All Forum Posts by: Cody Z.

@Nicholas Aiola is fantastic but virtual. I would still recommend his services to you.

Hi All,

*WARNING - Long Post Incoming - Will be breaking it up*

So this is a long time coming... I had been waiting to write this once my property was stabilized and refinanced but decided against it as I've been reflecting on this deal quite a bit recently!

So much has happened since I purchased my first house hack two-family back in April of 2019 using an FHA 203k loan. This project has pushed me past any limits I thought I had - financially and mentally. We're (hopefully) about 5 weeks out from completion but I wanted to start to document for others to learn from my mistakes and hopefully knock their own deals out of the park.

Unfortunately, I lost my phone and had no cloud storage so I can't post a ton of pictures yet but I will put a few in here and subsequent posts showing our progress and the state of the property. Additionally, I will be providing weekly updates to this thread until we get our C/O and get our first tenant in with a successful REFI.

So let's get into it!

My Background

I found BP a few years ago and fell in love with the idea of RE Investing and the Podcast. I quickly understood the massive wealth building potential that owning rental properties can offer those that don't have a whole lot of generational money to start. I spent my first year saving for my first rental property which I planned to be house hacking a multi-family property and using the BRRRR method to REFI out the FHA 203k loan after ~6 months.

Admittedly, I wasn't as serious as I needed to be and got analysis paralysis. At the beginning of this year, I decided it was time to take action and actually do a deal.

Identifying & Acquiring the Property

After deciding on a handful of zip codes, my girlfriend and I went out on a Saturday morning to "drive for dollars" and happen to check Zillow once we were in our primary area & to our surprise, we found a small multi-family house a block away from where we were that had just had a massive price reduction (~$100k) so we quickly went over to take a look.

The house looked pretty small but we quickly saw the potential since the second unit is detached essentially giving us the structure of two single-family houses and the units are about 3.5 blocks from the beach in a New Jersey Shore town. We had been speaking with a Buyer's Agent at the time but since they did not help us find the listing I reached out directly to the Seller's Agent and requested a showing. Always leverage the Seller's Agent if you're not working with anyone else on the deal as they get both sides of the commission!

I heard back the next day and was informed that all offers were due by that evening and that Cash Offers were coming in. I scheduled a time to go see the property that evening and frantically called Hard Money Lenders to see if I could finance the purchase since my pre-approved FHA loan would not compete.

Once I arrived at the property I introduced myself to the Agent and the Seller and began walking the property and chatting with the Seller. She was an older woman who had inherited the house from her late father and was looking to sell ASAP as she had another property under contract.

Both units were in rough shape, to say the least, with a ton of deferred maintenance but I saw this as an opportunity for a potential BRRRR and told the Seller as I was leaving that I would be making an offer that evening.

I ran the numbers (using the BP calculator of course) and came up with an offer that I sent over to the Agent that night. I was told the next day that the Seller liked me but wanted to go with the lower all-cash offer.

I was disappointed but happy that I had followed through with taking action on my goal and told the Agent to let me know if anything changed.

-2 Weeks Pass-

As we were looking at other properties, I received a call from the Listing Agent telling me the property had fallen out of contract with the Cash Buyer and that the Seller only wanted to speak with me regarding the remaining offers on the table. I told her I was still interested and went back to the property with a family member to reassess the Rehab costs. I adjusted my offer to include an additional ~$20k discount and sent over the offer. 

It was accepted!

The next month was a whirlwind of finding an Attorney, getting a home inspection, hiring a 203k Consultant, getting formal Contractor bids, etc. It was very stressful as the Seller reiterated over and over that we needed to close in 30 days - Ultimately, I believe we did it in about 30 days all things considered.

While going through the inspection, the Inspector noted that there were structural issues -*For those starting out, if you encounter this I would strongly recommend that you stay away from this type of issue unless you're very educated on how to resolve these issues cheaply and timely*

We budgeted another $20k into the 203k loan to resolve these issues and proceeded to close...

Our Consultant recommended a Contractor that he had worked with numerous times using the 203k loan and we honestly could not find someone that wanted to charge a reasonable price and work with the 203k loan so I spoke with the referred Contractor and accepted his bid.

Note: While you should take referrals into consideration, I would strongly recommend that you shop your Contractor in advance before putting a property under contract. Ask for references and call them. Make sure they can handle the Scope of Work ("SoW") you're planning for in your buying criteria. Due to the time crunch, I handled this piece poorly.

The Numbers

• Purchase Price: $370k
• 203k Rehab (includes Draw Fees, Contingency, etc.): $108k
• ARV from Appraisal: $525

Note: This does not include Closing Costs (Title, Attorney Fees, UFMP (Up-Front Mortgage Premium, Inspection, 203k Consultant Fees, etc.)

So closing up this section, I was semi-pleased with our ARV but was looking forward to the project to reduce basis (e.g. not using contingency) and hopefully add some curb appeal to get a higher appraisal on the REFI.

Coming next... the "Rehab"...

I agree with all of your points on people - especially the investor needing to be honest with the Seller. All the facts pertaining to the arrangement should be made fully clear in writing so that the Seller understands the risks at hand. I know something else that is talked about is getting a down payment for the wrap from the rent to own tenant that will allow the investor to make payments if the renter stops making payments. Anybody using this or any strategy should have adequate reserves to cover their butt in case the music stops.

@Lucas Carl

Thank you for this, I appreciate the quick start guide 🙂

@James Wise

I understand why the discussion comes into play but when the term slimy is used regarding strategies like this or wholesaling it still baffles me that people are judged when using creative strategies when most investors talk about buying properties off market for .60 on the dollar I don’t see how this is worse.

There are always bad actors in any arena of business but labeling the strategy with this kind of taboo seems silly. As long as the buyer fulfills their end of the contract, what does it matter?

Motivation is motivation - and if someone is open to an offer that gets them what they want (out of a problem property) why is this an issue?

I am going to be writing a full series on this but essentially my experience with the 203k loan has been a nightmare (my own fault and the GC). We had two months of deferment before we started making payments to the lender. The project had structural, framing and plumbing issues but our GC was completely in over his head.

He has no urgency...at all. He left our property in dismay for months and charged us a Change Order for demo work but could not be bothered to clean up after himself. He has subbed out any work and can not even provide the materials to work. We're at 8 months since we've closed and our GC could care less about the financial hardship (lost rents, holding costs, interim housing) that we're in. Our HUD consultant recommended our GC to us (Never do this). I have taken personal loans out to finish items that were outside of the spec of repairs (SOR) as well as funding work on areas that I "took away" from him because he couldn't find a sub timely or just refuses to provide updated bids due to project changes.

Essentially, we wanted to do a BRRRR. We will be at Market Value with total costs of the project plus overages not including additional holding costs. My advice to anyone looking to use the loan ... if the Contractor is not performing or negligent... fire them. We held off on doing this early in the project were negligence was obvious due to being scared of the delays we would face... we paid dearly for that line of thinking. We have found a great GC post loan origination and we're trying to dance around firing the original contractor who is completely unaware of his incompetence.

Your time and money matter - Don't let red tape stop you from doing what's in your best interest. Will link a thread to my experience for all to learn from.

@Dave Vona

It’s been said well already on this thread, but I would focus on branding. Does your name quickly convert to your customers what your business is all about?

@Abigail Nalbandian

@Nicholas Aiola is the best. I personally use him and couldn’t recommend him more. Good luck with your investing and PM me if you have any questions

Hi All,

I have a two-family house hack that I will be finishing renovations on in mid-December in a shore town market and we're going to be doing a furnished STR for the larger 3/1 unit (we're living in the 2/1). What is everyone's recommendations for software to price and to link calendars between multiple STR listings.

Also, looking for recommendations on how folks are automating the time spent on their listings. Thank you very much in advance and I am so excited to get started!!
 

@Laurence Obi

Congrats - Don't be negative about a solid win. My first property which was supposed to be a BRRRR is a complete nightmare with an estimated completion time of 8 months... We're 6.5 months in. Happy that everything turned out well for you - Trust me, enjoy the easy ones.