All Forum Posts by: Drew Castleberry

 Two more things that I forgot to include in my other response. If you refinance as owner-occupant, just about every loan I know of says that you need to occupy it for a year. Obviously if you end up having to move 50+ miles for work or some health/family situation there are exceptions, just don't plan on refinancing then moving out the next week. There are more knowledgeable people on BP than I am on this, if you do a search you can find more details.

As for getting your fiance's mom's house, make sure you talk to a real estate tax attorney/accountant. There can be some major tax implications depending upon how you do it. Again, you can also search BP for more details as well.

 Keith - first thing you need to do an analysis on the property, see how much it can rent for, PM fees and how much your taxes and insurance will increase to (if at all) when you switch it to a non-primary residence. In my county, property taxes almost triple! Remember you need to also account for maintenance & repairs, vacancy and capex reserves.

Here's the Fannie Mae guidelines for loans. 

https://www.fanniemae.com/content/eligibility_info...

To do a cash out refinance you can do 80% LTV. The value is based off of a new appraisal that the bank will order when you refinance. Consider what your payments would be if you were to just refinance @ 60% LTV, 70% LTV and 80% LTV. Obviously 80% gives you the most money in your pocket, but refinancing only your current balance will give you more cash flow. 70% or somewhere in between will give you a balance between the 2. Play with the numbers and see what you're most comfortable with. I would highly recommend not cashing out the max at 80% if it will leave you cash flowing less than $200 a month after you take into account all expenses, mortgage payment and maintenance/vacancy reserves.

When I analyze properties, I want to cash flow at least $200 for SFH.

If you do it right, you can set up your portfolio with a great performing property for years to come. 

If you post some more information on the property we can help out with the analysis more. How much the current loan balance is, what you think it'd appraise at, what it'll rent for, etc.

 Seems like they try to make it as difficult as possible to do any DIY work through the 203k. So pretty much everything in the scope of work has to be approved as if the contractor is doing it, and then I'd have to work with the contractor on what I would do myself out of that scope. I can source my own material for the same price as a contractor without having to pay any markup on it.

Also just because borrowing the money is cheap, I can absolutely save a ton of money by doing stuff myself, such as things like flooring. On my current house I saved over $3k in labor alone.

So essentially I want to do two scopes of work. My DIY scope with the cost of materials only and then the contractor scope for materials and labor. But the way the loan is set up, payments only go to the contractor, so I would be forced to have him purchase the materials for me. This is a bit frustrating, but I guess it is what it is. Since this is all for a house hack, any way to use the least amount of money out of pocket and still be able to cash flow in the end works.

What about cost of materials? There's quite a bit of work I can do myself (install flooring, cabinets, etc) but want the 203k to cover the cost of materials only and have the contractor do some of the plumbing, electrical, etc. Is that possible?

Also what happens if you don't use the entire amount? Say you budget $20k for the renovations, but only end up needing $15k. Does the loan get adjusted for not using the extra $5k or do you have to spend it?

I'm looking at buying a property to house hack that needs an extensive rehab. I'm looking into using the 203k program so I don't have to pull the rehab funds out of my savings. Plus I plan on doing a good bit of the work myself, and my father in-law is a licensed contractor that I would have do the majority of the work, mostly just the stuff that would needs to be financed. I'm planning on using the streamlined since there aren't any structural issues and there's less paperwork, but the funding limit might push it into the regular 203k.

Anyone care to share their experience with using a 203k, either regular or streamlined? 

Check out Lima One Capital or the other HML listed here on BP under resources. You can get much better rates than 15%. I'm looking at using them for a flip and I'm getting just under 8% and they charge 4 points, but can be less if you do 5 or more a year. However you still have to put 20% down.

If you're talking about house hacking a property you're going to occupy, put 5% down as long as it'll cash flow when you're done with it. 3.5% the PMI will be on it for the life of the loan, but with at least 5% down once you hit 80% LTV it comes off, sometimes you have to request it, not always automatic.

But if you do your rehab or upgrades right, you could refinance and possibly hit the 80% LTV, so only bringing the 3.5% wouldn't be an issue.

The comps support an ARV price easily over 50% higher of the current list price, it'll even push upwards towards twice the list price.

$125k, but I'm sure they'll go lower. In the market the property is in, very few multi-family properties get listed, and they go for a premium. Even if I got it for the list price and had to put $50k in, I'd still be able to cash flow nicely and have substantial equity.

I've just found a deal on a 4 plex, unfortunately I haven't seen any photos or the property yet, and won't be able to until this weekend, and am waiting to hear back from the realtor. It's in a great location, next to a park and popular businesses, and I could easily rent each unit out for $500-$650 after the rehab.

It was built in 1980 and has been vacant for a couple years boarded up and everything, so it'll be a total renovation for the most part.

For all of you experts that have experience with 4 plexes, what do you think would be a realistic budget assuming I'd have to gut out all 4 units and rehab? Each unit is 2 bed 1 bath and the utilities are separate for each.  

I'd guess that it'd take roughly $8-10k per unit, so roughly $40k overall and add a cushion of $50k for overages and a few things that'll need to be done outside. I'll be able to do a lot of the demo myself with some cheap labor, but don't want to factor that into my budget. Sorry I know there's not a lot of details but this is all I got for now! Once I get some information from the realtor I'll post more.

Personally, from everything you said in the post, it looks like you've answered your own question. They're great properties, in great areas, can easily attract great tenants and you get a lot of cash flow from them. Personally I'd hold on to them, long term as part of your retirement strategy. That $1,500 income would be great supplemental income, especially in retirement. Definitely don't sell them to invest in the stock market!

As for refinancing, you'd have to post more detailed information about the properties (current mortgage, rent, etc).