Second Deal, first Buy&Hold, and a squatters' growhouse yay
Investment Info:
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.