All Forum Posts by: Adam D Rinehart

I ran my numbers assuming I had a property manager but I'm leaning towards self managing via software and apps for the day to day stuff and seeing if the money saved is worth the hassle. The property is only 25 minutes from my house in the event something major needed immediate attention, but ultimately I hope The book on Managing Rental Properties gives me all the tools I need to be successful.

Investment Info:

Single-family residence buy & hold investment in Prairie View.

Purchase price: $110,000
Cash invested: $155,000

The house was a reverse mortgage foreclosure purchased as a 4/2 with 1,741 sf of living space and an attached garage. My renovation and rehab will convert the formal dining room to a 5th bedroom and create a 3rd full bathroom from an oversized second master closet adjacent to the dining room. The attached garage will also be converted to additional living space so that sufficient common area is available to the tenants as well as increase the appraisal value (hopefully).

What made you interested in investing in this type of deal?

The location of the University is outside of the development area that has surrounded the greater Houston metroplex over the last 10+ years. This lack of development in the immediate area around the University as well as the surrounding County as a whole coincided with a large increase in student enrollment over the last 3-4 years. The subsequent housing shortage has created a huge demand with a constant supply creating rent rates that aren't seen outside of student rental markets.

How did you find this deal and how did you negotiate it?

MLS deal. There was no negotiating, Federal Law requires reverse mortgage foreclosures to be sold for the appraised value they are listed at.

How did you finance this deal?

Unsecured business loan from "side hustle" LLC where I provide land development engineering services to small developers.

How did you add value to the deal?

Added an additional bedroom and full bathroom as well as increased the living space by approximately 500 square feet from a garage conversion. Upgraded the interior to current trends and demands.

What was the outcome?

To be continued...

Lessons learned? Challenges?

Finding financing was a huge challenge on this deal. I went from having a silent money partner one week, to not within the span of 10 days. My hard money lender approved me for 80% deals using my income and credit score, but then refused to fund the deal due to lack of available comps (rural area with housing shortage) and a minimum loan of $100k. I ended up getting a business loan for 100% of the purchase price and was able to be a "cash buyer".

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Not particularly. I used the listing agent since she was also the HUD broker.

Investment Info:

Single-family residence buy & hold investment in Prairie View.

Purchase price: $110,000
Cash invested: $155,000

This property is my first in the real estate investing world. It is a reverse mortgage foreclosure situation in a rural subdivision within walking distance to a University. The house was purchased as a 4/2 with 1,741 sf of living space and an attached garage. My renovation and rehab will convert the formal dining room to a 5th bedroom and create a 3rd full bathroom from an oversized second master closet adjacent to the dining room. The attached garage will also be converted to additional living space so that sufficient common area is available to the tenants as well as increase the appraised value.

Due to the existing shortage of housing options in the area, homes like this rent by the room to students for $700/month each, not including utilities. The renovation is underway and is scheduled to be complete by December so that it can be fully leased for the Spring Semester starting in January.

What made you interested in investing in this type of deal?

The location of the University is outside of the development that has surrounded the greater Houston metro area over the last 10+ years. This lack of development in the immediate area around the University as well as the surrounding County as a whole coincided with a large increase in student enrollment over the last 3-4 years. The subsequent housing shortage has created a huge demand with a constant supply at rates that aren't seen outside of student rental markets.

How did you find this deal and how did you negotiate it?

MLS deal. There was no negotiating, Federal Law requires reverse mortgage foreclosures to be sold for the appraised value they are listed at.

How did you finance this deal?

Unsecured business loan from "side hustle" LLC where I provide land development engineering services to small developers.

How did you add value to the deal?

Added an additional bedroom and full bathroom and increased the living space by approximately 500 square feet from a garage conversion. Upgraded the interior to current trends and demands.

What was the outcome?

To be continued...

Lessons learned? Challenges?

Finding financing was a huge challenge on this deal. I went from having a silent money partner one week, to not within the span of 10 days. My hard money lender approved me for 80% deals using my income and credit score, but then refused to fund the deal due to lack of available comps (rural area with housing shortage) and a minimum loan of $100k. I ended up getting a business loan for 100% of the purchase price and was able to be a "cash buyer".

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Not particularly. I used the listing agent since she was also the HUD broker.

@Robin Frazier

It’s going to depend on several things site related such as the reviewing agencies with authority (I.e City of Houston versus Waller County), availability of existing utilities, detention/drainage criteria, floodplain status of the tract, and level of traffic impact analysis needed (if any).

Civil engineering, like medicine, has specialties within the profession and most sites require more than just one. If you go with a decent sized firm you’ll be looking at anywhere from 12-15% of the civil construction costs as the design fee. Or you could use someone like me that works for one of those firms but moonlights those skills as a side hustle for cheaper (less overhead).

@Anita Anand I’m just starting out as well and am in emotional throws of trying to lock down my first purchase. Last week was a roller coaster where I went from missing out on my first purchase only to have the other buyer abruptly walk a few days later. Within 15 minutes of getting that under contract I got notified that a lowball offer I never expected to get accepted, did, and then all of the sudden I went from 0 to 2.

Not gonna lie, the “oh ****” feeling came very quickly after the the initial excitement and I’ve had many internal conversations to “check myself”. I’ve also found that adopting Ray Dalio’s philosophy of asking myself “how do I know I’m right” instead of just thinking “I’m right” forces the issue of giving every angle an honest look if I want any chance at being successful at this.

I wish you the best of luck and hope that one day we’ll each have our own Bigger Pockets podcast interview talking about how we first got started in real estate.

Where is the project? Sometimes a GIS portal exists with the county/city to give a more general idea of where the lines are located. From an engineering standpoint, in Texas, water and sanitary typically run on opposite sides of the street due to regulations on separation distance. Fire hydrants are the best way to figure out where a water line is. They also usually run 3 - 4 feet below ground. 

Sanitary is a different animal in terms of depth. You're looking between 4-9 feet deep to find the line. Typically you can't go more than 400' without a manhole or cleanout. This is also true for changes in direction.

9 times out of 10, I put the water and sanitary leads on the property lines. This way I can run double leads, or 2 individual lines in a single trench, and alternate between water and sanitary on each side of the lot.

Good morning everyone,

I've got an opportunity that I've run numbers on myself but wanted to "Red Team" the deal to the community to see if there are any fatal flaws I overlooked. Here are the particulars:

• - Located 1.1 miles away from a in a rural college town about 40 miles outside of a major metro area. The property is on the campus bus route.
• - The University has seen massive enrollment growth within the last years and welcomed it's largest incoming class in it's 140 year history in 2018.
• - There is a current shortage in available housing, both on and off campus and multiple new apartment complexes are being built.
• - There are 3 furnished buildings (built in 2015 but renovated in 2018 to convert to this use) with 25 units that currently have 31 beds in a dorm style layout.
  - Rent is per bed.
  - Rent roll shows 0% vacancy and monthly gross rent of $13,880. All leases are paid in full up front for each semester and this is the first academic year they've been open.
• - Utilities are split evenly among the students.
• - $5/month fee for cleaning supplies and toiletries.
• - Currently self managed and no maintenance costs were provided.

The onsite management office can be utilized as an additional unit if an off-site property manager is used. There is an additional 1,000 SF of space above the existing units that can be converted to additional units, per the seller. They are asking $1.4M and advertising a 10.23% cap rate. 

I can't get to their valuation since gross income is only $166,548 and NOI based on asking price and cap rate would be $143,220. This would put operating expenses at only $23,328/yr or ~$1950/month. This seems WAY too low for 3 buildings and 31 college kids. I pointed out this discrepancy to the sellers agent and they conceded that the cap rate was a proforma cap rate and assumed the additional 3,000 SF was being utilized.

That said, I still think there is a great deal to be had here so I put an offer in today structured below:

1. $800,000 "sale" price with 10% down ($80k cash to seller at closing)
2. Seller finance $720k for 10 years, interest only @ 8.25%, with a balloon payment at the end of the term.
3. 5 year lock out period in which I can't refinance and a remaining interest payment kicker if refinanced or sold before the end of term.

So if the seller accepts, he would get a monthly interest payment of $4,950 for 10 years totalling $594,000. $594k +$80k + $720k = $1,394,000 total. Just shy of his $1.4M asking price. Plugging in all of these numbers, plus my carrying costs and anticipated insurance, taxes, management, etc... I still show a cashflow of over $2300/month. This goes up to over $4200/month if the additional units upstairs (12 total) can be built. I've put a contingency clause in the contract verifying that the local building official confirms the additional space can be legally built out for living space.

All that said, what have I overlooked and/or what errors have I made in approaching this deal have I made? Thanks in advance for your input.

@Harjeet Bhatti it would not be my primary residence. The loan product is outlined on Fannie Maes webpage, link below.

https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html#Student.20Loan.20Cash-Out.20Refinances

It’s the second scenario. I agree that the interest rate plays an important part but my thinking is this, the student loan is paid off and rolled into the mortgage amount from the cash out. Since I’m renting that property out, as long as loan amount and interest don’t drive up my monthly fixed costs to negate cash flow, my “student loan payment” becomes built in to my tenants rent. This would do 4 things for me, 1) increase my monthly disposable income since the student loan has now essentially been converted into a mortgage being paid for in rent, 2) decrease my debt to income ratio, 3) still provide cash flow (theoretically), 4) sell the house and effectively old my student loan with it

@Jesse Littrell I’m a civil engineer in Houston and I specialize in land development. I designed and permitted a 10AC RV park down in Sweeney last year. Let me know if there’s anything I can help you with.