Yesterday I joined BP, and today I offered my first SFR -- thoughts?

Question

I made my first offer on an investment property today. It was an unusual one, but it's an unusual situation. A guy has been rehabbing this property near my old neighborhood (aka, in a neighborhood somewhere between blue collar and ghetto, call it a C area) in his spare time, and before he got finished it was vandalized. They broke all the glass in the doors and windows, stole the hot water heater, and the kitchen cabinets. Now he just wants out. I drove by it, both last night and this morning, and it doesn't need much to be a finished 2/1 cottage. I think 10k is a generous estimate to have it be a nice rental property (I just got done finishing out my garage as a recording studio, doing all work myself, so I think I have a decent understanding of the estimating here). He's asking for 40k and he owns it free and clear (I spoke to him on the phone today). House exterior is great, roof is new, electric and plumbing are new (he's a plumber by trade), and the foundation is in great shape.

I did some rental comps, and I think I could get 650/month for it if it was finished nicely, and maybe 700/month if I add central AC (which I'd definitely look at doing if the numbers work).

I offered him 17k, in cash, when I get back to town in January, and while he didn't accept it he also didn't hang up on me. He wants to check his records and see exactly how much he's got into it. But he knows that I need to have it rehabbed and rented for 30k max, with a 10k reno budget, meaning a max purchase price of 20k. He also knows I'm looking at another 2/1 slightly across town that's a bit bigger but listed for 25k. Really, his place is a good buy for me up to 25k purchase price, but if he wants cash I'm not sure I'd be able to come up with it in a month. If he and I can't agree on a price, I'll try to get the other place, which is open to owner financing.

I'll keep you guys posted, but regardless it was a pretty fun day for me. I'm excited to have a shot at a 2% SFR really soon, and even if I don't get either of these it's good to know the deals are still out there in my town if I hunt hard enough.

Account Closed · Answer

Welcome to BP and Wow... way to hit the ground running!!!

Good for you!

Best of luck :)

Kathy

JT Spangler · Answer

Steven J. -- that's actually exactly the plan with this property. Since I don't have the cash on hand for the purchase, I'd do that with hard money and pay out of pocket for the rehab. Once it's rented I could either cash out refi to pay off the HM, or just pay it off in cash.

Trevor Lohman · Answer

Hi JT,

Congrats on taking the leap. I'm brand new to BP and real estate investing so seeing another new guy go for it is great motivation. Also, strong work on your quick tip intro track on the BP podcast today!

Good Luck JT!

Also Account Closed I just saw your post on attending your first REIA meeting, one of the southern california listings is literally right down the street from me. Thanks for that, I've been looking for some advice on attending a meeting and your post was really helpful,

Trevor

Paul Timmins · Answer

@JT Spangler

Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costshttp://www.biggerpockets.com/flippingbook

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you can get resources so that you are protected against another break.

Paul

Chad Clanton · Answer

I'm confused... Anyhow, how's it coming JT?

Joe Fairless · Answer

@JT Spangler - congrats and buckle up - this sounds like it's going to be a fun and interesting deal.

Chad Clanton · Answer

Hi JT, quick caveat on the hard money lender. Get the payout terms IN WRITING prior to getting too far down the road with them. Standby for lesson learned: I did not fully read/comprehend the payout conditions for the rehab portion of my hard money loan (which I didn't receive until closing, ANOTHER lesson learned...); low and behold, down the road, I saw that after the first 50% payout (at 50% completion, inspected by the lender's rep), the remaining 50% would not be paid out UNTIL 100% COMPLETION. Luckily, my lender goofed up and paid it all out in one lump sum at the 50% point, but if I hadn't needed that extra 50% until the rehab was complete, I likely wouldn't have borrowed it in the first place. Lesson learned. As I alluded to previously, it was kind of a goofed up transaction (luckily, none of the goofiness was on our part). Read that fine print, and best of luck!

EDIT: Aaaand I just re-read the part about funding the rehab yourself. Oops. Still, hope it helps :-P

Steven J. · Answer

Since you're doing rehab and waiting a few months to get your financing in order to get a loan you could consider doing a hard money loan as well. Get the hard money for 6 months. It will cost more but you can pay the cash the guy wants at that point. You make your payments to the hard money and then 6 months down the road, when you have improved your credit and built up some cash, you could get a traditional loan.

You'll just have to make the numbers work with the HM at that point. Not sure if it works in this situation.

Good luck!

You'll just have to make the numbers work with the HM at that point. Not sure if it works in this situation.

Good luck!

JT Spangler · Answer

Thanks for the encouragement, all! Even if we can't come to terms at least it's good practice with the numbers and the negotiating.

@Chad C. : I'd love to read about your experiences if you do get a chance to blog them. Sounds like a pretty similar situation to this one.

David B. · Answer

Take that leap and great things are possible. Congrats! Keep making things happen regardless of this outcome. Keep us posted.

Nice investing

Yesterday I joined BP, and today I offered my first SFR -- thoughts?

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