Need Professional Opinion/ FHA 203K Property

[Twan Torr]

I’m in a huge dilemma and I really could use you professionally help.

I’m currently a resident in Milwaukee WI. And I’m in the process to buy a duplex (four bedroom 2/2)that needs some work.

The work that needs to be done is “15k” worth of foundation work, as well as “15k” in renovation of the unit I’ll be staying in.

(The other unit is occupied with tenant paying $750. Lease ends May 2023)

I got an accepted offer at $158k but with renovation and everything else it brings the house to $195k (Reno, sellers credit, loan fees, etc…)

My monthly payment is about $1760 without including water and gas. And I would have about 65k worth of equity after renovation.

I also just found out there is a third wall that needs to braced which would bring my foundation cost to “20k”

ARV is $1300 a unit at the most in the area.

Is this a deal or should I keep looking?

[Brie Schmidt]

@Twan Torr - have you had the feasibility study yet?  My guess is the reno will be much more.

$200k with $2600/mo puts it at a 7.5% cap rate by my guess and a good deal if it is a A or B area.  

[Paul Welden]

@Twan Torr

Your additional $5k in foundation work would only reduce your ARV equity by $5k ... from $65k to $60k and your monthly payment increase will be barely noticeable. So, yes, based on this, the deal seems 100% worth it.

The quotation marks around your rehab pricing means to me that those are not actual numbers from a 203k Consultant and from a Certified 203k Contractor. 

You'll also have extra costs for your 203k, such as an additional orig fee from the lender, contingency reserve for rehab (10%-20% of rehab costs), inspection fees, title update fees, etc. 

Once you get the inspection and pricing from the 203k Consultant (WWU/SOR) and a proposal from a Certified 203k Contractor then you'll know the actual cost of the rehab and if this is a deal or not.

Hope this helps! 

[Marcus Auerbach]

Depends on the upside - if it is large (over 2200 sqft) and in a promising location, maybe worth it. But generally speaking as a first time buyer taking on foundation issues along with everything else is a bold move.

Generally speaking when you compare sub 200k duplexes for house hacking with over 200k for house hacking you'll find that you get more long term value out of the latter. I see very few good ones below 200k and they are tiny, meaning lower rents and therefore not a good ratio of rent to operating cost.

Home values are up 12.89% in Milwaukee as of June YoY and this is the third consecutive year we see this type of appreciation, so while we are still priced much lower than the national average it also means that the minimum price for a quality property is now substantially more than 2019 or 2015.. 

[Charles Clark]

Quote from @Twan Torr:

I’m in a huge dilemma and I really could use you professionally help.

I’m currently a resident in Milwaukee WI. And I’m in the process to buy a duplex (four bedroom 2/2)that needs some work.

The work that needs to be done is “15k” worth of foundation work, as well as “15k” in renovation of the unit I’ll be staying in.

(The other unit is occupied with tenant paying $750. Lease ends May 2023)

I got an accepted offer at $158k but with renovation and everything else it brings the house to $195k (Reno, sellers credit, loan fees, etc…)

My monthly payment is about $1760 without including water and gas. And I would have about 65k worth of equity after renovation.

I also just found out there is a third wall that needs to braced which would bring my foundation cost to “20k”

ARV is $1300 a unit at the most in the area.

Is this a deal or should I keep looking?

Is the juice worth the squeeze? Every property has a price that makes it a good deal. If the foundation work came up during inspection then I would ask for a reduce price. At a reduce price, this property might be worth the squeeze, if you know what I mean. Maybe $135k to $145k would make this a good deal and give you more equity to refi after renovations. 

I hope this helps you on your journey. If there's anything I can assist you with, please do not hesitate to contact me.

Beleza,

Charles Anthony

[Twan Torr]

Thanks to everyone that helped with giving me different opinions on this issue.

I decided to not go through with this specific property but instead invest in something with less risk for my first deal. 

Thanks, @Brie Schmidt, @Paul Welden, @Marcus Auerbach, and @Charles Clark

@Charles Clark thanks for reaching out. Ill be sure to keep in touch. 

[Rogelio M.]

@Paul Welden. What does the acronym "WWU" stand for? Thx!

[Paul Welden]

@Rogelio M.

WWU is an acronym for Work Write-Up

[Rogelio M.]

Quote from @Paul Welden:

@Rogelio M.

WWU is an acronym for Work Write-Up

Thank you @Paul Welden !