Regarding finances, be sure you have enough set aside to make those loan payments for twice as long as you think it will take to renovate, rent, and refinance. Something always comes up that you didn't expect. The last thing you want is to get into financial trouble and lose the house.

Conrad Martin · Answer

Thanks for your reply @Sylvia B. The home is a family home that we’ve owned outright for years and want to keep. We currently only pay taxes on it (<$600/yr).

Sylvia B. · Answer

By "family property," do you mean you own it along with other family members, or it's been in your family for years so you don't want to sell it?

Would someone mind poking a few holes in my plan?

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