About me: young gun (26), about 12k in cash and assets, decent job, good credit, will be a rookie Realtor after I take my PSI and vet w/ a broker, join MLS, and NAR…
About the deal: A fee simple absolute, as-is, preforeclosure that is in great shape other than needing a few minor repairs (no FHA), an investors dream. Looks like a rehabber ran out of money, time or both because they were doing it right, started but didn’t finish making the basement into a 1br unit. I’m going to have it inspected but I really doubt they are going to find anything wrong with it.
The bank prefers a cash offer so my parents have agreed to put money in my account, let me make a cash offer, get the place (hopefully, subject to 1st right of redemption…), and then I’m going to take out a HELOC and pay them back and fix the basement, live in it, and rent the rest of the house.
Risks This is my question, is what risks, might a home inspector and a real estate agent might not be able to make me aware of that I should be thinking about? The property will convey by special warranty deed and I will be buying title insurance. I feel like it is a slam dunk, I am buying it at 40% of assessed value, I have been studying this market for a year and expect that a non-distressed property would easily bring 80-120k more … I feel like I’m a rookie and must be overlooking something, what am I overlooking?
Assessed value is the value the county uses for tax purposes. That means nothing in the real world.
What are the comps in current condition and after you rehab it how you want it. What is the rent you will get for the basement unit? How much will the entire rehab cost? Do you know if the bank will give you a HELOC to cashout your parents?
All investors have different guidelines but you want to have 20-35% equity after rehab.
Whatever your rehab cost are, add 10-15% for misc expenses.
Comps say I’m getting a steal. Rent-wise its a steal. Here is my gross projection, I am a real estate rookie but I have been studying my local market for quite some time as my decision to buy has been a long time in the making.
Right now, there are 6 offers on it, I’m making a cash offer above list price tomorrow. I’m offering 185k, the basement should easily be made livable for 8k-10k. It needs flooring and lighting, and thats about it. I could add a kitchen and wall it off to make it completely separate or I could use the kitchen on the main level and share the common elements.
If I rented the whole thing (not living in it) I believe I could easily get $3000… $3400 if I wanted to push it. $1000 for the basement and $2000 for the upstairs (3br + den) plus lots of common living space.
I figure I could immediately return it to the market and get $220-230k, I could fix the basement and get $250-260k immediately. I could probably get $300-340k if I was willing to wait on the right buyer based on comps.
Do you know if the bank will give you a HELOC to cashout your parents?
Okay, this is what I want to make sure of. I can always make payments to them, but I would prefer getting the HELOC. I have good credit and got prequalified for an FHA, 5% down, 0 point, 4.85% mortgage of up to $220k just a month or so ago. Obviously, that doesn’t work on this property, so would the property not being up to FHA guidelines prohibit a HELOC?
So, my bottom line is this, I think I’m going to have to put 10k in the basement to make it nice. I’d probably have to put another 5k - 10k in the place as a whole to make it FHA approved. Even at that we are looking at around 200k total, a resale value (in this market) of up to $340k, and a capitalization rate of around 10% WITH me living free. Is it a slam dunk or not?
Also, my agent suggested I submit my offer with no contingencies, meaning I won’t get the chance to have it inspected unless I can do it real fast before I return the bank addendum. The property is competitive, 6 offers in 4 days, mine will make it at least 7 offers in 5 days… Is this ill-advised? He also suggests agreeing to use their title company, I don’t really see a problem with this.