I’m new to REI but I’ve read and studied for the last 2 months. I’m thinking about making an offer on three properties being sold together.There’re in awful condition-leaks,outdated wiring, bad plumbing,termites… They’re priced 47-52K, though tax value is 35K each. Each needs approx $20K, maybe a little more in one of them which can be converted to a duplex. The contractor says the job can be done in 4-6 weeks/per house. Based on the repairs I can only offer 10K each to make a fair profit. ( after repair value is approx 60-75K). I’m a little scared at the scope of the project being a first time investor and I’m wondering what’s the best financing option for this project if I don’t have a lot of cash reserves. Is a hard money loan a suitable option. I appreciate your advice.
hvd,
Please buy a single low-cost property to renovate, do the work and learn “how-to” skills, then list it for sale with a realtor and learn how to sell real estate.
If you have a contractor do the work, you can be assured it will be done well and faster than you can do it. The downside is that you won’t learn as much of what is entailed in renovation.
List the house for sale with a realtor for the quickest sale with the fewest legal problems.
Good luck,
Ray
Thanks Ray. I appreciate your advice. Actually the ‘contractor’ I mentioned is really an experienced handyman and the plan is for my husband to be the contractor alongside him. He’s agreed to ‘teach us’. We plan to use a realtor throughout the process as you advised because of our limited experience. I’m a bit afraid about this deal as three houses are involved but I think it will be a great deal if the owner takes 30K for all three. I have just another few days to make a decision. The ‘hard money loan’ terms also scares me.
If you have a hard money loan for three properties, you will pay on them for at least 18 weeks…this means high interest for almost 5 months if you stay on schedule (and you probably won’t).
I’m with ray…buy a single to start with. This seller sounds like he has unrealistic expectations for the properties’ value anyway.
Additionally, termites can cause HUGE damage that you will not be able to see until you start into the work. I’m in Louisiana, this is where entomolgists go to study the little rascals. There are only two kinds of RE owners in Louisiana, those that have had termite problems and those that soon will!
Keith
Appreciate the advice, Keith. In fact, after discussing it with my husband, we’ve decided that we would either make a low offer on one of the houses or simply look for another house with less problems. I guess we were ‘getting attached’ to the ‘three houses’ idea plus we thought buying all three would give us greater negotiating power. One question though, why would a hard money loan automatically mean 5 months to pay back? Can’t you just payback all after the refinance even if it’s just three months after closing?
Hazel
Hazel,
Yes…but according to your timeline of 6 weeks per, it would take 18 weeks (almost 5 months) if everything goes well. You have termites, it won’t go smoothly.
I suppose you could try to talk the HML into three small loans and pay them back as you finish. You still have the issue with the owner with the unrealistic pricing expectations…
Keith
Thanks again Keith. Will let you know how it goes with our low offer.
Hazel.