Hello–
I’m a contractor/investor in Alabama. I’m looking to broaden my portfolio of single-family homes in the area, but I cannot find any property with even a decent cash flow. The gap between median home price and median rent is widening daily. I’ve narrowed my options to the following:
a) Since I’m in the construction business, I’m able to secure 100% financing through commercial lenders for new construction, provided that I can locate lots for the right price. Once I finish the house, I can refinance the construction loan through a mortgage lender for 80-85% LTV and get a fixed-rate mortgage for 30 years. In this scenario, my only cash expenses are the closing costs associated with the REFI. Even here, though, a break-even cash flow is about the best I can do. I’ve already explored this option and I’m currently building two single-family homes next to each other, but I’ve decided to sell both in lieu of renting.
b) My second option is to comb the Local MLS (I’m also a licensed realtor) for cheap single-family homes in marginal locations, fix them up, and refinance the loan similar to the procedure I described above. In this case, I might come out with a better cash flow, but I’m dealing with a lower class tenant and a much lower rate of appreciation. Plus, I have a hard time even driving to look at these houses…I get the feeling that I’m in the wrong place.
What do you guys think?
Thanks,
RFG