Duplex Rehab Questions***

2 Replies | Milwaukee, Wisconsin

Hello fellow BP-ers,

My wife and I recently purchased our first property, an owner-occupied duplex in Milwaukee (53210 for those of you familiar with Milwaukee). 

We have grown to love our new neighborhood; very stable, many long term homeowners on the block. Next door there is an abandoned property. The owner has done absolutely nothing since we have lived here to maintain the property or get it ready to rent/sell. I found some owner info online and hope to hear back from them soon. My realtor has also tried contacting them. They are starting to rack up fines from the city per the tax assessor's website. 

I am assuming the worst- that the property would need a complete rehab, walls, floors, plumbing, hvac, etc. 

1) What are my financing options? Buying the property and paying for the rehab cash is not an option for us. I would rather not dip into my 401k if possible, but not 100% opposed if that is the only option. Would a conventional FHA work as long as we lived in one of the units? We would certainly be willing to live in one of the units if it makes the purchase doable.

2) Any advice on how to encourage her to sell her property? She is an out of town investor, and as a member of the community, her neglect of the property is unacceptable. 

Thank you and happy investing!

Sam

Maybe a 203k loan would be an option. Try to build rapport with the owner. If she won’t sell maybe you could partner up to form a win / win . Maybe you could GC a rehab for owner. Maybe get a low priced master lease afterwards allowing you to make good profit from subletting. Maybe, in exchange for part ownership. The key will be to get the owner to tell you how you can solve her problems.

Sounds like the owner is disengaged. Tracking down the owner can be difficult, your agent can find their name and tax address, but they may not respond top a letter. Use a skip trace service and see if you can find a phone number or an email address. If everything else fails, you can mail them a burner phone with your number..

As far as funding family money will probably be your first choice for both the purchase and the rehab. If a duplex has been fallen in distress (its probably beyond livable) you can ssume 30k per side plus whatever the exterior needs. A bit more if it has been built before WW2.

FHA is only an option if it will pass FHA inspection, which means it has to be in good repair. You can do a 5% owner occupied conventioal loan for the purchase. Your 401k is an excellent ressource, but not to take money out (and pay the penalty) - rather borrow from it and pay yourself interest.

Make sure that you dont pay too much. FULL rehab plus purchase should not exceed comps. Note that I did not say 75% of that. Assuming a full rehab it will be in much better shape than your comps. If you just patch it up, so the condition is comparable to other properties your repair cost will be lower and then you can multiply with .8 or a bit more.

Good luck!