My First Purchase
Okay, I have the means for which to buy a property and have selected the area in which I wish to operate. I even have quite a few houses I am considering that I think would be alright. The two foremost I am considering are 99K, 3 bed/2 bath, in an area that appraises (on average) for about 156K. Each house will take approximately 8-12K to rehab. I will only be able to get one at this time because they are wanting at least 20% down and the interest rate is almost 6% for a 30 year mortgage. Is this a viable opporitunity?
I posted in this forum because it stated Beginner.. If I have placed this string in the wrong forum, I apologize, and ask that you steer me to the correct forum.
Sincerely,
Elven Mystress
OK,
What is your background and have you studied rehab?
Make sure you figure 6 months crrying costs etc. into the picture. If I didn't have to do any of the physical labor I would want min 20K return and if I did it myself and it tied me up for 2-3 months double that as a minimum starting out.
[addsig]
I will not be doing the rehabs personally. I am going into this with one other person. This person, Gary, owns and operates his own rehab business. Has been doing it for almost 20 years now and does above par work. He is wanting to get into the investing part of real estate as he is entering his 50's. He has two "crews" that work for him so work that should take a month or more is usually completed in two weeks or so. I am doing the "reseach" as part of our agreement. I am supposed to chose the properties, thier areas, and do all the "leg work". He is just wanting to be the financial backer, rehab the house, and then I am supposed to sell it and split any/all profits from sale. I am also talking with another friend of mine who is in the RE business as a Realtor but he is out of town until Friday. So I was writing to ask if this is a profitable set up or do I need to have a wider "spread" to accomplish my goals?
Elven
I'm a newbe also so take my ideas with a grain of salt. I have been looking at simlar houses but my thaughts are not to use a 30 yr fixed at 6% where you will have a PI of $590.50 (111,000) but to use a COZI or some other kind of interest only loan and drop the payment to the high $400. At 100k only a $100 but in pricer properties even better.
Another possability would be interest only ARM's which could drop your first year payment way down until you can raise rents. If your going to just flip it I guess it does not matter as much.
Here is a good link that explains a lot of mortgage options.
www.nva-mortgage.com
Thank you for the link. I have placed it in my favorites to review on the morrow (as it is 3 a.m. Georgia time here). Believe it or not, with GA's economy, the $590 is decent, not great, but in an area where the average rent for a house is $700 and average mortgage is $635, I think I am coming out a little better than I thought I would. I will, however, be taking your advice and see if I can arrange to get it lower than it is...a penny saved is a penny earned and all that. Are there going to be any "hidden" fees that I will need to look out for?
Elven
you need to read the book by Kevin Myers "Buy it Fix it Sell it & Profit".
You don't have enough information to tell whether the spread is good or not. You need to figure carrying costs until ready to sell or rent and that occurs. i.e. taxes, insurance, payment, utilities,lawncare,,,
This is without mentioning whether you have done your due dilligence as to comparables or not..
As you learn there are also several ways to structure these deals, personally if I can I like to sub to them through the rehab and then refinance if I am holding. Less cash out of pocket and then I get a loan at a great rate and can pull some cash out if needed. I worked on a small one about 6 months ago that paid 7k at closing and is cash positive $250 a month.
THe biggest problem I see here is people that don't want to do the prep work before diving in. Your partner may handle the rehab, not everything will go as fast as you think, I too have a framing, drywall, plumbing crew and a job never goes as quickly as I think it will...
He will be experienced in his end of the business but you need some investor knowledge to make it work. Educate yourself by reading, attending seminars and club meetings if possible.
Money partners are generally easy to come by if you know what your doing and have a good plan, you are the week link or the most valuable asset..
[addsig]
Hey, couple of questions here... What's your exit strategy for this house? Going to rent it out, or resale it? 8-12k isn't much of a rehab, so the houses must already be in pretty shape, which is good, and will minimize hold time. I think you need to re-evaluate your financing, depending on what you're going to do with the house. You're doing good with getting it at under 60% of ARV, so you've got options on purchasing... 20% down is VERY high, I think, and you should be able to beat that with a good mortgage broker. PM me, and I'll send you the number of a guy here in Atlanta that might be able to help you.
Thanks everyone! You have been a great help. I will definately check out that book... and you have a PM jam200.
Elven
Thank You very much!!!!!