All Forum Posts by: Jaysen Medhurst

@Tony Hoffer, YES! This is something to be concerned about for a whole host of reasons. Running a foul of all kinds of local zoning laws is just the beginning. You also risk:

1) Committing mortgage fraud by misrepresenting the property and/or how you're using it.

2) Exposing yourself to liability if the 3rd renter discovers they are in an illegal unit.

3) Voiding your insurance. Do you think you're going to be covered if the 3rd tenant starts a fire and burns the place down? What if someone is hurt or worse?

What's the upside? You now have great leverage when negotiating to buy one of these properties.

Hey, @Mike Regnier, I think it's a great selling point.

Energy costs ~30% lower than conventional

2-3X the lifespan

Much lower risk of failure resulting in flooding

And the best reason? Never ending HW. Last shower of the morning is as hot as the 1st. That means a lot to a family with a couple of teenagers

Just make sure that you size it properly so that the unit can handle the usage.

Sure, @Ryan Keenan, Fairfield county is tough as the prices and appreciation are so high. But it's worth looking in Danbury, Hartford suburbs, SE CT-New London/Groton.

Banks make money in a number of ways:

The fees you mention above.

Fees for servicing the loans on an ongoing basis.

The "float," i.e. using the money from the time they borrow the money from the government (at next to no interest) until the mortgage closes.

The "spread," i.e. the difference between the interest the bank pays to the fed and the interest paid by the homeowner

@Ryan P., love your hustle, but I don't think your plan for this property has much chance. There's no upside for the bank to work with you at this point, prior to it going on the market. It would be one thing if you were a cash buyer, but as an FHA buyer...sorry.

Few things to keep in mind:

1) What's the After Repair Value (ARV) of the property once it's been renovated? Personally, I'd want it to be in the $270-300 range, at a minimum. Best case you buy the property like a flip = (ARV*.7) - Repair costs. That give you instant equity once the construction is finished, which gets you out from under PMI. You even be able to refinance and pull out some cash.

2) Be wary of Duplexes, they are very difficult to make cash flow once you no longer owner-occupy. Reason being the expenses are only spread across 2 units as opposed to 3 or 4. It costs about the same to have the grass cut, no matter how many units there are.

Good luck and keep looking. The deals are out there!

@George Crawford, unless you expect to see great appreciation, take your equity and find something else. You're return on equity is 1.2% at most ($200/month cashflow with $200k equity). That's terrible.

1st thing: get an idea of how much equity you reasonably have. $200-300k is a big range. Explore BP for BRRRR strategy. It's great way to use that money and put it to good use.

@Jeremy Hunsberger, I think you identify markets where you have people that can be your "boots on the ground." Even if it's only a few hours away, you need people that know the neighborhoods, can use their contacts, and can be trusted.

Curious, why are you looking outside your area? I've heard there are good opportunities in the Lehigh Valley and Harrisburg/Carlisle areas.

@Annabelle Lee, 1st off, you buy this as a single-family, not a duplex. Don't let the buyer or his agent try to convince you otherwise. And gently remind them that they are required to disclose to any other potential buyer that the basement is not a legal unit (I assume the laws in Canada are similar to those here in the states)

I would run the numbers as a worse-case scenario and make any offer based on that. Who knows what will be involved in making the basement legal. Certainly, legal and zoning issues/costs with the city, but it is VERY likely that the basement isn't to code. If you want to make it legal, you'll have to bring the whole unit to code 1st, including proper egress, windows, etc. That could easily be tens of thousands of dollars. Especially, if the original in-law suite was done by the homeowner himself. Also, multi-family properties may not even be legal in your neighborhood. Or not anymore. You really have to be sure and check out the zoning regulations.

You can pull all building permits on the property to get an idea if the work was done legally.

One workaround that I can think of (and I am NOT a lawyer, so investigate this thoroughly) is to rent the whole house to two people, they they figure out who takes the upstairs and the downstairs. Just like they were picking bedrooms.

@Robert O'Grosky, have you looked into HomeStyle loans? It a government loan program (similar to FHA), but available to investors.

I would Google the 10 largest local/regional banks in your area and just start calling them 1 by 1.

@Elijah Jay Dangerfield, I think your rental estimate is pretty optimistic. I did a quick Craigslist search and 3/2s are renting for much less. I saw 5 bedroom rentals in that price range. Even if you rented by the room to college kids, you'd probably only be around $1350/month ($450/room). Not sure if you've got the stomach for college rentals. It can be a good business.

I think you really need to run some realistic numbers. That being said, it might be a great deal, if you don't have to put a lot of money into rehab.

Get your numbers together, post them here. Lots of BP members are happy to give you a good assessment.