All Forum Posts by: Eddy Dumire

Will do @Mike Oconnell.  I'm sure my wife would have me JUMP at the chance. :)

I'm going to talk to the tenant and feel it out first.  I'll definitely keep you in mind though.

Thanks for the info @Jassem A.

I looked at the zip you provided.  Yes those are definitely some cheap properties and some certainly qualify for the pig designation.  My opinion is that my area is very expensive in general, so what may be a pig at 20k in Indian Head, MD is still a pig at 42k in Fredericksburg.

@Jay Hinrichs

Flipping is definitely something that's on the table.  I really can't make any decisions until I find out who is in there and what their tenancy status is though.  I guess I need to start drafting up my letter to the occupant.

Eddy

@Daniel Almodovar

I'm already a member of the Rappahannock REIA. I haven't been in a couple months but I'm planning on going on Monday.

@Jay Hinrichs

This entire venture for me is an experiment.  This is my third house.  My last two were very different properties.  They are in desirable A/B neighborhoods.  The properties have already appreciated significantly from where I bought them.  But they don't meet any of the "Rules" that are so pervasive.  2%? Ha! I don't even meet the 1% rule on my first two.  50/50?  If that's true then I'm in trouble.  70%?  I'd never find a house in my market.

To my wife, this property is terrifying. She has already voted for every exit strategy that leads to a sale. For me, I think it's just going to be a lot more work but with a better ROI than the other properties.

The reason I call it a pig is because I think it meets the @Ben Leybovich definition.  No, it's not a 30,000 property like he describes here:

http://www.biggerpockets.com/renewsblog/2014/02/25/why-you-should-not-buy-cheap-houses/

But it my market, it may as well be.  I can't imagine that anyone really wants to live in that neighborhood.  All the houses have sold for about the same price for at least 2 decades without real appreciation.  Nobody is scraping off the old ones and building anything better. And it's a 2/1.

I guess the reason I think its a pig may be just that it's so far outside my comfort level.  I do think I got a really good price and that's really the only reason I bought it.  I was pretty sure that I could come out ahead one way or another.

So that leads to a new question.  Nobody else in the neighborhood has expanded the footprint of these houses.  It's an entire street of 25x29 brick boxes that are more or less identical.  Should I entertain the idea of doing an addition and converting this to a 3/2 or 4/2?  What would be an acceptable recovery time for an improvement like that?

I'm going to visit the property today and knock on the door. Wish me luck.

Carol,

I was thinking it would be a lot of effort for someone to fake a lease. Am I being naive? In any case, if its anywhere near market rate I'll just take it. If its absurd then I'll have to think of something.

Eddy

It's not because you're an investor or that it's your third home.  Many things in the mortgage market are priced in points or percentages of the sales value.  With very low loan amounts, there isn't any money to be made for the banks.

Your best option is to just call around and ask what their minimum loan amounts are.

Check with Amerisave.com.  Their site lists a minimum loan amount of $35,000.

Eddy

In a nod to Ben Leybovich, I bought a PIG.  I'm going to tell everyone how things work out for me on this thread.

The deal:

2/1 house in Fredericksburg, VA. It's a very small 725 single story all brick on a crawlspace built in the late 50's. I bought it at REO auction for $42,500 including buyers premium. I paid all cash using a LOC on another investment property, but may refi into a conventional loan down the road. I estimate the ARV at about $90k on the retail market, but it's difficult to find comps as that street is fairly unique. The cheapest house in all of Fredericksburg on the MLS right now is $81k and it needs a lot of work.

I would venture to guess that this is the worst neighborhood in Fredericksburg -- definitely class D.  Virtually every house on the street is a rental unit.  Almost all the property sales appear to be distressed.  My wife says she doesn't want to go there at night, but seems to be ok during the day.  There are a couple of old couches in the yard, a window a/c unit in the front of the house and a towel stuffed in beside the ac unit to close the gap.

Crime searches in the neighborhood don't turn up anything terrible though so I don't think it qualifies as a war zone.

This was sold as an occupied REO which means I haven't seen the inside of the house yet and I don't know anything about the tenant history. I like that the exterior is all brick and seems to be pretty sound from the few drive by's I've done. I'm pretty much banking on the hope that I can do a full gut of this house if necessary for less than about $45k.

Long term, I'm not sure yet what I'm going to do with this property.  A fellow BP'er has another one just like it down the street that is on the market for $900/mo.  He says he's getting really good traffic, just waiting for the right tenant.  I'll let him identify himself if he chooses.  If that holds up, and I spend very little on the rehab, then this will be the closest any of my properties come to the 2% rule.  There's another listed for $995 on the same relatively small street.

Alternatively, I thought of just flipping it and selling it as a starter home or investment property.  I've noticed that the same investor owns both of the houses next door to mine.  I would think I could unload it there pretty easily too.

I also have considered doing seller financing, getting a good size downpayment and holding the note.  Worst case scenario I would think is that I get the house back in a few years and start over again.

My immediate plan is to knock on the door tomorrow and find out who is living there and if they have a lease.  I think that discussion will largely dictate the direction this goes for at least the first few months.  The possibilities I see are:

1.  Tenant living there but can't or won't produce a lease and wont sign a new one -- treat as squatter -- offer cash for keys and/or give 30 day notice to quit.

2.  Tenant living there with current lease.  Ask for copy of lease, honor existing lease for as long as they want to stay.  Reassess at end of lease term.

3.  Tenant living there with expired lease in month-to-month continuation -- get him to sign a new lease or give him 3 months to leave (I think this is required since this was a foreclosure I don't intend to occupy).

When and if the tenant leaves, then I'll go in and decide what work to do and where I go from there.

I'm looking forward to hearing everyone's comments and feedback.

Eddy

I wrote about this extensively in another post, but if you have to go the PMI route, ask the lender to give you LPMI (lender paid mi) and then buy the rate back down to where it was without PMI with discount points.

Rather than paying 100-200 per month, you'll make a single payment of a couple thousand at closing. 

Let me know if you'd like to hear more details.

So I'm still a little new to this myself so I haven't even done my first year of taxes after owning my first property (bought in 2014 and filed an extension), but couldn't you just add the depreciation expense back into the rental income reported on your taxes and divide by 12?  Since you've owned it for a few years these numbers should be fairly accurate.  I wouldn't rely on repair and capex costs being accurate in the first year or two but I would think you would reach some sort of steady state over many years.  Does anyone see a flaw with this line of thinking?