All Forum Posts by: Evan C.

This is easily one of the most frustrating and uncertain elements of investing for me. I approach it this way: I use the photos/video from my realtor and his/her expert advice to write a list of everything I know I'll need to do to get it rent ready. Then I work on estimating costs for each of those. This can take a number of forms. I have a couple of rehabs under my belt now, so if the home is in the same area I have a decent baseline for reasonable costs. But those can change too! You could take your list, if it's detailed enough, to various contractors for estimates. You could also take your list to the internet, having listed in some detail what materials you'll want, and go find those prices at local stores, estimate labor costs, and get your estimate that way. There are a LOT of intangibles/unknowables that crop up. Like: to what extent are you getting what you pay for with, for example, a $6,000 roof replacement vs a $13,000 roof replacement? Sticking with roofs, J Scott's book on estimating rehab costs does list costs for rehab items, but in some cases, like roofs, the unit given is the 10' x 10' "square". Which is a bit hard to measure if you aren't actually AT the property (for me, anyway), though he does offer a method (length of house x width of house x 2). Other things can't easily be seen but may have a cost, like foundation issues or plumbing. I've tried to have contractors walk through before purchase but it has been hard to arrange so far. Perhaps that is something that gets easier with a strong relationship and a few rehabs done with the contractor.

Bottom line: knowing the costs in detail is a competitive advantage that comes with experience. In the beginning, it's a disadvantage. So build the risk into your offers. 

@Evan Polaski, the two can't be separated because they are on a single loan, but they are on separate land parcels. You're right, that's kind of a pain. I think it's manageable though. Update on the pricing though: based on a walkthrough of one property I've dropped the offer to allow us to be all-in for 70% ARV with a $40k reno. Still haven't accessed the other because tenant didn't show to walkthrough appointment, which will be an issue if it persists.

@Evan Polaski, interesting take. I've done this once before. You're right that there is not an enormous space to work with in terms of equity. I have to admit, in my limited experience so far this seems pretty normal (going back to 2019 when I "started" seriously). I haven't seen (or, perhaps, recognized) equity upsides any larger than this. Our rehab plan will have to make some decisions between what we would ideally want and what the budget will bear. Nevertheless, I think we can make that work in this area. 

So, we are under contract on what looks like a great deal but we have to cover a gap in funds to close the deal. Here's what it looks like:
Two homes in a secondary market area in North Carolina. The two were being sold together and couldn't be separated, which would have been preferable.

The SFR homes are a 3/2 and 3/1. On septic and public water. Built in the early 80s. Both a little over 1,000 sq feet.

Pricing and Value: Each home is $75k, so the package is $150k. County tax value of each home is above purchase price. ARV estimate is $110k and $115k. Rents once renovated are around $1,000. They're on month-to-month with long-term tenants who haven't seen a rent increase in years.

Have a nine (remaining) day period to gain access (due to tenants), assess conditions, and either continue or pull out of the deal before earnest money is due.
The problem we're experiencing is that buying as a package strains our liquid reserves to an uncomfortably tight level. We are talking to some hard money lenders about bridge loans that include rehab but we're probably still short some cash.

We talked to one lender about refinancing our other investment property at the same to gain extra cash, but with that lender's higher construction reserve requirements we're still short.

Anyone tackled this problem before? Thoughts on where to find a bit of extra cash? Any critiques of the deal?

Another less-ideal factor is that if I buy these on one loan (as may be necessary to meet minimum deal size) then I will have them forever linked, even after I refinance, unless I pay off the loan.

We invest remotely with a realtor and PM.

I could imagine a strategy for this area where a (probably younger and single) person buys a small place with an outdated interior. He/she takes in a roommate or three, uses the extra cash to modernize the interior, then sells after two years (which I understand to be the shortest time to avoid short term capital gains taxes) and buys another place suitable for roommates and in need of work, hopefully reinvesting the gains to get a bigger place or do a better/faster rehab. Sell after another two years or perhaps refinance at the higher value and keep as a rental. Sort of a "live-in-flip-house-hack" Frankenstrategy. At some point though said person might want a family and a house that isn't under construction. 

@Christopher Miller I asked this exact question during a the meetup hosted by @Adrienne Green just a couple weeks ago. Glad it's not just me. My take seems to be that, yes, there's always SOMEONE making money but in this area it is (mostly) not the small newbies. Those who appear to have found ways to wrangle millions at once can definitely make some more money though (@Levi T. Hope to see a "how I built this" blog entry some day). If I were to try here I would take @Scott Matthew C. 's advice and look west out 50, I66, and Rt 7. The trick of course is figuring out how far is too far. My solution was to go way south, in North Carolina.

@Jeff S. that is an incredibly helpful explanation, thank you. As I've been calling around most are requiring it, for whatever reason. And since nobody seems to sell to conventionally financed buyers these days it looks like I'll be heading down that road.

@Derek Dombeck Thanks, this is interesting. I wonder if it's a regional or state thing? Two lenders in NC that I've contacted DO require it. The respondents from WI and MN do not, but NJ does.

@Sean Blomquist Thanks. Yea this was just in the pre-approval stage so I wasn't even discussing amounts yet. Strange thing to claim.

Just had a hard money lender claim that all hard money loans would require an LLC. First I've heard of it (but also first time I've looked into hard money). True or false?