Need Feedback For My First Deal!
I am getting ready to purchase my first property from another investor, here are the details:
The house is a 4/2 with purchase price of $102,000. It was appraised with an ARV of $155,000. There are only about $2500 in repairs to fix the AC and some minor electrical work. The house already has a brand new kitchen (new cabinets, tile floor and countertop).
I can get a HML with 2.5 points at 14.9% for $110,000 which will cover purchase price and all closing costs. The $2500 rehab will have to come out of my pocket.
Comps in the area are all over the board with $155,000 definitely on the high end.
The house is in a lower/middle income neighborhood that has a lot of rehab activity. My plan is to section 8 the house where I should be able to get around $1200/mth for a 4/2. I already have approval from a conventional lender to do a non-seasoned 80% LTV refinance based on the $155,000 ARV at 6.75% which would cash me out at $124,000. After closing costs on the refi, paying off the HML, and paying off the rehab costs I should be able to pocket about $5000.
The PITI on the refi will be around $1000/mth. This is a thin cash flow with a $1200/ mth rent, but the $5000 will help cover any contingency.
This is my first deal and any feedback is appreciated.
If the comps support 155,000 like you say they do, maybe you should consider flipping the property. Getting a 14.9% loan and then hoping that the refi pans out, in my opinion, is a bit risky. You waste several thousand dollars just to get the property in a position where you can afford it. Why is he selling the property @ 102,000?
i'd like to know why he's selling for 102k
also... ?
its sounds like you've thought it out,
and ran the numbers.... but it just seems like somethings missing...
Thanks for the response.
I would be buying the property from a wholesaler who got the property under contract from a pre forclosure. I don't know what they paid for the property and I wouldn't know since they want to do a double close, so they would be flipping the property to me. For all I know they got it under contract for a great price and by flipping it for $102,000 they would be making a nice profit and walk away. I don't mind holding and renting but obviously only if the numbers work.
I have not done anything on it yet, but have given it a lot of thought, I am just trying to make it add up myself.
Thanks
Seems to me: If it looks like fish, tastes like fish, and smells like fish. Must be fish, right?
Well... I can't answer for other people, but I know sometimes my MIND plays tricks on me and leads me to believe it's NOT fish. Rather, a BIG FAT JUICY T-BONE!
5000, seems pretty thin, anyways.
But, I just re-read your post and something is not right...
You said: "The house already has a brand new kitchen (new cabinets, tile floor and countertop)". Why would, presumably, the wholesaler from whom you wish to purchase the property do a partial rehab? The A/C in my experience can be $$ to $$$$, and then you mention electrical??
On, the other hand, I buy properties to keep... And, after your REFI, if you're able to pay/tax/ins... And, kick some back in your pocket to compensate 4 upkeep..
Then, AWESOME!!!
Whatever you decide, we wish you well!!
[addsig]
I asked a lot of the same questions. According to the wholesaler they got the property from another investor who was in the process of rehabbing this property as well as many others and ran into financial difficulty. Who knows what truth this holds but that is the answer I got when I asked the question.
Anyway, thanks for the cautious feedback, it is appreciated.
Hey,
I am missing something here????
Everyone keeps talking about $5k, but would he not still have $30k in equity????
Give or take, this is exactly how I purchase my rental homes. The only difference is I use my own money and not hard money lender (Loan Sharks).
Sounds like a good hold with the Equity involved even if he'd didn't have the 5K.
Q's
Did you figure all the closing costs into this on the refi. Are any points added in the back end of the Hard money loan? Is the HML without prepayment penlty? Can you lease it at any time during the HML term? (if you finish early and have to wait during the process of the refi this is something you may want to do.) Many HML's have conditions so make sure you read their clauses.
Otherwise sounds like an okay deal to me to hold I would if all the above have been looked at.
I try not to use my own money, but I'm not to keen on the HML either becuase they have conditions I don't care for and then they dope all the points and interest on top of those conditions. I like to move at my speed not anyone elses so if I move fast I don't want to pay extra for being good!
I do have an advantage as my credit issues were fixed before I started RE so I have some lattitude for lending options.
Good Luck. And thanks Bruce you pointed out something everyone else overlooked.
Quote:
On 2003-08-25 07:23, Bruce wrote:
Hey,
I am missing something here????
Everyone keeps talking about $5k, but would he not still have $30k in equity????
Give or take, this is exactly how I purchase my rental homes. The only difference is I use my own money and not hard money lender (Loan Sharks).
No, I believe the question is WHAT WORK is left? As, we ALL know 30k can GO really FAST... And, it's a lot better going in REALISTIC, than not. He thinks the repairs are only 2500... In the same paragraph, implies MORE than one REI has bought and sold this property... So, one could conclude: A. DANG! There's a LOT of profit in this house. OR B. Somebody's trying to rook him.
I will atleast concede a third option C. It's just coincidental that more than one REI has bought and sold the property and it still NEEDS repairs... And, I'm paranoid!!
Again, wish you the best, whatever your decision!!
[addsig]
I just wanted to give a quick updat of how this deal turned out. I insisted on a "subject to inspection" clause in the sales contract which the seller made a big deal about. It all didn't add up and I wasn't comfortable moving forward with the deal with all the vague answers I was getting, so I walked.
For all I know it could have been a great deal but I think that more often than not you will get hurt by going into a deal with uncertainty.
Thanks again for the responses. This site has been invaluable in learning about REI. I recommend to any newbie to post their deal on this site before signing anything. The insight and feedback you can get from other investors is priceless.
Mr. Freshman Investor, wise choice getting some advice from those who do the business. You'll be a sophomore in no time. Consider getting the foreclosure yourself and getting a loan for up to 65% of the subject to appraised value for purchase and fixup. You have no money out of your pocket if you buy the foreclosure right and then refi if you choose to keep it or sell it for a nice profit. We've done both and they work very well. Remember the cliche' - profit is made when you buy! We do this all day long and make $$$ both ways. It's great. Take care.
Quote:
On 2003-08-27 22:08, youngc2 wrote:
...Consider getting the foreclosure yourself and getting a loan for up to 65% of the subject to appraised value for purchase and fixup. You have no money out of your pocket...
I have looked at hard money lenders, and from what I can tell, it definitely isn't no money out of pocket.
Say you have a property that you are buying for $50k with ARV of $100k. It needs $15k in repairs. So far so good, repairs + purchase price = 65% LTV, which is what most HM lenders go to. But, the HMLs charge monstrous points, typically around 7, due at closing. That's $7000 plus other closing costs like title work etc.You have to find that out of pocket.
Then you have to make payments at 15-18% for a few months. 18% interest only payments = $1500 per month. 4 months of that = $6000. So there's $13000 total out of pocket.
You might overrun on repairs a little bit, and even if you don't there will be some misc. items. Add another $5000. Total = $18000 out of pocket. Hard money, as I see it, is definitely not zero out of pocket. Seems to me like it only benefits the lender. Am I missing something here?
if you can make money and you need a hard money lender to make the deal work, who cares that you pay 30% and 7 points. you are using someones elses money..without their money you would make 0.
probably a good idea that you walked away, it has been my experience that when the seller balks at a subject to inspection, there are usually more problems than there are soloutions. Another deal will come along soon, stay focused and good investing.
Don