All Forum Posts by: Jordan B.

 $50k is what I will be borrowing via private money.

Purchase price will be $80k and I have estimated $20K for repairs and updates. So when everything is all said and done, I am aiming for $1900 in rental income off a property that will hopefully cost me $100k when all said and done.

 Hi Chris, 

Thanks for reviewing my post. These numbers are estimates based on comp's, Bigger pockets, etc. 

 Sorry, for the confusion. This would be 10% APY. So $50k compounded monthly would be $416.67 a month for interest. I would ask for a clause to be able to pay off their initial investment as early as 6 months with no penalty. So instead of paying $5,000 for a $50,000 loan for a year, i could get away with roughly $2,766 in interest if i can complete this in 6 months. 

Any help, tips, or any other comments on the below would be greatly appreciated!

I have a few family members that are willing to give me a private money loan at 10%. I will pay 10% interest for each month their money is in use and will pay them back in full once I have done a cash out refinance. 

The property is listed as a duplex with each having 1-bedroom and 1-bathroom. This is a bank owned property that is currently vacant in need of rehab. Property taxes are very low for my area and this is located in a 10/10 school district. 

Property Details:

• Purchase Price: $80,000
• Est Rehab Cost: $20,000
• Property Taxes: $2510

Private money Loan:

• $50,000
• 10% Interest
• Monthly Interest payout: $416.67

Monthly Carrying Costs until cash out refi

• Interest Expense: $416.67
• Property Taxes: $209.33
• Water/Sewer: $55.00
• Home Owners Insurance: $80
• Total: $761 

I plan to carry the monthly carry costs for 6 months while i have the property rehabbed/updated and suitable renters found. Once completely occupied, i will do a cash out refinance for the total amount of the purchase price and pay back the private money lender and all rehab costs. 

New Property Details:

• Estimated Appraised Value: $130,000
• Property Taxes: $2510 yr
• Property Insurance: $960
• Unit 1 Rental: $825
• Unit 2 Rental: $1075

Cash-Out Refinance:

• Loan amount: $80,000
• Interest Rate: 4.25%
• Term: 360 months
• Insurance: $80
• Property Tax: $209
• Month Mortgage Payment: $682.89

Monthly Property Expenses:

• Mortgage: $682.89
• Water: $60 (30 per unit)
• Sewage: $25
• Heating Oil: $200 (Estimate)
• Maintenance/Cap Ex: $190.00
• Total Monthly Expenses: $1157.89

Final Numbers:

• Total Monthly Rent: $1900
• Total Monthly Expenses: 1157.89
• Profit/Loss: +$742.11 per month / $8,905.32 yr

Am I missing anything? I pulled these numbers off of calculators i created in Excel. In order to make this deal happen i will have to pay for 6 months worth of carry costs which total $4,566. 

Property cost: $80,000

Carrying costs: $4,566

Rehab costs: $20,000

Total: $104,566 for a property potentially worth $130,000. 

Questions: 

When i do a cash out refinance, are closing costs due up front or are they rolled into the mortgage? Is any downpayment usually needed for a cash out refinance? 

2017 Non-Owner Occupied Cash Out Refinance Rules

Here are some recent rules and guidelines for cash out refinances on rental properties as set by Fannie Mae:

§The maximum loan-to-value is 75% for 1-unit properties and 70% for 2- to 4-unit properties. These maximums are lowered by 10% for adjustable rate mortgages.

§If the property was listed for sale in the last six months, the maximum LTV is 70%.

§The property must not be listed for sale at the time of loan application.

§The property is not eligible for a cash out refinance if it was purchased within the last six months. There is an exception for properties that meet the Delayed Financing guidelines.

Delayed Financing Rule:A rental property that was purchased within the last six months is eligible for a cash out refinance if:

§The new loan amount is no more than the original purchase price plus closing costs.

§No mortgage financing was used for the purchase, unless the financing was on another property.

§The transaction was arms-length, meaning the seller did not have a pre-existing relationship nor a financial interest in the sale besides the sale itself.

§The buyer has a final Closing Disclosure (final settlement statement) showing the purchase price and other details of the transaction.

Thanks guys.

I am going to be scheduling a call with a lawyer. Our lender spoke with their lawyer and they said that we have a very good case. Pennsylvania is a seller disclose all state fortunately and this all should have ben stated on the Disclosure.

I am not getting my hopes up just yet but so far so good.

@Laurie Johnson

Yes, we had a home inspection done prior to purchase and nothing really came up. He said everything looked great for the most part. Of course he couldn't go into the walls and floors and see the plumbing work done and electrical work.

I did take pictures of all the plumbing that was exposed from below the toilet and behind the access panel. Bottom line is this is all new plumbing and no permits have been taken out on the property.

@Jacqueline Carrington

Thank you for your response. The problem is no permits were taken out on the property. Ultimately this would fall on the Flipping company I would think.

Also, I am told by neighbors that the workers were all from Ecuador and didn't speak English. So that's out.. 

Thanks for the advice everyone.

The property was purchased by the flipper after the original owner passed away. He was 90 years old.

I was told by neighbors the Flipping company came in and redid the whole house.

Not sure how I can prove the Flipping company performed all the work.

Long story short I purchased a "flipped" home and now finding out the previous owner never obtained a permit for any of the work.

This was my first home purchase and I missed a lot of the red flags I am now seeing. The sellers disclosure stated that they only performed cosmetic renovations and repairs to the house. Therefor, no permits were obtained for any of the work.

Now, after living in the house for about 3 weeks we had a major leak in the upstairs bathroom that came through the living room ceiling. Once the plumbers came out they noticed all new plumbing in the bathroom and a bath tub drain/vent pipe that was disconnected. After some more observations the plumber stated that all the work looked very shady and few things were not up to code. I told him that I was told repairs were only cosmetic and no permits were taken out on the property. He told me to take pictures of everything and to contact my agent immediately.

So here I am with un-permitted work performed in my house and a wet ceiling and damaged furniture.

Am I screwed here or can I go after the seller?

I paid a pretty penny for this home and now I cant even lie my head down at night without worrying what MAY or MAY not happen in this house. I certainly don't feel as safe in it and I WOULD NOT have purchased this property if I had known that work was performed without a permit.

Any insight or help would be appreciated.