Single-family residence buy & hold investment.
Purchase price: $80,000
Cash invested: $13,300
Driving for Dollars found a Realtor-listed house. 900' sq. ft house will 11 people squatting in it and was an estate-managed rental. One of three houses next to each other that were worst in whole neighborhood. Likely minor grow house due to debris in adjacent lot. ran over a loaded gun while mowing yard. Huge amount of termite damage and shoddy workmanship. 2/1/2 rental on city water which was very unusual for area.
What made you interested in investing in this type of deal?
House in a gentrifying neighborhood, rent was significant (1.4%) and needed a place to live. Numbers made great sense, as FHA mortgage was $400/month and I could rent it at $1100/month. Even if no appreciation, the mortgage was good for me while living there, and to eventually rent out.
How did you find this deal and how did you negotiate it?
Although found this by driving for dollars, it was listed on MLS and was already under contract. Original contract fell through and it came back on market, and I put in asking price offer. $500 discount due to some errors in listing.
How did you finance this deal?
Online lender, FHA loan, 3.5% interest, 2.5% down payment. Borrowed personal money from a 457b work account (deferred compensation).
How did you add value to the deal?
Had to live in house for a year due to lending requirements. $400/month mortgage payment is CHEAP rent. Rehabbed house, repaired termite damage, new hvac, and ducts, toilet and shower, and appliances, granite, new windows, new flooring, wall replacements, all new switches and outlets, new screened florida room, and tiling on front and back porches. New landscaping, paint and refurbed yard shed. Basically down to studs rebuild, and in the whole back wall of house, even studs were replaced.
What was the outcome?
Has been rented for three years with a fourth year starting in a few days. House has double in value (bonus, as I did not expect appreciation with the house). A huge building boom all around it with $300k houses going in and this is now valued around $150k. Used a HELOC from this house to take back primary house that I was renting and sell that house for a profit as it was a liability and not performing at all well.
Lessons learned? Challenges?
Do not trust many home inspectors to tell you the whole truth on what is found as there are alliances with lenders, sellers, buyers etc. There was extensive termite and water damage that was covered up and while it would have probably stopped the lenders from financing the house, literally 25% of house was sawdust from old termite damage. True... no active termites, but the carnage was pretty widespread. The T word and the M word where never mentioned and it felt like a Harry Potter movie.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
The full monty here; buyer and seller agents, two different home inspectors, pest&WBO inspectors, insurance reps, and a FHA online financing process that was arduous and lengthy at best. Not to mention the house was "accidentally' relisted during the buying process and it complicated my purchase of residence. Closed on literally the last day of the initial contract. Potential buyers were offering $10k more for house by time I closed.
Congrats on the house, cash flow and appreciation dude! Good story and I am glad with all the extra damage you still came out ahead! Always a big worry for me when looking for rehabs.... the great big unknown!
I think the loaded, cocked Sig semi auto I ran over three times while mowing the lawn and uncovered more each time I did it (it was just past my chain link fence and where I turned the mower around in same spot) was more exciting than taking down the huge mirror on living room wall and finding a 4'x6' opening into the garage (for heating and AC transfer I suspect) or that literally there were 21 2x4's completely missing in action on the whole back wall after trying to repair an interior wall crack that kept reappearing by a window sill. The coolest thing was new unsealed mexican clay tile was laid on dining room floor with no expansion joint between walls; must be right before I bought it, and there was a water leak in kitchen wall adjacent to tiled room and the wood wall separating the two rooms swelled, and during the first few nights I kept hearing bangs like a .22 shell. Dog didn't sleep a wink, and neither did I. Third night, my dog refused to go outside the bedroom after a now-used-to cacophony of nightime bangs and booms. Walking out with gun and flashlight I saw the complete tiled floor 3-D with most of the tiles between the walls popped off floor and "peaking" like dozens of pyramids about 12" off floor. Really dangerous and had to carry dog out and over them as they collapsed under weight and shattered like a dropped planter pot. Smart dog. After-the-fact I found most areas had little adhesive/mortar, and the living room had a mix of three different types of mortar. I was replacing anyway, so just had a change of timing. The best laugh was just the amount of mail that kept showing up with new approved/declined creditcard apps, loans, hospital bills (dozens of drug, maternity, and weapon related injuries), etc., all to new names I did not recognize over the next 12 months. It is good to have a post office box if you do househacks like this. I knew it was the right decision when three neighbors intercepted me on my daily morning walks with my retired police dog and thanked me for rescuing the house and helping the neighborhood. Two more houses to go.... You CAN make a difference in your neighborhood!
So yes, alot of surprises in some of these funky houses, and always seems to be one big undiscovered surprise in each house I get. As the numbers were fabulous, I just put the helmet on, grabbed a hammer and started fixing. Least the surprise happened with me and not a tenant..
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