All Forum Posts by: Frank S.

@Ryan Murdock @Mike Wood These numbers are very conservative. In a more real-world scenario, the construction cost will be 300K and the sales price will be 800K. The area is very hot and did not flood during the last few major storms Houston has experienced (I'm in Texas). I just always look at the worst case scenario with numbers. I'm still a rookie. This would be only my 2nd new construction project. I have always been told I make money when I purchase so that's why I was taken back when the seller asked for more money after speaking with him for months.

Any advice welcomed! I have shown interest in a gutted home in my neighborhood for about a year now. I plan to tear down the dilapidated property and build a new home to flip. The area is hot and has other new construction going on. I spoke with the owner, an older investor himself, for the 4th time asking if he would sell. He finally gives me a number he wants, 275K for the lot. I agree because other homes in the area that have been bought for new construction have sold for around 265-275K. I send him a contract for the exact amount he mentions. After a week, he calls and says he wants 10K more. 

Here are the numbers:

285K for lot

350K for the new construction

700 minimum sales price based on comps

65K estimated return before taxes in 9 months to one year

Should I give him the extra 10K he wants? Should I counter? I'm afraid of making him mad because that lot is one of the best lots in the neighborhood and very convenient to my current residence. He also owns the home next to it but he rents it out. He owns other homes in the area but this lot is his best for a new construction strategy. Any unconventional counter strategy you would recommend?

I have a motivated seller who has a recent appraisal (9 months old). Can I use that appraisal with my lender instead of buying a new appraisal?

The appraisal is for $134K. I am buying for $90K (with a loan valued at $72K). Anyone can see on the MLS that the property would sell for over $140K. If I can or can not use it, where is that rule/law written?

@Justin Holwell I have SFR rental properties in Cypress and Bear Creek, suburban areas NW of downtown. My property in the Bear Creek area was very close to neighborhoods that went under. We're talking entire neighborhoods that had an average of 4 feet of water in the house because the city authorized a slow release of the reservoirs. I was lucky and did not get flooded.

@Larry Turowski

Forgot to mention that I'm not interested in a flip unless I have to exit because I don't want to pay capital gains.

You are correct it would be 107K not 134K.

I just found out today that the owner will file a claim on her roof and get it repair or replace, saving me 5-10K. That makes the deal a little better, right?

I feel that I'm stuck between strategy 2 and strategy 4... What would you do?

To touch on Houston a bit... It's a bit crazy right now. I've been looking at flooded homes and I don't think it's something I would get involved with unless the home was a first-time flood, the owner is motivated and willing to subject-to. On the other hand, if you have a property that did not flood it will go up in value and rents are going up too.

Motivated seller selling me a 3/2 SFR but not sure what strategy to use.

Property Details:

Written Appraised Value - 134K

Purchase Price - 90K

Rehab - 15K

Rent - 1,250/mth

Tax Rate - 2.54%

Strategy 1:

20-year mortgage, 4.63% interest, 20% down

Purchase, rehab out of pocket, rent it, pay off the mortgage FASTER but collect LESS passive income.

Strategy 2:

30-year mortgage, 4.75% interest, 20% down

Purchase, rehab out of pocket, rent it, pay off the mortgage SLOWER but collect MORE passive income.

Strategy 3:

25-year, 4.125% interest, 45% down

Assume the current mortgage and pay the owner their profit of 40K. They owe 50K to their lender. This would require the most upfront but get the most passive income.

Strategy 4 (BRRRR):

Purchase the property and rehab with cash out of pocket. Rent and season for 6 months, then cash out refi. This would get me the property essentially free BUT would leave me with almost no passive income (break-even) because the rent is not high enough, the mortgage would be for 134K, the property tax is not helping and I would have to close twice in a short period.

What am I concerned about:

1. Not collecting passive income

2. Tying up my cash, I'd like to purchase with as little as possible

3. Property tax appraisal

4. Taking 30 years to fully own

5. Closing multiple times

WHAT WOULD YOU DO?

Thank's everyone for your input. Below is the article that originally got me thinking of making offers without an agent because I too was told the seller's agent pays the buyer's agent commission but the article discusses other scenarios.

https://www.thebalance.com/who-pays-the-commission-to-the-real-estate-agent-1798867

Sorry for the stupid question... If a home is listed on the MLS by a seller s agent, can I submit a written offer (TREC Contract) and close without a buyers agent?

Correct. Most underwriters will not approve a second FHA loan. Are you married? Maybe your wife can get an FHA in her name but then they will only consider her income, not yours.

You can use credit cards, hard money, family, friends. But they all have their pros and cons. Maybe you should save for a down payment before jumping in or look for a more affordable property or property in another area that is more affordable.

One more thing: Know the strategy you want to use because that will affect your financing perspective. If it's a short term flip, then the high-interest rates and down payments may not be as big of a deal (if everything goes right). If it's a buy and hold, then you may be okay with rates but not the down payment because the renter will pay off your mortgage.

Hope that helps,

Frank