All Forum Posts by: Michael Cross

Carrie,

Ask around locally too. I expected 70-75% LTV on appraised value as well when refinancing investments i did locally using the brrrr strategy. I was surprised when i found a local credit union with a commercial department offering 80% LTV. In my case, I was walking through a different property with my realtor and discussing refinancing one property before the next deal. He relayed the recommendation he had received from another investor he works with and suggested i talk with that other local investor about his experience.

1-4 unit properties provide many different options for refinancing but be prepared for your appraisal to not always hit exactly what you expect. I would recommend you leave yourself some room in the numbers when you go to refinance out of the HML and have some extra cash on the side just in case.

Ian,

That's awesome that you are finding some good options in your area to house hack. 

Are the rents below market rate? a good general rule of thumb is the 1% rule. If your total monthly rents $750 x4 = $3000 are 1% of the purchase price then general its a good starting place to evaluate a property so you will cover your costs. At current rents to purchase price you are at .81%. If your rents are way under market value and your property manager says they should be $900-1000 then the numbers work a whole lot better on this deal. If your rents are at market rate then you might want to find something where the numbers are a little better.

Also, what are the comps to your quadplex selling at? Your realtor can tell you. If you get a quote on the roof and the comps support your purchase price + the repairs with a little bit more wiggle room in the budget for an unexpected repair or expense then your deal is likely a good start. Be sure to get a home inspection and have any question areas from the inspection checked out by a contractor.

As for financing the deal, have you already used your VA loan? a 4plex still qualifies for your VA loan. Also, would you downpayment tap you out cash wise? Any property is going to need repairs at times so don't go into this deal cash poor or when problems arise you will stress out more than necessary.

With your military schedule are you planning to self manage the other tenants? I would not have been able to when i was in the military. Ask your realtor, friends, contractors etc for property management recommendations if you go that route. If you hear a common theme for several property managers then those are likely the ones you want to interview.

Marisa,

Thats practically the 3% rule, well done. Is that property in Atlanta or Detroit? How extensive was the rehab - it seems you refinished the floors, what else did you have to do in that $7,000?

Carol,

I have done 3 of these this year. I get a home inspector but i also recommend you get contractors to check specific problem areas associated with these old houses while you are still in due diligence. Some of them will charge an inspection fee $50-100, some will do it for free because you do good business with them, either way it will be worth every penny.


My key areas to check:

• Foundation - if its really old get a foundation specialist to check it out. 
  • I had one house that the home inspector who raised a red flag on, house was at least 100 years old. Foundation guy came out and said it was solid. He said he could put some metal supports up. I asked him what they would help fix for the house and he said nothing - just makes some home owners have a warm fuzzy about it.
• Electrical
  • Is it knob and tube? Is it cloth? Panel upgraded or a series of small panels cobbled together? none are a bad thing, all fixable but know what you are getting yourself into.
  • Check every outlet with a tester. Are any 2 wire, ungrounded?
  • Have your electrician run through it
• Plumbing
  • Do you have cast iron sewer lines? are any beginning to split?
  • What has been replace, are they copper, pvc? age of water heater?
  • make friends with a few plumbers who work in your area. they will be familiar with these types of houses
    
• HVAC
  • a lot of old houses i have walked through in southern PA are force air oil based systems
  • Just have them checked out to see age. none of this is bad
  • is it gas?
  • is it electric baseboard?
  • how old is the system?
    
• Walls?
  • Many of these old homes are plaster walls. check if it needs repair. this is not as simply as just tearing appear drywall walls. its going to take a lot more man hours if any walls need replaced/removed. its a dirty job but doable. I gutted one of my homes by myself, it just takes time and hard work
• Roof
  • Is it a slate roof?
  • Is it interlocking shingles?
  • is it architectural shingles?
  • I have made it a habit to get every roof inspected with a quote during due diligence - these old houses have beautiful roofs but they can be big and expensive so arm yourself with knowledge

These old houses can be great opportunities and have amazing character. They often have a lot of deferred maintenance. Just get the information you need in advance and you will be able to weather the surprises that inevitably will come during the process.

I hope that helps.

Mike

Property #1: I am Closing on a 3/1 in a week for 65k using a personal loan/cash savings with, property will likely appraise at 80-85k. Intend to put a mortgage on it once tenant in place. Property inspection done. in great condition ready to get rented asap.

Property #2: Another property arose for an estate that is a good deal and i am under contract for at $40k ($75-80k ARV with about $10k in repairs desired, only 5k critical before renting) and have conventional preapproval but i am a bit cash poor with the other property closing so close together. I have about 8-10k cash of the 15 the bank wants to cover prepaids, 20% down, and closing costs.

Both properties should rent for $800-850 a month

What are my best options? 

• A hard money loan to bridge the gap until Property #1 is refinanced? ( I have never used a hard money loan before)
• private loan source? (not sure where yet)
• Withdraw from Property 2 until property 1 stabilized?
• Another option i can't think of?

I have a 6 figure income and a 750-800 credit score depending on which credit reporting agency its checked against.

This feels like a good problem to have but i don't know how best to tackle it - ultimately 2 properties at > 1% rule and about 40k in equity when the dust clears is my goal.

Just looking for advice on how best to proceed. 

Thanks,

Mike

Thanks for that insight. It seems the rent upside would be limited and with all the deferred maintenance initial estimates are 50-60k in repairs. Sounds like I need a much lower price. Likely going to have to walk away from this deal.

3 story - 3 Plex all rented $2100 gross rents

currently under contract at $120k - electric separate metered but heat is owner furnished at about $3500 a year; Extra garage bays previously thought to allow for $600 extra cash flow per month from separate building in back but home inspection shows it is likely a tear down at some point in the near future.

Home inspection revealed significantly more repairs than expected

• Roof replacement (expected) - not a simple roof so it will be expensive
• Electrical (knob and tube) but panels all 100 amp
• some foundation issues
• 2nd floor fire escape deck and wood steps replacement required
• 2 chimney tear down, 1 repair
• water heater inadequate (50 gallon for all 3 units)
• other repairs that add up quickly
• Interior of units is decent condition

I am debating between going through with it if the price comes down to mayb 100k but not sure if this is too much wrong to make the numbers work

ARV is 160-180k

Any thoughts on this?

Thanks,

Mike