All Forum Posts by: Alex G.

I’d suggest a careful review of the deed restrictions. Many of them come with a provision that a certain percentage of votes (often 75%) can amend the restrictions.  I.e., you can, for instance, add that a number of units can be built on each lot to match current zoning.

 Also keep in mind each section of the subdivision often has its own set of DRs. Pull the plat and count how many lots / owners are in your section. You can then go door to door (or mail) to persuade other owners within your section to sign the amendment. If you have enough folks who agree, you could file the amendment with the county and you’d be good to go. It’s a laborious task for a large section, but may be warranted if financial prospects justify it. 

It wouldn’t hurt to offer a small “bribe”, like a gift card or donation to their favorite charity.

IF you're in the city of Austin I believe @Tim Wang 's comments are on the money. You'll have to submit remodeling application for an addition with plans as if you're doing a brand new 1,300sf addition. There is the costs, delays and managing the complexity of the process that Tim described. 

However, there is also a considerable risk in this endeavor. You could be required to tear off at least parts of drywall to prove that the electrical, mechanical, plubming, structural, insulation, siding, etc -- are all done to code. 

What if the city determines your slab for the addition was poured incorrectly? Where do you go from there?

If you're already planning to redo most of that work, your costs may not rise dramatically. But if you're just looking to spruce up the property, pulling permits WILL increase your costs significantly and will expose you to the above risks. And if you're caught doing the work without permits you'll likely be required to do most or all of that work anyway.

One thing I'd look into is why your "appraised footage" is already showing 3,000sf. Usually the size of improvemens is not updated on the county tax rolls unless and until someone pulls the permits for an addition and completes the work. That's how the city & county know there is extra living space on the property.

Sorry, I just realized my references to city of Austin may not apply if you're in Travis County outside of the City. 

I wonder if @Danny Webber could chime in. He strategically has been doing rehabs in the county outside city's jurisdiction to avoid dealing with city of Austin development office. 

That's not really an answer to your question. But why you'd want to pull permits, unless you absolutely have to? You can remodel without permits and disclose accordingly on the Seller Disclosure. I suggest over- disclosures in this case to avoid future liability. Since you're a licensee I'm sure you know what I mean.

It's a very personal decision for each investor, as well as for each project. I've gone from no permits on a $250K remodeling project to full permits on others, and back to no permits. If you do pull permits you're looking at substantial delays and hussles with plans reivew/approvals, inspections, significant city fees. 

Don't forget to figure in extra engineering, plubming and electrical cost increases as your plumber, electrician and contractors will pad their bills to cover the extra costs and time they'll have to expand on compliance. 

While pulling permits at least in theory increases the desirability of the property, current demand  for properties in good condition in a hot area is such that you likely won't see major difference in the resale price, as long as you do your remodeling job right. 

For starters, you haven't mentioned if you're planning to use a conventional lender or a hard money lender. 

Most of conventional lenders will not loan money for a rehab portion.

Most hard money lenders who loan of flips will (a) loan you up to 90% of the price you're paying (ie., you'll have to cover 10% of purchase price in cash + lender's costs + closing costs out of pocket), and (b) include 100% of the rehab budget into the overall loan balance. 

However, they will not give you cash in hands to do rehab at closing. It'll be set up as an escrow account and disbursed based on a schedule of completion, after inspections/approvals by the lender.

That is assuming your purchase price + rehab total falls within lender's max LTV based on ARV. For most it's 70-75%, some will go as high as 80% of ARV.

Once you rehab is completed, you could do a long term fixed rate refi for the entire balance.

I’d buy something like this in a heart beat ;-) so make sure you secure that puppy ASAP.

One of the most active local lenders is HouseMax. I’ve done multiple loans with them, they’re reliable. Your rates/terms will in general be based on credit and experience, but they have some of the better rates/terms for rehabs. Be prepared for at least 10% cash down on a purchase + some lender fees/closing costs/title policy, etc.

Good luck.

I’m not an accountant; talk to one to confirm... 

To qualify for your IRC Sec 121 capital gain tax exclusion on the sale of your personal residence you have to live in the house for 2 years out of the last 5. Which means you have to sell within next 3 years after moving out of the house to avoid paying cap gain taxes. This seem to fall well into your plans while allowing you to pick up 3 extra years of appreciation without paying taxes on the gain when you sell.

In TX there is no law that requires to report sales of real estate to the state, county of city offices. If the property hasn't sold via MLS it is usually a direct sale between a seller and a buyer. The only other parties that know the sold price are a title or attorney office closing the sale, the mortgage company that arranges the financing for the buyer, possibly an appraiser, and a title company issuing the title policy.

I suspect, for privacy reasons they will not disclose the sale price to a 3rd party like yourself. Unless, perhaps, you have an insider there who is willing to bend the rules. 

It is possible that major title insurance companies issuing the policies on sales are aggregating this data and reselling it for marketing purposes. But they probably don't do it on a single property basis.

I’m not sure in which subdivision your home is within 78723. You may want to check deed restrictions (DRs) in your section of the subdivision to make sure they allow 2 units. With SF-3 you have a zoning that allows 2 units from the city/county stand point. However, I’ve dealt with some parts of Windsor Park where DRs didn’t allow it. A few years ago I had to cancel a contract on 3 lots zoned SF-3 that, upon further research, didn’t allow 2 units due to DRs.

A "good" loan is one that allows you to accomplish your goals while minimizing the risk, GIVEN your personal financial situation (cash+credit) and experience.

When I was green, had no track record and practically no money - I paid as much as 21% with interest and other costs. The funds were expensive, but I wanted to do a deal and I knew I wasn't partucularly attractive as a borrower. So to get started I had to find a few spectacularly good deals with a very low LTV for the loan and pay through the nose for the money.

Lenders felt safe enough even with a rookie investor/borrower with very little money out of pocket for me - and they made good money off my projects.

As you gain experience and establish a track record of successful exits out of these loans, the money will get A LOT cheaper and LTVs will get higher. In addition to a traditional hard money lender that will go in the 1st lien positiion, there will be funds available from private lenders willing to loan you in the 2nd and even the 3rd lien position to fund rehab and other expenses, etc. 

What to look out for...

1. Try to avoid shorter term loans of 6-9 months, go for 12 months + option to extend. Sometimes these heavy duty rehabs just don't go according to plans. You got to deal with the city, permits, inspections, etc. You can lose a GC (or a couple of them) in a middle of a long project. 

A long project could start in a very "up" cycle and end up in a down cycle. In recent years Austin has been pretty resistant to that kind of change, though no city is ever totally impervious to a down economic cycle.

Some of the conventional lenders will require at least 6 months seasoning, and sometimes 1 year. So a 6 months HML will mature before cheap conventional loan could be obtained.

2. There are some HML there designed for people who don't have ability to make payments. They wrap 12-months of advance interest of un-made payments into an original loan AND then charge interest on interest. While it's a solution for someone who has no income to support HML interest payments, this money gets VERY expensive.

3. Avoid loans that have provisions to bump principal balance at maturity. I've seen those that require a 5% principal bump if you're 1 day past maturity date.

4. Avoid loans that require financial reporting (i.e., submission of financial statements & tax returns, project accounting, etc.)  prior to maturity and have default clauses if you don't comply with such requests. I had to cancel a loan 1 day before closing where a crafty lawyer for the lender put such provisions in the docs.

5. Request review of the loan docs ahead of closing. I've seen 100 page loan packages that I had to sign to get the money. These days I'd rather sign a standard FNMA Note and Deed of Trust and pay a higher rate, if I have to, than get the cheapest money while having to commit my firstborn. 

Spending 2-3 hours trying to wade through 100 pages of legal docs with some crazy clauses designed by a crafty attorney  - isn't exactly my idea of quality time. Understand that they write these loan docs for publicly traded companies, so the loans a local HMLender is originating could be packaged/pooled/sold/resold/chopped in pieces, etc. 

They want all kinds of controls in these legal docs just in case the market changes and they need to get out of these loans quickly. You can't blame them, it's their money, and they can demand their terms. However, be aware that signing these could put you in a precarious position.

With regard to rates/costs...
 
It's impossible to say what yours is going to be since you're new and your financial strength and cash you've got to put down is unknown. In general right now the rates offered on HML for rehabs are in the 7-7.5% on a low end and up to 14% on a high end.

Points and origination fees vary dramatically too from 1 point to 3 pts. Also note, if you're charged 2 pts on a 6 months long loan that has provisions to extend for another 6 months with 2 pts, you're effectivelly paying 4 pts equivalent on a 12 months loan. 

In general, lower interest, lower origination costs and higher LTV are "reserved" for more seasoned investors with a track record and prior successful payment record with a particular company.

Some companies charge $800-$1600 underwirting / processing fees, while others don't. Some companies require a formal appraisal ($500-800) and a survey ($450-$600), while others don't. 

There is also LTV and LTC difference between loans. The typical loan LTV these days is 70-75% of ARV. As far as LTC, most companies require at least 10% cash out of pocket and fund 90% of purchase + 90%-100% of rehab costs. Some companies charge interest on all rehab escrow funds from day 1, while others charge interest only on rehab funds you have used up. On a large rehab, $100K+ that difference in interest charges could be significant.

If you find a true steal of a deal there are companies and individual private lenders that will fund 100% of purchase.

There is a lot of generalization in all of the above, but that's the reality of the wide range of HMLs in the market out there. The good news for all investors is - HM lenders and their programs have become dramatically more plentiful, cheaper and easier to get in recent years. 

There is plenty for all level of investors and I'm sure there is some for your project, if it has financial merits.