A little bit of background - my background (and current job) is leading software/business projects, managing budgets/spend/scope etc. I want desperately to get back into realestate investing… lost all of the money I made in this years ago in a divorce. A couple of days ago I placed an offer on a property, then realized there were cash offers too… so changed mine to cash. The property requires work - some cosmetic, some fundamental.
Here’s the financials on the house:
PP: $130k w/ccosts
Comps: $215 (sold recently) - $225 (on market)
Reno: $35k of which:
$18k Dealbreakers
Rest cosmetic/carpet/paint…
To purchase the house, my cash is made out of a) cash (my own) and b) 2 of my IRA accounts (again, my own)
I have priced out the Dealbreakers (siding, roof work, and bringing deck to code), to get me to mortgage status. Even in the worst case scenario I can cover this with my 3rd IRA account. I have more backup if I need it.
I have to pay back my IRA’s within 60 days of borrowing the money, or mucho penalties.
This is the plan I’m considering. Does anyone have any feedback, positive, or constructive? Would really appreciate your expertise!
- Purchase the house cash using cash + IRA 1 and 2.
- Complete the dealbreakers with IRA 3, to get to the point where I can mortgage it. A licensed contractor timed it out as around 20 days (rule of thumb 1 day per $1k). Leaving 30 or so days before IRA needs to be refunded, with some padding.
- Take out a mortgage the property (I have already started this process with my bank)
- With the money from the mortgage, pay back my IRA’s within 60 days
- Complete the rehab to an appropriate degree
- Rent or sell (preferably rent)
- Move onto the next property - again, my own money preferably, but potentially other sources. Borrowing from IRA’s is out for the rest of the year!
Thanks so much!
Just wanted to add to this:
I created a spreadsheet in which I both scored potential properties based on # bedrooms, garage, condition, $/sqft. This narrowed down the property list quite a bit., and then viewing the properties struck them off (I may be brave, but have limits!) , or piqued my interest.
Also did the same thing with the comps, just to be sure they objectively matched - # garages, types of upgrades (if any), location, yard, etc. Based my plan on the reno, the comps look very favorable.
This is a great plan, except you’re taking a gamble, if not a bad bet, borrowing from an IRA, and expecting a 60-day turn-around on the financing.
It’s also bad form to risk your own cash this way, and not use an HML (Hard Money Lender).
An HML can act as an extremely helpful appraiser and risk-avoidance assessor, as the HML will only lend based on a percentage of perceived value, not on what you necessarily believe the value to be.
Or to say it another way, they won’t lend over ‘x%’ of what they feel the property is actually worth in it’s present condition …and this figure may be quite different than what you believe to be true.
If, for some reason you can’t borrow from an HML, you should borrow against the IRA instead of tapping it directly. This way, if it takes longer to sell, refinance, or pay back the financing, you’re only having to pay interest, rather than triggering a tax catastrophe.
That’s all I got.
Thank you got your response. I’ll definitely look into hml, there are quite a few on this site. Any particular rules of thumb?
There’s no rule of thumb, except they all have different requirements and options, and they all change from day to day. HML’s basically take private money and supervise the lending of it. And each lending source has his own limitations attached to the money, and so you take the best you can find when you need it, and call it a day, or not.
Maybe there is one rule of thumb. All HML’s are local lenders. Forget trying to get an HML in Florida to lend in Mississippi, etc.
Some only loan in certain counties.
You need to google local HML’s. I don’t believe that you’ll find a source of money from this site, other than referrals to a local HML. I could be wrong.