All Forum Posts by: Derek Daun

I finally heard back from the seller; they are still trying to get a postponement from Wells Fargo. This means the other offers they had weren't very strong.

My plan is to try to find a broker tomorrow who can get me a same day pre-approval, and submit another offer 10k less than my original.  Any recommendations on a broker in the Sacramento that can do a same day pre-approval? (Needs to be a pre-approval, not a pre qualification) Thanks!

I'm in the process of negotiating an offer on a SFR.

Offer = 145k. This is buy and hold for me; but I'm guessing the ARV is about ~160k after a little paint, and landscaping. This isn't fantastic deal, but it fits my model: as little work as possible, gives me a little more experience, and has a very likely hood of gentrification in the next couple of years.

We found out the seller's bank is forclosing in six days. The bank turned down a request to delay forclosure unless they have a purchase offer in hand with a preapproval or cash. We have been banking with Chase up to this point, and our loan officer says Chase does not do pre-approval without going through full underwriting, which can't be done in six days. 

The seller purchased the house two years ago for 113k. Basically, by delaying selling the property till the last minute, the seller is risking losing 40k in equity if the bank forcloses.

This seems like the potential for a great deal for someone with cash if the seller's bank doesn't play ball with financed offers. The question is what creative ways I could make this a deal for me.

-Find another lender willing to do preapproval in this short timeline?

-Find a cash partner

-Some sort of a wholesale/finder fee deal for someone with cash?

2/1 => 3/2 is great business model in that area. 

I agree with @Chris Vail, though that you have to be really careful on your comps in that area. Land Park north of 2nd avenue is a completely different neighborhood compared to south of 2nd avenue. 

And by the way, I second Megan's comments of considering trying to work a tenant into the house. If you're remodelling any way, you could maybe find a design that works. Perhaps a kitchenette upstairs? Something that can be undone for max resale. This scenerio is only ideal if you are already friends with the renter though.

I was surpised at how much we actually enjoy having a friend living in our garden apartment. We originally thought it would only be a temporary thing, but after 6 months, we are going to continue long term.

An important thing to consider when looking for exit strategies of a primary residence is where you will live if you exit. This could be problematic if you're not able to save much when living there. The likely options would be:

-Continue living in the house, cash out refinance the equity. You'll have cash for another investment, but your mortgage will now be higher. This only works if you can afford the higher mortgage.

-Rent out house, buy another primary. You will need to have saved enough money for the downpayment on the new house. Also, the rental has to cash flow.

-Sell house. Use some money for downpayment on new primary of similar quality in similar neighborhood. Use some money to purchase another rental. This is the same as the refinance, unless you can find another deal

-Sell house. Use some money for downpayment on a smaller primary. (2/1 instead of a 3/2 assuming that's what first rehab ends up as.) Or move to a cheaper nieghborhood. 

So basically, unless you can save enough for another downpayment in 2 years, or afford a higher mortgage, you will have to either be able to find another stellar deal, or be willing downgrade to a smaller house, or move to a cheaper nieghborhood when you exit.

@Megan Miller

Hey Megan,

When you say you're cash flowing $300 on your Oak Park property, is that $300 above PITI, or does that also take into account maintenance and vacancy? I'm big on Oak Park, so I'm always interested in hearing how others are making out!

@Minka Sha

Minka, from a numbers standpoint, the 160k-180k price seems ideal, but somewhat optimistic. Do you see duplexes of this type go for that amount around here?

That's a great part of town, and overall, that sounds like a good deal.

The nice parts of downtown (Midtown/Landpark/EastSac/CurtisPark) are not anything close to cashflow, so if you want to have it all - live in the nice area, but still be investing - house hacking takes on a different mental picture. It's more about subsidising your costs of living in the nice area, while paying down principle and getting appreciation. You're not going to find any sort of a 'buy a duplex and have the rent of one half pay the enitre mortgage'.

For example, when we moved to East Sac, we bought a fixer upper high water bungalow, and completed the basement conversion into an apartment. After taking in the rent from downstairs, we're still paying the same amount we'd pay to rent in midtown. The difference is we're paying the down the principle, and getting appreciation on the banks $400k. (But also paying a lot for renovations)

As far as your original question goes, equity vs cash, what you really need to be asking yourself is:

1) If you keep the cash, what would you do with it? Are you going to invest out of state for cashflow? Try the D neighborhoods in South Sacramento area for cashflow? Wholesale?Continue paying rent? Overall, if you're looking for a Midtown live in investment, your deal is pretty close. However, it very much depends on......

2) Can you afford this? Downpayment. Mortgage. Lots of money for improvements. That attic will cost a lot more than you might think. To be legal, you will likely have to rip off all the siding and add shear support to be earthquake safe for a two story house.

3) What's your exit strategy? Equity in your live in house doesn't do you alot of good if you can't access it. This is especially important if you won't be able to save as much.

If you decide this deal is too expensive for you tastes, and don't want to offend your family friend by selling the deal, consider a three way deal between yourself, the current owner, and a partner.

If you pass on this deal, you might want to consider looking outside of Midtown to build some equity. Between living in Midtown and East Sac, we bought and lived in Oak Park for a couple of years to build an equity base to be able to invest and move to where we wanted to.

This isn't a hypothetical for me, although car selection is one topic I don't see eye to eye with MMM. Both of our cars land on his 'no no' list.

1) 2000 Subaru Forester. <$4k.  MMM doesn't like subarus due to the low mpg (all wheel drive). This is our cargo car. I can easy throw 4x8 sheets on top. 28mpg, but it doesn't get driven much as my wife works from home. AWD helps for trips up to the mountinains. Bomber reliability assuming you replace the couple of things that need to be replaced with age.

2)2004 VW golf diesel. This will be a little more than $5k, but I make up with that in fuel savings since I commute 20+20 miles every day. Resale value is also quite high do to demand for these cars. The diesel drive trains are also solid as a rock.

If I didn't appreciate the higher ground clearnance of the Subaru, I would consider something like an older AWD mini van, as it would give more cargo space for house remodeling. 

I can't help but walk though the parking lot at work and laugh at all those shiny 4 wheeled down payments just sitting there.

Gas is the way to go in the long run; especially in a colder place like the midwest.

Those electric ductless AC/heatpump units are great for small spaces or fitting in additions, but If you're doing a complete rehab, I would go with gas, as it shouldn't be an issue fitting it in.  

I'm not sure on the heat pump vs SEER AC.